World War I, Russian Revolution, Great Depression, and Rise of Extremism

Posted on Jan 29, 2025 in History

Causes and Consequences of World War I

Causes of the war (1914-1918)

  • German nationalism and rivalry with Britain
  • Capitalist imperialism
  • Military alliances policy
  • Rivalry between Austro-Hungarian Empire and Russia in the Balkans
  • Separatist nationalism in Austro-Hungarian Empire
  • War fervor among the population
  • Immediate cause: the Austrian heir was killed in Sarajevo

Main countries involved in the conflict

Austria-Hungary and Germany against France, Russia, Britain, Italy and U.S.

  • 1917: U.S. intervened and Russia left the war
  • 1918: End of the war and failed communist revolution in Germany

Consequences of the war: Paris Peace Conference / Treaty of Versailles (1919)

  • Territorial compensations and reparations
  • The Wilson’s Fourteen Points. End of secret diplomacy
  • Freedom of navigation and trade
  • Self-determination principle and autonomy (Poland, Balkans, etc.)
  • League of Nations: International organization to maintain peace. Failed because of the lack of coercion means. Manchuria (1931), Abyssinia (1935-36) and expansion of the German Third Reich (1938)

Problems of the Treaty of Versailles

  • The U.S. Senate rejected Wilson’s policy. Moreover, he lost the presidential election in 1920, leading the U.S. out of the League of Nations. Harding (president since 1921) and U.S. isolationist policy
  • The payment of compensations was not feasible, as Keynes had been predicting. French intransigence towards Germany because it had been paying its loans with German reparations
  • Nazism and Fascism fed on economic crisis and social unrest in Germany and Italy

The Russian Revolution and the Creation of the Soviet Union

According to Marx’s ideas, Russia should not have been the country where a socialist revolution took place:

  • Because peasantry was the majority of population
  • Because Marx believed that the revolution should occur in an advanced capitalist country

February Revolution

  • Leading role of Petrograd and Moscow soviets
  • Nicholas II abdicates and a provisional government is formed (Kerensky)
  • The provisional government decided to continue the war and peasant soviets occupy land, creating a double power

April Theses defended by Lenin

  • All the power to the soviets (councils of workmen and soldiers)
  • Nationalization of the banks
  • Abolition of private property
  • Land redistribution

October Revolution (St. Petersburg)

  • Seizure of the Winter Palace and fall of provisional government
  • New Bolshevik government (Lenin, Stalin and Trotsky)

Measures of the new government

  • Surrender in the war (treatise of Brest-Litovsk,1918)
  • Dissolution of the Constituent Assembly after January election
  • Confiscation of land
  • Creation of the Cheka (political police) and the Red Army
  • Nationalization of banks and companies
  • New Constitution (it came into force in 1924)
  • Pyramidal structure of power (indirect election)
  • One-party system
  • Creation of the Soviet Republic (USSR)

1918-1920: civil war and war communism

  • Whites (supported by the West) against Reds
  • Emergence of a totalitarian dictatorship: persecution of dissidents, ban on trade in wheat, agricultural collectivization, labor camps and deportations

New Economic Policy (NEP, 1921-1927)

  • Moderate liberalization promoted by Lenin
  • Restoration of small private property and trade

The break between communism and social democracy

  • The doubts of Western socialists about the Marxist nature of Russian Revolution
  • The Third International (Comintern, 1919-1943)
  • It promoted the extension of the communist revolution worldwide
  • The 21 conditions against reformism and the split of socialism and creation of communist parties in Western Europe
  • Leninist controversial conception of marxism (Bolshevik party) and the debate about the ideological origins of communist totalitarianism

The role of peasantry

  • Immediate revolution: the revolution can take place in a backward country taking advantage of the weakness of the bourgeoisie
  • Role of the party: to be the vanguard of the proletariat (minority of professional revolutionaries) in order to create class consciousness
  • Centralism and secrecy became more important than democracy

Critics

  • From Western Europe: Rosa Luxemburg
  • From the inside: Leon Trotsky

Lenin’s death and Stalin’s rise to power (1924)

  • Gosplan: economic planning agency to replace the market system (Five-Year Plans from 1928)
  • Collective farms and promotion of heavy industry (coal, steel, oil) to the detriment of the production of consumer goods

Social and political effects

  • Deportation of thousands of peasant landowners (kulaks) and starvation
  • Internal purges in the party and in the Red Army

The Great Depression and the New Deal

Historical context in industrialized countries

  • Steady growth (esp. USA, 1870-1929)
  • Huge increase of population, life expectancy and urban growth
  • The containment of prices growth allowed an increase in real wages

Three economic phenomena during the 1920s and the 1930s in U.S.A.

  • The financial bubble
  • The Great Crash of the stock market
  • The Great Depression
  • The New Deal

The growth of the financial bubble

Speculation in stock market: Many investors find that they can profit by buying and selling certain goods rather than investing in productive activities.

A bubble is a situation in which investors believe that a temporary rise in the price will be permanent, so they hope to sell later at a higher price.

But prices grow only because investors believe they will continue doing so.

While the bubble grows, investors can earn a great deal of money, and therefore they buy stocks on credit though the leverage (Br. gearing) increases the risk enormously.

The Bubble bursts when the expectancy of profits decreases. Then, many investors decide to sell but prices rapidly fall due to the excessive supply.

As a result, investors lose their profits, damaging seriously real economic activity (business and consumers that depend on them).

The growth of the financial bubble (cont.)

The elements of a financial bubble according to Galbraith:

Some artifact or some development, seemingly new and desirable (tulips in Holland, gold in Louisiana, real estate in Florida, the superb economic designs of Ronald Reagan) captures the financial mind or perhaps, more accurately, what so passes. The price of the object of speculation goes up. Securities, land, objets d’art, and other property, when bought today, are worth more tomorrow. This increase and the prospect attract new buyers; the new buyers assure a further increase. Yet more are attracted; yet more buy; the increase continues. The speculation building on itself provides its own momentum. (1990, pp. 2-3, italics added)

The Great Crash

  • An avalanche of selling took place in October 29th, 1929
  • The prices of stocks collapsed and there were millionaire losses
  • The losses caused the Great Depression

The Great Depression

  • Gross domestic product fell
  • Unemployment increased
  • Construction fell
  • Many banks closed and savings accounts were lost
  • Many businesses failed
  • Wages were drastically reduced

Causes of the Great Depression

  • Speculation provoked the collapse of the structure of credit
  • Weakness of the farm
  • Inelastic demand

When food prices fell, people did not tend to increase their actual consumption very greatly. Increases in overall farm output resulted in much lower prices but not in larger cash receipts for the farmer. Faced with what is called an inelastic demand (a demand that does not respond in proportion to price changes) sellers are worse off before a flood of output (Heilbroner, p. 81)

Farmers could not constitute an oligopoly and curtail output to maintain prices. Therefore, they could not avoid the losses.

Is it simply a failure of the market system? Failure of agricultural sector was really the symptom of a serious weakness of the economic system as a whole.

Technology and Employment

Technology favors employment when a new invention creates a new industry but it has an adverse effect in the case of established industries.

During the 1920s productivity grew in many sectors while employment and wages came to a halt.

The overall cost of living fell and profits increased.

Maldistribution of Income: Concentration of incomes and resulting economic inequality

Not all the benefits arising from production may be placed in the hands of people who will exercise their purchasing power.

Profits or higher incomes were saved and did not return to the purchasing demand.

Conclusion: The debate about the role of capital formation:

Investment is the way to return savings to the income flow.

Expectation of profit plays a crucial role in the rate of capital formation and the speculative collapses destroy confidence.

The multiplier effect of consumption and capital investment.

The Great Depression as an instance of a more endemic problem of a market society.

Interventionist economic policy based on Keynesian premises by means of a number of acts which regulated market economy.

Markets do not always work for the public interest when they are left alone and government is the only means by which a democratic polity can resolve the inescapable tensions between its economic activities and its noneconomic values (Heilbroner).

Two main goals: to regulate banking sector and stimulate global demand

  • Glass-Steagall Act (1933-1999)
  • It separates the functions of commercial banks and investment banks to avoid speculation with the money of small savers
  • It also forbid that the big bankers take part in the boards of companies
  • Public spending by means of bonds emissions which implied an increasing of national debt: federal relief for unemployed people and farm subsidies
  • As a result, consumption increased but private investment did not

To stimulate global demand: Keynesian economic ideas

  • The key point for prosperity is the total volume of expenditure in goods and services
  • So, public spending could be a good means to achieve full employment though it implies an increasing of public debt
  • A new form of guided capitalism

Fears of Government Intervention

  • Business opposition to the New Deal: Keynesianism as the previous step to socialism
  • Impact of the War in economic growth and the acceptance of Keynesian policies
  • The importance of a central banking system and a fiscal policy as instruments to make a market society works

The Crisis of Liberalism: Ideological Extremism and the Second World War

The forces against liberal-democratic regimes were nationalist reactions from political Right against social revolution in 1917-20.

Different strands of the political Right

  • Fascism and the mobilization of the masses
  • The ambiguous role of tradition
  • Antisemitism
  • Radical Right was mainly supported by middle-classes
  • Fascism and the Great Depression
  • The crisis of liberal democracies (see Hobsbawm, pp. 136-141)
  • The importance of prosperity for the social consensus about liberal democracy: the case of Weimar Republic in Germany