Economic & Social Consequences of World War I: A Historical Analysis
1. The Consequences of the First World War
Destructive Impact
The destructive effect of World War I exceeded that of any other event in human history, including the massive air raids and atomic bombings of World War II. Military casualties were approximately 10 million dead and 20 million seriously injured. Direct civilian casualties amounted to about 10 million, and another 20 million died from disease and hunger brought about by the war.
Most of the damage—destruction of houses, plants, industrial machinery, mining, livestock, agricultural machinery, transport, and communications services—took place in northern France, Belgium, a small area of northern Italy, and in eastern Europe. Ocean shipping also suffered greatly, mainly as a result of submarine warfare. These estimates are subject to a wide margin of error and are probably not too low.
Disruption of Economic Relations
Even more detrimental to the economy in the long run than the physical destruction was the interruption and disruption of normal economic relations, which did not cease with the war itself but continued to take its toll in the interwar period. Before 1914, the world economy had operated freely and effectively together. Despite some restrictions in the form of protectionist tariffs, private monopolies, and international cartels, the bulk of economic activity, both nationally and internationally, was governed by free markets.
During the war, the governments of each nation, belligerent and non-belligerent, imposed some direct controls on prices, production, and labor allocation. Although most of these controls disappeared after the war, previous relations were not restored rapidly or easily.
Disruption of International Trade and Economic Warfare
A more serious problem was the result of the disruption of international trade and the methods of economic warfare that turned the belligerents, especially Britain and Germany, against each other. Before the war, Britain, Germany, France, and the United States, as nations at the forefront of industry and trade, were the largest consumers and major suppliers of each other. The business relationship between Germany and the others stopped immediately, of course.
The United States, in its neutral phase, sought to maintain relations, but the effort was hampered by the actions of both the British and German military. Britain, with its mastery of the seas, quickly imposed a blockade on German ports, as it did against Napoleon a century earlier. The blockade was, overall, quite effective. It not only prevented German ships from navigating but also allowed the British fleet to harass and sometimes seize neutral vessels and their cargoes. This caused some friction with the United States, which eventually received compensation. The German answer to the blockade was submarine warfare. Unable to attack the British fleet head-on, especially after the Battle of Jutland, the Germans resorted to submarines in an attempt to stop the flow of supplies from overseas to Britain. Submarines hindered the British army as far as possible but attacked both unarmed merchant ships and passenger vessels, both British and neutral.
Diversion of Resources and Loss of Markets
Another consequence of the war was that the belligerent countries were forced to divert resources from normal use to war production. By 1918, industrial exports had fallen to approximately half the pre-war level. Consequently, overseas nations lost their European suppliers. Some turned to other nations, whilst others undertook the manufacture for themselves or bought from other nations overseas assets that had previously been purchased in Europe. Some Latin American and Asian countries established manufacturing industries after the war, protected by high tariffs. The United States and Japan, which had already developed important manufacturing industries before the war, expanded into overseas markets previously considered the exclusive preserve of European manufacturers. U.S. exports also increased greatly to Allied and neutral countries in Europe.
Disruption of World Agriculture
The war also disrupted the balance of world agriculture. The greatly increased demand for food and raw materials, while some areas were left unable to produce or were removed from the market, stimulated the production of both in areas where it was established, such as the United States, and in relatively pristine areas such as Latin America. This led to overproduction and falling prices in the 1920s. Wheat, sugar, coffee, and rubber were particularly vulnerable.
American farmers took to growing more wheat and also bought more land at prices that the war had driven up considerably. When prices fell, many were unable to pay their mortgages and went bankrupt. Malaysia, the source of much of the world’s natural rubber, and Brazil, which had 60% to 70% of the world’s coffee, tried to raise prices by withholding supplies from the market, but when they did, new producers emerged, and prices dropped again. The sugar cane producers in the Caribbean, South America, Africa, and Asia were, for their part, at the mercy of the sugar beet growers in Europe and the U.S., who were subsidized and protected.
Loss of Income from Services and Investments
In addition to losing foreign markets, the warring nations of Europe also lost income from maritime transport and other services.
Another major loss caused by the war was the income from investments abroad. Before the war, Britain, France, and Germany were the largest foreign investors. As Britain and France imported more than they exported, the income from investments abroad helped to pay the import surplus. Both countries were forced to sell some of their investments abroad to finance the purchase of urgently needed war supplies. Some investments declined in value as a result of monetary inflation and the difficulties it entailed. Others stopped paying or were directly canceled, including huge French investments in Russia.