existence of the industrial revolution. The industrial revolution and the industrial development until World War I took place in several countries, presented both common elements and particularities between countries and between stages. The industrial revolution and development had various degrees of intensity until the middle of the 19th century and significantly increased several countries’ production potential.
The urbanization process was generated new problems: on the one hand, complex problems regarding constructions, transportation in urban areas; on the other hand, problems regarding the flows of industrial and agricultural merchandise, flows that were necessary to be established and developed between urban areas, where industrial goods were manufactured, and rural areas, where agricultural goods were manufactured. Also, the industrial development based on machines, generated a series of modifications regarding the principles and structure of transportations, communications, agriculture and other activity sectors, institutions, economic instruments, like credit, banking system, trade, and others.
Regarding transportations and telecommunications, the industrial development has stimulated the development of transportations that accelerated the production and the circulation of merchandise and people and also the access of goods on certain markets. The development and diversification of transportation, and their continuous improvement process have increased people’s and goods’ circulation, the volume and safety of traffic, and the decrease of costs.
Agriculture, which is an important sector of any country’s economy, represented one of the first sectors to be influenced by the transformations generated by the industrial revolution. The influence was however mutual between agriculture and the industrial revolution, since in England in the 18th century the agrarian revolution began almost together with the industrial revolution and is considered to be one of the determinant factors of the industrial revolution’s development.
The industrial revolution and economy’s development have generated an unprecedented amplification of money’s economic role, and have influenced the monetary institution’s development. The bimetallism system has dominated the first half of the 19th century and generated numerous disturbances in the world of business. In order to alleviate the negative effects of the bimetallist system, two monetary unions were established: the Latin Monetary Union and the German Monetary Union. The Latin Monetary Union was established in December 23, 1965 between France, Belgium, Italy, and Switzerland, with Greece’s adhesion in 1868. Its purpose was the unification of national monetary systems in order to counteract the problems generated by the defective functioning of the bimetallist system. The German Monetary Union was established in January 24, 1857 between Prussia, Austria, and other members of the German Customs Union.
1.2. Europe’s economic supremacy in the 19th century
The European supremacy becomes even more obvious when observing that Western Europe integrated in its profit the international division of labor and that it also plays an important role in the global economic and financial system’s functioning. Europe’s supremacy is confirmed by the following features:
Given the industrial development of European countries, their industrial products trade has significantly increased. In the first 7 decades of the 19th century the predominant goods exported by these countries were consisted of textile products made out of cotton and wool. Between 1880 and 1913 these products continue to represent a great percentage in these countries’ export, but the trend was decreasing.
The imports of Europe’s industrialized countries’ in this period was characterized by a high percentage of alimentary goods that in some cases reach almost over 80% of the total imports. During this period, the international trade’s development was stimulated by the intensification of commercial exchanges between industrial and agrarian countries, and by the intensification of the intra-European trade, which explains Europe’s increased percentage in the international trade.
Another aspect that confirms the European supremacy is the fact that the prices in the international trade were established in Europe that held a quasi-monopoly over the manufactured products supply. Mastering important transportation means ensured Europe, and especially Great Britain, an almost exclusive control of transit and distribution functions
1.3. Europe’s development process in the 19th century
Starting in the 1880’s, the second industrial revolution represents the actual beginning of the 20th century, although on a global level, handicrafts were still dominant. The industrialization and the beginning of modernization took place step-by-step. In the 19th century, for the European countries economic growth was assimilated with economic development. Europe’s economic growth process went through three important phases:
1. The first phase, between 1850 and 1870, was characterized by a rapid economic growth of 1,5% per year of the total GDP
2. The second phase, between 1870 and 1890, was consisted of years of quasi-stagnation: the total GDP increased by 1% per year
3. The third phase began in 1891 and ended in 1913, was characterized by the total GDP’s rapid increase of 2,4%. At the end of this period, Europe’s wealthiest countries, Great Britain or the Netherlands, had 2-3 times the GDP that poorer countries had, like Russia.
The unequal political and economic development of European countries indicates that the most important industrialized countries’ economic growth was extremely unbalanced. As a result of the economic growth process, North-Western Europe holds global domination. European domination can be expressed quantitatively, since Great Britain, Germany, and France gathered 44% of the world trade in 1900.
The European power is supported by strong aspects:
remarkable demographic power: Europe’s population has more than doubled in the 19th century, which led to great progress regarding health alimentation. In 1900, Europe, together with Russia, had a population of 423 million, which represented 27% of world’s population, compared to 20% in 1800. The European expansion, due to the industrial revolution, included a demographic expansion, the emigration phenomenon solving the social issue in Europe. The United States received the biggest part of Europe’s immigrants, approximately 7 billions between 1820 and 1870. This population transfer, that significantly increased after the 1880’s, played an important part in Europe’s expansion process, and contributed to the world’s economy’s development by exploring new territories, and spreading European values all over the world industrial power: the expansion of steam machines during the 19th century generated the development of coal industry. The most important economic sectors during the 19th century were: the textile industry (that offered the greatest number of jobs in Europe), the iron-and-steel and the metallurgic industry, and the chemical industry. Therefore, the economic growth process was sustained by these sectors’ significant development. In 1914, industry reached 54% of Great Britain’s economic activity, 49% in Germany, 33,5% in France. Also, Europe alone reached 44% of the world’s industrial production.
Great monetary supremacy: that was exerted through Gold Standard, a monetary system that supported banking networks that were expanding across the world.
Intellectual and technological advance: that started to be accumulated in the Renaissance. Intellectual advance was one of the factors that influenced Europe’s economic growth and efficiency.
The unequal European economic growth generated several contrasts and contradictions that explain the protectionism tendency manifested since the beginning of the 1880’s. The tensions were amplified by the crisis of the European agriculture that was not able to grow as fast as industry did. Agricultural crises were doubled by a succession of cyclical crises, some of them of speculative origin. These repeated shocks in 1903-1904, 1906-1907, and 1910 until 1913, demonstrate that Europe’s great countries’ economies did not recover completely after the Great Depression that deeply affected them in 1873-1895.
2. The Interwar European Economy
The evolution of the world’s economy has confirmed that World War I represented the end of a distinct development phase, the end of certain processes and the beginning of others, much more complex, generated mostly by the Versailles System’s failure to create a permanent order within postwar Europe (Perry, pp 121).
2.1. European economic trends in the 1920’s and 1930’s
In the beginning of the 20th century the international trade was dominated by Western Europe, which also had a great financial power, given its increased industrialization potential. Western Europe was then at the top of its world power.
The distinct consequences of World War I for the European countries, their unequal development, the Great Depression, doubled by the new European political environment characterized by totalitarianism, influenced the conceiving and applying of economic development models to have different purposes, like increasing the influence of interventionist trends.
Until 1914, interstate economic relationships were based on trust on the political stability. This situation changed dramatically after World War I. The war and the postwar peace treaties changed Europe’s geopolitics, generating deep structural transformations. The war and the postwar peace had certain financial and economic consequences that were hard to predict. The situation slowly led to an increased economic, political, and military interdependence. Europe’s relationships with other countries in the world as well as intra-European relationships suffered important transformations. Practically, two interdependent, impossible to dissociate, took place: the weakening of European capitalism on the one hand, and Europe’s decline on the other hand.
The war affected the participant countries’ economic systems and those of neutral countries, influencing internal trade creating an unusually high demand for certain goods and services, like: iron, steel, coal, ammunition, ships, wool clothing, transportation (Heaton, pp 675-676).
Generally, the European economy was characterized by the following aspects:
The development of the economic activity’s industrial side, not only in Western Europe but also in other countries previously considered to be exclusively agrarian. The industry and services presented the highest increases, and the gap between labor productivity in agriculture and the one in industry significantly increased
The Eastern and South-Eastern European countries’ economic evolution suffered important transformations, with quantitative and qualitative restructurings
Maintaining the inequalities between European countries, given their distinct evolution
The heterogeneity of options regarding European development strategies
It is considered that the war delayed the European economy’s evolution with approximately 8 years, which means that the 1929 production quantum might have been attained in 1921 if it had not been for the war and if the growth rates before 1913 would have been maintained (Kennedy, pp 361).
2.2. The Great Depression and European Economy’s Post-crisis situation
The Great depression that took place between 1929 and 1933 was a global phenomenon that manifested with various intensity levels in each country. During this period, word’s economy was simultaneously confronted with the financial crisis, the production and trade crisis, and the social crisis.
In the 1920’s the international economic system was characterized by instability because Great Britain and the U.S.A. did not take responsibility of stabilizing on three precise directions: maintaining an open market for goods without suppliants; supplying long-term credits; and reducing the crisis’s size (Kindleberger, pp 292). Others consider that Great Depression was influenced by overinvestment and that the 1920’s were not an inflationist decade (Friedman & Schwartz, pp 298).
The economic depression generated high unemployment rates, reaching 15% or 20%. In Western Europe, unemployment reached 15,000,000 in 1932. When the crisis was over, despite all measures meant to counteract unemployment, it was still reaching 30% in Germany and 22% in Great Britain. The employment crisis was a general trend all over Europe, but the impact was smaller in France and Italy compared to Great Britain and Germany.
The international trade collapsed and followed an implacable spiral that led to the collapse international exchanges’ value three times between 1929 and 1933. The lowest physical level of international trade was reached in 1932, when the crisis hit its top, while the lowest value of international trade was reached in 1934, in the depression phase that followed the crisis.
The contraction of global exchanges generated by the American depression has especially affected the Japanese, British, and German economies that depended on the external trade. Between 1929 and 1932, the world trade decreased up to 25%.
Once the crisis hit London, the main financial relay between the U.S.A. And the rest of the world, the crisis became global. In September 1931, the British government was forced to abandon the Gold Exchange Standard System. A vicious circle followed: general contraction of markets, reduced production, increased unemployment that generated a new demand decrease, and others.
The British economy handled the depression’s shock better than the German one did, very rationalized and dynamic throughout the 1920’s. The French economy that was less dependent on the international market of goods and capital, was hit later and less brutally, but for a longer period of time than other economies.
Less developed European countries, that were already vulnerable to any changes, were ruined by the collapse of primary products’ prices. Given the existing gaps between European countries, the crisis manifested in different intervals and with different intensities.
The Great Economic Depression that hit Europe in 1930 inaugurated a long period of shutting spaces that lasted until 1945. All over Europe, economies were reduced to a national level, the world trade reached a sudden decrease, the crisis having irreversible consequences regarding economic policies.
1. Perry, K. Modern European History. Made Simple. London, 1976.
2. Heaton, Herbert. Economic History of Europe. Harper & Row, London, 1966.
3. Kennedy, Paul. The Rise and Fall of the Great Powers. Economic Change and Military Conflict from 1500 to 2000. London, 1989.
4. Kindleberger, C.P. The World Depression 1929-1939. University of California Press, 1973.
5. Friedman, M. & Schwartz, a. A Monetary History of the United States, 1867-1960. Princeton, 1963.