Science Fair Project Encyclopedia
The decade before the war had seen some of the fastest economic growth in history. In many nations, especially in North America, this growth continued during the war as nations mobilized their economies to fight the war in Europe. After the war ended, however, the global economy began to decline. 1918-1919 saw a modest economies retreat, but the next year saw a mild recovery. The worst year of the recession was 1921 when the global economy fell very sharply.
The recession was caused by the end of wartime production, along with an influx of labour from returning troops causing high unemployment. The war also had a lasting effect on global trade. The industries of continental Europe had been badly damaged and the Russian Revolution had removed that nation from the world economy. Monetarists argue the most important cause was wartime inflation caused by the borrowing and printing of money to fund the war effort. Free market economists also believe the recession was necessary. The rapid growth and increase in production had been largely due to the partial command economy imposed during the war. Free marketers believe that any such growth is illusory and must later be paid for in the form of a recession.
In North America the recession is the sharpest of any on record. The economy shrank by a considerably larger percentage than it did in the Great Depression. However, the recession was very short lived. Factories soon retooled and adapted to producing consumer goods. The new factories began producing products such as radios and automobiles. Women, who had entered the work force in large numbers during the war, mostly left the fields and factories opening jobs for returning soldiers. The glut of labour also caused wages to fall dramatically. Some economists argue that this rapid decline restored economic equilibrium, but it was only possible due to weak unions and little government protection of workers. From 1922 until 1929 the North American economy showed consistent growth.
In North America the downturn was short-lived enough to have only limited social and political effects. It did almost certainly contribute to the election of the Republicans in 1920 and a move by that nation towards political and economic isolationism.
In Europe the situation was very different. There the countries had lost a significant portion of their labour force in the fighting, while on the continent industries had been destroyed and damaged. Also important to the economies were the vast debts that had accumulated during the war. In the victorious nations of Britain and France a moderate recession lasted through much of the 1920s. The recession was far worse in the defeated powers. There the entire economy was in shambles. Rapid hyperinflation hit much of Central Europe and unemployment reached great heights. The German economy, long the largest in the region, was also hurt by the obligation to pay reparations and the confiscation of machinery and goods by the victorious powers. Strong growth resumed in much of Europe only in 1926-1927.
The end of the war had created a new class of unemployed former soldiers and in the face of the recession they enlisted with both the far right and the left and began revolts in a number of areas. Most of these groups were unsuccessful in gaining power. Communist revolts in Hungary and Germany were defeated, as were the far right groups. One exception was in Italy where the fascist blackshirts of Benito Mussolini came to power at the hieght of the downturn. In the west the population was far less radicalized by the recession. Discontent was made manifest in the growing labour movement and in increasing support for left leaning parties, including the UK's first Labour Party government in 1924.
See also:Aftermath of World War I
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