Economy of the Interwar Period

• The economy of the interwar period (1919-1939) was characterized by the attempts of European governments to return to economic stability prior to World War I (stage known as Belle Époque).
• The United States was the main creditor of the countries that participated in the war and became the industrial and financial center of the world. Europe just recovered in the mid -twenties.
• The prosperity of the “happy twenties” concluded after the crack of Wall Street in 1929 and the great depression of the thirty decade. The recovery reached the end of the thirties.

The economy in the immediate postwar period (1919-1924)

Economic stagnation in Europe

With the beginning of World War I concluded a prolonged phase of prosperity and economic stability which was then longed for during the interwar period. The economic consequences of the greatest war conflict known until then and the peace treaties that followed him (such as Versailles's treaty) were as negative as difficult to handle. In less than five years, the First World War produced a drastic alteration of the economic landscape of the previous decades.

When World War I concluded , The European economy was weakened Due to the destruction of fields, factories, cities and transport and communications infrastructure, as well as the financing of war effort and the reorientation of the productive apparatus towards military needs.

The public and private sectors of the United States cooperated with the European economy In about 1750 million dollars, mainly in food and clothing to relieve extreme emergency situations. However, This help was below the immediate needs of the population and of The resources required for the long -term reconstruction of the European economy. To this problems such as war repairs imposed on Germany were added after the signing of the Versailles treaty.

In the absence of an international coordinated plan, The recovery of the productive capacity of European economies was waiting . In countries such as Germany, Austria, Hungary, Poland and the Soviet Union, economic problems were combined with those of a political nature (revolutionary movements, civil wars, invasions and the occupation of the Ruhr, German region, by French and Belgian troops).

The most striking manifestation of these postwar difficulties was hyperinflation (the exponential growth of prices) In Germany in 1923. For its part, in the United Kingdom unemployment reached in 1921 the highest level recorded until then (11.3 %).

The economic ascent of the United States

Among the main countries that participated in World War I, only The United States was economically strengthened . In 1913, the American economy was somewhat less than the sum of those of Germany, France and the United Kingdom. On the contrary, in 1920 he had surpassed them.

In front of the weakened economy of the great European countries, The United States entered the twenties with great economic dynamism . New York displaced London as financial capital of the world. During the war, the military needs of the belligerent countries caused a permanent excess of imports on exports (commercial deficit) and the exit of large amounts of gold to neutral countries and to the United States.

In 1913, the United States accumulated 26 % of world monetary gold reserves, while in 1918 that percentage had risen to 39 %. In addition to reducing their gold reserves, European countries had to borrow to continue importing . When the war ended, the commercial debts of the allies amounted to 23,000 million dollars.

German repairs and allied debts

The indebtedness between allies, together with the problem of war repairs, complicated the negotiations of the Versailles Treaty. The main creditor was the United States (about 12,000 million dollars), whose authorities insisted on debt settlement.

The United Kingdom was indebted to the United States (about 4.7 billion), but If I managed to charge their debtor countries (Belgium, France, Greece, Italy, Russia, Serbia, among others), could pay off its commitments to the United States and obtain a surplus.

But both France, with a debt of 3.5 billion dollars, as The remaining debtors could not deal with payments if they did not receive German war repairs . This was one of the reasons for French intransigence in the issue of repairs.

To the problems existing in Europe, another was added: the fragmentation of the economic space as a result of The appearance of new countries in central and eastern Europe after the end of World War I .

This generated intense economic nationalism, with new impediments to the free movement of goods, services, people and capitals, such as the disarticulation of transport and communications networks or the proliferation of currencies, customs and different legal provisions in previously integrated spaces.

These new trends overlapped those that had generally been adopted at the beginning of the war: market regulations, control of external commercial transactions, restrictions on capital movements and abandonment of the gold pattern.

Given this panorama, Still in 1924 many economies had not recovered the GDP per capita from the time before the war .

Industry, Agriculture and Commerce

World War I prevented several of the main export countries of industrialized products from maintaining its traditional presence in world markets, since its agricultural and industrial sectors underwent the war needs, both of final goods (uniforms, armament, ammunition, means of land, maritime and aerial transport) as intermediate (mining, steel, chemicals).

The interruption of the flow of industrial exports from Europe allowed the United States and some “peripheral” countries (such as Sweden and Spain in Europe or Japan, Argentina and Chile on other continents) to find an opportunity for expand or create their own industrial sectors . When the war ended, these countries faced the fall in the demand for their industrial products and the consequent contraction of the level of activity. To stop the negative effects, many resorted to protectionism.

Something similar happened with Agricultural and Minera Production . The increase in food imports and raw materials by European countries during the war stimulated its production in other parts of the world . After the war, the demand for some of these products fell to the extent that European producers were recovering the previous activity levels.

There was then an excess of supply that motivated a fall in world prices. In response, Some governments protected their markets against foreign competence with import taxes .

The conferences in Brussels (1920) and Genoa (1922) They emphasized the importance of a rapid Return to the gold standard for the stabilization of prices and exchange rates as a necessary condition to relaunch economic growth. However, some political and economic changes of the interwar period prevented the return to the “normality” before 1914. Among them, the following should be highlighted:

• The generalization of universal suffrage (In some countries the female suffrage began to be admitted) and the full integration of the leftist parties in the political system;
• The Bolshevik Revolution in Russia and the fear of European political and economic elites to the extension of communism;
• The setback of Laissez Faire In favor of planning and the state control of productive activities, a consequence of the reorientation of national economies towards war purposes during the war;
• The growing economic and political role of women .

All these changes had great long -term effects and prevented the past of the Belle Époque (prior to 1914) that some leaders longed.

The economic prosperity of the “happy twenties”

The favored situation of the United States after the First World War allowed to enter In a phase of economic prosperity since the beginning of the 1920s . The innovations of the second industrial revolution, which allowed to reduce costs and increase productivity, set the basis for the industrial growth of the period.

Also Credit was generalized and consumption expanded both durable goods (appliances, cars, telephones) and entertainment services (musical shows, sporting events, cinema). The “mass consumption” was both an effect of the economic possibilities of the time and of a cultural impulse for leaving behind the disappointment of war and enjoying entertainment and comfort.

In Europe, economic recovery began in the mid -twenties when monetary stability was reached after European countries returned to the gold standard . The reconstruction of world trade also favored the European industry, including in Germany, although a strong dependence on the US financial system was maintained. The “Happy Twenty years” became a great global phenomenon .

The great depression of the thirties

The economic prosperity stage ended abruptly after The crack of the New York Stock Exchange in October 1929 that It caused a deep recession in the United States and also affected the rest of the world.

Unemployment and poverty extended and governments took various measures such as protectionism in European countries (such as France and the United Kingdom), the implementation of the New Deal (Public Works Project and other interventionist policies) in the United States, the general abandonment of the gold pattern and the replacement of imports in Latin America.

Economic growth was severely affected by great depression. Between 1913 and 1950, the world economy grew at a rate much lower than that of 1870-1913. Economic nationalism altered the globalized economic scene before the war .

Migration, capital movements and exchanges of goods and services experienced a remarkable setback. On the contrary, The role of the State in the economy increased already through public spending or market regulation.

The lack of international economic cooperation deepened and prolonged the crisis . In addition, during this period the relative positions of the economies of developed countries were altered. In general, the European countries that had starred in the first and second industrial revolution were more harmed than the European periphery and Japan. Some Latin American countries began in this period industrialization processes with unequal success.

Both the intensity and the recovery of the crisis were unequal in each country . In general, those who abandoned economic orthodoxy achieved the restoration of economic activity and employment levels, but One of the main recovery factors was rearme which began in Germany and promoted military spending in other countries in Europe and the United States.

References

• Aldcroft, DH (2003). History of the European economy 1914-2000. Criticism.
• Cabrera, M., Juliá, S. & Martín Aceña, P. (comps.) (1991). Europe in crisis. 1919-1939. Editorial Pablo Iglesias.
• Romer, CD & Pells, RH (2023). Great Depression. Britannica Encyclopedia. https://www.britannica.com/
• Sevillano Calero, F. (2020). The Europe of award. The disrupted order. Synthesis.