The Post war World
Chapter I – Economic consequences of the Great War
The Great War was not only chillingly costly in blood – it also carried with it a tremendous cost in economical terms that had to be paid somehow. The different ways in which the participants financed the cost of war would impact in various ways on the post-war economy. In all belligerent nations, the millions of young men in productive age that were drafted into the army spent three years of war in the trenches and battlefields instead of working, earning and spending, reducing demand for consumer goods. On the other hand, the states purse for war costs seemed bottomless, which caused a war hausse for every business related to war needs – steel, machine- and chemical industry, textiles (for uniforms) etc.
In France and Italy, the State paid for its war spending mainly by raising taxes (although some loans were taken from Britain and the United States). This kept inflation at a reasonable rate, but since it reduced consumer income, domestic demand for consumer goods decreased sharply, compounding the problem with the non-spending draftees. At war’s end, France had a swollen heavy industry with large overcapacity and superfluous workforce, and a light (consumer goods) industry that had a hard time selling to a tax-impoverished population. The deep recession in post war France surely helped foster the revolution or in the case of Italy, made a revolution likely enough to scare the middle class into embracing the black-shirts for protection against it.
The Fascist March on Rome, 1922
In Germany and Austria, in contrast, the State financed the war mostly by loans from the rich, particularly Jewish banks and Financial Institutes. At the end of the war, the State in both countries was deeply indebted but consumer demand had remained steady, decreasing the shrinkage of the light industry sector to manageable levels. Post war, the tax rates would go up here too, but at least the ensuing recession began from a less wretched war-time state. Also, war reparations from France and to a lesser extent, Italy, helped Berlin and Vienna pay back much of their debt without having to resort to excessive tax increases. Loan-financing of the war effort did however lead to significant inflation and as world trade resumed after the war, to a severe depreciation of the Reich mark – in 1918 it was worth about half of what it had in 1914. All the warring nations had had to abandon the gold standard during the war, and the delicate matter now at hand was at what exchange rate it should be re-introduced. Strong voices in Germany advocated going back to the 1914 parity, in order to “restore the honour and prestige of the Reich mark”. This would have doubtlessly caused a deflationary spiral with potentially disastrous consequences, but fortunately, cooler heads prevailed. As the dominant power in Europe, The German Empire needed not be touchy about prestige issues, and the new gold exchange rate merely confirmed the depreciation of the Mark. For a time, this also gave German goods a price edge in competition with British and American goods. Debt however demanded a reduction in military spending. With Germany master of a Continental Empire, a vast fleet had become even more of a luxury than before the war, and one that brought with it the enmity of Britain. A tacit agreement was made with London in 1921 that Germany would replace only half of her present naval strength with new modern ships. In return, the Royal Navy would help protect German shipping on the high seas in case of a conflict with a third power. This agreement, coming soon after the adoption of the new German constitution which made the
Reichstag equal in power to the
Bundesrat (Federal Senate), did much to improve relations between Britain and the German Reich. These had become strained after the scramble for the French colonies in which Germany seized Djibouti.
In the Ottoman Empire, the reforms of the Young Turks had set of a modest but steady economic development by the mid 1920s. German corporations were the main investors, and after the Romanian revolution put an end to German exploitation of the Ploesti fields, they would develop the already significant oil extraction facilities at Baku. Income from oil exports to the other Central Powers would provide the Turkish Government with a reliable and growing source of revenue throughout the 1920’s and 30’s.
The less that is said regarding Russia in this context, the better. War Communism, the ruthless harnessing by the State of all production capacity, succeeded in arming, clothing and feeding the Red Army through the Civil War, but not much anything else. At the end of the Civil War, Russia was not in recession or even depression – it was in famine. The loss of the Ukraine, with its huge grain produce could not be made good through importations in an economy that produced no surpluses of any kind. Trotsky, convinced that the Revolution could not survive in the long run if it didn’t spread to the rest of the capitalist world, embarked on a ruthless industrialisation program in order to give him the tools to defend the revolution long enough for this to happen.
Trotsky ruthlessly forced the USSR to industrialise
Thus, the factories of the Soviet Union produced mostly construction elements and heavy machinery – in essence, more factories. The loss of the Baku fields and the Ukrainian Don bass region meant that large investments had to be made in coal mining, which further reduced what was left for non industrial purposes although at least it did provide a job and a very modest income to the miners and their families. The oil supply situation would improve after the Romanian revolution in 1924, when the Hohenzollern Austro-German puppet King was deposed by anarchist-inspired popular uprising (in which the inevitable Makhno played a significant role) supported by a Communist-led military putsch. Both had been bankrolled by the NKVD, but only the Communists would retain that support once the revolution had been successful and guaranteed by an alliance with the Soviet Union. Needless to say, within two years the Communist Party was in complete control and large scale oil exports to the USSR in place. Anarchist militants were not persecuted until they voiced open opposition, after which they either fled the country or were imprisoned.
From 1921 to 1936, three 5-year plans would dramatically increase the Russian industrial output, but they would do little to improve the lot of the workers and peasants whose well-being was the raison-d’être of the USSR. Russia’s manpower losses in the Great War were dwarfed by the death toll claimed by famine and disease (Russia was the one place were the 1918 influenza epidemic would become really severe. One shudders to think what might have happened if it had struck the freezing, starving armies in the cold and muddy trenches one year earlier) and the ruthless collectivisation of what arable land there was didn’t exactly help. It is no coincidence that the early 1920s were the formative period of Felix Dzerzhinsky’s feared Cheka – All in all, life in the 1920’s USSR was no picnic.
Something similar eventually happened in France, but only after a decade had passed. Initially, the French Communist party, worried by lingering anarchist influence went to great pains to win the hearts of the people, thus light industry and consumer goods were the first order of business. This helped France quickly reclaim a position in the world economy, exporting its traditional luxury foodstuffs, perfumes and even haute couture – the Party tried hard to show that Communism and traditional French glamour where in no way incompatible. Paris remained a Mecca for the artistically inclined, of which most were left-wing radicals anyway. The derisive term “state capitalism” was coined by orthodox Marxists (particularly Russian ones) to describe French Communism: in essence a huge consortium of profitable industries, producing for the consumer market and for export. If a historical precedent was to be found, Ptolemaic Egypt would have been it.
Since the French Revolution had been fostered and launched out of a hate for war it would have been hard for the new regime to appear overly belligerent and war-mongering. In consequence, France scrupulously upheld the terms of the Versailles peace and even went beyond it, scrapping or selling all but the most modern warships of the fleet (which was in any case a useless luxury now that the colonial Empire was gone). Thus Communist France appeared peaceful to the point of Pacifism, moderately prosperous and, obviously in sharp contrast to the brutal Soviet regime, deeply appealing to the working classes of the Capitalist countries. The nightly arrest and elimination of “enemies of the people” by the new “Surété” were not as widely published as the latest songs of Edith Piaf or paintings by Picasso and did not disturb the idyllic image. Gradually, more and more of investment was made in heavy industry, but during the first 10 years only at a moderate pace. In gloomy Moscow, Trotsky was positively fuming.
Most would agree that he had grown tired of his Comintern partner’s détente with World Capitalism. He angrily went on record claiming that the French Communists had been infected with Leninism, and were trying to build socialism in one country only, leaving the workers and peasants of the world to their fate. He wanted an ally that made less Roquefort cheese and more tracks amd bombers; one which could field a large and powerful army in the inevitable struggle with German Imperialism. After a decade of subterfuge, he managed to put his man at the helm. Thus, it was not until 1930 when a young Maurice Thorez rose to rank of Secretary General of the Communist Party that France began to follow the road to socialism insisted on by the Soviet Union.
The big capitalist powers that had stayed clear of the war – Britain and the USA – were in a happy state as war ended. London remained the financial centre of the world, and the pound sterling its reserve currency, even after Germany had overtaken Britain as the leading industrial power of Europe. The post-war recession was mild in Britain, and hardly noticeable in the United States, caused mainly by the loss of war material orders that had caused a peak of economic activity in 1917. The following good times were however shared in full by both countries.
As economic life picked up again in late 1922 and 1923 there was a real sense among ordinary people that the world had lived through Hell, and that some fun and games were in order. Economy was booming, people had “plenty money” and a sense of relief and optimism induced a relaxation of the strict Victorian, Evangelic or Prussian morals upheld in each of the Capitalist Great Powers. There was drinking (at least until prohibition was introduced in the United States, and in truth almost as much afterwards) dancing and general rejoicing. The “Roaring Twenties” were times of fashionable decadence, when boring, Prussian Berlin became the scene of a hectic nightlife and a rival of Paris for those practicing a Bohemian lifestyle. With perfect timing, America delivered just what was missing for the perfect party – a new kind of music. Ragtime, Blues and later Swing was frowned upon by the old as “Hottentot’s music” but embraced with gusto by the young and wealthy. Cultural life declined steadily, (albeit from a very high level) in revolutionary Paris since it seems that great artists need to be in opposition to society to thrive, but flourished in Berlin and to a lesser extent, London.
Berlin ca 1928 – a bustling world metropolis
These good times lasted unchallenged until 1928. By that time, there were many signs that a new recession was on its way. Since 1922, demand for consumer goods had risen steadily, leading to ever larger investments by companies in new machines, new factories and new lines of products in order to satisfy that demand. This boom in capital goods employed a great may people who earned big salaries, thus adding to the demand for consumer goods. In a manner of speaking, the market was lifting itself by the hair. When, inevitably, demand peaked and no need for further increases in production capacity existed in the consumer goods sector, the bottom fell out of the capital goods market, which in turn, when its employees began to loose their jobs, reduced overall demand for consumer goods, albeit only slightly at first.
By this time, expectations were however so high on the development of the stock market that people continued to buy, and this influx of fresh capital held many companies floating that would otherwise have gone bust. The situation could not last – in 1929, the Good Times came to an abrupt end with the crash of the Wall Street stock market.
Panic at Wall Street
As it was realised that many banks would go bankrupt due to have lent money for share speculation without proper security, panicked savers tried to cancel their accounts. The banking system began to fail, and soon the London and Berlin stock exchanges followed suit. As confidence in the markets waned, the capitalist world was in plunged into deep depression. The Socialist states were largely unaffected by this downfall – Russia, in fact, was finally emerging from the black post-revolutionary decade with a minimum of prosperity, and since it had very limited trade with the west, the Depression was hardly felt at all. France lost a lot of exports as Bourgeoisie everywhere shifted their spending from perfume and champagne to more essential goods, but this was soon compensated by Thorez industrial expansion program, the New 5-Year plan. In the end it would be his re-armament and the responses it triggered that would end the depression in Europe, while in America, a whole New Deal would be required.