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IN THE weekend, European leaders attended a series of sombre ceremonies in Belgium and France to commemmorate the outbreak of the First World War exactly a century ago. This, “the great seminal catastrophy of this century”, as the famed American diplomat George Kennan called it, was an event which introduced a dramatic course change of world history.
Politically, it gave rise to the two totalitarian systems responsible for the lion share of human misery – Nazism and Communism. It led to the Second World War and the Cold War.
In fact, the importance of the First World War can hardly be overstated. 1914 was arguably a more important turning point than 1939.
But politics can never be divorced from economics. Therefore, in this article I will shortly explore how the economic consequences of WWI influenced the political events even to this day.
It is important to understand that the world before 1914 was, like today, in the throes of a process of globalisation. New transport possibilities – steamships and railways – stimulated the movement of people and goods across national borders and even between continents, while the telegraph made an unprecedented rapid transfer of news and ideas possible.
Capital flowed fairly freely between national capitals. Trade blossomed, growing by an average of 4.1% between 1870 and 1913. According to one study, foreign assets accounted only for 7% of world GDP in 1870, compared to nearly 20% in the years 1900 to 1914.
This gave rise to an understandable, but naïve optimism. In 1909, the British writer Norman Angell posited in his book Europe’s Optical Illusion that peace was guaranteed, as war between these advanced economies had become irrational.
Alas, the first shots fired on 28 July by Austro-Hungarian forces on Belgrade and on 4 August by the German Army when it invaded Belgium and France, put paid to that idea. The globalisation process did not make war impossible; it merely made the price eventually paid that much higher – perhaps a lesson in realism for present-day optimists.
The First World War ushered in the end of an economic paradise. The costs were staggering: Apart from the loss of about 10 million soldiers and another 7-10 million civilians as a result of the war’s hardships (the worst since the Black Death of the 14th century), the war cost about $208bn.
Especially the European governments did not have this kind of money; they had to borrow it. The UK government, for instance, had to borrow $4bn from the US treasury in 1917/18. And additionally, the victorious Allies slapped Germany with a war debt of $33bn (an amount which, by the way, was only finally paid off in 2010).
All of this devastated the European – and especially the German – economy. And it had two important consequences.
Germany was plunged in a deep economic crisis which facilitated Adolf Hitler’s rise to power in 1933, thereby making the Second World War almost a certainty.
Secondly, Britain, Germany and Europe lost their economic (and therefore political) supremacy in the world to America. Although the US only translated its economic supremacy of 1918 into political supremacy after 1945, this development was made possible by the European economic implosion of 1914-’18.
The economic crisis emanating from the Wall Street crash in 1929 also finally ended the pre-1914 economic globalisation. Governments’ instinctive reaction was to flee into protectionism.
The extent to which globalisation declined, is illustrated by the fact that exports world-wide declined between 1928 and 1933 by between a third and two thirds in various countries. By 1932 the European economies had contracted to a little over half the size they had in 1929.
In Germany, approximately a third of the work force was unemployed, helping to propel Hitler into power in January 1933.
Across the globe, governments reacted by cutting expenditure and forcing wages down in a vain attempt to increase their competitiveness abroad. Alas, this only resulted in cutting consumer spending, pushing their economies even deeper into a morass.
Ironically, it took massive state spending by the Nazi regime and its Allied counterparts in order to rearm to stimulate a kind of recovery. But then, of course, the massive borrowing and devastation of the Second World War made Europe even more dependent on the US. Finally, Europe’s recovery was only made possible by the massive American investment in the form of the Marshall Plan, in which the Americans pumped $13bn into Western Europe.
All in all, the First World War played an important role in shaping the world of the 20th – and 21st – century. Political developments can never be divorced from economic factors.
Politically, it gave rise to the two totalitarian systems responsible for the lion share of human misery – Nazism and Communism. It led to the Second World War and the Cold War.
In fact, the importance of the First World War can hardly be overstated. 1914 was arguably a more important turning point than 1939.
But politics can never be divorced from economics. Therefore, in this article I will shortly explore how the economic consequences of WWI influenced the political events even to this day.
It is important to understand that the world before 1914 was, like today, in the throes of a process of globalisation. New transport possibilities – steamships and railways – stimulated the movement of people and goods across national borders and even between continents, while the telegraph made an unprecedented rapid transfer of news and ideas possible.
Capital flowed fairly freely between national capitals. Trade blossomed, growing by an average of 4.1% between 1870 and 1913. According to one study, foreign assets accounted only for 7% of world GDP in 1870, compared to nearly 20% in the years 1900 to 1914.
This gave rise to an understandable, but naïve optimism. In 1909, the British writer Norman Angell posited in his book Europe’s Optical Illusion that peace was guaranteed, as war between these advanced economies had become irrational.
Alas, the first shots fired on 28 July by Austro-Hungarian forces on Belgrade and on 4 August by the German Army when it invaded Belgium and France, put paid to that idea. The globalisation process did not make war impossible; it merely made the price eventually paid that much higher – perhaps a lesson in realism for present-day optimists.
The First World War ushered in the end of an economic paradise. The costs were staggering: Apart from the loss of about 10 million soldiers and another 7-10 million civilians as a result of the war’s hardships (the worst since the Black Death of the 14th century), the war cost about $208bn.
Especially the European governments did not have this kind of money; they had to borrow it. The UK government, for instance, had to borrow $4bn from the US treasury in 1917/18. And additionally, the victorious Allies slapped Germany with a war debt of $33bn (an amount which, by the way, was only finally paid off in 2010).
All of this devastated the European – and especially the German – economy. And it had two important consequences.
Germany was plunged in a deep economic crisis which facilitated Adolf Hitler’s rise to power in 1933, thereby making the Second World War almost a certainty.
Secondly, Britain, Germany and Europe lost their economic (and therefore political) supremacy in the world to America. Although the US only translated its economic supremacy of 1918 into political supremacy after 1945, this development was made possible by the European economic implosion of 1914-’18.
The economic crisis emanating from the Wall Street crash in 1929 also finally ended the pre-1914 economic globalisation. Governments’ instinctive reaction was to flee into protectionism.
The extent to which globalisation declined, is illustrated by the fact that exports world-wide declined between 1928 and 1933 by between a third and two thirds in various countries. By 1932 the European economies had contracted to a little over half the size they had in 1929.
In Germany, approximately a third of the work force was unemployed, helping to propel Hitler into power in January 1933.
Across the globe, governments reacted by cutting expenditure and forcing wages down in a vain attempt to increase their competitiveness abroad. Alas, this only resulted in cutting consumer spending, pushing their economies even deeper into a morass.
Ironically, it took massive state spending by the Nazi regime and its Allied counterparts in order to rearm to stimulate a kind of recovery. But then, of course, the massive borrowing and devastation of the Second World War made Europe even more dependent on the US. Finally, Europe’s recovery was only made possible by the massive American investment in the form of the Marshall Plan, in which the Americans pumped $13bn into Western Europe.
All in all, the First World War played an important role in shaping the world of the 20th – and 21st – century. Political developments can never be divorced from economic factors.
