Economic Conditions That Helped Cause World War II

Looking around at the magnitude of death and destruction that resulted from World War I, leaders of some of the world’s major powers held 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.

Pretense of Peace

Despite its authors’ best intentions to ensure peace, the Treaty of Versailles contained a seed that would give rise to war rather than peace when sown on the soil of economic crises. This seed was Article 231, which came with a label called “the war guilt clause." It blamed Germany entirely for the war and required reparation payments as punishment. Because Germany was forced to surrender colonial territories and military disarmament, it's no surprise that Germans resented the treaty.

The newly constituted Weimar Republic began delaying war reparation payments as early as 1923, which initiated France and Belgium to retaliate. Both countries sent 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 were devastating, as many people became distrustful of the Weimar government, which was founded on liberal-democratic principles. This sentiment, along with resentment over the treaty, 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 a cessation of loans to Germany under the Dawes Plans as well as 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 Creditanstalt, which kicked off a wave of bank failures throughout Central Europe. This included 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.

The Great Depression motivated individual nations to adopt more beggar-thy-neighbor trade policies to protect domestic industries from foreign competition. While such trade policies can be beneficial on an individual level, it serves to reduce international trade and the economic benefits that come with it if every country turns to protectionism. 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 colonial empires with access to raw materials, countries such as Germany, Italy, and Japan did not. The deterioration of international trade led to the formation of regional trade blocs with the so-called 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 much-needed resources. This required extensive rearmament and, in the case of Germany, meant a direct violation of the Versailles Treaty. Rearmament also reinforced the need for more raw materials and territorial expansion.

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 drew the ire of two of Europe’s major powers, and following Germany’s invasion of Poland, both Britain and France declared war on Germany on September 3, 1939. This began World War II.

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.