World War I - Legacy - Economic Effects

Economic Effects

One of the most dramatic effects of the war was the expansion of governmental powers and responsibilities in Britain, France, the United States, and the Dominions of the British Empire. In order to harness all the power of their societies, governments created new ministries and powers. New taxes were levied and laws enacted, all designed to bolster the war effort; many have lasted to this day. Similarly, the war strained the abilities of some formerly large and bureaucratised governments, such as in Austria–Hungary and Germany; however, any analysis of the long-term effects were clouded by the defeat of these governments.

Gross domestic product (GDP) increased for three Allies (Britain, Italy, and U.S.), but decreased in France and Russia, in neutral Netherlands, and in the three main Central Powers. The shrinkage in GDP in Austria, Russia, France, and the Ottoman Empire reached 30 to 40%. In Austria, for example, most pigs were slaughtered, so at war's end there was no meat.

In all nations the government's share of GDP increased, surpassing fifty percent in both Germany and France and nearly reaching that level in Britain. To pay for purchases in the United States, Britain cashed in its extensive investments in American railroads and then began borrowing heavily on Wall Street. President Wilson was on the verge of cutting off the loans in late 1916, but allowed a great increase in U.S. government lending to the Allies. After 1919, the U.S. demanded repayment of these loans. The repayments were, in part, funded by German reparations, which, in turn, were supported by American loans to Germany. This circular system collapsed in 1931 and the loans were never repaid. In 1934, Britain owed the US $4.4 billion of World War I debt.

Macro- and micro-economic consequences devolved from the war. Families were altered by the departure of many men. With the death or absence of the primary wage earner, women were forced into the workforce in unprecedented numbers. At the same time, industry needed to replace the lost labourers sent to war. This aided the struggle for voting rights for women.

World War I further compounded the gender imbalance, adding to the phenomenon of surplus women. The deaths of nearly one million men during the war increased the gender gap by almost a million; from 670,000 to 1,700,000. The number of unmarried women seeking economic means grew dramatically. In addition, demobilisation and economic decline following the war caused high unemployment. The war increased female empolyment, however the return of demoblised men displaced many from the workforce, as did the closure of many of the wartime factories. Hence women who had worked during the war found themselves struggling to find jobs and those approaching working age were not offered the opportunity.

In Britain, rationing was finally imposed in early 1918, limited to meat, sugar, and fats (butter and oleo), but not bread. The new system worked smoothly. From 1914 to 1918 trade union membership doubled, from a little over four million to a little over eight million. Work stoppages and strikes became frequent in 1917–1918 as the unions expressed grievances regarding prices, alcohol control, pay disputes, fatigue from overtime and working on Sundays, and inadequate housing.

Britain turned to her colonies for help in obtaining essential war materials whose supply had become difficult from traditional sources. Geologists such as Albert Ernest Kitson were called upon to find new resources of precious minerals in the African colonies. Kitson discovered important new deposits of manganese, used in munitions production, in the Gold Coast.

Article 231 of the Treaty of Versailles (the so-called "war guilt" clause) declared Germany and its allies responsible for all "loss and damage" suffered by the Allies during the war and provided the basis for reparations. The total reparations demanded was 132 billion gold marks, which was far more than the total German gold or foreign exchange. The economic problems that the payments brought, and German resentment at their imposition, are usually cited as one of the more significant factors that led to the end of the Weimar Republic and the beginning of the dictatorship of Adolf Hitler. After Germany's defeat in World War II, payment of the reparations was not resumed. There was, however, outstanding German debt that the Weimar Republic had used to pay the reparations. Germany finished paying off the reparations in October 2010.