The Great War and Post-War Years PDF

**THE GREAT WAR + THE POST-WAR YEARS** **Checklist** 1. **Keynes - The Economic Consequences of the Peace** 2. **The Disintegration of the International Economy** 3. **WWI: the origins of the conflict** 4. **WWI: the consequences of the conflict** 5. **WWI: a taxonomy of the conflict** 6...

**THE GREAT WAR + THE POST-WAR YEARS** **Checklist** 1. **Keynes - The Economic Consequences of the Peace** 2. **The Disintegration of the International Economy** 3. **WWI: the origins of the conflict** 4. **WWI: the consequences of the conflict** 5. **WWI: a taxonomy of the conflict** 6. **WWI: the consequences of peace** 7. **WWI: the age of insecurity** 8. **WWI: the end of monetary stability** **[Keynes - The Economic Consequences of the Peace]** In *The Economic Consequences of the Peace* (1919), John Maynard Keynes critiques the Treaty of Versailles, describing it as a destructive peace that jeopardizes Europe's stability. He contrasts England\'s relative detachment from Europe with the deep interdependence of countries like France, Germany, Italy, and Austria-Hungary, whose economies and societies are intertwined. Keynes argues that if victors like France and Italy exploit their temporary power to punish Germany and Austria-Hungary, they risk their own downfall due to this interconnectedness. He describes the Paris Peace Conference as a nightmarish and surreal experience, where leaders like Wilson and Clemenceau seemed more like actors in a tragic drama than serious statesmen. In the tense atmosphere of Paris, Keynes himself began to adopt a European perspective, haunted by the sense of impending catastrophe and the pettiness of the decisions being made. Overall, he sees the **treaty** **not** as **a path to lasting peace**, but as a **setup for future disaster**, given Europe's mutual dependency. In his view, Clemenceau couldn't understand the importance of Germany in Europe. **[The Disintegration of the International Economy]** WW1 is so important because its economic and political changes (which usually occur over a long period) are abrupt and violent. It was the first global and modern (from a tech perspective) war, fought by soldiers of countries from all over the world and it **destroyed all the pillars of the First Wave of Globalization**, effectively ending it in 1914: **Free trade, Gold Standard**, **Commercial and Financial Integration** disappeared. Even England abandons the MFN clause of every Treaty it had entered. This conflict also drove profound geopolitical shifts: - It led to the fall of longstanding empires, reshaping the global balance of power. - The US and Japan emerged as new influential players on the world stage. - It catalyzed the communist experiment and sparked significant political changes across Europe. - A strong wave of nationalism arose, redefining political identities and priorities worldwide. **[WWI: the origins of the conflict]** Why did WW1 start? From a purely diplomatic perspective, the War broke out because of a series of events that followed the Sarajevo assassination, 28 June 1914: a Serbian student (Gavrilo Princip) shot Franz Ferdinand, the Crown Prince and heir of the Habsburg Empire. Austria-Hungary went to war against Serbia, a traditional ally of Russia, setting off a chain reaction among the major powers. It is virtually impossible to identify a single factor as determining the outbreak of the First World War, as **multiple** **factors** intertwined to create a **highly volatile environment**. The conquest of the «**vital** **space**» certainly played a central role: the pursuit of **strategic dominance and expansion**, particularly in terms of **territorial control**. The war broke out at the end of a process that had begun in the mid-nineteenth century for the conquest and partition of a large part of the planet by the European powers. Among the possible causes of the conflict, historian Fritz Fischer, inserts Germany\'s desire to conquer more space in Eastern Europe: with the crisis of the Ottoman Empire (started in 1908 with the revolution of the young Turks) the **Balkans** had become an area of growing conflict where the desire for hegemony of the European power clashed with the growing nationalisms of new states (Serbia, Romania, Bulgaria). This escalating competition for influence in the Balkans further intensified tensions, ultimately creating a diplomatic powder keg that ignited into full-scale war. **[WWI: the consequences of the conflict]** The **Great War** **ended the first wave of globalization** by breaking down its main pillars: - Commercial and financial integration: The extensive networks of trade and finance that had connected nations were severely disrupted, as war halted international commerce and eroded economic alliances. - Gold standard: abandoned by many nations during the war, contributing to a fractured monetary system. - Mass migration reduction: the war drastically reduced the flow of people across borders. The Great War had profound **political** and **economic** **consequences**: - - - - **[WWI: a taxonomy of the conflict]** [Technology at work] The war led to a massive **reallocation** **of** **resources** from the production of civil goods to that of goods for military use. Resources were invested in **heavy industries** needed to produce guns. Labor force, capital and raw materials were moved from consumer goods to heavy industries (chemical, mechanical...). Manpower, capital, and raw materials were directed primarily to satisfying wartime demand, and mainly absorbed by the metallurgical, shipbuilding, chemical, mechanical, armament and other industries. [State intervention] Creation of the **Ministry of War**, which enabled the State to coordinate all the efforts during the fight. The State became necessary to manage the production and the **government\'s role in the economy grew considerably**: - It became the main purchaser of goods and services - It imposed controls on many areas: trade, transport, prices, production, supplies of raw materials and food, etc.: every sector of the economy was monopolized by the State. - It was responsible of the government of finance. - In order to cope with the huge war requirements, governments set up departments and offices responsible above all for industrial mobilizations and the expansion of war production. This showed -- both in Europe (everywhere, even in liberal England) and in America - that the state could assume extensive responsibilities in the co-ordination of economic activity. At the end of the war many controls were removed, but the liberal principle of laissez-faire had been profoundly shaken for the first time. The state financed public spending by resorting to: - increased taxation (resulting in a depression of household consumption) - domestic and foreign indebtedness (war loans) - increased money circulation⟶ printing of banknotes These provisions caused a strong **rise in the inflation** **rate** (a great problem to be solved after the War). With the war, **autonomy of monetary policy was needed: mass abandonment of the Gold Standard**. The only exception was the United States (at least until 1917 when it introduced some controls on payments in gold and allowed banks the power to increase money supply without having gold backing). Nonetheless, they abandoned the Gold Standard right before entering the war (1917). If we look at the level of debt: Excluding international loans, **the total public debt of the countries involved rose** from 26 billion dollars before the war to 225 billion dollars in 1920. The contribution of individual sources of financing varied from country to country and so did the levels of inflation, determined by the increase in circulating money: this represented a heavy legacy to manage at the end of the conflict. [Social consequences] Social unrest, strikes, high level of unemployment and lack of human capital: 'Biennio Rosso' in Italy. Moreover, those who were able to survive had to find new place in a new society: madness hit society. [Economic consequences] The economic losses were considerable and included: a. *Material destruction*: in terms of material destruction, the situation at the end of the conflict was very serious: the total cost of the war, between estimated losses and actual expenditure amounted to some 400 billion dollars (in 1914). Buildings, plants, industrial machinery, mines, agricultural machinery, livestock, transport and communication infrastructure were destroyed. b. *Disruption of economic relations and of foreign trade* (even though neutral countries increased exports): in the long run, even more harmful to the economy was the disruption and disorganization of normal economic relations between states: the negative effects did not cease at the end of the conflict but continued into the 1920s and 1930s. c. *Loss of foreign markets*: with Europe blockaded, many overseas countries decided to produce their own or buy from outside Europe the goods they previously imported from Europe: - Latin American and Asian countries founded manufacturing industries - America and Japan conquered new markets previously controlled by Europeans d. ***New world balances in agriculture***: in the agricultural field, the war stimulated production in already economically established countries such as the United States and in \'virgin\' territories such as Latin America: in the 1920s, the result was overproduction and falling prices. e. *Loss of profits from foreign investments and the service sector (shipping)*: England lost its primacy to the United States (which benefited from its neutrality). f. *Foreign direct Investments*: on the foreign investment front, Great Britain and France had to give up part of their investments to finance the purchase of war material. German investments were confiscated and then used as reparations (the core of the Treaty of Versailles: damages against civilians). After the First Industrial Revolution, the core of the world economic and financial system was centered in London, England. During the conflict, financial activities were moved to neutral or external countries: in Europe, Switzerland, while worldwide, the USA with New York (even though the US had no interest in becoming the core of the world economic system). g. *Labor shortages*: The dead numbered some 9 million and some 20 million were maimed and disabled. To these were added 6 million civilian casualties and a birth deficit estimated at 13 million. The losses due to the war, combined with those induced by the Spanish flu epidemic in the winter of 1918-1919 produced serious consequences in terms of labour supply. **[WWI: the consequences of peace]** The American intervention changed the fate of the war: in November 1918 Austria and Germany signed the armistice. The Treaty of Versailles in 1919 officially ended the conflict after a laborious peace process. This Treaty showed no willingness to restore the international integration achieved under the first wave of globalization. Indeed, a number of punitive impositions and debts were imposed on Germany, as France wanted to prevent Germany from rebuilding its economy and its army. Two major problems emerged from the peace treaty: - - In \"The Economic Consequences of the Peace,\" John Maynard Keynes criticizes the Treaty of Versailles and the post-World War I settlement. He argues that the punitive policies imposed on Germany were motivated by a desire for retribution and ***punitive reparations*** rather than constructive solutions, characterizing this approach as short-sighted and akin to an \"old man\" focused on the past. **The Council of Four** (Clemenceau, Lloyd, Wilson and Orlando) **focused on immediate national gains rather than Europe's economic recovery**. According to Keynes, they neglected the pressing issue of European economic rehabilitation, concentrating instead on punitive reparations. He saw their approach as rooted in politics and short-term interests, lacking any consideration for the economic stability of the region they were reshaping, and for the peace they intended to secure. *So far as possible, therefore, it was the policy of France to set the clock back and to undo what, since 1870, the progress of Germany had accomplished. By loss of territory and other measures her population was to be curtailed; but chiefly the economic system, upon which she depended for her new strength, the vast fabric built upon iron, coal, and transport, must be destroyed\....* *This is the policy of an old man, whose most vivid impressions and most lively imagination are of the past and not of the future. He sees the issue in terms of France and Germany, not of not of humanity and of European civilization struggling forwards to a new order\.... \[H\]e neither expects nor hopes that we are at the threshold of a new age\....WWI: the consequences of peace The Council of Four paid no attention to these issues (economic rehabilitation of Europe), being preoccupied with others---Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring home something which would pass muster for a week, the President to do nothing that was not just and right. It is an extraordinary fact that the fundamental economic problem of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four. Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of politics, of electoral chicane, from every point of view except that of the economic future of the states whose destiny they were handling...* Keynes -- The economic consequences of the peace, 1919 Moreover, after Germany defaulted on coal and timber deliveries, **France and Belgium sent troops to Germany\'s industrial Ruhr region to enforce reparations payments** under the Treaty of Versailles. In response, the German government encouraged workers to engage in passive resistance, including strikes and non-cooperation. **[WWI: the age of insecurity]** The United States rose to the rank of a new world power, yet they did not want to assume the international responsibilities of their economic supremacy (a behaviour linked to the Monroe doctrine) and did not ratify the peace Treaty of Versailles and did not join the League of Nations. The **heaviest conditions** were **imposed on Germany**, **seen as** **responsible**, through a punitive peace: - It was deprived of part of its national and colonial territory - It had to surrender its navy, arms and munitions, locomotives, etc. The most \'humiliating\' aspect was Article 231 by which Germany was made responsible for the war and had to pay **war reparations**: a special Commission was created to estimate the amount of war reparations to be paid to the countries involved in the conflict. The commission ended its activity in 1921, even though Germany started to pay in 1919. The post-World War I period left profound marks on the economies of many countries. The states that emerged from the dismemberment of the Austro-Hungarian Empire asserted their national character by setting themselves the goal of economic self-sufficiency. Economic nationalism was also used by Russia and other western countries (including England and USA): - In Russia the State became the only partner in the international economic system - England had introduced tariffs during the war and at the end of the conflict did not dismantle them. - England renegotiated several bilateral treaties abandoning the principle of the MFN clause - USA raised tariffs to levels never seen before (Emergency Tariff Act e Fordney McCumber Tariff Act): Monroe doctrine of isolationism. Governments from all over the world decided to adopt **austerity policies** to try to restore balance and **contain inflation**. In some cases, they also used **competitive devaluation** to stimulate exports, resulting in **negative impact** **on international relations**. Main economic issues in every country's political agenda were: - Material destruction - Industrial reconversion - Demographic pressure - Lack of labour supply - Fiscal austerity - Unemployment (through strikes) - Negative trade balance of payments (which suggested a return to the gold standard); nevertheless, involved countries opted for protectionism and money devaluation **[WWI: the end of monetary stability]** The restoration of the Gold Standard was, however, hampered by some serious elements of international imbalance. American gold reserves had quadrupled as a consequence of: - the supply of goods and services to its allies - US investments in Europe for the reconstruction **Inter-allied loans** taken out by the *Entente* countries now had to be **paid off** to the US: - US creditors -- GB, FRA, ITA and Belgium debtors - The loans between the European allies were only nominal. The European states had convinced themselves that this would also be the case for loans from the US. But the US demanded full repayment of the capital! - The issue of German reparations remained open: France and England insisted on indemnity payments as well (cost of the war). Nevertheless, Germany wasn't given tools to restart its economy. The **French** asked the US to cancel war debts but continued to demand payment of German reparations. On the other hand, the **British** asked for the cancellation of debts owed to the US and reparations costs from Germany. The **Americans**, with President Coolidge, replied: \"They took the money, didn\'t they?\". Meanwhile, starting in 1919, **Germany had begun to pay** (with money, gold and other goods), without knowing the \"final bill\". In 1921, the Commission declared that Germany would have to pay **33 billion dollars** (an amount equivalent to more than double the German GDP), with prohibitive annual payments: - In 1922, Germany suspended payments - In response, French and Belgian troops occupied the Ruhr (region rich in coal), taking control of the mines and railways (1923). The **German government** (Weimar Republic) **printed huge quantities of paper money** to compensate the workers and industrialists of the Ruhr, setting in motion a wave of **uncontrollable inflation**: the result was German ***hyperinflation***. In 1923 the exchange rate between the mark and the dollar had reached unimaginable levels: 4,200,000,000,000 marks for one dollar. The monetary authorities withdrew the mark from circulation and replaced it with the Rentenmark. The consequences of these cross-pressures were varied and, in general, not particularly positive: - The collapse of Germany: Hyperinflation and economic breakdown severely destabilized Germany. - A reduction in French and British exports to the US, replaced by forced supplies from Germany - A worsening of US exports as dollars held by European states were used to repay debts and not to buy goods and services - The movement of a huge amount of capital to the US to pay debts, thus causing inflation in the US. A **vicious circle was created, creating instability on both sides of the Atlantic**: many believed that that a return to the gold standard would be the key to solve this unstable situation. Economic trends in this period were: - 1919-1923: Economic stagnation in Europe. - 1924-1928: A period of recovery and growth. - 1929: The collapse of Wall Street, marking the onset of the Great Depression.