The Making of a Global World
The inter-war economy and the Great Depression
Explain the inter-war economy and the causes and effects of the Great Depression.
The First World War (1914-18). Fought between the Allies (Britain, France, Russia, later the US) and the Central Powers (Germany, Austria-Hungary, Ottoman Turkey). It was the first modern industrial war: machine guns, tanks, aircraft, chemical weapons. 9 million died and 20 million were injured, mostly men of working age, so families earned less. As men went to fight, women took up jobs once done only by men. Britain borrowed heavily from US banks and the US public, turning the US from a debtor into a creditor nation.
Hard times after the war.
- Britain, once the leading economy, struggled. India and Japan had built industries during the war; Britain also carried huge debts. When the war boom ended, production fell; by 1921, a fifth of all British workers were unemployed.
- Wheat farmers suffered too. During the war, Canada, America and Australia grew more wheat to replace Eastern Europe's. When Eastern Europe's farms recovered, there was a glut: prices fell, incomes dropped, farmers fell into debt.
Mass production in the US. The US recovered faster. Henry Ford, a pioneer of mass production, copied a Chicago slaughterhouse's conveyor belt for his car factory in Detroit. On his assembly line, each worker repeated one task at the belt's speed, with no pause. A T-Model Ford came off the line every three minutes. Workers could not stand the stress and quit, so in January 1914 Ford doubled the daily wage to $5, while banning trade unions. He got the money back by speeding up the line again, and later called the wage rise his 'best cost-cutting decision'.
The 1920s boom. Mass production made goods cheaper; higher wages let workers buy cars, fridges, washing machines and radios, often on hire purchase (paying in instalments). A housing boom, also on loans, added to it. More spending meant more jobs and more income. From 1923 the US also became the world's largest overseas lender, helping Europe recover.
The Great Depression (about 1929 to the mid-1930s). Production, jobs, incomes and trade collapsed worldwide. Farm areas were hit worst. Causes:
- Too much farm produce: as prices fell, farmers grew even more to keep their income, which pushed prices down further. Crops rotted unsold.
- US loans vanished: many countries depended on US loans. In early 1928 they were over $1 billion; a year later, a quarter of that. European banks failed and currencies like the pound collapsed.
- The US doubled import duties, hurting world trade.
In the US itself, banks called in loans, families lost homes and cars, and over 4,000 banks had shut down by 1933.
India and the Depression. From 1928 to 1934, India's exports and imports fell to nearly half. Wheat prices fell by 50 per cent; raw jute prices crashed by more than 60 per cent (Bengal's jute growers sang that traders paid only Rs 5 a maund). But the colonial government refused to reduce revenue. Peasants used up savings, mortgaged land and sold their jewellery, so India exported gold. The economist Keynes said this gold helped world recovery; it helped Britain, not the Indian peasant. Rural India was angry when Gandhiji launched civil disobedience. In towns, people with fixed incomes (salaried workers, landowners living on rents) were better off, since everything cost less.
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