Economics of WWI and WWII

1. Economics of WWI and WWII From the following sources: • The Economics of WWII: An Overview by Mark Harrison a chapter in The Economics of WWII, ed. by Mark Harrison • The Economics of WWI: An Overview by Stephen Broadberry and Mark Harrison a chapter in The Economics of WWI, ed. by Stephen Broadberry and Mark Harrison

2. Economics of WWI and WWII Both of these books consider two themes • The contribution of economic factors to the outcome of the war. • The effects of war on long-run economic development

3. Economics of WWI The contribution of economic factors to the outcome of the war. Economic Causes: • 1st century of globalization with rise of world trade and capital markets and one aberration – the great powers competing for colonial empires. • Classical liberalism gave way to nationalism that viewed colonization as a zero sum game.

4. Economics of WWI Economic Causes: 3. Germany lost this competition for colonial empire and led to two causal factors. • Minor: Naval arms race • Major: Quest for a German empire led to an anti-German coalition with Britain and France (1904) with addition of Russia in 1907.

5. Economics of WWI Immediate Causes: • Crown-prince of Austria-Hungary assassinated by Serbian nationalist • A-H ultimatum that Serbia rejected • Russia’s mobilization to defend Serbia • Triggered German attack on France and Belgium for a knock-out blow then attack Russia • Germany anticipated victory in west in 6 weeks. • Germany expected victory by military means not economic means.

6. Economics of WWI Economic Factors determining the outcome (WEST) • Once the stalemate of trench warfare set in, in the west, it became a war of attrition. • Battles won by the last man standing – resources counted for everything. • Balance turned in the favor of the Allies with greater (human and physical) capacity to take risks, absorb costs of mistakes, replace loses, and quantitative superiority.

7. Economics of WWI Economic Factors determining the outcome (EAST) • Russia, Italy, A-H, and Ottoman empires in the east • Britain and Germany did not have the resources to fight in the east. • Over the long-run, the weakest economic power fell first – Russia • But when Germany fell in the West (due to economics), the East was lost too.

8. Economics of WWI • The military struggle in the west ended in ceasefire – not surrender. The German army was still on foreign soil. • For Germany and A-H, the war effort utilized more than half of national income. • With low per capita income and inefficient government services, the war effort was unsustainable in economic terms

9. Economics of WWI Long Run Economic Development Impacts • War is a negative-sum activity, especially if it is located on domestic soil. • Post-war recovery may be strong if: • War promoted new technology and economic organization • Bad government is destroyed and replaced by something better • Russia: civil war, communism, and dictatorship • Italy, A-H, Hungary: fascism and dictatorship • Germany: fascism, dictatorship, war, and genocide

10. Economics of WWI • Peace is better than war • Lesson not learned in WWI – Treaty of Versailles • For Germany the lesson was to wage war again, only better • Lesson learned in WWII – cooperation after the war to promote classical liberalism • IMF (Bretton Woods) • World Bank • GATT • Strong global economic growth