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Trade and the Great Depression - Nov 9th.docx

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Political Science
POLI 354
Mark Brawley

Trade and the great depression : November 9 2011 th Beggar thy neighbor : using tariffs on the trade side so it can escape the depression. If you went first you have some sort of boost, but when the rest retaliates. Everyone is worse off! The value of world trade diminishes over time  late 20s the numbers do not match up the way imports and exports are valued. Demand is dropped off everywhere, demand is falling and protectionism is high . Trade can’t be regenerated because of the protectionist policies still in place. The drop is very deep and spill off effect with int’l investment : if you don’t have trade, no currency so no investments. The countries can’t make the payments to pay their interests to the US and the UK. The countries are not able to pay  debt int’l investment is slowing down and falling down in time as a consequence Attempts to Recover : Britain  Putting protectionist policies : solving some domestic problems  Stanley Baldwin and Imperial Preference : 1932 : you have at least the British Empire to sell goods within the empire and to keep up the trade between Canada, Australia, India. This helps Britain , it is not the perfect solution but it works for them  International investment regime also collapses : they are in trouble with the fact that they sold off to the US their investments, they are suffering from the competition with the US and reestablishing the status of the pound  They can’t go back to what was going on before WW1  John. M. Keynes : British economist, models what is happening in the macro economy in a new way. Economics is going through a revolution. Macro economics + government (spending). Before WW1 the government was not participating in the economy by spending money so it can stimulate the economy. Reasons to spend more money , wants to stabilize the domestic situation.  The exchange rate is the tool they use to stimulate the exports . to the workers looks like a bad decision. The workers say that you have to fix what is wrong domestically.  Rearmament : the Germany violates some clauses of the Versailles treaty and prepares for another war may be . Spending money on building factories, not necessary producing armaments now, but in the future. Worrying about Germany and how Germany can hurt Britain Attempts to Recover France  Undervalued currency when on gold in 1927  But France sticks with gold too long : stay with gold and keep their hands tight. They can’t have the same policy options.  Internal political divisions : governments are divided , there is a shift in 1930s parties from the left, having problems convincing their citizens to lend money to the G (selling bonds) . IT is hard to know if this is very convincing, the French are looking at the Germans at the same perspectives like the English. Whatever the econ. Divisions they are overwhelmed by the threat of the Germany arising and Hitler. Doing like the British , not so effective.  Eventually rearmament too  Little recovery Attempts to recover : in the US  Sever drop deflationary spiral continued  Demand drop off, the company could not raise more money on the stock market, they lay off more people, which means that the demand drops further and the situation get worse and worse  The first to use trade policy : Smooth Hawley tariff did not reverse this  Building a high wall around the economy  Democrats elected in Congress and President ( Roosevelt ) : FDR eventually finds the Keynesian policies and experiment with it. Roosevelt does : give me an idea and he tries it.  He will try whatever : people need jobs so the G. borrows money and to do whatever??  Little bit there little bit here, but at the End they come up with the more coherent action of Keynesian  U.S actions War debt moratorium 1931 : London Economic Conference 1933 : some kind of the coordination during the great depression. We have to come up with something coherent and coordinated so we can deal with the great depression. The American delicates go with the idea that they will try to be cooperative : but what happens is that Roosevelt back home decides that if the UK devaluates the currency the US has to do the same ( even if they have enough gold to back up the US dollar)  the idea of cooperation is thrown to the garbage. Because decisions are made back home not in the conference  Th
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