The Making of a Global World: World War and the Great Depression

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The Making of a Global World: World War and the Great Depression

There were two main events that highlighted the Twentieth century as one of struggle and chaos. The first defining event was the first world war, and then immediately after came the great depression of 1929. Both these events have shaped our modern history. Let us take a detailed look.

Changes during the World War

The First World War was fought between 1914 and 1918, primarily in Europe. During this period, many economic and political changes occurred around the global world. The first modern industrial war, World War I, saw a large-scale use of machine guns, tanks, aircraft, chemical weapons, etc. – industrial arms. The war was fought between the following two blocs:

  • Allies – Britain, France, and Russia (the US joined later)
  • Central Powers – Germany, Austria-Hungary and Ottoman Turkey

The Making of a Global World - World War and the Great Depression

This war left around 9 million dead and 20 million injured. Most of these deaths and/or injured were able-bodied men of the working-age group. Post-war, the number of working members in most households reduced, leading to a sharp decline in income.

A restructure of industries followed to accommodate the increased demand for war-related goods. Also, women began stepping out and taking up jobs that only men did earlier. The war needed a steady source of capital as well. The major powers battling against each other created newer ties. For e.g. Britain started borrowing capital from the US and soon the US became an international creditor.

Recovering from the World War
Britain had a tough time recovering from the First World War for many reasons:

While Britain was at war, countries like India and Japan developed industries. Post-war Britain could not re-capture the Indian market or compete with Japan on a global level.

The capital borrowed by Britain during the war led to a huge external debt which needed to be repaid.

During the war, there was a surge in employment due to the increased demand for war-related goods. Post-war, as these demands decreased, many people were rendered jobless. In 1921, one out of every five British workers was unemployed.

Pre-war, Eastern Europe supplied wheat to most of the global world. During the war, Canada, Australia, and America stepped up their wheat production. This was because the supply was disrupted in Europe. Post-war, once Europe started producing wheat again, they created a glut in the wheat market leading to a drop in prices and subsequent decrease in rural income.

The US Boom
Mass production helped the US recover from the post-war economic crisis. Henry Ford, a leading car manufacturer, was the pioneer of mass production. He observed the assembly line used in slaughterhouses in Chicago. The slaughtered animals were picked apart as they came down a conveyor belt. Eventually, he devised a cheaper and faster way of producing vehicles using the conveyor belt method.

In this method, the speed of the conveyor belt determined the speed of production. Workers could not take untimed breaks or indulge in friendly chats. The stress of the pace of work led to mass resignations. Ford then doubled the daily wage and banned trade unions from his organization. Now he could ask his workers to work harder and since he paid them to double the wages. Soon, this method was copied by other companies across the US and Europe.

The increased wages also led to a subsequent increase in the purchase of durable consumer goods, like cars, refrigerators, washing machines, radios, gramophone players, etc. A system of ‘hire-purchase’ or installment-purchase as is known today, helped people acquire these goods sooner. These purchases were also fuelled by the housing boom in the US, which was also financed by loans.

This cycle of higher employment and incomes, rising consumer demand, more investment, and even more employment and incomes, contributed to the economic boom of the US. Soon the US became the largest international lender.

The Great Depression of 1929

In 1929, the global world experienced sharp declines in employment, production, trade, and incomes. While all industries were impacted, the agricultural sector was the most affected. The post-war global world economy was already crumbling and these factors pushed it towards an economic depression:

Agricultural overproduction – Post-war, overproduction of crops was already a problem. The falling prices worsened it further. So, with falling prices and decreasing incomes, farmers tried increasing production to maintain their income. However, this led to a worsened glut in the market and a further drop in prices.

Withdrawal of loans by the US – By mid-1928, the US had over $ 1 billion in overseas loans. Over the next year, these loans were reduced to around 25% of that amount. This led to an economic crisis in countries that depended on the US for loans. For e.g. in Europe, some banks collapsed and the currency de-valued while in Latin America the prices of agricultural products and raw materials slumped further.

The depression adversely affected the US too. Banks started reducing domestic lending, called back loans, harvests remained un-sold and businesses collapsed. The people who could not repay their loans had to forfeit their cars/ homes. Subsequently, people started migrating to places where they could find employment. The US banking system collapsed and many banks went bankrupt.

The Great Depression and India
In the global world, a crisis in one country affected all the other countries. Pre-depression, India exported agricultural products and imported manufactured goods. During the depression, the imports and exports took a huge hit. The wheat prices fell by around 50%.

It hit our agricultural sector the hardest. The jute farmers suffered as prices dropped by around 60%. Overall, the farmers and peasants faced increasing loans, reducing savings, and mortgaged lands. Subsequently, they started selling gold, jewelry and other precious metals to meet their expenses. Soon India became an exporter of gold which helped the global world in recovering from this depression. However, the farmers and peasants were still suffering.

On the other hand, people living in urban areas were much better off. With fixed sources of income and prices going down, they could afford more for a lesser amount of money.

The Post War Period

Around two decades after the end of the First World War, the Second World War broke out. Fought between the Axis powers of Nazi Germany, Japan, and Italy and the Allies Britain, France, Soviet Union and the US, it went on for around six years.

The Making of a Global World - World War and the Great Depression

Around 60 million people or 3% of the world’s population died. This war caused more civilian deaths than soldiers. Economic and social disruption was immense. The US and Soviet Union emerged as superpowers post this war.

Lessons Learned from the World War
The economist and world leaders learned two strong lessons from this war:

The Government must ensure the economic stability of a nation. This can lead to stable employment for people thereby ensuring a stable income. And, this would eventually increase mass consumption further boosting an industrial society based on mass production.

The government should have complete control over the flow of goods, labour, and capital to be able to ensure the full employment of its people.

In July 1944, the United Nation’s Monetary and Financial Conference was held in Bretton Woods in New Hampshire, USA. This conference established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank).

  • IMF – dealt with deficits and surpluses of its member nations
  • World Bank-financed post-war reconstruction

These two institutions started operations in 1947 with decision-making powers resting with the western industrial powers and the US having an effective right of veto. In the Bretton Woods system, all national currencies were pegged to the dollar at a fixed rate of exchange. However, the dollar was at a fixed price of $35 per ounce of gold.

Early Post-War Years
The Bretton Woods system helped the global world recover from the economic crisis of the war and brought trade to the Western countries and Japan. The technology was spreading and developing countries were trying to catch up with the other advanced countries. This period saw huge imports of industrial plants and equipment based on modern technology.

The Post-war period also saw a lot of colonies in Asia and Africa emerge as independent countries. However, they were poverty-stricken due to long periods of colonial rule. Once Britain and Japan rebuilt their economies, the IMF and World Bank shifted their focus to these former colonies. International agencies stepped in to help these countries lift their populations out of poverty.

However, these agencies were controlled by former colonial powers and they still had a stake in the vital resources of the former colonies. Also, large corporations of powerful countries like the US managed to secure rights to exploit the natural resources of the developing countries at cheap prices.

Soon the developing countries realized that they were not benefitting from the exponential growth of the western economies. Hence, they created a group – G-77 and demanded a New International Economic Order (NIEO). They demanded for a system wherein they could control their natural resources and have better access to the markets in developed countries for their manufactured goods.

Beginning of Globalization
Post the 1960s, the US dollar failed to maintain its value in relation to gold and ceased to be the world’s principal currency. The fixed exchange rate system got abolished and a new floating exchange rate system was introduced.

Earlier, countries would borrow funds from international institutions. However, post-1970s, they were forced to borrow from Western commercial banks. This led to a debt crisis in Africa and Latin America. Unemployment was also very high between the 1970s and early 1990s. This was because companies had started moving their production operations to low-wage Asian countries.

Since the revolution in 1949, China was cut off from the post-war world economy. However, with new economic policies, China was soon back in the fold. Due to the low wages in China, it soon became a preferred destination for MNC investments.


Question 1.
The First World War was fought between which two groups?
The First World War was fought between:

  • Allies – Britain, France, and Russia (the US joined later)
  • Central Powers – Germany, Austria-Hungary, and Ottoman Turkey

Question 2.
What were the two major reasons behind the Great Depression of 1929?
Overproduction of agricultural products and withdrawal of international loans by the US were the two major reasons behind the Great Depression of 1929.