The First World War completely shattered and devastated many European economies. In Germany alone the cost of the war was estimated at $40 billion USD1. When considering the fact that there has subsequently been 87 years of inflation since this expenditure, in modern terms the figure would be closer to $1100 billion USD2. The cost of the war was equally high in France and Russia and well into the billions in Italy, Belgium, Britain and Poland.
Another major economic impact of the war was that it narrowed the gap between the economies of both Europe and the United States of America. Despite the USA being well into its industrialization programme and having a steadily growing economy the European economy was still superior to the US economy. However the devastating effects of the First World War resulted in massive economic stagnation and declination, which allowed the US to catch up and bridge the gap between the two. In the period following the War it is estimated that the US economy grew by triple that of Europe’s economy in relative terms3. As a result of this economic alteration and switch in economic superiority, investment in Europe fell substantially, which effectively enhanced the problems already facing the economies of the continent. Newly established Asian companies relocated to the US, and many European firms decided to cross the Atlantic to save their businesses4. This mass movement and relocation of businesses from Europe to the US inflicted more desolation and misery upon the governments of war torn Europe. The loss of investment resulted in a reduction in the generation of income, which was critically necessary at the time in order to improve and rebuild the devastated economies.
Despite the large-scale economic stagnation and decline that affected many sectors of European economies as a result of the First World War, many European economies were saved by the resurrection and growth of other various industrial sectors. Although the major industries such as textiles and shipbuilding were effectively diminished forever, other industrial sectors such as construction industries and their suppliers flourished thus rendering various European economies applicable for economic growth and potential future economic prosperity5. The demand for goods such as bricks and tools created the guaranteed outflow of resources, which were critical for laying the necessary foundations to entice economic growth. Therefore some industries were able to capitalise in the aftermath of the war.
The rise in inflation rates and the devaluing of many currencies throughout Europe also prevented the immeadiate recovery of many European economies. The theory of “invisible devalue”6 is often used by historians to describe the period of time after the war where no trading or saving took place, which therefore meant that many currencies throughout Europe were effectively useless.
The First World War also served as the major catalyst that resulted in the rise of communism. Russia’s failure during the War underlined the need for large-scale changes throughout the nation and these changes found a new face via the emergence of the Bolsheviks and most notably Vladimir Lenin. Lenin’s implementation of his War Communism economic strategy resulted in the alienation of Russia from mainland Europe and thus the complete destruction of trading links between East and West.7 In terms of the bigger picture this alienation and destruction of major trading routes further contributed to the economic declination of European economies and further dented the economies of the countries that were active trading partners with Russia.
Economically, the war completely devastated Europe. Every European economy suffered through the war and trading amongst European countries never really recovered. Through the political change in Europe, the economy suffered and this effectively allowed the USA to catch up and overtake the European economy in the preceding years of the war. Although many short-term problems were created by the war, the long-term problems far outweighed those in the short term. These long-term factors effectively led to the Second World War and the outbreak of the Cold War. Effectively the war shaped the Twentieth Century, as we now know it.
Word Count: 1,123
Bibliography
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Chernoi, L. Globalization; Past or Future? Transformation of Market Economic Systems. Pleiades Publishers. 2004
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Floud, R and Johnson, P. The Cambridge Economic History of Modern Britain Volume II, Cambridge University publication 2004.
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Marwick A. Social consequences of World War 1: The case of Germany Total War and Social Change. Open Press Publication University of Michigan 1990.
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Mawdsley, E. The Russian Civil War. Pegasus Books 2007.
1 Chernoi, Globalization: Past or Future? Transformation of Market Economic Systems, Pg 120.
3 Floud and Johnson, 1994, The Cambridge History of Modern Britain, Pgs 9-13
4 Floud and Johnson, 1994, The Cambridge History of Modern Britain, Pgs 174-176
5Marwick, 1990, Economic Consequences of World War One, Pgs 76-80
6 Floud and Johnson, 2004, The Cambridge economic history of modern Britain, Pg 197.
7 Mawdsley, 2007, The Russian Civil War, Pgs 73-75