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).
- During this time period, the United States economy experienced steady growth. The real GDP tripled between 1870 and 1900, and then grew by a factor of 17 between 1900 and 1912 (3)
- 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. This was brought to fruition via the Treaty of Versailles (5)
- 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 (6). Arising from the ashes of Austria was an economist by the name of Friedrich von Hayek.
- In America, the economy slowed down and experienced a downturn from 1919 to 1921. However, 1922 to 1928 were marked by rapid growth. This was true for all sectors, except the agriculture sector (7).
- Due to increased production in the agricultural sector of Europe during World War I, there was massive agricultural overproduction during the 1920s, leading to declining farm prices during the second half of the decade (8a).
- Public opinion turned towards a policy combining nationalism and isolationism, hoping to keep America out of conflicts like World War I. This public outcry for Protectionism included calls for self-sufficieny and high tariffs. 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 (8).
