Economic Conditions That Helped Cause World War II

Looking around at the magnitude of death and destruction that resulted from the World War I, leaders of the some of the world’s major powers convened a conference in Paris, the outcome of which they hoped would ensure that no such devastation would ever happen again. Unfortunately, the combination of a poorly designed peace treaty and the most severe economic crisis the modern world had ever experienced brought about a deterioration of international relations that would culminate in a war even more calamitous than the one that preceded it.

Key Takeaways

  • While World War II was certainly a geopolitical event, some of its underlying causes have been revealed to be economic.
  • Reparations imposed on Germany following WWI left the country poorer, and economic woes caused resentment amongst its population.
  • The Great Depression of the 1930s and a collapse in international trade also worsened the economic situation in Europe, allowing Hitler to rise to power on the promise of revitalization.

Pretense of Peace

The unfortunate irony of the Paris Peace Conference that begat the Treaty of Versailles was that, despite its authors’ best intentions to ensure a world of peace, the treaty contained a seed that when sown in the soil of economic crisis, would give rise not to peace, but to war. That seed was Article 231, which with its label “the war guilt clause” placed sole blame for the war on Germany and its need to make reparations payments as punishment. With such extensive reparations payments, Germany was forced to surrender of colonial territories and military disarmament, and Germans were naturally resentful of the treaty.

As early as 1923, the newly constituted Weimar Republic began delaying payments on war reparations, which initiated a retaliatory response by France and Belgium. Both countries would send troops to occupy the industrial center of the Ruhr River valley region effectively appropriating the coal and metal production that took place there. As much of German manufacturing was dependent on coal and metal, the loss of these industries created a negative economic shock leading to a severe contraction. This contraction, as well as the government’s continued printing of money to pay internal war debts, generated spiraling hyperinflation.

While price and economic stabilization would eventually be achieved – partly through the help of the American Dawes plan of 1924 – the hyperinflation wiped out much of the life savings of the middle class. The political consequences would be devastating as many people became distrustful of the Weimar government, a government that had been founded on liberal-democratic principles. This distrust, along with resentment over the Treaty of Versailles, lent itself to the increasing popularity of more left and right-wing radical political parties.

Deterioration of International Trade

The onset of the Great Depression would serve to undermine any attempts at creating a more open, cooperative and peaceful post-war world. The American stock market crash in 1929 caused not just a cessation of loans provided to Germany under the Dawes Plan, but a complete recall of previous loans. The tightening of money and credit eventually led to the collapse of Austria’s largest bank in 1931, the Kreditanstalt, which kicked off a wave of bank failures throughout Central Europe, including the complete disintegration of Germany’s banking system.

Deteriorating economic conditions in Germany helped the Nazi party grow from being a relatively small fringe group to being the nation’s largest political party. Nazi propaganda that put blame on the Treaty of Versailles for much of Germany’s economic hardships fueled Hitler’s rise in popularity with voters, who would make him German chancellor in 1933.

More globally, the Great Depression would have the effect of motivating individual nations to adopt more beggar-thy-neighbor trade policies in order to protect domestic industries from foreign competition. While such trade policies can be beneficial on an individual level, if every country turns to protectionism it serves to reduce international trade and the economic benefits that come with it. Indeed, countries without access to important raw materials will be especially burdened by the lack of free trade.

From Imperialism to World War

While the British, French, Soviets, and Americans had large colonial empires to which they could turn turn for access to much needed raw materials, countries such as Germany, Italy and Japan did not. The deterioration of international trade led to the formation of more regional trade blocs with the ‘have’ nations forming blocs along colonial lines, like Great Britain’s Imperial Preference system.

While "have-not" nations looked to form their own regional trade blocs, they found it increasingly necessary to use military force to annex territories with the much-needed resources. Such military force required extensive rearmament and thus, in the case of Germany, meant a direct violation of the Versailles Treaty. But, rearmament also reinforced the need for more raw materials and consequently the need for territorial expansion.

Such imperialist conquests like Japan’s invasion of Manchuria in the early 1930s, Italy’s invasion of Ethiopia in 1935 and Germany’s annexation of most of Austria and parts of Czechoslovakia in 1938, were all manifestations of the need to expand territories. But these conquests would soon draw the ire of two of Europe’s major powers, and following Germany’s invasion of Poland, both Britain and France would declare war on Germany on September 3rd, 1939, thus commencing the Second World War. 

The Bottom Line

Despite noble aspirations for peace, the outcome of the Paris Peace Conference did more to reinforce hostility by singling out Germany as the sole instigator of the First World War. The Great Depression and the economic protectionism it engendered would then serve as the catalyst for the hostility to manifest itself in the rise of the Nazi Party and increasing imperialist ambitions among world nations. It was then only a matter of time before small imperialist conquests would lead to the breakout of World War II.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. U.S. Department of State Office of the Historian. "The Paris Peace Conference and the Treaty of Versailles."

  2. U.S. Department of State Office of the Historian. "Papers Relating to the Foreign Relations of the United States, The Paris Peace Conference, 1919, Volume XIII."

  3. Deutsche Bundesbank Eurosystem. "Inflation - Lessons Learnt From History."

  4. U.S. Department of State Office of the Historian. "The Dawes Plan, The Young Plan, German Reparations, and Inter-Allied War Debts."

  5. Joint Economic Committee. "Hoover's Lethal Economic Policy Mix," Page 3.

  6. World Economic History Congress. "The Interwar Banking Crises: An International Perspective."

  7. National Archives. "RG-84: Germany."

  8. U.S. Department of State Office of the Historian. "Protectionism in the Interwar Period."

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.