Introduction to economic history (Unit 4)


Economics of WWI

The reader should be able to determine:

  • The role of economic factors in determining the outcome of the war.
  • The effects of the war on subsequent economic performance.

World War I is a major event recorded in human history from 1914-1918. It was characterized by arms race between the Entente Powers (British Empire, Russian Empire, France, Italy, the United States and their allies) and the Central Powers (the German Empire, Austria-Hungary, the Ottoman Empire and Bulgaria). WWI had serious economic implications on the world economy, especially for nations who were major participants. However, from an analysis of the war, it is evident that the degree of mobilization for war can largely be explained by differences in the level of development of each country, leaving little room for other factors that feature prominently in narrative accounts, such as national differences in war preparations, war leadership, military organization and morale. The war had adverse effects on subsequent economic performance in terms of the scale of destruction of physical and human capital.

As key players in the war, the quality of the nation’s economy, or its level of development was important. The resources of rich countries were more available for mobilization than the resources of poor countries. The degree of mobilization during the war can be explained largely by differences in the level of development of each country; in other words, the level of development acted as a multiplier of size.

In the aftermath of the war, particularly between 1918 and 1929, growth rate was highest in the economies which experienced the worst destruction, over the period 1913-1929 as a whole, per capita income growth in Europe was reduced. Although there was some rebound, it was not enough to undo the negative effects of the capital destruction and the damage to the international institutional framework caused by the war.

There is little doubt that WWI had a negative impact on the growth rate in Europe as a whole. These negative effects had a high degree of persistence because of the effects of the war on the institutional framework. In essence, the war served to strengthen the forces of nationalism which had serious economic consequences, giving a boost to protectionism and national economic self-sufficiency policies during the 1920s and 1930s.


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