Abstract
The rapid reconstruction of an advanced economy devastated by war or natural disaster requires the rapid replacement of physical facilities destroyed or rendered obsolete. This requires external assistance, for the import requirements of a reconstructing economy, in comparison with the recent past, are temporarily greater, and the export capabilities, temporarily less. The maintenance of tolerable living standards during reconstruction also requires the temporary provision by external sources of the food and raw materials the reconstructing economy would have been able to provide, directly or through imports matched by exports, if the devastation had not occurred. If external assistance is not available, reconstruction may be difficult. A substantial alteration in the structure of the economy may be required, and this process may be painful and slow, particularly if the monetary system works badly as it did in much of Europe following World War I. But external assistance, adequately provided and wisely used, can provide the imports required for rapid reconstruction. Just as strategic bombing, by imposing bottlenecks in a production system, can cause a greater reduction in total production than the percentage of the stockpile of capital destroyed, so external assistance, by removing bottlenecks, can induce a more than proportionate increase in total production.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
It was not until 1923 in the case of the Allied and neutral nations of the Continent and until 1925 in the case of Europe as a whole that industrial production reached the level of 1913. See League of Nations, Europe’s Overseas Needs, 1919–1920, and How They Were Met (Geneva, 1943), p. 8. By the end of 1948, pre-World War II (1938) industrial production levels had been regained in most of Western Europe. See Organization for European Economic Co-operation, 6th Report of the O.E.E.C. (Paris, 1955), p. 247.
‘Unquestionably, short-term interest rate differentials and exchange rate fluctuations within the gold points [italics added] played a dominant role in directing the flow of private short-term funds between gold standard countries, even if the degree of mobility of the funds so motivated has sometimes been exaggerated.’ Arthur I. Bloomfield, ‘Short-term Capital Movements under the Pre-1914 Gold Standard,’ Princeton Studies in International Finance, No. 11 (International Finance Section, Department of Economics, Princeton University, July, 1963), p. 90.
See Peter H. Lindert, ‘Key Currencies and Gold 1900–1913,’ Princeton Studies in International Finance, No. 24 (International Finance Section, Department of Economics, Princeton University, 1969). See also Robert Triffin, ‘The Evolution of the International Monetary System: Historical Reappraisal and Future Perspectives,’ Princeton Studies in International Finance, No. 12 (International Finance Section, Department of Economics, Princeton University, June, 1964).
See Stephen V. O. Clarke, Central Bank Cooperation 1924–31 (New York: Federal Reserve Bank of New York, 1967).
For thirty years after 1931 the British sought refuge in a preferential trading system amongst sterling area nations. This produced sterling balances which were ‘blocked’ during and for some years after World War II and continue to contribute to the instability of the pound. Furthermore, since 1931, the British have seemed to possess a terror of deflation and a fondness for mild inflation, and this has affected domestic fiscal and monetary policy.
Jacob Viner, ‘International Economic Cooperation,’ The United States in the Post-War World, Addresses given at the 1945 Summer Conference of the University of Michigan (Ann Arbor: University of Michigan Press, 1947); reprinted in his International Economics (Glencoe, Ill.: The Free Press, 1951), pp. 284–5: Wilson’s preoccupation with the political aspects of his plans for the peace settlement after World War I seems to have completely blinded him to the possibilities of the peace settlement and of the League of Nations as means for the promotion of better international economic relations. On his way to Paris in December, 1918, he told his technical advisers that he was not much interested in the economic subjects that might be discussed at Paris. Throughout the Peace Conference the American delegates poured cold water on proposals for planning a charter for a better economic world order as part of the program of the Conference. For the classic indictment of the reparations discussions at the Peace Conference, see John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt, Brace and Howe, 1920). For a contrary view, see Paul Mantoux, The Carthaginian Peace (London: Oxford University Press, 1946). But cf. R. F. Harrod, The Life of John Maynard Keynes (New York: Harcourt, Brace and Company, 1951), pp. 275–84. Cf. also, Bernard M. Baruch, The Making of the Reparation and Economic Sections of the Treaty (New York: Harper and Brothers, 1920). See also H. B. Brodie and K. W. Kapp, ‘The Breakdown of Inter-Allied Economic Collaborations in 1919,’ National Planning Association, Planning Pamphlets, No. 6 (August, 1941); H. W. V. Temperly (ed.), A History of the Peace Conference of Paris, published under the auspices of the Institute of International Affairs (6 vols.; London: Henry Frowde and Hodder & Stoughton, 1920–24), vol. I, pp. 288–333; and League of Nations, Relief Deliveries and Relief Loans, 1918–1923 (Geneva, 1943), pp. 14–16.
For an interesting account of these extraordinary negotiations, see J. M. Keynes, Two Memoirs: Dr. Melchior A Defeated Enemy, and My Early Beliefs (London: Hart-Davis, 1949), pp. 11–71.
League of Nations, Europe’s Overseas Needs, pp. 7–11.
‘After a visit to most countries in receipt of relief in October 1919, Sir William Goode, the British Director of Relief, observed that he was “absolutely convinced that to continue to provide food [to Poland, Yugoslavia, Austria, Hungary and the Baltic countries] without at the same time providing raw materials on which to re-establish industry [was] merely to aggravate the problem of Europe.”’ — ‘Economic Conditions in Central Europe’ Parliamentary Papers, Misc., Series No. 1 (1920); quoted in Europe’s Overseas Needs, p. 21.
‘Report of the Advisory Committee,’ International Financial Conference (London: printed for the League of Nations by Harrison & Sons Ltd., 1920), p. 13.
See International Financial Conference, Brussels, 1920, Proceedings of the Conference (3 vols.; Brussels: printed for the League of Nations by Th. Dewarichet, 1920), vol. I, p. 4.
See League of Nations — Official Journal, No. 6 (September, 1920), pp. 327–31.
See Proceedings of the Conference, vol. I, p. 13.
‘The statements presented to the Conference show that on an average some 20% of the national expenditure is still being devoted to the maintenance of armaments and to preparations for war.’ Ibid., p. 7.
Ibid., p. 9.
‘Twelfth Public Session, Friday, 1st October, 1920,’ Proceedings of the Conference, vol. II, pp. 110–11.
See, e.g., James W. Angell, The Recovery of Germany (New Haven: Yale University Press, 1929); Carl Bergmann, History of Reparations (London: Ernest Benn Ltd., 1927); Costantino Bresciani-Turroni, The Economics of Inflation (London: G. Allen & Unwin Ltd., 1937); Frank D. Graham, Exchange, Prices, and Production in Hyper-Inflation: Germany, 1920–1923 (Princeton: Princeton University Press, 1930); Peter P. Reinhold, Germany Since the War (New Haven: Yale University Press, 1928); and Nehemiah Robinson, ‘ German Foreign Trade and Industry After the First World War,’ Quarterly Journal of Economics, LVIII (August, 1944), pp. 615–36.
J. M. Keynes, A Revision of the Treaty, p. 17: It is difficult to keep distinct the series of a dozen discussions between the Premiers of the Allied Powers which occupied the year from April 1920 to April 1921. The result of each Conference was generally abortive, but the total effect was cumulative; and by gradual stages the project of revising the Treaty gained ground in every quarter. The Conferences furnish an extraordinary example of Mr. Lloyd George’s methods. At each of them he pushed the French as far as he could, but not as far as he wanted; and then came home to acclaim the settlement provisionally reached (and destined to be changed a month later) as an expression of complete accord between himself and his French colleague, as a nearly perfect embodiment of wisdom, and as a settlement which Germany would be well advised to accept as final, adding about every third time that, if she did not, he would support the invasion of her territory. As time went on, his reputation with the French was not improved; yet he steadily gained his object, — though this may be ascribed not to the superiority of the method as such, but to facts being implacably on his side.
Quoted in Harold G. Moulton and Leo Pasvolsky, War Debts and World Prosperity (New York: The Brookings Institution, 1932), p. 49.
ibid., p. 6.
ibid., pp. 67–8.
ibid., p. 322.
For an early discussion of the issue of deflation vs. devaluation, see John Maynard Keynes et. al., ‘The Stabilization of the Exchanges,’ Reconstruction in Europe — The Manchester Guardian Commercial, Section Eleven (December 7, 1922), pp. 658–71.
See Alonzo E. Taylor, ‘Commercial Importance of Russia,’ American Economic Review, XII (September, 1922), pp. 447–59. The French, who held a substantial part of the Czarist bonds which the Bolsheviks refused to honor, did not share this British interest. In fact, in 1922, there seems to have been remarkably few interests shared by the British and the French!
To the annoyance of some, Lloyd George by-passed the League of Nations in calling for the Genoa Conference. But since Germany, Russia, and the United States were not members, he did not feel that anything of consequence could be accomplished by working through the League. See the New York Times, March 24, 1922, p. 2, and March 29, 1922, p. 3.
See ‘Cannes, Genoa and Economic Revival,’ The Round Table, XII (March, 1922), pp. 258–9. Cf. J. Saxon Mills, The Genoa Conference (New York: E. P. Dutton and Company, 1922), pp. 12–13. These conditions dealt primarily with a willingness on the part of the Soviet government to recognize past, present, and future debts and to enforce contracts. Needless to say, such conditions proved to be unacceptable to the Russians.
‘… in spite of settlement after settlement, satisfactory reparation by Germany is always postponed.’ ‘Aide-Mémoire of Statement made by Mr. Lloyd George on behalf of the British Government to M. Briand, Cannes, January 4th, 1922,’ The Round Table, XII (March, 1922), p. 271. The German government had been invited to send representatives to Cannes to discuss reparations. See Walther Rathenau, Cannes and Genoa (Berlin: S. Fischer, 1922). In fact, it was during a speech by the German representative that news of the fall of the Briand government reached the Conference at Cannes. Following the Cannes Conference, the Reparations Commission proposed a new and reduced schedule of reparations payments.
For a lengthy and laudatory account of the Conference, see Mills, op. cit. For a good, short account from a political point of view, see ‘The Genoa Conference: A Month of Crises,’ Current History, XVI (June, 1922), pp. 479–96. Cf. also Dean E. Traynor, International Monetary and Financial Conferences of the Inter-war Period (Washington: The Catholic University of America Press, 1949), pp. 67–87; ‘Genoa,’ The Round Table, XII (June, 1922), pp. 469–92; and John Maynard Keynes, ‘The Genoa Conference,’ Reconstruction in Europe — The Manchester Guardian Commercial, Section 3 (June 15, 1922), pp. 132–3. Keynes indicated his judgment of the Conference as follows: ‘… if we regard it not so much as propaganda but as an attempt to draw up a well-construed plan for the economic reconstruction of Europe, then the unfavorable judgment of the world must be accepted.’
See Mills, op. cit., Appendix V, p. 368. Concerning two other phases of the economic recommendations of the Genoa Conference, see League of Nations, Commercial Policy in the Interwar Period: International Proposals and National Policies (Geneva, 1942), pp. 22–4; and League of Nations, International Currency Experience (Geneva, 1944), pp. 27–8. Cf. also R. G. Hawtrey, ‘The Genoa Resolutions on Currency,’ Economic Journal, XXXII (September, 1922), pp. 290–304.
See the New York Times, January 2, 1922, p. 7. Cf. ‘Review of the Month,’ Federal Reserve Bulletin, 8 (February, 1922), pp. 124–5.
See the New York Times, January 2, 1922, p. 7; ‘… it is frankly admitted that without American help the scheme is doomed to failure.’
The New York Times, April 13, 1922, p. 1.
‘Report of the Financial Commission — Resolution 16’; cited by Mills, op. cit., Appendix V.
See ‘Report of the Financial Commission — Resolution 9’; cited by Mills, op. cit., Appendix V.
John Maynard Keynes, ‘The Stabilization of the European Exchanges,’ Reconstruction in Europe — The Manchester Guardian Commercial, Section 1 (April 20, 1922), p. 5. Keynes also wrote: ‘I see no other solution of stabilization practicable now, except this traditional solution — namely, a gold standard in as many countries as possible.’
For detailed accounts of the events of this period, see Benjamin M. Anderson, Jr., Economics and Public Welfare (New York: D. Van Nostrand Company, Inc., 1939); William Adams Brown, Jr., The International Gold Standard Reinterpreted (2 vols.; New York: National Bureau of Economic Research, 1940); Hal B. Lary and Associates, The United States in the World Economy, Bureau of Foreign and Domestic Commerce, Department of Commerce, ‘Economic Series,’ No. 23 (Washington: Government Printing Office, 1943); League of Nations, The Course and Control of Inflation (League of Nations, 1946); League of Nations, Commercial Policy in the Interwar Period: International Proposals and National Policies (Geneva, 1942); League of Nations, International Currency Experience (League of Nations, 1944); Committee on Finance and Industry (The Macmillan Committee), Report, 1931, Cmd. 3897 (London: H.M. Stationery Office, 1931); and Clarke, op. cit. See also League of Nations, The Financial Reconstruction of Austria (Geneva, 1926). For a brief account of the plan for Austrian reconstruction, see Information Section, League of Nations, The Financial Reconstruction of Austria (Geneva, 1923).
The Dawes Plan may be open to criticism on the ground that some pressure on the external value of the mark was probably required as part of the process of inducing the price changes needed to stimulate the requisite German export surplus. It is doubtful that Germany could have developed a sufficiently large export surplus, if at all, solely as the result of the decline in German spendable income resulting from domestic taxation. On this general point, see J. E. Meade, The Balance of Payments (London: Oxford University Press, 1951), p. 93. See also Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Brothers, 1937), pp. 307–11, 338–60.
Brown, op. cit., p. 386.
In Germany, for example, in 1926, following a difficult period of readjustment, there was a marked upturn in business activity which continued into 1928 when credit stringency was aggravated by the renewed reparations negotiations which led to the Young Plan and by a decline in long-term lending by foreigners (particularly Americans) to Germany. Difficulties continued and culminated in the famous credit panic of 1931. See Carl T. Schmidt, German Business Cycles, 1924–1933 (New York: National Bureau of Economic Research, 1934). For a general account of economic conditions in Europe at this time, see League of Nations, The Course and Phases of the World Economic Depression (Geneva, 1931), pp. 13–115, particularly pp. 105–15 where the uneven economic conditions in Europe before 1927 are noted. However, ‘during the year 1927, the movement was much more uniform and general — internationally — than at any other time since the postwar depression. Currencies were stabilized and the gold standard or gold-exchange standards adopted by most of the countries which had not done so before. There was a clearly marked tendency toward expansion of production and trade.’ Ibid., p. 107.
League of Nations, International Currency Experience, pp. 116–17.
Governor Norman found it expedient to arrange these loans through the League. This made it possible for lenders to insist that the borrowing governments accept certain conditions which it might have been politically impossible for them to accept had the loans been offered directly by the bankers. An analogy may perhaps be drawn in this respect between the League and the International Bank for Reconstruction and Development.
‘Report of the Financial Commission — Resolution 3’; cited by Mills, op. cit., Appendix V.
The extent to which the various central banks pursued domestic policies, during the twenties, with slight regard for their external accounts has been discussed at length in League of Nations, International Currency Experience, and in Clarke, op. cit.
See, e.g., Anderson, op. cit., pp. 113–297. According to Anderson, the Federal Reserve authorities should have prevented, most certainly not encouraged by open market operations, the expansion of credit in the United States; and the rest of the world should have adopted such levels of interest rates as would have caused the gold which came to the United States during and immediately following the war to return abroad.
See, e.g., League of Nations, The Course and Phases of the World Economic Depression, p. 97.
It has been estimated that, in the thirteen months following May, 1927, funds equal to 86 percent of the total increase in American bank credit during that period were used in the stock market. See League of Nations, The Course and Phases of the World Economic Depression, p. 127. This is not to say that funds were ‘tied up’ in accounts used only for stock market speculation. But stock market speculation increased the demand for loanable funds and tended, therefore, to cause a general increase in interest rates. The dilemma of the Federal Reserve authorities was whether they should permit enough credit expansion to keep interest rates low in the interests of business activity or to restrict credit expansion in an effort to control stock market speculation.
For a description of the development of a de facto gold-exchange standard before World War I, see Lindert, op. cit.
In a sense, the gold-exchange standard operated too well for a time in the middle twenties. The British were so successful in borrowing on short-term account that it never became necessary for the Bank of England to raise the bank rate high enough to induce a gold inflow. As a consequence, when short-term capital became unresponsive to small interest rate differentials between nations, the British (and others) found their stock of gold too small.
Griffith Johnson, Jr., The Treasury and Monetary Policy, 1933–1938 (Cambridge: Harvard University Press, 1938), p. 68.
‘England’s Monetary Policy,’ Monthly Circular — Bank of Liverpool & Martins Limited, vol. 2; No. 11 (14th November, 1921), p. 3.
See, e.g., Royal Institute of International Affairs, Monetary Policy and the Depression (London: Oxford University Press, 1933), pp. 75–7. See also Anderson, op. cit., pp. 231–43.
Ibid., p. 242: ‘If the governments had acted that winter [1932], Hitler would never have come into power, and we should have saved the democratic regime in Germany.’
For the full text of Keynes’ speech, see Seymour E. Harris (ed.), The New Economics (New York: Alfred A. Knopf, 1948), pp. 369–79.
See W. Arthur Lewis, Economic Survey, 1919–1939 (Philadelphia: The Blakiston Company, 1950), p. 61.
William L. Shirer, The Rise and Fall of the Third Reich (New York: Simon and Schuster, 1960), pp. 137–8.
League of Nations, International Currency Experience, p. 130.
See Leo Pasvolsky, Current Monetary Issues (Washington: The Brookings Institution, 1933). See also Arthur Whipple Crawford, Monetary Management under the New Deal (Washington: American Council on Public Affairs, 1940), pp. 50–66. The London Conference was convened at the suggestion of the delegates to the Lausanne Conference which had been held a year earlier and following a preparatory conference held at Geneva from October 31 to November 9, 1932, and again from January 9 to 19, 1933, for the purpose of preparing an agenda. At the time of the Geneva preparatory conference, it was thought that the main topic to be considered at London would be ways and means of restoring the gold standard in those nations which had abandoned it. In January, 1933, no less than thirty of forty commercial nations had abandoned the gold standard altogether and another nine, though nominally on the gold standard, were only able to maintain their currencies at par with gold by employing controls over their foreign transactions. See Pasvolsky, op. cit., p. 8.
The terminology ‘managed’ and ‘unmanaged’ is not entirely accurate. The question really is: What are the objectives of monetary management? For example, should money be managed so as to insure that the price level depends in the long run on the value of gold as a commodity? Should money be managed so as to insure that the value of each national currency is stable relative to other national currencies? See, e.g., Dennis H. Robertson, ‘How Do We Want Gold to Behave?’ The International Gold Problem, A Record of the Discussions of a Study Group of Members of the Royal Institute of International Affairs, 1929–31 (London: Humphrey Milford, 1931), pp. 18–24. An argument advanced by those who have advocated a world-wide gold standard has been that since ‘governing authorities lack wisdom, a managed currency will, sooner or later, come to grief.’ See John Maynard Keynes, A Tract on Monetary Reform (New York: Harcourt Brace and Company, 1924), p. 178. But some monetary ‘management’on the part of the Bank of England was required to maintain the gold standard during the nineteenth century. See Jacob Viner, ‘International Aspects of the Gold Standard,’ Gold and Monetary Stabilization, Lectures on the Harris Foundation, 1932 (Chicago: University of Chicago Press, 1932), pp. 3–39. See also Jacob Viner, ‘Clapham on the Bank of England,’ Economica, XII (May, 1945), p. 63: ‘It is a commonplace that England was during the nineteenth century the efficient manager of the international gold standard, and that the Bank of England was the agency through which this management was applied.’
A leading American exponent of this view was Benjamin M. Anderson, Jr. See his Economics and Public Welfare, op. cit. See also H. Parker Willis, ‘Federal Reserve Policy in Depression,’ Gold and Monetary Stabilization, pp. 75–108. Professor Willis quoted (p. 84) an unnamed French statesman as referring to open market operations as ‘an Anglo-Saxon vice.’ For an interesting critique of this view, see Pierre Mendès-France and Gabriel Ardant, Economics and Action, a UNESCO Publication (New York: Columbia University Press, 1955), pp. 54–69.
See Willis, op. cit., p. 104: ‘… any such step at the present time would simply mean an aggravation of existing difficulties, due to the fact that we are already overburdened with construction work and fixed capital that are not likely soon to be employed.’ See also Lord Robbins, Autobiography of an Economist (London: Macmillan, 1971), pp. 150–5.
Some of the people who favored an expansion of credit apparently assumed (like those who opposed credit expansion) that credit inflation and price inflation would occur together regardless of the level of employment. Indeed, some of the early monetary policies of the New Deal seem to have been substantially based on this assumption.
During March and April, 1933, there took place in Great Britain an important debate in which Keynes sponsored the temporarily losing proposition that public finance should be used as an instrument of national recovery; and, since an unbalanced budget came to be associated with the New Deal in the United States, it has been conjectured that Keynes’ opinions on this subject were viewed with more favor in the United States than in Great Britain at this juncture of history. But Harrod has indicated his doubt on this score. See Harrod, op. cit., pp. 448–50.
Ibid., p. 85. Several years later, in his Public Papers and Addresses, President Roosevelt wrote: After the conference met in London, it became more and more clear that the gold bloc nations were seeking action only to bring about a temporary and experimental stabilization affecting the relationship between their monies and monies of Great Britain and the United States, neither of which was at that time on a free gold basis … It is true that my radio message to the London Conference fell upon it like a bombshell. This was because the message was realistic at a time when the gold bloc nations were seeking a purely limited objective, and were unwilling to go to the root of national and international problems. The immediate result was a somewhat petulant outcry that I had wrecked the conference. Franklin D. Roosevelt, Public Papers and Addresses (New York: 1938), vol. II, p. 206; quoted by Crawford, op. cit., p. 56. At the time of the Conference, Keynes proclaimed the President to be ‘magnificently right,’ an opinion with which Professor Gustav Cassell of Sweden, among others, agreed. See Crawford, op. cit., p. 57.
The Gold Bloc consisted of the six countries still on the full gold standard: France, Italy, Belgium, Holland, Switzerland, and Poland.
For a statement on the experience of the Gold Bloc from 1933–36, see Professor Charles Rist, ‘Memorandum on the Depression Experiences of Gold Bloc Countries,’ The Improvement of Commercial Relations Between Nations and the Problems of Monetary Stabilization, Separate Memoranda from the Economists consulted by the Joint Committee of the Carnegie Endowment and the International Chamber of Commerce (Paris: International Chamber of Commerce, 1936), pp. 237–57.
Copyright information
© 1996 Robert W. Oliver
About this chapter
Cite this chapter
Oliver, R.W. (1996). Reconstruction, Recovery, and Collapse, 1919–1933. In: International Economic Co-Operation and the World Bank. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-14081-7_1
Download citation
DOI: https://doi.org/10.1007/978-1-349-14081-7_1
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-14083-1
Online ISBN: 978-1-349-14081-7
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)