Economics During the Turbulent Interwar Period

Economics During the Turbulent Interwar Period Europe Between The World Wars ChaptersThe Interwar Years Were Characterised By StruggleThe Interwar Economy of the United StatesGermany's Economy in the Interwar PeriodEconomics of The United Kingdom Between the WarsThe Interwar Period From An Economist’s Point Of ViewBetween 1919 and 1938, Europe, as well as other countries across the world, experienced a period of relative peace and stability, politically speaking.This came after the horrors of the First World War, which had a variety of short- and long-term causes, although the assassination of Archduke  Franz Ferdinand in Sarajevo in 1914 is generally considered to have been one of the more immediate triggers.Although the First World War lasted a little longer than  four  years, when the war did finally end, after years of armed conflict and occupation, the time came for countries to rebuild.From an economic point of view, this interwar period between the First World War and the Second World War was not particularly smooth sailing. Although European economi es did have periods of brief stability during this twenty year period, stability has to be considered against a backdrop of intense loss, both emotionally, physically, and financially, coupled with a rise in nationalism in Germany during the 1930s.Many European countries, including France, Belgium and Germanyhad been torn apart by fighting, meaning that many towns, cities, and communities needed to be rebuilt. This, on top of the fact that many millions had lost their lives or had become casualties of war, left workforces sparse, and nations suffered as a result.Finally, there’s the fact that the sheer cost of the war was extraordinary, and decimated the reserves of more than one country.Easy credit terms, along with a plethora of goods for purchase stimulated the American economy. In this time of prosperity, the American government, with a newfound sense of magnanimity, eased the burden of Germany's repayment obligations, first through the Dawes' Plan; later under the Young Plan. The Dawes' PlanDue to their inability to make their second reparations payment to France, Germany lost access to its most fertile industrial area, the Ruhr region. Their inability to make use of the installations in that region formerly theirs was unfairly crippling their ability to rebuild their own economy. That, in turn, led to them taking punishing measures to repay their war damages to other nations.Whereas initially, German banks were conducting elaborate financial manoeuvers to meet their obligations, it soon became apparent that the system was a house of cards, destined to fall. All of the allied nations - Britain, France and the US knew something must be done to stave off another flavour of German disaster.The Dawes Committee, so named because it was chaired by American banker Charles Dawes, drafted a plan that would give Germany more leeway to rebuild both its country and economy while still meeting its obligation to repay for the war.Allied troops would clear out of the R uhr area, permitting German manufacture to begin once againThe Central Bank (Reichsbank) would be reorganised under the supervision of AlliesGermany would be made a loan of around $200 million, most of it from Wall Street bonds, to get things startedA portion of revenues derived from transportation, taxation and customs fees would be earmarked for reparations paymentsGermany would be held liable for 1 billion Marks repayment the first year, that amount increasing in subsequent years to a total of 2.5 billion Marks within five years.Now with liquid assets to pay France and Great Britain, and with industry once again humming along, Germany soon joined America and France in celebrating the Roaring Twenties.In accordance with the Treaty of Versailles, the U.S.A. was to be repaid for their war loans in dollars and gold. Germany found clever but ultimately damaging ways to meet that burden. France, relying on Germany to pay their debts, ended up unable to repay their obligation due to Ger many's default.This created additional strain on the Western European economies, who then found themselves borrowing from other nations to make the payments, leading America to further eased reparation obligations for Germany through the Young Plan.The Young Plan expected Germany to default on around two-thirds of its obligation to American banks and so, wrote the plan in such a way that only one-third of the total debt must be met unconditionally. The plan further relaxed repayment terms, making it easier than ever for Germany to comply.It's better to get a little than get nothing at all.So   was the prevailing attitude in American government and on Wall Street and, with an influx of money and through their increasingly protectionist policies, the U.S.A. enjoyed a period of relative stability and economic growth during the mid-1920s, which in turn led to an increase in world trade as well as speculative trading.Nevertheless, this period of stability was not to last, and in 1929 the Wall Street Crash occurred, which sent the U.S.A., as well as Europe, into a deep economic depression.  It was against this backdrop of economic turmoil that extremist parties, including the Nazi and Communist parties in Germany, gained greater popularity.No German felt the humiliation of the Versailles Treaty more than Adolf Hitler, who fomented unrest and sought to overthrow the existing government even as the economy hummed along. He would later be appointed as German Chancellor, rewrite the laws so that they would permit him absolute power and ultimately, start  World War Two in 1939  by invading Poland.Following the Treaty of Versailles, western Europe's borders were redrawn Source: Pixabay Credit HansGermany printed yet more banknotes to meet that demand.The cost of a loaf of bread is often used as an example of the extreme hyperinflation that Germany experienced during the interwar period. (Source: CC BY 2.0, Jeff Keacher, Flickr)For some  context of how extreme Germany’s hyperinflation was...Imagine going into a supermarket to buy a loaf of bread. The price of that loaf when you first entered the supermarket hovered around £90 but then, as you shopped, it doubled or tripled in price. By the time you finished your shop, that loaf of bread will cost you 82 times as much as it had when you first entered the shop!In an effort to avert an economic meltdown, American investment banker J.P. Morgan organised a series of reparations conferences in June 1922. These meetings yielded no satisfactory results and the Mark devalued even further - now it took 7,400 Marks to buy one dollar.Germany asked for a moratorium on reparations payments at various times. Amendments to the payment terms were granted through the Dawes Plan and, later, the  Young Plan but these changes did not provide for a long-term solution.Through these two initiatives and, most importantly, the restoration of the Ruhr industrial zone - one of the terms of the Dawes Plan, the German economy recovered enough to enjoy what they called Die Goldene Zwanzige - The Golden Twenties, their version of the Roaring Twenties.Although Germany’s economic situation was nearly untenable at the beginning, when the Great Depression hit Europe in the early 1930s, they were economically sound enough to weather it with minimal damage.Economics of The United Kingdom Between the WarsThe U.K. had its own set of struggles during the interwar period, due to the fact that, like their European Allies, a huge amount of the country’s wealth had been spent in order to finance the First World War.Taxation was the primary indicator of this economic shift: prior to the war, a wealthy man might pay up to 8% of his income in taxes; after the war that percentage jumped to more than four times that amount - around 33%.In spite of wealthy citizens' higher tax burden replenishing state coffers, the following four factors  made for a lackluster economy in Great Britain:The labour shift away from coal and steel production meant that more people were unemployed and relying on the dole to see them through.Approximately 5% of the national revenue went to support families during periods of no work.Our country's resistance to modern methods of business and industry such as assembly line work, consumer credit and eliminating surplus goods served to further weigh our economy down.The shipping industry, once dominant in world trade, failed to turn a profit since the war despite several stimulus packages.Winston Churchill, at that time Chancellor of the Exchequer, put the country back on the gold standard - a move criticised by many economists as keeping the economy down.By the mid-1920s, the British economy had at least stabilised, even though revenues were rather slim and unemployment was still rampant, especially in the industrial north and in Wales, where mining was a main source of employment.This caused a political shift rather than an economic one. the Liberal party collapsed, bringing the Labour Party to the forefront as contenders against the Conservative Party.  As Labour represented (and still represent) trade unionists, much was done to protect the rights and benefits of workers during that time. However, in spite of their best efforts, Scotland and Northwest England still suffered long periods of economic uncertainty and hardship.Because Britain's actual financial cost of the war was relatively low - it suffered more economic stress because of disability and death, our country only reluctantly supported the Treaty of Versailles.As mentioned before, our chief economist, John Keynes, felt that the treaty was far too harsh on Germany and would, in fact, prevent that country's economic recovery.With America financing Germany's repayments for war damages, Britain was guaranteed her share of the monies which she used, in turn, to repay her debt to America.Looking ahead, our country's leaders hoped to forge trade relations with Germany once that country was restor ed, but hopes of bringing Germany onto the global economic stage as an equal partner through various trade deals soon were dashed.The horrors of war were still fresh in everyone's mind. The great powers - America, Britain and France believed that strong alliances would serve as a deterrent to war.In their efforts to prevent another worldwide conflict, they also sought to limit, among other instruments of war, naval might and weaponry. Furthermore, these allies sought peace with Germany through a series of treaties negotiated at Locarno, in Switzerland.Through such cooperation, forethought and rigorous planning, the United Kingdom weathered the global economic depression fairly well.  We had just time enough to enjoy our bit of the Roaring Twenties before the global economy crashed, but even that event did not impact us so severely.During this time, our country's trouble was more political. The Chanak Crisis nearly set us to war with Turkey but, in the end, even that conflict was ave rted, albeit narrowly.What really rattled British sabres was the rise to power of Adolf Hitler. The uncertainty of another possible war with Germany, coupled by the death of our beloved King and the abdication of his son, who soon made highly publicised appearances in Nazi Germany... that's what put our country in turmoil!  The Great Depression hit during the interwar years. (Source: CC0 1.0, geralt, Pixabay)The Interwar Period From An Economist’s Point Of ViewThe interwar period is a fascinating one, both from a historical and economic perspective.Although the period only spans around twenty years, the world as a whole saw tremendous shifts during that time.While one of the most famous results of the interwar period â€" namely, the rise of Hitler and the Nazi Party â€" is well known, it’s equally true that other countries faced their own political and economic struggles during this period, as countries tried to move on from the horrors of the First World War and rebuild their n ations and economies.This attempt to rebuild peace was ultimately shattered with the start of the Second World War.Historians have pointed out the short- and long-term causes of World War Two. One of the most prominent factors was the long-simmering German resentment over what they saw as the subjugating terms in the Treaty of Versailles. To reassert its might, under orders from the Führer, German troops marched on relatively defenceless Poland in September 1939, leading Britain and France to jointly declare war on Germany.The start of World War Two undid all the work that had been made to encourage a lasting global peace, including the work of the League of Nations, which was founded in 1920.Oddly enough, the interwar period is not always a primary focus of economics courses, whether at school or university. Although an  emphasis is placed on areas such as macro- and microeconomics, economic history does have a tendency to fall by the wayside.However, economic history can be very satisfying, not to mention enlightening, area of economics to study. So, if you’re offered the chance to take a module covering economic history, it is well worth studying it.If such a course is not offered as a part of your curriculum syllabus, you might see if such is offered as an online course, as a massive open online course (MOOC).Economic history classes can cover all sorts of historical economic events, including:The Industrial Revolution;The interwar period and the Great Depression;The workings of ancient economies; andThe 2008 financial crisis.If you’d like to study or learn more about economic history, then you can also reach out to an economics teacher on Superprof for help. Superprof has economics tutors with specialisms and interests across a wide range of economics subjects, so you should be able to find a tutor that specialises in economic history at a price point that suits your budget.By entering your subject preference and postcode, you can be matched with tut ors in your area. However, online sessions with a Superprof tutor are also an option for anyone who would prefer to study remotely.Read more about the Roman Empire economy.Read more about the post-war boom.Read more about behavioural finance.