3. With the eruption of WWI in 1914, the gold standard
was suspended
The interwar years were marked by severe
economic instability
The reparation payments led to episodes of
hyperinflation in Europe
The German Hyper-inflation
Germany’s price index rose from a level of 262 in
January 1919 to a level of 126,160,000,000,000 in
December 1923 (a factor of 481.5 billion).
4. The Fleeting Return to Gold
1919
U.S. returned to gold
1922
A group of countries (Britain, France, Italy,
and Japan) agreed on a program calling for a
general return to the gold standard and
cooperation among central banks
5. 1925
Britain returned to the gold standard
1929
The Great Depression was followed by bank
failures throughout the world.
1931
Britain was forced off gold when foreign
holders of pounds lost confidence in Britain’s
commitment to maintain its currency’s value.
6. International Economic Disintegration
Many countries suffered during the Great
Depression.
Major economic harm was done by
restrictions on international trade and
payments.
These beggar-thy-neighbor policies provoked
foreign retaliation and led to the
disintegration of the world economy.
All countries’ situations could have been
bettered through international cooperation
• Bretton Woods agreement
7. Causes of Worldwide Depression
– German reparations
– Expansion of production capacities and dominance of
the United States in the global economy
• Britain and France owed huge war debts to the U.S.
• Better technologies allowed factories to make more
products faster, leading to overproduction
– Excessive expansion of credit (people spending
money they don’t have)
– Stock Market Crash of 1929
• Buying stock on margin
• A crisis in finance that led the Federal Reserve to raise
interest rates
• Panic set in when stock prices crashed
– Inability of the League of Nations to stop aggression
8. The End of Prosperity: 1929
• In October 1929, the U.S. Stock Market
crashed – What does this mean?
Speculation: When a potential buyer of
stock buys it in expectation of it reaching
a higher price per share.
Margin: The buyer does not pay full value
for the stock; the balance (what is not
paid for) is borrowed. If the stock price
goes up, this benefits the buyer who
completely owns the stock and has
potential for profit (without paying
completely for it). However, if the stock
price falls, the buyer not only suffers a
loss, he/she still must pay the money
borrowed for the balance. This can be
RISKY – and it was this practice that
contributed to the Stock Market Crash of
9.
10. • The stock market crash was just one
cause of the global economic downturn
which became known as the Great
Depression
• Other causes included:
– Overproduction
– The expansion of credit
– The linked economies due to war reparations
11.
12. • Gandhi and Nehru work
for Indian independence
• Gov’t of India Act of 1921:
5 million Indians to vote for
parliament
• Salt March: Gandhi leads
50,000 people to protest
against British salt tax
• 1937 Quit India Campaign:
to convince Britain to give
up total control of India