Uneasy Peace, Uncertain Security

• Discontent with the Treaty of Versailles and a weak League of Nations opened the door to new problems in the interwar years.

A Weak League of Nations
President Woodrow Wilson had realized that the peace settlement included unwise provisions that could serve as new causes for conflict. He had placed many of his hopes for the future in the League of Nations. This organization, however, was not very effective in maintaining the peace.

One problem was the failure of the United States to join the League. Most Americans wanted to avoid involvement in European affairs. The U.S. Senate, in spite of President Wilson’s wishes, refused to ratify, or approve, the Treaty of Versailles. That meant the United States could not join the League of Nations. Without the United States, the League of Nations’ effectiveness was automatically weakened. As time would prove, the remaining League members could not agree to use force against aggression.

French Demands
Between 1919 and 1924, desire for security led the French government to demand strict enforcement of the Treaty of Versailles.  This tough policy began with the issue of reparations (payments) that the Germans were supposed to make for the damage they had done in the war. In April 1921, the Allied Reparations Commission determined that Germany owed 132 billion German marks (33 billion U.S. dollars) for reparations, payable in annual installments of 2.5 billion marks.

The new German republic made its first payment in 1921. By the following year, however, the German government faced a financial crisis and announced that it could not pay any more reparations. Outraged, France sent troops to occupy the Ruhr Valley, Germany’s chief industrial and mining center. France planned to collect reparations by using the Ruhr mines and factories.

Inflation in Germany
The German government adopted a policy of passive resistance to this French occupation. German workers went on strike.  The German government mainly paid their salaries by printing more paper money. This only added to the inflation (rise in prices) that had already begun in Germany by the end of the war.

The German mark soon became worthless. In 1914, 4.2 marks equaled 1 U.S. dollar. By November 1, 1923, it took 130 billion marks to equal 1 dollar. By the end of November, the ratio had increased to an incredible 4.2 trillion marks to 1 dollar.

Economic adversity led to political upheavals.  Both France and Germany began to seek a way out of the disaster. In August 1924, an international commission produced a new plan for reparations. The Dawes Plan, named after the American banker who chaired the commission, first reduced reparations. It then coordinated Germany’s annual payments with its ability to pay.

The Dawes Plan also granted an initial $200 million loan for German recovery. This loan soon opened the door to heavy American investment in Europe. A brief period of European prosperity followed, but it only lasted from 1924 to 1929.

The Treaty of Locarno
With prosperity came a new European diplomacy. The foreign ministers of Germany and France, Gustav Stresemann and Aristide Briand, fostered a spirit of cooperation. In 1925 they signed the Treaty of Locarno, which guaranteed Germany’s new western borders with France and Belgium.

Many viewed the Locarno pact as the beginning of a new era of European peace. On the day after the pact was concluded, headlines in the New York Times read “France and Germany Ban War Forever.” The London Times declared “Peace at Last.” The new spirit of cooperation grew even stronger when Germany joined the League of Nations in March 1926.

Two years later, the Kellogg-Briand Pact brought even more hope. Sixty-three nations signed this accord and pledged “to renounce war as an instrument of national policy.” Nothing was said, however, about what would be done if anyone violated the pact.

Why was the League of Nations unable to maintain peace?
 

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The Great Depression

• Underlying economic problems and an American stock market crisis triggered the Great Depression.

Causes of the Depression
Two factors played a major role in the start of the Great Depression. First was a series of downturns in the economies of individual nations in the second half of the 1920s. Prices for farm products, especially wheat, fell rapidly due to overproduction.

The second factor that triggered the Great Depression was an international financial crisis involving the U.S. stock market. Much of the European prosperity between 1924 and 1929 was built on U.S. bank loans to Germany. Germany needed the U.S. loans to pay reparations to France and Great Britain. During the 1920s, the U.S. stock market boomed. By 1928, American investors pulled money out of Germany to invest it in the stock market. Then, in October 1929, the U.S. stock market crashed. Stock prices plunged.

In a panic, U.S. investors withdrew even more funds from Germany and other European markets. This withdrawal made the banks of Germany and other European states weak. The well-known Creditanstalt Bank in Vienna collapsed in May 1931. By then, trade was slowing, industrial production was declining, and unemployment was rising.

Responses to the Depression
Economic depression was not new to Europe. However, the extent of the economic downturn after 1929 truly made this the Great Depression. During 1932, the worst year of the Depression, nearly 1 in every 4 British workers was unemployed. About 5.5 million Germans, or roughly 30 percent of the German labor force, had no jobs. The unemployed and homeless filled the streets. Governments did not know how to deal with the crisis. They lowered wages and raised tariffs to exclude foreign goods from home markets. These measures made the crisis worse and had serious political effects.

Long lines of unemployed German workers seeking food or jobs bore witness to the misery of the Great Depression.

In Germany and Italy, extremist leaders rose to power by promising to return their nations to greatness. The monument in the poster indicates that Hitler and Mussolini have dedicated their nations to peace, civilization, and work.

One effect of the economic crisis was increased government activity in the economy. Another effect was a renewed interest in Marxist ideas. Marx’s prediction that capitalism would destroy itself through over production seemed to be coming true. Communism thus became more popular, especially among workers and intellectuals.

Finally, the Great Depression led masses of people to follow political leaders who offered simple solutions in return for dictatorial power. Everywhere, democracy seemed on the defensive in the 1930s.

What were the results of the Great Depression?
 

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Democratic States

• Although new democracies were established in Europe after World War I, the Depression shook people’s confidence in political democracy.

In a number of states, women could now vote. Male political leaders had rewarded women for their contributions to the war effort by granting them voting rights. (However, women could not vote until 1944 in France, 1945 in Italy, and 1971 in Switzerland.)

In the 1920s, Europe seemed to be returning to the political trends of the prewar era—parliamentary regimes and the growth of individual liberties. This was not, however, an easy process. Four years of total war and four years of postwar turmoil made a “return to normalcy” difficult.

Germany
Imperial Germany ended in 1918 with Germany’s defeat in the war. A German democratic state known as the Weimar (VY•mahr) Republic was then created. The Weimar Republic was plagued by serious economic problems.

Germany experienced runaway inflation in 1922 and 1923. With it came serious social problems. Families on fixed incomes watched their life savings disappear. To make matters worse, after a period of relative prosperity from 1924 to 1929, Germany was struck by the Great Depression. In 1930, unemployment had grown to 3 million people by March and to 4.38 million by December. The Depression paved the way for fear and the rise of extremist parties.

France
After the defeat of Germany, France became the strongest power on the European continent. However, France, too, suffered financial problems after the war. It needed to rebuild the areas that had been devastated in the war.

Because it had a more balanced economy than other nations, France did not begin to feel the full effects of the Great Depression until 1932. The economic instability it then suffered soon had political effects. During a 19-month period in 1932 and 1933, six different cabinets were formed as France faced political chaos. Finally, in June 1936, a coalition of leftist parties—Communists, Socialists, and Radicals—formed the Popular Front government.

The Popular Front started a program for workers that some have called the French New Deal. This program was named after the New Deal in the United States (discussed later in this section). The French New Deal gave workers the right to collective bargaining (the right of unions to negotiate with employers over wages and hours), a 40-hour workweek in industry, a two-week paid vacation, and a minimum wage.

Great Britain
Industries such as coal, steel, and textiles declined after the war, leading to a rise in unemployment. Two million Britons were out of work in 1921.

Britain experienced limited prosperity from 1925 to 1929. However, by 1929, Britain faced the growing effects of the Great Depression. The Labour Party failed to solve the nation’s economic problems and fell from power in 1931. A new government, led by the Conservatives, claimed credit for bringing Britain out of the worst stages of the Depression by using the traditional policies of balanced budgets and protective tariffs.

Political leaders in Britain largely ignored the new ideas of a British economist, John Maynard Keynes, who published his General Theory of Employment, Interest, and Money in 1936. He condemned the old theory that, in a free economy, depressions should be left to resolve themselves without governmental interference. Keynes argued that unemployment came from a decline in demand, not from overproduction. Demand, in turn, could be increased by putting people back to work building highways and public buildings. If necessary, governments should finance such projects with deficit spending, or going into debt.
 

John Maynard Keynes 1883–1946 British Economist

Few economists have had more influence than John Maynard Keynes. His 1936 book, General Theory of Employment, Interest, and Money, offered a new view of how economies work. Keynes believed government should take an active role in stimulating the economy by creating jobs, even if it had to borrow money to do it. Workers would then have money to spend, stimulating demand for products. Keynes’s theories created a new school of thought. Until Keynes, most economists believed Say’s Law that “supply creates demand.” Keynes reversed this law. He maintained that “demand creates supply.” By the 1970s, the two sides of the issue were clearly defined as “supply side” and “demand side.” Economists still debate the pros and cons of both.

The United States
After Germany, no Western nation was more affected by the Great Depression than the United States. By 1932, U.S. industrial production had fallen almost 50 percent from its 1929 level. By 1933, there were more than 12 million unemployed.

Under these circumstances, the Democrat Franklin Delano Roosevelt won a landslide victory in the 1932 presidential election. Believing in free enterprise, Roosevelt believed that capitalism had to be reformed to save it. He pursued a policy of active government intervention in the economy, known as the New Deal.

The New Deal included an increased program of public works. The Works Progress Administration (WPA), established in 1935, was a government organization employing about three million people at its peak. Workers built bridges, roads, post offices, and airports.

The Roosevelt administration was also responsible for new social legislation that began the U.S. welfare system. In 1935 the Social Security Act created a system of old-age pensions and unemployment insurance.

The New Deal’s reforms may have prevented a social revolution in the United States. However, it did not solve the unemployment problems. In 1938 American unemployment still stood at more than 10 million. Only World War II and the growth of weapons industries brought U.S. workers back to full employment.

How did the German people respond to the Great Depression?
 

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