Lecture 4 Flashcards
Dawes Plan
In 1923, Germany defaults on its reparations payments. France occupies the Ruhr valley to encourage Germany to produce more coal and steel and thereby pay its reparations faster. Germany engages in a campaign of passive resistance, deliberately altering the value of their currency and working very slowly, so that the payment of reparations is even slower than before. The currency manipulation is one of the causes of hyperinflation in Germany in the 1920s. The situation is untenable.
The result is a series of attempts to restructure reparations payments, led by American bankers as private citizens (because forgiving war debt is anathema). The Dawes Plan (1924) and Young Plan (1929) alter the payment schedules and amounts of reparations.
Dawes: negotiated French withdrawal from the Ruhr; created a payment plan for the reparations.
From feedback
What is it:
- Plan created in 1924 in response to the Ruhr occupation
- Created by Charles Dawes, a private banker sent by the US
- Reduced reparations but never settled the total amount that was now to be paid
- Set schedule for repayment
- Loan from the US to pay the reparations
- France to evacuate the Ruhr
- Germany to receive foreign supervision of economic policy making and a new currency adopted (Reichsmark)
- Fun fact: Dawes won the Nobel Peace Prize for this, and also became VP of the US.
Implications:
- US was isolationist: sent a private individual; treated European problems as economic and not political
- Duration of US isolationism – problem throughout the period; US institutional design; lack of attention to world/European crises throughout the 1930s – same as Smoot-Hawley below.
- Germany could challenge reparations successfully – encourages revisionism – indeed does not solve reparations question, because the Young Plan is introduced in 1929 (no final amount given during the Dawes Plan
- Initial appearance of success; German economy stabilized, ended the Ruhr crisis
- Shows lack of confidence in the ToV
- France has no more leverage on the reparations question because of the failure of the Ruhr occupation and the Dawes Plan – increases French insecurity; no confidence in France (belief Ruhr was France’s fault)
- Loans by the US to the Germans to pay back American war loans to Br and Fr entangled these economies and sharpened the world wide economic crisis started by Black Tuesday
John Maynard Keyes
“Economic consequences of the peace published in 1919”
Accompanying Prime Minister David Lloyd George to Versailles Peace Conference in France as an economic adviser, Keynes was troubled by the political chicanery and burdensome policies that were to be imposed upon the defeated Germany. He resigned his post, depressed, to quote from a letter to his father, by the impending “devastation of Europe.”
He took an activist’s stance, however, by transforming personal distress into public protest. In two summer months he composed the indictment of the Versailles settlement that reached the bookstores by Christmas 1919 as The Economic Consequences of the Peace. The permanent importance of this polemical essay lies in its economic analysis of the stringent reparations placed upon Germany and the corresponding lack of probability that the debts would ever be paid.
The book was a best-seller throughout the world and was critical in establishing a general opinion that the treaties were a “Carthaginian peace” designed to crush the defeated Central Powers, especially Germany. It helped to consolidate American public opinion against the treaties and against joining the League of Nations. The perception by much of the British public that Germany had been treated unfairly was, in turn, a crucial factor in later public support for the appeasement of Hitler.
From feedback
* Who was he? English economist who was a Treasury official at the Versailles conference. Author of
“Economic Consequences of the Peace” which argued that Europe required a strong economy for peace and
prosperity, which reparations prevented; and second, that the Treaty repudiated armistice commitments on
reparations, territorial adjustments, and economic equity. The book was a worldwide bestseller. Coined the
phrase “Carthaginian Peace” which refers to attempts to use the end of hostilities to crush the opposition.
* (Fun fact: Keynes and the other treasury official were largely excluded from the reparations discussions,
which no doubt coloured his views!)
* Implications:
* Significance of Keynes’ criticisms of the Treaty of Versailles and its economic components: happens almost simultaneously,
book published in 1919. V influential in Britain, and demonstrates that the British view of the treaty, particularly on its
economic side, changed very rapidly after the war
* Also very influential in the US – published while the Senate was debating treaty ratification
* Note that it was actually too soon in 1919 to see if Keynes was right, but the book gets enough notice so that when the
German economy does collapse, people can immediately point to the Treaty
* Keynes was also critical of government policy during the Great Depression and very influential during the creation of the
Bretton Woods system
* Views were central to economic planning around the world in the post-WWII period (Keynsianism)
* Keyneisanism: government spending to stimulate growth during recessions
Black Tuesday
Stock Market Crash of 1929: please listen to the Tickertape podcast for further information about the stock market crash, caused by an overvalued stock market.
Impact of the crash: America calls in its loans (previously given to Germany to help pay back reparations) so the crisis extends to Germany. The tight connections between world economies through reparations and debt mean that the crisis in the US becomes widespread; imperial and colonial relationships means it spreads around the world.
States do all the wrong things to sort out the crisis:
- Beggar thy neighbour policies/high tariffs: to protect their own economies, states take a variety of measures to protect local industry. This makes the problem worse, because they can’t get money from trade.
- Smoot-Hawley tariffs highest in 100 years
- Currency changes: the British take the pound off the gold standard in 1931 without warning, causing currency fluctuations in states relying on the pound for their own currency. The US abandons the gold standard in 1934.
- No real international coordination/cooperation: Bad because states aren’t working together in the 1930s – so they are out of the habit of coordination
Smoot-Hawley Tariff Act
Stock Market Crash of 1929: please listen to the Tickertape podcast for further information about the stock market crash, caused by an overvalued stock market.
Impact of the crash: America calls in its loans (previously given to Germany to help pay back reparations) so the crisis extends to Germany. The tight connections between world economies through reparations and debt mean that the crisis in the US becomes widespread; imperial and colonial relationships means it spreads around the world.
States do all the wrong things to sort out the crisis:
- Beggar thy neighbour policies/high tariffs: to protect their own economies, states take a variety of measures to protect local industry. This makes the problem worse, because they can’t get money from trade.
- Smoot-Hawley tariffs highest in 100 years
Global trade plummeted, contributing to the ill effects of the Great Depression. The 1930s are characterized by isolationism and an inability to work together.
From feedback
- What is it: A law that implemented protectionist trade policies in the US. Sponsored by
Senator Reed Smoot and Rep. Willis Hawley, it raised tariffs on a huge number of
imported goods. The tariffis were the second-highest in US history. The Smoot-Hawley Tariff Act led to a cascade of similar policies worldwide, in a classic beggar-thy-neighbour response. The imposition of high tariffs led to a 67% reduction of US imports and exports
as trading partners retaliated. - Implications
- Clear demonstration of US isolationism - why is the US isolationist? Not just economics but tradition of isolationism, US political system design
- 1100 economists signed a petition to ask Pres Hoover to veto the legislation and Hoover is himself
critical – but signs anyway - Created retaliatory policies around the world, deepening crisis
- Demonstrates a common view that the solution to crisis was protectionism/beggar thy neighbour
policies (high tariffs) – but these make the crisis worse - Economic isolationism/general lack of international coordination in economic management
