World War I Background Information
World War I had many causes including mutual defense alliances, imperialism, militarism, nationalism, and the assassination of Archduke Franz Ferdinand. Over time, countries throughout Europe made mutual defense agreements that would pull them into battle. These treaties meant that if one country was attacked, allied countries were bound to defend them. Before World War I, Africa and parts of Asia were points of contention among the European countries. This was especially true because of the raw materials these areas could provide. By 1914, Germany had the greatest increase in military buildup. This increase in militarism helped push the countries involved into war. Much of the origin of the war was based on the desire of the Slavic people to no longer be part of Austria Hungary but instead be part of Serbia. The immediate cause of World War I that made the aforementioned items come into play was the assassination of Archduke Franz Ferdinand of Austria-Hungary.
German War Reparations
Germany was required to pay massive reparations in the aftermath of WWI, which led to the country's devastating economic situation. World War I reparations were compensation imposed during the Paris Peace Conference. The Allied and Associated Powers formally held Germany responsible for World War I. The 1919 Treaty of Versailles and the 1921 London Schedule of Payments required Germany to pay 132 billion gold marks in reparations to cover civilian damage caused during the war. The German economy was on the verge of collapse and Germany was not able to meet the payment requirements.
Inflation and Unemployment
In the United States, the percentage of the population that was out of work rose to 25 percent of the workforce at its highest level. This number translated to 15 million American being without work. Canadian unemployment rates were even higher, with 30 percent of the population without jobs. In Glasgow, unemployment rose to 30 percent, but in Newcastle the situation was much worse. The City's main industry, ship building, went through a deep slump, and as a result, the unemployment rate in the area rose to 70%.
Overproduction and Underconsumption
A major cause of overproduction in the early 1900's was the boost new technology available to farms, businesses and homes. At this time, more and more farmers were trading their work animals for tractors and other machinery, which increased production even more. The overabundance of wheat, meat and other farm goods on the market drove the price down without increasing demand, which left farmers poor. Supply greatly surpassed demand, and workers were laid off in great numbers.
Stock Market Crash
Black Tuesday hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors. In the aftermath of Black Tuesday, America and the rest of the industrialized world spiraled downward into the Great Depression. Among the other causes of the eventual market collapse were low wages, the proliferation of debt, a struggling agricultural sector and an excess of large bank loans that could not be liquidated. Stock prices had nowhere to go but up, so there was considerable recovery during succeeding weeks.
One of the most significant aspects of the Great Depression in the United States was the erosion of confidence in the banking system. As banks closed their doors, a chain reaction occurred that spread misery throughout the country. One immediate result of bank closures was the contraction of the money supply. With less money in circulation, the purchasing power of consumers was sharply reduced. Anxious citizens withdrew their deposits from banks and hoarded cash and gold. By early the next year, more than 9,000 banks had failed.
Effects in the United States
The Great Depression of 1929 devastated the U.S. economy. Banks failed, unemployment rose to 25%, and homelessness increased. Housing prices plummeted 30%, and global trade collapsed by 60%, and prices fell 10%. It took 25 years for the stock market to recover. The Depression affected politics by badly shaking confidence in an unfettered capitalism. The depression was so severe and lasted so long that many people thought it was the end of the American Dream.
Effects in Germany
Germany became a democratic republic known as the Weimar Republic. The government was unable to deal with the economic crisis left by the war. Germany in the 1920's remained politically and economically unstable. The Weimar democracy could not withstand the disastrous Great Depression of 1929. American banks immediately withdrew the loans they had made to Germany because German money had so little value.
Effects in Italy
The protectionist measures implemented by the United States and other countries had a significant impact on Italy. One study suggests that these sanctions may have accounted for as much as half of the economic decline in Italy. Italy was one of the countries affected by the Wall Street Crash and decline of the American economy. Economic activity declined sharply. Unemployment followed suit and by 1931 had reached significant levels.
The New Deal
The New Deal is the domestic program of the administration of U.S. President Franklin D. Roosevelt between 1933 and 1939, which took action to bring about immediate economic relief as well as reforms in industry, agriculture, finance, water power, labor, and housing, vastly increasing the scope of the federal government’s activities. The term was taken from Roosevelt’s speech accepting the Democratic nomination for the presidency. The New Deal generally embraced the concept of a government-regulated economy aimed at achieving a balance between conflicting economic interests.