AMSCO 7.4

Economy in the Interwar Period

Introduction

• Quote from FDR (1936) highlighting issues faced during the interwar period:

  • Business and financial monopoly

  • Speculation

  • Reckless banking

  • Class antagonism

  • Sectionalism

  • War profiteering

Essential Question

• How did different governments respond to economic crises after 1900?

Context of the Great Depression

• Post-World War I global economic crisis led to the Great Depression of the 1930s.

• This crisis resulted in widespread implications:

  • Undermined faith in market-based economics, which had previously resulted in wealth due to imperialism.

  • Increased unemployment, hunger, and homelessness compelled citizens to look to their governments for solutions.

  • Governments historically contributed to capitalism through infrastructure (roads, schools) and trade regulation, but intervention increased in the 1930s.

Government Responses

• Response by various nations varied:

  • United States: Liberal shift under President Roosevelt, focusing on identifying economic inequities and activities undermining the economy (potentially leading to war).

  • Germany, Italy, and Japan: Radical right turns; embraced more extreme nationalistic ideologies.

  • Russia: Instituted government control through repressive Five-Year Plans based on production quotas.

The Great Depression

Effects of World War I

• Significant devastation from World War I set the groundwork for economic turmoil.

• Anxiety among Western Europeans due to:

  • Loss of millions of lives (both military and civilian).

  • Enormous financial expenditures stemming from the war.

• Treaty of Versailles imposed reparations on Germany, which could not meet these obligations, leading to hyperinflation.

Hyperinflation in Germany

• Germany's response to its inability to pay reparations involved printing excessive amounts of currency:

  • Economic situation deteriorated, making their currency practically worthless (illustrated by example of using currency as wallpaper).

• The aftermath:

  • Inflation caused general price increases and a drop in currency value internationally.

  • France and Britain faced difficulties repaying loans to the U.S.

  • The Soviet government refused to repay debts owed prior to the revolution.

Global Economic Downturn

• Though the 1920s exhibited modest gains, the Great Depression (initiated by stock market crash, agricultural overproduction) obliterated economic stability.

• Notably affected:

  • German banks suffered due to investors removing funds post-crash.

  • Bank failures compounded economic issues with skyrocketing inflation.

• Other regions impacted:

  • Economies of Africa, Asia, and Latin America dependent on industrial nations faced downturns.

  • Japan saw its exports cut in half between 1929 and 1931 due to reliance on foreign trade.

Statistical Overview (1929-1938)

• The chart illustrates total global production and trade, indexed to 1929 levels (100):

  • 1930: Production 86, Trade 89

  • 1931: Production 77, Trade 81

  • 1932: Production 70, Trade 74

  • 1933: Production 79, Trade 76

  • 1934: Production 95, Trade 79

  • 1935: Production 98, Trade 82

  • 1936: Production 110, Trade 86

  • 1937: Production 120, Trade 98

  • 1938: Production 111, Trade 89

Keynesian Economics

• John Maynard Keynes developed new economic theories during the Great Depression:

  • Rejected laissez-faire economic policies.

  • Advocated for intentional government intervention to stimulate economic activity during downturns via deficit spending.

  • Recommended reducing taxes and increasing government spending to simulate growth and reduce unemployment, thereby terminating the depression.

The New Deal

• President Franklin Delano Roosevelt's New Deal represented the U.S. response to the Great Depression, incorporating Keynesian ideas:

  • Goals:

  • Relief for suffering citizens (the poor, unemployed, farmers, minorities, and women).

  • Recovery through government spending.

  • Reform to prevent future economic crises.

• By 1937, positive indicators (declining unemployment, rising production) suggested Keynesian economics were effective.

• Shift in approach due to concerns over growing deficits led to a resurgence in unemployment, but the depression effectively ended with World War II.

International Trade and the Great Depression

• The Great Depression was a global crisis with over 30 million unemployed worldwide by 1932; governments were called upon for support.

• Global trade decline exacerbated as nations raised tariffs to protect jobs, further stifling recovery.

• Japan’s quick recovery involved currency devaluation and increased military spending, showing a contrast to other nations.

Political Revolutions in Russia and Mexico

Russian Revolution

• Rebellions occurred against authoritarian regimes, with significant effects on political and economic landscapes.

• Lenin's promise of "peace, land, and bread" contrasted with reality: starvation during the Russian Civil War (1918-1921).

• Lenin established the New Economic Plan (NEP) allowing for temporary private trade to cure an economy nearing collapse; however, it wrapped strict political control.

Joseph Stalin's Rise and Economic Policy

• Post-Lenin, Joseph Stalin took control, implementing the first Five-Year Plan to industrialize the USSR:

  • Collectivization of agriculture enforced, transitioning farmland from private ownership to collectives (kolkhoz).

  • The government's aggressive requisitioning policies resulted in farmer resistance and crippling famines, particularly in Ukraine.

  • Growth in heavy industry occurred during the late 1930s, despite the lack of consumer goods.

• Stalin's regime involved brutal repression, executing political dissidents and orchestrating widespread famine through forced collectivization.

Economic Progress in Mexico

• Mexico's economy, post-revolution, saw centralized power under the Institutional Revolutionary Party (PRI) aiming for growth.

• Lázaro Cárdenas enacted successful land reforms and nationalized the oil industry in 1938 with the establishment of PEMEX.

Rise of Right-Wing Governments

Fascism

• Fascist ideologies emerged focusing on extreme nationalism and the glorification of military might, suppressing opposition.

• Italy’s Fascism coined by Mussolini emphasized corporatism where sectors of the economy operate under state control while appearing autonomously.

• Mussolini took power following widespread dissatisfaction and militarized the state through propaganda and imperialism, notably in Africa.

The Spanish Civil War

• A clash between democracy (Republicans), and fascism (Nationalists) illustrating a global conflict of ideologies.

• Foreign powers influenced the civil war, intensifying the conflict through military support and intervention.

• Marked by events like the bombing of Guernica, which revealed the horrors of modern warfare and was embodied in Picasso's renowned painting.

Brazil's Political Development

• Economic struggles and worker dissatisfaction led to a coup installing Getulio Vargas, whose Estado Novo mirrored fascism while avoiding outright violent repression.

• Vargas pursued industrial growth, implemented censorship, and abolished political freedoms despite a nominal alignment with Allied forces in WWII.

Conclusion

Three Approaches to the Modern Industrial Society

Key Terms by Theme

Economics

• inflation

• deficit spending

• relief

• recovery

• reform

• collectivize

• kolkhoz

• corporatism

Events and Policies

• Great Depression

Wars and Rebellions

• Russian Civil War

• Spanish Civil War

• Guernica

Politics

• Politburo

• Institutional Revolutionary Party (PRI)

• fascism

• totalitarian state

• Popular Front

• Nationalists

Countries and Regions

• USSR

• Soviet Union

• Libya

• Italian Somaliland

• Spanish Republic

• Basque region

• hypernationalism

Leaders

• Franklin Delano Roosevelt

• Lázaro Cárdenas

• Francisco Franco

• New Deal

• New Economic Plan (NEP)

• Republicans

• Five-Year Plan

• Loyalists

Institutions

• Luftwaffe

• gulag

• John Maynard Keynes

• PEMEX