Interwar Economy: Crisis, Recovery, and U.S. Prosperity
Introduction: The Interwar Economy
The period from 1919 to 1939 was marked by significant economic imbalances, culminating in the Great Depression. World War I ended the United Kingdom’s economic dominance, with the U.S. emerging as a major power.
In 1929, the New York Stock Market crashed, triggering a global crisis that affected the USA, Europe, and much of the world.
The Great Depression (1929-1939)
- Industry declined due to the collapse of production.
- Widespread unemployment and poverty.
Solutions: Emerging Aid Policies
Various policies were implemented to stimulate and restore the economy:
- New Deal (USA): An interventionist policy based on protectionism and increased social spending.
- Europe: Approaches to the crisis varied by country:
- Scandinavian countries: Focused on establishing the foundations of the welfare state.
- Germany: Authoritarian politics and rearmament, ultimately leading to World War II.
Problems of Peace After World War I
The war resulted in the weakening of the contending countries.
Demographic Impact
Significant human losses (8,000,000 dead, 6,000,000 disabled).
Economic Impact
- Destruction of natural resources.
- Loss of productive infrastructure.
- Staple prices tripled.
- Countries became heavily indebted, primarily to the U.S., for loans.
Problems Arising from Treaties
Disagreements:
- Germany: Reparation payments led to monetary system failure, hindering economic recovery, causing high inflation, and fostering radical nationalism and fascism.
- U.S.: Demanded repayment of “Inter-Allied” debts but opposed German reparations (owed to France and Belgium), leading to disagreements. Europe, especially Germany, was indebted to the U.S. and required new loans.
Trade Imbalances
Trade flows were disrupted, and losing countries (Austria, Hungary, Bulgaria, Turkey, Russia, and Germany) lost territories and access to raw materials (e.g., the Ruhr region for Germany).
Countries that remained at war or recovered experienced a surplus of food and raw materials. Agricultural prices fell, resulting in balance of payments deficits and the need for new credit.
Mechanisms for Economic Recovery
- Attempts to stabilize currencies by controlling inflation and credit, and in some cases, through devaluation.
The Dawes Plan
- Divided the amount of debt.
- Strengthened the framework through loans and investments.
- Objective: To ensure the recovery of the German economy, enabling it to pay the Allies and repay loans.
U.S. Economic Prosperity: “The Roaring Twenties”
The U.S. consolidated its supremacy, gradually replacing the British pound with the dollar as the international standard. U.S. banks were able to provide long-term loans.
The U.S. opposed high German war reparations due to Germany’s inability to meet the payments. However, the Allies still required repayment of their debts.
While Europe was recovering, the U.S. became more commercially competitive.
The “Roaring Twenties” (1922-1929)
The annual growth rate was 5%. Causes:
- Growth in production due to technological innovation and changes in work organization (assembly line).
- Renewed energy sources: electricity and oil.
- The automobile sector led the way, pioneering mass production.
- Benefited sectors such as iron, glass, steel, tires, and others.
- Increased productivity, reduced costs, and greater job creation.
- Massive increase in consumption and the spread of new buying and selling systems, leading to a “consumer revolution.”