Happy Twenties

We explain what the “roaring twenties” were. Also, its economic characteristics and its abrupt end.

What were the “roaring twenties”?

The terms “roaring twenties” and “roaring twenties” refer to the entire 1920s in the United States and in Western Europe. and other places (such as the cities of Mexico, Buenos Aires or Sydney) in the second half of the 1920s.

Were years of economic growth and political, social and cultural transformations. The New York stock market crash of 1929 and the beginning of the 1930s crisis put an abrupt end to these “Roaring Twenties.”

The “roaring twenties” were part of the interwar period that began after the end of the First World War (1914-1918) and whose first years were marked by peace negotiations and economic difficulties (mainly in Europe).

Among the cultural characteristics of the “roaring twenties” were the spread of rhythms such as jazz, Charleston and tango, “flapper” fashion, art deco and mass consumption (with the impetus of radio for domestic use and cinema, which began to have sound in 1927).

In the United States, especially in Chicago and New York, the construction of skyscrapers expanded, and they also began to appear in other large cities around the world. Furthermore, the prohibition law was representative of this era, which, between 1920 and 1933, prohibited the marketing of alcoholic beverages in the United States and gave rise to the rise of speakeasies and organized crime.

The Dawes Plan and war reparations

The Dawes Plan, designed by a commission chaired by the American Charles Dawes in 1924, allowed the restructuring of war reparations payments by Germany (which had been established after the Treaty of Versailles of 1919), which alleviated their annual burden.

The American loans committed to the plan also contributed to the strengthening of German public finances, a necessary condition for the stabilization and relaunch of the German economy.

If Germany paid reparations, although on more favorable terms, The problem of debts between the allies was also being resolved, since France, the United Kingdom and Italy depended on the payments made by Germany to be able to settle their own debts with the United States.

America's economic prosperity

The American economy of the 1920s, from this moment the largest and richest in terms of GDP per capita, was in an expansionary phase as a consequence of the widespread diffusion of innovations resulting from the Second Industrial Revolution. These technical innovations affected production (cheap and quality steel, electricity, self-propelled agricultural and industrial machinery) and family consumption (cars, household appliances, telephones).

Some customs and cultural manifestations of the American “roaring twenties” were repeated in some cities in Europe (such as Berlin or Paris) and in other regions during the second half of the 1920s. Even in Germany, after the worst years of the Post-war, the Weimar Republic was characterized by great intellectual and aesthetic creativity.

But the social and economic dynamism of the United States in the 1920s also anticipated consumption patterns that spread throughout Western Europe in the so-called “Golden Age” of economic growth (between 1950 and 1973), and later by the rest of the world.

Therefore, By the end of 1924 there was cause for some optimism, and the economic growth of the second half of the 1920s was not limited to the United States.

The gold exchange standard

In the more favorable context of the 1920s, some countries began to consider the possibility of abandoning floating (i.e., non-fixed) exchange rates and returning to the gold standard, which was considered the symbol of a better past (previously to war).

The United States had anticipated the Brussels Conference (1920) and, together with a group of countries especially integrated in its economy (Cuba, Philippines, Nicaragua, Panama), had already taken that step. But other countries lacked the gold reserves necessary to follow that example.

In order to avoid the problems that could arise from this situation when economic recovery became a reality, at the Genoa conference (1922), convened by the League of Nations, For the first time in history, an international monetary system negotiated between numerous countries was adopted.

It was a somewhat modified version of the classic gold standard. It consisted of admit as a monetary base not only gold, but also currencies convertible into gold. In practice, these were the pound sterling and the dollar. Each country was also allowed to adopt the gold exchange standard whenever it wanted and at the exchange rate it deemed appropriate, that is, in an uncoordinated manner.

The economic effects of the gold exchange standard in Europe

The economic effects of the return to the fixed exchange rate depended on the established exchange rate, that is, whether or not it corresponded to the market rate. In some cases the decisions were not realistic enough.

In the United Kingdom, a parity identical to that of the pre-war years was established. This was part of the attempt to regain London's status as the financial capital of the world thanks to a strong currency.

However, as British prices had risen compared to 1913, the new parity was going to overvalue the pound and Exports would cease to be competitive in foreign markets. In order for them to remain competitive, a downward readjustment of prices and wages was necessary, as anticipated by the economist John Maynard Keynes. And so it happened.

The adoption of pre-war parity in 1925 was met with the general strike of 1926, the first in British history. Furthermore, unemployment settled in the British economy and made it necessary to extend the subsidy to the unemployed, which increased public spending and forced the State to go into debt.

In France, things happened differently. France returned to the fixed exchange rate pattern in 1926, but at a parity much lower than that of the years before the war. With an undervalued currency, French exports grewwhich generated a knock-on effect on the entire French economy and favored the increase in gold reserves.

By 1930, almost all countries with economies of some importance had returned to the gold standard.

From economic prosperity to the crisis of 1929

An important political-economic novelty of the 1920s was the growing economic role of the State regarding the time of laissez faire from the time before the First World War. Public spending tended to increase, particularly in its social areas (pensions, unemployment, health, education and housing). In a sample corresponding to the most advanced economies, public spending went from representing 11% of GDP in 1870 to 13% in 1913 and 23% in 1937.

The relaunch of economic activity in the second half of the 1920s took place in an international context less prone to exchanges than that of the period 1870-1913. This less globalized orientation of the interwar period, even in its “normalization” phase, was observed in international trade figures: in 1913, it had grown to 3.4%; in 1926-1929, it did so at 2.2%.

The drastic reduction in migration since 1914 was another manifestation of a less globalized international economy. However, this still depended on the flow of capital from the United States to Europe and, especially, to Germany.

Central and Eastern European countries also benefited from capital flows, although to a lesser extent. England and France also invested abroad, but, unlike what had happened until the First World War, much less than the United States. Other areas of the world, such as the territories of the British Empire and Latin America, were also recipients of international capital movements.

The framework built during the 1920s began to crack when, attracted by the financial bubble that was expanding on the New York Stock Exchangesince 1928 American investors began to stop investing abroad.

The greatest economic crisis in the history of capitalism did not take long to make its effects felt all over the world after the stock market crash in 1929.

References

• Aldcroft, D. H. (2003). History of the European economy 1914-2000. Criticism.
• Britannica, Encyclopaedia (2023). gold standard. Encyclopedia Britannica. https://www.britannica.com/
• Britannica, Encyclopaedia (2022). Prohibition. Encyclopedia Britannica. https://www.britannica.com/
• Sevillano Calero, F. (2020). Europe between the wars. The disrupted order. Synthesis.