At the end of World War I, the United States emerged, for the first time, as the world's leading economic power. The United Kingdom and France, devastated by the human and economic costs of war, faced the monumental task of rebuilding. Germany, also devastated by the war, faced the additional burden of paying reparations to the victors. Austria was dismembered and forbidden to cooperate with its nearest and most logical economic partner, Germany.

The Russian Revolution refers to the events of 1917, which overthrew the Russian imperial regime and instituted the first communist state. The impact of the revolution on the leaders of Russia and the world was without parallel in 20th-century history. Both the reality of a communist government and its ideological commitment to fomenting international revolution shifted the basis of international diplomacy away from the 19th-century practice of balancing great powers and into the 20th-century struggle for ideology. The structure of the Russian government had already been shaken in the revolution of 1905. All of the complaints from that earlier conflict had been greatly exacerbated during World War I, as the Russian people endured shortages of food and fuel (necessary for heat), the increasingly repressive rule of Czar Nicholas II, and the deaths of thousands of Russians in military defeats. In March 1917, the czar was forced to abdicate because of riots in the capital, Petrograd (now St. Petersburg). The liberal Provisional Government in coalition with the Petrograd Soviet came to power.

Russia, still reeling in revolution, drew apart from the rest of Europe. In contrast, the United States had suffered less loss of life, and its land, homes, and industry had remained unscathed, never even threatened by invading armies or bombs.

From its enviable position of relative wealth and security, the United States extended loans to its European allies. The loans, both lender and debtors believed, would be repaid both from the new wealth generated by investments and by the reparations that would be paid by Germany. In 1924, the Dawes Plan provided for U.S. loans to Germany so that Germany could pay reparations to France and others. Those nations, in turn, could repay U.S. loans they owed.

Boom and Bust

During the 1920s, a postwar boom created surplus wealth in the United States. Some of that wealth was invested in Europe to aid European recovery. U.S. investors also speculated wildly in the stock market, which artificially inflated stock prices. Investors included financial institutions as well as individuals. They felt a giddy confidence that expansion would continue forever.

In contrast, prices of agricultural commodities plummeted. Farmers, many of whom had borrowed to finance mechanization, modernization, and increased productivity, then found themselves with reduced income and were unable to repay loans. Foreclosed mortgages displaced rural populations and left many homeless.

While the 1920s roared on, complete with conspicuous consumption and ostentatious displays of wealth, the invisible underclasses sank further into poverty. Wealth and income became ever more concentrated. During the 1920s, worker productivity in the United States increased by about 32%, while wages rose by only 8%. By 1929, one-half of 1% of U.S. citizens owned 32.4% of all individual wealth.

Then came the U.S. stock market crash of 1929. In less than a year, the average price of stocks fell to one-fifth of their value before the crash. The Dow-Jones average of industrial stock prices, which had reached a high of 381 in 1929, fell to a low of 41 by 1932.

Global Consequences

Reverberations from the U.S. crash sent still unsteady European economies sliding into depression. U.S. investment in Europe fell swiftly, as there was no longer surplus capital to invest. In 1930, the U.S. Congress passed the Smoot-Hawley tariff, which effectively closed U.S. markets to European imports. Great Britain followed suit by raising its tariffs in 1932.

As the depression deepened on both sides of the Atlantic, Europe was unable to repay U.S. loans. By 1931, the United States had to agree to a moratorium on loan payments—the money simply was not there.

All across Europe, unemployment soared. British unemployment more than doubled from 1929 to 1931 and eventually reached 22%.

Banks failed in Germany and Austria, and angry, impoverished people voted Adolf Hitler and the Nazi Party into power. Italy also allied itself with Austria. The new Soviet Union struggled as well, as it endured famine in 1932 and unsuccessfully tried to stabilize the economy with a series of disastrous Five-Year plans.

Around the world, economic collapse led to political unrest and change. In Brazil, falling coffee prices brought economic collapse, followed by a revolution in 1930. Another revolution changed the government in Argentina. President Alvaro Obregón of Mexico was assassinated in 1928 and Japanese premier Hamaguchi Osachi in 1930, while Spanish king Alfonso XIII went into exile in 1931.

Europe had treated Africa and Asia as sources of colonial wealth and power for decades. During the 1920s and 1930s, emerging nationalist movements threatened European control of their resources. Kenyan nationalist leader Harry Thuku was jailed in 1922, and Jomo Kenyatta rose to prominence in his place. In India, the British outlawed the Indian National Congress and jailed Mohandas Gandhi in 1932.

Response and Recovery

In the United States and Great Britain, the Great Depression led to the election of Democratic and Labour governments. Both governments attacked the economic crisis by means of programs that offered relief to the hungry and jobs to the unemployed.

In contrast, Germany, Austria, and Italy responded to the crisis by bringing to power fascist and Nazi governments that blamed Jews, international financiers, and various other scapegoats for their countries' economic plight.

The U.S. and world economies seemed to recover gradually, with many national economies reaching near-normalcy by 1937. After that point, however, another economic downturn began, which was to be halted only by the onset of World War II

In May 1919, Count Ulrich von Brockdorff-Rantzau of newly defeated Germany addressed representatives of the Paris Peace Conference. Those representatives were the victorious countries in World War I and included the United Kingdom, France, Italy, and the United States. Providing extensive facts and figures on Germany's population and the effects of the war, Count Brockdorff-Rantzau effectively pleaded with the assembly of nations to turn away from some of the disastrous treaty requirements they were planning.

By the end of World War I, Germany's ability to feed its own populace was essentially cut in half. Its industries were being dismantled, and trade with other countries on which it depended was being curtailed severely. In a very short period of time, many Germans would be facing starvation. Brockdorff-Rantzau tried to show the Allied Powers that the desire for revenge in the name of reparation for the losses some of them had suffered would reap even further sorrow from people innocent of any participation in the war. The count failed to persuade the victors. On June 28, 1919, the Treaty of Versailles was signed, and the stage was set. The victors would have their revenge, but in a little over 20 years, Europe would face the horrors of yet another world war—one of the most morally devastating in history.

A Prostrate Germany

As Brockdorff-Rantzau had predicted, Germany was gutted economically. In 1923, massive unemployment was choking the country, and starvation was looming. Working- and middle-class people were affected most strongly. Many of those individuals were soldiers who had fought in the war and felt they had been betrayed by their government. The United States made loans to Germany that helped Germany's economy recover somewhat. However, the U.S. stock market crash of 1929 sent the United States into the worst depression in its history. The collapse of the U.S. economy had a domino effect. Other countries saw their economies impacted, especially the weaker economies of Germany and Italy. Beginning in 1929, the situation in Germany deteriorated beyond anyone's worst nightmare. Many Germans totally lost faith in the government's ability to take care of its citizens. They wanted to improve their lives, to have enough food, and to lead lives with some security. Desperation was widespread and in knowledgeable hands, could be used to manipulate an entire country. Adolf Hitler believed he had those hands, and to humanity's everlasting sorrow, it turned out that he did.

Hitler's Promises

As leader of the Nazi Party, Hitler promised the German people relief. To the unemployed workers, he promised jobs and to the farmers, a market for their goods. Soldiers heard him speak stirringly of the "Fatherland," where a person could hold up his or her head and be proud to be a citizen. A talented speaker, Hitler, along with his cohorts, appealed to the people's emotions rather than their reason. He painted a picture of a revived and strong Germany and played on the spirit of nationalism. Each despairing group of people heard what it wanted to hear and ignored the undercurrents of violence and hate on which the Nazi message was carried. According to Hitler, the problems the German people faced could be laid at the door of specific groups of people. Those groups were "corrupt" politicians, communists, and Jews. Rid Germany of those undesirables, and all would be well. Germany could once again become the mighty nation it once was.

Hitler's Victory

The Nazi rise to power was not uncontested. Many protested Hitler's reasoning, finding the holes in his arguments and placing the blame on him for Germany's troubles. Unfortunately, those who disagreed openly with Hitler found themselves faced with violence, and many were forced to flee the country to save their lives, leaving everything behind. The well-organized Nazi Party skillfully spread its message and persuaded more and more people that Hitler was the answer to Germany's problems.

By January 1933, 6.1 million people were unemployed in Germany. That same month, Hitler became chancellor of Germany and proceeded to solidify the position of the Nazi Party. In August 1934, Germany's president Paul von Hindenburg died, and Hitler seized total power as a right-wing dictator, forcing the leaders of all the military branches to swear oaths of loyalty to him.

As the leader of Germany, Hitler expanded his country's military industry. Although that expansion violated the Versailles Treaty, it did revive Germany's devastated economy—and strengthened its military. In 1936, German troops occupied the Rhineland and restored it to Germany. In 1938, Hitler annexed Austria to Germany. The next year, at the Munich Conference, Great Britain and France agreed to let him annex the Sudetenland, part of Czechoslovakia. However, as his expansionist policy grew, Hitler decided to annex all of Czechoslovakia instead and did so. In 1939, only five years after Hitler gained power, Germany invaded Poland and set off World War II