The Inter war Economy (Great Depression). Notes NCERT Solutions for CBSE Class 10 Social Science : EduMple

The inter-war economy
Wartime transformations
On the one side were the Allies – Britain, France and Russia (later joined by the US); and on the opposite side were the Central Powers – Germany, Austria - Hungary and Ottoman Turkey.
This war was thus the first modern industrial war. It saw the use of machine guns, tanks, aircraft, chemical weapons, etc. on a massive scale. These were all increasingly products of modern large- scale industry. To fight the war, millions of soldiers had to be recruited from around the world and moved to the frontlines on large ships and trains.
1.   These deaths and injuries reduced the able-bodied workforce in Europe.
2.   With fewer numbers within the family, household incomes declined after the war.
3.   During the war, industries were restructured to produce war-related goods. Entire societies were also reorganised for war - as men went to battle, women stepped in to undertake jobs that earlier only men were expected to do.
4.   The war led to the shapping of economic links between some of the largest economic powers which were now fighting each other to pay for them. So Britain borrowed large sums from US banks as well as the US public.

Post-war recovery
Britain, which was the world’s leading economy in the pre-war period, in particular faced a prolonged crisis.
1. While Britain was preoccupied with war, industries had developed in India and Japan. After the war Britain found it difficult to recapture its earlier position of dominance in the Indian market, and to compete with Japan internationally.
2. Moreover, to finance war expenditures Britain had borrowed liberally from the US. This meant that at the end of the war Britain was burdened with huge external debts.
3. The war had led to an economic boom, that is, to a large increase in demand, production and employment. When the war boom ended, production contracted and unemployment increased. At the same time the government reduced bloated war expenditures to bring them into line with peacetime revenues. These developments led to huge job losses.
4. Before the war, eastern Europe was a major supplier of wheat in the world market. When this supply was disrupted during the war, wheat production in Canada, America and Australia expanded dramatically, But once the war was over, production in eastern Europe revived and created a glut in wheat output. Grain prices fell, rural incomes declined, and farmers fell deeper into debt.

Rise of mass production and consumption
One important feature of the US economy was that 1920s was mass production.
A well-known pioneer of mass production was the car manufacturer Henry Ford. He adapted the assembly line of a Chicago slaughterhouse to his new car plant in Detroit He realised that the ‘assembly line’ method would allow a faster and cheaper way of producing vehicles.
1.   The assembly line forced workers to repeat a single task mechanically and continuously - such as fitting a particular part to the car - at a pace dictated by the conveyor belt.
2.   This was a way of increasing the output per worker by speeding up the pace of work.
3.   Standing in front of a conveyor belt no worker could afford to delay the motions, take a break, or even have a friendly word with a workmate. As a result, Henry Ford’s cars came off the assembly line at three-minute intervals, a speed much faster than that achieved by previous methods. The T-Model Ford was the world’s first mass-produced car.

At first workers at the Ford factory were unable to cope with the stress of working on assembly lines in which they could not control the pace of work.
1.   So they quit in large numbers. In desperation Ford doubled the daily wage.
2.   At the same time he banned trade unions from operating in his plants.
3.   Fordist industrial practices was also widely copied in Europe in the 1920s. Mass production lowered costs and prices of engineered goods. Thanks to higher wages, more workers could now afford to purchase durable consumer goods such as cars.
4.   Similarly, there was a spur in the purchase of refrigerators, washing machines, radios, gramophone players, all through a system of hire purchase’ (i.e., on credit repaid in weekly or monthly instalments).
In 1923, the US resumed exporting capital to the rest of the world and became the largest overseas lender. US imports and capital exports also boosted European recovery and world trade and income growth over the next six years.

The Great Depression
The Great Depression began around 1929 and lasted till the mid – 1930s. During this period most parts of the world experienced catastrophic declines in production, employment, incomes and trade.
Agricultural regions and communities were the worst affected. This was because the fall in agricultural prices was greater and more prolonged than that In the prices of industrial goods.

Causes of The great depression
1. First: agricultural overproduction remained a problem. This was made worse by falling agricultural prices. As prices slumped and agricultural incomes declined, farmers tried to expand production and bring a larger volume of produce to the market to maintain their overall income. This worsened the glut in the market, pushing down prices even further. Farm produce rotted for a lack of buyers.
2. In the mid-1920s, many countries financed their investments throughloans from the US. While it was often extremely easy to raise loans in the US when the going was good, US overseas lenders panicked at the first sign of trouble. In the first half of 1928, US.overseas loans amounted to over $ 1 billion. A year later it was one quarter of that amount. Countries that depended crucial on US loans now faced an acute crisis.

Impact of great depression
   1.   In Europe it led to the failure of some major banks and the collapse of currencies such as the British pound sterling.
   2.   In Latin America and elsewhere it intensified the slump in agricultural and raw material prices.
   3.   With the fall in prices and the prospect of a depression, US banks had also slashed domestic lending and called back loans.
   4.   Farms could not sell their harvests, households were ruined, and businesses collapsed.
   5.   Faced with falling incomes, many households in the US could not repay what they had borrowed, and were forced to give up their homes, cars and other consumer durables.
   6.   The consumerist prosperity of the 1920s now disappeared in a puff of dust.
   7.   As unemployment soared, people moved long distances looking for any work they could find. Ultimately, the US banking system itself collapsed.
   8.   Unable to recover investments, collect loans and repay depositors, thousands of banks went bankrupt and were forced to closer.

India and the Great Depression
Impact
The depression immediately affected Indian trade.
1.   India’s exports imports nearly halved between 1928 and 1934. As international prices crashed, prices in India also plunged. Between 1928 and 1934. As international prices, the prices in India fell by 50 per cent.
2.   Peasants and farmers suffered more than urban dwellers. Though agricultural prices fell sharply, the colonial government refused to reduce revenue demands. Peasants producing for the world market were the worst hit.
3.   The jute producers of Bengal grew raw jute that was processed in factories for export in the form of gunny bags. But as gunny exports collapsed, the price of raw jute crashed more than 60 per cent. Peasants who borrowed in the hope of better times or to increase output in the hope of higher incomes faced even lower prices, and fell deeper and deeper into debt.
4.   Peasants’ indebtedness increased. They used up their savings, mortgaged lands, and sold whatever jewellery and precious metals they had to meet their expenses.
5.   Because of falling prices, those with fixed incomes - say town-dwelling landowners who received rents and middle-class salaried employees - now found themselves better off. Eventhing cost less.
6.   Industrial investment also grew as the government extended tarrif protection to industries, under the pressure of nationalist opinion.

Rebuilding a world economy: The post-war era
The Second World War broke out a mere two decades after the end of the First World War. It was fought between the Axis powers (mainly Nazi Germany, Japan and Italy) and the Allies (Britain, France, the Soviet Union and the US.
1.   Once again death and destruction was enormous. At least 60 million people, or about 3 per cent of the world’s 1939 population, are believed to have been killed.
2.   Many more civilians than soldiers died from war-related “Casualties Vast parts of Europe and Asia were devastated, and several cities were destroyed by aerial bombardment or relentless artillery attacks.
3.   The war caused an immense amount of economic devastation and social disruption. Reconstruction promised to be long and difficult.

Two crucial influences shaped post-war reconstruction.
1.   The first was the US’s emergence as the dominant economic, political and military power in the Western world.
2.   The second was the dominance of the Soviet Union.
Post-war settlement and the bretton woods institution
Lessons from interwar eco - experiences
1.   First, an industrial society based on mass production cannot be sustained without mass consumption. But to ensure mass consumption, there was a need for high and stable incomes. Incomes could not be stable if employment was unstable. Thus stable incomes also required steady, full employment.
But markets alone could not guarantee full employment. Therefore governments would have to step in to minimise fluctuations of price, output and employment. Economic stability could be ensured only through the intervention of the government.
2.   The second lesson related to a country’s economic links with the outside world. The goal of full employment could only be achieved if governments had power to control flows of goods, capital and Labour.
3.   Thus in brief, the main aim of the post-war international economic system was to preserve economic stability and full employment in the industrial world.
Its framework was agreed upon at the United Nations Monetaryand Financial Conference held in July 1944 at Bretton Woods in New Hampshire, USA.

Bretton Woods Institution
1.   The Bretton Woods conference established the International Monetary Fund (IMF) to deal with external surpluses and deficits of its member nations. The International Bank for Reconstruction and Development (popularly known as the World Bank) was set up to finance postwar reconstruction.
2.   The IMF and the World Bank are referred to as the Bretton Woods institutions or sometimes the Bretton Woods twins.
3.   Decision-making in these institutions is controlled by the Western industrial powers. The US has an effective right of veto over key IMF and World Bank decisions.
4.   The international monetary system is the system linking national currencies and monetary system. The Bretton Woods system was based on fixed exchange rates. In this system, national currencies, for example the Indian rupee, were pegged to the dollar at a fixed exchange rate.

The early post-war years
The Bretton Woods system inaugurated an era of unprecedented growth of trade and incomes for the Western industrial nations and Japan. World trade grew annually at over 8 per cent between 1950 and 1970 and incomes at nearly 5 per cent.
The growth was also mostly stable, without large fluctuation. For much of this period the unemployment rate, for example, averaged less than 5 per cent in most industrial countries.
These decades also saw the worldwide spread of technology and enterprise. Developing countries were in a hurry to catch up with the advanced industrial countries.

Decolonisation and independence
The IMF and the World Bank were designed to meet the financial needs of the industrial countries. They were not equipped to cope with the challenge of poverty and lack of development in the former colonies. But as Europe and Japan rapidly rebuilt their economies, they grew less dependent on the IMF and the World Bank. Thus from the late 1950s the Bretton Woods institutions began to shift their attention more towards developing countries.
Ironically, as newly independent countries facing urgent pressures to lift their populations out of poverty, they came under the guidance of international agencies dominated by the former colonial powers. Even after many years of decolonisation, the former colonial powers still, controlled vital resources such as minerals and land in many of their former colonies.
At the same time, most developing countries did not benefit from the fast growth the-Western economies experienced in the 1950s and 1960s. Therefore they organised themselves as a group - the Group of 77 (or G-77) - to demand a new international economic order (NIEO). By the NIEO they meant a system that would give them real control over their natural resources, more development assistance, fairer prices for raw materials, and better access for their manufactured goods in developed countries’ markets.

Illustration 10
Which were the two opposite groups in II world war?
Solution
II world war was faught between Axis Powers (Germany, Japan and Italy) and Allies (Britain, France, Soviet Union and the U.S.)

Illustration 11
Which new super power blocks emerged in the world after II world war?
Solution
U.S.A. and U.S.S.R.

Illustration 12
Which institutions were called as Bretton woods Institution or Brettonwoods Twins.
Solution
I.M.F. and World Bank.

Illustration 13
What do you mean by NIEO?
Solution
New international economic order means a system that would give G-77 the real control over their natural resources, more developed assistance, fair prices raw materials and better access for their manufactured goods in developed country.