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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 during the periods of

1929 and 1939. This financial crash has been recorded as being the greatest ever depressions to

be 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 crush. The main cause

of the latter is attributed to the ruined economic relationship between Europe and the United

States which was mainly caused by World War 1. The United States was in fact the first country

to experience economic strains considering the fact that 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, this depression

cause individuals lose their jobs, banks and farmers went bankrupt and their entire economy fell

apart. However, global economy started experiencing a sudden surge in the years to follow

World War 2. One of the main reasons behind this is the significant change in the American

workforce. A greater percentage of individuals started doing white collar jobs rather than blue

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

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

world war.

In order to understand what actually 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 governments needed to support the

international war efforts. The governments took control of foreign exchange, exports and imports

and also the entire trade policies. In reference to 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 led to the involved

countries holding conferences which were sponsored by the League of Nations. The involved

countries 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 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 economic build up. Long before the war broke

out, countries on 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 greatly 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 of

agricultural produce and raw materials while at the same time there was a decreased rate of
imports by manufactures in Europe. This meant manufactures 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 uttermost level attained immediately after the turmoil.

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 countries

resulting to a major 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 turn over in the global

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

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

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

the number of workforce 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

individuals, 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 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 conditions, global economy found platform to grow its profit

rates. However, what actually created the actual conditions for the latter was the pattern of

technical change that saw labor productivity rise at an appealing rate while on the other hand

capital productivity kept a solid growth rate. Conditions such as growth in output, employment,

investments and profits and other major prehistoric conditions are what actually 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

major 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. The most important point to note about this policy is that it was aimed

at trading in relation to 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 funding of trade deficits and also to avert 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.

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 in order 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 in order to finance the reconstruction and development of post war affected

countries and also the post-colonial countries.

Majority of scholars have described the United States war economy from 1942-1945 as a

command economy. This economy worked on the basis where the price mechanism was

outlawed by an extensive economy. This meant that manufactures 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 solders

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 percentage lower than it was during the war period.

Note the fact that prosperity in 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 own 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

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

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

suitable and effective 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 impended 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.