Ch.10 EH

Facts:

  • It was the first modern war from an economic and technological point of view

  • It marked the beginning of state planning in the economic field

  • It brought about major geopolitical changes:

end of the Old Empires (Austria-Hungary and Ottoman Empire)

definitive affirmation of new non-European powers: US and Japan

  • It determined the beginning of the communist experiment

  • It led to the emergence of strong nationalism

  • It had a strong cultural impact

  • It was generally believed that the war would not last long

Origin of conflict: 


Starting point - Sarajevo bombing of 28 June 1914


Austria-Hungary went to war against Serbia, a traditional ally of Russia. In short, the whole of continental Europe, bound by pacts and alliances, was involved in the conflict.


  1. The war broke out as a result of a process that had started in the mid-19th century for the conquest and partition of a significant part of the planet by European powers.

  2. Among the possible causes of the conflict, historian Fritz Fischer includes Germany's desire to conquer more space in Eastern Europe:

  • The Balkans became an area of increasing conflict where the desire for hegemony among European powers clashed with the rising nationalisms of new nation-states (Serbia, Romania, Bulgaria).


Macro categories:

  • The breakdown of the old alliance system

  • New nationalistic demands

  • New geopolitical demands

  • Economic competition

  • Culture and ideology

  • The role of science and technology 

The use of motor vehicles by the armed forces drove the car industry

The chemical industry expanded with the production of explosives and poison

gasses, tyres, and medicines.


Consequences:


Political and economic consequences:

  • Economic (industrial) mobilization

  • Strong state intervention

  • Massive economic losses

  • The beginning of an age of insecurity

  • Marks the end of positivism and liberal individualism


The Great War ended the first phase of globalization by breaking down its main pillars:

  • Trade and foreign investment

  • Gold standard

  • Mass migration

  • Integration of financial markets


A Technological Conflict - The war led to a substantial reallocation of resources from the production of civilian goods to military use.


Inventions -> Radio, Aviation, machine-gun synchronization gear 


Taxonomy of the conflict: 


Industrial conversion:


Women at work -> Red cross, Drivers, Munitions, Agriculture since men was at war

Hindenburg Plan (Germany) - > double industrial output, Kriegsamt (War Office) took centralized control over all the bodies supervising the arms industries, placed the male workforce fighting at the front by mobilizing women, minors, invalids and prisoners of war, and concentrated industrial production in order to eliminate inefficiency and waste. 

Germany was successful but had to retrieve later. 

State intervention:


The pressures resulting from the war pushed governments to act in ways previously unthinkable, both to supply the armies and to deal with the problems of civilian populations.

To meet the colossal needs of the armies, governments and supreme commands had to obtain raw materials, in addition to planning the manufacture of armaments and rationing of food supplies. This was more important for Germany, which did not possess the colonial empires and resources of France and Great Britain.

The main areas of intervention were supply of raw materials, food rationing, industrial production and the government of finance


In order to cope with the huge war requirements, governments set up departments and

offices responsible above all for industrial mobilization and the expansion of war production.


In the German case, for instance, the Hindenburg Plan created the Kriegsamt(Supreme War Office) with the following objectives:

  • doubling the industrial production

  • total mobilization of workers (even prisoners of war)

  • complete eradication of industrial inefficiencies


The government’s role in the economy grew considerably:

  • It became the main purchaser of goods and services

  • It imposed controls on many areas: trade, transport, prices, production, supplies of raw materials and food, etc.


This showed – both in Europe and in America - that the state could assume extensive responsibilities in the coordination of economic activities. At the end of the war many controls were removed, but the liberal principle of the laissez-faire had been profoundly shaken.


The state financed public spending through

  • increased taxation (resulting in a depression of household consumption),

  • but mainly through:

1. domestic and foreign borrowing,

2. an increase in the money supply -> the printing of banknotes.


The total public debt of the countries involved in the conflict rose from 26 billion dollars

before the war to 225 billion dollars in 1920.


The contribution of different sources of financing varied from country to country and so

did the levels of inflation, determined by the increase in circulating money -> this represented a heavy legacy to manage at the end of the conflict.


Economic consequences:

Entente - >  monetary problem was to support parity of the sterling with the dollar, given that the British currency supported that of the other Allied states. This was very difficult, because from 1915 Great Britain ceded its foreign investments and accumulated further debts. Only the entry of the USA into the war resolved the monetary issue, because the US Treasury granted credit directly in dollars.


The economic losses were considerable and included:

  • Material destruction

  • Disruption of economic relations

  • Disruption of foreign trade

  • Loss of foreign markets

  • Loss of profits from foreign investments

  • New global agricultural balances

  • The loss of lives


Material destruction, the situation at the end of the conflict was dramatic: the total cost of the war, between estimated losses and actual expenditure, amounted to some 400 billion dollars (1914 purchasing power). Buildings, plants, industrial machinery, mines, agricultural machinery, livestock, transport and communication infrastructure were destroyed.


In the long run, Disruption and disorganization of normal economic relations between countries:

The negative effects did not cease at the end of the conflict but continued into the 1920s and 1930s.


During the war, the governments of the belligerent states (and even the neutral ones)

imposed direct controls on prices, production, and the distribution of the workforce.

  • These controls artificially stimulated certain sectors while depressing others.

  • Although these controls were later lifted at the end of the conflict, pre-war relations did not quickly or easily return to normal.


Disruption of foreign trade and various forms of economic warfare, particularly between Germany and Britain, involving submarine warfare. In 1917, this led the United States to intervene in the conflict


Loss of foreign markets:

  • With Europe blockaded, many overseas countries decided to either produce goods on their own or purchase them from non-European countries, which they had previously imported from Europe.

    • Latin American and Asian countries established manufacturing industries.

  • America and Japan captured new markets that were previously controlled by Europeans.


Foreign investments, Britain and France had to divest a portion of their investments to finance the purchase of war materials.

  • German investments were confiscated and later used as reparations.


Agricultural sector, the war stimulated production in economically established countries like the United States and in "virgin" territories like Latin America.

  • In the 1920s, the result was overproduction and a collapse of prices.


In the maritime transport sector, England lost its primacy to the United States (which benefited from their neutrality).


The loss of lives

  • The dead soldiers numbered approximately 10 million, and another 20 million were maimed and disabled. 

  • To these were added 6 million civilian casualties and a birth deficit estimated at 13 million. 


The losses due to the war, (including the Russian Civil War and the Armenian genocide by the Turks) combined with those induced by the Spanish flu epidemic in the winter of 1918-1919 produced serious consequences in terms of labor supply.


Industrial reconversion:


After the war -> urgent need to reconvert industrial production towards civil production.  

  • Fear that leaving the growing demand for civil goods unsatisfied would cause inflation.


However, this process was not easy:

• the return of the soldiers from the front push up unemployment rates

• waves of strikes occurred everywhere in Europe and in the United States due to discontent over difficult living conditions


End of war:


  • Allies asked US to cancel debt or compensate with German reparations -> US said NO

  • The question of inter-allied war debts damaged international relations and was an important factor preventing a return to the pre-war situation.

  • Shift from London to NY (The New York Stock Exchange replaced London as the world’s leading financial market) 

  • Central Empires were excluded from the world markets

  • Inflation was higher in the Central Empires

  • Germany had to pay for triggering the conflict: 132 billion gold marks. 

More than the country could ever hope to pay, especially since it was isolated from the international economic system and had no possibility of exporting goods to accumulate hard currency.


The integrated economic systems of the Central European Empires were broken up after the war, since sources of raw materials were cut off from industrial centers and communication networks were interrupted.


John Maynard Keynes - France and Great Britain would destroy the peace by “demanding the impossible” and sacrificing “substance to appearance”.


The consequences of peace:

  1. The American intervention changed the fate of the war: in November 1918 Austria-Hungary and Germany signed the armistice.

  2. The Treaty of Versailles in 1919 officially ended the conflict after a laborious peace process. A number of punitive impositions and debts were imposed on Germany.

  3. Two major problems emerged from the peace treaty:

  • growth of economic nationalism

  • monetary and financial instability