The Interwar Period: Post-War Crisis and the Great Depression
The Interwar Period
The Period 1919-1929
The period between the end of the First World War and the crash of the New York Stock Exchange was fraught with contradictions. On the one hand, the end of the war did not end the suffering of Europeans engaged in the reconstruction of their economies. Furthermore, the United States began a cycle of expansion which led to unprecedented prosperity. However, this apparent prosperity was not without its ambiguities. The U.S. growth cycle was broken abruptly at the end of the decade, leading to a crisis whose impact shook the entire capitalist world.
The World War had been a rupture with the changes initiated during the Second World War and its effects were noted:
- Disruption of international trade.
- Increased involvement of states in the economy and the disappearance of traditional economic liberalism of the nineteenth century.
- Adjustment of industrial production for war needs.
- Appeal to monetary reserves by the states, thereby causing rapid inflation.
At the end of the conflict, the conversion of an economy geared to war into one of peace was required. The road to achieving that goal was plagued with difficulties.
At first, European countries most affected by the conflict began a tentative recovery takeoff but soon suffered a slowdown. It was not until 1924 when there was a revival of the economy. The exception to this fact constituted the United States, which emerged from the war as the world’s greatest power. During the conflict, they had emerged as suppliers of raw materials, food, and manufactured goods and thus the creditors of its allies.
During the war, they continued to play an essential economic role. Europe owed them about 10,000 million dollars. The difficulties that plagued the economies of the former contestants were not reflected in the American power. The situation remained until the end of the decade of the “Roaring Twenties.”
The Post-War Crisis (1920-1924)
After the war, the former contestants started rebuilding their economies. 1919 was a year of relative growth due to demand for goods for domestic consumption and the positive effect exerted by the American credits.
But the aftermath of the war (inflation, demobilization of troops, lack of jobs, debt, financial dislocation, etc.) led to a recession that began in 1920 and was not exceeded until 1924. This drop was due to causes related to the difficulties in the conversion of a war economy to one of peace and a mismatch between supply and demand. The latter was stalled after the momentary pull that involved the purchase of household effects, postponed until the attainment of peace.
The crisis was fueled by two fundamental problems: that of the debts incurred during the conflict, and the reparations that Germany was obliged to pay to the victors (Versailles). Their relationship was close, and the role played by American loans in its solution was fundamental. The U.S., a creditor to the allies, applied a restrictive policy on loans aimed at reducing the money supply in order to control inflation. In other words, they implemented a deflationary strategy while also implementing protectionist measures. The resulting effect was the decline in European economic activity and a spike in unemployment.
Britain, with allied credit worth 1.3 billion pounds, was itself indebted to the United States amounting to 850 million. It is not surprising that it required payment from its debtors to meet its own responsibilities.
France, for its part, pinned its hopes to settle its debts with the United States on the collection of high war reparations from Germany that it hoped to receive. Throughout the decade, it exerted constant pressure on Germany to force it to satisfy amounts that some economists (Keynes) considered excessive.
Germany, in the worst position, should pay the amount of 6,000 million pounds with an initial payment of 1,000 million. Its economy was not prepared for such an effort and could not cope with the deliveries. As a measure of pressure to make Germany pay, the French army occupied the Ruhr industrial zone in January 1923. The framework, the German monetary unit, lost much of its value, depreciated, and caused runaway hyperinflation that sent prices soaring, triggering high levels of unemployment.
The Crisis of the Depression of 1929-30s
The Crack of the New York Stock Exchange in October 1929 ushered in a period marked by a deep recession that spread throughout the thirties and had serious repercussions not only in the economic sphere but also in social and political spheres. There was a significant slump in production disruptions in the labor market and it contributed to the glorification of fascist ultra-nationalism and authoritarianism.
Causes of the 1929 Crisis
The collapse of Wall Street was caused by a number of causes engendered time before and strongly disrupted the American economy:
- Overproduction
- Speculation
- Credit inflation
- Economies Unit