It is easier to understand the “World Economy, Today and Tomorrow,” if you have some knowledge of the world’s economy of yesterday. The present world economy is, by and large, a product of World War II. That War changed the World!
Prior to World War II, Britain was the Super Power of the world’s economies. Most international transactions were denominated in “Overseas Sterling.” Germany and Russia were struggling to recover from World War I. Fascism and Communism were guiding the destinies of Germany, Italy and Russia. The United States was in the throes of the Great Depression.
Then came the greatest economic rearrangement - in the shortest time - in the world’s history. Britain was almost beggared by the war. The United States became the world’s economic powerhouse. The economies of Europe were in ruins. The Colonies of Britain and France had been bled white by the war while the United States had become rich and powerful as the supplier of war goods to the Free World.
This dramatic change of economic fortune led the United States to change its basic philosophy from Isolationism and Protectionism to Internationalism. Its trade and financial policies expressed themselves in the “Marshall Plan”. The Marshall Plan was named after George Marshall who had been the United State’s top General during World War II and became the Secretary of State of the United States under the Eisenhower Administration
The Marshall Plan resulted in a massive “redistribution of the wealth” held by the United States. The plan made Grants and Loans to countries whose economies had been affected negatively by World War II. The money went to both the Allied nations and the enemy nations. The plan’s purpose was to rebuild the economies of the world in order to avoid a worldwide depression. The industries of both sides that had been bombed into extinction by both sides were to be rebuilt so that the economy of the world would begin to function again. This seemingly over-generous policy was in fact based on sound economic theory.
These economic events caused by World War II also changed the national policy position of the United States from one of emphasis on Protectionism to strong support of FREE TRADE.
THE EVENTUAL EFFECTS OF THIS UNITED STATES SUPPORT OF THE WORLD’S FREE TRADE POLICIES HAS HAD MORE EFFECT ON THEPRESENT AND FUTURE OF THE WORLD’S ECONOMY THAN ANY OTHER SINGLE FACTOR.
I will explain my view of why this is so in my next column.