Economic and Political Impacts of World War I and the Interwar Period
Economic and Political Consequences of the First World War (1914-1918)
The consequences of World War I were very significant in terms of direct loss. Population losses during the war and the following years were estimated in the millions. In proportional terms, the greatest losses were concentrated among the male working population. Core capital losses were severe due to direct damage (total war), depreciation, and lack of investment, especially in countries that were fighting. The loss of foreign assets and merchant marine ships should also be added. Physical capital suffered major destruction due to the destructive potential of new weapons, and there was also significant deterioration of surviving capital due to the lack of reinvestment.
As for the financial legacy, the consequences concern both the direct cost and the results of the method of financing the war and subsequent reconstruction. There was a large debt because of inflation that lasted until 1922-23.
Regarding changes in the international economic structure, the demand for war caused a shift in the economic balance towards overseas, America, and the Pacific. During the war, a process of import substitution occurred in overseas markets that had been abandoned by the European belligerents. In addition, the United States became the world’s largest creditor through trade surplus, the settlement of securities, and loans to British allies.
As for the socio-political consequences, the war contributed to questioning the basis of bourgeois society (private property, social hierarchy, parliamentary) in part because the costs of the conflict had been distributed unevenly among economic agents. The irruption of the masses into the political scene, demanding economic, social, and political changes, driven by the extension of suffrage, was perceived by elites as a threat to the survival of the traditional order. Public intervention during the war had been an experience for social reform, but the problems of reconstruction and the nature of socio-political regimes identified different solutions in some countries than in others. In general, the search for stability led to new forms of negotiation between the economic, social, and political spheres, a kind of corporatism that could sideline the forms of parliamentary representation.
The war, new political beliefs, economic and financial problems after the war, and the postwar depression (1921-22) made it inevitable that governments would have greater concern and become more involved in the economic life of nations. At the height of 1920, most European currencies were well below their pre-war parity values. The idea was to return to the situation prior to 1914, and this meant a return to the gold standard. The United States was the only country that had a stable price system and currency, and it was the first to return to the gold standard because it was the only one with sufficient gold reserves. The U.S. would give stability to the monetary system, but in turn, refused to be the financial center.
Features of the Interwar Period (1914-1939)
Most Important Problems of the Interwar Period (1914-1939)
In this period, full of contradictory historical events (war and peace, growth and depression), many of the guidelines, rules, and ideals prevailing in the previous century were modified. The economy was no exception. The pattern of the economy changed, and the parameters within which it had been operating were altered: economic growth slowed and became more volatile; prices lost their previous deflationary path to first grow and then go into a deeper deflation; unemployment was present everywhere; globalization ushered in deglobalization, thus weakening international flows; protectionism revived, and the international order was dismantled, following among its members non-cooperative, competitive, and even aggressive behavior. The behavior of the international economy was worse than that of national economies, as economic growth became more self-sufficient. Economic policy was reversed, becoming less liberal and more interventionist than before, in an effort to restore and return to the old gold standard or overcome the Great Depression, although the results left much to be desired.
Reconstruction gave way to a series of problems, such as peace treaties. The peace treaties after the war between the Allies and the heirs of the great central empires imposed territorial changes. The trend toward unification that had prevailed before the war was reversed by the construction of new economic and administrative organizations. Particularly onerous was the treatment meted out to Germany (which was blamed for the war) with the obvious intention of retaliation and important losses of territory, population, and production potential. The reparations were a serious political and economic error, as Germany could not pay them without reducing its population to poverty. In fact, the peace treaties aggravated disorders by imposing huge monetary reparations on Germany and not reducing the Inter-Allied debts, or relating these differently or reducing their scale. The revenge of the Allies and the attitude of the U.S. in this regard, claiming war debts instead of linking these with the reparations from Germany, had serious consequences in the immediate future. The requirement for payment in either gold or U.S. dollars, coupled with protectionism, especially in the U.S., hampered all debtors from obtaining funds.
For all these reasons, the reconstruction overwhelmed the mere recovery of the resources lost during the conflict. In addition, postwar aid failed, not only by being insufficient but also by addressing the partners rather than the neediest countries of Central Europe and having been granted credit in the form of cash back. The reconstruction should be financed with the own resources of each country and through international private credit, hence the difficulties of reconstruction and the volatility of international economic relations.
In conclusion, the interwar period has a sad reputation for its accomplishments in the field of economics and politics in comparison with the previous period. In some aspects, this period saw tax changes and a continuation, not without trouble, of advances that emerged in the previous stage in terms of technical and organizational change, thereby affirming Iiri, although that progress continued to be more an American phenomenon than a Japanese one. The most important periods, in general, during the interwar period are:
- From 1914 to 1919: Phase of the war itself, not necessarily recessive always and everywhere, which also was associated with strong inflationary pressures.
- From 1919 to 1920/21: Post-war reconstruction phase of renewed growth and making economic stabilization measures and price controls.
- From 1920/21 to 1922/23: Crisis of conversion from an economy of postwar reconstruction to a peace economy. It was the”Roaring Twenties” An economic model was characterized by the so-called American way of life, whose main features were economic development and increased production, general labor, increased demand, and a welfare society.
- From 1929 to 1932/34: Period of the Great Depression, accompanied by a strong decrease in deflation and unemployment. The pursuit of easy money led many investors to speculate on the stock exchange. Agricultural and industrial overproduction caused large amounts of stock to which it was not possible to give out, causing the fall in prices of industrial and agricultural products.
- From 1932/34 to 1939: Prevailed a recovery phase, not always complete, accompanied by inflationary pressures and unemployment without full absorption previously generated.
Even if it is true that not all economies remained on the same path of instability or stability. The intensity and dispersion of economic fluctuations and movements in different periods were diverse, and sometimes even those movements were not synchronized. The Great Depression, for example, far more severely punished the U.S., which soon recovered, and it did so during WWII. Europe, however, recovered before the war started, but over the same, it would decrease. Two exceptional cases looming in the general picture: the Soviet Union, with its own rhythm and different, following the socialist revolution and its isolation from the problems of capitalist economies, and Japan, a capitalist economy that enjoyed a fairly sustained and stable growth without just cyclical phases, having successfully managed to ride out, with its sound economic policies, the depression of the 30s.