Why was the Great Depression a Global Phenomenon?

1766 words (7 pages) Essay in Economics

08/02/20 Economics Reference this

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The Great Depression a global phenomenon. Why?

The Great Depression was the biggest mark of history to happen in the twentieth century. The Depression lasted from 1929 to 1941. It was a harsh economic plunge that struck the south. In August, the Federal Reserve raised the discount rate from 5 percent to 6 to be able to stop inflation and defend the gold standard due to the economic activity from the Roaring Twenty. The start of the Great Depression officially started October 29, 1929 when the United States stock market crashed. Peoples investments in the stock were no longer a way to become rich and instead a path to being bankrupt. Banks started to foreclose and people who did not reach the bank in time lost everything. This also affected businesses because they lost stock market investments, so they had to cut back on employers, wages, and hours. On June 17, 1930 President Hoover signed the Smoot-Hawley Tariff Act. It was enacted to raise taxes on imports to help farmers, but instead imposed tariffs on many other products internationally. On June 1938 the Great Depression was over, due to the economy growing. This did not mean that some problem relating to money were not going to happen. On September 1939 Hitler Invades Poland and starts World War II. The United States helps Britain and France out, but does not want to get involved. Germany loses the war and France and Britain want money for all the damages done. Also, France and Britain had to pay back the money borrowed from the U.S. The Great Depression was a global phenomenon because of the gold standard, the financial outcomes of World War II from each country, and the Smooth-Hawley Tariff Act that was taken into effect to try to stop the depression and made it worse.

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 The gold standard was started before the war and the Great Depression itself and is one of the major reasons why it was a global phenomenon. The gold standard system was used to convert a given amount of paper to a fixed amount of gold. Most countries in the world stood by an international gold standard from the 1800s until the 1930s. During the 1920s the economy boomed due to the new industries, but in order to prevent inflation, the Federal Reserve raised interest rates. During World War II, many European countries such as France and Britain borrowed money from the United States in order to be able to fight through the war. After the war had ended, they had to pay off their debts back to the U.S. for all the money borrowed. Germany also had to pay reparations for the damages done in France and Britain. In order for Germany to pay, they started to use paper money to be able to buy gold from foreign countries and it ended up not working because it slowed-down Germanys economy. This caused the U.S. exports to be slowed down as well, since Germany could not pay back France and Britain, which also meant that they could not pay back the United States “The lack of a gold standard led to inflation after the war as government printed more money to finance…” (Haugen et al. 5). In October 1929, the stock market crash in the United States. The U.S. and other countries could no longer increase their money supply on the gold standard to boost their economies. Great Britain was the first to get rid of the gold standard and after that other countries followed. The United States did not until another two years, which worsen the Great Depression. In 1934, the Gold Reserve Act was signed, which made it illegal to possess most forms of gold. People had to change their golds for paper money, which helped the United States economy grow again. This is the gist of the how many of the countries around the world were apart of the Great Depression. World War II also had a huge importance to the Great Depression and it being worldly.

Another reason to why the Great Depression was a global phenomenon was the financial outcomes that came out of World War II from each country that dealt with borrowing money and paying back the damages that were caused. World War II started on September 1, 1939, when Hitler invades Poland. Two days later Britain and France declare war on Germany. The ‘Blitzkrieg’ (lighting war) attack on Belgium, France, and Holland. They were able to control Austria, Czechoslovakia, Western Poland, Denmark, Norway, the Netherlands, and France.  During this War, Italy was an ally to them, Russia was a friendly neutral, and Great Britain was putting up a fight. In 1940, the Battle of Britain broke out because the only way for them to invade Britain was to be able to control the air, which was never possible. Germany then signed a mutual alliance with Italy and Japan. In 1941, Italy and Germany attack Yugoslavia and Greece to secure its southern flank. Hitler then attacks Russia even after signing a treaty with Stalin, who is control of Russia. Stalin decided to sign a mutual assistance treaty with Britain, which started an East front battle. During this, the United State stayed out of the war for the most part because most of American citizens did want to be involved in another world war. Roosevelt who was the president at the time felt like he had the responsibility as a great power to maintain a stable world. He did help France and Britain with a cash-carry legislation, a destroyers-for-bases deal, and lend-lease act “Roosevelt presented a fireside chat in which he reiterated this lend-lease concept and defined the United States’ war role as the provider of ships, airplanes, and armaments for Britain and the Free French…to use in defeating the Axis powers” (Burg 265).
Each one gave them the ability to let them borrow anything and give them the aid they needed without the United States getting thrown in and involved with the war. On December 7, 1941, US fleet at Pearl Harbor was bombed by the Japanese. They did it to be able to take control of the British, French, and Dutch colonies. The United States and Britain declare war on the Japanese known as the Battle of Midway. The United States were able to defeat their navy and pushed them back. In between World War II many battles were fought between other countries due to Hitler wanting to take over. Italy then ends up surrounding to Britain and the United states after Mussolini has been thrown out. Hitler ends up surrendering and committing suicide. German forces then surrender to the allies. Japanese generals refused to surrender, and US dropped an atomic bomb on Hiroshima and then bombed Nagasaki due to them still not wanting to surrender. The Japanese end up surrendering and the second world war had ended. France and Britain had Germany pay for all the damages and take full responsibility for the World War. All the money that they had borrowed from the United States also had to be payed back, so the money that they got back from Germany that payed back the United States. The war had Britain weakened and Germany having to pay for all the damages, which split the Austro-Hungarian Empire into many countries. These countries and Germany relied on foreign loans to pay for imports. Also, since the president had signed to suspend the gold standard it led to a war inflation, which raised prices and fears that they would not be able to pay with gold stocks. Therefore, they ended up switching to dollars as talked about earlier in the first paragraph. World War II had a big part in having all the world being involved in the Depression. There was also a policy that will be talked about that made the depression globally. 

The last reason that the depression was a global phenomenon was the policy that was put into place. The Smooth-Hawley Tariff Act was a policy that worsens the depression because it reduced the international trade and cause retaliation. This act was one of the largest increases in the United States. Two years after it was signed the unemployment had reached 24 percent and many banks had failed. Many were left homeless and left to live in what they called “Hooverville’s”, which were shanty towns that the President at the time had created. This also affected other countries around such as Britain, France, and Germanys “European market could not absorb its own productivity, much less that exported to it by the United States, the loss of its American market accelerated the collapse of the European finical structure and the Great Depression swiftly became a worldwide disaster” (Watkins 44). . Many of the countries started to retaliate and raise tariffs on U.S. exports. Global trade started to plummet to the lowest its been, which made it difficult for American business to remain in business.

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In conclusion, the Great Depression was a global phenomenon that caused many countries to suffer, due to the many major events that happened from the beginning to end. The Great Depression had three major reasons to why it known as a global phenomenon, the first being the gold standard, which was such a big part of the economic system before it started to cause problems with countries and the stock market crashing. It led countries to use paper dollars, since the gold was not worth anything, so that they could pay for things. Secondly, World War II was another important factor into how the Great Depression becomes globally. All countries fighting a war that ended up having many dead over land, power and stilling having to pay for all damages and borrowed loans. Thirdly, the policy that was known as the Smooth-Hawley Act, which reduced the international trade and left many countries with high unemployment rates was another factor to the depression being global. This was due other countries retaliating and raising tariffs on exports and imports because they were not able to pay such high tariffs. The international trade had crashed. The Great Depression overall was a global phenomenon that should be learned from and known as the depression that caused pain to all countries.

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