How do First World War influence the world economy? Explain. (200 Words)
Answers
Answer:
Explanation:
Did World War I produce a major economic break from the past in the United States? Did the U.S. economy change in some fundamental and lasting ways as a result of that war? NBER Research Associate Hugh Rockoff addresses these questions in his recent study Until It's Over, Over There: The U.S. Economy in World War I (NBER Working Paper No. 10580). After surveying the U.S. mobilization and financing for the war, Rockoff concludes that perhaps the greatest impact of World War I was a shift in the landscape of ideas about economics and about the proper role of government in economic activities.
When the war began, the U.S. economy was in recession. But a 44-month economic boom ensued from 1914 to 1918, first as Europeans began purchasing U.S. goods for the war and later as the United States itself joined the battle. "The long period of U.S. neutrality made the ultimate conversion of the economy to a wartime basis easier than it otherwise would have been," writes Rockoff. "Real plant and equipment were added, and because they were added in response to demands from other countries already at war, they were added precisely in those sectors where they would be needed once the U.S. entered the war."
Entry into the war in 1917 unleashed massive U.S. federal spending which shifted national production from civilian to war goods. Between 1914 and 1918, some 3 million people were added to the military and half a million to the government. Overall, unemployment declined from 7.9 percent to 1.4 percent in this period, in part because workers were drawn in to new manufacturing jobs and because the military draft removed from many young men from the civilian labor force.
Rockoff estimates the total cost of World War I to the United States at approximately $32 billion, or 52 percent of gross national product at the time. He breaks down the financing of the U.S. war effort as follows: 22 percent in taxes, 58 percent through borrowings from the public, and 20 percent in money creation. The War Revenue Act of 1917 taxed "excess profits" -- profits exceeding an amount determined by the rate of return on capital in a base period -- by some 20 to 60 percent, and the tax rate on income starting at $50,000 rose from 1.5 percent in 1913-15 to more than 18 percent in 1918. Meanwhile, Treasury Secretary William Gibbs McAdoo crisscrossed the country peddling war bonds, even enlisting the help of Hollywood stars and Boy Scouts. The prevalence of patriotic themes created social pressure to purchase the "Liberty bonds" (and, after the armistice, the "Victory bonds"), but in practice the new bondholders did not make a tangible personal sacrifice in buying war bonds, since the yields on these debt instruments were comparable to those on standard municipal bonds at the time. As Rockoff notes, "patriotic motives were not sufficient to alter market prices of assets during the war."
Answer:
The 100th anniversary of the start of World War I has fittingly brought forth books, articles, essays and documentaries about the most cataclysmic man-made event in history: the diplomatic blunderings and miscalculations that triggered it; the immense battlefield slaughter; the destruction of empires; and the loss of faith in the religious and liberal values that gave rise to Western Civilization, and the concomitant eruptions of Communism, Fascism, Naziism and modern barbarism. Most haunting of all is the question we’re left with, What was it all for? Unlike for the American Civil War, there was no great moral justification for WWI, such as ending slavery and preserving the last, best hope on Earth.
Among the immense casualties of this conflict were the economic ones, that is, the ideas and arrangements that made possible the greatest, most rapid rise in living standards ever experienced, even as populations were mushrooming. Don’t compare the standard of living then with what we enjoy today; instead, compare it with what preceded it.
Had the Great War never happened, the world today would be immensely richer. Only in looking back can we appreciate the miracle in human progress that the century precededing 1914 experienced. Golden ages never appear as such to those living through them. Only once such an age has passed do people appreciate what has been lost.
Herewith a brief review of what WWI wrought economically.
Trade and capital=Both burgeoned exponentially between the end of the Napoleonic wars and the beginning of the Great War. Not until 1993 would trade, as a proportion of the global economy, reach the levels it had attained by 1913; the international flows of capital, not until 1996.