Many observers think America will repeat the 20th Century’s “Roaring Twenties” in the 2020s.
No, America will not go back to an era of flappers, gangsters, Prohibition, and the Ku Klux Klan. Instead, observers such as Lessons from History’s David Leibowitz think America will undergo an economic boom similar to that of the 1920s.
To explain, America underwent a massive economic boom because of new technologies and pent-up demand in the 1920s. Notably, that boom followed the Spanish Influenza pandemic and World War I.
I do not think America’s 2020s will resemble Calvin Coolidge’s America. Instead, I predict the USA’s 2020s experience will be closer to 1920s Britain than the American Roaring Twenties.
In the 1920s, America was a rising power with a growing economy, while Britain was a declining power with a shrinking economy. In the 2020s, the People’s Republic of China is a rising power with a growing economy, while the United States is a declining power with a shrinking economy.
The Death of British Exceptionalism
Importantly, the 1920s was the first time most Britons realized that their country was in decline and their empire could fall.
A primary cause of this belief was World War I which killed British exceptionalism. The Great War killed 885,138 British subjects and left 1.663 million Britons wounded.* After World War I, nobody believed Britain was invincible or capable of ruling the world.
Consequently, preserving British power and the Empire became the primary focuses of British politics and foreign and economic policy. For example, British governments abandoned free trade in favor of trade agreements with other parts of the Empire.
One reason for the abandonment of free trade was British industry’s inability to compete with American and German brands and products. Another cause was the fear of being cut off from supplies of natural resources. In World War I, German U-boats almost starved Britain by sinking supply ships.
At the end of World War I, Britain was still the world’s greatest military power, but popular confidence in the Empire and British institutions collapsed. For instance, the British needed American help to win the war and London itself had suffered air attacks in World War I.
Growing Economic Weakness
However, the Empire was larger than ever and Britain retained vast military, technological, and economic power in the 1920s. On the other hand, the facade of imperial power hid growing economic weakness and increasing social divisions.
The 1920s were a time of economic decline in Great Britain. After a brief postwar boom in 1919 and 1920, British unemployment rose to over 10% in 1921, Economics Help estimates.
Frighteningly, British unemployment remained over 7% throughout the 1920s, rising to 8% in 1927. One reason for the high unemployment was the steady decline of one of England’s most important industries: textiles.
Another problem was backwardness, British factories were older and less technologically advanced than American and German competitors. British companies proved incapable of the mass production needed to be serve new consumer markets.
In particular, British companies could not compete with America in new industries such as autos, movies, and aviation. High unemployment and low wages hurt British companies by reducing the demand for consumer products.
The Fall of the Pound Sterling
The greatest economic problem in 1920s Britain, was deflation. British wholesale prices fell by 25% between 1921 and 1929. That meant some British companies’ profits and revenues fell by 25%.
Deflation destroyed the value of wages, discouraged consumer spending, and increased debt. Government efforts to reverse deflation, and the slow collapse of Britain’s currency; the pound sterling made the situation worse.
For instance, in 1925 Britain’s Chancellor of the Exchequer Winston S. Churchill returned the pound to the gold standard. Under the gold standard, the government backs every unit of currency with a specific amount of gold.
The hope is that gold standard will give the currency a steady price. Churchill’s hope was that Britain could reverse deflation with the gold standard. Instead, deflation got worse.
Churchill’s belief was that returning to the gold standard could restore the pound’s role as the world’s reserve currency. The reserve currency is the fiat currency large financial institutions use for international trade.
During World War I, the US Dollar became the world’s reserve currency. That meant British financial institutions had to pay more to borrow money in international markets. That led to higher interest rates and made credit more expensive for British companies and individuals.
The pound’s decline drove deflation and made it hard for British industry to complete in global markets. As the pound fell, the center of the world’s financial market moved from the City of London to Wall Street. This reduced Britain’s power and influence in the world.
Income Inequality and Class Warfare
Our pop culture images of 1920s Britain; such as Agatha Christie’s mysteries and Downtown Abbey, correctly portray one effect of economic decline: growing income inequality.
Britain experienced great social and economic upward mobility during the Victorian Age. Many working-class Britons joined the middle class, and self-made millionaires were common. However, upward mobility stopped and sometimes reversed after World War I.
Unemployment and low wages impoverished the working class, while the upper and middle classes had a harder time preserving their status. Stark differences between classes emerged.
Thus, the popular images of 1920s Britain as a place of luxurious manor houses and cynical tuxedo-wearing aristocrats are partially correct. Consequently, popular portrayals of 1920s Britain drip with cynicism and feature nasty satires of the upper classes.
In particular, P. G. Wodehouse’s satires, and Christie’s mysteries which portray all members of the upper class as greedy, vicious, ruthless, self-serving, backstabbing, and murderous. Thus, Christie’s mysteries; which often feature country houses full of desperate and greedy sociopaths, are a kind of class warfare.
Christie became rich and famous by reassuring working-class readers that the rich are worse than you think. Typically, the only good people in a Christie story are the detective; for instance the working-class Miss Marple, and the solidly middle-class police inspector.
Thus, Christie was a pioneer of the culture as class warfare meme that drove British thinking throughout the 20th Century. One result of income inequality was to turn all British politics and much of British culture into class warfare.
During the 1920s, the middle-class Liberal Party collapsed and the working-class Labour Party emerged as Britain’s primary opposition. Widespread strikes drove civil unrest that culminated in the General Strike of 1926.
The political environment in Britain became one of total distrust of the upper class and the establishment by the working class. Actions such as Churchill’s gold standard; which he designed to help banks at the expense of workers, made the situation worse.
World War I drove class warfare because many British men who had sacrificed their youth for the Empire in the trenches came home to life on the Dole. The Dole was a system of cash welfare payments to unemployed men.
Something many Americans forget is that the Depression came to Britain 10 years before America. However, Britain’s welfare state which made cash payments to the unemployed helped the UK avoid the chaos of America’s 1930s Depression.
Stock Market Hysteria
A similarity between 1920s Britain and modern America was a frenzy of stock market speculation.
America’s booming stock market drove a dangerous frenzy in the City of London. Middle-and upper-class Britons desperate to preserve their incomes put their faith in stocks and lost everything.
Briton’s stock bubble burst with the Hatry Crisis of 1929. Britain’s most colorful corporate raider Clarence Charles Hatry brought down the stock market with the revelation that his business empire was a complete fraud.
Hatry tried to build a British steel cartel and bought several companies, but he lacked the money to pay for them. On 18 September 1929, Hatry confessed he was broke and unable to pay his creditors.
The newspapers soon learned of the confession, which caused a panic in the British stock market. The panic spread to Wall Street and helped trigger the Stock Market Crash and the Great Depression.
One way Hatry caused the Stock Market Crash was to convince wealthy Britons to pull all their money out of American stocks. Another was to destroy confidence in all markets. A court convicted Hatry of fraud. Hatry spent nine years in prison, and went free in 1939, just in time for World War II.
The Imperial Fantasy
The greatest similarity between modern America and 1920s Britain is a ruling class totally invested in imperialism.
In the 1920s, British leaders invested their resources in efforts to preserve and defend the empire at all costs. The government maintained the world’s largest navy and massive army garrisons in India and elsewhere. The media supported the Empire by ignoring any suggestion that the British were not better qualified to rule than Indians or Africans.
Just as modern American neoconservatives believe Iraq is vital to America’s national security, 1920s British imperialists thought Singapore was necessary to their national defense. The idea of a British world order was the nation’s only foreign policy and worldview.
This self-centered and racist delusion had catastrophic results. In particular, British efforts to maintain authoritarian rule in India poisoned relations between the two countries. Britain’s leaders made no serious effort to create a meaningful relationship with the United States or to preserve the alliance with France.
Worst of all, many of Britain’s best and brightest ignored their nation’s problems and concentrated all their energy on efforts to preserve the Empire. British imperialists invested all their money and effort in preserving the Empire while their country’s industry crumbled and the working class became impoverished.
Similarly, American neocons waste billions on pointless wars in Afghanistan while the Midwest crumbles. In 2020s America, as in 1920s Britain, there is no foreign policy, only clumsy efforts to maintain the Empire at all costs.
The ultimate consequence of 1920s Britain was the 1930s and the fantasy of appeasement. The belief that Britain could create peace in our times by being nice to Hitler, Stalin, and Mussolini. Appeasement led to World War II and the destruction of the British Empire.
It was only after 1945, and near defeat in 1940, that the British adopted a new worldview and began rebuilding their country along more egalitarian lines. I have to wonder if America will a similar fate.
Something, all 1920s fantasists need to remember is what came after the 1920s, namely the Depression and World War II.