Setting the Stage
From Dickinson College Wiki
- Starting in 1850, the world began to shrink, and world economies began to thrive. According to Niall Ferguson, this period was marked by declining transportation costs associated with an increased mobility of commodities and capital. Exports of merchandise and capital reached record volumes (1). As Stanley Engerman points out, drawing from Kevin H. O'Rourke and Jeffery G. Williamson's book, Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy, this economic surge of activity was also helped by the stabilization of the world political scene. They claim this stabilization of world politics helped make capital movements easier, helping to further stimulate growth (2).
- However, this would change with the onset of World War I. The global economy came crashing down due to the power struggle in Europe between the world's Great Powers. The collapse of the global economy also dragged down international trade and investment (4).
After the intense fighting ended, the portrait of the world changed drastically.
- The Allied Countries wanted reparations from the Central Powers, covering the Allies' Wartime Expenses
- In Germany and Austria, two of the losing countries hit the hardest, the economies experienced uncontrollable downward spirals. Forced with the crippling weight of wartime reparations, the Austrian and German goverments simply printed more and more money, leading to hyperinflation.
- In America, public opinion turned towards a policy combining nationalism and isolationism, hoping to keep America out of conflicts like World War I. The Republican Party, complete with their Protectionist platform, gained the majority in Congress in 1918, and took control of the White House in 1920 with the election of Warren Harding.
- This set the stage for the adoption of the Fordney-McCumber Tariff Act of 1922, which raised tariff rates by an average of 42%.
- Under this new tariff law, the United States experienced rapid growth between 1922 and 1928. By 1928, real GDP was 1.4 times larger than it was in 1913, and the US Economy as a whole was eight times larger in 1928 than in 1870
