Economic Effects of WWI

Economic Effects of WWI Mr. Baker

Economic Effects During WWI - Blockades • Both Britain and Germany relied heavily on imports to feed the population and supply the war industry • Soon after the breakout of war, Britain started a blockade of Germany • Since Britain had a superiority of naval vessels, Germany’s only chance to compete was through U-boats • They used unrestricted submarine warfare to sink any ships in the area of Britain • Both countries wanted to starve each other into submission

Economic Effects During WWI - Blockades • Effects of the blockade in Germany: • Turnip winter of 1916-17 (a premature frost killed potatoes) • Finely grained sawdust was used for flour • Heating fuels were lacking • Clothes were lacking • 750,000 German civilians died of starvation during and after the war • The blockade continued until June 1919 in order to force the Germans to sign the Versailles Treaty

Economic Effects During WWI – U.S. Enters the War • British had strongest ancestry ties to the U.S. • Sold war materials and loaned money to mainly France and Britain • Unrestricted submarine warfare • Lusitania – 128 Americans were killed • Zimmerman telegram – if Mexico were to join Germany in an alliance, they would get Texas and Arizona in return

Deaths • 9 million military deaths • Allies: 5 million • Central: Over 3 million • 6.6 million civilian deaths • 22 million wounded

Deaths • Russia • 3.7 million deaths; 5 million wounded • Germany • 2.5 million deaths; 4.2 million wounded

Devastation In Belgium • Trapped between the trench system and a British blockade, Belgium in the fall of 1914 faced starvation. It was dependent on imports for 80 percent of its food • Herbert Hoover ran the Commission for the Relief of Belgium (CRB) • The CRB became, in effect, an independent republic of relief, with its own flag, navy, factories, mills and railroads • Its $12 million a month budget was supplied by voluntary donations and government grants • The CRB saved ten million people from starvation

Devastation In France • Land and industry was destroyed • Population decreased • One in five French had been mobilized • 1.4 million died • 750,000 disabled • Few were available to work • Had to reconstruct war-torn regions

Devastation in the Balkans, Middle East, and Italy • Serbia was occupied by Austria-Hungary and Bulgaria in less than 1 month • Ottoman Empire threatened Russia’s oil-rich Caucuses, the British’s Suez Canal, and communications with India. They fought against Russia, Britain, Australia, Canada, India, Armenians, and Egypt for those areas • There was staunch fighting in Italy against the Germans and Austro-Hungarians

Devastation in Africa and the Pacific • British and French forces battled the Germans in colonies of Cameroon, Volta Region a part of Ghana close to Togo, Togo, South-West Africa (Namibia), and German East Africa (Tanzania, Burundi, and Rwanda) • Australia, New Zealand, Japan, and China seized Germany’s Pacific colonies (German New Guinea, Micronesia, German Samoa, etc.) within a few months • Most of these areas were either mandated or given to other countries after WWI

Rise of the United States • In Europe even the victorious powers were left economically exhausted by the war, and much of the European landscape was a mess • Europe, once the world creditor, now found itself borrowing from the U.S., which had been relatively untouched by the war and whose economy further benefited from the new lack of European competition

General Economic Effects During and After the War • At one end there were those who profited from the war and at the other end were those who suffered under the effects of inflation • The opportunities to make enormous amounts of money in war manufacture were plentiful. War profiteers were a public scandal • However, government rarely intervened in major firms

General Economic Effects During and After the War - Inflation • When resources became scarce, nonessential firms, which tended to be small, were simply closed down • Inflation was the greatest single economic factor because of massive: • War budgets • Demand, which caused shortages of many consumer goods • Virtually every able-bodied person was employed to keep up with the demand • This combination of high demand, scarcity, and full employment sent prices soaring, even in the best managed countries

General Economic Effects During and After the War - Inflation • Results of inflation were: • Value of money went down • The standard of life went down • People living on fixed incomes or small earnings were hurt the most • Had to plant gardens for food • Had to take odd jobs like repairing clothes

General Economic Effects During and After the War • To make matters worse some great fortunes were built during the wartime and postwar inflation • Those who were able to borrow large amounts of money could repay their debts in devalued currency from their war profit

Dawes Plan • When Germany defaulted on their reparation payments in 1923, French and Belgian troops occupied the Ruhr Valley • The region was known for its coal and steel production, and they wanted to extract the reparations from this area • The result was passive resistance, strikes, and economic chaos (extreme hyperinflation)

Dawes Plan • Charles Dawes, an American banker and vice-president under Calvin Coolidge, developed this plan in 1924 to help Germany meet its reparation payments • The U.S. would lend money to Germany; Germany would make reparation payments to Britain and France; Britain and France would pay back loans to the U.S. • This made the countries dependent on the U.S.

Depression and the Rise of Political Extremism • France had financed the war by making loans and receiving them from Britain and the U.S., not through taxes • France was also dependent on receiving reparations from Germany • In British judgment, the French were acting vindictively and arrogantly towards defeated Germany, and thus were responsible in part for Germany’s fervent nationalism and delaying “normalization” and pacification of Western Europe

Depression and the Rise of Political Extremism • As raw material prices fell, the poorest parts of the world earned less and less, giving them less to spend on British goods • India and Japan were beginning to industrialize, and their low labor costs drove Britain out of many traditional markets • The inability of democratic governments to get their country out of the depression will lead to the rise of the political extremes • Germany - Nazism • Italy - Fascism

Young Plan • Owen Young, J.P. Morgan, and the Allied Reparations Committee came up with this plan when they realized that the Dawes Plan wouldn’t work • $26,350,000,000 in reparations was to be paid over a period of 58½ years • It reduced annual payments $473 million per year • It was to be raised through a transportation tax and the budget

Liberty Law • Although the Young plan had effectively reduced Germany's obligations, it was opposed by parts of the political spectrum in Germany • Under the terms of the German constitution: • If ten percent of the eligible voters in the country signed a petition in favor of a proposed law, the Reichstag had to put the matter to a vote • If the Reichstag voted against the law, the proposal would automatically be put to a national referendum • If fifty percent of the people voted in favor of it, it would become a law

Liberty Law • Alfred Hugenberg, the head of the German National People's Party and Adolf Hitler, the head of the National Socialist German Workers Party joined in a coalition to: • Renounce all reparations and make it a criminal offense for any German official to cooperate in their collection • Renounce the German acknowledgement of "war guilt“ • Renounce the occupation of German territory which were also terms of the Versailles treaty

Liberty Law • The Liberty Law proposal was officially put forth on October 16, 1929. The Nazis and other groups held large public rallies to collect signatures • The coalition succeeded in collecting enough names to put the proposal before the Reichstag • The Reichstag voted the bill down by a 318-82 margin • In the subsequent popular vote on December 22, the Liberty Law referendum only received 13.8 percent of the votes in its favor

Liberty Law • While the Liberty Law was not enacted in 1929, the campaign for it was a major factor in bringing Hitler and the Nazis into the political mainstream • Following the defeat, Hitler denounced Hugenberg and said the loss was a result of his poor leadership • Hugenberg and many other conservatives soon found themselves being eclipsed by the Nazis • Hitler would later enact by decree most of the proposals of the Liberty Law after achieving power

Economic Effects of WWI