What were the main reasons behind the failure of the international economy to recover in the 1920's
The failure of the international economy in the 1920’s began with the catastrophic collapse the New York Stock Exchange. The collapse of the stock-market ruined thousands of investors, particularly those people holding stocks in assets of these individuals. The declining value of the assets from these investors severely strained the financial institutions and the banks that held their stocks, which caused an estimated 25,000 banks in the United States to collapse. With the collapse of so many banks caused not only a nationwide but also an international loss of confidence in the American economy, which were reflected in reduced levels of spending nationwide that fueled the downward turn of the economy. This resulted in drastically rising unemployment which left approximately 30 percent of the American workforce idle.
The Great Depression in America quickly spread into European countries and then became an international economic failure. Because of the United States close relations with Europe that had developed after World War I, and many European economies where financed by the United States because their own economies had been greatly weakened by war debts. The United States Great Depression saw the investment capital to Europe dry-up which caused a type of domino effect on European nations who were deeply in debt to America.
Tariffs and Foreign Imports
Nations scrambled to try and protect their domestic production capabilities by raising existing tariffs, imposing new ones and setting limits on most foreign imports. These restrictive new standards were meant to severely reduce international trade. The world economy and trade had fallen more than half by the year 1932, nations began to implement measures against foreign imports.
In the United States, the atmosphere of economic distress in 1932 ushered in the election of Franklin D. Roosevelt to the office of the presidency. President Roosevelt attempted to restructure the economy by huge public works projects and by greatly increasing the government’s ability to regulate banking and other industries in order to promote economic recovery. Unfortunately, these massive public works projects and the attempts to restructure the economy could not stave off mass unemployment or the stagnation of the American economy which lasted until the outbreak of World War II. The American Great Depression ended completely after the entry into the war in 1941, mostly due to the overwhelming orders to American factories for munitions and armaments coming from overseas.
In Germany the economic condition was made worse because of its burdening debt from World War I, Germany was forced to borrow great sums to be able to pay war “reparations to other European nations as stated in the treaty of Versailles in 1919. The collapse of the German banking system was due to the United States banks recalling their loans to save their own economy. The international economic failure strengthened the extremist political forces and caused Adolf Hiltler’s rise to popularity in 1933. The popular Nazis’ ended the German economic depression in 1936 by creating great public works projects and by increasing their factory production of munitions and machineries.
The Great Depression of the 1920’s was at least caused in part by the weaknesses and or the imbalance of the American economy that was camouflaged by a speculative euphoric atmosphere of the time. The inability of the political and financial systems to cope with the severe downward economic spiral exposed those weaknesses with great consequences.
At that time in history world governments traditionally took little action in correcting economic conditions, instead relying on market forces to make the needed corrections. The lesson learned was that market forces alone were unable to make the desired economic corrections, which inspired changes in the economic structure of the United States and of most nations with market economies. Governments now assume a principal role in achieving economic stability by engaging in public works, deficit spending, taxation and industrial regulations.