Economy in the Interwar Period: 7.4

Global Responses to Economic Crises and the Interwar Period

• The Essential Question: How did different governments respond to economic crises after $1900$?

• Contextual Overview: Following the global trauma of World War I, a global economic crisis emerged in the form of the Great Depression during the $1930s$. This crisis ultimately paved the way for World War II.

• Shift in Economic Philosophy: The Depression undermined faith in market-based economics, which had previously expanded wealth during the era of imperialism.

• Increasing Government Intervention: As unemployment, hunger, and homelessness rose, citizens turned to their governments for assistance. While governments had historically supported capitalism by building roads and schools and regulating trade, the $1930s$ saw a significant increase in direct intervention.     * Liberal Responses: The United States became more liberal under President Franklin Delano Roosevelt, who targeted inequities and reckless economic activities.     * Radical Right-Wing Responses: Germany, Italy, and Japan moved radically to the right.     * Repressive State Control: In Russia, the government instituted strict economic control through Five-Year Plans based on production quotas.

• FDR’s Critique of Internal Enemies: In $1936$, President Franklin Delano Roosevelt identified the "old enemies of peace" as:     * Business and financial monopoly.     * Speculation.     * Reckless banking.     * Class antagonism.     * Sectionalism.     * War profiteering.

The Great Depression

• Post-War Anxiety: While Western Europeans felt bewildered by the losses of World War I, the Allied nations (though victorious) suffered the loss of millions of citizens and massive financial expenditures.

• The Central Powers: Defeated nations, particularly Germany and countries resulting from the breakup of Austria-Hungary, faced even deeper losses.

• German Hyperinflation:     * The Treaty of Versailles required Germany to pay billions of dollars in reparations.     * Unable to pay, the German government printed more paper money in the $1920s$, causing extreme inflation.     * Visual Evidence of Inflation during the Weimar Republic: Common food items reached astronomical prices:         * Four eggs: $40,000$ marks.         * One tomato: $40,000$ marks.         * One loaf of bread: $50,000$ marks.         * A single meal consisting of various items shown in archival photos cost a total of $1$ million marks.

• The Circular Debt Cycle: France and Britain struggled to repay wartime loans to the U.S. because Germany could not pay reparations. Additionally, the Soviet government refused to honor Russia's pre-revolutionary debts.

• Major Causes of the Global Downturn:     * Agricultural Overproduction: High supply led to lower prices and economic instability.     * U.S. Stock Market Crash ($1929$): This ended the tentative stability of the $1920s$. American investors withdrew funds from German banks, leading to bank failures in Germany.

• Impact on Global Economies:     * Germany: Suffered more than any other Western nation.     * Africa, Asia, and Latin America: These regions suffered because their economies were dependent on imperial nations facing downturns.     * Japan: Dependent on foreign trade, Japan saw its exports cut in half between $1929$ and $1931$.

Statistics: The Global Economy ($1929$ to $1938$)

• The following data represents changes relative to a baseline of $100$ for the year $1929$.

• $1929$: Total Global Production: $100$; Total Global Trade: $100$

• $1930$: Total Global Production: $86$; Total Global Trade: $89$

• $1931$: Total Global Production: $77$; Total Global Trade: $81$

• $1932$: Total Global Production: $70$; Total Global Trade: $74$

• $1933$: Total Global Production: $79$; Total Global Trade: $76$

• $1934$: Total Global Production: $95$; Total Global Trade: $79$

• $1935$: Total Global Production: $98$; Total Global Trade: $82$

• $1936$: Total Global Production: $110$; Total Global Trade: $86$

• $1937$: Total Global Production: $120$; Total Global Trade: $98$

• $1938$: Total Global Production: $111$; Total Global Trade: $89$

Keynesian Economics and the New Deal

• Keynesian Economics: British economist John Maynard Keynes rejected the laissez-faire ideal.     * Deficit Spending: Keynes argued that during a depression, governments should spend more than they take in to stimulate economy activity.     * Mechanism: By cutting taxes and increasing spending, governments spur growth, leading people back to work and ending the depression.

• The New Deal: President Franklin Delano Roosevelt used Keynesian ideas through policies aimed at the "Three Rs":     * Relief: For suffering citizens (the poor, unemployed, farmers, minorities, and women).     * Recovery: To bring the nation out of depression through government spending.     * Reform: To change policies and avoid future disasters.

• Outcomes: By $1937$, unemployment was declining, but Roosevelt reversed course due to fears of large deficits, causing unemployment to grow again. The Great Depression finally ended in $1941$ when the U.S. entered World War II and enacted massive military spending deficits.

• Global Impact on Trade: By $1932$, more than $30$ million people were unemployed worldwide. Nations imposed strict tariffs (taxes on imports) to protect domestic jobs, which exacerbated the decline in international trade.

• Japan’s Rapid Recovery: Japan devalued its currency, making Japanese products cheaper than imports. Additionally, its overseas expansionism increased the demand for military goods, stimulating its economy.

Political Revolutions in Russia and Mexico

• Continuing Revolution in Russia:     * Russian Civil War ($1918$–$1921$): Despite the promise of "peace, land, and bread," the populace faced starvation. Workers struck, and peasants hoarded food, leading to sharp drops in production.     * New Economic Plan (NEP): In $1921$, Lenin reintroduced some private trade on a small scale. This "temporary retreat" from communism was a modest success until Lenin’s death in $1924$.

• Joseph Stalin's Dictatorship:     * Stalin took control of the Politburo (the Communist Party's central organization) and ruled for nearly $30$ years.     * First Five-Year Plan: Aimed to transform the USSR into an industrial power to "catch up" with the West.     * Collectivization of Agriculture: Farmland was taken from private owners and given to collectives (kolkhoz).     * Peasant Resistance: Farmers retaliated by burning crops and killing livestock. The government seized food for the cities, resulting in massive famines—especially in Ukraine—where millions starved.     * Mixed Results: Agricultural collectivization failed, but heavy industry grew tremendously in the $1930s$. There were many factory jobs and low costs of living, though consumer goods remained scarce.     * Repression: Stalin sent political opponents to gulags (labor camps) where many died. Atrocities went largely unreported due to tight media control.

• Institutional Revolutionary Party (PRI) in Mexico:     * The PRI dominated Mexican politics for most of the $20th$ century through a corporatist system.     * Lázaro Cárdenas: Led successful land reform in the $1930s$.     * Nationalization ($1938$): Cárdenas nationalized the foreign-owned oil industry, creating Petróleos Mexicanos (PEMEX), which became the second-largest state-owned company in the world.

The Rise of Fascism and Right-Wing Governments

• Definition of Fascism: A political system characterized by extreme nationalism, glorification of the military/struggle, the suppression of political dissent, and strongly anti-communist views. Fascist regimes often blamed ethnic minorities for national problems.

• Fascism in Italy:     * Etymology: The word fascism comes from fasces, an ancient Roman symbol of a bundle of sticks tied around an axe.     * Benito Mussolini: Coined the term and established a totalitarian state where the government controlled all aspects of society.     * Italian Corporatism: A theory where economic sectors (employers, unions, state officials) act as "organs" of the state body. In reality, the state imposed its will on all.     * Abyssinian Crisis: Discontent with the Treaty of Versailles led Mussolini to invade Abyssinia (modern-day Ethiopia) in $1935$ with $100,000$ troops. This act defied the League of Nations and destroyed the organization's credibility.     * The Axis: In $1936$, Mussolini and Hitler formed an alliance.

• The Spanish Civil War ($1936$–$1939$):     * The Spanish Republic: Established in $1931$.     * Popular Front: A left-wing coalition elected in $1936$ focusing on land reform.     * The Conflict: A military uprising by Nationalists (led by General Francisco Franco) against the Republicans (Loyalists).     * Foreign Intervention: Despite a nonintervention agreement, Hitler (Germany), Mussolini (Italy), and Salazar (Portugal) armed the Nationalists. The Soviet Union and civilian volunteers from the UK, US, and France helped the Loyalists.     * Guernica: The German and Italian Luftwaffe bombed this Basque town, marking one of the first aerial bombings of civilians. Pablo Picasso immortalized the tragedy in his $1937$ painting, Guernica.     * Outcome: Franco’s forces won in $1939$. He ruled as a dictator until $1975$.

• Repressive Regime in Brazil:     * Getulio Vargas: Led a bloodless $1930$ coup following the collapse of the coffee-dominated economy during the Great Depression.     * Estado Novo ("New State"): Program that stripped away freedoms, abolished political parties, and imprisoned opponents.     * Hypernationalism: A belief in the superiority of one's nation and the single-minded promotion of national interests.     * World War II Stance: Unlike European fascists, Vargas did not glorify violence to maintain control. Brazil eventually sided with the Allies against the Axis.

Comparison of Ideologies in Modern Industrial Societies

• Communism:     * Economics: Government owns or manages businesses.     * Internationalism/Nationalism: Supports internationalism; opposes colonialism; calls for global worker solidarity.     * War and Peace: Peace will follow the defeat of capitalism.     * Equality: Supports political and economic equality.     * Religion: Advocated atheism.

• Capitalism:     * Economics: Private ownership and competition.     * Internationalism/Nationalism: Mixed attitudes toward both.     * War and Peace: Mixed attitudes.     * Equality: Supports political equality; does not support economic equality.     * Religion: Individual religious liberty.

• Fascism:     * Economics: Private ownership allowed, but government restricts competition to serve national interests.     * Internationalism/Nationalism: Strong nationalism; each nation pursues unique interests.     * War and Peace: Opposed peace; believed peace weakened society.     * Equality: Opposed both political and economic equality.     * Religion: Used religion as a tool to build nationalism.