Selase Buatsi
By the middle of the 1920s the economy of most countries seemed to be on the road to recovery, but this recovery was too fragile to last.
Economic Problems
Economic Problems
- Europe's economic recovery was dependent on a complicated financial system
- By 1928 leaders and investors started to take capital from Europe putting a strain on the European economy
- Improvements in the industrial process reduced demand for raw materials, this caused a drop in prices for raw material while there was an increase of products
- Examples: the use of oil undermined the coal industry, creation of synthetic fabrics devastated the cotton industry, reclaimed rubber was used rather than the rubber exported from Ceylon, Malaysia, and the Dutch East Asia
- Agricultural production majorly increased while demand for the products was falling, causing a huge drop in pricing
- The lack of demand for manufactured goods caused business to cut production and lay off workers
The Crash of 1929
Economic Contraction Spreads
- At the end of the Great War, America's economy was at a high point; wages, production, and consumption were high
- The positive state of the economy caused many people to invest their earning and savings mostly by buying a stocks with very little cash
- On October 24, Black Thursday, stock prices plummeted due to panic selling on the New York stock exchange
- People from those who were poor to those who were fairly wealthy lost every bit of their savings
Economic Contraction Spreads
- Because the world had depended of the well being of the U.S. (imports), their economic depression caused a ripple effect on the rest of the world
- Apart from the Soviet Union who had isolated their economy beforehand, almost every industrial society saw their economy shrivel
- Nations such as Germany and Japan who relied on exports to bring in money for food and fuel and countries that primarily produced goods for export in Latin America, Africa, and Asia took a very hard hit
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Industrial Economies
- U.S. investors began to call in loans and liquidate investments to raise money
- The loss of U.S. capital resulted in a 35% unemployment rate and almost a 50% decrease in agricultural production in Germany by 1932
- The rest of Europe's economies suffered from Germany's economic decline
- Japan almost immediately felt the effects of the U.S.'s depression because of their dependence on the U.S. markets
Primary Producing Economies
Economic Nationalism
- Industrialized nations spread the economic depression throughout the world (except for some agricultural economies)
- Latin America: prices of sugar, coffee, wheat, beef, tin, and nitrate fell causing an increase in unemployment
- Africa: many areas were not majorly affected by the global depression because their exported goods were not tied into the world economy
- China: export drastically fell, but because they depended on their domestic market, the people did not suffer
- Philippines: benefited from a protected U.S. market, the sugar-producing sector
Economic Nationalism
- Governments turned to economic nationalism after the destruction of their capitalist economies
- Politicians wanted to achieve self-sufficiency by imposing tariff barriers, import quotas, and import prohibitions, but when a country passed a law to restrict trade, other nations would become hostile because it interfered with their own plans (ex. the Smoot-Hawley Tariff in 1930)
- Economic nationalism resulted in a decrease in international trade and the opposite planned effect: lower production and lower wages
Between 1929 and 1932, world production declined by 38% and trade dropped by 66%