What were the major changes in the international economy after 1914? Why did the gold standard work well before 1914 but not in the interwar period?

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What were the major changes in the international economy after 1914? Why did the gold standard work well before 1914 but not in the interwar period?

“Trade is the language which prevents people from cutting each other’s throat”

                                                                                                    -- Bruce Chatwin

“War is hell”

                                                                                -- William Tecumseh Sherman

Conventional wisdom in economic history suggests that conflict between countries can be extremely disruptive of economic activity, especially international trade

The world war changed the course of the international economy. The damage of life and physical resources all over the world were unprecedented in history. The economic and political boundaries all over the world were altered. The years before 1914 are often described as the Golden Age which the war had destroyed.

They war had an immediate impact on the world economy. The gold standard, which had been the backbone of the world economy for many years, had to be suspended as huge amounts of money had to be printed to finance the war. From 1871 to 1914, the gold standard was at its pinnacle1. During this period near-ideal political conditions existed in the world. Governments worked very well together to make the system work, but this all changed forever with the outbreak of the Great War in 1914.

Also to finance the war, there was a major shift of resources from consumer to military goods for all the countries that were involved in the war. As a result there was a shortage of essential consumer commodities. Large sums of money was also financed by public debt so as to cover the cost of the war. International trade along with political and economic relations between major economies of the world came to a standstill. The currencies of major economic powers were no longer considered a reliable media of exchange. International trade was further disrupted by attacks on merchant ships and restrictions imposed by certain countries. The war also led to major changes in the labour market. With over 8.5 million European military dead and 5 million civilians’ dead there was a great shortage of labour. The labour markets after and during the war were far less flexible due to the growth in the power of the trade unions around the world. After the war most of the finances of the countries were devoted in reparations and payment of war damages. United States displaced England and France and emerged as a major economic and political superpower and the main source of international lending. Despite the destruction caused by the war the growth rates in most of the European countries and countries such as United States and Japan were higher than the pre war level. This was because of the technological advancements and massive industrialization programmes that the major economies of the world had undertaken.

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The war forever changed the outline of the international trade. Wartime stimulus to industry expanded the export capacity of North America. After the war, the British found themselves exposed to stiff competition from the American and the Japanese export markets in ways that had been unimaginable before the war. The disruption of wartime exports from Britain lead to a heavy increase in textile and iron production in Asia. Composition of international trade also changed significantly. International trade was dominated by the exchange of manufactured products while agricultural raw material and mineral trade also rose. Share of textiles fell and there was a rapid increase in the trade of engineering goods and tropical products.

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Economic instability, unemployment and decline in international trade were some common features of the interwar years. The stagnation of the European economies and the growth of the U.S. economy lowered the world’s trade- income ratio. The fall in international trade after 1914 and the rise in power of trade unions accompanied by expenditure on reparations gave rose to a depression in the early 1920’s   which was particularly severe in the U.K. and the United States. A period of hyperinflation followed in countries such as Germany, Austria and Poland. This hyperinflation brought about drastic changes in the economies of these ...

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