World War I: Economics

11th-Inf-Div
Figure 1.--Rapid-fire weapons like this German Maxim light maxhine gun in 1916 or the French 75 field artillery piece proved devestaingly effective. They also substantially increased the cost of modern, especially protractd wars. This was a factor in the Schliffen Plan, the German war plan designed to in the war in a brief summer campaign. At the time. many did not think that countries could afford to finance protracted wars. The countries involved proved amazingly adaptable, although economic failure was ultimately a factor in the German collapse. Military analyists often attribute the entry of the United States into the war as the reason for the Allied victory. This is attributed to manpower nd fighting spirit, the American infantry on the Western Front. This was Ludendorf's assessment.

Economics inevitably plays an important role in wars, especially long wars and World War I proved to be much longer war than any of the beligerant nations anticipated. Europe in the early-20th century was prosperous, enjoying an expanding economy fed by the trade and commerce among the varying powers and free market capitalism. War seemed almost impossible because it would destroy that economic prosperity. Some analyists postulated that modern arms were so expensive that couuntries could not afford a long war. Economics do not seem to have been a major factor in causing the War, unlike World war II launched by countries intent on gaining territory and resources. Economics did affect German thinking. Many Germans did not believe that they had an empire appropriately reflecting the country's importance and thus rightful status. But this seems more of a nationalistic matter than an economic one. However it is classified, it did predispose the Germans to turn to military action. While economics was not a major factor in causing the war, it did affect the conduct and outcome of the War. The industrial power of each country was a factor in equipping and suppoting the military. When the initial German offensive failed to defeat the Allies, the war became a matter of attrition and hear the Allies held the advantge. Not only did they have a larger population and economic base, but they had the navies that could blockade Germany while allowing them to import food and needed raw materials for the war effort. One development that surprised many was the ability of beligerants to sustain war despite the huge cost and the inevitable decline in living standards. Here the intensity of nationalist feelings helped sustain the effort. And capitalism proved highly adaptable. One of the unintend affects of the War was the expansion of governments in each of the principal beligerant countries to effectiveky harness society and importantly the economy for war. This included unprecedented control over the economy of each country. Military analyists often attribute the entry of the United tates into the war as the reason for the Allied victory. Often this is attributed to manpower, the American infantry on the estern Front. This was Ludendorf's assessment. Actully, the American financial support for the Allies may have been even more important. After the War, the peace treaties imposed reparations on Germany and the other Central Powers. This is often cited as a factor in post-War Germany's turn to the NAZIs. The Versailles Treaty was widely hated in Germany, but the reparations did not have a major impact on the economy. Most of the payments were funds privided by American banks. And wirthbnoting is the even more severe treaties or occupation regimes the German imposed on the countries that they defeated or occupied (Belgium, Russia, Romania, and Serbia).

National Economies

The major powers of Europe had engaged in a massive arms race in the years leading up to World war I. They as result were well prepared for a short war. When it came it was unexpected and all the major beligerants all believed that the issue would be resolved in a few months of fighting. Despite huge expenditures for arms, none of the beligerants had made economic preparations for the War. Little or no thought ad been given to stockpiling statehic materials or organizing the economies for war. The Germans steamrolled through Belgium (August 1914), but the French stand on the Marne (September 1914) meant that the War would not be a quick one and ultimately it would be settled by the economies of the various national economies. Unfortunately for the Germans, the military advantage they had at the inception of the War was undermined by substantial economic weaknesses and their major ally, Austria-Hungary was even weaker. And if this was not bad enough, policies pursued by both countries as well as Allied naval power only weakened their economies and undermined their war effort as the War progressed. Germany had the largest indusrial power in Europe, permitting it to equip its very professional army which launched the War by invading neutral Belgium. The whole German war plan was to avoid the French border defenses by striking through Belgium. The objective was to envelop Paris as they had done in the Franco-Prussian War (1870), winning the War in a few weeks of fighting. They came very close to doing just that. The French victory on the Marne proved to be a disaster for Germany. While Germany had the largest industrial base, Britain and France combined had a larger industrial capacity. And there were serious weaknesss to the German war economy. Germany had few natural resources. Germany industry not only had to import raw materials, but food to feed its industrial workers. And the Allies implemented a naval blockade to cut off the needed imports. As a result German industrial output declined while British industry increased production as the War progressed. France was self-suffient in food production and Britain could import what it needed from the Empire or the United states. This inbalance did not impair German military performance at first, but gradually undercut both arms production and civilian morale. Russian attacks in the East were a major reason the French were able to stop the Germans. But of all the major beligerants, Tsarist Russia was the least prepared for war. Russia had the fasest growing industrial sector in Europe, but it was still pootly developed compared to Germany. It had a largely agraian population. Most of the population lived in rural areas under virtully medieval conditions. Its industry or transport system was in no condition to sustain a war against an industrial power like Germany, especially an industrial powerhouse like Germany. And tragically for the Russian people, there was no way for the Allies to get large quantities of war supplies to the Russians. Britainlargely financed the Allied wae effort, but by 1917 its emense financial reserves were being exhausted. The War would be decided by the neutral United States. Unlike the Europeans, the United States had not participated in the European arms race. It had a tiny, all volunteer army. It had, however, the most powerful economy on the planet. It had a larger industrial base than Germany as well as emense natural resources and the ability to not feed itself, but to grown enormous quntities of food for the Allies. Americans wanted no part in the War. Inceedibly Germany ignored all of this and virtually drove a deeply pacifist, but highly patriotic country into the War. It was a war policy on the part of the Germans that can only be described as incredible stupidity. In sharp contrast, the British understood from the very beginning the importance of the United States.

Strategic Materials

The world at the time of World War I was strategic mismatch. Rurope had industrialized, especially Western Europe. Europe had developed sophisticated industrial secors and scientific establosments to support it. But Europe lacked the raw materials neeed by its increasingly advanced industries. Most Eropean countries had coal, but other than coal, other resources were hopelesly scattered across Europe and oversaes. It seemsgat the industrialized countries lacked resources and the countries wuth resoure lacked industry. Germany did not even hve substantial iron deposits for his vaunted steel insustry. The one country in Europe that had copius quantities of raw mterials was Russia, the least indusreialized of the great powers. Britain had dealt with the need for raw materials by constructing a vast empire tied together by the Royal Navy which ruled the waves since Nelson's victory at Trafalgar (1905). France also built an empire and with its raprochmebt with Britain also had a secured access with raw materials. Germany was late to unify and by the tome this was achieved, much of the had been parceled out. In the Scramble for Africa, Germany's spiring leders to obtain as he saw it only a few crumbs. Worst still, the Germans in a time of crisis could be cut off its overseas suppliers by the British Royal Navy. Gradualy German leaders seized on an answer--the Berlin-Bagdad Railway. But siting astride the route was Serbia, asworn enemy of its allies, the Austro-Hungarian and Ottoman Empires. This became increasingly important when a new raw material began to become important--petroleum. At tge urging of Admiral Jackie Fisher and First Lord of the Admiralty Winston Churchill, Britain began converying its fleet from coal to oil. German strategic thinkers also saw the importance, lending urgeny to the rail connections with the Niddle East. Coal continued to be imporanction World War I, but oil was needes for aircraft, tanks, trucks, and U-boats. America was the greatest oil producer, the Saudi Arabia of the day. The Royal Navy guaranted deliveries to Britain, but an embargo enforced by the Royal Navy cut Germny off. Germany went to war expecting auick victory rendering embargoes moot and meaning shortages would not develop. It was a huge strategic blunder and in the end consume the short-lived German Empire.

Industry

The industrial revolution was launche in Britain (mid-18th century). Combined with advances in science modern Europe began to energe. Industry greatly increased the efficency of manufacturing generaing wealth in unprecented quantities. The ininial industry was textiles, but soon other industries developed. And transport was revolutionized with steam power.

Agriculture


Pre-War Thinking

Economics inevitably plays an important role in wars, especially long wars and World War I proved to be much longer war than any of the beligerant nations anticipated. Europe in the early-20th century was prosperous, enjoying an expanding economy fed by the trade and commerce among the varying powers and free market capitalism. War seemed almost impossible because it would destroy that economic prosperity. Some analyists postulated that modern arms were so expensive that couuntries could not afford a long war. A factor here was rapid fire weapons, including artillery which significantly incrased the cost of war. American Army commanders rejecting rapid fire rifle and American soldier paid the prive when they encountered Spanish soldiers equipped with Mausers in Cuba (1898). The result was the Springfield M1903 rifle used in World War I. The amount of amunition expended in World war I exceeded all other wars of history by huge factor. The costs of the War were indeed enormous.

Causes

Economics despite persistent Marrxist thinking do not seem to have been a major factor in causing the War, unlike World war II launched by countries intent on gaining territory and resources. After the War there was a huge hue and cry over the 'mercgants of death'. Extensive investigations including some by the U.S. Congres, failed to find any evidence that industrialists caused the War. In factindustrilists have generally opposed wars, despite ream of Marrxist writings. Ther were instances, however, of war profiteeting, but this is the case in virtuslly every war. But there was no evidence of industrialists working to create a war.

German Military Thinking

Economics did affect German military thinking. Germany was undoubtedly the preeminent military power on the Continent. Germany had, however, weaknesses. The economy was reliant on food nd raw kmaterial imports and the Britih Royal Navy threatened those imports. The population and industrial base was smaller than the combined resoyrces of the llies. It was clear to German military planners that if Germany was to win a European war, it would have to be done in a few months of fighting at the outset. Actually this was not a shift in thinking. Imperil Germny was a state built around Prussia. Prussia traditionlly had the largest standing army in Europe and a highly efficent mobilization system. Prussia has often been described as an army with a country attached rather than a country with an army. A protractd war favored the Allies. The immediate problem was to defeat France before the Russians could mobilize. But the cost of modrn war was another important factor. The Germn anser was not to avois war, but to win it by a mssive offensive which was the guiding spirit of the Schileeffen Plan. This would forever label Germany as war-like agressor nation, a major factor in America's eventual entry into the war.

Nationalism

Nationalism was an important factor leading to the War, but perhaps an even more imporyant factor explaoning the continuation of the War. Many Germans did not believe that they had an empire appropriately reflecting the country's importance and thus rightful status. But this seems more of a nationalistic matter than an economic one. However it is classified, it did predispose the Germans to turn to military action. French feeling was stringly influenced by the loss of alsace-Loraone in the Franco-Prussian War (1870). Perhaps even more puzzeling is how the populations of beligerant ntions remained committed to the Wr for 4 years despit the immense suffering, loss of live, and horrible wounds as well as substantial decline in living standards. Only ntionalism can explain the tenacity with which the beligerant countries persued the War.

Conduct and Outcome

While economics was not a major factor in causing the war, it did affect the conduct and outcome of the War. The industrial power of each country was a factor in equipping and suppoting the military. The inability of Russian industry to properly equip their soldiers was a major factor on the Eastrn Front. When the initial German offensive failed to defeat Frnce, the war became a matter of attrition and hear the Allies held the advantge. Not only did they have a larger population and economic base, but they had the navies that could blockade Germany while allowing them to freely import food and needed raw materials for the war effort. One development that surprised many was the ability of beligerants to sustain war despite the huge cost and the inevitable decline in living standards. Here the intensity of nationalist feelings helped sustin the effort. And capitalism proved highly adaptable.

Expansion of Government

One of the unintended affects of the War was the expansion of governments in each of the principal beligerant countries s to effectively harness society and importantly the economy for war. This included unprecedented control over the economy of each country. Governments created new ministries and the new agencies as ell as exisy=ting ones were given new powers. Mny new taxes were approved and nbew laws enacted. All this was designed to better support the war effort. And they did not all disappear with the end of the War.

War Finances

World War I had a huge impact on the international financial system. The war nearly destroyed what had been the central element in the internationl finncial system--the gold standard. None of the belligerenant countries demonitized gold or refused to buy gold at fixed prices, none continued the the basic tenents of the pre-War gold standard. With the outbreak of War, both the belligerants and the United states adopted official and unofficial actions affecting fiscal policies and the gold standard. This was seen as temporary measures given the fact that most officials believed that the War would be a a short conflict, over in a few months. It almost was. No one forsaw abanding the gold standrd as a desorable permanent outcome. Wars have to be financed and the gold standard placed a brake on a vountry's financing. While military histories focus on battles, commanders, and weapons, financing the war is often a major factor in affecting the outcome. And this is especially the case in along, destructive war like World war I. Europe at the time of World War I was the center of world finance. European bankers were financing projects around the world. The three important financial powers of Europe were Britain, France, and Germany. Here Germany was in third place. While Germany was the largest of the three powers in both population and economic poyput, avavailable capital was primsrly invested in the doestic market. And the relative late entry of Germany in the colonization process meant that the colonies it did acquire were of relatively limited economic importance. Britain was the center of world finance. Estimates suggest that some 60 percent of world trade was financed through British banks and other financial institutions. [Hoen, p. 7.] Both Britin and France had very substantial overseas investments and thus resources upon which to draw. A fourth country had very important and growing financial resources, the neutral United States. The United States traded with all four countries, but its financial ties were primarily with Britain.

America

Military analyists often attribute the entry of the United tates into the war as the reason for the Allied victory. Often this is attributed to manpower, the American infantry on the Western Front. This was Ludendorf's assessment. The rebuilt British Army and tanks as well as economic collapse at home were other factors. Another very important factor was American financial support for the Allies. This may have been even more important than the American infantry. Certainly it is an often unrecognized factor.

Outcome

The War badly strained the economies of the beligerant nations. The first to crack was Tsrist Rusdia. Battefield defeats were a factor, but food shortages t ome were an even more important factor. The austro-Hungarian mpire also did not survive the War and economic failure, especially food shortages, combined with nationalist entiment was the reason. Germany faced both battlefield defeats in the West as well economic failure at home. The German failure to maintain food productionws an important factor. The conscription of agricultural labor had a adverse impact on farm production.

Aftermath

The economic consequences of the War varied from country to country. After the War, the peace treaties imposed reparations on Germany and the other Central Powers. Rhe war had cused immense damage, especially in Allied countries. As the Germans launched the war and achieved considerable success, most of the damage ocuurred in Nelgium, northern France, northern Italy, Poland (thenpart of the Tsarist Empire), and Serbia. The cAllies were intent on the Germans pay reparations to repair the damage. The reparations demanded is often cited as a factor in post-War Germany's turn to the NAZIs. The Versailles Treaty was widely hated in Germany, but the reparations did not have a major impact on the economy. Most of the payments were funds privided by American banks. And worth noting are the even more severe treaties or occupation regimes the German imposed on the countries that they defeated or occupied (Belgium, Russia, Romania, and Serbia). There were also serious consequences to the Allies, evem though they won the War. Much of the problems flowed from the immense cost of the war. TheUnited states is the only belligerant counbtry that actually bebefitted, although much of the benedut came before America actually entered the War. We are working on pages to assess this. At this time we only have aage on Britain.

Sources

Horn, Martin. Britain, France, and the Financing of the First World War.








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Created: 6:31 AM 2/25/2012
Last updated: 8:04 AM 1/25/2017