Very informative summary.
The choosing of deflation, without really any opposition at the elite level (besides, I guess, Williams Jennings Bryan), is still one of those things that baffles me. I guess because I know about 1929 and they didn't.
Bombing Iraq is the kind of mistake almost everybody makes, but deliberate deflation hasn't really existed during my life.
Yeah. It's notable that even then most gung-ho austerians these days invariably try for zero inflation rather than actual deflation, let alone on that scale. I'd always assumed that this was a left over gut reaction to the Great Depression, but maybe it goes further back. Who knows what George Osborne or Mario Draghi was taught at college?
Of course Andrew Mellon was Treasury Secretary right through from 1921 to 1932...
They filled part of Batman on the steps of the building he put up down the street.
Good summary!
The choosing of deflation, without really any opposition
I think it's a collective action problem. Every major country owed massive debts to every other, denominated in gold currency, so absent collective debt forgiveness, if anyone defects from the gold standard they're stuck paying impossibly expensive gold-denominated foreign debt, and they couldn't default because all of them needed foreign credit.
Also something Tooze doesn't seem to deal with except for in America is the internal politics of the debts. For instance British debts aren't just owned by Americans, a great chunk of them are owned by rich British people and banks, ie. the people mostly running the country, unions notwithstanding.
Which is why Lord Peter was having so much fun in the 30s.
The British were apparently arguing for collective debt forgiveness, but nobody else was listening.
Also, with the gold standard, at the time a gold currency was the foundation for creditworthiness. So in the 19C Prussia and Japan use their indemnities from France and China respectively to establish gold reserves, and then borrow abroad to finance their industrialization, and both are still massively dependent on foreign credit even by this period; which is why Japan goes back on gold, even though it doesn't have war debts. And Britain also needs creditworthiness for security: they only won the war, and all the world wars against France before, because they were a good debtor.
8: The Americans specifically weren't listening. But debt forgiveness doesn't imply inflation: although non-forgiveness demanded deflation, Britain had independent reasons to pursue deflation even if inter-allied debts had been forgiven. And I can't see the British creditor class unanimously supporting inflation in any circumstances .
From Metzler, Lever of Empire:
The fact that creditors thoroughly dominated Britain's political economy and that Britain, the historic center of the gold-standard system, was the world's great creditor nation was not incidental to this arrangement.Discussing 19C, but the City was still there after the war, and no doubt wanted the good times back.
It's probably just another way in which World War I was inconclusive. It took a second war for the Germans to quit and for the Americans to realize that financing the whole of a recovery was in their own self-interest and for the British to agree that pound had to depreciate against the dollar. Or maybe there would have just been World War III if it wasn't for the healing power of not wanting to die in a global thermonuclear war.
I also appreciate the summary; you got the disparate ideas well corralled.
6 seems right about the generalized politics; I do wonder a bit how it varied between countries. France seemed to have a particularly tough row to hoe, given the devastation of their countryside. Was north-east France never hugely industrial, or did the war wipe out its local industry?
I think most of the mines that were sabotaged by the retreating Germans were in north-east France. I've no idea whether they were able to reconstruct that industry in the longer term. Lille is a pretty big industrial city in the north east. But I'm no expert on French economic geography. The part of Belgium just over the border is solidly industrial rust belt.
12: I think not just a second war, but a second war timed such that America's (and other countries'?) ruling class had lived through the first and the depressions following.
13 last: NE France was the country's biggest concentration of industry prewar, and IDK how long it took to recover after. Also notable that Germany robbed France of a comparable concentration of industry in Alsace-Lorraine in 1870, and bled the whole country with the indemnity. Those things between them stalled French industrialization until after WWI if not WWII, and kickstarted industrialization in Germany.
And to cap it, that indemnity caused an investment bubble in Germany whose bursting started the first Great Depression, 1873-96 (?). Assholes.
Also, sidelight on the Red Scare/strike wave aspect of the deflation: the paramilitaries returning from the war weren't all right-wing. The striking miners in S Africa Tooze mentions were largely war veterans and organized themselves on the basis of their old units. I'm guessing the Spartacists and Ruhr rebels in Germany were similar, along with the more militant leftists in Italy and everywhere else.
I'm sure 16 is right. I have no cites for it, but I do know that a few years after the end of WWII the British government had an amnesty for service weapons that people had hung onto, and the leaders of the biggest Trot faction rolled up at a police station with a removal van. So I imagine that the availability of trained personnel and small arms would have been no less in 1919.
The British have very considerate Trotskites. Here there's a steady stream of "Grandpa kept how many grenades in the house?" as the WWII generation dies off.
It's probably a lot dodgier to get caught with this stuff in Britain than in whatever godforsaken state Grandpa retired to.
When it comes Trots it's the icepicks you have to watch out for.
They're so difficult to tell apart.
Ask them how many nations they want their socialism in.
Also with the strikes, those miners famously marched under the banner "Workers of the world unite and fight for a White South Africa". All the unions in the white Dominions (and I assume the US too) were also agitating in defense of color bars. That stuff was going on before the war and the deflation, but those things squeezed everything tighter, with non-white employment exploding in the war and management struggling to cut costs (and fire more expensive whites) afterward. It seems non-racialism only ever has a chance when the good times are rolling.
23 was me. Oops.
24: Same as it ever was, eh?
Wait, no, this is the BBC article about white people in Bakersfield being angry about non-whites with jobs I wanted. Didn't realize they had multiple of them in the past few days.
Another great writeup! ! I've been dying to type out my favorite part, though, all errors and emphasis mine.
In the autumn of 1921 the notorious Tenth Cavalry regiment under the command of Lieutenant Colonel Hector Varela arrived in Patagonia to put down an insurgency amongst farm workers on the gigantic sheep haciendas of the desolate southern tip of the continent. In collaboration with local Welsh landlords and Leaguistas, the Tenth Cavalry in December 1921 murdered no fewer than 1,500 suspected labour activists. In the New Year Colonel Varela returned to Buenos Aires to be feted as a national saviour. Within a year he was gunned down by a German-born anarchist, Kurt Gustav Wilckens. Wilckens, who hailed from Schleswig, had come to Argentina by way of the coal mines of Silesia and Arizona, where he survived a brief but dangerous spell as an IWW organizer. Before Wilckens could receive his sentence, he himself was shot by Perez Milan, a Leaguist zealot, who had been smuggled into his jail by police sympathizers. The vendetta reached its conclusion only in 1925 when Perez Milan was gunned down by a Yugoslav-born fanatic who had been inspired by the Russian godfather of Argentinian anarchism Germán Boris Wladimirovich.
It is an extraordinary tale. With variations it can be repeated across much of the world in the aftermath of World War I -- a sense of a world coming apart, fantasies of conspiratorial communist influence, a pressing state of economic crisis, a wave of strikes and industiral conflict, fuelling drastic rhetorics of class conflict and violence on both sides.
24. Tooze refers to this in the next chapter in fact, though he doesn't dwell on it. And of course Indians free to settle anywhere in the Empire? Yeah. likely.
25/6: Too true. At risk of reigniting the bernard flambé, restoring the middle class really needs to be the center of Democratic policy; without it everything else comes apart. Civil rights didn't happen in the 1960s boom by accident.
27 is indeed amazing. Linking back to those leftist paramilitaries,
Wilckens, who hailed from Schleswig, had come to Argentina by way of the coal mines of Silesia and Arizona, where he survived a brief but dangerous spell as an IWW organizeris not such a rare character. Skilled laborers, especially miners, were extraordinarily mobile in the later 19C into this period, and labor organizers among them. One of the most important organizers in SA was a Cornishman who had led strikes in IIRC the US, Australia and Brazil as well.
James Connolly was an IWW organiser at one point, after all.
27 is great (and the OP is good, and very clear).
Wait, no, this is the BBC article about white people in Bakersfield being angry about non-whites with jobs I wanted.
There are a lot of jobs that only go to bilingual people nowadays. Most of the service / retail jobs in areas like that where you have to talk to customers and half the customers are immigrants.
I mean, I shouldn't say "nowadays". It's the normal situation. But if you live in a place that once had no immigrants and now is full of immigrants, a lot of the jobs we learn from economists are created by immigration are ones you have to learn another language to get.
What's strange is living in a place that was nearly all immigrants but then had none for basically my entire life span and is now getting immigrants who may have, on average, more education than the locals.
Which doesn't have much to do with the end of WWI except that the some people who were letting in all the immigrants from Europe were also not giving a shit about Europe.
5: I understand how inflation would increase the nominal value of gold-indexed debt, but how would it increase the real value (which is what actually determines how hard it is to pay off)?
Nice summary of difficult chapters-- the deflation chapter itself is a synthesis of a lot of material and answered questions I had about why France didn't come out of the post-inflation era more successfully. The Brits new inability to afford a navy as powerful as before is really central, and it was useful to me to see that tied to fiscal constraints.
The extent to which holding on to credit increased power for the US is really striking, kind of depressing when thinking about the decades to come.
I have two peripheral remarks-- people had asked earlier about the 1918 flu. The demographics were apparently that about 4% of working-age population died in the US and europe. Looking at the timing of the pandemic and finances, no strong correlation that I can see; it's a brutal way of thinking about it, but the flu deaths happened just as the fighting had stopped-- demographically, just one more battle that happened just before demobilization dropped newly unempolyed soldiers back into the economy.
One of the places which didn't suffer from inflation was Czechoslovakia-- I think T mentions this briefly as a contrast to Poland, Austria, and Hungary which did. My great-grandfather worked under the minister of finance, Rašín, who was assassinated by an anarchist in 1923. As inflation started in 1922, apparently a lot of foreign money flowed into CS banks.
38. I think not just debt but also the cost of necessary imports, for everyone except the UK after WWI.
38: I don't really understand it either, but it does seem to be a real thing. Thinking of this as an individual buying stuff, the problem is that nominal wages lag behind inflation, so a greater proportion of income gets eaten by purchases. If you analogize across a whole economy, that implies a greater proportion of income taxes gets eaten by foreign debt payments; and likewise taxes on any income (rents, debt payments) where nominal value lags inflation. But those aren't the only things taxed, and I expect I'm getting stuff wrong. Also, we are talking about democracies, so the nominal value of the debts matters politically, even if maybe it doesn't economically. In conclusion, someone light the GnoLedSignal.
s/b "an individual buying *imported* stuff".
I'm pretty sure the answer involves CA = (X-M)+NY+NCT and some set theory.
I agree with 41 last. I kinda hoped I'd done that.
43. California = Net Exports plus New York plus Northern Connecticut? Possibly, but.
The challenge is counting all the Apple money sitting in Ireland.
I just read Chapter 20. There's a fantastic book about the partition of the Ottoman empire after WWI, with a lot of detail about the formation of Israel. A Peace to End All Peace by David Fromkin. Fromkin has a lot of detail about the British Foreign Office; there was also a separate India Office, and they did not agree about what to do in Iraq and Iran. There's probably a colossal literature about UK policy in the 1920s, but I was a little surprised that Tooze didn't mention the conflict.