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 Weak League of Nations ◦ US Senate refused to approve ◦ League members disagreed on using force  French Demands ◦ Strict enforcement of Treaty of Versailles  Desired security and demanded reparations ◦ 132 billion German marks = $33 billion  Germans can’t pay  French occupy RuhrValley

 German government ◦ Established in 1919  Serious weaknesses ◦ Germany lacked strong democratic tradition ◦ Several major political parties  Many minor ones ◦ Blamed for defeat in WWI and humiliation of Treaty of Versailles  Wartime leaders excused

 Enormous economic problems ◦ Didn’t increase wartime taxes  Printed more $  $ lost value after war ◦ Had to pay reparations  Printed more $  1914 – 4.2  $1  1923 – 4.2 trillion marks  $1

 Cost of goods rose  bread in 1918 – less than 1 mark  1922 – 160 marks  1923 – several billion marks  People questioned value of democratic gov’t

 Dawes Plan ◦ $200 million loan from US banks ◦ Stabilize German currency  Strengthen economy ◦ Realistic schedule for reparations payments ◦ Helped slow inflation  1929 – German factories producing at pre-war levels

 Treaty of Locarno ◦ France and Germany ban war forever ◦ Germany agreed to respect borders of France and Belgium ◦ Germany admitted to League of Nations

 1928  Pledge to renounce war as an instrument of national policy  Signed by 62 nations  Treaty had no way to be enforced ◦ League of Nations had no armed forces

 By 1920s, American economic prosperity sustained world economy  If US economy weakened, whole world system might follow  1929 – US Economy Crashes

1. Uneven distribution of wealth 2. Overproduction 3. Underconsumption

 Stock ◦ Share of ownership in a company ◦ Pay money to company so it can operate ◦ Receive interest on money  Middle-income people bought stocks on margin ◦ Paid a % of the price as a down payment ◦ Borrowed from stock brokers ◦ Works if prices rise

 September 1929 ◦ Investors sell stocks ◦ Lowers prices of stock  October ◦ Prices slide too far down ◦ Panic sets in and everyone tries to sell stocks  October 29 – Stock Market Crashes

 Stocks became worthless  Industrial production, prices, and wages declined ◦ Unemployment rose  1932 – factory production cut in half  1933 – ¼ of American workers had no jobs

 Collapse of American economy impacted world ◦ Bankers demanded repayment of overseas loans ◦ American investors withdrew $ from Europe  Market for European goods dropped ◦ Congress used tariffs to keep $ in US ◦ Countries that depended on exports to US suffered ◦ World trade dropped by 65%

Currency was overvalued Exports were overpricedForeign trade decreased

 National Government – coalition government made up of Labour Party and Conservatives  Passed high protective tariffs  Increased taxes  Regulated the currency to avoid inflation  Lowered interest rates

 Industrial production returned to 1929 levels  10% Unemployment  Preserved democracy

 Unemployment came from decline in demand ◦ Not overproduction  Increase jobs through deficit spending ◦ Government goes into debt to create jobs

 More agricultural, less dependent on foreign trade  1 million unemployed by 1935  Political leaders stressed patriotism – warned against Marxist and socialist ideas

 Economic crisis led to political instability  Popular Front – coalition government made up of moderates, Socialists and Communists ◦ Passed reforms to help workers ◦ 40 hr workweek, minimum wage ***Still preserved democratic government***

 1932 – Franklin Delano Roosevelt elected ◦ Confident manner appealed to millions

 Large public works programs to provide jobs ◦ Gov’t agencies give $ to farms and businesses ◦ $ for welfare programs  Gov’t spending would create jobs and start a recovery  Reformed stock market and banking system