The First World War wreaked large scale havoc around the world in many senses. About 9 million people died and 20 million people were injured in the wake of the war.
Most of the people who were killed or maimed were people from working age. This resulted in a significant reduction in the number of able-bodied workforce in Europe. Due to fewer earning members in the families, the household incomes drastically reduced in Europe.
Most of the men were forced to engage in war and thus women had to replace them in factory jobs. Women were now working in those jobs which were earlier considered as male bastions.
The war also led to snapping of ties between some major economic powers of the world. Britain had to borrow from the US to finance the war. The war transformed the US from an international debtor to an international creditor. Now, US and its citizens owned more overseas assets than foreign governments or citizens owned in the US.
While Britain was preoccupied with war, industries developed in India and Japan. After the war, Britain found it difficult to regain its earlier dominant position in India. Similarly, it was unable to compete with Japan at the international level. At the end of the war, Britain was under huge debts from the US.
During the war, there was increased demand for goods which resulted in economic boom in Britain. After the war ended, the demand drastically fell to come in tune with the peace-time economy. About 20% of the British workers lost their job after the war.
Before the war, Eastern Europe was a major supplier of wheat. But during the war, Canada, America and Australia emerged as the leading suppliers of wheat because Eastern Europe was involved in war. Once the war was over, the Eastern Europe resumed the supply of wheat. This resulted in a glut of wheat in the market and prices fell. This created havoc in the rural economy.
The US economy was quick to recover from the aftershocks of the war. During the 1920s, the unique feature of the US economy was mass production. Henry Ford, the founder of the Ford Motors was the pioneer of mass production in factories. Mass production helped in increasing productivity and reducing prices. Workers began to earn better in the US and hence had better disposable income. This created huge demand for various products.
The car production rose from 2 million in 1919 to 5 million 1929 in the US. Similarly, the production of white goods; like refrigerators, washing machines, radio, gramophone, etc. increased manifold in the US. There was a housing boom as well in the US market. The demand could be further maintained because of the beginning of the hire purchase culture.
All of this made for a prosperous US economy. In 1923, US resumed exporting capital to the rest of the world and emerged as the largest overseas lender. This also helped in European recovery and boosted the world trade for the next six years.
Agricultural Overproduction: Agricultural overproduction was a major problem during the 1920s. More supply of farm produce resulted in lower price. Farmers tried to compensate by producing even more. This created a glut of farm produce in the market; leading to further fall in prices. Farm produce rotted because of lack of buyers.
Withdrawal of US Loans: Many European countries heavily depended on US loans. But the US lender panicked at the first sign of trouble. In the first half of 1928, the US loan amounted to $ 1 billion. But within a year, it was just a quarter billion dollar. Withdrawal of US loan affected many countries in various ways.
This led to the collapse of many banks and currencies in Europe. The British Pound Sterling also crashed during this period. The Agricultural market slumped in Latin America.
The US tried to protect its economy by doubling its import duties. It also had deleterious effect on the world economy.
The US was most severely affected by depression. Prices were falling and economy was in bad shape. The US banks slashed domestic lending and called back loans. Household incomes fell in many people were not in a position to repay the loan which they had taken to buy homes and white goods. Unemployment level increased and banks were unable to collect loans.
Thousands of banks in the US went bankrupt. By 1933, over 4000 banks had closed. Between 1929 and 1932, about 110,000 companies collapsed in the US.
In most of the economies, a modest recovery began by 1935.
The Depression affected the Indian economy as well. Between 1928 and 1934, the imports and exports of India became nearly half. During this period, the wheat prices in India fell by 50%.
In spite of falling prices of farm produce, the government continued to demand the same revenue from the farmers. Thus, farmers were the worst sufferers in this situation. Many farmers were forced to utilize their savings, sell their lands and jewelry. Thus, India became a net exporter of precious metal during this period.
The depression proved less grim for the urban dwellers in India. With falling prices, many urban landowners and salaried people found the life much easier. Under pressure from the nationalist leaders, the industrial protection grew which led to more investment in the industries.
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