Reading Summary – 2. WWI & Its Legacy
Feistein, Temin & Toniolo, The World Economy Between the Wars (2008) Ch.2*
Revolutionary aspects of the war:
Rapid shift of resources from consumption to arms production; reorganization of economic life
General conscription (changed labor force completely in the country side)
Demise of several empire (Kaiser, Austro-Hungary, the Ottoman)
Food scarcity (farmers not willing to sell because there isn’t a market)
International economy developments:
Displacement of the agricultural sector in the belligerent countries led to the lifting of import
duties in order to gain access to the cheapest overseas suppliers. (e.g. grain & meat in the U.S.,
Canada, Argentina, Australia)
Financial cooperation was undertaken by the Entente powers in the form of inter-allied loans.
The economic consequences of the war;
Actually, social impact is the most severe;
Two exogenous shocks:
Great shift in consumption & production pattern;
Excess capacity once the war is over;
Competition: countries that did not suffer too much from the war (U.S., Japan) invaded the market –
response: larger business units (collusion, cartels, monopoly)
A more rigid economic environment: everything is centrally negotiated
A weak financial structure: swollen public debt; no international cooperation;
A fragile international monetary system: off gold; inter-allied loans, stopped right after war
Unreasonable high reparation from defeated countries;
The economic consequences of the settlement:
Businessmen & industrialists were divided on every issue on returning to the laissez faire economy;
Powerful growth of the organization, strength and solidarity of the working class.
The way in which the political map of central and eastern Europe was redrawn disrupted long-
standing economic relations and created new barriers to trade (12 more new states)
Each new state has its own currency, fiscal & monetary policy, raised tariff as a source of
much needed revenue;
The attempt to hold Germany responsible for the war by imposing huge demands for reparations
for the losses became a major cause of political antagonism and economic discord.
Reparation + territory (industrial center) occupied by the Allied power. Broadberry and Harrison (eds.), The Economics of World War 1 (2005) Chapter 1*, 2, 7
Chapter 1: The Economics of WWI: an overview
Key question 1: What did economic factors contribute to victory and defeat in World War I?
Key questions 2: How did the war affect postwar economic institutions and performance in the
economics that took part or were most affected by the war?
War of attrition; “If Germany could not win the war for the Central Powers in the first six
weeks, using surprise in the west and an army with superior military qualities, then the
chances of victory could only diminish over a longer span of time in which economies would be
mobilised on each side and the balance of resources would count for more and more.”
Population, territory, GDP: Allied far outweighs the Central; especially after the U.S. joined.
GDP per head was initially lower than Central (because all the poor colonies), but once U.S.
joined this was reversed.
Mobilisation and the level of development: level of economic development; proximity to the
front line, duration of the engagement factors determining the success of mobilising resources.
Subsistence farming: large peasantry’s disadvantage in wars. Non-peasantry countries could
expand agriculture and increases supplies in the war; peasantry countries take resources away
from agriculture; farmers don’t want to sell food because there isn’t a market; food scarcity
& famine (the Russia vs. Germany graph)
Cost of war
Bogart’s direct & indirect costs
Long run impact: national wealth
Human capital + physical cap