World War 1
World War I was the worldwide war centered in Europe that began on 28th July 1914 and
lasted until 11th November 1918. World War I was also being called ‘The Great War’ or ‘The
War to End all Wars’. World War I was fought on most of the continent of Europe, where 135
countries took part in it, and more than 15 million people died in the war.
The spark was the assassination of Archduke Franz Ferdinand, heir to the Austro-Hungarian
throne, in Sarajevo on 28 June 1914. Ferdinand was killed at the hands of the Black Hand, a
Serbian nationalist secret society. Austria-Hungary blamed Serbia for the assassination.
Germany, which supported Austria-Hungary, said that they should make a list of things that
Serbia should do as punishment for killing the Archduke. Though Serbia agreed to most of ten
of the things on the list, they could not agree to them all.
Austria-Hungary then declared war on Serbia. This quickly led to a full-scale war. Both
countries’ allies became involved in the war. The war drew in all the world's economic great
powers, which were assembled in two opposing alliances: the Allies was based on the Triple
Entente of the United Kingdom, France and the Russian Empire and the Central Powers of
Germany and Austria-Hungary. Although Italy had also been a member of the Triple Alliance
alongside Germany and Austria-Hungary, it did not join the Central Powers, as Austria-Hungary
had taken the offensive against the terms of the alliance. These alliances were both reorganized
and expanded as more nations entered the war: Italy, Japan and the United States joined the
Allies, and the Ottoman Empire and Bulgaria the Central Powers. Ultimately, more than
70 million military personnel, including 60 million Europeans, were mobilized in one of the
largest wars in history.
The following remarkable sequences are the events that led inexorably to the 'Great War' - a name that
had been touted even before the coming of the conflict.
• Austria-Hungary, unsatisfied with Serbia's response to her ultimatum (which in the event was
almost entirely placatory: however her jibbing over a couple of minor clauses gave Austria-
Hungary her sought-after cue) declared war on Serbia on 28 July 1914.
• Russia, bound by treaty to Serbia, announced mobilization of its vast army in her defiance, a
slow process that would take around six weeks to complete.
• Germany, allied to Austria-Hungary by treaty, viewed the Russian mobilization as an act of war
against Austria-Hungary, and after scant warning declared war on Russia on 1 August.
• France, bound by treaty to Russia, found itself at war against Germany and, by extension, on
Austria-Hungary following a German declaration on 3 August. Germany was swift in invading
neutral Belgium so as to reach Paris by the shortest possible route.
• Britain allied to France by a more loosely worded treaty which placed a "moral obligation" upon
her to defend France, declared war against Germany on 4 August. Her reason for entering the
conflict lay in another direction: she was obligated to defend neutral Belgium by the terms of a
75-year old treaty. With Germany's invasion of Belgium on 4 August, and the Belgian King's
appeal to Britain for assistance, Britain committed herself to Belgium's defiance later that day.
Like France, she was by extension also at war with Austria-Hungary.
• With Britain's entry into the war, her colonies and dominions abroad variously offered military
and financial assistance, and included Australia, Canada, India, New Zealand and the Union of
• United States President Woodrow Wilson declared a U.S. policy of absolute neutrality, an official
stance that would last until 1917 when Germany's policy of unrestricted submarine warfare -
which seriously threatened America's commercial shipping (which was in any event almost
entirely directed towards the Allies led by Britain and France) - forced the U.S. to finally enter
the war on 6 April 1917.
• Japan, honoring a military agreement with Britain, declared war on Germany on 23 August
1914. Two days later Austria-Hungary responded by declaring war on Japan.
• Italy, although allied to both Germany and Austria-Hungary, was able to avoid entering the fray
by citing a clause enabling it to evade its obligations to both. In short, Italy was committed to
defend Germany and Austria-Hungary only in the event of a 'defensive' war; arguing that their
actions were 'offensive' she declared instead a policy of neutrality. The following year, in May
1915, she finally joined the conflict by siding with the Allies against her two former allies.
Countries joined the war
Russia joined the war on Serbia's side because the people of Serbia were Slavic, like Russia, and
the Slavic countries had agreed to help each other if they were attacked. Germany feared that
Russia's soldiers would also attack Germany so they declared war on Russia, and used a plan to
attack Russia that had been created before the war, but it also involved attacking France and
Belgium. France and also Great Britain joined the war because Great Britain had agreed to help
Belgium if it were ever attacked by someone else. Central Powers Germany Austria-Hungary
,Ottoman Empire, Bulgaria, France Allies and associated powers Serbia, Russia, France, Britain,
Belgium, Romania and US entered in 1917 only.
Leaders involved in The World War 1
• Nicholas II
• Grand Duke Nicholas Nikolaevich
• Alexander Samsonov
• Nikolai Ivanov
• Paul von Rennenkampf
• Peter I
• Crown Prince Alexander
• Nikola Pašić
• Raymond Poincaré
• Georges Clemenceau
• Joseph Joffre
• Ferdinand Foch
• Robert Nivelle
• Albert I of Belgium
• Gerard Leman
• Constantin Prezan
• Alexandru Averescu
• Rama VI
• Victor Emmanuel III
• Vittorio Orlando
• Luigi Cadorna
• Armando Diaz
United States of America
• Woodrow Wilson
• Thomas R. Marshall
• John J. Pershing
• Emperor Taishō
• Ōkuma Shigenobu
• Terauchi Masatake
• Hara Takash And many more leaders are there of others countries.
Picture of some of the leaders:
King George V (right) with his first cousin Tsar Nicholas II, Berlin, 1913.
Ōkuma Shigenobu, 5th Prime Minister of Japan.
Archduke Franz Ferdinand
Background of the War
German industrial and economic power had grown greatly after unification and the foundation of the
Empire in 1871 following the Franco-Prussian War. From the mid-1890s on, the government of Wilhelm
II used this base to devote significant economic resources for building up the Kaiserliche Marine,
established by Admiral Alfred von Tirpitz, in rivalry with the British Royal Navy for world naval
supremacy. As a result, each nation strove to out-build the other in terms of capital ships. With the
launch of HMS Dreadnought in 1906, the British Empire expanded on its significant advantage over its
German rival. The arms race between Britain and Germany eventually extended to the rest of Europe,
with all the major powers devoting their industrial base to producing the equipment and weapons
necessary for a pan-European conflict.
Until 1878 Austria-Hungary precipitated the Bosnian crisis of 1908–1909 by officially annexing the
former Ottoman territory of Bosnia and Herzegovina. This angered the Kingdom of Serbia and its patron,
the Pan-Slavic and Orthodox Russian Empire. In 1912 and 1913, the First Balkan War was fought
between the Balkan League and the fracturing Ottoman Empire. The resulting Treaty of London further
shrank the Ottoman Empire, creating an independent Albanian State while enlarging the territorial
holdings of Bulgaria, Serbia, Montenegro, and Greece. When Bulgaria attacked both Serbia and Greece
on 16 June 1913, it lost most of Macedonia to Serbia and Greece and Southern Dobruja to Romania in
the 33-day Second Balkan War, further destabilizing the region.
The Entente Powers comprised a military alliance driven by a variety of inter-related treaties
between France, Great Britain and Russia. In opposition to the Entente alliance were the
Central Powers, another alliance of great powers: Austria-Hungary and Germany. This ensured
that pre-war Europe was essentially dominated by two armed camps.
The Entente alliance sprang from the military concerns of Germany's neighbors to east and
west - Russia and France; accordingly in 1894 they signed an alliance based upon fears of
growing German power. Britain subsequently forged alliances with both Russia and France once
it became clear that Germany intended to construct a navy to match the Royal Navy in the late
1890s. Thus while the Entente Alliance was by no means a formal alliance, inter-twining
treaties effectively rendered it thus. The term itself was much used in 1914 and 1915, but was
replaced by the more general 'Allies' thereafter, and was taken to include other nations
including Italy and Japan. In contrast Germany had a long-standing alliance with the fading
Austro-Hungarian Empire dating back to the 1870s. Other treaties combined to ensure a
tangled alliance system in 1914; by the close of the war the Central Powers had been extended
to incorporate Bulgaria and Turkey. Contrary to popular belief the United States never formally
joined the Entente/Allied alliance, choosing instead to wage war against the Central Powers on
an independent basis as an 'Associated Power'.
Countries which were highly devasted
France lost over 4% of their population to the war, with most of the deaths in the demographic of 18-35
year old men. After the war, the birth rate of France was abysmal (only in four specific years did France
register over a +2 natural change in the population, out of 28 years) and did not recover until after
WWII. The French economy was in ruins, and was desperately dependent on German reparation
Germany lost nearly 2.5 million of their population. The harsh terms of the Versailles treaty
made sure that the German economy was unable to recover, as most of their revenue went to
paying off reparations, which resulted in hyperinflation. Oh, and it eventually led the Nazi party
rise to power and start WWII.
Russia had the most casualties in the war roughly 3-3.7 million total deaths, including civilian estimates,
which, considering their early withdrawal in 1917 makes that number even more severe. With the extra
pressure on the economy and the growing dissatisfaction among the poor, Russia is ripe for revolution
and the Bolsheviks seize power.
World War I killed people more than 9 million soldiers, sailors, and flyers and another 5 million civilians
involved more countries about 28 and cost more money of $186 billion in direct costs and another $151
billion in indirect costs than any previous war in history. It was the first war to use airplanes, tanks, long
range artillery, submarines, and poison gas. It left at least 7 million men permanently disabled.
World War I probably had more far reaching consequences than any other proceeding war. Politically, it
resulted in the downfall of four monarchies in Russia in 1917, in Austria-Hungary and Germany in 1918,
and in Turkey in 1922. It contributed to the Bolshevik rise to power in Russia in 1917 and the triumph of
fascism in Italy in 1922. It ignited colonial revolts in the Middle East and in Southeast Asia.
Economically, the war severely disrupted the European economies and allowed the United States to
become the world's leading creditor and industrial power. The war also brought vast social
consequences, including the mass murder of Armenians in Turkey and an influenza epidemic that killed
over 25 million people worldwide.
Four years of war killed a million troops from the British Empire, 1.5 million troops from the Hapsburg
Empire, 1.7 million French troops, 1.7 million Russians, and 2 million German troops. The war left a
legacy of bitterness that contributed to World War II twenty-one years later.
Recovering of World War I
After the turmoil war period, all countries tried their best to reconstruct the gold standard system in
hoping to stabilize the price, to restore the frozen trade, and to push the economic recovery. Britain and
the US went back on the gold standard in 1925. The year after, France restored convertibility. Italian
followed their steps in 1927. By year 1928 almost all countries around the world committed back to the
The governments could now freely introduce policies and the world economy started to recover
gradually. Without constraint to keep the convertibility, Britain devalued its sterling and this
depreciation made its goods cheaper compare to other countries. The cheaper goods were more
competitive in both domestic and international markets. The stimulus on the domestic market increased
consumption; and the stimulus on the international markets increased production. Together, these
changes encouraged new investments and the economy started to spiral up. Other countries, like
Sweden and Canada, devalued their currencies following Britain’s steps.
The world economy did not get well just as easy. The devaluation of sterling and other currencies
around the world put tremendous balance of payments pressure on the countries that were still on the
gold standard. The gold standard countries had to impose tariffs and quotas to offset the effects of the
exchange rates with the devalued currencies. The world finally shook off the golden fetters completely
after France went off the gold standard in 1936. During that time, the governments were still timid in
implementing large expansionary policies in fear of inflation. But the policymakers had several new
policy options available.
These were the essential gains from being freed of gold standard: the governments started to have the
ability to utilize their monetary and fiscal policies without worried about maintaining the convertibility.
Then, the world economy started to show signs of recovery.
World War II
World War II, also called Second World War, conflict that involved virtually every part of the
world during the years 1939–45. To this day, it remains the most geographically widespread
military conflict the world has ever seen. Although the fighting reached across many parts of
the globe, most countries involved shared a united effort aimed at ending the aggression of the
Axis powers—Germany, Italy, and Japan—and the Allies powers—France, Great Britain, the
United States, the Soviet Union, and, to a lesser extent, China. The war was in many respects a
continuation, after an uneasy 20-year hiatus, of the disputes left unsettled by World War I. The
40,000,000–50,000,000 deaths incurred in World War II make it the bloodiest conflict, as well
as the largest war, in history. Along with World War I, World War II was one of the great
watersheds of 20th-century geopolitical history. It resulted in the extension of the Soviet
Union’s power to nations of Eastern Europe, enabled a communist movement to eventually
achieve power in China, and marked the decisive shift of power in the world away from the
states of Western Europe and toward the United States and the Soviet Union.
The outbreak of war
The rise of Nazi Germany and its aggression can be traced directly back to World War I.
Following that war, Germany was economically devastated. The Treaty of Versailles unfairly
placed the full blame for the war on Germany and demanded heavy reparations payments in
return. Then, in the late 1920s and early 1930s, the worldwide Great Depression took a further
heavy toll on the country.
As resentment and desperation in Germany grew, radical political parties gained in popularity.
They ranged from Communists to right-wing nationalists. Among the more extreme activists of
the latter category was Adolf Hitler, who had founded the National Socialist German Workers’
Party in 1920–1921. By the time of the depression in Germany, Hitler’s party had more than
100,000 members and was growing rapidly, and it began participating in parliamentary
elections with increasing success. In 1933, Hitler pressured the German president, Paul von
Hindenburg, into appointing him chancellor—a position from which he was quickly able to
consolidate his power.
By 1935, Germany had ceased to recognize the Treaty of Versailles and all the restrictions that
accompanied it. In particular, Hitler announced his intention to fully rebuild Germany’s military
forces. In 1938, Germany began annexing the territories of neighboring countries, including all
of Austria and most of Czechoslovakia. By the early part of 1939 the German dictator Adolf
Hitler had become determined to invade and occupy Poland. Poland, for its part, had
guarantees of French and British military support should it be attacked by Germany. In a secret
protocol of this pact, the Germans and the Soviets agreed that Poland should be divided
between them, with the western third of the country going to Germany and the eastern two-
thirds being taken over by the U.S.S.R.
Hitler thought that Germany could attack Poland with no danger of Soviet or British
intervention and gave orders for the invasion to start on August 26. Hitler needed an excuse for
attacking Poland. It was Heinrich Himmler who came up with the idea, thus the plan was code-
named Operation Himmler. On the night of August 31, 1939, Nazis took an unknown prisoner
from one of their concentration camps, dressed him in a Polish uniform, took him to the town
of Gleiwitz, and then shot him. The staged scene with the dead prisoner dressed in a Polish
uniform was supposed to appear as a Polish attack against a German radio station. Finally, at
12:40 pm on August 31, 1939, Hitler ordered hostilities against Poland to start at 4:45 the next
morning. The invasion began as ordered. In response, Great Britain and France declared war on
Germany on September 3, at 11:00 am and at 5:00 pm, respectively. The German air attack hit
so quickly that most of Poland's air force was destroyed while still on the ground. To hinder
Polish mobilization, the Germans bombed bridges and roads. Groups of marching soldiers were
machine-gunned from the air. But the Germans did not just aim for soldiers, they also shot at
civilians. Using 62 divisions, six of which were armored and ten mechanized, the Germans
invaded Poland by land.
Poland was not defenseless, but they could not compete with Germany's motorized army. With
only 40 divisions, none of which were armored, and with nearly their entire air force
demolished, the Poles were at a severe disadvantage. The Polish cavalry were no match for
German tanks. On September 1, 1939, the beginning of the German attack, Great Britain and
France sent Adolf Hitler an ultimatum - either withdraw German forces from Poland or Great
Britain and France would go to war against Germany. On September 3, with Germany's forces
penetrating deeper into Poland, Great Britain and France both declared war on Germany.
World War II had begun.
Like Germany, Japan was severely affected by the Great Depression. Japan relied heavily upon
imported resources and desperately needed more land for its expanding population. Japanese
military leaders, who at the time had a strong influence over the civilian government, saw
territorial expansion as the best solution. As a result, beginning in 1931, Japanese forces began
occupying territory in the Chinese region of Manchuria. By 1937, Japan and China were officially
at war. In 1940, the Japanese government announced its intention to establish a “new order in
East Asia,” under which the region would be freed of Western influence and guided by Japan. In
1940, Japan signed a formal alliance with Germany and Italy, setting the country on a clear
course to enter World War II.
In the meantime, the United States, disapproving of Japan’s actions, placed a heavy trade
embargo on Japan, severely restricting its ability to import oil, scrap metal, and other resources
vital to its war effort. Japan saw itself facing an impossible crisis, and without prompt and
decisive action, total collapse was inevitable. The action Japan chose was a surprise attack on
the U.S. naval base at Pearl Harbor, Hawaii, on December 7, 1941. This action brought the
United States into World War II in both theaters, Europe and the Pacific.
Countries joined the war
The participants in World War II were those nations who either participated directly in or were
affected by any of the theaters or events of World War II. World War II was primarily fought
between two large military alliances. The Axis powers were a group of countries led by Nazi
Germany, the Kingdom of Italy, and the Empire of Japan. They were considered the aggressors
of the conflict. The Allies, led by the United Kingdom, its Commonwealth, and France, were
joined in the European theater by the Soviet Union in June 1941 and by the United States in
December 1941. In the Asia-Pacific Theater, the Allies were led by the Republic of China,
following the 1937 invasion of China by Japan, and the United States and the British
Commonwealth, following the 1941–42 Japanese attacks.
Commanders and leaders
Soviet Union: Joseph Stalin
United Kingdom: Winston Churchill
United States: Franklin D. Roosevelt
Republic of China (1912–1949): Chiang Kai-shek
Nazi Germany: Adolf Hitler
Empire of Japan: Hirohito
Kingdom of Italy: Benito Mussolini
Countries that were attacked, occupied, or switched sides during the war
• Albania (occupied by Italy April 7th 1939, by Germany September 26th 1943)
• Belgium (invaded by Germany May 10th 1940)
• Czechoslovakia(1) (Bohemia and Moravia occupied by Germany March 15th 1939)
• Denmark (occupied by Germany April 9th 1940, Greenland occupied by USA April 9th
• Estonia (occupied by the Soviet Union from June 18th 1940, by Germany September
5th 1941, re-annexed by the Soviet Union in 1944)
• Finland (attacked by the Soviet Union November 30th 1939 and June 26th 1941)
• France (surrendered to Germany June 22nd 1940)
• Greece (invaded by Italy October 28th 1940, German occupation from April 6th 1941)
• Iceland (occupied by Great Britain May 10th 1940, by USA from July 1941)
• Latvia (occupied by the Soviet Union from June 18th 1940, by Germany June 25th
1941, re-annexed by the Soviet Union in 1944)
• Lithuania (occupied by the Soviet Union from June 18th 1940, by Germany June 22nd
1941, re-annexed by the Soviet Union in 1944)
• Luxembourg (invaded by Germany May 10th 1940)
• The Netherlands (invaded by Germany May 10th 1940)
• New Guinea
• Norway (invaded by Germany April 9th 1940)
• Poland (invaded by Germany and the Soviet Union in September 1939)
• Tunisia (Occupied by USA in 1943)
• Yugoslavia(3) (German occupation from April 6th 1941
Images of some leaders who fought in World War 2
Background of World War 2
In the aftermath of the war, the losses still caused irredentist and revanchist nationalism to
become important in a number of European states. Irredentism and revanchist were strong in
Germany because of the significant territorial, colonial, and financial losses incurred by the
Treaty of Versailles. Under the treaty, Germany lost around 13 percent of its home territory and
all of its overseas colonies, while German annexation of other states was prohibited,
reparations were imposed, and limits were placed on the size and capability of the country's
armed forces. Meanwhile, the Russian Civil War had led to the creation of the Soviet Union.
In Germany, the Weimar Republic's legitimacy was challenged by right-wing elements such the
Freikorps and the Nazi party, resulting in events such as the Kapp Putsch and the Beer Hall
Putsch. With the onset of the Great Depression in 1929, domestic support for Nazism and its
leader Adolf Hitler rose and, in 1933, he was appointed Chancellor of Germany.
The Kuomintang (KMT) party in China launched a unification campaign against regional
warlords and nominally unified China in the mid-1920s, but was soon embroiled in a civil war
against its former Chinese communist allies. In 1931, an increasingly militaristic Japanese
Empire, which had long sought influence in China as the first step of what its government saw
as the country's right to rule Asia.
Adolf Hitler, after an unsuccessful attempt to overthrow the German government in 1923,
eventually became the Chancellor of Germany in 1933. He abolished democracy, espousing a
radical, racially motivated revision of the world order, and soon began a massive rearmament
campaign. It was at this time that multiple political scientists began to predict that a second
Great War might take place. Meanwhile, France, to secure its alliance, allowed Italy a free hand
in Ethiopia, which Italy desired as a colonial possession. The situation was aggravated in early
1935 when the Territory of the Saar Basin was legally reunited with Germany and Hitler
repudiated the Treaty of Versailles, accelerated his rearmament programmes and introduced
Hoping to contain Germany, the United Kingdom, France and Italy formed the Stresa Front;
however, in June 1935, the United Kingdom made an independent naval agreement with
Germany, easing prior restrictions. The Soviet Union, concerned due to Germany's goals of
capturing vast areas of eastern Europe, wrote a treaty of mutual assistance with France. In
October, Italy invaded Ethiopia through Italian Somaliland and Eritrea; Germany was the only
major European nation to support the invasion. Italy subsequently dropped its objections to
Germany's goal of absorbing Austria.
Hitler defied the Versailles and Locarno treaties by remilitarizing the Rhineland in March 1936.
He received little response from other European powers. When the Spanish Civil War broke out
in July, Hitler and Mussolini supported the fascist and authoritarian Nationalist forces in their
civil war against the Soviet-supported Spanish Republic. Both sides used the conflict to test new
weapons and methods of warfare, with the Nationalists winning the war in early 1939.
The belligerents during World War II fought as partners in one of two major alliances: the Axis
and the Allies. The three principal partners in the Axis alliance were Germany, Italy, and Japan.
These three countries recognized German hegemony over most of continental Europe; Italian
hegemony over the Mediterranean Sea; and Japanese hegemony over East Asia and the Pacific.
On November 1, 1936, Germany and Italy, reflecting their common interest in destabilizing the
European order, announced a Rome-Berlin Axis one week after signing a treaty of friendship.
Nearly a month later, on November 25, 1936, Nazi Germany and Imperial Japan signed the so-
called Anti-Commenter Pact directed at the Soviet Union. Italy joined the Anti-Commenter Pact
on November 6, 1937. On May 22, 1939, Germany and Italy signed the so-called Pact of Steel,
formalizing the Axis alliance with military provisions. Finally, on September 27, 1940, Germany,
Italy, and Japan signed the Tripartite Pact, which became known as the Axis alliance.
Countries which were highly devasted
As a world-wide conflict, very few, if any, most involved in the war: Germany, Italy, Japan,
USSR, USA, France, China, Britain (UK), Canada, and Australia.
The top 5 most affected were:
2. New Zealand
France lost over 4% of their population to the war, with most of the deaths in the
demographic of 18-35 year old men. After the war, the birth rate of France was abysmal.
The French economy was in ruins, and was desperately dependent on German reparation
Germany lost nearly 2.5 million of their population. The harsh terms of the Versailles treaty
made sure that the German economy was unable to recover, as most of their revenue went
to paying off reparations, which resulted in hyperinflation.
Tsar Nicolas II's bungling of both domestic policy and the Eastern Front resulted in massive
riots and his abdication, resulting in a power vacuum that Lenin filled, thus starting the
Russian Civil War and the eventual formation of the Soviet Union.
The economic effects of the war were:
Men started looking for job which comes in handy to earning, even men who were high status
maintaining people they also fight for job. This had a long-term effect upon women's lib,
although any gains seemed to evaporate straight after the war, when the men came back and
many women went back to the kitchen. However, many of the leaders of women's lib in the
1860s had begun their working careers during the war.
There was a huge growth in munitions/ aircraft industries – other industries were put on hold,
huge emphasis on food production. Shortages of workers schedule of Protected Occupations
prevented the call-up of key workers to the armed services, and the Essential Works Order
(1941) allowed the government to conscript people to certain work.
The Government had to take control of the economy – eg who worked where, trade, railways,
shipping, banking etc. Massive government debts were accumulated, particularly to America
.Many men were sent to work in the mines.
Huge losses of merchant shipping to submarines. Destruction of factories/machines – in
1945 Britain LOST 12% of her productive capacity. Destruction by bombing created a need for
massive house building after the war.
Recruitment and training of workers was disrupted - there were long-term bad effects on the
quality of British workmanship and management. There were many scientific advances, which
were to have a GREAT effect in the years to come (eg the computer, mass-produced antibiotics,
DDT, jet engines)
The government set up the Beveridge Committee which brought in the Welfare State after the
war. It also adopted a new way of running the economy (called Keynesian economics) which
promised full employment (compare life during the Depression before the war).The Bretton
Woods Conference (1944) set up the International Monetary Fund to try to prevent another
world economic depression.
Recovery after World War 2
After the World War II the below problems arised which needed recovery, (1) great decline in
the standard measure of the unemployment rate, (2) great increase in the standard measure of
real GNP, (3) slight increase in the standard measure of real private consumption.
The absorption of the armed forces of 12 million persons meant there had to be an enormous
reduction in the unemployment rate. Four-tenths of the labor force was employed in jobs that
did not produce either consumer goods or capital goods that could be used to produce them in
the future. Valuing munitions and other war goods purchased by the government that
accounted for an enormous percent of total output and consumer goods subject to price
controls and rationing is conceptually different from valuing the nation's output in years of
peace. Two-thirds of the investment in manufacturing plants and equipment during the period
from July 1940 through June 1945 was financed by the government.
Once the War was over, the economy expanded from 1946 to 1949 "when delayed demand as
well as delayed investment and supply from a depression and war-starved domestic economy
was supplemented by the demand created by the reconstruction of war-ravaged Europe." In
1949 the nation experienced a mild recession from which the economy's recovery was speeded
by the so-called Police Action in Korea that began in 1951.
The post-war recovery came as a surprise to many, including many economists, as they thought
the nation would plunge back into depression. The major cause of the expansion, which was
initially pretty inflationary, is generally attributed to a surge in consumer demand, particularly
for durables. Investment surged as a result of years of little investment. A critical shortage of
housing resulting from the low level of building during the 1930s and its halting during the War
caused a surge in residential construction. Construction was stimulated, too, by the beginning
of suburbanization. Further stimulating the economy was a rise in the birth rate, which had
fallen to an all time low during the Great Depression.
During the War, President Roosevelt and Winston Churchill, Britain's Prime Minister, agreed
that after the War that there needed to be a reordering of the international system of trade
and payments. As a result, the Bretton Woods System was established after the War. It
involved creating a system of fixed exchange rates; increasing the flow of long-term capital; and
lowering tariffs and eliminating other barriers to trade.
After the War, only the U.S. remained on a gold standard. The U.S. was on what is called a gold
exchange standard. Foreigners, but not Americans, could exchange dollars for gold. Therefore,
the dollar became the world's reserve currency, that is, for foreign exchange purposes, the
world's central banks held it and gold. Under the fixed exchange rate system established after
the War, central banks promised to maintain a given set of exchange rates. This was
accomplished by each central bank buying or selling its nation's currency, depending on
whether their it was appreciating or depreciating. The reason for establishing fixed exchange
rates was to promote international trade by making it less risky by eliminating foreign exchange
risk. (An exporter could lose money on a sale if to the value of the foreign currency the buyer
paid him or her fell enough in terms of the exporter's domestic currency.) Many years later this
system broke down because nation's were unwilling to follow the fiscal policies necessary to
"Perhaps the most profound change in the American economy in the postwar period was the
continued growth in the size and role of government at all levels, especially at the federal level.
Government grew not only in dollars spent but also empowers to control the private sector
through legal regulations and bureaucratic decisions."