A detailed analysis on World War I & II


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A detailed analysis on World War I & II

  1. 1. 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
  2. 2. 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 South Africa. • 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 Country: Russia • Nicholas II • Grand Duke Nicholas Nikolaevich • Alexander Samsonov
  3. 3. • Nikolai Ivanov • Paul von Rennenkampf Serbia • Peter I • Crown Prince Alexander • Nikola Pašić France • Raymond Poincaré • Georges Clemenceau • Joseph Joffre • Ferdinand Foch • Robert Nivelle Belgium • Albert I of Belgium • Gerard Leman Romania • Constantin Prezan • Alexandru Averescu Siam • Rama VI Italy • Victor Emmanuel III • Vittorio Orlando • Luigi Cadorna • Armando Diaz United States of America • Woodrow Wilson • Thomas R. Marshall
  4. 4. • John J. Pershing Japan • 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.
  5. 5. 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. Alliance Forces 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
  6. 6. 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 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 payments. Germany 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 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. Economic Impact 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
  7. 7. 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 gold standard. 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.
  8. 8. 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
  9. 9. 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.
  10. 10. 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 Allied leaders Soviet Union: Joseph Stalin United Kingdom: Winston Churchill United States: Franklin D. Roosevelt
  11. 11. Republic of China (1912–1949): Chiang Kai-shek Axis leaders Nazi Germany: Adolf Hitler Empire of Japan: Hirohito Kingdom of Italy: Benito Mussolini Countries that were attacked, occupied, or switched sides during the war • Algeria • Albania (occupied by Italy April 7th 1939, by Germany September 26th 1943) • Belgium (invaded by Germany May 10th 1940) • Burma • Czechoslovakia(1) (Bohemia and Moravia occupied by Germany March 15th 1939) • Denmark (occupied by Germany April 9th 1940, Greenland occupied by USA April 9th 1941) • 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) • India • Iran • 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) • Morocco
  12. 12. • The Netherlands (invaded by Germany May 10th 1940) • New Guinea • Norway (invaded by Germany April 9th 1940) • Philippines • Poland (invaded by Germany and the Soviet Union in September 1939) • Singapore • Syria • Thailand • Tunisia (Occupied by USA in 1943) • Yugoslavia(3) (German occupation from April 6th 1941 Images of some leaders who fought in World War 2
  13. 13. 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
  14. 14. 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 conscription. 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. Alliance Forces 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.
  15. 15. The top 5 most affected were: 1. Australia 2. New Zealand 3. Brazil 4. Ukraine 5. Jews • France 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 payments. • Germany 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. • Russia 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. Economic Impact 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
  16. 16. 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.
  17. 17. 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 maintain it. "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.
  18. 18. Government grew not only in dollars spent but also empowers to control the private sector through legal regulations and bureaucratic decisions."