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The Great Depression

The great depression is famously known as an economic crash that was experienced in

Europe, North America and every other industrialized area in the world between 1929 and 1939.

This financial crash has been recorded as being the greatest ever depressions experienced in the

Western world. Despite the fact that this pecuniary disaster started in the United States, it quickly

spread and turned to become a global economic crash. The main cause of the latter is attributed

to the ruined economic relationship between Europe and the United States as a result of the

World War 1. The United States was, in fact, the first country to experience economic strains

because they were fully funding postwar in Europe. This happened as soon as the credits and

investments which they had channeled to Europe started drying up. Since the US economy was

hanging on the edge, they cut off the aid and started owing back their finances.

During this period, countries like Germany and Great Britain owed a lot of money to the

United States which they had to pay back. Furthermore, this setback was also attributed to the

imbalances and weaknesses within the US economy. This meant that further depression was to

be experienced not only in the mentioned countries but globally. Eventually, these depression

caused the individuals to lose their jobs, banks and farmers went bankrupt, and their entire

economy fell apart. However, global economy started experiencing a sudden surge in the post

world war 2 years. Thesudden surge occurred as a result of the significant change in the
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American workforce. A greater percentage of individuals started doing white collar jobs rather

than blue collar jobs. Also, there was a rise in the number of workers who produced goods to the

market. This paper explains the forces behind the fall and the rise of the global economy during

and after the world war.

To understand what happened during this period, we need to go through the historical

context that led to the failure of the inter-war trade cooperation. All this starts by analyzing the

trade policy before World War 1 that occurred during the periods of 1860 and 1914. During this

difficult time in the economy, trade relations among the European countries had to be rebuilt

since the war in question had tampered with the global economy. This is owed to the fact that,

during the war, all the international trade relations that were based on private commercial

transactions had to be replaced by government controls that were extensive by nature. The latter

took this turn because the affected states needed to support the international war efforts. The

governments took control of foreign exchange, exports and imports and also the entire trade

policies. About the above statement, Italy, France, and Britain agreed that after the war was over,

they will not in any way give grants to the MFN treatment to their enemies who in this case were

the Germans. However, they were ready to give themselves a trade preference. Similar to these

countries, the United States under the rule of President Wilson, declared that after the war was

over, all the political barriers that were in place during that era should be stripped down and in

turn establish conditions that favored equity of trade among all nations.

These efforts led to the creation of the League of Nations, which later resulted in the

affected countries holding conferences that were sponsored by the League of Nations. The

affected states had the willingness to corporate politically, but it was all in vain. This is because

of the consequences brought about by the War including inter-allied war, unrealistic exchange
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rates and debts were not addressed appropriately. Countries such as the United States, which was

infamously the greatest War creditor with the strongest economy was, by all means, reluctant in

playing an international role in the League of Nations.

During the World War 1, there was a massive dislocation of trade patterns and products

which were, in this case, undermined later during the economic build up. Long before the war

broke out, countries in Europe that had stable economies traded expansively among themselves

while they locked out other countries with not so stable economies. These countries dealt with

oversea trades which comprised of exporting manufactured goods while importing primary

products and agricultural produce.

However, during and after the world wars, most of the domestic resources in the affected

European countries were greatly absorbed or rather diminished. Due to this, there was a great

decrease in exports which were much more truncated by both transport and trade restrictions.

This breakdown in a rather traditional but international trade tampered considerably with the

then global economy.

While Europe’s economy was self-destructing, their allies outside of Europe were greatly

benefiting from it. This is clearly explained by how there was an increased demand for

agricultural produce and raw materials while at the same time there was a decreased rate of

imports by manufacturers in Europe. This meant manufacturers in other regions outside Europe

had a chance to expand themselves. Later after the war was over, it was almost impossible for

Europe to recover from the pre-war production and trade patterns since there had already been a

great decline in the capacity of the agricultural output on an international level. Therefore, there

was a sudden price deterioration from the final level attained immediately after the turmoil.
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Because of this, the affected European countries realized that it was impossible to offset

the debts they had acquired during the war period without tampering with their economy.

Nevertheless, these countries were still determined to settle the debts even if it meant to bring

about inflation and they, therefore, lifted price controls. Since the latter were not addressed in the

right manner, Europe experienced massive exchange rate adjustments and also hyperinflation,

which lasted for almost two decades. It is important to note that the latter not only led to a

decline in the economy of the European countries but also affected the western nations resulting

to a significant fall in the economy leading to what later came to be known as the Great

Depression.

In the years preceding World War 2, there was a complete turnover in the global

economy that had fallen to its knees. This age is commonly known as the Golden Age of

Capitalism which in all manner lifted the world economy into an ample retrieval, with

exceptional remunerations to the United States. Focusing on the United Sates, there was a rise in

the number of the workforces since factories and industries were employing individuals with the

aim of producing more and more products. The result led to increased income among the

employed people, among the industries and also amid the entire world system. Even though the

above was mainly triggered by the industrial production for war, then later influenced by the

need to expand markets, it was boosted by the age of industrialization which then piloted in the

Golden Age post warfare capitalism.

During the period after World War 2, the worldwide economy established favorable

conditions for high output growth, low unemployment, high investment rates, and also low

inflation rates. As a result of these circumstances, global economy found a platform to grow its

profit rates. However, what created the actual conditions for the latter was the pattern of
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technical change that saw labor productivity rise at an appealing rate while on the other hand

capital productivity kept a stable growth rate. Conditions such as an increase in output,

employment, investments and profits and other significant prehistoric conditions are what pulled

these countries out of the Great Depression.

Since the world war had now come to an end, it meant that there were favorable grounds

to sit down and figure out ways of reconstructing the already fallen global economy. One of the

significant steps taken towards ensuring the latter was when the United States government and

other capitalists came up with long term solutions that would later aid in resetting global

economy back to its feet and even improve it further.

The first goal was to work on the stability of the exchange rate and return it to the gold

standard. This was purposefully meant to avoid what was commonly known as “beggar thy

neighbor” policy. It was ensured through modest depreciation of the national currencies with the

aim of boosting exports. It is noteworthy that this policy was aimed at trading about the then

current price of gold. To understand this, they linked currencies that were non-US to gold

through the United States dollar. Therefore, the gold value of a single dollar bill was the core of

the global economic system.

Moreover, there was the creation of the International Monetary Fund (IMF) which was

put in place to help in the funding of trade deficits and also to avert the depression. In the event

where a member counter experienced a temporary crisis in balancing their payments, the funds in

place would help manage a central pool of reserve. Note that since the foundation of the IMF, the

government of the United States has ensured a tight leash since it is the major contributor in

balancing the economy.

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The United States also insisted on liberalization of trade. The involved parties came up

with new terms and conditions of trade which were known as the General Agreements on Tariffs

and Trade. This policy was to ensure that all tariffs were removed to open markets all over the

world for the American merchandises. Another last but important choice made was to establish

the World Bank. The latter was purposefully initiated to finance the reconstruction and

development of post-war-affected countries and also the post-colonial countries.

The majority of scholars have described the United States war economy from 1942-1945

as a command economy. This economy worked on the basis where an extensive economy

outlawed the price mechanism. This meant that manufacturers of arms were in a position to

obtain raw materials without bidding up their prices since the then government had the power to

direct the materials to them by edict. It is okay to say that this post-war miracle was not only

influenced by what has been discussed above but was also influenced by other decisions made

independently by the government. The fact that the government stopped buying war

ammunitions and hiring soldiers meant that finances intended for this job would be channeled to

other productive tasks such as building industries for export production. During this era, a drop

in GDP was experienced and was seen to be a couple of percentages lower than it was during the

war period.

Note the fact that prosperity in the global economy was influenced by the events that

were taking place in both the European and the Western countries. After World War 2, most of

the commercial industries in the United States including the automobile industry grew even

larger. As the industrial America changed, workers in the US found their lives changing in all

aspects. However, the population that was practicing farming faced rather tough times. This was

attributed to productivity gains which led to agricultural consolidation and this made farming to
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become a big and competitive business.

In conclusion, this paper produces a rather brief chronological summary of how the

global economy went in and out of recession during the World Wars and what impacts the latter

had to the economy of the world. However, while summarizing this, note that it is not important

to overgeneralize the fact that there was a huge setback that came with the latter. One of the

valuable lessons learned from this research is that the first half of the 21st century proved to be

suitable, efficient, and sustainable International Corporation which must be built on a predictable

framework of an institution.

Moreover, note the fact that there were a couple of regulations that impeded in the market

during the post-war period that ensured that the government spending declined. Despite all these,

the post-war prosperity that the West enjoyed after World War 2 was less the result of what was

to be carefully crafted as a political agenda.