1. EC120 week 19, topic 14, slide 0 The Great War, 1914−18, and its aftermath Topics: Overview: the world economy 1914−39 The gathering storm: world tensions before 1914 The Great War, 1914−18 (a.k.a. World War I, First World War) Economic impact of the war Domestic policy objectives after the armistice Economic consequences of the political settlement Financial policies in the early 1920s Restoration of the Gold Standard International trade: the war and its aftermath Summing up: economic performance in the 1920s

2. EC120 week 19, topic 14, slide 1 Overview: the world economy, 1914−39 Four phases: 1.The `Great War’, World War I, 1914−18 2.The aftermath of war in the 1920s 3.The Great Depression, late-1920s to mid-1930s 4.Recovery from mid-1930s and rearmament

3. The Gathering Storm: the world before 1914 Instabilities in the world economy: Globalisation created tensions: the “great specialisation” of international trade had reached its limits Political developments had international implications Europe drifted to war, propelled by national rivalries EC120 week 19, topic 14, slide 2

4. EC120 week 19, topic 14, slide 3 The Great War, 1914−1918 Fought mainly in Europe on two fronts, East & West Mostly a land war: stalemate at sea Became a war of attrition Economic policy: `maximum slaughter at minimum expense’ (?)

5. EC120 week 19, topic 14, slide 4 Economic impact of the war, 1 Diversion of industrial resources to the war effort Disruption of international trade: –Allies attempted to blockade German imports –German U-boat campaign against allied shipping –Shipping costs increased: market `disintegration’ –International trade did not collapse, it was distorted

6. EC120 week 19, topic 14, slide 5 Economic impact of the war, 2 Dislocation of international and domestic finance –Domestic Govt debt increased to fund budget deficits –Inter-allied debts accumulated Government intervention to control economic activity Physical losses –Mainly military and naval personnel –Destruction in France, Belgium, Italy and Poland

7. EC120 week 19, topic 14, slide 6 Policy objectives after the armistice Government policies remained more interventionist –Swift demobilisation of armies –Commercial policy: favoured trade barriers –Political pressure for greater economic intervention Force Germany to pay punitive reparations

8. EC120 week 19, topic 14, slide 7 Economic consequences of the political settlement Treaty of Versailles, 1919 –Reparations: heavy burden imposed on Germany Other geopolitical developments: –Disintegration of Habsburg and Ottoman empires; Japan acquired territory on Asian mainland –The October Revolution, 1917: Communism in Russia The “aching tooth” of inter-allied war debts

9. EC120 week 19, topic 14, slide 8 Financial policies in the early 1920s Interwar policies dominated by the `Return to Gold’ Early 1920s: freely floating exchange rates –1919: boom and slump –Governments struggle with debt management & fiscal imbalances –Hyperinflation most severe in Germany, 1922−23 –Currencies stabilised without international co-ordination

10. EC120 week 19, topic 14, slide 9 Restoration of the Gold Standard Restoration of GS required differential deflation rates Difficult without international co-operation Govt’s sought stability at pre-war parities –Domestic political objectives made this difficult Burdens of reparations & debts inhibited co-operation

11. EC120 week 19, topic 14, slide 10 International trade: the war & its aftermath During 1914−18 world-wide production capacity expanded in key traded goods sectors Fall in agricultural prices was particularly notable Widespread adoption of obstacles to international trade

12. EC120 week 19, topic 14, slide 11 Summing up: economic performance A mixed performance, despite upheavals: Labour productivity continued to increase Mass production of private automobiles & consumer goods U.S. prosperity in the `Roaring Twenties’ Older, `heavy industries’ stagnated, especially in Britain Primary producers continued to suffer