Economics: The Road to Depression; The Great War created a seismic shift in the global balance of economic power-and paved the way to the Great Depression

Economics: The Road to Depression

The Great War created a seismic shift in the global balance of economic power—and paved the way to the Great Depression.


June 20, 2014 5:35 p.m. ET

The Great War was a financial catastrophe for Europe. For four years, the major European powers devoted some 50% of their GDP annually to fighting the war, only a fraction of which could be financed by taxes. Europe was left saddled with a gigantic overhang of public debt.

European governments also came under pressure to expand the welfare state after the privations of the war years. Unable to raise taxes because of deep postwar social and political divisions at home, most of them (with the exception of Britain) resorted to high inflation. This destroyed the middle class’s financial savings and helped undermine European political stability for a generation.

The Great War also created a seismic shift in the global balance of economic power. While European economies shrank, the U.S. emerged with an even stronger economy—and went from being the world’s largest debtor to a major creditor. At the Paris Peace Conference of 1919, Britain and France failed to persuade the U.S. to forgive their war debts and sought, disastrously, to balance their books by imposing punitive reparations on Germany.

Throughout the 1920s, this web of interlocking debts hobbled the international financial system. Germany was only able to pay reparations and finance its recovery by borrowing large, unsustainable amounts from the U.S. When these capital flows came to a sudden halt after the 1929 Wall Street crash, Germany defaulted on its debts, and the economies of Central Europe collapsed.

So barely a decade after the end of the Great War, the world was hit by the Great Depression. To protect themselves from the downward spiral in the global economy, countries around the world resorted to beggar-thy-neighbor policies, imposing strict controls on trade and capital flows. The Great Depression and the ensuing retreat from globalization were the most damaging and consequential of the war’s economic legacies.

—Mr. Ahamed is the author of “Lords of Finance: The Bankers Who Broke the World,” which won the 2010 Pulitzer Prize for history.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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