Economics of WWI and WWII
From the following sources:
1. The Economics of WWII: An Overview by
Mark Harrison a chapter in The Economics of
WWII, ed. by Mark Harrison
2. 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
Economics of WWI and WWII
Both of these books consider two themes
1. The contribution of economic factors to the
outcome of the war.
2. The effects of war on long-run economic
development
Economics of WWI
The contribution of economic factors to the
outcome of the war.
Economic Causes:
1. 1st century of globalization with rise of world trade
and capital markets and one aberration – the great
powers competing for colonial empires.
2. Classical liberalism gave way to nationalism that
viewed colonization as a zero sum game.
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 antiGerman coalition with Britain and France (1904)
with addition of Russia in 1907.
Economics of WWI
Immediate Causes:
1. Crown-prince of Austria-Hungary assassinated by
Serbian nationalist
2. A-H ultimatum that Serbia rejected
3. Russia’s mobilization to defend Serbia
4. Triggered German attack on France and Belgium
for a knock-out blow then attack Russia
5. Germany anticipated victory in west in 6 weeks.
6. Germany expected victory by military means not
economic means.
Economics of WWI
Economic Factors determining the outcome (WEST)
1. Once the stalemate of trench warfare set in, in the
west, it became a war of attrition.
2. Battles won by the last man standing – resources
counted for everything.
3. 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.
Economics of WWI
Economic Factors determining the outcome (EAST)
1. Russia, Italy, A-H, and Ottoman empires in the east
2. Britain and Germany did not have the resources to
fight in the east.
3. Over the long-run, the weakest economic power
fell first – Russia
4. But when Germany fell in the West (due to
economics), the East was lost too.
Economics of WWI
1. The military struggle in the west ended in ceasefire
– not surrender. The German army was still on
foreign soil.
2. For Germany and A-H, the war effort utilized more
than half of national income.
3. With low per capita income and inefficient
government services, the war effort was
unsustainable in economic terms
Economics of WWI
Long Run Economic Development Impacts
1. War is a negative-sum activity, especially if it is
located on domestic soil.
2. Post-war recovery may be strong if:
– War promoted new technology and economic
organization
– Bad government is destroyed and replaced by
something better
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Russia: civil war, communism, and dictatorship
Italy, A-H, Hungary: fascism and dictatorship
Germany: fascism, dictatorship, war, and genocide
Economics of WWI
1. Peace is better than war
2. Lesson not learned in WWI – Treaty of Versailles
3. For Germany the lesson was to wage war again,
only better
4. Lesson learned in WWII – cooperation after the
war to promote classical liberalism
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IMF (Bretton Woods)
World Bank
GATT
Strong global economic growth