As described in an earlier post the modern socio-economy has reached heights unparalleled in human history. To do so the socio-economy has successfully overcome a number of economic shocks and medical/political challenges. It has shown a high degree of resilience – consolidating gains, overcoming a range of challenges and averting the worst case scenario – reverting to the Malthusian vision of a subsistence world.

The First World War ended the first modern age of a truly global economy powered by advances in technology, transportation and communications and the financial innovations to enable international trade.

It all changed after the end of the war. Fading empires doubled down on protectionism, raising tariffs and trade barriers. The legacy of the war and the penalties inflicted on the vanquished by the victors led to financial instability exacerbated by the stubborn reliance on the gold standard to finance international trade. The transition from a wartime economy to the “normality” of a peace time economy led to a series of business cycles cumulating in the Great Depression. It was compounded by the Spanish Flu that killed between 25 and 50 million people in the early 1920s.

From the end of the First World War to the end of the Second World War there were at least seven economic downturns, averaging a reduction of roughly one quarter of the economy. Note: Gross Domestic Product as a metric of the economy was developed in the 1950s, and is being continually improved. Estimates of GDP have been back cast to the first war. Some more noteworthy challenges are:

1. Recovery from the First World War including four business cycles
2. The Great Depression that started in 1929
3. Two additional business cycles following the worst of the Great Depression
4. economic recovery from the Second World War
5. the great moderation until the early 1990s
6. war on terrorism from 9-11
7. the Global Financial Crisis 2007
8. the covid-19 pandemic

Using American data (best documented and quantified), there have been seven economic downturns between the end of the First World War and the end of the Second World War. The average economic decline has been between one-fifth and one-quarter of the economy. Having learned the lessons of the Great Depression as articulated by John Maynard Keynes, economic downturns after the war averaged barely 2 percent of GDP, and for almost forty years the economy progressed with only the occasional central bank managed downturns generally to moderate inflation. The Great Moderation began to show signs of ending with the Global Financial Crisis of 2007 (GDP down 5 percent) and then the very serious COVID-19 pandemic (GDP down 20 percent).

Countries Since the end of the Second World War the socio-economy has faced more challenges, some political, some medical, some deliberate actions to balance the economy and others to correct for the enthusiastic over reach of animal spirits and novel exotic financial instruments – the Global Financial Crisis of 2007 being the most recent example. Through it all the global socio-economy has thrived.

Each of the challenges could have derailed the economic progress of two centuries old upward. Instead the socio-economy proved to be resilient, meeting each challenge. The dissolution of the European colonial system and the re-allocation of economic power from the European colonial powers to the newly decolonized will be discussed in a future post.

One note: Economics has no tolerance for the naive. The following discussion is deliberately sanitized. Power is a vicious game. And much of the decolonialization process was balancing power at the industrial, international and domestic levels, But that is beyond the scope of this post.