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Europe Between The World Wars

By Yann, published on 12/07/2018 We Love Prof > Academia > Economics > Economics During the Turbulent Interwar Period

Between 1919 and 1938, Europe, as well as other countries across the world, experienced a period of relative peace and stability, politically speaking.

This came after the horrors of the First World War, which had a variety of short- and long-term causes, although the assassination of Archduke Franz Ferdinand in Sarajevo in 1914 is generally considered to have been one of the more immediate triggers.

Although the First World War lasted for around five years, when the War did finally end, after years of armed conflict and occupation, the time came for countries to rebuild.

From an economic point of view, this interwar period between the First World War and the Second World War was not particularly smooth sailing. Although European economies did have periods of brief stability during this twenty year period, stability has to be considered against a backdrop of intense loss, both emotionally, physically, and financially, coupled with a rise in nationalism in Germany during the 1930s.

Many European countries, including:

  • France;
  • Belgium; and
  • Germany

had been torn apart by fighting, meaning that many towns, cities, and communities needed to be rebuilt. This, on top of the fact that many millions had lost their lives or had become casualties of war, left workforces sparse, and nations suffered as a result.

Finally, there’s the fact that the sheer cost of the war was extraordinary, and decimated the reserves of more than one country.

Europe changed during the interwar period in many ways. Europe’s geographical boundaries changed between the world wars. (Source: CC BY-SA 3.0, Ssolbergj, Wikimedia Commons)

The Interwar Years Were Characterised By Struggle

The difficulties that European nations faced during the interwar period were all interlinked, as their struggles could be traced back to the financial losses incurred during the First World War.

However, each nation had its own set of problems during this time, as we will see below. What’s more, Europe wasn’t the only continent to suffer economically during the interwar years.

In fact, some of the economic turmoil that Europe experienced can be traced back to policies that were in place in the United States of America, as well as the subsequent global repercussions of the Great Depression during the end of the 1920s and the beginning of the 1930s.

Below, we examine some of the struggles that global economies faced during this interwar period, and how those struggles were interlinked. The countries in focus are:

  • Britain;
  • Germany; and
  • The United States of America


Germany’s interwar period is perhaps best described as turbulent.

After the end of the First World War, one of many treaties during the interwar period, the Treaty of Versailles, was put in place, which contained a series of measures, including:

  • Acknowledgment by Germany that they were responsible for the start of the First World War and would be required to accept defeat;
  • The requirement for Germany to make reparations payments to the Allied Nations; and
  • The effective demilitarisation of Germany, which the vast majority of its navy, army, and air forces depleted.

The treaty was contentious at the time, not least amongst the German people, but also due to the volume of reparations payments that Germany was required to make. Famous economists, such as Keynes, wrote at the time to argue against such untenable payments.

The belief among some was that, by placing such a financial burden on Germany, there was little chance of the German economy getting back on its own two feet following the war. Although reparations payments went ahead, these fears do in part seem to have been borne out by history.

For instance, in 1923, Germany experienced a period known as hyperinflation which wreaked havoc on families and the economy at large.

For some context of how extreme Germany’s hyperinflation was – imagine going into a supermarket to buy a loaf of bread. The price of that loaf when you first entered the supermarket could have doubled or tripled in price, or it could have risen even higher, by the time you had finished your shop.

Germany asked for a moratorium on reparations payments at various times, and amendments to payment terms were granted through the Dawes Plan and Young Plan, but these changes did not provide for a long-term solution.

Although Germany’s economic situation was nearly untenable from the beginning, when the Great Depression hit in the early 1930s, there was further unemployment, decline, and economic chaos.

Bread became very expensive at times during the German inter war period. The cost of a loaf of bread is often used as an example of the extreme hyperinflation that Germany experienced during the interwar period. (Source: CC BY 2.0, Jeff Keacher, Flickr)

The United Kingdom

The U.K. had its own set of struggles during the interwar period, due to the fact that, like their European Allies, a huge amount of the country’s wealth had been spent in order to finance the First World War.

In order to get the economy back on its feet, the U.K. was heavily reliant on reparations payments from Germany, although, as noted below, the terms of the reparations payments, including the amount paid annually, were altered, causing further stress to the U.K. economy.

Although the U.K. was not immune to the effects of the Great Depression in the 1930s, towards the end of the decade, the U.K. economy did pick up through an increased demand for weapons, due to increasingly provocative behaviour from the German Chancellor, Adolf Hitler.

The United States

The state of the United States economy during the early 1920s was in a significantly different position to that of European countries. This was due to the fact that their economy was in a better shape, on account of the fact that the U.S.A. had acted as a creditor to the Allied nations during the First World War, and as such demanded repayment from those nations now that the war had ended.

However, as the U.S.A. demanded that payment for their loans be made in dollars and gold, this created additional strain on the Western European economies, who then found themselves borrowing from other nations to make the payments, which in turn created more debt.

With an influx of money and increasingly protectionist policies, the U.S.A. enjoyed a period of relative stability and growth during the mid-1920s, which in turn led to an increase in world trade as well as speculative trading.

Nevertheless, this period of stability was not to last, and in 1929 the Wall Street Crash occurred, which sent the U.S.A., as well as Europe, into a deep economic depression.

It was against this backdrop of economic turmoil that extremist parties, including the Nazi and Communist parties in Germany, gained greater popularity, which led to the rise of the Nazi party, the appointment of Hitler as German Chancellor, and ultimately, the beginning of World War Two in 1939.

The Great Depression sent the global economy into decline in the interwar years. The Great Depression hit during the interwar years. (Source: CC0 1.0, geralt, Pixabay)

The Interwar Period From An Economist’s Point Of View

The interwar period is a fascinating one, both from a historical and economic perspective.

Although the period only spans around twenty years, the world as a whole saw tremendous shifts during that time.

While one of the most famous results of the interwar period – namely, the rise of Hitler and the Nazi Party – is well known, it’s equally true that other countries faced their own political and economic struggles during this period, as countries tried to move on from the horrors of the First World War and rebuild their nations and economies.

However, this attempt to rebuild peace was ultimately shattered, with the start of the Second World War. Although historians have debated the short- and long-term causes of World War Two, it is widely accepted that one of the immediate triggers was continued Nazi occupation of neighbouring lands.

The arrival of World War Two undid all the work that had been made to encourage a lasting global peace, including the work of the League of Nations, which was founded in 1920.

Oddly enough, the interwar period is not always a primary focus for some economics courses, whether at school or university. Although an emphasis is placed on areas such as macro- and microeconomics, economic history does have a tendency to fall by the wayside.

However, economic history can be a very satisfying, not to mention enlightening, area of economics to study. So, if you’re offered the chance to take a module covering economic history, it is well worth studying it.

Economic history classes can cover all sorts of historical economic events, including:

  • The Industrial Revolution;
  • The interwar period and the Great Depression;
  • The workings of ancient economies; and
  • The 2008 financial crisis.

If you’d like to study or learn more about economic history, then you can also reach out to an economics teacher on Superprof for help. Superprof has economics tutors with specialisms and interests across a wide range of economics subjects, so you should be able to find a tutor that specialises in economic history at a price point that suits your budget.

By entering your subject preference and postcode, you can be matched with tutors in your area. However, online tutoring sessions are also an option, for anyone who would prefer to study remotely.

Read more about the Roman Empire economy.

Read more about the post-war boom.

Read more about behavioural finance.


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