Rebuilding a World Economy: The Post-war Era

We all have heard about wars.

Its when two regions fight against each other for some reason.

Even though at the end of the war we are happy for the winner, we regret a lot for the losses.

A lot of money, lives and land is wasted due to wars.

War has a number of after effects.

The same happened after World War 2 (WWII).

WWII took place in about 1939-45.It was fought between the Axis and Allied powers.

Allied and Axis powers were basically groups of countries against each other.

Axis powers : Nazi Germany, Japan and Italy.

Allied powers : Britain, France, the Soviet Union and the US.

The war continued for around six years over land, sea and air.

The death and destruction in the war was very high. 60 million people, or about 3% of the world’s population in 1939 were killed.

Surprisingly many deaths took place outside the battlefields.

Civilians were killed due to war related causes.

A number of cities were destroyed all around Asia and Europe.

The war caused a lot of economic and social disturbance. Reconstruction of these seemed to be long and difficult.

Two things influenced the post war reconstruction

1. USA dominated the western world in economic, social and military power.

2. Soviet Union became a big power in the Eastern world. She had made great sacrifices to defeat Nazi Germany.

The World War taught the world that mass production in itself was not enough.

They need mass consumption and demand to balance the supply so as to survive.

But for mass production, a steady income was necessary. Then only there shall be money in the market.

Unfortunately employment at that time was unstable , so the economic instability continued.

The government needed to step in and control fluctuation of price, production and employment.

After the war, people understood that economic stability could only be achieved if the government had control.

The government needed to control goods, capital and labour.

The main aim of the post-war international economic system was to preserve economic stability and full employment in the industrial world.

They agreed upon an outline at the United Nations Monetary and Financial Conference held in July 1944.

This was held at Bretton Woods in New Hampshire, USA.

The Bretton Woods conference established the International Monetary Fund (IMF).

This dealt with situations of extra (surplus) and less income (deficit) of its member countries.

The International Bank for Reconstruction and Development (also known as the World Bank) was set up to finance post-war reconstruction.

The IMF and the World Bank are referred as the Bretton Woods institutions or sometimes the Bretton Woods twins.

This system of economy came to be known as Bretton Woods system.

The IMF and the World Bank started financial operations in 1947.

The decision makers here are mostly Western industrial powers.

The US has veto power over major IMF and World bank decisions.

This meant that USA has the power to reject or approve a decision without a heed to others’ decisions or proposal.

The international monetary system is the system linking national currencies and monetary system.

The Bretton Woods system was based on fixed exchange rates.

In this system, national currencies, for example the Indian rupee, were fixed to the dollar at a fixed exchange rate.

The dollar itself was fixed to gold at a fixed price of $35 per ounce of gold.

So every currency had its own value in the market.

The Bretton Woods system uplifted the Post War economy and helped in Reconstruction.

The End.