The Illusion of Postwar Prosperity

By 1924, Europe seemed to be emerging from the long shadow cast by the Great War. Economic recovery was underway, living standards were improving, and the threat of international conflict appeared more distant than at any time since 1914. The violent upheavals that had shaken the continent were subsiding, while cultural creativity flourished. As the horrors of war faded from memory, Europe appeared reborn – like spring after a long, dark winter. For the younger generation especially, a new era of carefree living dawned. Jazz music, the Charleston dance, and the flapper aesthetic – all American imports – came to symbolize what many called Europe’s own “Roaring Twenties” or the “Golden Twenties.” Optimism about the future grew stronger as people believed the worst was finally behind them.

Yet just five years later, the Wall Street Crash would trigger the most severe crisis of global capitalism, plunging Europe into economic depression. This catastrophe shattered hopes for peace and prosperity, undermined democracy, and paved the way for a new war that would surpass the last in its devastation. Was Europe’s postwar recovery genuinely progressing toward peace and prosperity before being derailed by unpredictable economic forces? Or were there ominous signs during the apparent recovery that only became fully visible when crisis struck?

Economic Recovery and Hidden Vulnerabilities

In 1928, German Foreign Minister Gustav Stresemann offered a sobering warning against unfounded optimism. While Germany’s economy had improved dramatically since the hyperinflation crisis of 1923, Stresemann cautioned that it remained unstable, comparing the situation to “dancing on a volcano.” This metaphor applied not just to Germany but to all of Europe, blissfully enjoying the Charleston while unaware of the disasters that would soon plunge the continent into crisis.

The economic boom of the mid-1920s didn’t require Marxist analysis to recognize how economic forces shaped postwar Europe’s trajectory. The immediate cause of the coming collapse was the overheating of the U.S. economy during its own Roaring Twenties, fueled by cheap credit flowing into consumer spending (especially automobiles and appliances) and then into the seemingly endlessly rising stock market. When the bubble burst in 1929, the shockwaves reached Europe, exposing structural weaknesses in its economy and its dangerous dependence on the United States within a disordered global economic system where prewar checks and balances no longer existed.

Before the crash, Europe’s economy showed clear signs of recovery from postwar crises. Germany’s industrial reconstruction played a central role in this revival. Remarkably, Germany rebounded from the hyperinflation of 1923, which effectively wiped out industrial debt. However, much industrial plant remained outdated. Government programs for modernization and rationalization led to welcome advances in production technology and significant increases in industrial output. Yet this success was incomplete, highlighting structural weaknesses that made Germany particularly vulnerable when the American depression hit in 1929.

The Fragile Foundations of German Recovery

A crucial foundation for Germany’s recovery was restoring monetary stability after hyperinflation destroyed the currency. This was closely tied to managing the thorny issue of war reparations, which had been at the root of economic and political turmoil in 1922-1923. At the height of the inflation crisis in November 1923, a critical step was taken with the introduction of the Rentenmark, a temporary currency backed by real estate and industrial capital that quickly gained public confidence. The following year, with support from large American loans, the Rentenmark was placed on the gold standard and renamed the Reichsmark (with an exchange rate of 1 new mark to 1 trillion old marks).

Also in autumn 1923, an international committee of experts chaired by American banker Charles G. Dawes began reconsidering Germany’s reparations payments, presenting their recommendations in April 1924. The Dawes Plan established a schedule of gradually increasing payments that would be easier for Germany to manage – a temporary arrangement assuming that once Germany’s economy fully recovered, making payments would no longer be difficult.

The problem was that the money for these payments came mainly from foreign loans, mostly American. U.S. investors saw profitable opportunities in Germany’s economy. Major American corporations like General Motors, Ford, and General Electric planned factories in Germany. By 1930, foreign credits to Germany reached about $5 billion. Initially, loans went primarily to German industry, but soon businesses complained that too much investment was being diverted to German cities for parks, swimming pools, theaters, museums, and renovations of public squares and buildings. While these projects undoubtedly improved urban quality of life, they involved using short-term loans for long-term investments. Everyone assumed good times would continue indefinitely. Few considered what might happen if America suddenly called in these short-term loans or reduced lending.

The Dawes Plan and Shifting Global Power

The Dawes Plan clearly demonstrated how World War I had irreversibly established U.S. dominance of the world economy, with America emerging as the conflict’s big winner. In Asia, Japan also rose as an economic power, while Britain’s global economic leadership faded forever. Europe now had more nations, currencies, and customs barriers than before, with rising protectionism strengthening economic nationalism. Countries that had prospered before 1914, especially Britain, hoped to restore past glories. Before the war, the gold standard – with exchange rates tied to gold at internationally agreed prices and centered on the Bank of England – had been a hallmark of economic stability. Suspended during the war, its gradual restoration during the 1920s occurred in an economic and political climate vastly different from prewar days.

The situation remained highly unstable. America had become the largest economy, and London’s former financial dominance was challenged by both New York and Paris. In 1925, Britain took the significant step of returning to the gold standard, followed by France three years later. By then, all major European economies had returned to gold. For prestige, Britain (and some other countries) insisted on maintaining prewar exchange rates against the dollar. This was seen as a “return to normalcy,” meaning the economic security of the prewar era. But the world had changed. Britain played a key role in maintaining fixed exchange rates despite serious economic difficulties that left it vulnerable to future shocks.

Industrial Growth and Social Change

During the mid-1920s economic boom, no one foresaw these problems. Between 1925 and 1929, industrial production rose by 20%. Germany, Belgium, France, Sweden, Finland, the Netherlands, Luxembourg, and Czechoslovakia all experienced above-average growth rates, as did smaller economies like Hungary, Romania, Poland, and Latvia. France and Belgium benefited from currency devaluations. France’s expansion built on its remarkably rapid early-1920s recovery. From 1925 to 1929, French industrial production increased by over 25%, with per capita income rising nearly 20%. On the eve of the Depression, French exports were about 50% higher than before the war. Belgium’s industrial production grew an astonishing 30%, with exports also increasing substantially. The most dramatic growth occurred in the Soviet Union after its brutal civil war, though international market forces played no role there.

However, Britain, Italy, Spain, Denmark, Norway, Greece, and Austria saw sluggish economies. Under fascist rule, Mussolini artificially maintained an overvalued lira, causing rising unemployment and falling wages that government public works and farm subsidies only partially offset. Spain’s Primo de Rivera dictatorship also faced trouble, with high protective tariffs largely cutting the country off from international markets and an overvalued peseta worsening economic difficulties through 1929. Denmark and Norway also suffered from overvalued currencies. Britain’s economy briefly surged in 1928-1929, but while new industries like automobile manufacturing, chemicals, and electrical goods grew, traditional core industries – coal mining, iron and steel, textiles, and shipbuilding – remained depressed throughout the decade. Still, by 1929, Europe’s overall recovery from postwar destruction appeared quite successful, with international trade growing over 20%, strongly driven by America’s economic boom.

The pace of change was greatest in the industrialized and urbanized north and west, much slower and more limited in the poorer, less developed rural regions of eastern and southern Europe. Automobile production became an important factor in economic development and social transformation. Henry Ford had pioneered mass production in America, but cars remained beyond most Europeans’ means even after the war. By the early 1930s, Europe had just 7 private cars per 1,000 people compared to 183 in America. Still, European manufacturers began targeting the mass market, led by Britain’s Austin 7 (introduced in 1922), followed by Italy’s Fiat and France’s Citroën, later joined by Renault and Peugeot. Germany’s Opel (acquired by General Motors in 1929) also moved in this direction, though no truly affordable car for ordinary families appeared during Europe’s boom years.

Nevertheless, cars and motorcycles became common sights in European cities. By the mid-1920s, Britain had about a million cars on its roads, France 500,000, and Germany 250,000. Italy built its first autostrada during this period, developing a 3,000-mile network within a few years. Roads elsewhere were less developed, but by the late 1920s most in western and central Europe were passable by car. In towns, horse-drawn vehicles gave way to motorized transport for goods and passengers. The urban landscape was changing rapidly as Europe’s motorization began.

Electric lighting also transformed cityscapes, with entire neighborhoods illuminated at the flick of a power station switch. Gas lamps and the lamplighter’s rounds became obsolete. Electricity brought household appliances already common in America. Vacuum cleaners slowly entered middle-class homes, though washing machines, refrigerators, and electric ovens remained rare, and housework remained sheer drudgery for working-class families. Office work changed with telephone adoption – Berlin’s 500,000 lines carried 1.25 million calls daily, though private phones remained uncommon. By the late 1920s, Sweden led with 83 telephones per 1,000 people, Germany had 50, and Italy just 7. Electricity also powered a communications revolution. When the BBC began radio broadcasting in 1924, licensed listeners reached one million within two years. Germany followed close behind, with listeners growing from 10,000 in 1924 to 4 million by 1932 – one radio for every four households.

Many believed Europe was entering a prolonged period of prosperity, but this proved illusory. Many never experienced the economic boom at all. For most, life remained a struggle to make ends meet, with prosperity unthinkable. Poverty might have become less grinding than before but remained nearly universal. In rural areas, many lived in primitive conditions; in crowded cities and industrial regions, housing conditions were appalling. Slum dwellers often crowded entire families into single rooms with rudimentary sanitation. Building better housing became urgent. Some improvements did occur, sometimes substantial ones, especially where governments acted. By the late 1920s, Germany’s republican government was building an average of 300,000 new homes annually, many with public funds. In Berlin and Frankfurt, large workers’ housing estates sprang up. Under the prewar monarchy, public spending on housing had been virtually nonexistent. By 1929, compared to 1913, housing construction had become the fastest-growing area of state expenditure. Between 1924 and 1930, Germany built 2.5 million homes – one new dwelling for every seven existing ones, benefiting over 7 million people. Vienna’s Social Democrat-controlled “Red Vienna” municipal government also achieved remarkable results, housing 180,000 people in new apartments, most spectacularly the massive Karl-Marx-Hof completed in 1930 with 1,382 apartments for the poor.

But these were exceptions, falling far short of need. In 1927, Germany still had a million families without homes despite years of construction. Sweden intensified housing efforts in the 1920s, but these barely dented severe urban overcrowding. Paris and other French cities sprawled haphazardly, with filthy, densely packed suburban housing for rural and foreign migrants seeking factory work. In Britain, overcrowded, unsanitary housing remained a major social problem, especially in industrial areas. Postwar housing programs built 213,000 homes by the early 1920s, but when loan costs soared in 1920-1921, construction slowed dramatically. A 1923 Conservative government scheme subsidized private builders, but over the next six years most of the 362,000 homes they built were unaffordable for poor workers, instead going to lower-middle-class buyers. The 1924 Labour government introduced the first social housing scheme, with local councils building homes and government subsidies controlling rents. These “council houses” expanded rapidly, reaching 521,000 by 1933, mainly for working-class tenants. It was a start, but only that. Millions still lived in terrible conditions. In southern and eastern European cities, dreadful housing was the norm, worsened by massive influxes from impoverished rural areas where most lived in primitive dwellings.

Labor and Social Conditions

Trade unions, their ranks swollen, used labor’s enhanced bargaining power to establish the 40-hour workweek in many countries, starting with France, Germany, and Italy. This reduced working hours, though overtime often meant people still worked more than 40 hours weekly. Skilled workers’ wages rose, though usually far less than corporate profits. Conditions varied enormously. Workers in expanding new industries fared best. At Renault’s huge plants, employing thousands to meet growing car demand, real wages rose 40% during the 1920s. Yet despite higher pay, work was often monotonous – assembly-line workers repeating the same motions hundreds of times under strict discipline. Most factory workers were migrants (by 1931, France had 3 million immigrants, 7% of its population), suffering various forms of discrimination and exploitation. France took in 400,000 Russian refugees during the 1920s – four times more than other countries – plus others mainly from Poland, Italy, Armenia, and Algeria.

Traditional industries told a different story. Britain’s coal industry, with severe overcapacity, saw employers successfully push through wage cuts after the bitter 1926 miners’ lockout and general strike. That May, over 1.5 million transport and industrial workers struck in solidarity with about 800,000 locked-out miners. After ten days of increasing government pressure to end the strike, the Trade Union Congress capitulated, accepting almost insulting terms. Miners held out for six more months before total defeat, forced by hunger to accept longer hours and lower pay. In November 1928, German employers took similarly tough action, openly violating arbitration rulings to impose new wage scales by locking out some 220,000 Ruhr steelworkers. These major conflicts starkly revealed organized labor’s weakening position, especially in traditional heavy industry, and employers’ growing bargaining power as unemployment remained high – all before the Depression hit.

France and Germany led in adopting modern management methods for large industries, pioneered by America’s Frederick Winslow Taylor in the early 1900s as Henry Ford applied mass-production techniques to automobiles. In Germany, industrial rationalization increased unemployment, which had been relatively low in the early 1920s but more than tripled to 2 million (10% of the workforce) between 1925 and 1926. Similar unemployment plagued other European countries, reaching 17-18% in slow-growth economies like Denmark and Norway. Traditional heavy industry and textiles faced stiff international competition, while rapid expansion had created overcapacity, causing high unemployment. Even before the Depression, Britain never had fewer than a million unemployed.

Britain’s National Insurance Act of 1911 first introduced unemployment insurance, expanded after the war to cover about 12 million workers (though only about 60% of the workforce). Women were included but received lower weekly benefits than men. Domestic servants, farmworkers, and civil servants were excluded. This system prevented the worst but was designed for short-term, not structural, unemployment. The fund’s capital proved inadequate, requiring state subsidies through taxation. Germany faced similar but worse problems, establishing an unemployment insurance safety net in 1927 (an important addition to Bismarck’s 1880s health, accident, and old-age insurance schemes) that was already struggling when the Depression hit and quickly became overwhelmed. In any case, fewer than half of German workers qualified for benefits. Other European countries followed Britain’s lead in introducing unemployment insurance but covered even fewer workers.

Rural Hardship and Political Radicalization

If the economic boom’s effects were uneven in industrial Europe, most rural Europeans – especially small farmers eking out a living – saw no benefits at all. Many landowners had profited during the war, and postwar inflation erased their debts. Low land prices at war’s end let those with means acquire more property. But agriculture soon faced hard times. As postwar recovery accelerated, European farm output rose, but markets were already glutted. During the war, non-European countries had expanded production to compensate for European shortages; now their products flooded markets. In the late 1920s, Soviet grain exports (to earn foreign currency for vital industrial imports) worsened the glut, causing sharp price declines. By 1929, international agricultural prices had fallen by over a third from 1923-1925 levels, hitting eastern and southern Europe’s heavily agricultural economies hardest.

Agriculture remained largely unmechanized. Postwar land reforms broke up many large estates into less productive smallholdings, fragmenting land ownership. Farm subsidies in Czechoslovakia and elsewhere helped improve productivity, while Baltic states shifted toward dairy and livestock production, increasing exports. But most farmers struggled even before the Depression. Rural debt soared alarmingly. While the Depression plunged many into bankruptcy, they had already been teetering on the edge. As the urban-rural income gap widened, young people saw no future in the countryside, migrating to cities in growing numbers to live in crowded, filthy slums. Stricter U.S. immigration controls from the early 1920s closed off America as an outlet, but internal migration surged. In France alone, 600,000 people left the land between 1921 and 1931 to seek factory work.

For rural dwellers, the late 1920s brought no prosperity. For struggling regions, the Depression would be the last straw. The “crisis before the crisis” made rural populations ideal targets for radical agitation before 1929. Many landless laborers found communist ideas appealing, while landowning peasants generally supported the growing authoritarian right.

The Soviet Alternative

Even before economic crisis struck, those predicting capitalism’s demise looked admiringly toward the Soviet Union, insulated from international economic fluctuations. Its state socialist model aimed to lay foundations for a future communist society without private property, class divisions, or inequality. To many, it represented an ideal future – a better alternative to capitalism’s inequities and outdated economic model. State planning and economic self-sufficiency based on public ownership of production seemed to point the way forward, gaining growing support across Europe.

Soviet economic growth was indeed impressive, though starting from the low base of World War I, revolution, and civil war devastation. By 1927-1928, industrial and agricultural output reached