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 restrictions on the size of the German armed

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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
factors, including a stock market crash, overproduction, and reduced consumer spending

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(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 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

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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. 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

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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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