Economy in the Interwar Period Notes

7.4 Economy in the Interwar Period

Essential Question: How did different governments respond to economic crises after 1900?
After World War I, a global economic crisis led to the Great Depression of the 1930s and eventually World War II.
The crisis undermined faith in market-based economics.
Increased unemployment, hunger, and homelessness led people to seek help from their governments.
Government intervention in the economy increased worldwide in the 1930s.
Examples of government responses:
- The United States became more liberal under President Roosevelt.
- Germany, Italy, and Japan turned to the right.
- Russia instituted government economic control through repressive Five-Year Plans.

World War I had massive effects, leaving many Western Europeans bewildered.
Allied nations lost millions of citizens and spent vast amounts of money.
The defeated Central Powers, especially Germany and Austria-Hungary, suffered even greater losses.
The Treaty of Versailles forced Germany to pay billions of dollars in reparations.
Germany printed more money in the 1920s, causing inflation.
Inflation: a general rise in prices, drastically decreased the value of German money.
France and Britain struggled to repay wartime loans from the U.S.
The Soviet government refused to pay Russia's prerevolutionary debts.

The 1920s saw modest economic gains in Europe, but the Great Depression ended this stability.
Major causes of the global economic downturn:
- Agricultural overproduction
- The United States' stock market crash in 1929
American investors withdrew money from German banks after the stock market crash.
Germany faced both skyrocketing inflation and bank failures, suffering more than any other Western nation.
Economies of Africa, Asia, and Latin America suffered due to dependence on struggling imperial nations.
Japan's economy suffered as exports were cut in half between 1929 and 1931.

Reference to a chart showing total global production and trade from 1929 to 1938, with 1929 levels represented by 100.

The Great Depression inspired new economic insights.
British economist John Maynard Keynes rejected the laissez-faire ideal.
Keynes argued that government action could improve the economy.
During a depression, governments should use deficit spending to stimulate economic activity.
Deficit spending: spending more than the government takes in.
Cutting taxes and increasing spending would spur economic growth and end the depression.

President Franklin Delano Roosevelt used Keynes's ideas to address the Great Depression in the United States.
The New Deal aimed to bring:
- Relief: for the poor, unemployed, farmers, minorities, and women
- Recovery: to bring the nation out of the Depression through government spending
- Reform: to change government policies to avoid future disasters
By 1937, unemployment was declining and production was rising, suggesting Keynesian economics was working.
Roosevelt feared growing government deficits and reversed course, causing unemployment to rise again.
The Great Depression ended after the United States entered World War II in 1941, with large military spending deficits.

The Great Depression was a global event, spreading from industrialized countries to Latin America, Africa, and Asia.
By 1932, over 30 million people worldwide were out of work.
Increased unemployment led to a decline in international trade.
Nations imposed strict tariffs to protect domestic jobs.
Tariffs: taxes on imports.
Japan devalued its currency to make its products less expensive than imports.
Japan's overseas expansionism increased its need for military goods and stimulated the economy.

Rebellions against authoritarian governments occurred in Mexico, China, and Russia in the early 20th century.
Revolutions led to new political philosophies and practices.
Each country took a different approach to managing their national economy.

Lenin and the Bolshevik Party promised “peace, land, and bread” but faced starvation during the Russian Civil War (1918–1921).
Revolts occurred against the Russian government, and industrial and agricultural production dropped sharply.
In 1921, Lenin instituted the New Economic Plan (NEP), a temporary retreat from communist policies.
NEP reintroduced private trade, allowing farmers to sell products on a small scale, while maintaining strict political control.
The NEP had modest successes but ended when Lenin died in 1924.

Joseph Stalin took control of the Politburo after Lenin's death, becoming a dictator for almost 30 years.
Stalin abandoned the NEP and instituted the first Five-Year Plan to transform the USSR into an industrial power.
He aimed to