Geopolitics of 20th Century Wars

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Why did U.S. monetary authorities allow the 1920 depression.

Wars are usually followed by economic downturns and after WW 1, the US War Department canceled $2.5 billion in outstanding Army contracts. This represented 3.3% of gross national product. Navy contracts added to the decrease in aggregate demand. This recession checked wartime inflation and economic growth soon returned. Many disagree with economist Grant. They feel this induced recession was not cured by laissez fare. But workers scrambled for wage increases to offset war inflation and monetary authority feared inflation. So they substantially lower credit and increased interest rates. But,  monetary authorities actually sought to drive prices back to their pre-war levels. They had limited success with prices but by 1922, gold had returned to its 1913 price. Then they cut interest rates, relaxed credit, and the economy recovered.  Grant hails this accomplishment but Tooze focuses on the consequences.

World War I belligerents had quit the gold standard and accepted that their currency would depreciate against gold. After the war, returning to the gold standard required a new gold peg. But, Italy had depreciated more than that of France, and France more than that of Britain whose mighty pound lost almost one-fourth of its value. The United States was now the world’s leading creditor, owned the most gold, and was custodian of the international gold standard. Her decision to deflation to the 1913 gold price meant every country returning to the gold standard would need to deflate their currency even more. This meant they  would need even higher unemployment to lower consume demand enough to deflate to 1913 prices.

There was a second option. A country could lower its currency peg to gold which would permanently lower currency value and it would decrease trust in said currency. Creditors would receive less value.

American creditors who had lent in dollars would get dollars back equal to their 1913 value

. Good deal. Britain, trying to maintain her empire and prestige, had not exchanges pounds for gold during the war. But she did not lower the peg forcing a severe recession. Eventually prices dropped and in 1925, she again would exchange gold at the 1913 peg. But most countries debased their currencies and incurred less unemployment.

America was deluged with low-cost European imports. German steelmakers and shipyards undercut American competitors. Cheap European travel was enjoyed by America's Lost Generation. After WW 2, in a similar situation, the U.S. allowed undervaluation of the Deutsche Mark and yen to aid economic recovery.

Freer trade undertaken after the 1912 election ended with 1921-1923 tariff increases. Selling cheap goods to the United States to pay billions of dollars in war debt would not be allowed. Western Europe suffered.

German hyper-inflation had wiped out German savers and tied up the her balance sheet. But when inflation ended, Germany became creditworthy. From 1924-30 US banks became a lender of last resort by creating a financial flows daisy chain. Germany borrowed from Americans to pay Belgian and French reparations. They in turn repaid war debts to the British and Americans. British then used French and Italian debt payments to repay the United States which again loaned money to Germany. Everybody new this shot-term fix would end when US banks stopped loaning to Germany. So, in 1929, the deluge that had engulfed the developed world roared back upon the United States.

Because of the Great Depression, parliamentary governments throughout Europe and the Americas were displaced  by modernizer reactionary absolutists and not of the kind re-established in Europe after Napoleon.

The US has the Earth and Hitler wanted it

Tooze believes the United States was an emerging super power, a threat to European powers, so she was Hitler’s ultimate target.  Hitler wanted more than to join the economic order dominated by the affluent English-speaking countries. He sought  to mobilize the frustrations of the German people and mount an epic challenge to this order.

Because of his lurid paranoia, Hitler could not accept subordination to the United States because it meant ..."enslavement to the world Jewish conspiracy, and ultimately race death.” Resources would be provided after concurring Poland, Ukraine, and Russia. German homesteaders living comfortably on land and labor appropriated from conquered peoples would fill the vast landscape between Berlin and Moscow.

Tooze argues in The Wages of Destruction that this vision was missed by 1870 when newly unifies Germany was about equal to the US  in population and output. By the outbreak of World War I, American was about twice the size of Imperial Germany.  By 1943 American output was almost four times that of the Third Reich.” Germany was weaker and poorer in 1939 than in 1914.  She lacked the basic elements of modernity. One-quarter of her 1925 population worked  as farmers and even by 1932, few had automobiles. Germany's lack of economic capabilities provides context for Hitler's horrific war crimes

Germany invasion plan for the Soviet Union contemplated death by starvation for of 20 to 30 million Soviet urban dwellers because the invaders planned to steel foodstuffs for their own use. Germany would plunder the labor of conquered peoples. Foreigners eventually made up 20% her workforce and 33% of her armaments workers. [Today’s liberal and multicultural Germany is only about 9% foreign-born.]

Tooze’s story ends when our modern era begins: with the advent of a new liberal, democratic order under American protection. Now China is attempting what the Soviet Union and Imperial Germany never could: rise toward economic parity with the United States. This may mean major change in the world-geopolitics order because America has been in control for 100 years.  Source Geopolitics

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