Pre-war Economic Issues
In the meantime, a severe economic depression had developed. A crash of the New York stock market in October 1929 had been followed by a rapid decline in American production, employment, and foreign commerce. The repercussions were soon felt in all countries that traded with the United States and also in those where American funds were invested. So far flung was the network of American commercial and financial relationships that by 1931 people were speaking of a world depression.
It had soon become clear that most European governments would be unable to continue making payments on World War I debts. Ever since the early 1920’s, British statesmen had been urging that the United States forgive all or part of what was owed by her wartime allies, proposing that they in turn remit some or all of the payments due them from Germany as reparations. The American government had rejected this proposal, but in 1931, faced with the depression, President Hoover relented and arranged for a one-year moratorium on both debt and reparation payments. Seeking reelection in 1932, he dared not repeat the experiment. Some of the debtor states were forced to default. In the end all but Finland did so, and the result was not only to embarrass the governments involved but also to strengthen isolationist feeling in the United States.
Eventually almost all the affected states sought solutions for their economic problems in independent, nationalistic action. Seeking a commercial and financial advantage over other countries, the British abandoned the gold standard and devalued the pound in 1931. Through agreements reached in a conference held at Ottawa on July 21-Aug. 21, 1932, they also abandoned the tradition of free trade and established preferential tariffs for the Commonwealth. The American government deserted the gold standard in 1933 and in the same year caused the failure of the London Monetary and Economic Conference by declaring that it would not join in an agreement to stabilize exchange rates. Fascist Italy adopted more drastic measures, instituting rigid economic controls and creating jobs by enlarging the armed forces and accelerating weapons production. Germany, which was ruled after Jan. 30, 1933, by the National Socialist (Nazi) dictator Adolf Hitler, went even farther in the same directions. The community of nations envisioned in the Paris peace treaties dissolved into an anarchy of jealous states seeking national advantage and national self-sufficiency.