The global economy between the world wars 7.4

Overview of Economic Crises Post World War I

• Global economic instability following World War I.

• Governments' involvement in mitigating economic crises.

Germany and Hyperinflation

• Treaty of Versailles: Germany mandated to pay reparation which led to severe economic stress.

• Germany financed war expenditures with debt, assuming the acquisition of rich territories would allow repayment.

• The failure to win the war resulted in overwhelming debt obligations and the inability to pay reparations.

• Response to Debt:

  • The German government started printing more money to cope with the debt.

  • Resulted in hyperinflation—a rapid devaluation of the German mark:

  • Example: $1 exchanged for 4,200,000,000,000 marks by November 1923.

  • The cost of a loaf of bread went from 160 marks in 1922 to 200,000,000,000 marks in 1923.

• This hyperinflation affected other nations:

  • Britain and France struggled to repay debts to the US as Germany defaulted.

  • Colonial economies in Africa, Asia, and Latin America also experienced turmoil as they depended on parent countries.

Soviet Union's Economic Challenges

• Russian Revolution (1917) led to exit from WWI but damaged their economy further.

• Vladimir Lenin's New Economic Policy (1923):

  • Introduced limited free market principles while retaining state control over major industries.

  • Helped stabilize the economy temporarily.

• Joseph Stalin's Economic Policies:

  • Seized power after Lenin's death in 1924 and aimed for rapid industrialization through Five-Year Plans.

  • Enforced collectivization of agriculture:

  • Small farms merged into large collective farms owned by the state.

  • Focus on feeding urban industrial centers over local population needs.

  • Resistance from kulaks (wealthy farmers) led to severe oppression (arrests, executions).

• Consequence: Holodomor (1932-1933):

  • Famine in Ukraine as a result of state policies, resulting in millions of deaths due to starvation.

The United States in Global Economics

• Despite turmoil, the US initially boomed economically post-WWI, aiding global recovery.

• Wall Street Crash of 1929:

  • Triggered the Great Depression, affecting worldwide economies interconnected through trade and investments.

  • The US government initially maintained a hands-off approach toward the economy.

• Shift in Policy Under President Franklin D. Roosevelt:

  • Introduced the New Deal to combat the economic crisis:

  • Infrastructure projects to create employment.

  • Government-sponsored retirement programs and medical insurance.

  • The effectiveness of the New Deal is debated, but WWII later alleviated many economic hardships (by 1939).