The Debate

Historians who study world wars have their own battle to fight. It’s a debate about what role industrialization and capitalism played in both world wars. You recently read an article that outlined some of the causes of World War I. These causes included militarism, alliances, imperialism, and nationalism. Industrialized nations needed a reliable source of raw materials along with new markets in order to sell their mass-produced goods. To do this, these nations took over other areas of the world through imperialism. Most of the industrialized nations also followed capitalist economic principles, meaning people owned private businesses for profit. Governments profited off these private businesses through taxes. Still, governments were hesitant to regulate these businesses too much.

The governments of these nations were thriving off the capitalist system. So why would they enter into a war with their European trading partners? War would only interrupt their profitable businesses.

One argument is that European governments didn’t want to go to war at all. Many business and finance experts also believed that their governments wouldn’t want a war. British journalist Norman Angell wrote in his book The Great Illusion that European powers would be ruined financially if they entered into a war with each other. He said it was because at that time, the nations of the world depended on each other economically. Today, we would call this globalization or interconnection. If Europe went to war, then the whole system would crumble. World markets would crash, and businesses that relied on capitalist systems would be devastated. The financial sector didn’t want the war, and people believed that the war would cause European economies to suffer. So why on Earth did these nations declare war?

The other side of the argument is most popular with socialists and communists. This argument states that capitalists wanted a world war because they could make money off of it by selling weapons and supplies. These critics had a point, because the businesses that produced these items for the war made a fortune.

Another argument for capitalists wanting a war has to do with imperialism. At this time, Western nations had just been through a violent conflict to take control of other areas of the world, specifically Africa and parts of Asia. Factories in Western nations could produce whatever was needed in a short amount of time, so why not make weapons and equipment? At the same time, these nations were competing with each other to become the largest and most influential empire. All of this played out in the start of World War I.

Economic impact of World War I

While the causes for the war are debatable, everyone agrees that the financial burden and economic impacts were tremendous. Government spending on war between 1914 and 1918 was much greater than what was spent on all the wars before it. Even now, it ranks as one of the costliest wars in world history. As the war went on, nations had to find money to pay for the huge war expenses they had. They borrowed money from the public and other nations, and sometimes increased their income tax rates to finance the war effort. Governments also turned to private businesses to help pay for the war.

The economic effects of the war varied depending on whether your nation was winning or losing. Germany was hit hardest by far. The Treaty of Versailles, which helped end the war, put the blame and financial burden of the war on the German government. As a result, Germany experienced some of the harshest economic effects of World War I, many of which would lead directly to World War II. Britain’s reputation also suffered. The country lost much of its global influence and trade and its economy declined.

The United States was the immediate economic “winner” of the war. Nations purchased goods and supplies from the U.S. during and after the war. Just 1.4 percent of Americans did not have a job. Even though the government was spending much more money on the war, the American economy was strong for much of the 1920s.

For Russia, massive changes were ahead. Russia increased its war spending and began a push to industrialize. This led to the Russian Revolution and the creation of the new Soviet Union. The Soviet Union increased efforts to modernize their military, improvements that would prove beneficial about twenty years later during World War II.

Africa and parts of Asia experienced some pretty terrible consequences both during and after the war. European powers used their colonial territories in these areas for manufacturing products and for drafting soldiers. After the war ended, the Central Powers of Germany, Austria-Hungary, and Italy lost their colonial territories. The territories were redistributed to the Allies, in particular to the British and French. Suddenly there were a lot more agricultural and mining projects in these areas. The European powers really needed some profits after all that wartime spending.

Almost all industries were hurt by the war, including international trade and shipping routes. The U.S. benefitted from being close to Europe, which allowed them to sell products more easily. However, most areas, in particular those that had been under imperial control, saw a decrease in trade. As a result, areas such as Australia and New Zealand took longer to recover than others. South America was also negatively impacted by disruptions in trade.

Conclusion

After World War I, the United States became a dominant military and economic force. Industrial production was up, and life seemed to be pretty good everywhere in the West besides Germany. At the end of the 1920s, however, the global economy took a turn for the worst when the Great Depression struck. Capitalist nations were hit hardest, causing many people to begin questioning capitalism and capitalist societies. These changes would lead to new conflicts for the rest of the twentieth century.