14 7" International Economic Disintegration, 1914-1945 mental economic change babe! occurs Over a lon: ces of changes in population, resources, technolo: , and even shee § oo out over a period of years, decades, and even cena Political eal the other hand, can occur quite abruptly, in a period of days or weeks, sometimes Pee in their wake abrupt economic changes as well. Such was the case with World rl. The intricate but fragile system of the international division of labor that had svn gradually in the century prior to August 1914 and had brought unprecedented jaels of well-being and even affluence to the populations of Europe and some o as outposts of Western civilization suddenly disintegrated with the outbreak After more than four years of the most destructive war the world had yorld political leaders sought a “return to normalcy,” but, like Humpty undal g Period of time, The conseque ‘tern Europe) and the _ Europe:332 A CONCISE ECONOMIC HISTORY OF T World GDp. Regional Percenta’ 1913 and 19: Taste 14-1 World Western Europe Western Offshoots Japan Asia (excluding Japan) ise Latin America 4 19 Eastern Europe and Former USSR 13.1 134 5 aa Africa os a a Pema iaddicon, The World Economy: A Millennial Perspective (Paris, 2001), p. 127. Regional Percentage Shares of World Exports, 1913 and 1950 femme sts TABLE 14-2. 1913 1950 ee World 100 100 Western Europe 60.2 4. Western Offshoots 12.9 213 Asia 10.8 141 Latin America 5 8&5 Eastern Europe and Former USSR 4. 5.0 ‘Africa 6.9 10.0 Source: Angus Maddison, The World Economy: A Millennial Perspective ris, 2001), p. 127. r overseas colonies with eg nEconomic Disinte ration, 19)4_ saat nic of 1918 spread rapidly from Asia tg urge in mortality worldwide Es military operations) range epider ye ga n flv j, creating ¢ ys yond: jy ofthe war AO r), and the indirect monetary re than $150 billion, Most of ind equipment, mines, lives; cations f i chasing PO git P amounted eo industrial plant ine and commit fnortheastern Italy, and the battlefiek tock and farm eq din northern France, of eastern Europe . i red great a result of submarine war BXii ao Wes are subject 0 large margins of error and ab fi of 10 em are losses of production oce ys 9? fall area 5 sult ortation primarily as gat jed in thi iv ppaterials uipmen id for industry, ex essive depreciation and depletion of incite tin the abse ne of aden ne and replacement, k of fertilizer and draft animals in agriculture, In central a cut off from economic relations with the rest of the world and he marching and countermarching of armies, the fall in agricul juced large areas to the point of mass starvation. ra more damaging to the economy, in the long run, than the physical fon, the disruption and dislocation of normal economic relations did not ¢ ihe war itself but continued to take its toll in the interwar period. P; yorld economy had functioned freely and, on the whole, efficienth satrctions in the form of protective tariffs, private monopolies, cartels, the bulk of economic activity, both domestic and internati ly free markets. During the war the governments of every tose of some nonbelligerents imposed direct controls on illocation of labor. These controls artificially stimulat yay and by the same token artificially restricted ot] trols Were removed at war's end, the prewar | themselves either quickly or easily. : An even more serious problem resi teforms of economic warfare to W i fl nd crop?) pur0pes pied b334 A CONCISE ECONOMIC HISTORY OF THE WORLD 4s merchant ships. The sinking of the British liner L Ete re the coast OF Ing in 1915, with the loss of more than 1,000 live Se ae “aes 100 Ame th brought a strong protest from the United States nes ee Paba high cal mand moderated its policy, but in January 19! rae Britain i 7 knees, it unleashed unrestricted submarine W . a Samat Cause America’s entry into the war, which, in turn, ¢ cs rate enc aten a Victory Closely related to the disruption of internation longer tony he ernment controls, the loss of foreign markets © nate ieee effegy Germany, of course, was completely cut off po pees ie Without ingenuity ofits scientists and engineers the inventors o the Haber Boggy cess for the fixation of atmospheric tl aa e OF tate coat both fers izer and gunpowder), would have been forced ole i cinerea T than it dig But even Britain, with its control of the seas and large ee 4 4 Nes had to diye resources from normal uses to war production. By its Industrial exports é fallen to about half their prewar level Consequently, ee nations Undertogy ty manufacture for themselves or to buy from other over seas eo 200ds they hag formerly purchased in Europe. Several Latin American an eee Countries Stab, lished manufacturing industries, which they protected after © war with high tariffs, The United States and Japan, which had already developed important Manufacturing industries before the war, expanded into overseas markets formerly regarded as the exclusive preserve of European manufacturers. The United States also Sreatly jp. creased its exports to the Allied and neutral countries of Europe. The war also upset the equilibrium of world agriculture. By greatly increasing the demand for foodstuffs and raw materials at the same time that some areas went out of production or were cut off from markets, the war stimulated production in both established areas, such as the United States, and relatively virgin areas such Latin America. This led to overproduction and falling prices in the 1920s. Wheat, coffee, and rubber were especially vulnerable. American farmers increased creage in wheat during the war and also bought new land at war-inflated ‘prices fell many were unable to pay off their mortgages and went into ‘the source of much of the world’s natural rubber, and Brazil, | to 70 percent of the world’s coffee, both tried to raise prInternational Economie Disinte loss from the war was that of ine the investments themse (important foreig 'Vestors, § a xported, their income from red import surpluse Both were obli: i thell he purchas! ni finance the F 6 t0 value as a result of inflation and relg in va + default of oui! e gnich the new Sovie uss foreign investment fo to a continuously rising value before the war), nt Ie ined sont eee : St 50 percent. Germany's investments in belligeren ye than > megauril tk e United i (it ng the war, and subsequently all were liquidated fo, States, on the other hand, converted itself from a net debtor ji itor a8 279 ult of its booming export surplus and its large loans to thea i final di ion in both national and international economies resulted oe 4 ‘ ion. The pressures of wartime finance forced all belligerents (and i except the United States off the gold standard, which had served in period to bilize, at least to synchronize, price movements (see ver). All the belligerents resorted to larg scale borrowing and the pri pipet money to finance their wartime expenditures. This caused prices t though they did not all rise in the same proportion. At the end of the war pri (ited States averaged about times what they had been in 1914; in’ it yee about 3 times, in France about 5.5 times, in Germany more than 15 inBulgaria more than 20 times higher than in 1914. The great di consequently in the values of currency, made the resumption tiffcult and also caused severe social and political reper inftat i ent peart its i C Ane qu ter of three-quarters of its iron ore, most of its zinc ore, and a quarter of its egy | S. Of course, its colonies in Africa and the Pacific had already been Occup ‘the Allies (including Japan), who were confirmed in their po ion. i Tn addition, Germany had to surrender its navy, large quantivies of arms ang 4. Munition, most of its merchant fleet, 5,000 locomotives, 150,000 railroad 5,000 motor trucks, and various other commodities. It als« On its armed forces, Allied occupation of the Rhineland for other damaging or merely humiliating conditions. Most . famous “war guilt” clause, Article 231 of the Treaty of e rsail it which declar, that Germany accepted “the responsibility of Germany and het allies for causing ll the loss and damage . . . as a consequence of the wat The statement was intendey to justify Allied claims to monetary “reparations.” but the Allies themselves y, badly divided on both the nature and the amount of the reparations, to the extent tha they could not agree in time for the signing of the treaty and had to appoint a Repara, tions Commission with instructions to report by May 1, 1921. John Maynard Keynes an economic adviser to the British delegation at the peace conference, WAS 50 dis. tressed that he resigned his position and wrote a best-selling book, The Economic Consequences of the Peace, in which he predicted dire consequences, not only for Germany but for all Europe, unless the reparations clauses were revised. Although Keynes's reasoning has been disputed, the subsequent course of events seemed to bear out his prediction. The breakup of the Austro-Hungarian Empire in the last weeks of the war te. sulted in two new states, Austria and Hungary, each much smaller than the old areas had to accept restrict; years, and seve. imiliating of all _and Poland, re-created from former Austrian, German, and (mostly) | lands, also became new nation-states. Serbia obtained the South Slay prov- Hungary and united with Montenegro to become Yugoslavia with the Western powers, obtained much territory from Hungary, a vanquished enemy, lost land to Greece, Romania, and Yugosle- . the Trentino, and the German-speaking south Tyrol from n Empire lost virtually all of its territory in Europe except n that created a Turkish national republic.ral Economic Disintegration, 19p, j ' laa ulism not limited to the new states During its civil war Russia simply qig When it reemerged under the ov A let regi | manner completely different froid dl ine the sole buyer and seller in interna political rulers regarded ag Strategically m nation om oie empit cup ot (ie i onom: mueccne, Pre condu vere he stil jonly \ < that had formerly been highly dependent om if ‘ restrictions, including not only protective tic met uch as physical import quotas and import p » time they Sou ght to stimulate their own exports by granting ae her measures. Great Britain, formerly the champion of free int and Hi bed tariffs during the war as a measure of war finance 4 had Bn These tariffs remained (and were increased in both num| a at first on a “temporary” basis, but after 1932 as official prot o negotiated numerous bilateral trade treaties in y a west, countric rted (0.4 vari fes0! pore ite Mt dies? pp jerthe war at . Britain alst fi the mos it feet century , : The United States, which already had relatively high tariffs before th entoun precedented levels thereafter. The Emergency Tariff Act « jabsolute embargo on imports of German dyestuffs. (The dyestuff in isted in the United States before the war; it began with th ven , erman patent rights during the war.) The Fordney-McCumber wsablished the highest rates in American tariff history, but eve jased by the Smoot-Hawley Tariff Act of 1930, which Pr F layin spite of the published protests of more than 1,000 The adverse consequences of this neomercantil __tidnot stop with the immediate application of the | ‘ut of restriction provoked retaliation by other | feted. For example, after the passage of the St ater nations immediately responded by raisin; Although total world trade had more than de| $4 billion to its allies, When the United States entered (hy le of chief finan rom Britain, whose financial resourg, se ted. Altogether, by the end of the war inter Allied det 1 $20 billion, about half of which had been loaned by the | ‘More than $2 billion advanced by the American Ki r 1918 and 1920). Britain had advanced about s it received from the United 2oVernm, Ney bety ughly ty tes, and France abou billion, roug q loans had be only; they expected to cancel them at the nd of th: They natu d the American loans in the same light, especially s that the Unis Shad been a latecomer to the war, had contributed less in both manpow e als, and had suffered negligible war damage he United States, however ded the loans as commercial propositions. Although it : pred after the war , ‘the rate of interest and lengthen the period of repayment, It insisted on repay of the principal in full. t this point the reparations issue intruded, Franc pay not only damages to civilians (reparatiot and Britain ¢ ‘anded thay ns prop r), but also the entire surred by the Allied governments in prosecuting the war (an indemnity), Us Woodrow Wilson made no claims for the United States and tried to ¢g others from pressing theirs, but his argument was not rong inasmuch as that the Allies should repay their war debt: The French wanted the to cancel the war debts but insisted on collecting reparations. L| rime minister, suggested that both reparations and war debts be ericans stubbornly refused to recognize any relationship be- American attitude was summed up in a remark subsequently ‘in Coolidge: “They hired the money, didn’t they?” The juired Germany to pay as much as the Allies thought they in deference to Wilson the entire amount was called before the treaty was signed, and long its were to be credited toward the final before the deadline of ns that the total wouldconomic Disintegration 16mm 1945 of reparations payments (and algo aS a resy é the year the pressure Was so. great that G essure © py the en or yy F of sccupied the Ruhr in Jg ie anuary uttempted to force the German mi replied with passive regi f paper moni | Belgium t pyge quantities « setting in motion a yed at 4.2 to the dollar in 1914, At war's fe by July 1922 it had PAUeAnm 493, Peete ilinithe value oftheir Proceeded expo, a ee the last official transaction recorded an exel e ae 200,000,000,000)! The mark was literally Se ad been printed. At that point the German Monetary authorities a Bee mark and substituted a new monetary unit, the rentenmark, e¢ Be cillion of the old marks. De eatictse consequences of the rampant inflation could not be confin germany. All of the su cessor states of the old Habsburg Monarchy—By aces and Poland—suffered similar runaway inflation. The par value. Austrian crown was 5 to the dollar; in August 1922 it Was quoted at 83,600, ime the League of Nations sponsored a stabilization Program that ‘suce (926 with the introduction of a new currency unit, the schilling. Even fane suffered; before the war the gold franc exchanged at 5 to the dol isvalue had fallen by more than half to 11 to the dollar, Du: ‘onofthe Ruhr that value rose at first, then fell abruptly as it be tte occupation was not achieving its purpose. After reac! dolar the government finally stabilized the franc at i As Keynes had Predicted, the international econ Freach withdrew from the Ruhr at the end of | Irobjective, the resumption of German | ommission under the chairma oy is val bank— 1p WORLD qusTorY OF TH 1 A A concise BCONOM jane in their standard OF Fiving, fees gevere Co ans. Significar IS months or weeks, and suf xtremist a poe moceeal & a them susceptible Re cite large gains weer nists and aiiinsiae elections of a postwar Britain. Even before th parties Bei problems Joomed Cae jnternational trade and overcommitns Yay a unusually great depen pecoming obsolete had guaranteed that the i ty fins ofindustry eat were TAPE erent im the twentieth CentUy, During yey wouldfaceadimeuleperiod?, T% ans, a Jarge part of their merchant man n markets, foreign Yet they depended as much as ever on ime they lost foreig! een rseas income: : sources of overs’ z smselves with even greate OTts and other s Is, and they found them Breater wordy: aw materia are 2; > anda an 3 oe i: as the strongest of the victors 1n Europe and : the Administ et a et factories an es la 0 Be: jes overseas. Export they must, yet factories and’ mines [ayaa Whi el ae than 1 million workers—about one-gey..” 21 more i ployment mounted. In 19: i Haart SeVeny Pe hor force—were out of work; in the 1920s the rate of unemployment a fell below 10 percent, and in the worst years of the depression it mounted tg mop than 25 percent. : he government to deal with its economic Problems wey, re The measures taken by t ‘ i timid, unimaginative, and ineffective. Its only solution for unemployment was i dole, a system of relief payments that was entirely inadequate to support the family of the unemployed and that placed a heavy burden on an already-overstrained budger, For the rest of the problems, government economic policy consisted mainly of Paring expenditures to the bone, thus depriving the nation of urgently needed expansion ang ee a ie a pee ae highways, and other public works, The single ae en by the government in the economic sphere resulted in ee ang the gold standard in 1914 as a measure of war finance. cee ae a ion as the undisputed center of the world’s financial ; ae, ae fora quick return to the gold standard to prevest eee Gy ae war, of its financial preeminence. The major unre ue W soon could the gold standard return? and (2) fee to the first question depenInternational Economie Disintegragi " N, 1914.49, ae ja fall in wages. The overall effect was a dal _ssitte and at the expense of workers, oe onticr’s ‘ ‘ me om y| industry was one of the most Severe]: » co! i : eo higher costs, Coal miners were ¢ "edistribution of: 'Y affect as and a 5 ith a wage cut as a result of the return to the jwelixe on May 1, 1926, and persuaded many otherge fs inended 10 De See ral strike, AbOULO pere je ioined them, mainly those in public utilities and si ibe only ten days, ending in defeat for the unions Pe cent services, and the trade union leaders gave yy ane face of the gove nment s strong opposition, Brief yor i bitter legacy of class division and hatred, which m: (tike est both domestic and international problems even sin te of Britain’s problems, most of Europe prospered A from 1924 to 1929, it seemed that normality had in in of physical damage had been largely achieved, the Most urgent and imm a postwar problems had been solved, and under the newly created League « {wons anew ea in international relations apparently had dawned, Most countri apetlly the United States, Germany, and France, experienced a period of pro iy, Yet the basis of that prosperity was fragile, as it depended on the continue | already staged several major gtrilece + had \ tikes in at P rather than, tisk as it was, the g ade. concerted natj more difficult, in the late 1929, : deed returned, Recon- nary flow of funds from America to Germany. The Great Contraction, 1929-1933 Unlike Europe, the United States emerged from the war s ‘onomic terms alone, it had converted from a net debtor to Yonnew markets from European producers both at home a ‘Sublished a highly favorable balance of trade. Wi th it ma Wntlation, and rapid technological advance it s t Epeual prosperity. Although it experienced 'Europe, the drop proved to be economy experi ncedao t . pCONOMIC nist . Y hen gradual one se 100 Prodton in the first quarter of 1929 and ei 9 416,000 a ii ant aa Britain ea ret Pinan investors and public © CA 10 the acs ‘ , American financial history as “py Mon October 2 1929—Known re stock exchanes caused Stock prices! Thursday” —a wave of Pan” Soe cisilars of fictitious paper values. Another a Deans wplacieTuesday.” The index of stock prices, tg} plummet @ : i don October 29. at 381 on September 3. Then fell to 19° mn of selling followe their average in 1926 as 100, i November 13... and kept on fa tors to throw their stocks on t ‘Americans who had invested in Euro is called in loans, forcing still more i c ; a Ves, he market for whatever prices they would bring pe ceased to make new investments and sold 0 existing assets there to repatriate the funds. Throughout a 30 the withdrawal of cay. tal from Europe continued, placing an intolerable strain on the entire financial system. Financial markets stabilized, but commodity prices remained low and fal, ing, transmitting the pressure (0 producers like Argentina and Australia, "The stock market crash was not the cause of depression—that had already begun, inthe United States as well as in Burope—but it was a clear signal that the depres. sion was underway. Monthly automobile production in the United States fell to 92,500 in December, and unemployment in Germany rose to 2 million. By the firs quarter of 1931 total foreign trade had fallen to less than two-thirds of its value in the comparable period of 1929. ae ie ee eee of Vienna, one of the largest and mos a pe, suspended payments. Although the Austrian gor ment froze bank assets and prohibited the withdrawal of fi i to Hungary, Czechoslovakia, Romania, Poland. Bas a ee sel ofarits took a oland, and especially Germany, where @ he terms of the Young Plan Ae " eee in several bank failures = ae ee laced the Dawes Plan in 1929 asé paatanio oe sed was obliged to make a fur In the ates President Hoover, forced by°" debts and reparations, nmental payments of | Hing. Ban’International Economic IANUFACTURING PRODUCTION MAN ge9 +100) “wpex OF, woex OF : ited United Germony France sites Kingdom 7 xX OF EMPLOYMENT MTS = 100) Disintegration, 1914 1945 i] | N ol —Hat__| United United 343 Stoles«URtee Germany rane D. FOREIGN TRapE > Millions of dollors i 9 8 a 6 5 4 3 2 1 o United United Germany France Stotes Kingdomor THE WORLD cooperation to end th, 1933. Officially pro, sa resolution at th ‘ann ence looked h reand import quotas, and the United States, ther Je of the Un a as universally r ne: er of the candidates, Hoover ap ni ‘| n ance, the conferen« soroertte doned Vv to allow Roosev elt to organize hj ice in the very depths of the depression; one of h th eeemeignt-day “bank Molidiay” to allow the ttn , and most of the measures taken in the first gency actions to prop up the domestic econom, the United State’ off the gold standard, sor en unable to do. When the conference finally conye, ut word that the American government's first ened prosperity, and that he could not enter into aa ould interfere with that tas! Dispirited, the sige -w meaningless speeches and adjourned in Ju sis . Once again, international cooperation had cc sion? After more than seventy years there is still no o For some the cause were primarily ea money in the major industrial economies, ia eration. The 1° cha conference wi in until June 1 ban aki hung Amo ms inte celerator mechanism. Still other explan- mn in agriculture, the extreme dependence 1 so on. An eclectic view is that concatenation of events att to produce the depres es can be traced inputnomic Disintegration, 1914-1945 together with London’s preeminence asa iemporary balance of payments problems cou xchange or oth reise such leaders | States, clearl cept the role of ied : exemplified by its im- ts ite (iarift) policy, its monetary policy, and its attitude toward ition, Had the United States pursued more open policies both lly in the crucial years of 1929 to 1933, the depression almost _ n both milder and briefer, tees n consequences of the depression also merit notice. Among them Wg pa nthe role of government in the economy, a gradual change in. nie policy (the so-called Keynesian revolution), and effor American a some other a World countrie serena ubstituting ndustrie: fe est it caused, to the rise of extremist political movements of both th is ay in Germany, and thus contributed indirectly to the industrial workforce—industry had virtually sh inthe verge of complete collapse. Nor was th ¢ ‘bout im, 000 unemployed veterans |e efforts for mobilization , nt secretary of the navy. Thy findustrial organization state methods. In essence, it if-government , with governry guarantee the right of labor | the NRA unconstitutional, | ation Ro evelt achieved |) is stand and initiat ing, and i Pee sloyment. The United still unemployed. Although severa) of th ves, the New Deal system as a wh contemporary programs in Europe from the war than France. Most of the fig, ice in its richest area. More than half of fF, ing 60 percent of its steel and 70 Percent oj ated area, which was also among the st appalling was the loss of life: 1.5 mi) population of military age—had been ile: | disabled. It is not surprising, therefore. fe r the war. the cost, the French government unie: sical reconstruction in the war-damayei ting the economy to new produ ialize in the expected amount. ti iction took their toll. The problen ccupation of the Ruhr. The fra’ lan it had during the wat. Re , 4coalition cabinet contain? one-fifth of its prewar vl es in taxation. This dlutions adopted by Bait” h lost about four-fifthsDisintegration, 1914-1945 347 nternarional _—" te Rall formed a coalition, the Popular Front, and won the elee- e Radicals, : : gna i ming a government under the premiership of the venerable zane, forming & RI Es, : fe yea “gon Blum: The Popular Front government nationalized the i sian Li a fe ine railways and enacted a number of reform measures affecting Is we and 6 wkwe yg ie? maximum forty-hour work ck, compulsory arbitration of labor et as 4 1 vacations for industrial workers. On the larger question of eco- ( aid Vas >, 0 s > suc i pe and however, the Popular Front was no more successful than previous fo or foreign governmen's had been, and it broke up in 1938 as foreign 0 ty dominated the politcal scene nae erasinay ries of western Europe, all heavily dependent on international ot secordinely during the depression, although not all to the same suffer’ and France returned to the gold standard, many Bite 1920, when Britain 5 untries, in eastern as well as western Europe, adopted the gold ex- ler £0! nay gta iS oda Their central banks, instead of maintaining reserves of gold with ‘ : m4, fo redeem U he large! heir national currencies, maintained deposits with the central ofthe countries, Which served the same purpose. After Britain’s depar- 0 gold in 1931 most of the countries that traded extensively with Britain also a gold standard and aligned their currencies with the pound sterling. This ~gituted the “sterling bloc.” Their ranks included most of the Commonwealth jes and Britain’s colonies; several Middle Eastern countries; and, in Europe, and the Scandinavian countries. When the United States devalued the in 1933 most of its major trading partners, mainly in Latin America and mada, sought to align their currencies with the dollar. In Europe, that left France center of the “gold bloc”—those nations trying to maintain convertibility into ich also included Switzerland, Belgium, and the Netherlands. They held 936. Germany, meanwhile, adopted a novel system of international trade s, discussed later.) When the French finally devalued the franc and cut did so following a limited resumption of international cooperation airs. In the Tripartite Monetary Agreement e, and the United States undertook | urrencies, to avoid competiti nterlof THE WORLD s of hi sm and socialist: terests of both o ‘of society 2S a whole. as © all industries in the co nding tO trade associai oprietors. and the state were r ies holding the key positions. e functions of the corp conditions and providing functioned at all, they acted m to increase the income ‘of workers and consumers. Oth successful. In spite of la severely during the depressior fascism, that “Mussolini ma fascist government of Italy so created large state-supported e concerned with maintaini se enterprises have persisted in one for ery difficult to privatize, even at the enty-first centuries. sion than Italy—indeed, more succe: many was the first major industrial patios > smaller nations, Sweden had the ut the 1930s.) From 6 million ce—the German economy reached | to fill them. This result was achieve’ that was gradually melded with: developed the first modern hi a industries, n the early years of World Will 1933, the Nazis establiste’ abolished collecti of labor “trustees” wi® rk. Industrialists ¥e*cononuc Dtsiitegration, 14 international F nom Mion, 1914-1945 349. jods and military supplies, that could be manuf tured from raw p80 st! table in Germany. The policy of Autarkie (self Sufficiency) also deter- Fears of German trade relations with other nations, Already 10Mt Beg ie ee of the Nazis, Germany had resorted to exchange controls to prevent i ne a0 Pai: Dr. Hjalmar Schacht, Hitler's economic adviser, devised several sgh of CAP nancial anc! monetary controls to give the Reichsbank more eon As WF tien nge. Germany also negotiated trade agreements with it neighbors n 1 foreign 1 the Balkans, pro iding for the barter of German manufactured ind thus avoiding the use of gold or scarce Ee y few German goods were actually shipped to these areas, but ie mem uocessfully tied eastern Europe into the German war economy. ic ‘having avoided involvement in World War I, escaped many of the prob- a ilemmas that beset other European countries. Its industry actually bene- i ett from wartime demand, but it was still ry {0 ope anc etn EUrOP ert i or foodstulls Bee eacies. Vet and raw materials. f 4 predominantly agrarian fied lagued by low-productivity agriculture. During the dictatorship of Miguel pion Rivera, from 1923 to 1930, the economy particip: nd ated in the international rity of the period, but the ens ing depression was a factor in the demise of the mona and the establishment of the Second Republic in 1931. The international climate of those years was scarcely favorable to the reforms the republicans sought ipbring about. In 1936 General Francisco Franco began a bloody, destructive civil vyarthat ended in the overthrow of the republic in 1939 and the institution of an au- iarkic regime similar in some respects to those of fascist Italy and Nazi Germany, | but without the advanced technology of the latter. In Asia, Japan, which had a small prewar empire, enlarged it and became an - impor ant economic power. Japanese participation in World War I had been moti- d principally by the desire to take over German possessions in the Pacific and n concessions in China. In this goal it was successful. The Japanese also uti- nty of China, by taking control of the South Manchurian Railway. In 1931 the Japanese troops guarding the railway occupied Manchuria | shortly after set up a puppet regime, i ec “hu‘of THE WORLD jon, took their toll, By , rl March strikes and rio, alist parties in a Soviet day a committee of the Di and on March 15 ob} : i ff the Romanoys, in Jong reign © Bon, : i i olley collection of aristocra only one (middle-class intel| to share governance (in Petr iets were also organized in Moscow ang f rewime immediately proclaimed freedon, inced it would undertake a Program of s promised to summon a constit assemb| F government. It also attempted to continue the which expected him to contribute to magine that he would become head 0 nance in the Petrograd Soviet and « visional government. The latter, rivenby thority in either the army or the coun calling itself the Red Guards occv- October 25, 1917 (November 7 in don January 1, 1918). The nes uncil of Peoples’ Commissats lowed the October Revolution y in the Treaty of Bres- but it still faced dete yho were for a time aided! by ; independent Poland. ln 's, now calling themsel* n, which inclube. oke Ta. om of val Econom Disintegration, 1914-1945 351 sion pnterne jitical opponents W hile maintaining control of the central polities ¢ gy tnelt Moscow altel March 1918 din Jand’s demand for independence soon after the ed 1 Fin grantet ent Brae ne civil war and afterwards it faced demands from purit ion ail { least autonomy. Although it acceded to these indepe ence or a states of Estonia, | ithuania, and Latvia, it resisted those ‘acasia, and elsewhere, The status of the non-Russian na- he Bill », Transcé of 1 for two years after their reconquest. Then, in 1922, ed a a e a federation, in name at least, against the advice of his spe- oe problems, the russified Georgian Joseph Stalin. On December n of Socialist Soviet Republics (USSR) came into being. It con- Soviet Federated Socialist Republic (RSFSR), including most iberia, and the republics of the Ukraine, White Russia, and Bete ly other republics, in central Asia and elsewhere, were put the reality was that the whole was ruled by a small group of ho controlled the machinery of both the Communist Party and ian fo the mix. oi ee” wi ment. ‘ . we 1, when the Treaty of Riga brought peace with Poland, the Com- “By March 192 : isno longer faced active opposition to their rule either at home or abroad. But onomy was in shambles. The policy of War Communism, with its strong ele- -jofterrorism, had sufficed to defeat the enemy, but it clearly could not serve as germ basis for the economy. Industrial production had fallen to less than a ‘ts 1913 level, and the government’s agricultural policy produced no better ‘The peasants, whose land seizures the Bolsheviks had legitimized, refused yer their produce at the artificially low prices set by the government. As s August 1918 the government had sent troops and detachments of armed workers into the countryside to confiscate the harvest, and black marketsfe 6 THE WORLD ory OF jng in the Communis, urring 19 | oer series of paralytic stro} january 1924. In spit r of f ii 5 SUC 1,10 a unig the faults of all hi ths and e streng' he had a large follo fon to the Bolshevik cause in jo, . pout his colleagues macte hin, gy. hand, was a faithful adhe, nt Isheviks. Although he y, 1 ea following the latter's de" Be hary of the Central Committee of the he ed in 1922, to form coalitions within the part th domestic and foreign policy separateq world revolution, Stalin eventually Sided ocialist state in the Soviet Union OC assas: ies, accusing some of being “Left ation, ”” By 1928 Stalin’s control over both party ive buildup of oth self-sufficient and powerful in the faceof ng these aims was compreh: the further advantage of increasing thus preventing attempts to ove: in control of the party apparatus ctly or indirectly used inte ission (Gosplan) bal s, and sending dire” mmernational Economic Disintegration, 1914-1945 pletariat- The peasants bitterly resisted collectivization, in pra sir crops and slaughtering their lives RS Fe msi Baits government. Faced by such wots eaael “ ces e hands e ‘ined resi h oe into th 1 time. As a compromise with the pea esiStancey Vea : lif? acked off for a " © peasants the government ‘lil allowed them to form c¢ rative farms, on which most of the land Gil : pte mon but each household vas allowed to keep stall plots forts own use, ile ee supplied advice and machinery from state-owned Machine-Tractor fie Sich could also be used for inspection, propaganda, and control gat ectives of the First Five-Year Plan were officially declared to have been e Byes é ved after only four and a quar a years. In fact, the plan was far from a complete i ome line ‘ a Alhoush Fe a as ie ea grown prodigiously, most spore had failed to make their quotas, which had be isti ii tries had Fat een set unrealistically high, jure about 60 percent of the peasants had been collectivized, but agricul- ut had actually fallen, and the number of livestock declined to between half awo-thirds of the 1928 level (which was regained only in 1957). The costs of the yive-Year Plan were enormous, especially the human costs. In the collectivization of iculture alone, millions died of starvation or were executed, cS Jn 1933 the government inaugurated the Second Five-Year Plan, in which the emphasis Was supposed to be on consumer goods; in fact, the government continued fodevote an extraordinary proportion of its resources to capital goods and military equipment. In spite of great increases in industrial production, the country remained mostly agrarian, and agriculture was its weakest sector. A notable feature of the Second Five-Year Plan occurred in 1936-1937—the Great Purge. Thousands of it dividuals, from lowly workers to high party and military leaders, were placed o agricul gral OUtP! nage and treason. Naturally, this had a significant effect on output. The Third Five-Year Plan, launched in 1938, was interrupted by the: vasion of 1941, and the Soviet Union fell back on something likeoF THE WORLD ing methods, but it prove ic issues of the interwar pe, abor Org’ nization (ILO) i Nations. It investiga, findings, and makes recon, y F inding. [ pe had a slight! et specialized agencies deal er international and supranational organiy ies Economic Cooperation (OF EC) a tio ry of the , publishes it : is in the twentieth centy, nment in the economy. In the h of econo century—absolute monarchs attempted to p, nd 3 surces were too limited and their instrument to Tn the nineteenth century, on the other hy. economists, governments in general deliberay Ne omy. The growth of government in the t nd but only in part. wiet-style economies, the government is ith some exceptions (to be noted in the advanced industrial individuals and corpor th of World War I gover 8) of laissez faire. In tk ttle success, to pus* rar II they tried eve ith greater succes comprehensiv® mies” besy International Economic Disintegration, 1914-1945 les. * Of the ing ns rprise (C passenger railways in the United States), at o jv penis ideological commitment of the ruling political party. voce a aige of the Bases in subsequent chapters, it g gover 7 ‘ Fa main reason for the growth of government—transfep payments ati 20 or rne the nineteenth century but it did not achieve large dimensions until in pr vat II. In the 1880s Bismarck, the German chancellor, introduced compul- wer Hess and accident insurance for workers and a very limited Pension system ro aged disabled, largely for paternalistic reasons. These innovations we jt iy copied and extended in other countries, mostly after World Wa al ei rte for example, did not adopt comprehensive social insurance (including init jayment compensation) until the New Deal reforms of the 1930s. After World mp . asa result of strong political pressures, most democratic governments greatly Wor ded their systems of social security and other transfer payments, For this reason tem ve become known in some quarters as “welfare states.” ise figures will give meaning to the phrase “growth of government,” In the ieteenth century in peacetime, government expenditures as a percentage of na- il income were generally less than 10 percent, sometimes much less. For exam- Ein the United States for the years 1900 to 1916, federal government expenditures amounted tO only 2.5 percent of national income (to be sure, the sum of state and eal government expenditures in the United States in those days amounted to more than the federal budget). But even in Great Britain on the eve of World War I, when the country was engaged in an armaments race with Germany, total government apenditures amounted to only 8 percent of national income. During the war, ater hand, while government expenditures rose to 28 percent of national incom te United States, they exceeded 50 percent in most of the European belli After the war government spending came down, but not by much and not fo for example, in the United Kingdom government expenditures aver: 2)percent of national income throughout the 1920s and 1930s, mucl _ lorby interest payments on the war debt, and much of the Test by jstem of unemployment compensation. The U.S. ferge Corpo! ustries as di tivity. hare ing in 1m fe rises integrated bac SP nolesale function al i and automot achinery, anc fh bed dealers to handle the rey); ; earance of the corporat od Hitioa and sale of dozens or Pier goods to such consumer t was facilitated by the use of holding _ 1eI 5 was to own (and mana e) othe roratin erprise was brought into existence jnj,; lly n irements of large-scale production, 4, is yf organization, it could also be adapteq a ai r half of the century even indepen nd medicine, for example, were incorpo; for li Me f lome, 7 " hundr mal ieseorporate form of organization were pion, latter part of the nineteenth century, py, iz yhere in the twentieth century. One TeASOn for i bled enterprises to compet essfully with nomenon, the multinational firm. Mubtination ere they exclusively American—the Medici nk nce, had branches in other c UuNtries—py ively rare. Now, they are quite common pany, Specializing in food products, which witzerland, but maintains production ally every country of the world. ln d in a few (eg. Gr! power in the labormnternational Economie Disintegration, 1914-1945 percentage of the labor force declined to less than one-fifth as ape 2 pers barely over one-tenth after the crisis of 2008, 1 arely es S, ff, and to union membership in Western Europe, although not identical e 5 Bs aine Ate © Pe rends ‘United States have been similar. A major difference, howeves is faba ; sei ee unions are much more closely identified with specific political that in r om rade States. In Great Britain. for example, the Labour Party is sup- by union members and other, unorganized, neral election of 1945, immediately after the go pour won a clear victory over the wartime prime minister, Winston Churchill, vat ceded to implement a socialist program and nationalize several key indus~ sof Or ugh it lost the election of 1952, it alternated in power with the Conservas Ca aerorthe next thirty years; in the wake of a decisive defeat in 1979, however, Be 0, with the less doctrinaire members forming a new Social Democratic i ee pm, the Unite : iat mainly, alt mage : g upset in the ‘id ers. In a stunning UP ough not exclusive De he Conservative prime minister Margaret Thatcher effectively limited the mimic power of the labor unions in the 1980s. Their membership did not rise eo gwen when Labour regained power under Tony Blair, remaining under one-quarter of. te labor force. 4 The Social Democratic Party in pre-World War I Germany was a worker supported party, the largest in Germany, although it never succeeded in forming a 3 government before the war. Under the Weimar Republic it participated in most of the coalition governments of that fragile democracy, but with the advent of the Nazi 3 dictatorship of Adolf Hitler in 1933 it was forcibly dissolved, along with all other political parties except the Nazis. ee The Nazis abolished not only the political parties but the trade unions as ¥ el z Allworkers were compelled to become members of the Labor Front, an o} tun by members of the Nazi Party to ensure labor discipline. Similar de took place in Italy, the Soviet Union, and other totalitarian countries. Att the 1917 revolution the members of the Russian trade unions (which e: under the tsarist regime) expected they would be called on to pla ‘hereform and reorganization of the Russian economy and so ‘ly disappointed when the government used the ¢ “tights, but as instruments to in till labor a1y oF THE WORLD specially the use of , ACCOUnt r, both offensi t nd reraft, and atomic ; bor of the belligerent : although « wer of the OpPOsiNE sides In the fina, a he firing line. The ultimat ret pacity of the Ameri: e po’ portant as Ul tive Cal i been estimated at more th é fi % illic itary expenditures, and tha, ma at i perty damage, whi war have for direct mi sjude the value of pro} ¢ certainly much larger; snsions to wounded and other veterans, o, 2 feult to evaluate in pecuniary terms—the ae i well as military. e of | number of war-related deaths at about 15 ;, y and more than 8 million civilians ee lered by the Nazis in the locas ni s, or died of starvation or nutrition-re} ated lion died, more than t fered more than 2 million ec f result of both enemy action and warnings. nor does it includ le inter, Germany showed that onl ently destroyed, while moe d out. About 900 tons o!International Economic Disintegration, 1914-1945 coal, Germany could command