The Great Depression

The Great Depression was most severe in Germany as the economy was built on American loans. As  companies shut down or downsized, making workers redundant, unemployment affected millions of working class Germans. Others lost their savings as banks folded.

In the 1920s, production boomed for American companies as European countries were relying on imports during and following the War. Thousands of Americans rushed to take advantage of the share market and many used their life savings or borrowed money that they did not have to take advantage of the booming economy.

However, by 1928, declining sales and falling profits resulted from over-production in many American industries.

The Wall Street Crash

Share prices on the New York stock exchange began to fall rapidly and people rushed to sell their stocks.  As a result, share prices plummeted over the next three weeks as an increasing number of stocks were sold.

There were extremely serious economic and social effects of the Wall Street crash. From 1929 to 1932, American industrial productivity decreased 45%. While many companies went bankrupt or ceased trading, others those that stayed in business released workers to cut costs. By 1932, 24% of American workers (>12 million) were jobless.

Impact on Germany

• Germany was too reliant on American loans, which had stabilised the Weimar economy since 1924. When these loans were recalled in late 1929, banks failed to provide money and credit to people who soon lost confidence in the banks.

• By the end of 1929, around 1.5 million Germans were unemployed. This figure had more than doubled after just one year.

• At the beginning of 1933, 26% (6 million) of the workforce were unemployed.

• Millions faced famish as they could not afford and obtain food. As a result, thousands of children in Germany died from a lack of food and related diseases. 

Effects on Industry

By the early 1930s, there was a significant reduction in the demand for industrial products. As a result, the US introduced tariff barriers to protect its own companies. As a result, many German factories and industries either closed or downsized dramatically. This is because the US was the main importer of German goods. As a result of the reduced demand, German industrial production had fallen to just 58% from 1928 by 1932.

Weimar Government Failures

The Weimar government failed to solve the crisis. Many argue that they exacerbated it.

• Fearing hyperinflation and budget deficits over unemployment, Heinrich Brüning, made chancellor in March 1930, feared inflation and budget deficits more than unemployment. He decided to increase taxes, implemented wage cuts and reduced spending.

• Although his policies were rejected by the Reichstag – he had the support of President Hindenburg. Hindenburg issued Brüning’s measures through Article 48 (The President declared the situation an emergency and used Article 48 to pass new laws without consulting the Reichstag.)

• Brüning's efforts failed and likely worsened the impacts on Germany.