Chapter 18 - The Depression and its Impact

• What were the 1930s characterised by despite the cautious optimism of the Locarno pacts and reparations plans in the 1920s?

  A shift away from internationalism and towards national, isolationist economic policies as every country struggled to cope with the impact of the Great Depression
• How was the League of Nations faring in the 1930s?

  • Continued with its goals of disarmament and resolving the reparations issue
  • However, the consequences of the global downturn made its problems even more intractable
• What is meant by the term "downturn"?

  A decrease in economic activity; the Great Depression was an extreme, long-term example
• What happened as the seriousness and long-term nature of the economic crisis became more apparent?

  The role of the USA as the leading creditor nation became increasingly important in Europe
• What was one of the earliest casualties of the Depression?

  The Young Plan
• What was the Young Plan?

  • Succeeded the Dawes Plan of 1924
  • Had a 5 year term
  • Reduced Germany's final repayment sum and linked British and French debts to reparation amounts
  • Germany would complete its payments by 1988
  • The plan committed the USA to continued economic involvement in Europe despite its official policy of isolationism
• When was the Young Plan created?

  1929
• What was one of the major factors behind the economic crisis of the Great Depression?

  A loss of confidence in the American economy
• What was the result of the stock market boom of the 1920s?

  Increased investment in shares occurred, artificially raising the value of US companies and a rise in the use of credit
• What happened when share prices plummeted during the Wall Street Crash of 1929?

  • Investors and banks lost billions of dollars
  • $8 billion was wiped off the price of shares on 29th October 1929 alone
• What caused banks to fail?

  • Ordinary people rushed to withdraw their savings
  • 659 banks failed in 1929
  • 1352 banks failed in 1930- 2294 banks failed in 1931
  • The Great Depression set in as US companies closed down or limited their production, and unemployment in the USA soared
• What caused the economic crisis in America to quickly spread to the rest of the world?

  • US investors had lent $6 billion abroad 1924-28
  • This was in particular to its former wartime allies, Britain and France
  • However, they also lent money to Germany in conjunction with the 1924 Dawes Plan
  • As American banks were struggling (with many on the brink of collapse), most of these loans were recalled, but debtor nations were unable to pay
• What did the increase in protectionism show?

  That governments were abandoning international cooperation in order to secure their own interests
• What had the USA done protectionism wise in the early 1920s?

  They had introduced the Emergency Tariff and the Fordney-McCumber Tariff to protect its domestic markets from foreign competition
• What did the USA do protectionism wise in 1930?

  Imposed the Smoot-Hawley Tariff, which extended the protective tariff to over 20,000 imported goods
• What did other nations do in response to the USA's protective tariffs?

  • They introduced retaliatory tariffs
  • In response to the Depression, these tariffs increased in number and severity
• What did Britain do protectionism wise as a result of the Depression?

  Turned to a strategy first mooted at the end of the 19th century - favourable trade agreements within the Empire and between its colonies and dominions (increasingly known as the Commonwealth)
• What is meant by the term "dominions"?

  Countries united by their common allegiance to the British Crown but free to run their own domestic and foreign affairs; together they comprised the British Commonwealth
• What did the 1932 Import Duties Act do?

  • Ended the British policy of free trade
  • Imposed a 10% tariff on imported goods except those from India, South Rhodesia and the Dominions
  • Prompted France to soon follow suit with a similar arrangement with its own colonies
• What did Britain do regarding the gold standard during the Great Depression?

  • In 1925 it had been restored in Britain by Winston Churchill (then Chancellor) after having being suspended during WW1
  • Britain was, however, the first leading economy to remove itself from the gold standard as a result of the Great Depression in the wake of falling prices and the slump in world trade
  • In September 1931, they made it clear this would be a long term decision despite many attempts by Americans and the French to persuade Britain to restore it
• How did abandoning the gold standard during the Great Depression benefit Britain?


  It gave Britain more freedom to stimulate its own economy
• How did Britain's abandonment of the gold standard affect America?

  • America saw negative effects
  • The value of the pound decreased compared to the US dollar which helped British industry by making US imports more expensive and their own exports cheaper
• Which countries followed Britain's example in abandoning the gold standard within a month?

  Denmark, Sweden and Canada
• What were the two blocs that emerged amongst the leading world economies?

  • Those that remained on the gold standard
  • Those whose currencies were linked to the value of the sterling (the British pound), aka "sterling bloc nations"
• Which countries remained on the gold standard?

  France, Czechoslovakia, Belgium, Poland and Italy
• Which countries became "sterling bloc nations"?

  The Commonwealth, Norway, Sweden and Denmark
• What happened on 27th July 1933?

  The British Commonwealth Declaration was signed
• What did the 1933 British Commonwealth Declaration do?

  Aimed to raise prices, plan an eventual return to the gold standard and to ensure the stabilisation of exchange rates within the sterling bloc
• What was the gold standard?

  • Linked a currency's exchange rate to a specified amount of gold
  • Countries often risked coming off it in the event of a depression as it allowed them to increase their supply of money and encourage exports
• What was an advantage of the gold standard?

  Countries' currencies would remain stable, making them favourable trading partners as their exchange rate was tied to a steady measure
• What was a disadvantage of the gold standard?

  It restricted the freedom of individual economies
• How did the Great Depression impact German politics?

  • The Weimar gov were unable to resolve the catastrophic effects of the economic crisis
  • As unemployment increased, support for the moderate ruling parties and democracy itself sharply declined
  • Popularity of the KPD (German Communist Party) and the Nazi Party soared
• Why did the popularity of the Nazis soar in the aftermath of the Great Depression?

  • Many previously moderate Germans supported the Nazis due to their fear of communism
  • Others were impressed by the impression of order and stability the Nazis offered with Hitler as a strong, decisive leader and the military-style uniforms and marches of the Brownshirts
  • Hitler also promised to provide jobs and support small business owners - a return to economic stability and an end to unemployment
• What was Nazism?


  • A political ideology based on fascism
  • Advocated resurgence of Germany as a world power in defiance of post-war settlement, blaming German defeat on enemies like communists and Jews, urging their removal from public life
  • Believed that the German race (Aryans) were biologically superior to others, especially Slavs
  • Claimed to embrace socialism but once in power, many socialist aspects of early programme were quietly forgotten
• Describe the rise of Hitler and the Nazi Party

  • In November 1923 Hitler and his supporters attempted a march through Munich demanding the overthrow of the gov
  • After an extremely lenient prison sentence, Hitler decided to make his bid for power through election success
  • Although his time in prison allowed Hitler to write about his ideology and FP aims in Mein Kampf, by the time he was released, the economy had recovered and the gov's popularity had increased
  • It was only a short term recovery, however, as the political landscape of Germany changed drastically in 1929 after the Wall Street Crash
• What did the increasing popularity of right-wing ideas make Weimar politicians do?

  Made them more assertive in their dealings with other nations, as highlighted by their behaviour in the early stages of the Lausanne and World Disarmament Conferences
• What is a moratorium?

  A temporary suspension of debt repayment grants with the agreement of the creditor
• What happened in October 1930?

  • Germany asked US President Herbert Hoover to consider a moratorium on reparations due to the impact of the Depression on the German economy, a request it was entitled to make under the TOV
  • The proposal had the support of Wall Street investors who were concerned about Germany's ability to honour loan repayments without it
• How did President Hoover react to the request for a moratorium on reparations?

  • He agreed to it
  • However, it was only to be a short term measure and only if the savings of Germany were not used for armaments
  • It was eventually agreed that the money would be invested in railways
• When did the moratorium on reparations begin?

  June 1931 for a year long period in the ambitious hope that the impact of the Depression in Europe would be short lived