The Debate

Historians who study world wars have a battle of their own. It’s a debate about whether or not industrialization and capitalism were both causes and effects of both world wars. You recently read an article that outlined some of the causes of World War I, which 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. This then led to these nations taking 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 reaped the rewards of these private businesses in the form of taxes. But for the most part, they were hesitant to regulate these businesses too much.

So why would the governments of nations that were thriving in a capitalist system 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, first published in 1910, that European powers would be financially devastated if they entered into a war with each other. He said it was because the economies of the nations of the world at the start of the twentieth century were already deeply economically dependent on each other. Today, we would call this globalization or interconnection. If Europe went to war, then the world’s financial systems would crumble. World markets would crash, and businesses that relied on capitalist systems would be devastated.

One of the leading financial publications of this time, The Economist, was also against the war. In 1914, the British paper published articles saying the first world war caused “the disasters which have befallen manufacturers, merchants, shipowners and shopkeepers in all parts of the country.” 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, most popular with socialists and communists, was that capitalists wanted a world war because it would generate profits for businesses and governments. Military weapons and supplies also happen to be highly profitable. These critics had a point, because the businesses that produced these items for the war made a fortune.

There is another argument for capitalists wanting a war, and that has to do with the effects of imperialism. At this time, Western nations had just been through a chaotic, violent scramble 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? These nations were also 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 and motivations for the war are debatable, everyone agrees that the financial burden and economic impacts were tremendous. Government spending on war between 1914 and 1918 far exceeded all previous wars. Even now, it ranks as one of the costliest wars in world history. In those long four years, the nations involved in the war also had to find ways to continue this extraordinary level of spending. 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 take on some of the financial burden of the war.

The economic effects of the war varied depending on whether your nation was winning or losing, but 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, suffering an economic recession right before the Great Depression of the 1930s.

The United States was the immediate economic “winner” of the war. Nations purchased goods and supplies from the U.S. during the war and this continued after it ended. Unemployment decreased to just 1.4 percent during the war years. Overall, even with increased government spending on the war effort, the capitalist American economy was booming for much of the 1920s.

For Russia, massive changes were ahead. Their war spending combined with a rush to industrialize led to the Russian Revolution and the creation of the new Soviet Union. The Soviet Union increased efforts to mobilize and modernize their military. These improvements would prove beneficial during World War II, a war which no one expected to happen just a couple decades later.

Over in Africa and parts of Asia, there were some pretty terrible economic impacts during the war and after. European powers used their colonial territories 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 because European colonial powers created more agricultural and mining products in these areas. They 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 emerged as a dominant force militarily and economically. Industrial production was up, and life seemed to be pretty good in the West, unless you lived in Germany. At the end of the 1920s, however, the global economy took a turn for the worst when the Great Depression struck, hitting capitalist nations the hardest. As a result, many people began to question free markets and even the democratic governments that encouraged capitalism. These changes would lead to new tensions and conflicts in the remaining years of the twentieth century.