Name and Surname: Tahlia Teri Bland

Student number: 54709474

Course code: ECS2608

Course Title: Economic History of the World

Assignment number: 3

Unique assignment number: 253647

Cell number: 071 868 0313

54709474@mylife.unisa.ac.za
After having studied all the chapters of Part II in the prescribed textbook and the
corresponding sections in the Study Guide, explain in detail why you think the
interwar years were so economically unstable.

The interwar period from 1918 to 1939 was characterized by economic instability and
uncertainty (Graff, Kenwood, & Laghid. 2016, 190). This period was characterized by a
range of factors, including the aftermath of World War I, the rise of protectionism, the
Great Depression, and political instability (Graff et al. 2016, 190). These factors
contributed to the unfavourable economic conditions and created significant obstacles to
the growth and stability of the global economy. Understanding the complexity of the
interwar period is necessary to understand the historical context and the impact of a range
of factors on the international economy during this period. This article examines why the
interwar period was so economically unstable.

One of the most important reasons for the economic instability of the interwar period was
the consequences of the First World War with wide-ranging economic and political
consequences (Graff et al. 2016, 191). The war has left many countries with prominent
levels of debt, inflation, and economic turmoil. The enormous cost of war, including the
cost of raising and maintaining armed forces, the destruction of infrastructure and
production capacity, has led to huge debts that many countries have struggled to repay.
Vast amounts of borrowing during the war led to inflationary pressures as governments
printed money to finance the war, leading to a loss of purchasing power and economic
instability. World War II changed that dramatically. With the collapse of several empires
such as the Austro-Hungarian Empire and the Ottoman Empire, new states and borders
emerged. This creates a sense of uncertainty and instability as countries grapple with the
challenges of forming new governments, defining their political institutions, and negotiating
their place in the global economic order (Graff et al. 2016, 191). The Treaty of Versailles,
signed in 1919 to officially end the war, imposed harsh reparations on Germany intended
to reimburse the Allies for the costs of the war. However, these reparations proved to be a
heavy burden for Germany, which was already suffering from the economic effects of the
war. The economic impact of the Treaty of Versailles was severe for Germany. The
reparations imposed required Germany to pay large sums to the Allies, draining its
resources and hampering its ability to rebuild its economy. The treaty also imposed

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restrictions on the size of the German armed forces, which had a negative impact on
employment and economic growth. The harsh economic and political conditions imposed
on Germany by the treaty contributed to domestic social and political instability and
created feelings of bitterness and resentment (Graff et al. 2016, 191). In addition, political
instability caused by the collapse of empires and the emergence of new governments has
led to ethnic conflicts and political tensions, making it difficult for countries to establish
stable governments and pursue coherent economic policies. For example, many Eastern
European countries experienced internal and ethnic conflicts that hindered economic
development and stability. The lack of stable governments and clear economic policies
aggravated the economic challenges of many countries during the interwar period. In
addition to the aftermath of World War I, the rise of protectionism also contributed to
economic instability in the interwar period. After the war, many countries resorted to
protectionist measures such as tariffs and trade barriers to protect domestic industries
from foreign competition (Graff et al. 2016, 193). This led to a decline in international trade
and economic interdependence as countries retreated into economic nationalism and
sought self-sufficiency, exacerbating the economic instability of the interwar period. The
Great Depression, which began with the stock market crash of 1929, was another major
factor in the economic instability of the interwar period. The Great Depression was a global
depression that severely affected economies around the world, resulting in widespread
unemployment, business failure, and economic contraction (Crafts, 2013, 79). The Great
Depression exacerbated many countries' economic challenges and exacerbated the
effects of other factors, such as the aftermath of World War I and the rise of protectionism.
According to Graff, Kenwood, and Lougheed, these reparations "were worth DM 132
billion, far beyond Germany's ability to pay" (Graff et al., 2016, p. 174). Another crucial
factor that contributed to the instability between the wars was the rise of protectionism.
Many countries have adopted protectionist policies to support domestic industries and
reduce dependence on foreign trade (Graff et al. 2016, 196). This led to a decrease in
international trade, which negatively affected economic growth and stability. For example,
the Smoot-Hawley Tariff Act of 1930 raised tariffs on more than 20,000 goods imported
from the United States, which severely affected world trade and contributed to the depth of
the Great Depression (Graff et al. 2016, 200). According to Irwin, "Smoot-Hawley raised
US tariffs on more than 20,000 imported goods, helping turn the Depression into the Great
Depression" (Irwin, 2016, p. 131). The Great Depression was another major cause of
economic instability in the interwar period. The Great Depression was a deep depression
that began in 1929 and lasted for more than a decade. This was caused by a variety of

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factors, including a stock market crash, overproduction, and reduced consumer spending
(Graff et al. 2016, 204). The Great Depression had a severe impact on the global
economy, and many countries experienced prominent levels of unemployment, poverty,
and social unrest (Graff et al. 2016, 204). The Great Depression was particularly
devastating for countries that depended heavily on international trade, such as Europe and
Latin America. The decline in trade led to a decline in economic activity, leading to
prominent levels of unemployment and poverty. In addition, many countries experienced
severe political instability as people became frustrated with their government's inability to
deal with the economic crisis. Political instability was also the main cause of economic
instability in the period between the two wars. The rise of extreme political movements
such as fascism and communism has caused significant political instability in many
countries (Graff et al. 2016, 211). This had a negative impact on economic growth and
stability. For example, the rise of the Nazi Party in Germany led to significant political
instability and contributed to the country's economic collapse in the 1930s (Graff et al.
2016, 212). The interwar period was a period of considerable economic instability and
uncertainty. This was due to several factors, including the aftermath of World War I,
increased protectionism, the Great Depression, and political instability. The aftermath of
World War I had a major impact on the global economy, causing prominent levels of debt,
inflation, and economic turmoil. The Treaty of Versailles imposed harsh reparations on
Germany, which had already damaged the German economy, which was already suffering
from the effects of the war. This created great uncertainty and instability as countries
struggled to adapt to new political and economic conditions. In addition, increased
protectionism has led to a decline in international trade, which has negatively affected
economic growth and stability. Many countries have adopted protectionist policies to
support domestic industries and reduce their dependence on foreign trade. This led to a
decrease in international trade, which negatively affected economic growth and stability.
The Smoot-Hawley Tariff Act of 1930 raised tariffs on more than 20,000 goods imported
from the United States, severely affecting world trade and contributing to the depth of the
Great Depression. The Great Depression was a crucial factor that contributed to the
economic instability of the interwar period. The Great Depression was a deep depression
that began in 1929 and lasted for more than a decade. Several factors such as the stock
market crash, overproduction and reduced consumer spending caused this. The Great
Depression had a severe impact on the global economy, and many countries experienced
prominent levels of unemployment, poverty, and social unrest. According to Eichengreen,
“The Great Depression was the deepest recession of the 20th century, affecting almost

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every country in the world” (Eichengreen, 2016, p. 188). The decline in trade led to a
decline in economic activity, leading to prominent levels of unemployment and poverty. In
addition, many countries experienced severe political instability as people became
frustrated with their government's inability to deal with the economic crisis. The rise of
extreme political movements such as fascism and communism has caused significant
political instability in many countries. This had a negative impact on economic growth and
stability. According to Keynes, "a world economic crisis is a crisis of world economic policy
involving all the great powers and all those connected with the outside world" (Keynes,
1933, p. 172). The interwar period was associated with considerable economic instability
and uncertainty. This was due to a range of factors, including the aftermath of World War I,
increased protectionism, the Great Depression, and political instability. These factors have
created a lot of uncertainty and instability, making it difficult for countries to establish stable
governments and pursue coherent economic policies. The interwar period is a reminder of
the importance of global cooperation and the dangers of economic nationalism and
protectionism. International cooperation was a key feature of the global economy in the
late 19th and early 20th centuries. For example, the gold standard was an international
monetary cooperation system that helped stabilize exchange rates and facilitate
international trade. However, international cooperation declined during the interwar period
as countries turned inward and adopted protectionist policies. This has had a negative
impact on the global economy as it has reduced the ability of countries to work together to
deal with economic problems. As Eichengreen points out, “the decline in international
cooperation during the interwar period contributed significantly to the destabilization of the
global economy” (Eichengreen, 2016, p. 187). The Great Depression had cascading
effects on the world economy. Economic contractions in one country often have knock-on
effects in other countries through reduced trade, reduced investment, and financial
instability (Eichengreen, 2013, 103). The collapse of international trade worsened
economic conditions as many countries were unable to export their goods and faced
reduced demand for their products. Widespread unemployment and business failure
during the Great Depression caused social and political turmoil, further destabilizing the
economy and government. The combination of these various factors-the aftermath of
World War I, the rise of protectionism, the effects of the Great Depression-created a
perfect storm of economic instability in the interwar period. Countries were facing
important challenges in debt repayment, inflation management and economic growth
revival. Political instability caused by the collapse of empires and the emergence of new
states, ethnic conflicts and tensions further complicated the economic situation.

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Governments tried to create sustainable policies and implement effective measures to deal
with the economic crisis. The economic instability of the period between the two wars had
a serious impact on society and individuals. Unemployment rates rose in many countries,
poverty levels rose, and social unrest was widespread. The economic problems of
individuals and societies led to the loss of trust in governments and political institutions
and created a favourable environment for the emergence of radical ideologies and
movements. The economic instability of this period had long-lasting effects on the global
economy, shaping the course of history and setting the stage for major geopolitical
changes in the coming decades.

In conclusion, the interwar period was a period of considerable economic instability and
uncertainty (Graff et al. 2016, 217). The consequences of the First World War, the rise of
protectionism, the Great Depression and political instability were the main factors of this
instability. The combination of these factors has created a storm of economic instability
that has severely affected the economy and the world community. But despite the
challenges of the interwar period, the lessons learned during this period helped pave the
way for the prosperity and development of the modern world economy after World War II
(Graff et al. 2016, 220). The economic instability of the interwar period had a severe
impact on the global economy, leading to prominent levels of unemployment, poverty, and
social unrest. The decline in international trade and increased protectionism led to a
decline in economic activity and helped deepen the Great Depression. The interwar period
serves as a cautionary tale about the dangers of economic nationalism and protectionism.
The decrease in international trade and the increase in protectionism had a serious
negative impact on the world economy and contributed to the economic instability of the
interwar period, emphasizing the need to avoid economic nationalism and protectionism.
Overall, the interwar period was one of considerable economic instability and uncertainty,
characterized by prominent levels of unemployment, poverty, and social unrest. The
economic instability of the interwar period had a serious impact on the world economy and
led to the reduction of economic activities and the aggravation of the Great Depression.
The interwar period is a reminder of the importance of international cooperation and the
dangers of economic nationalism and protectionism, which emphasizes the need to adopt
policies to promote international trade, cooperation, and economic stability.

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LIST OF SOURCES CONSULTED

Graff, M., Kenwood, A.G. and Lougheed, A.L. (2014) Growth of the International
Economy, 1820-2015. 5th edn. London: Routledge.

Eichengreen, B. (2016). Hall of Mirrors: The Great Depression, the Great Recession, and
the Uses-and Misuses-of History. Oxford University Press.

Crafts, N. (2013). The Great Depression of the 1930s: Lessons for Today. Oxford Review
of Economic Policy, 29(1), 77-100.

Kindleberger, C. P. (1986). The World in Depression, 1929-1939. University of California

Press.

O'Rourke, K. H., & Williamson, J. G. (1999). Globalization and History: The Evolution of a
Nineteenth-Century Atlantic Economy. MIT Press.

University of South Africa. Department of Economics. 2023. Economic History of the

World: Semesters 1 and 2. Tutorial letter 101/3/2023 for ECS2608.

University of South Africa. Department of Economics. 2023. Economic History: Only Study
Guide for ECS2608. University of South Africa. Pretoria.

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