From the late eighteenth century, Europe started rising to the top of the world. The first industrial revolution in Britain gradually spread over the continent and the first important steps of a second industrial revolution, partly by Germany, were made after the middle of the nineteenth century. By 1870, Europe produced 45 per cent of the world’s total income. Around the turn of the century, however, Europe lost its leading position, and produced only 27 per cent of the world’s total income by 1913. The combined per capita gross domestic product (GDP) of the overseas West (the United States, Canada, Australia and New Zealand) was already more than 70 per cent higher than that of western Europe.

This book is about the twentieth century, although centuries are of course not real historical units. What happened in the first period of that century definitely started emerging during the last decades of the nineteenth century. The Second Industrial Revolution of that period had its real fruition during the next century. The revolts of the peripheries, the rise of wild nationalist and social conflicts, extremism, proto-fascism, communist ideology were all born at that time. The first chapter of this book on the twentieth century consequently incorporates phenomena from the late nineteenth century. The main historical processes of the twentieth century also did not end in 2000, but continued in the early decades of the twenty-first century. Globalization, globalized deregulation, and speculative, casino-type banking had their painful backlash in 2007–8, the most serious Great Recession that did not end in Europe before the late 2010s. The last chapter of the book thus incorporates the very first decades of the twenty-first century as well.

Looking back over that longer twentieth century, one may imagine Charles Dickens's feelings when he reflected on the bloody ending of the eighteenth century. He opened his 1859 A Tale of Two Cities with the words: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair …”

Indeed, as Sir Isaiah Berlin expressed it, the twentieth century was the most horrible century of Western history. Eric Hobsbawm characterizes it as the Age of Extremes, “a sort of triptych or historical sandwich: a quarter of a century of a ‘Golden Age’ between two, equally long periods of catastrophes, decomposition and crisis” (Hobsbawm, 1994: 1, 6). Mark Mazover gave the provocative title Dark Continent to his book on Europe's twentieth century, which “brought new levels of violence into European life, militarizing society … killing millions of people with the help of modern bureaucracies and technologies” (Mazover, 1998: 404).

World War II shocked Europe and the world. The continent was literally decimated, losing 10 percent of its population on average, and as much as 14–16 percent in some of the countries. Twenty to thirty million uprooted people migrated within the continent, including expelled Germans from Central and Eastern Europe and half of the Jews who survived the industrialized Holocaust. In addition to the human cost, the war had also caused physical devastation. Half of the total European railroad capacity was destroyed, along with 70 percent of Europe's entire industrial infrastructure. Several countries lost one-third to one-half of their total urban housing stock, rendering millions homeless. Food and energy production that did survive satisfied only a fraction of the need, and, as a result, calorie intake was reduced to merely half of its pre-war norm in several countries.

Moreover, war exhaustion and devastation led to shocking hyperinflation in seven countries, which, in its most extreme case reached 12 percent per hour. Such severe hyperinflation caused money to lose its value and forced people to return to trade in kind. Two generations of progress were destroyed, and most countries declined back to their economic level in the 1870s–90s. Worst of all was the repetition of the deadly trend: World Wars I and II were so closely connected that some characterize them as a single Thirty Years' War of the twentieth century, with an armistice in between. By 1945, including the death toll, declining birth rates and increase of disease, these wars had eliminated 110–20 million people and wounded and crippled about four times as many.

After all of this, how could Europe recover? How could it rebuild homes and life? How could it prevent continued repetition of war? A return to the prewar economic nationalism that characterized history's most devastating Great Depression and war preparation was out of the question.

Out of two world wars, the unprecedented depression and postwar desperation, however, emerged a new mentality, a new appreciation for the importance of solidarity and the essential role of the state in economic affairs, as championed by John Maynard Keynes and Karl Polanyi. As governments began to recognize their responsibility for human needs and to promote more egalitarian income distribution, the postwar reconstruction of Europe increasingly included a modified capitalist system, a managed social-market economy.

The rise of Britain and the laissez-faire system

The “long” nineteenth century, from the 1770s–80s to 1914, was the most spectacular period of economic change in Europe. The British Industrial Revolution opened a new chapter of economic history. By the middle of the eighteenth century Britain had achieved the prerequisites for sustained economic growth. More than 1,000 miles of navigable canals and waterways, 300 Newcomen steam engines, a revolutionized agriculture, and dynamic proto-industrial development made Britain the center of world trade. Domestic markets played a dominant role during this period (Flinn, 1966: 62); only 5–9 percent of British output was exported during the eighteenth century. However, higher profits in foreign markets increased the role of exports to 10–12 percent (Bairoch, 1976: 196). Export activity, nevertheless, became the driving force of industry: during the first half of the eighteenth century the output of export industries increased by 76 percent, while output in other industries grew only 7 percent. The value of British exports doubled between 1700 and 1750, and then more than tripled by 1800. The leading textile industry by then exported half its output. Eric Hobsbawm concludes that the origins of British industrialization were rooted in foreign trade, especially with less developed areas such as India and other colonies (Hobsbawm, 1968: 49).

In the early eighteenth century, Britain defended its domestic market in a traditional mercantilist way. For example, the so-called Calico Law banned the imports of Indian cotton goods. Exports flourished, especially in the leading textile sector. The value of British exports increased thirty-fold during the long nineteenth century to 40 percent of the national income (Schlote, 1952: 53). The rate of export growth also increased, from 2 percent to 4 percent, and then to 6 percent during the 1860s to 1870s. Already by 1820 the value of British merchandise exports surpassed the value of merchandise exports of France, Switzerland, Austria, the Low Countries, and Italy combined. By 1870, British exports reached 40 percent of total Western European exports, and by World War I still accounted for more than one-third (Maddison, 2001: 361). British industrial development also intensified. During the first four decades of the nineteenth century industrial output grew at rates of 23 percent, 39 percent, 47 percent, and 37 percent. Britain gradually gave up agricultural self-sufficiency.

Globalization and its impact on Europe

During the last third of the twentieth century, a new trend figured in the world economy: globalization. Europe became one of the main participants in this transfiguration. Several historians maintain that there is nothing new in globalization – consider an ancient form of globalization, the Christian Church (Hopkins, 2002). According to others, early modern times, and even more so the nineteenth century, marked the beginnings of globalization. In this view, globalization was successively advanced by the colonial empires, the railroads, the laissez-faire system, and the international gold standard. From late medieval times, long-distance trade and cashless payment networks began internationalizing the European economy. Worldwide trade networks emerged during the early modern centuries. All these, however, were only the beginning of a long historical trend that led to globalization.

O'Rourke and Williamson speak about a “first globalization” from the second half of the nineteenth century, and, after a third of a century backlash in the interwar world economy, a second wave of globalization after World War II. All of these interpretations may have a rationale. However, late nineteenth-century globalization, while representing a strong globalizing tendency, did not yet lead to a globalized world system. That happened only in the late twentieth century. Economic interactions between various countries and continents – trade, migration, capital investment, establishment of subsidiaries, production abroad, and financial transactions – all existed before but became dominant in the last third of the twentieth century.

John Maynard Keynes, in his Sidney Ball Lecture at Oxford University in 1924, challenged the biases in favor of laissez-faire. As in the title of his essay, The End of Laissez-faire, Keynes prophesied a new age. War experiences certainly played an important role in forming his revolutionary views and negating the basic principle of Adam Smith:

The twentieth century, especially after World War I, began with a major challenge to the laissez-faire regime with the emergence of alternative economic systems. The entire continent gave up free trade and laissez-faire market economy and turned toward protectionism, state interventionism, and a regulated market system.

World War I was a turning point. It “marked the true watershed between the nineteenth and twentieth centuries” (Feinstein et al., 1997: 18). One could add, it accelerated the collapse of laissez-faire. German experiments in state regulation of the war economy became a kind of model for all combatant countries, including Britain. Instead of further building an international economic system, these countries adopted economic nationalism and sought self-sufficiency. State interventionism vigorously returned.

A decades-old debate persists over the existence of a “fascist economic regime.” Alan Milward, more than a quarter of a century ago, argued

Besides the debate over the similarities and differences between the Italian and German systems, debate persisted over fascism itself. From the perspective of this economic history analysis, it is not relevant whether Italian fascism and German National Socialism may be generalized as fascist regimes, nor is there a need to differentiate them or establish that “nazism [is] a distinctive branch grafted on the fascist tree.” It is not relevant here whether a narrower definition of fascism excludes “the royal military-bureaucratic-oligarchic dictatorships,” including regimes led by political forces such as Primo de Rivera's Union Patriotica and later Franco's Movimiento Nacional in Spain, or Salazar's União Nacional in Portugal (Linz, 1976: 9, 11). In his History of Fascism, Stanley G. Payne includes the military-led right-wing regimes in Southern and Eastern Europe in the history of fascism. Although those regimes were not explicitly fascist, they definitely contained elements of fascism, from the Horthy regime in Hungary to post-Stambolinski Bulgaria, from Piłsudski's Poland to the even more authoritarian regime that followed. They were all authoritarian and subordinated the economy to the state, especially during the 1930s. Their political systems were often characterized by one-party rule, as in the case of the later Piłsudski era, often as a result of the elimination of political parties, as under the Balkan royal dictatorships and Ioannis Metaxas's dictatorial regime in Greece.

General Metaxas's dictatorship in Greece had no party backing at all. His “Fourth of August Regime” rejected party organizations.

History does not abide by the strict schedule of the calendar. The economic history of twentieth-century Europe begins somewhat earlier than the century itself and certainly does not end by the close of the last calendar year. In the time span from the late nineteenth century to the early twenty-first century – thus about one-third longer than the calendar twentieth century – the history of the European economy was consistent. It was during this time that laissez-faire capitalism was born, challenged and almost defeated by alternative economic regimes, adjusted, and was eventually reborn. This book covers the long twentieth century of economic history in Europe.

This book plays a special role in my long professional career and maintains a distinctive place among the great number of books I have written and published. Its first edition, published in 2006, was translated into more than a dozen languages and was published across Asia and Europe.

Writing an economic history of an entire continent over the course of longer than a century is probably an over-ambitious enterprise. Several inspirations, however, have prompted me to write one. Starting with my very personal historical experience, I lived through and survived more than eight decades of the period I am going to discuss, and closely watched the latter two-thirds of it. I had personal experiences with economic nationalism in the authoritarian state and its war economy in Hungary. Soon after the war, a Soviet-style command economy was introduced. I actively participated both in attempts to reform it, and, in the 1980s, also in the economic regime change. I closely followed the transformation of the centrally planned economy into a private-market system. At last, in the past quarter of a century, I have lived in the globalized, free market economic regime in the United States. I feel fortunate for this unique, motivating experience.

My long career and numerous publications as an economic historian of nineteenth- and twentieth-century Europe also provided personal inspiration to author a new approach to the various economic regimes of the twentieth century. Some of my good friends and colleagues published broad economic histories: David Landes's classic The Unbound Prometheus and Sidney Pollard's Peaceful Conquest on the industrialization of Europe covered roughly two centuries between 1760 and 1970.