Module 5: The International Economy

The International Economy

The international economy of the 1920s was heavily influenced by the aftermath of World War I, which had fundamentally reshaped global economic relationships. As European countries struggled to rebuild their war-torn economies, the United States emerged as a dominant economic power, establishing a new framework of interconnectedness between nations. American factories, rich in resources and capital, became vital suppliers of goods not only to domestic consumers but also to foreign markets, particularly those in Europe that were in desperate need of industrial products and food supplies. This growing interdependence marked a significant shift, as countries increasingly relied on the U.S. for both raw materials and finished goods.

The Dawes Plan of 1924 further solidified American economic hegemony by providing a structured approach to address Germany's reparations payments and stabilize its economy. Under this plan, American banks extended loans to Germany, allowing it to pay reparations to the Allies while also enabling the country to revive its economy. This influx of American capital not only helped Germany but also created a cycle of dependency where European nations relied on U.S. investments to support their recovery. As American financial institutions flourished and expanded their influence overseas, the U.S. effectively became a central player in international finance, shaping economic policies and relationships around the globe.

However, this interconnectedness also made the global economy vulnerable to disruptions. The reliance on American loans and investments meant that any economic downturn in the United States would have widespread repercussions for its European partners. As the decade progressed, the prosperity fueled by American economic hegemony created an illusion of stability, masking underlying vulnerabilities that would later be exposed during the Great Depression. When the stock market crashed in 1929, the ripple effects were felt worldwide, leading to a severe economic downturn that strained international relationships and highlighted the fragile nature of the interconnected global economy established during the 1920s.