From the World War I Centennial News Podcast

The Great War and the Great Depression: Exploring the Connection with Professor Maury Klein

In March 15th's edition of the World War I Centennial News Podcast, Episode 114, host Theo Mayer spoke with history professor and author Maury Klein about the often forgotten connection between two of the most catastrophic events of the 20th century. The following is a transcript of the interview, edited for clarity:  

Theo Mayer: For our listeners who have been with us for a while, you know that a core theme for the podcast is highlighting how the once-named "forgotten war" is in truth the war that changed the world. How we can trace so much of the foundation of the 20th and even 21st century to this founding event. Our regular listeners also know that I'm not a historian, I'm just a very curious guy who's discovering all of this with you. Well, for months, especially as we started to look forward being the Armistice, I've been captivated by the connection between this once obscure World War I and the pretty well known and even famous follow up events like the women's right to vote, prohibition, the roaring 20s, and one that I've been really interested in connecting the dots to, the giant crash of 1929 and the following depression. That's why I was so excited to come across an article that drew the lines between the Great War and the Great Depression. With us today is a Professor Emeritus of history, from the University of Rhode Island, an author who's written about this, Professor Maury Klein. Maury, welcome to the podcast.

Maury Klein: Thank you, Theo, glad to be here.

Professor Emeritus Maury Klein taught history at the University of Rhode Island for 44 years and has written numerous books about American historyTheo Mayer: Maury, I was really excited to come across the article written on The History Channel website by Christopher Klein, you were widely quoted in that article. First question- Christopher Klein, Maury Klein, any connection?

Maury Klein: No relation, just a coincidence of names.

Theo Mayer: Very good. Could you give our audience a general overview of how the Great Depression and World War I are connected?

Maury Klein: There are several ways. The most obvious of which, of course, is the United States' refusal to join the League and to ratify the events that followed, but more in the economic sphere, it has to do with the effect of war, and particularly the treaty on world economic relations after the war. You may have gone over it earlier, in fact, that the Allies asked the Germans for what amounted to almost 33 billion dollars in reparations, and to do that, they of course had to tell the Germans that "You were guilty for the war, and you have to admit you were guilty for starting the war." On the other end of that spectrum, the United States had something like 10 billion dollars in loans they had given to the Allies that they expected to be repaid. That set up what became, on the world markets, and particularly in the banking areas, a kind of circular event that just got worse and worse during the 1920s. In fact, if you want to go one step further, the whole thing of reparations and war loans plagued the countries really into the 1930s during the depression.

Theo Mayer: Maury, I've been really curious about another angle as well, more connected to the big crash of '29 than the global depression. In the US, the liberty loan drives raised 16.7 billion dollars, now that's 280 billion in today's dollars, all for the war effort. Another way to think of it is, as a national capital infusion to help shift America from an agrarian to a manufacturing nation for the war. A lot of business was capitalized from that, and then the orders evaporated. Any connections?

Maury Klein: There's a very direct connection, and not just for manufacturing. One of the reasons why the farmer went into deep trouble after the war was because during the war they had gotten the highest prices they'd ever gotten for their goods because of the war demand. They then proceeded to go into debt to buy more land, to grow more goods, and then their orders evaporated, and they never recovered from that, and forthcoming administrations during the 1920s did nothing to help them. The same thing happened to manufacturers who had expanded their facilities or built new ones for war orders, and then when those orders were cut off, almost literally over night, they were left hanging. They went and asked the government at least to give them some kind of tax break that enabled them to keep these facilities going. The government refused to do that.

Theo Mayer: When you hit something like that, it does rumble for a half a decade plus, and then the trouble starts, but staying on that track, with the giant money raise, and people over speculating, George Creel, Wilson's propaganda chief and the government itself introduced the very concept of investment to the general public for the first time with the liberty loans. Any connection between the over investment on Wall Street in the following years?
Maury Cline: Again, there is a direct connection. Wall Street, prior to the 1920s, was very much private insider dealing only really with financial professionals. The general public not only did not invest in securities, they didn't know really what securities were. What the bonds did was to introduce them to a form of investment that they were not familiar with in most cases, and that was a very big step towards the 1920s, a time when incomes started to rise, people had money to invest, and Wall Street started taking steps to show them how they could invest not only in bonds but in stocks. To use the cliché of the times, it was the process by which Wall Street moved to Main Street.

Conditions created by the Great War directly contributed to the stock market crash of 1929, and the subsequent Great DepressionTheo Mayer: Maury, most people aren't very familiar with economics in general. Is there a simple takeaway that we should leave our audience with from the line between World War I, the Great Depression, and what's happening in the world today?
Maury Klein: There are a couple of those lines, and they have to do with the tendency to go down the wrong streets in terms of policy. The United States, when it reacted to Wilson, it elected a series of Republican administrations who followed certain policies that were to aggravate what was to come, and at the time, it seemed like a good idea. One of those was to create the highest tariffs, which certainly messed up world trade. It aggravated the whole circle between reparations and war loans. It was also a period of taxation that favored the well to do as opposed to the not well to do, right at the time when the United States was creating its first full-blown consumer economy. One of the basics is that we now have an economy that's 70% consumer. One of the basics of a consumer economy is that consumers need money, or they won't buy things. One of the other links that came out of the war was a new approach to banking which extended what we now call consumer credit and personal credit, which was a very, very primitive thing prior to the war.

Theo Mayer: That's a fascinating subject, thank you for coming in and talking to us about this today. Obviously we're scratching the very surface of a a very deep subject, but thank you very much.

Maury Klein: It was my pleasure.

Theo Mayer: Professor Maury Cline is Professor Emeritus of history from the University of Rhode Island and author of a number of books. We have links in the podcast notes for the article from the History Channel that we came across and a list of Professor Cline's publications.

Links:

https://web.uri.edu/history/meet/maury-klein/
https://www.history.com/news/world-war-i-cause-great-depression?utm_medium=email&utm_source=govdelivery