inter-war economy Flashcards
ww1 and its effects
-fought between allies and central powers, 1914-1918, first modern industrial war as machines used
-soldiers were recruited from around the world; men went to battle, women took up jobs; entire societies were reorganised
-millions were dead and injured; with fewer members, household inc declined
-led to snapping of economic links
-britain borrowed large sums of money from US
-Us went from international debtor to creditor
why did ww1 cause prolonged crisis in Britain
had borrowed liberally from US to finance war expenditures therefore burdened with huge debt
while Britain was preoccupied with war, industries developed in Japan and France
could not recapture its old position of dominance in the Indian market and unable to compete with Japan
unemployment increased when war boom ended as production decreased
why were agricultural economies in crisis after ww1?
take eg of wheat:
europe was major supplier of wheat but supply was disrupted due to war
Canada, America and Australia expanded production
after war production in Europe also revived therefore glut was created in wheat output
grain prices fell, rural inc declined, farmers fell deeper into debt
Ford factory
-Mass production key feature of US economy
-Henry Ford, pioneer of mass production, adapted assembly line of a Chicago slaughterhouse to his new car in Detroit
faster and cheaper way of producing vehicles
- repeat a single task continuously at a pace dictated by conveyor belt
-increased output per worker by speeding up pace of work
-T ford model was first mass produced car
-Workers unable to cope, quit
-In desperation, Ford doubled daily wage
-recovered high wage by speeding up production; best cost cutting decision
-these practices spread to US then Europe
effects of mass production in US
lowered price of engineered goods
higher wages, more workers could afford durable consumer goods
car prod rose from 2 mil to 5 mil
spurt in purchase of refri, washing machine, radio, etc; through system of hire purchase-credit repaid in weekly or monthly installments
housing and consumer boom, financed by loans, create cycle of higher employment and inc, rising consumption demand, more investment.
US became largest overseas lender
Great Depression and its causes
period of economy decline or deflation in US where prod emp trade prices fell and spread to other parts of world
1929-1935
agricultural regions worst affected as fall in agri prices were greater and more prolonged
causes: 1) agricultural overproduction; made worse by falling agri prices
2) withdrawal of US loans; led to failure of banks and collapse of currencies such as British pound sterling in Europe; intensified slump of agri prices in Latin America
3) Doubling of US import duties to protect its economy in depression
effects of depression
US most affected
US banks slashed domestic lending and called back loans
Farms could not sell harvests, households ruined, businesses collapsed
Households could not repay and forced to give up homes and cars
Unemployment soared; people travelled large distances for work
US banking system itself collapsed; unable to recover investments, collect loans and repay depositors; banks went bankrupt and closed
how was India impacted by the great depression
1) in 19th c, India exported agri goods and imported manufactures; both nearly halved b/w 1938-1934 and wheat prices fell by 50%
2) peasants and farmers suffered more than urban dwellers as the govt refused to reduce revenue
-as peasant indebtedness increased all over India, they used up their savings, mortgaged land, and sold jewelry and precious metals to meet expenses.
3) India became an exporter of precious metals, especially gold. John Maynard Keynes thought Indian gold exports promoted global economic recovery. Although they sped up Britain’s recovery, they did little for the Indian peasants.
4) those with fixed inc such as landowners and employees found themselves better off as everything cost less.
(not v imp) what were the crucial influences that shaped post-war reconstruction
ww2: allies vs axis for six years; killed 3%
influences: 1) US’s emergence as the dominant economic, political and military power in the western world
2) dominance of the soviet union transformed itself from a backward agri country to a world power during great depression
key lessons learned from ww2
key lessons: 1) mass production cannot be sustained without mass consumption, which needed high and stable incomes. Stable inc required steady and full employment.
but markets could not guarantee full employment therefore economic stability could be ensured only by intervention of the govt.
2) goal of full employment can only be achieved if govts had power to control flows of goods capital, and labour
post war international eco system (imp)
-aim to preserve eco stability and full employment
-framework was agreed upon at the United Nations Monetary and Financial Conference held in July 1944 at Bretton Woods in New Hampshire, USA.
-established the International Monetary Fund (IMF) to deal with external surpluses and deficits of its members
-International Bank for Reconstruction and Development (World Bank) was set up to finance post-war reconstruction
-IMF and World Bank are referred to as Bretton Woods Twins or institutions
system is also called Bretton woods system
-US has right of veto over twin’s decisions
-system based on fixed exchange rates; national currencies were pegged to the dollar at a fixed exchange rate. The dollar was anchored to gold at fixed price of $35 per ounce of gold.
why did IMF and World Bank shift attention towards developing countries?
-designed to meet financial needs of countries
-not equipped to cope with poverty and lack of development
-europe and japan rapidly rebuilt economies; grew less dependent on twins
-newly independent countries came under the guidance of international agencies led by former colonial powers; therefore the colonial powers still controlled vital resources of their former colonies
g77 and its demands
As developing countries did not benefit from fast growth of western economies, they organized themselves into Group of 77 or G77 to demand a new international economic order (NIEO):
-real control over their natural resources
-more development assistance
-fairer prices for raw materials
-better access for their manufactured goods in developed countries’ markets
end of bretton woods and its result
-rising costs of overseas involvements weakened the US’s finances and competitive strength
-US dollar could not maintain its value with relation to gold
-led to collapse of system of fixed exchange and introduced system of floating exchange rates
-developing countries were forced to borrow from Western commercial banks and private lending institutions; wages became low; foreign investment by MNCs.
(new eco policies of China and collapse of soviet union brought many countries back into the fold of the world economy)
-relocation of industry to low-wage countries stimulated world trade and capital flows
