The Great War: Economic Consequences Quiz

The Great War: Economic Consequences

• The American intervention in WWI significantly altered the war's outcome. Austria-Hungary and Germany signed an armistice in November 1918.
• The Treaty of Versailles, signed in 1919, officially concluded WWI after arduous negotiations. Punitive measures and debts were imposed on Germany.
• Two major consequences of the treaty included the rise of economic nationalism and monetary/financial instability.

WWI: The Age of Insecurity

• The US emerged as a global power but did not fully embrace international responsibilities; they did not join the League of Nations.
• Germany faced harsh terms, including significant territorial losses and forced disarmament.
• Article 231 of the Treaty of Versailles held Germany solely responsible for the war, compelling them to pay reparations.
• Many countries experienced economic repercussions following the war, especially those that emerged from the dissolution of the Habsburg Empire, experiencing significant economic self-sufficiency and nationalism.
• Economic nationalism and tariffs were common features in the post-war period. Some bilateral trade agreements were formed, abandoning the principle of the MFN clause.
• Many nations embraced austerity policies to restore fiscal stability and control inflation.

WWI: The End of Monetary Stability

• German reparations totalled 33 billion dollars (twice their GDP), with crippling annual installments.
• Despite German difficulties, other nations (France and England) insisted on full indemnification payments.
• In 1922, Germany temporarily suspended payments, and in 1923, French and Belgian troops occupied the Ruhr region, taking control of mines and factories.
• The resultant measures led to hyperinflation, causing the German mark's value to plummet to only .02% of its pre-war value.

The Reconstruction of the Payment System

• The global financial system suffered severe imbalances in the post-World War I era.
• There was a debate about whether returning to a gold standard was essential.
• The United States was convinced to provide financial backing to Europe due to fears of economic/monetary collapse and potential socialist revolutions.

The Dawes Plan

• The Dawes Plan aimed at resolving the economic and monetary issues created by the war and associated reparations by easing the terms of the reparations and improving the functioning of the German economy.
• In 1923, the French withdrew from the Ruhr region, and in 1924, an international commission was established to establish The Dawes Plan.
• Key elements of the plan included redefining reparatory terms, reorganising German banks, and providing a loan to Germany.
• The plan enabled Germany to resume reparation payments, restoring gold convertibility, and reigniting its economic recovery.

The International Financial System (1924-1930)

• Significant financial flows occurred between the United States, Allies, and Germany.
• The US played a crucial role in funding European recovery efforts through loans.

Post-War Monetary Policy: What to Do

• Many European nations returned to a path of economic growth.
• Britain returning to the gold standard in 1925 had negative impacts including miners' strikes, unemployment, and a trade balance crisis.
• The overvalued pound provided an advantage to the US dollar.

The Roaring Twenties

• Following 1925, Western economies rebounded with notable differences between Europe and North America.
• Industrial production rose in Europe by around 20% primarily driven by the Second Industrial Revolution (electricity, automotive, and chemical industries).
• The US experienced significant economic prosperity characterized by high material standards of living for some people. Cars, household appliances, and entertainment became common.
• The US was not involved in the war as extensively as Europe and thus faced significantly less damage, allowing for significant economic growth.

The Flying USA

• The success of the US economy created a perception in Europe of unprecedented standards of living in America.
• Economic prosperity and high disposable income led to widespread consumerism.
• Homeownership, automobiles, and labor-saving appliances became common.

GDP per capita (1918-1935)

• A graph is included demonstrating GDP per capita for several countries from 1918 to 1935. Data suggests significant fluctuations and differences in economic performance across the countries.