Part II –The First World War

The First World War is a convenient place to start because of its traumatizing effects and because it sets the stage for what happened throughout the 20th century. In 1917, some months before his death, the poet Wilfred Owen wrote:

“...But this morning at 8.20 we heard a boat torpedoed in the bay, about a mile out, they say who saw it. I think only ten lives were saved. I wish the Boche would have the pluck to come right in and make a clean sweep of the pleasure boats, and the promenaders on the Spa, and all the … Leeds and Bradford war profiteers now reading John Bull on Scarborough sands⁸.” (my emphasis)

The overall economic effect of World War I is hardly noticeable in graph 2 (in Part I). The next graph is a close-up and brings it out much more:

Graph 3

We can see, for example, that U.S. real GDP was falling from about 1912 and rose throughout World War I, reaching a peak in 1918-1919, after which it began to fall. The GDP movements of the belligerent countries in Europe did not move in the same way. There was some growth in Britain during World War I, though nothing like as much as in the United States. Meanwhile, the German economy actually declined, as did France’s.

Was America’s growth from 1914 due to its neutrality? Not at all. Although the United States had previously been committed to the popular policy of neutrality at the outset of World War I⁹, U.S. business soon got involved in supplying the Entente Powers (basically Britain and France) what they needed to pursue their war policy against the Alliance Powers (led by Germany and Austria-Hungary).

It should be noted at this point that the First World War was of necessity an economic war. Although Britain’s investments in the United States were by far the largest foreign investments there, Germany’s trade with the United States had been growing very fast and had overtaken Britain’s in the years before World War I¹⁰ and Britain (still engaged in economic rivalry with the United States in various parts of the world, basically in the former Spanish colonies in Latin America) sought to stop this. In 1915, it therefore used its great naval fleet to institute a blockade across the North Sea, to prevent Germany and America from exporting to and importing from each other.

In addition to this, it sought to prevent German trade along the western fringes of Europe (Belgium, Holland Denmark, Norway.) Germany, short of food, started buying large amounts of fish from Norway, but the latter was dependent on British coal for its fishing fleet and on British tin to can the fish, so Britain rationed these two materials and checked the flow of fish to Germany.

The blockade against Germany had several effects¹¹, though to what extent they might have been foreseen I don’t know. One was that America (and other countries, of course) was now cut off from its extremely important trade with Germany. The other was that Germany’s economy, very similar in size to Britain’s with similar levels of trade and GDP¹², was left with no other outlet than itself and its immediate neighbors. Obviously, the goods it had previously imported were closed off for it, but, as Bonn notes, the Germans were able to improvise and make up for this loss, given the enormous industry which had previously sought outlets abroad, and so German output became single-mindedly focused on war.

Meanwhile, Britain had to maintain economic relations with its colonies, had to buy from them and sell to them and finance them, while at the same time pursuing the greatest war of all time against its enemies in Europe.

Then there was America, which, as we have seen in Part I, was already the largest and fastest growing economy in the world. It was also arguably the most modern, not just economically, but politically, having shaken off its colonial subservience to the British monarchy in the 18th century (France, too, had done away with the monarchy soon afterwards). The blockade had the same basic effect on the United States as it had on Germany, cutting it off from its most important European trade partners –America was at war (economically) whether its people liked it or not. So what would it do? As is well known, it turned towards Britain and began financing and supplying Britain’s war effort.

In 1914, the United States was a debtor country owing some US$ 4 billion to Europe. By 1919, it had become the world’s leading creditor country to which Europe owed some US$ 10 billion. This money borrowed from America was used by Britain, France and their allies to buy the war materials they needed to fight the Alliance. Just to give an example, it is estimated that 40% of the shells fired against the Central Powers used explosives bought from du Pont in the United States –as we shall see, du Pont was one of the many American companies that did very well out of World War I in a most immediate sense.

N.B. This is a continuing project. We welcome comments, corrections, suggestions, criticisms from readers.

NOTES

⁸ Letter from Wilfred Owen to Osbert Sitwell dated 1917, reproduced in Sitwell’s “Noble Essences”, 1950 (my emphasis).

⁹ Notwithstanding the fact that America had launched itself into imperialism from about the 1890s.

¹⁰ From 1898 to 1913, British exports to the United States grew from less than US$ 100 million to over US$ 150 million, while German exports to the United States during the same period grew from less than US$ 100 million, but slightly more than British exports in 1898, to nearly US$ 450 million in 1913 – see R.R. Palmer and Joel Colton: “A History of the Modern World”, pages 662-663,1965.

¹¹ Including attempts at retaliation, which we shall not deal with here.

¹² M.J. Bonn states that the “national wealth of Germany and England does not differ very much [being] variously estimated at between $70,000,000,000 to $80,000,000,000. Also, the “national income of both nations is supposed to be about equal –$10-11 billion” –see Moritz Julius Bonn, “German War Finance” 1916.