The Real Story of How America Became an Economic Superpower - The Atlantic - 0 views
www.theatlantic.com/...384034
shared by Javier E on 26 Dec 14
- No Cached
economic history WWI WWII international financial US relations foreign policy
-
a new history of the 20th century: the American century, which according to Tooze began not in 1945 but in 1916, the year U.S. output overtook that of the entire British empire.
-
The two books narrate the arc of American economic supremacy from its beginning to its apogee. It is both ominous and fitting that the second volume of the story was published in 2014, the year in which—at least by one economic measure—that supremacy came to an end.
-
“Britain has the earth, and Germany wants it.” Such was Woodrow Wilson’s analysis of the First World War in the summer of 1916,
- ...36 more annotations...
-
what about the United States? Before the 1914 war, the great economic potential of the U.S. was suppressed by its ineffective political system, dysfunctional financial system, and uniquely violent racial and labor conflicts. “America was a byword for urban graft, mismanagement and greed-fuelled politics, as much as for growth, production, and profit,”
-
as World War I entered its third year—and the first year of Tooze’s story—the balance of power was visibly tilting from Europe to America. The belligerents could no longer sustain the costs of offensive war. Cut off from world trade, Germany hunkered into a defensive siege, concentrating its attacks on weak enemies like Romania. The Western allies, and especially Britain, outfitted their forces by placing larger and larger war orders with the United States
-
His Wilson is no dreamy idealist. The president’s animating idea was an American exceptionalism of a now-familiar but then-startling kind.
-
That staggering quantity of Allied purchases called forth something like a war mobilization in the United States. American factories switched from civilian to military production; American farmers planted food and fiber to feed and clothe the combatants of Europe
-
But unlike in 1940-41, the decision to commit so much to one side’s victory in a European war was not a political decision by the U.S. government. Quite the contrary: President Wilson wished to stay out of the war entirely. He famously preferred a “peace without victory.” The trouble was that by 1916, the U.S. commitment to Britain and France had grown—to borrow a phrase from the future—too big to fail.
-
His Republican opponents—men like Theodore Roosevelt, Henry Cabot Lodge, and Elihu Root—wished to see America take its place among the powers of the earth. They wanted a navy, an army, a central bank, and all the other instrumentalities of power possessed by Britain, France, and Germany. These political rivals are commonly derided as “isolationists” because they mistrusted the Wilson’s League of Nations project. That’s a big mistake. They doubted the League because they feared it would encroach on American sovereignty.
-
Grant presents this story as a laissez-faire triumph. Wartime inflation was halted. Borrowing and spending gave way to saving and investing. Recovery then occurred naturally, without any need for government stimulus. “The hero of my narrative is the price mechanism, Adam Smith’s invisible hand,
-
It was Wilson who wished to remain aloof from the Entente, who feared that too close an association with Britain and France would limit American options.
-
Wilson was guided by a different vision: Rather than join the struggle of imperial rivalries, the United States could use its emerging power to suppress those rivalries altogether. Wilson was the first American statesman to perceive that the United States had grown, in Tooze’s words, into “a power unlike any other. It had emerged, quite suddenly, as a novel kind of ‘super-state,’ exercising a veto over the financial and security concerns of the other major states of the world.”
-
Wilson hoped to deploy this emerging super-power to enforce an enduring peace. His own mistakes and those of his successors doomed the project,
-
What went wrong? “When all is said and done,” Tooze writes, “the answer must be sought in the failure of the United States to cooperate with the efforts of the French, British, Germans and the Japanese [leaders of the early 1920s] to stabilize a viable world economy and to establish new institutions of collective security. … Given the violence they had already experienced and the risk of even greater future devastation, France, Germany, Japan, and Britain could all see this. But what was no less obvious was that only the US could anchor such a new order.”
-
And that was what Americans of the 1920s and 1930s declined to do—because doing so implied too much change at home for them: “At the hub of the rapidly evolving, American-centered world system there was a polity wedded to a conservative vision of its own future.”
-
The Forgotten Depression is a polemic embedded within a narrative, an argument against the Obama stimulus joined to an account of the depression of 1920-21. As Grant correctly observes, that depression was one of the sharpest and most painful in American history.
-
Then, after 18 months of extremely hard times, the economy lurched into recovery. By 1923, the U.S. had returned to full employment.
-
“By the end of 1916, American investors had wagered two billion dollars on an Entente victory,” computes Tooze (relative to America’s estimated GDP of $50 billion in 1916, the equivalent of $560 billion in today’s money).
-
the central assumption of his version of events is the same one captured in Rothbard’s title half a century ago: that America’s economic history constitutes a story unto itself.
-
Americans, meanwhile, were preoccupied with the problem of German recovery. How could Germany achieve political stability if it had to pay so much to France and Belgium? The Americans pressed the French to relent when it came to Germany, but insisted that their own claims be paid in full by both France and Britain.
-
Germany, for its part, could only pay if it could export, and especially to the world’s biggest and richest consumer market, the United States. The depression of 1920 killed those export hopes. Most immediately, the economic crisis sliced American consumer demand precisely when Europe needed it most.
-
But the gravest harm done by the depression to postwar recovery lasted long past 1921. To appreciate that, you have to understand the reasons why U.S. monetary authorities plunged the country into depression in 1920.
-
Monetary authorities, worried that inflation would revive and accelerate, made the fateful decision to slam the credit brakes, hard. Unlike the 1918 recession, that of 1920 was deliberately engineered. There was nothing invisible about it. Nor did the depression “cure itself.” U.S. officials cut interest rates and relaxed credit, and the economy predictably recovered
-
But 1920-21 was an inflation-stopper with a difference. In post-World War II America, anti-inflationists have been content to stop prices from rising. In 1920-21, monetary authorities actually sought to drive prices back to their pre-war levels
-
James Grant hails this accomplishment. Adam Tooze forces us to reckon with its consequences for the rest of the planet.
-
When the U.S. opted for massive deflation, it thrust upon every country that wished to return to the gold standard (and what respectable country would not?) an agonizing dilemma. Return to gold at 1913 values, and you would have to match U.S. deflation with an even steeper deflation of your own, accepting increased unemployment along the way. Alternatively, you could re-peg your currency to gold at a diminished rate. But that amounted to an admission that your money had permanently lost value—and that your own people, who had trusted their government with loans in local money, would receive a weaker return on their bonds than American creditors who had lent in dollars.
-
The consequences of these choices fill much of the second half of The Deluge. For Europeans, they were uniformly grim, and worse.
-
But one important effect ultimately rebounded on Americans. America’s determination to restore a dollar “as good as gold” not only imposed terrible hardship on war-ravaged Europe, it also threatened to flood American markets with low-cost European imports. The flip side of the Lost Generation enjoying cheap European travel with their strong dollars was German steelmakers and shipyards underpricing their American competitors with weak marks.
-
American leaders of the 1920s weren’t willing to accept this outcome. In 1921 and 1923, they raised tariffs, terminating a brief experiment with freer trade undertaken after the election of 1912. The world owed the United States billions of dollars, but the world was going to have to find another way of earning that money than selling goods to the United States.
-
Between 1924 and 1930, world financial flows could be simplified into a daisy chain of debt. Germans borrowed from Americans, and used the proceeds to pay reparations to the Belgians and French. The French and Belgians, in turn, repaid war debts to the British and Americans. The British then used their French and Italian debt payments to repay the United States, who set the whole crazy contraption in motion again. Everybody could see the system was crazy. Only the United States could fix it. It never did.
-
The reckless desperation of Hitler’s war provides context for the horrific crimes of his regime. Hitler’s empire could not feed itself, so his invasion plan for the Soviet Union contemplated the death by starvation of 20 to 30 million Soviet urban dwellers after the invaders stole all foodstuffs for their own use. Germany lacked workers, so it plundered the labor of its conquered peoples. By 1944, foreigners constituted 20 percent of the German workforce and 33 percent of armaments workers
-
“If man accumulates enough combustible material, God will provide the spark.” So it happened in 1929. The Deluge that had inundated the rest of the developed world roared back upon the United States.
-
From the start, the United States was Hitler’s ultimate target. “In seeking to explain the urgency of Hitler’s aggression, historians have underestimated his acute awareness of the threat posed to Germany, along with the rest of the European powers, by the emergence of the United States as the dominant global superpower,” Tooze writes. “The originality of National Socialism was that, rather than meekly accepting a place for Germany within a global economic order dominated by the affluent English-speaking countries, Hitler sought to mobilize the pent-up frustrations of his population to mount an epic challenge to this order.”
-
Germany was a weaker and poorer country in 1939 than it had been in 1914. Compared with Britain, let alone the United States, it lacked the basic elements of modernity: There were just 486,000 automobiles in Germany in 1932, and one-quarter of all Germans still worked as farmers as of 1925. Yet this backward land, with an income per capita comparable to contemporary “South Africa, Iran and Tunisia,” wagered on a second world war even more audacious than the first.
-
That way was found: more debt, especially more German debt. The 1923 hyper-inflation that wiped out Germany’s savers also tidied up the country’s balance sheet. Post-inflation Germany looked like a very creditworthy borrower.
-
On paper, the Nazi empire of 1942 represented a substantial economic bloc. But pillage and slavery are not workable bases for an industrial economy. Under German rule, the output of conquered Europe collapsed. The Hitlerian vision of a united German-led Eurasia equaling the Anglo-American bloc proved a crazed and genocidal fantasy.
-
The foundation of this order was America’s rise to unique economic predominance a century ago. That predominance is now coming to an end as China does what the Soviet Union and Imperial Germany never could: rise toward economic parity with the United States.
-
t is coming, and when it does, the fundamental basis of world-power politics over the past 100 years will have been removed. Just how big and dangerous a change that will be is the deepest theme of Adam Tooze's profound and brilliant grand narrative