Freddy - Interwar

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The Versailles Settlement

The Fourteen Point Program (January 1918 — Woodrow Wilson)

    • Open Diplomacy
    • Freedom of Navigation
    • Free trade
    • Disarmament
    • Self-determination
    • Evacuation of all Russian Territory
    • Belgium must be evacuated and restored (from German occup.)
    • Freeing of French territory (Alsace-Lorraine)
    • Readjustment of Italian borders
    • Autonomous dev. for the peoples of A.H.
    • Independence for the Balkan states
    • Securing of Turkish territory/sovereignty / the Dardanelles as a free passage
    • The establishment of an independent Poland
    • The creation of the League of Nations


Rejected by Germany immediately

The Armistice: (following a change in German Gov.)

    • France and G.B. changed the Fourteen point program
    • Absolute freedom of the seas was not offered
    • Germany would have to pay compensations
    • Signed on November 11th 1918 and WWI ended (after Ebert the Socialist came to power in Germany following the abdication of the Kaiser)


The positions of various countries on peace negociations:

    • USA: Wilson was most concerned with the long term and the adoption of the Fourteen Point program (but not backed by Senate)
    • France: wanted a peace that would never allow German attack on France again (reparations, etc…) — destroy Germany
    • G.B.: The popular opinion was very hostile towards Germany — cripple Germany
    • Italy: wanted to punish A.H. and obtain territory promised in the 1915 Secret treaty — when no backed by allies on this, Italy left the conference table and this later gave rise to Fascism in Italy as Italians were not content on the peace terms
    • Germany influenced the conference in that the allies (especially Lloyd-George from G.B.) feared a communist revolution.


The Treaty of Versaille and other post-war Treaties

    • See Notes


Criticisms of the Settlement:

    • Didn’t respect the 14 Point Program:
    • Germany was not present
    • Britain did not give up right of search (for ships)
    • Tariff barriers increased (against free trade)
    • No multilateral disarmament
    • G.B. and France gained colonies
    • The Allies intervened in Russia
    • The Italian frontiers’ issue was not fixed
    • Self-determination was not applied
    • Should Germany have been present?
    • Could Germany afford the reparations?
    • Resentment in Germany at having to pay reparations
    • Divisions amongst the allies as over reparations
    • Keyne’s influence
    • Didn’t respect Self-determination
    • It was economic and strategic factors which influenced the establishments of frontiers/countries
    • The ‘War guilt’ clause : was it necessary?
    • Created German resentment against the Versaille Settlement.
    • Were the allies entitled to the reparations they demanded?


Long term criticisms:

    • Treaties were completed in haste
    • Procedural difficulties (views of allies on how to deal with matters differed)
    • The treaties were on the whole a compromise btw differing views
    • The treaties assumed the allies would remain united
    • The USSR was excluded (this weakened the settlement)
    • It broke up A.H. This:
    • Created rivalries in the Balkans
    • Prevented economic cooperation in the newly formed states
    • The balance of power in Europe was disturbed
    • The league did not function as had been hoped
    • The changes brought by the settlement were incomplete.



 

Economic Problems of the Interwar Period

The Economic Consequences of WWI:

    • There was a massive direct cost to all nations involved in WWI
    • The opportunity cost of all the resources used to destructive ends
    • There was a change in the financial center of the world (from Europe and G.B. to the USA) since European nations became debtor nations
    • A fall in European living standards (European countries had to cut down on imports)
    • Increase in USA’s economic strength
    • Decrease in international trade (lack of a stable currency)
    • Worldwide markets shrunk
    • Established trade patterns were disrupted
    • Intense hatred between the two sides meant that is was (in the short term) impossible to reestablish previous trading patterns.
    • Few saw beyond the short term, therefore most politicians sought revenge, and not the recovery of the defeated states (this was also the result of popular opinion)


The Reparations Problem:

    • Division amongst the allies on this topic
    • The Germans did not believe such reparations could ever be paid (especially with its post-war losses)
    • Countries relied on reparations to finance reconstruction and the delaying of reparation payments meant the delaying of the reconstruction process


Major Developments 1921-1933

    • Genoa Conference (1922) — world economic conference
    • Prosperity could only be restored if recovery plans included all countries (inter dependence of countries)
    • The conference failed
      • The USA refused to attend
      • French did not admit the Russians/Germans
      • Germans & Russians had a revolution of their own
    • The occupation of the Ruhr (1923)
    • German workers refused to cooperate
    • The French and the Belgian intervened but the cost of intervention outweighed any benefits made by the seizure of German goods.
    • The German Economy collapsed — there was high inflation & it was unable to pay reparations
    • There was social unrest in Germany (led to the rise of movements like the fascists) however, a coup led by Hitler and General Ludendorff failed
    • Britain refused to support France/Belgium
    • The Dawes Plan (1924)
    • End of occupation of the Ruhr
    • Two year moratorium of German reparation payments
    • International loan for Germany
    • Introduction of an annuity basis on reparations
    • Financial controls imposed on Germany
    • The Young Plan (1929)
    • The total sum owed by Germany was cut down by 25%
    • Annual payments fixed to run until 1966
    • In the event of financial difficulties a part of the payment could be deferred for up to two years
    • 1/3 of payments could be made in kind
    • International controls (established by Dawes Plan) were abolished
    • Bank for International Settlements established
    • International loan made to Germany ($200 million)
    • October 1929: Wall Street Crash
    • 1931: Germany stops reparation payments
    • 1932: Lausanne conference: fixed reparation payments very low
    • 1933: Hitler became chancellor


Evaluation of Reparations:

    • Could Germany afford them?
    • Keynes criticized reparations. He later admited he might have underestimated Germany’s ability to pay reparations.
    • Some argued that there was a lack of will in Germany to pay for reparations
    • Some argue that Hitler spent more on rearmement (in a short time) then the total revised reparations payments
    • How much did Germany actually pay?
    • Estimations point to $9 billion but she receive $8 billion in loans
    • Reparation payments did little to help the recovery of the allies
    • Reparations contributed to inter-war period tensions
    • Britain and France linked war debts and reparations and refused to pay war debts until reparations were paid to them



 

The Economic Consequences of the Great Depression

Causes in the USA:

    • Overproduction
    • Uncontrolled use of credit-buying (concealed over-production)
    • Speculation
    • Weak banking structure
    • Uneven distribution of wealth


The Effects of the Depression in the USA on Europe

    • Recall & refusal to renew short term loans
    • The collapse of the German economy
    • The system of international debts and reparation payments collapsed
    • There had been an outflow of gold towards the USA / the Great depression magnified this unhealthy tendency
    • Shrinkage in world trade
    • Prices fell due to lack of demand / rapid rise in unemployment
    • Social problems led to a rise in political extremism
    • Led to the development of Economic Nationalism (promote recovery in ones own country at the expense of others)


Reasons for Economic Nationalism:

    • Isolationist policies of the USA who imposed heavy import duties which led to retaliation from European states
    • Keynes promoted Gov. intervention and this tended to result in economic nationalism
    • USSR was the only one not to experience the effects of the depression and this led to a belief in tight state control as the way of the future.
    • Failure to keep international agreements
    • The rise of fascism which was highly nationalistic


Effects of Economic Nationalism:

    • Short term benefits to some countries, i.e G.B and German, but it is doubtful that there could have been long term benefits, but the outbreak of WW2 totally changed the economic scene
    • Caused a further contraction of the volume of world trade (imposed imposition of tariff barriers)
    • Contributed to deterioration in international relations
    • Promoted Gov. intervention/management of the economy
    • In the long term, world leaders came to recognize the importance of economic cooperation and institutions such as the IMF and the World Bank were established.



The Economic Problems of Various European States

(1919-1939)

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 national Gov. brought about the small beginnings of a slow recovery.


The Economic Problems of France 1919-1939


But, France had been the major battlefield for WWI and suffered greatly as a result. Her problems were:


    • 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 needed an economically strong Germany but its politicians sought to cripple Germany.

In relation to Germany and Britain, France performed well in the 1920s.


    • 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:


Serious U. and difficulties in agriculture and industry, in response the Socialists (unpopularily:)


    • 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


But:

    • 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 *


An Evaluation of Nazi Economic Policy

    • Measures reducing U. marked w/ a * represented a manipulation of statistics
    • Increases in output were directed to the armed forces (this meant recession was inevitable except in the case of war)
    • Economic improvements were accompanied to loss of individual freedom


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