Economic Impact of World War I and the Roaring Twenties
**Economic Consequences of the First World War**
The First World War had a strong impact in Europe: New states emerged and had to create new administrative apparatuses and articulate their economic space. The countries consumed much of their wealth in the war. This was the case in France and the United Kingdom, whose economic potential fell by one-third. The loss of lives and millions of amputees were a drain on Europe, which was slow to recover. Following the decade of the 1920s, Europe plunged into a deep economic disarray.
The Postwar Crisis
The euphoria had been replaced by a crisis that lasted until 1923. The first symptoms appeared in the United States and later in Europe, Canada, and Japan:
- In the UK, the government intended to restore financial leadership, which required a strong pound. This condemned the industrial sector due to the loss of external competitiveness.
- France faced different problems than the British. The northeastern region, the engine of the country, had seen its industry, communication networks, and industrial products destroyed during the war. They hoped to rebuild their economy with German war reparations, but Germany was unable to pay, and the deficit soared.
- The situation was more complicated in the states that emerged from the dismemberment of the Austro-Hungarian Empire. These new national identities had to organize their administrative equipment. The disruption of their economic spaces and transport networks made it harder for their economies to take off. The crisis was affected by a process of hyperinflation that meant the collapse of their monetary systems and their economies.
Hyperinflation in Germany
Germany was affected by the economic crisis of the postwar period until 1924 due to a number of factors:
- The Franco-Belgian occupation of the Ruhr area.
- Difficulties in Germany to pay reparations.
The Weimar Republic issued a series of measures that indefinitely suspended the payment of war reparations. It urged people to resist by striking, ensuring workers’ wages, compensating with aid, and banning industrial layoffs. These measures were financed by issuing paper money in an uncontrolled manner, which accelerated inflation and caused the loss of value of the mark. The resulting chaos led to a barter economy due to the destruction of the value of money. The collapse of the mark ended the resistance in the Ruhr, and the paralysis of economic activity increased unemployment. The destruction of savings and revenues generated distrust of social sectors toward the Weimar Republic and strengthened authoritarian tendencies represented by the nationalist right.
The Loss of Influence in Europe
One of the main consequences of the war and the postwar crisis was the loss of Europe’s importance in world affairs:
- European export economies had to withdraw from the world market during the war. The void left was occupied by other countries like the United States, Canada, Brazil, Argentina, and Australia.
- The war split the triangular relationship between the UK, France, and Germany, the engine of the European economy. After the war, it could not be rebuilt due to protectionist policies and the excessive war reparations imposed on Germany.
- The United States joined the global market. Wall Street now disputed the primacy of the City of London in international finance.
**Economic Recovery: The Roaring Twenties**
The Beginnings of Economic Recovery
The postwar crisis led governments to try to recover the monetary and economic policies from before the war by:
- The progressive renunciation of protectionist policies. The United States and the United Kingdom maintained production through higher rates to counter the postwar crisis. Tentative steps were taken to return to free trade, but these were interrupted by the depression of the 1930s, which marked the return of protectionism.
- The partial recovery of the gold standard. Abandoned during the war, it was an unstable focus in the postwar period. At the Genoa Conference of 1922, it was decided to partially rebuild the gold standard by combining two complementary currencies: the pound and the dollar.
After overcoming the negative effects of the postwar crisis, economic recovery started first in the U.S., thanks to a number of factors:
- The general extension of technological and scientific advances of the Second Industrial Revolution to the field of industrial production.
- The improvement in transport and communications, which streamlined trade.
- The change in the demographic cycle. The population decline in the aftermath of the war witnessed a recovery in demand.
- Improvements in the agricultural sector, especially in America, where mechanization and widespread use of fertilizers increased yields.
Economic Recovery in Europe: The Dawes Plan
The postwar crisis in Europe lasted until 1924 due to German hyperinflation and its impact on the French economy, and by extension, the whole of the European economy. Germany’s inability to pay war reparations had very negative repercussions on the economies of its creditors. It was precisely the revision of these conditions that allowed for European economic recovery, facilitated by the report written by Charles Dawes, from which the Dawes Plan was extracted. The main measures were:
- The restoration of the Reichsmark, the German currency, which was pegged to the dollar through U.S. loans.
- The review of the conditions imposed at Versailles. Germany would not default but would pay in a more comfortable manner.
- Providing loans to Germany to revive its economy, basically from the U.S.
Birth of the Consumer Society
The economic recovery brought a period of splendor known as the “Roaring Twenties,” which was characterized by optimism that spilled over into the emergence of a society oriented toward mass consumption. The U.S. model, called the “American way of life,” emerged and was subsequently exported to Europe. The reasons for this change in habits are:
- The application of technological innovations in industrial production led to lower costs and greater social accessibility of products.
- The working class had achieved an increase in their income and a reduction in their working hours.
- New marketing and sales systems, with the application of credit and hire-purchase systems, facilitated the arrival of new products and changed lifestyles and habits in the cities.
- Advertising played a major role in the expansion of new consumption patterns.
Consumption filled the streets with shops and cars, and recreational and leisure centers multiplied. Mobility increased through new means of public transport. Major thoroughfares and residential streets were lit with the extension of electricity networks, while new equipment made life more bearable at home. The pace of life in cities accelerated, and wide avenues filled with walkers, curious onlookers, and consumers attracted by the neon lights of the new shops and shows.