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Geographical distribution of investments from three leading European economies in 1910 (USD billion)

British capital French capital German capital

Europe 0,9 5,4 4,2

America 8,8 0,9 2,4

Asia, Africa, Oceania

6,9 2,0 1,7

Total 16,6 8,3 8,3

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The peak of first globalization- openness to trade gradually decreased by rising protectionism

(neo-mercantilism), almost no extra-tariff barriers, lowering transport costs level-off impact of rising tariffs

- free capital flows under Gold Standard, developed capital markets for government debt and stocks

- free labour movement facilitated by declining transport cost (especially after 1870); intercontinental flows but also big migrations inside great Eurasiatic landmass

- rising intergovernmental cooperation (Hague Conventions)- economic and social interpretations of roots of war: arms race

as solution to satisfy interests of big industry and junkers (Prussian landed aristocracy), nationalism as means of preserving national unity and solving internal problems in age of mass society and labour movement; relative decline of Britain due to spread of industrialization; relative rise of Germany and the will of Weltpolitik

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Changes in government gold reserves during World War I (USD million)

States with decreased reserves

Scale of change States with increased reserves

Scale of change

Germany -599 United States +1354

Austria-Hungary -268 Japan +891

Great Britain -205 Spain +409

France -122 Argentina +239

Italy -93 Netherlands +200

Romania -34 Switzerland +58

Belgium -19 Sweden +49

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Debt of main warring states (USD billion)

Year Great Britain

United States

Germany Italy

1914 3,4 6,5 1,2 3,0

1918 28,8 24,0 17,2 11,6

1921 37,2 57,4 19,7 17,9

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World War I & militarization of the economy

- outbreak of war & common hopes for short end (Schlieffen Plan) – lack of preparation for long-term war effort on both sides

- British domination on seas – Central States cut off from supplies – self-sufficiency & autarky, state-sponsored robbery on conquered lands

- British dependence on overseas routes – reason for unlimited submarine warfare

- rising prices of imports due to surging transport cost- decline of world trade by one fourth/third – unknown

value, in fact- U.S. neutrality contested from beginning by rising

asymmetry of their credit relations with belligerents- exhausting of material resources & agricultural

production capacities - continuity of war effort thanks to drastic reduction of private consumption (malnutrition & starvation)

War economy – basic features- rapid growth of government expenditures from about 10% GDP in pre-war period (financing

mostly from US market – Entente, or by debt owed to citizens – Central States), shares in GDP: UK 1916 – 37.1%, France 1917 – 49.9%, Germany 1917 – 59%

- replacement of market mechanism by bureaucratic coordination (organization & supervision of private businesses, food rationing, conscription, control of raw material supplies, state-owned manufacturing)

- new instruments of traditional state policy: quotas and prohibitions in trade policy, suspension of gold convertibility & issuance of new paper money in monetary policy (rapid growth of money supply – inflation partially hidden by price & wage controls, goods disappear from imbalanced market)

- separate offices and ministries for management of war economy- most liberal regime – UK, McKenna tariff 1915 – abandonment of free-trade policy, lasting after

the war; Defence of Realm Act; 1916/1917 – rising dependence from American supplies and, above all, financial market; no food rationing

- most restrictive regime – Germany, War Resources Department in Ministry of War, Walter Rathenau, separate office for coal management, Hindenburg armament program 1916 – total war, Kriegsamt for direct management of industrial enterprises, price & wage control, state import monopoly, obligatory supplies in agriculture, food rationing organized by municipal authorities in cities, corporatist self-governance of industry- supporting state policy)

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Structural consequences of war- indebtedness of Entente states to USA (largest – France, hence

the strongest pressure on German reparation payments)- indebtedness of Central States to their own citizens- huge deflationary potential of return to Gold Standard- enlarged capacities in primary products (Latin America, part of

colonies and white dominions, also USA)- enlarged capacities of European heavy industry- creation of processing industries in traditional primary products

suppliers – inferior to European counterparts, hence need of protection after the war (mostly Latin America)

- new powers: USA (global leader), Japan (regional leader), relative industrial & overall decline of Europe

- economic disintegration of Central & Eastern Europe – disputable (Polish case denies the thesis)

- creation of new type of political & economic regime – Bolshevik Russia

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