The Global Great Depression: Comparative Case Studies

The Great Depression was a global economic crisis sparked by some of the very developments we've been tracing across the 19th and early 20th centuries. Most people associate the Great Depression with the Stock Market Crash of 1929, but this crash had been building for years.  The world was linked in a global economic system of trade, banking, and finance. After WWI, the US experienced an economic boom, and as the stock market grew to new heights every year, more people invested in an (at the time) unregulated stock market. By 1929, the top 1% of Americans held over half the country's wealth, but even average Americans invested in the stock market by buying on margin (essentially borrowing money to invest). They also borrowed money (on credit) to purchase the new luxury items of the day—automobiles, radios, home appliances. The US also became a major creditor, especially to Germany, which had been slapped with massive reparation payments after WWI. 

So when the bubble burst and stock prices plummeted on Black Tuesday in 1929, it set off a chain reaction with global repercussions. Individuals and banks lost their investments, leading to bank failures. With demand falling, businesses had to lay off workers, leading to massive unemployment and falling global production of goods. By 1932, 30 million people were unemployed, the global GDP (value of goods and services produced) fell by 15%, and global trade fell by 30%. With production and trade falling, prices also fell, crippling economies that relied on manufacturing or cash crop production. In response, many countries passed protective tariffs (taxes on imports), which only exacerbated the global decline.  With trade plummeting, many US banks began recalling loans made to foreign businesses and countries, compounding the global crisis. Colonies in Africa and Asia also suffered as imperial powers cut back on imports of cash crops and non-essentials. 

There had been economic recessions before, but the Great Depression dragged on with no end in sight. Some governments responded by taking a more active role in their nation's economy, and this tactic took several forms. As a communist country that engaged less in foreign trade and finance, the Soviet Union was largely unaffected by the Depression; and it forged ahead with Stalin's Five Year Plans to industrialize and become self-sufficient. Seeing signs of success in the Soviet Union, some countries began leaning "left" and experimenting with different form of socialism. In many western nations, countries adopted "welfare capitalism," giving the government more power to intervene in the economy to help those in need. Other countries—like Germany, Italy, and Japan—responded with totalitarian fascism as strong dictators came to power on promises to pull their countries out of economic turmoil.