This is the second book in a series of economic texts entitled 'The Pelican History of World Economy in the 20th Century' The series starts with 'The First World War, 1914-1918' and finishes with 'Prosperity and Upheavel: the World Economy, 1945-1980' The period covered by this book and it's title - 'From Versailles to Wall Street, 1919-1929' might lead you to believe that this is an insignificant period and that the book would be the least interesting of the series. Not so. It is full of interesting economic tidbits.

The cost of WWI was astronomical - $260 Billion (in 1987 dollars I would guess since that's the date of the book). Only a small percent of this was financed by taxation and other revenues. The majority of wartime expenses were paid for by borrowing. (As an aside, this practice is as old as war itself. Barbara Tuchman writes in her book 'Distant Mirror' this was how wars were financed in the 14th century. It's also true then, for WWI and today that the financing of war can do almost as much damage as war itself). Anyway, the deficit financing of WWI didn't have to be inflationary, if it was derived from savings. It wasn't, it was financed largely by bank credit and was it ever inflationary! Price increases experienced throughout Europe in the years following WWI were unbelievable. The experience of Hyperinflation was made worse by the fact that people had no experience of even normal inflation for many decades. In the space of a few years prices had risen 14,000 times in Austria. They were lucky. In Germany prices rose 1 million million (no typo) times when compared to pre-war.

Against this background the boom of the 'Roaring Twenties' in the US was a welcome relief. One of the biggest factors driving it (pun intended) was an innovation called the motor car. It stimulated other industries such as steel, glass, rubber, petroleum and metal fabricating. Highways stretched out over the US giving the construction sector a big boost. Unfortunately all this was only a short lived positive blip in a very unstable and creaking world economic system. The book clearly shows that the origins of the worldwide depression of 1929-32 began right here in the US. The world economic system was vulnerable and weak and was administered two shocks by the US. The first was the drastic cut in foreign lending. Most countries could have withstood this setback but it was quickly followed by the petering out of the boom. Things took a turn for the worse domestically in the summer of 1929. Investment opportunities dried up and there was a severe cutback in consumer spending and a decline in business confidence. Confidence evaporated following the Stock Market crash of October and we were on the way down.

It's interesting history and interesting reading. It serves as a reminder of the responsibility that comes with ownership of the worlds largest economy. It speaks to the power of this economy to generate growth worldwide if properly managed but also to set in motion a downward spiral if we are careless.