Reconstruction, Recovery, and Collapse, 1919–1933

The rapid reconstruction of an advanced economy devastated by war or natural disaster requires the rapid replacement of physical facilities destroyed or rendered obsolete. This requires external assistance, for the import requirements of a reconstructing economy, in comparison with the recent past, are temporarily greater, and the export capabilities, temporarily less. The maintenance of tolerable living standards during reconstruction also requires the temporary provision by external sources of the food and raw materials the reconstructing economy would have been able to provide, directly or through imports matched by exports, if the devastation had not occurred. If external assistance is not available, reconstruction may be difficult. A substantial alteration in the structure of the economy may be required, and this process may be painful and slow, particularly if the monetary system works badly as it did in much of Europe following World War I. But external assistance, adequately provided and wisely used, can provide the imports required for rapid reconstruction. Just as strategic bombing, by imposing bottlenecks in a production system, can cause a greater reduction in total production than the percentage of the stockpile of capital destroyed, so external assistance, by removing bottlenecks, can induce a more than proportionate increase in total production.