Interwar European Economic Problems 1919-1939
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The Economic Problems of Great Britain 1919-1939

• Britain was a trading nation and its prosperity was built on her early industrialization however after WWI Britain became a debtor nation, causes of this include:
• Britain was challenged as other countries industrialized
• New post-WWI trading patterns were not in favor of Britain
• Britain had little left (after war debts) for import payments
• The post-WWI rise in protectionism damaged Britain given the nature of her economy (trade based)
• The break up of A.H. deprived Britain of a valuable export market
• British industry was becoming outdated
• Solutions to Britain’s economic problems:
• Exporting more
• Import less
• Increase invisible exports
• Difficulties w/ the solutions:
• To export more, Britain would have to produce cheaply which meant either:
• Using more efficient methods of production (v. expensive)
• Reducing pay/ increasing work load (socially unacceptable)
• To import less Britain would have to impose tariffs on foreign goods (this would be unpopular b/c Britain was a major importer of food and therefore this would lead to a decrease in living standards.)
• To increase invisible exports Britain would have to restore confidence in her economic security. To do this Britain:
• Announced in 1923 that it would honor all war debts — and to do this taxes increased and British goods became more expensive (therefore visible exports declined)
• Announced in 1925 that it would return to the Gold Standard — this pushed up the value of the pound which resulted in expensive British goods and in British uncompetitivness. (the Gold Standard was abandoned in 1931)
• During the inter-war period, high U. led to social unrest and led to five changes in British Gov. (btw 1919-1931)

The National Government 1931-1940

• Took Britain off the Gold Standard
• Free Trade was abandoned
• High tariffs were imposed on goods (those suspected of being ‘dumped’ on Britain)
• An import duty of 10% was imposed
• A system of ‘imperial preferences’ was set up w/ free trade btw Britain and her empire
• Reduced interest rates (easier to borrow)
• Limits were imposed on the export of capital
• Wages were driven down by the depression and heavy U.
• Imports of raw materials were cheaper b/c of the depression
• Improvements in manufacturing lowered prices
• Lower prices led to increased consumption despite lower wages

The Economic Problems of France 1919-1939

• Loss of revenue in areas which had been devastated by the war
• Bankruptcy of the French treasury (due to massive borrowing)
• Manpower shortage because of heavy war losses
• The newly developed industrial sector promoted trade while the agricultural sector promoted projectionist policies.
• The taxation system was outdated and inefficient
• The French Gov. relied too much on reparations

• France relied less on trade and more on agriculture and suffered less from the shrinkage in World Trade.
• France had a strong agricultural base
• France obtained resource-rich areas from Germany
• The franc was undervalued and this helped French exports
• The French Gov. was divided and weak, and could not take decisive action (such action in Britain deteriorated the situation rather then improved it)

Problems in the 1930s:

• Reduced salaries in the civil service
• Reduced pensions to ex-servicemen
• Closed down public work schemes
• Increased taxes on Consumer Goods

(1934-1936 a right wing Gov. came to power, later extremist right wingers attempted a coup which failed and led to the rise to power of the Popular Front)

The Policies of the Popular Front

• Its victory was followed by a series of strikes by ind. workers
• This brought the economy to a standstill and
• Led the right wing to fear revolution

The Matignon Agreement: (1936) (agreement btw left and right wing Gov. factions)

• Its measures were: 12% rise in wages / nationalization of armament works / greater Gov. control over the Bank of France / paid vacation for all workers / a 40 hour week / recognition of trade union rights / the end of occupation of factories and the owners retained control
• The problem of the agreement was the question of paying for the agreed reforms.
• At first the Gov. relied on borrowing
• Later the franc was devalued but this did not stimulate recovery b/c of the reduction of production (due to a 40 hour week)

Why was the Gov. unable to deal w/ the problems?

• Huge debts had been incurred and the leadership demoralized
• There was a large/powerful agricultural lobby
• Industry was backward
• Those who controlled financial institutions (rich industrialists) were conservative
• Civil Service control lay in the hands of right wingers who were opposed to reform
• French politics were polarized and cooperation btw left and right was small.

The Economy of the USSR during the period 1919-1939

• The introduction in 1928 of a new system of central planning brought about rapid development
• The USSR began to catch up with the advanced countries of the West.

Why did the USSR avoid the Great Depression?

• She developed her economy in isolation of the world trading system and:
• Stalin aimed at achieving autarky and to this end lessened the importance of imports upon the USSR
• The USSR was isolated diplomatically. (the USA established diplomatic relations w/ the USSR in 1933)
• The Gov. had great control over the economy (ie: prices and wages were fixed)
• Soviet industry was not consumer oriented
• There was no possibility of speculation by bank
• No independent labor unions, and therefore no disruptive strikes
• There was not the vast inequalities in wealth distribution that existed in the West
• And there was:
• No political opposition
• No interest groups to oppose economic measures
• The Gov. was not subject to public opinion

• The methods were not transferable to the West (the USSR was a totalitarian state)
• Behind economic successes lay "slave labor camps, mass executions and wholesale starvation" (in parts of the USSR)
• The Soviet system proved in the long term to be inflexible and unable to progress beyond a certain stage.

The Economic Problems of Germany 1919-1939

• Political instability / Germans did not accept the constitution of the Weimar Republic
• Germany lost her colonies and territories (therefore resources, population and industry) when she most needed them
• Germany had to pay reparations
• Anti-German feelings were high and this damaged German exports
• Germany had to hand over "huge quantities of industrial machinery, merchant shipping, railway engines, and wagons" which were needed by Germany
• Parts of Germany were occupied

1919-1923: All progress was destroyed by the occupation of the Ruhr. As the economy collapsed, the currency became worthless and social unrest rose.

1924-1929: Germany began to recover economically (w/ the Dawes and Young plans)

1929-1933: Germany’s economy was destroyed by the Great Depression / this led to the rise to power of Hitler and the Nazis

The Economic Policy of the Nazis:

• Hitler seemed to have brought by the late 1930s an economic miracle, his methods were:
• A high degree of central planning
• The use of production targets for key areas
• The use of strict controls on the distribution of raw materials
• A drive towards autarky / cutting down of imports
• Labor Unions were abolished as early as 1934
• Measures to reduce U. included:
• Increases in public works
• Rapid expansion of the armed forces
• Banning certain social groups from certain jobs *
• The growth of the Nazi party *

Other Notes in this Category

1. Castro's Guerilla War in Cuba
2. Economic Consequences of WW1 and Reparations
3. Guerilla Warfare Against the French in Vietnam 1946-1954
4. Interwar European Economic Problems 1919-1939
5. Terrorism
6. The Causes of War
7. The Great Depression and Economic Nationalism
8. The Second Vietnam War 1960-1975 and American Involvement
9. Theory of Guerilla Warfare
10. World War One Peace Settlements

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