Introduction

In contrast to the relative macroeconomic stability of the pre-1913 period, the era between 1914 and 1945 was hit by a series of severe shocks. The First World War not only caused major devastation and disruption, but also redefined the role of government in economic life. Although the command economies imposed in many European countries during the hostilities were largely dismantled after the armistice, the tone was set for more nationalistic economic policies in the decades to come. The carving up of eastern Europe into a dozen or so independent states out of the ruins of the Habsburg and Russian empires only made matters worse. In parallel, the number of separate currencies and tariff units increased substantially, while the newly created Soviet Union isolated itself from the rest of the world. The fragmentation of Europe contrasted sharply with the large homogeneous home market of the United States. It gave American corporations an unseen advantage in the adoption of high-volume methods in both industry and services.

In the first half of the 1920s many countries in Europe struggled with huge debt problems, monetary chaos, and waves of inflation and deflation. The economic turmoil, in combination with social and political unrest, stimulated the emergence of inward-looking economic policies. After a short period of relative stability in the late 1920s the Great Depression arrived. Massive unemployment, currency disorder, and devastating financial crises aggravated the general trend towards economic nationalism and even autarky.