20 Century

Created 2/12/1997
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Slouching Towards Utopia?: The Economic History of the Twentieth Century

-XVIII. Falling into World War II-

J. Bradford DeLong
University of California at Berkeley and NBER

February 1997

From the Rhineland to Munich

While other countries continued to stagnate in the Great Depression, the German economy recovered rapidly. But peaceful spending-fueled recovery was not what Hitler thought his regime was about. His regime was about German rearmament: the breaking of the shackles of the Treaty of Versailles that restricted the German military to a total strength of 100,000; and eventually aggressive war with the Soviet Union and the other powers to Germany's east with the aim of increasing the "living space" of the German people.

Hitler announced that Germany was rearming, and met with no complaints. Did Britain and France want to invade Germany, depose Hitler, and set up an unstable government bound to be viewed as their puppet in his place, further inflaming German nationalism? Well yes--they did, had they but known what was coming. But their political leaders did not. In the Great Depression French and British political leaders believed that they had bigger problems than enforcing every provision of the Treaty of Versailles, that they wished to see Germany rejoin the community of western European nations. And since armaments were one of the standards prerogatives of the nation-state, it would be silly in addition to pointless to complain about Germany building its armed forces above the Versailles limits.

Besides, with Germany effectively disarmed there was a power vacuum between the border of the Soviet Union and the Rhine River. Poland and the Soviet Union had fought one war in the early 1920s that had seen the Red Army approach Warsaw before being turned back. Did French and British geopoliticians want to see a possible future Soviet war with Poland end with Communist armies on the Rhine River? Probably not.

In 1936 Hitler broke yet another provision of the Treaty of Versailles: he moved token military forces into the Rhineland, the province of Germany west of the Rhine that had been demilitarized after 1918. Once again it seemed pointless to protest, or to take action. No other European country had demilitarized zones within its borders. To require that Germany maintain a demilitarized zone seemed likely to pointlessly inflame German nationalism. And to enforce the provision would presumably require an invasion of Germany, the deposition of Hitler, and the installation of a puppet government--for Hitler seemed genuinely popular: there was a substantial risk that new elections would simply return Hitler to power.

In the spring of 1938 Hitler annexed Austria. Austria was inhabited overwhelmingly by ethnic Germans. One principle of the 1919 peace settlement had been, as much as possible and with a few exceptions, to draw national borders along ethno-linguistic lines so that every language had a nation, and everyone speaking a given language lived in the same nation. In annexing Austria, Hitler declared, he was simply gathering the German people into their one nation: reversing a political error committed in the late nineteenth century when the Austrian Germans were excluded from the political boundaries of Germany, an error that would have been corrected in 1919 save for Allied unwillingness to apply the same national self-determination principles to the Germans that they had applied to themselves and to the rest of Europe.

After the annexation of Austria, Hitler turned his attention to a second of the anomalous boundaries of post-World War I Europe: the "Sudetenland." The northern and western boundaries of Czechoslovakia followed the boundaries of the medieval Kingdom of Bohemia, and included a mountainous region that was the location of all the Czech frontier defenses and was also heavily populated by German-speakers. It took little for Hitler to fund a movement in the Sudetenland that decried oppression and discrimination by Czechs, and that demanded the annexation of the Sudetenland by Germany: the return of German-speakers to the German nation, according to the national self-determination principles of the Treaty of Versailles.

The British government had commitments to defend France; the French governments had commitments to go to war to defend the territorial integrity of Czechoslovakia; Czechoslovakia had no desire to surrender its mountain territories--and its frontier defenses. The British and French governments had no desire to get into a war to prevent the people of the Sudetenland from becoming part of Germany. Moreover, they feared the costs of a war. In the worlds of the novelist Alan Furst, they thought that:

The German bomber force as constituted in a theoretical month--May 1939, for instance--would be able to fly 720 sorties in a single day... 50,000 casualties in a twenty-four hour period. A million casualties every three weeks. And the USSR, Britain, and France were in absolute harmony on one basic assumption: the bomber would always get through. Yes, anti-aircraft fire and fighter planes would take their toll, but simply could not cuse sufficient damage to bring the numbers down.

The western democracies' military advisors feared that World War II would bring the horrors of the World War I trench line to civilians located far from the front.

They were right.

In order to avoid war, on September 29 and 30, 1938, at Munich in Germany, British Prime Minister Neville Chamberlain and French Prime Minister Edouard Daladier reached an agreement with Hitler: Hitler would annex the Sudetenland, would pledge to respect the independence of the rest of Czechoslovakia, and Britain and France would guarantee the independence of Czechoslovakia.

The Czechoslovak representatives were not even allowed in the room where the negotiations took place.

Upon his return to Britain, after being applauded by a cheering crowd that saw that general war had been averted, Neville Chamberlain irretrievably blackened his reputation for all time by saying:

My good friends, this is the second time in our history [the first time was 1878] that there has come back from Germany to Downing Street [official residence of the British Prime Ministers] peace with honour. I believe it is peace in our time.

Winston Churchill--out of office, and shunned by the other conservative members of the British House of Commons--had a very different view: better to fight Hitler in 1938 before German rearmament was well advanced and with Czechoslovakia as an ally, than to fight him later when Germany was better-armed and Czechoslovakia was gone. In retrospect Churchill was almost certainly correct. Given what was known about the ruthlessness and violence of the Nazi regime in its own country, it is hard to credit Chamberlain's belief that Hitler could be "appeased" and pacified by the abandonment of the restrictive military clauses of the Treaty of Versailles and by being allowed to absorb all regions occupied by ethnic Germans into his state.

On March 15, 1939, Hitler annexed the remains of Czechoslovakia, after first having sponsored secessionist movement in the "Slovakia" part of the country. Britain and France took no action. Neville Chamberlain stated:

The effect of this declaration [of independence by the Hitler-sponsored secessionist movement] put an end by internal disruption to the state whose frontiers we had proposed to guarantee [at Munich]. His Majesty's government cannot accordingly hold themselves any longer bound by this obligation.

In the spring of 1939 Hitler turned his attention to Poland, where the German-Polish border after World War I had been drawn not with attention to the ethno-linguisti principle but to give the newly-created Polish Republic at least one port city, and an outlet to the Baltic Sea. Hitler once again demanded the redrawing of borders--the elimination of the "Polish corridor" between the rest of Germany and the province East Prussia.

Had the British and French diplomatic policy makers been flinty-eyed realists, they would have shrugged their shoulders: Hitler wants to go east? Let him go east. They would have concluded that a Hitler fighting a series of wars to his east was unlikely to cause them trouble for a while at least. And that if Hitler at some point turned west, then would be the time to deal with him. But they did not do this. Neville Chamberlain and company extended guarantees to Poland and Romania: German attacks on Poland or Romania would cause declarations of war against Germany by Britain and France. Chamberlain appeared to believe that this commitment would deter Hitler from further adventures. He and his Foreign Minister, Lord Halifax, appear to have given no thought to what would happen if deterrence failed.

The Nazi-Soviet Pact

And it was at this point that Hitler became interested in a--temporary--alliance with Stalin and the Soviet Union.

Stalin throughout the years of the "Popular Front" and "collective security," put out feelers to Hitler. Hitler was not interested. Hitler became interested in a deal with Stalin only in 1939, when he recognized how useful Soviet neutrality would be for his conquest of Poland. He and Stalin agreed to split Poland down the middle at the Bug River, and to give the Soviet Union a green light to annex the three Baltic Republics of Lithuania, Latvia, and Estonia.

On Stalin's part, this was the mother of all miscalculations. It allowed Hitler to fight three one-front wars in succession--one against Poland, one against Britain and France, and then one against the Soviet Union. Only by the skin of its teeth did the Soviet Union survive until America entered the war and American armies and air forces made it possible for an Anglo-American force to reenter the main theaters of the war.

Much better for Stalin and Russia to have fought Germany in 1939 with powerful British and French allies with armies on the continent than to, as he had to, face Germany's undivided attention in 1941 when no other anti-fascist armies were on the continent of Europe, or would be for two more years. For when Hitler and Stalin together moved into and partitioned Poland in 1939, Britain and France did carry out their commitments, and did declare war on Germany. Hitler attacked the Poles at dawn on September 1. After some hesitation the British government demanded at 9 A.M. on September 3 that the German army withdraw from Poland. At 11 A.M. Britain declared war.

But their forces were unready and were far from Poland, which fell to Hitler and Stalin in a month. After eight months of quiet on the western front, France fell in six weeks in 1940. To everyone's surprise, Britain--by then led to Winston Churchill--did not then negotiate a peace but kept fighting, daring Hitler to try an invasion across the English Channel. And in 1941 Hitler turned on the Soviet Union.

If Stalin did not recognize the danger of even a temporary alliance with Hitler, it was because he was--wrongly--anticipating a replay of World War I: trench warfare that would lead to a prolonged stalemate on the Franco-German border, during which another generation of young men would be turned into hamburger, another set of bourgeois countries would exhaust themselves, and another group of countries would become ripe for a Moscow-led Communist revolution.

When war came to the Soviet Union, and Germany attacked on June 22, 1941, Stalin's first instinct was to tell his troops not to fire back for fear of "provoking" the Germans. As a result, his air force was destroyed on the ground in the first day of the war. And the Soviet armies on the border died (or were taken prisoner) where they stood. In 1941 nearly four million Soviet troops were captured.

The Greater East Asia Co-Prosperity Sphere

Japan responded to the Great Depression by turning imperialist.

World War I was a powerfu stimulus to Japanese industrialization. Although the Japanese government honored its alliance with the British government and declared war on Germany, its military actions during the war were limited to the largely-peaceful takeover of Pacific islands that Germany had claimed as colonies. However, exports from Europe to Asia effectively ceased during World War I. Where were the countries of Asia to purchase the manufactures that they had purchased from Europe? The growing and industrializing Japanese empire was an obvious source.

Industrial production and manufactured exports from Japan nearly quadrupled during World War I. Srong demand for Japanese goods provoked inflation: prices more than doubled during the war.

After World War I the European economies once again began to export to Asia, and the newly-expanded Japanese industries faced heavy competition. The Japanese economy in the first half of the 1920s was also badly hit by the disaster of the 1923 Tokyo earthquake, in which between 50,000 and 100,000 people died. But industrialization continued. Manufacturing surpassed agriculture in terms of the share of national product produced in the 1920s.

Japanese manufacturing originally relied--as had manufacturing in other countries--on the unmarried young woman as its typical worker. From the employers' point of view, the main problem with this workforce was its relative lack of experience. So over the first half of the twentieth century, Japanese manufacturers worked to try to balance their shor-term labor pool of unmarried females with a longer-term cadre of experienced male workers.

What evolved in Japan's industries was what is now called the "permanent employment system." Male workers were recruited on leaving school, or as apprentices, and promised effective lifetime employment and regular increases in wages in return or loyal service to the company. The company promised wages, medical care, and pension benefits. It is possible that this "permanent employment system" flourished in Japan because the system fitted Japanese sociology. It is also possible that Japan avoided the deep recessions that would have given manufacturing firms the incentive to fire their "permanent" workers.

Cotton textiles, furniture manufacturing, apparel, and a relatively small heavy industrial sector were the heart of the Japanese economy by the 1930s, and this modern manufacturing sector was dominated by the zaibatsu: associations of businesses that exchanged executives, cooperated, owned each other's stock, and relied on the same banking and insurance companies for finance. Japan's form of "financial capitalism" seemed to mimic Germany's to a large degree.

The Great Depression came to Japan in an attenuated form in 1930. Its exports, especially of silk, fell dramatically. The gold standard applied pressure to deflate the economy. Japan responded by cutting loose from the gold standard, and by expanding government spending--especially military spending. The Great Depression touched but did not stun the Japanese economy. More important, perhaps, the Great Depression revealed that the European imperialist powers were in crisis.

So 1931 saw the Japanese government turn expansionist. The extension of Japanese influence into Manchuria was followed by a Manchurian declaration of "independence" as the Japanese client state of Manchukuo. Expansion was followed by rearmament. Rearmament was followed by a full-scale attack on China in 1937. Government orders for war material and for capital goods to construct infrastructure in Manchuria provided a strong boost to Japanese industrial production at home. From 1937 on Japan turned to a war economy: warships, airplances, engines, radios, tanks, and machine guns.

But in order to continue its war against China, Japan needed oil from either the United States, or from what was to become Indonesia--what was then the Dutch East Indies. Roosevelt was anxious to exert what pressure he could on Japan. And in early 1941 the U.S. embargoed exports of oil to Japan.

Faced with the choice of backing down and abandoning the conquest of China, or seizing the Dutch-held oil fields of the southwestern Pacific and probably becoming embroiled in a war with the United States, the Japanese miliary elected to strike first. On December 7, 1941 atacks began on British, Dutch, and American forces and possessions in the Pacific. Most famous was the Japanese attack on Pearl Harbor that sank the battleships of the U.S. Pacific fleet. Most damaging was probably the attack on the U.S. airbase of Clark Field in the Philippines, which destroyed the B-17 bomber force that might have blocked Japanese searborne invasions.

The War

World War II in Europe began on September 1, 1939. World War II in Asia had already been ongoing for more than two years. The range of belligerents expanded and contracted. In Europe the war began as France, Britain, and Poland against Germany. Poland was conquered by Germany and Russia by the end of September, 1939. Russia attacked Finland, which fought it to a draw and a peace, in the winter and spring of 1940. The spring of 1940 also saw Germany attack and occupy Norway, Denmark, Belgium, the Netherlands, and Luxemburg; and conquer France, with Italy joining in on Germany's side.

By the summer of 1940 only Britain was fighting Germany.

In late 1940 and early 1941 Britain acquired Greece and Yugoslavia as allies. But they were conquered by Germany by the spring of 1941.

In the summer of 1941 Germany attacked Russia. And on December 7, 1941, the Japanese navy bombed Pearl Harbor in Hawaii and attacked a wide range of U.S., British, and Dutch territories in the Pacific. Germany declared war on the U.S. a day later. (But, curiously enough, Japan remained at peace with Russia.) And the war was truly global.

World War II was a "total" war. At its peak, some 40 percent of U.S. GDP was devoted to the war. Some 60 percent of British GDP was devoted to the war. Some 50 million--plus or minus 10 million--people died in, during, and as a result of war.


(U.S. 1944=100)

Year United States United Kingdom Soviet Union Nazi Germany

 Imperial Japan

1937 1 1 3 2  2
1938 1 2 4 3  3
1939 2 3 6 4  3
1940 6 7 7 8  3
1941 15 10 12 8  4
1942 53 17 22 11  5
1943 91 20 28 17  4
1944 100 19 31 21  3

From 1942 on, once the war had become a truly global war, Hitler's defeat was nearly inevitable. Even Britain alone was matching Germany and Nazi-occupied Europe in war production. Throw in the United States and the Soviet Union, and Germany was outproduced more than eight to one; Germany and Japan together were outproduced more than six to one. U.S., British, and Russian armies met in the rubble that had been Germany in the spring of 1945; Adolf Hitler committed suicide as the Russian armies closed in on his Berlin command post. Japan, atom-bombed, firebombed, blockaded, and threatened with invasion, surrendered in the summer of 1945.

When World War II ended, perhaps 40 million in Europe (and perhaps 10 million in Asia) were dead by violence or starvation. More than half of the dead were inhabitants of the Soviet Union. But even west of the post-World War II Soviet border, perhaps one in twenty were killed--close to one in twelve in Central Europe. In World War I the overwhelming proportion of those killed had been soldiers. During World War II fewer than half of those killed were soldiers.

Material damage in World War II was spread over a wider area than in World War I. Destruction in the First World War was by and large confined to a narrow belt around a static trenchline. Although material destruction along the trenchline was overwhelming, it extended over only a small proportion of the European continent. World War II's battle sites were scattered more widely. Weapons were a generation more advanced and more destructive. World War II also saw the first large-scale strategic bombing campaigns. The aftermath of World War II saw many of Western Europe's people dead, its capital stock damaged, and the web of market relationships torn. Relief alone called for much more substantial government expenditures than reduced tax bases could finance. The post-World War I cycle of hyperinflation and depression seemed poised to repeat itself. Prices rose in Italy to 35 times their prewar level. France knocked four zeroes off the franc.

What If?

Had World War II gone otherwise, we would live in a very different world.

Had Franklin D. Roosevelt decided in the spring of 1941 that with Europe ablaze it was unwise for the U.S. to try to use an economic embargo of militarily-necessary oil to pressure Japan to withdraw from China, 1945 would probably have seen the U.S. and Japan at peace, the coastal provinces of China Japanese-occupied colonies, the interior of China an anarchy, and the prestige of the Japanese military that had established this co-prosperity sphere greatly heightened.

Had the British and French governments been willing to use force to remove Hitler when he occupied the Rhineland in 1936, or threatened Czechoslovakia in 1938, there would have been no World War II in Europe.

Had Stalin allied with Britain and France and declared war on Germany when Hitler invaded Poland in 1939, in all probability Hitler would have been crushed and World War II in Europe ended by the end of 1941.

Had anyone other than Winston Churchill become British Prime Minister in 1940--had Nevile Chamberlain remained, or had Lord Halifax assumed the post--then the British government would almost surely have negotiated a separate peace with Germany in 1940. When Germany attacked Russia in 1941, it would have done so with its full strength. Stalin's regime would probably have collapsed, and European Russia up to the Urals (and perhaps beyond) have become German territories, colonies, or puppet states.

It is not likely that Hitler would have refrained from attacking Russia in any possible universe. The need to do so was buried too deeply in his world view to be denied.

Last, what if Hitler had not declared war on the United States in 1941? Would Roosevelt have been able to get congress to declare war on Germany on the grounds taht all the Axis powers were allied, or would congress have insisted on concentrating on fighting Japan first? If the second, then would Britain and Russia have been able to defeat Germany by themselves, or would 1945 have seen the United States dominant in the Pacific and Germany dominant in Europe?

We do not know. We do know that most of the alternative ways that World War II might have gone would trade a postwar period with a Communist evil empire centered in Moscow and dominant over eastern Europe for a postwar period with a Nazi evil empire centered in Berlin and dominant over all Europe, or perhaps Eurasia. Not an improvement.

We are very lucky that World War II was not even worse for humanity than it was.

from "September 1, 1939"

by W.H. Auden

I sit in one of the dives
On Fifty-second Street
Uncertain and afraid
As the clever hopes expire
Of a low dishonest decade:
Waves of anger and of fear
Circulate over the bright
And darkened lands of the earth,
Obsessing our private lives;
The unmentionable odor of death
Offends the September night.

Accurate scholarship can
Unearth the whole offence
From Luther until now
That has driven a culture mad,
Find what occurred at Linz,
What huge imago made
A psychopathic god:
I and the public know
What all schoolchildren learn,
Those to whom evil is done
Do evil in return...

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20 Century

Created 2/12/1997
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Associate Professor of Economics Brad DeLong, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax