Economic Impact of War, Trade, and the Great Depression
The Economic Impact of War
The war-weakened European contenders, heavily indebted countries allied with the United States, faced significant challenges. The peace treaties (Versailles) generated large economic disagreements between countries and reduced investor confidence. Germany, burdened with war reparations, sought support from the United States but struggled with debt repayment, leading to serious economic problems in 1923-25. France and Belgium even invaded the Ruhr to guarantee payments.
Trade Imbalances After the War
The new frontiers altered trade routes, resulting in the loss of many German territories. Austria and Hungary were reduced to a quarter of their former size, while Bulgaria and Turkey also suffered economically. The decline in agricultural prices worsened the trade balance, forcing these nations to apply for credit from the United States.
The Rise of the U.S. Economy
The dollar emerged as the dominant currency. The U.S. became the most dynamic economy, boasting a single financial market capable of sustaining long-term loans. However, this contributed to a trade imbalance, with the U.S. exporting significantly more to Europe than it imported.
The Roaring Twenties: American Prosperity
The U.S. experienced substantial growth. Economic expansion was fueled by technical innovation and changes in work organization. Major renovations to the energy system and the rise of the automobile sector were representative of this era. The construction of large skyscrapers, significant productivity gains, and reduced production costs further characterized the period.
Causes of the Great Depression
Overproduction, insufficient monetary resources to meet debt payments, and the stock market crash all contributed to the expansion of the crisis. A drop in consumption, driven by reduced purchasing power, fear of unemployment, falling agricultural prices, and layoffs, exacerbated the situation.
Banking and Industrial Crisis
The banking system was among the first sectors affected, with 4,000 banks going bankrupt and ruining families. The decline in consumption, triggered by the stock market crash, led to a fall in investment, inducing a broader crisis. Declining industrial demand resulted in lower industrial and agricultural production.
The Mechanisms of Economic Contraction
First, the decline in prices of American products created serious problems for companies worldwide. Second, the U.S. reduced its demand for imports and decreased loans and investments in Europe. The 1931 Creditanstalt bankruptcy in Germany triggered a major crisis, leading to inflation and widespread unemployment.
The Keynesian Proposal
Keynesian economics proposed increased public spending to generate a deficit, which would then increase total production and, consequently, tax revenues. It advocated for capitalists to invest and consumers to spend.
The New Deal
The New Deal was an economic plan that proposed increased government intervention. The Agricultural Adjustment Act was created to reduce agricultural production and recover prices. It promoted a monetarist policy, established a minimum wage, and implemented social security.
Scandinavia’s Response
Scandinavian countries granted the government an active role in the budget. Social Democratic parties played a decisive role. In the 1930s, construction plans and government welfare programs were implemented to aid the unemployed.
Germany’s Rearmament Policy
Germany promoted a policy of rearmament. Hitler aimed to achieve economic autarky, dispensing with exports by producing everything the country needed. Industrial production rose considerably.
The UK and France
An international conference in London aimed to resolve disagreements over war debts. The United Kingdom devalued the pound to promote exports and established working arrangements with its colonies. France implemented measures comparable to those in the U.S. starting in 1936, including public policies that guaranteed prices for agricultural products and a free devaluation to increase exports.