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Economic Boom and Bust in The 1920s

This document provides an overview of the economic boom and bust period of the 1920s. It discusses [1] the post-war economic situation in various countries as they adjusted to peace, demobilized their wartime economies, and restored infrastructure. It then [2] describes the economic expansion many countries experienced throughout the 1920s, noting differences between countries. [3] Key national cases of the US, UK, France, and Germany are examined in more depth, highlighting their specific economic circumstances and developments during this period.

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Sergi Pérez-Rejón García
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© © All Rights Reserved
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77 views

Economic Boom and Bust in The 1920s

This document provides an overview of the economic boom and bust period of the 1920s. It discusses [1] the post-war economic situation in various countries as they adjusted to peace, demobilized their wartime economies, and restored infrastructure. It then [2] describes the economic expansion many countries experienced throughout the 1920s, noting differences between countries. [3] Key national cases of the US, UK, France, and Germany are examined in more depth, highlighting their specific economic circumstances and developments during this period.

Uploaded by

Sergi Pérez-Rejón García
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Lecture 18:

Economic boom and bust in the 1920s

NB: Cautionary note: We all know two things about the interwar period:
1. The stock market crash of 1929
2. The great depression of the early 1930s

NB: This appreciation tends to “colour” views of the economic history of 1920s

This does not mean that the Great Depression was caused by the collapse of the Stock
Market in 1929

AFTER THE WAR…

(1) Consequences of the war:

 Post war inflation (gold standard)  and short-lived post-war boom; then
deflation.
 Rapid demilitarisation and demobilisation
 Restoration of war damage in areas of conflict

Table 1. Countries and the Gold Standard

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(2) Government intervention – a bit of information on each country

 In UK, women are pushed out of the labour market back into the household.
 UK suffers a fall of the GBP (pound) due to the aim of pre-war restoration, there was
an aim to restore the Gold Standard and relatively equal prices between America and
Britain.
 Countries in the west are worried by the attempts of a Bolshevik revolution.
 France depreciates its currency.
 New currencies created in Germany, Austria, Hungary due to previous hyperinflation.

(3) Problems
 New countries
 New maps - new international borders: Europe, re-assigned colonies
 New debts- old debts- reparations

ECONOMIC EXPANSION DURING THE 1920s

Table 2. Differences in economic expansion in the 1920s

(Source: Maddison 1991); 1913=100


1919 1925 1929

UK 101 103 112


GERMANY 72 103 121
FRANCE 75 117 134
ITALY 111 120 121
SWEDEN 115 141 136
USA 116 141 163

What shall we learn from this data?


 USA has the largest growth
 There is no general pattern  Each country suffers a specific case
 There is a recovery in Germany after the First World War.
 Note the French recovery
 Could UK’s slow growth be blamed on the failure of Big Business?

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Additionally:

 International capital flows were now unpredictable.


 Prices were becoming more rigid.
 Unemployment was a general problem due to the dislocation and structural
challenges. Moreover, as well as being relatively high, unemployment
fluctuated more. For instance, in Germany it reached both 0,7% and 8% and on
the UK it reached both 2% and 11% (cf. Edwardian period)

 Economic nostalgia in the UK: British people wanted to return to Victorian


period (before WWI) which was really profitable for middle class.

Case to remember  New York times 14/2/1917: Du Pont wartime profits


Du Pont was selling explosives to the Allies. They made enormous profits and were willing to
distribute them as dividends but they invested in chemical manufacture too.

LET US SEE DIFFERENT NATIONAL CASES:

(1) UNITED STATES OF AMERICA

 War-economy coming “on-stream” in 1918: major expansion planned for 1919.


 Sharp swings in activity after war.
 Inflation followed swiftly by deflation 1919-1921.
 Rest of 1920s saw economic expansion.
 Expansion of suburbs and auto-economy. This fact was caused thanks to the expansion
of electricity and transport, among others.

Good to note:

 Increasing inequality of incomes and wealth


 Evidence of deflation in the primary sector due to the fall of farmers’ incomes
 General mood of a “casino economy”: we found ourselves in a period of general
speculation and great enthusiasm, people lose sight on what the real economy can
sustain. There is the starting of a bubble
 Market saturation and overproduction
 Economy pushing towards the technological frontier. Technology went one-step
ahead. Good use of the technological advances in the past (continuous reinvention of
past tech), good implementation and full assimilation. Productivity growth is mainly
concentrated in manufacturing.

Conclusion: HIGH INCOMES, LOT OF GROWTH, TECHNOLOGICAL CHANGE, but incomes


concentrated in a part of society and technological change applied only to some sectors.

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USA’S CORPORATE DEVELOPMENTS

 Headline developments: (both presented different models or frameworks for


American companies)
o Ford - assembly line; close supervision (at work and at home) & 5$ day. It
produces one car with very little variation, it is an homogeneous product
which is affordable for the middle class. Ford had a view of how their workers
were supposed to be and how to manage them. They had high salaries, which
were useful to attract good workers and also to increase their productivity.
o General motors - product differentiation; multidivisional management
structure and financial model. Strategy focused product differentiation.
General Motors had a clear knowledge about the market segmentation and
the different level of purchasing power of each class. Therefore, different kind
of cars targeted to different budgets. They introduced the multidivisional
structure which consisted on division of different departments – the concept
was for them to be just like small firms (with certain independence) in a big
firm – with autonomy leaded by top managers – different divisions producing
different cars for different sectors of the American class society. Capital
allocations were done by the main executives. It grew by acquiring car
manufacturing plants.
 Moreover, the US economy was also comprised of thousands of firms which were not
transformed by these different developments - though many connected to the large
corporations.

 NB: the “typical” (representative) economic unit was the family farm. Small unit
(household) still present in the countryside.

(2) UNITED KINGDOM

 Irish independence (1919 – 1921: Irish War of Independence)


 No major wartime damage to domestic economy
 1919: Cunliffe Committee - policy statement on return to gold
Immediate post-war policy to slow demobilisation
 1919, 1920 and 1921 : increased taxation and deflationary policy
1921- Committee on National Expenditure: large cuts in government spending in
1922/3 (Geddes’ Axe).
Defence cuts were greater than Social Welfare cuts.
 Restoration of gold value of £ (pound)
 Complication of deflation in USA - chasing the $.
 1925 - restoration of $4.86 (10% overvaluation?)
 Keynes wrote ‘Economic Consequences of Mr Churchill’ (a paper with some criticism)

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 There was a downward adjustment of the export price. As coal was the major export,
coal miners “carried the burden”. Therefore, the financial sector becomes the
beneficiary of the high value of the pound. It is said that the policy appears to benefit
The City (The City = London). Wages were cut in Britain, only in the sectors where
there’s competition.
 Consequence - 1926: Miners’ Strike and General Strike.

(3) FRANCE

 France was greatly damaged by the war, therefore, its reconstruction depended much
on the forthcoming reparations. Moreover, France also needed the reparations to
repay the Americans. However, there was a problem: these reparations had to come
mainly from Germany, and the Germans had refused to pay them.
 An active policy to enlarge population is carried out, however, it has little effect
 France’s economy enjoys a relatively high standard of living
 There was corporate growth in the manufacturing sector, mainly in auto firms
(Renault, Peugeot, Citroen)

(4) GERMANY

 Hyperinflation
 Restructuring
 Allies- seize assets and patents.
 Inflow of US companies.
 1923: Occupation of the Ruhr.
 Government spending - deficits.
 Germans refused to pay the war reparations as they believed it was not legitime
 In response to the economic difficulties – Germans are disappointed for the
reparations, and together with hyperinflation, speculative fevers and the difficulty of
getting credit from America (they didn’t want to lend to them) – Germany saw the rise
of the radical right, the Nazi party.

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1929 – STOCK MARKET

Table 3. Graph of the share prices

Note:

 The sudden increase in 1929 (the peak of the graph)


 Peter’s opinion: the great depression is not a direct consequence of the Wall
Street crash
 At the end of 1929 Wall Street economy already looks ok again. Note how
prices return to the levels before the crash quite rapidly.
 France’s and Britain’s finance is not very much affected by the Wall Street
crash

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APPENDIX 1:
MORE INFORMATION ABOUT THIS PERIOD
Note: this information hasn’t been given in class, however, I believe it is good for a general
understanding of the period. I literally extracted this from History’s Dropbox.

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APPENDIX 2:
SOME TABLES ON MADDISON THAT MIGHT BE USEFUL
LA ECONOMÍA MUNDIAL EN EL SIGLO XX, ed. 1991

TABLE 1. GDP PER CAPITA IN INTERNATIONAL DOLLARS (1980s PRICES)

NB: This graph occupied two pages, that is why there is a strange mismatch of columns

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TABLE 2. GROWTH OF GDP PER CAPITA: 1900 - 1987

TABLE 3. EXPORTS IN 1980s’ PRICES

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TABLE 4. PARTICIPATION OF EXPORTS IN GDP

TABLE 5. EXPORTS PER CAPITA, 1900 - 1986

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