Key points

• Many of the terms of the peace treaties concluded following World War I (referred to as the Versailles settlement) were shaped by the 'Fourteen Points' supplied by American President, Woodrow Wilson.

• Future wars were to be deterred by the League of Nations, which would take collective action against aggressor states.

• A series of new states was created in the Balkans and Eastern and Central Europe, where the Otto­man and Austro-Hungarian empires had collapsed.

• Germany was found 'guilty' of having begun the war: Germany lost land to Poland; Alsace-Lorraine was returned to France; Germany was to be dis­armed, with France occupying the Rhineland as a security zone; and reparations were to be repaid to the victorious powers.

• Many critics found fault with the settlement, either because it was too hard, or not hard enough, on Germany.

The global economic slump, 1929-1933

In the 1920s America came to assume the pivotal position in the global economy that Britain had occupied prior to 1914. By 1929, the US produced 42 per cent of the world's industrial output, with Ger­many, Britain, and France together accounting for only 28 per cent (Hobsbawm 1994: 97). Initially, the vibrancy of the US economy provided the illusion that the world economy had survived the rigours of World War I relatively intact, albeit with the US replacing Britain as the new key financier. The survival of the pre-1914 system transpired to be an illusion, as the war had irreparably damaged the globalized world economy evolving since the time of the Industrial Revolution. The Wall Street stock-market crash of 29 October 1929, and its aftermath, starkly revealed the illusory nature of post-war eco­nomic regeneration. Soon no one could be in doubt that the world financial system was in convulsion.

The underlying causes of 'the largest global earth­quake ever to be measured on the economic histor­ians' Richter Scale—the Great Inter-War Depression' (Hobsbawm 1994: 86) continue to be disputed, and cannot be rehearsed at any length here. Beyond dis­pute, however, is the truly global impact of the Depression. The after-shocks of the stock market crash around the world illustrate the degree to which states in the interwar years were not entirely autonomous entities, determining their own fates in isolation. Rather they were at the mercy of profound economic forces over which national governments had less control than policy-makers and industrial­ists doubtless liked to imagine. Globalization, in economic terms, was a potent reality—as the events of 1929 brought home with distressing vividness.

The results of the Depression in America and Europe are familiar enough to Western readers. Western Europe depended on American loans in various forms, so when they dried up America's Depression was duplicated in Europe. Its symptoms included spiralling inflation and a collapse of con­sumer demand in the leading industrial countries which led to a decline in manufacturing industry. This in turn meant massive unemployment. In the era before social welfare provision was seen as part of the state's duty to its citizens (an era ushered in by World War II in most parts of Western Europe and America), unemployment meant utter destitution and grinding poverty for millions. Even for those who remained employed, hyper-inflation—and in some countries the complete collapse of currencies— led to the overnight elimination of savings, and to paper money becoming virtually worthless, as in Weimar Germany.

Perhaps less well known in Europe or America are the results of the Depression elsewhere in the world. Every country that participated in international trade was affected—whether they were independent states (as in Latin America) or colonial territories under the rule of Western European powers. The pre­cipitous drop in the western world's demand for goods and crops did not just mean unemployment for workers in factories in the West. It also spelt ruin for the producers of raw materials from which con­sumer goods were manufactured. To take but one example, Japanese silk farmers suddenly found their livelihoods ruined as Americans ceased to buy silk stockings in the Depression of the early 1930s. Simi­larly growers of crops farmed in what we now know as the Developing World (or Third World), which were sold to the developed world, found that the prices they received for their commodities plum­meted. Brazil's coffee growers attempted to prevent the coffee price from collapsing by selling it to Brazil­ian railway companies as an alternative fuel to coal.

Box 3.5. The US and the USSR between the wars

One reason why the 1919 peace settlement did not last, it is often argued, was the failure of any major power, particularly the US, to sponsor it. After the Second World War, the US and the USSR emerged as 'superpowers', and their mutual hostility—the cold war—dominated the world for forty years. Why were both relatively inactive on the international scene in the twenty years after the First World War?

The USSR

Nov. 1917 The Bolshevik Revolution brought a Marxist-Leninist regime to power in the former Tsarist empire.

Mar. 1918 Lenin concluded a separate peace treaty with Germany (in which one-fourth of Russian territory and a third of its population were surrendered), in order to concentrate on consolidating the revolution.

1918-20 Before consolidation could occur, Civil War broke out. Trotsky's Red Army quelled the counter­revolutionary forces of the White Russians, who were aided by interventions from France, Britain, Japan, and the US.

1924 Josef Stalin came to power, following Lenin's death, and concentrated on building 'socialism in one country'.

1929 The first Five-Year Plan for the Soviet economy was introduced, and Stalin stepped up the pace of state planning of industry, together with the collectivization of agriculture.

1936-8 Stalin undertook the Great Purge of the enemies of his dictatorship.

Aug. 1939 Stalin signed a non-aggression pact with Nazi Germany. This suggests how small a role ideology now played in Soviet foreign policy (although Stalin did not altogether abandon the USSR's support for communist parties around the world). Instead Soviet security concerns were uppermost, and the Pact promised the USSR land in the Baltic, in return for Soviet acquiescence towards Hitler's march into Poland.

The US

Mar. 1920 The US Senate refused to ratify the Treaty of Versailles, concluding a separate peace with Germany in 1921 which did not include the 'war guilt' clause, or the terms of the League of Nations. The US had thus embarked upon an essentially isolationist foreign policy, which it pursued until the Japanese attack on Pearl Harbor. However, the US government did remain concerned with, and involved in, a number of international issues, particularly those relating to disarmament and security—not least in the Pacific, a traditional area of US concern, where Japan was in the ascendant.

1921-2 The Washington Disarmament Conference was notable for the manner in which it dealt with Japan's growing power in the Pacific. The relative strength of the navies of the US, UK, Japan, France, and Italy was fixed in a ratio of 5 : 5 : 3 :1.75 : 1.75. The sovereignty of China was also affirmed, and an 'Open Door' policy of trade with China maintained.

1931 The US government's concern with japanese aggression against China was evident in its response to the Manchurian crisis, beginning in 1931, when Japanese forces occupied an ever greater part of the North Chinese province of Manchuria. Although not a member of the League of Nations, the US did offer to assist its efforts to establish the origins of the crisis. However, the US stopped far short of actually using—or encouraging the League to use-force to reverse Japan's aggression.

Throughout the inter-war years, America's primary influence on the world lay not so much in the diplomatic sphere, as in the realm of economics, where the US economy was emerging as the world's strongest. US capital helped rebuild Germany, with loans enabling Germany to make reparations to Britain and France, who could then repay their own debts to the US.

Table 3.1. Major wartime and post-war foreign loans of US government (in millions of dollars)
Recipient nation	Pre-Armlstice (cash)	Post-Armlstice (cash & supplies)	Total indebtedness
Great Britain	3696.0	581.0	4277.0
France	1970.0	1434.8	3404.8
Italy	1031.0	617.0	1648.0
Russia	187.7	4.9	192.6
Belgium	171.8	207.3	379.1
Source; Harold Moulton and Leo Pasvolsky, War Debts and World Prosperity (1932: 426), and Thomas A. Bailey, A Diplomatic History of the American People (1974: 657).

In economic terms, the result of the Depression was that the globalization of the world economy stuttered as states attempted to reverse the process. Rather than a global free trade system continuing to develop (as it had from the Industrial Revolution up to 1914), the major capitalist states now sought to isolate their national economies as far as possible from the vagaries of the international market. Free trade was abandoned in favour of protectionist policies, whereby states attempted to make their economies as self-sufficient as possible. High tariff barriers were erected to dissuade domestic manu­facturers from importing foreign goods. As a result the volume of international trade fell sharply. America led the way in protectionism, being in the fortunate position of needing other countries' products less than did Britain, for example, and many other industrialized states.

The economic crisis of the 1930s was accompanied by profound political upheavals. We might question whether, without the Depression, Hitler would have found such fertile soil for Nazism in Germany. Although it is overly reductionistic to argue that the Depression alone accounts for Hitler's accession to power in 1933, nevertheless the human costs of eco­nomic collapse certainly made extremist political solutions appear attractive during the 1930s. Having secured power in Germany, Hitler proceeded to encourage Nazi movements on Germany's borders, especially in Austria and Czechoslovakia. Mean­while, Mussolini completed the construction of the 'Fascist State' in Italy in the 1930s, while in Spain Franco ultimately defeated the Popular Front ranged against him. But the emergence of more radicalized (and often also racialized) forms of politics was not simply a European phenomenon. Several Latin American regimes toppled during the 1930s, to be replaced with new ones of either a pronounced left- or right-wing complexion. In the colonized world, nationalist movements were also given a powerful impetus by the Depression. In India, for example, Gandhi mobilized a mass campaign of civil disobedience against British rule, while in French Indo-China, Ho Chi Minn's communist nationalists embarked on the long road to independence which would ultimately entail protracted wars with both France and America after 1945.