Economic History - Lecture 14: Economic Development After World War I

Vocabulary flashcards covering the economic legacy of World War I, the 1918–1920 influenza pandemic, interwar economic trends, models of unemployment (classical vs. Keynesian), and productivity growth during the interwar period.

Modern Economic Growth (Kuznets)

An economic era characterized by the spreading application of science to production and social organization, sustained increases in per capita product (roughly 15–30% per decade), structural shifts from agriculture toward manufacturing and services, and growing international factor flows.

The 'First Globalisation' (c. 1870–1913)

A period of rapid international integration marked by trade between an industrial core and a primary-producing periphery, mass transatlantic migration, massive capital flows, adherence to the international gold standard, and geopolitical stability under Pax Britannica.

Globalisation Backlash (1914–1945)

The retreat from global economic integration during the interwar era, where political obstacles—such as protectionist tariffs, non-tariff trade barriers, immigration quotas, exchange controls, and geopolitical conflict—overwhelmed transportation and communication technology improvements.

The 'Short' Twentieth Century

A historical concept describing the period from 1914 to 1989/1991, marked by intense conflict (the 'Second Thirty Years War' from 1914–1945 and the Cold War from 1947–1989), global catastrophes (pandemics, economic crises), and institutional disintegration.

1918–1920 Influenza Pandemic

A global viral outbreak caused by the H1N1 influenza A virus that infected up to 500 million people across three waves and claimed between 30 and 100 million lives, with the highest absolute mortality concentrated in Asia (the Indian Empire, China, and the Dutch East Indies).

Five Stylised Facts of the Interwar Economy

A framework describing the interwar period: (1) a worldwide growth slowdown hitting regions unevenly; (2) decent growth in the 1920s followed by a dismal 1930s; (3) real trade contraction out of line with output; (4) persistent, structural mass unemployment; and (5) accelerating labor productivity growth compared to 1890–1913.

Classical Labour Market Model

A theoretical model in which prices and nominal wages adjust flexibly to equate labor demand and labor supply at an equilibrium wage ($W_E$) and employment level ($L_E$), ruling out involuntary unemployment because any excess supply of labor bids real wages down until full employment is restored.

Keynesian Involuntary Unemployment Model

An economic framework demonstrating that when nominal wages are sticky downwards during deflation, the real wage rises above market-clearing levels to $W_1$, causing labor supply ($L_S$) to exceed labor demand ($L_D$) and producing persistent involuntary unemployment equal to $L_S - L_D$.

Sticky Wages

The tendency of nominal or money wages to resist downward adjustments during price deflation or falling aggregate demand, leading to higher real wages, reduced labor demand by firms, and persistent involuntary unemployment.

Benjamin and Kochin Hypothesis (1979)

A neoclassical proposition arguing that high interwar unemployment in the United Kingdom was predominantly voluntary, driven by generous social safety net provisions under the Unemployment Insurance Act (1920) which raised workers' reservation wages.

Unemployment Insurance Act (1920)

United Kingdom legislation that broadened unemployment benefit coverage to approximately 11 million workers, cited by classical economists as having established a 'voluntary army' of unemployed individuals who could afford to reject low-paying positions.

Sterling Overvaluation (1925)

The British decision to restore the pound sterling to the gold standard at its pre-war parity of $1\text{ pound} = 4.86\text{ USD}$ without adjusting for wartime inflation, which priced British exports out of foreign markets, induced domestic deflation, and caused high domestic unemployment.

Biased Technical Change

A shift in technology that alters the relative marginal productivity of input factors; post-1900 industrial advancements became substantially more capital- and knowledge-intensive, systematically favoring economies rich in physical and human capital.

General Purpose Technologies (GPTs)

Transformative, versatile innovations—notably electrification and internal-combustion-driven motorisation—that drastically lower production and transportation costs across multiple sectors of an economy.

Composition Effect (1930s Productivity)

A statistical phenomenon observed during economic contractions where average measured labor productivity paradoxically rises because employers terminate the least productive and least experienced workers first.