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READ: Capitalism and World War I

The article below uses “Three Close Reads”. If you want to learn more about this strategy, click here.

First read: preview and skimming for gist

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Second read: key ideas and understanding content

Now that you’ve skimmed the article, you should preview the questions you will be answering. These questions will help you get a better understanding of the concepts and arguments that are presented in the article. Keep in mind that when you read the article, it is a good idea to write down any vocab you see in the article that is unfamiliar to you.
By the end of the second close read, you should be able to answer the following questions:
  1. What are some economic arguments made against the war?
  2. What is one reason that capitalists might have wanted a war?
  3. This war cost more than any war in history. What measures did governments take to help cover the cost of the war?
  4. Who was the economic “winner” of the war and why?
  5. What countries suffered as a result of the war?

Third read: evaluating and corroborating

Finally, here are some questions that will help you focus on why this article matters and how it connects to other content you’ve studied.
At the end of the third read, you should be able to respond to these questions:
  1. Capitalism and industrialization weren’t new in 1914, but are often touted as some of the causes of the First World War. Why do you think it took almost 150 years from the start of the Industrial Revolution for there to be this kind of war?
Now that you know what to look for, it’s time to read! Remember to return to these questions once you’ve finished reading.

Capitalism and World War I

By Bridgette Byrd O’Connor
Optimistically nicknamed “The War to End All Wars,” the high price tag on World War I had a far-reaching economic impact on nations and colonies around the globe.

The debate

Historians who study world wars have a battle of their own. It's a debate over how influential industrialization and capitalism were as both a cause and effect of the wars. You recently read an article that outlined some of the causes of World War I, which included militarism, alliances, imperialism, and nationalism. Industrialized nations needed a reliable source of raw materials along with new markets in order to sell their mass-produced goods. This then led to these nations taking over other areas of the world (imperialism). Most of the industrialized nations also followed capitalist economic principles—people owned private businesses for profit. Governments reaped the rewards of these private businesses in the form of taxes. But for the most part, they were hesitant to regulate these businesses too much.
So why would the governments of nations that were thriving in a capitalist system enter into a war with their European trading partners and disrupt these profitable businesses? One argument is that European governments didn’t want to go to war at all. Many business and finance experts also believed that their governments wouldn’t want a war. British journalist Norman Angell wrote in his book The Great Illusion, first published in 1910, that European powers would be financially devastated if they entered into a war with each other. He said it was "because of the internationalization and delicate interdependence of our credit-built finance and industry" (Angell, 31). In other words, the economies of the nations of the world at the start of the twentieth century were already intricately woven in economic interdependence (what we would today call globalization or interconnection). If Europe went to war, then the financial systems built upon this interdependence would crumble. World markets would then crash and businesses that relied on capitalist systems would be devastated.
“Pyramid of the Capitalist System”. Anti-capitalist poster, 1911. Public domain
One of the leading financial publications of this time, The Economist, was also against the war. In 1914, the British paper published articles saying the war caused "the disasters which have befallen manufacturers, merchants, shipowners and shopkeepers in all parts of the country." If the financial sector didn't want the war and people believed that European economies would suffer as a result, then why on Earth did these nations declare war?
The other side of the argument, in particular among socialists and communists such as Karl Marx and Vladimir Lenin, was that capitalists wanted a world war because it would generate profits for businesses and governments. Military weapons and supplies—for the war effort—also happen to be highly profitable. These critics had a point, because the businesses that produced these items for the war made a fortune.
There is another argument for capitalists wanting a war, and that has to do with the effects of imperialism. At this time, Western nations had just been through a chaotic, violent scramble to take control of other areas of the world, specifically Africa and parts of Asia. Factories in Western nations could also produce whatever was needed in a short amount of time. So why not weapons and equipment? Preparing for war was right in their wheelhouse. There was also stiff competition between these Western nations, with each trying to become the largest and most influential empire. All of this played out in the start of World War I.

Economic impact of World War I

While the causes and motivations for the war are debatable, everyone agrees that the financial burden and economic impacts were tremendous. Government spending on war between 1914 and 1918 far exceeded all previous wars. Even now, it ranks as one of the costliest wars in world history. In those long four years, the nations involved in the war also had to find ways to continue this extraordinary level of spending. They took loans from war bonds and sought out international sources of funding. In addition, many nations increased their income tax rates to finance the war effort (in the United States, the ratification of the Sixteenth Amendment in 1913 made this possible). Governments also turned to private businesses to help shoulder some of the financial burden of the war.
Women working for the war effort in a munitions factory, 1917. By Imperial War Museums. Public domain.
The economic effects of the war varied depending on whether your nation was winning or losing. Germany, by far, was hit hardest. The Treaty of Versailles laid the blame and financial burden of the war at the feet of the German government. As a result, Germany experienced some of the harshest economic effects of World War I, many of which would lead directly to World War II. Britain also suffered, losing status in terms of global influence and trade and also suffering a recession right before the Great Depression of the 1930s.
The United States was the immediate economic "winner" of the war. Nations purchased goods and supplies from the U.S. during the war and this continued after it ended. Unemployment decreased to 1.4 percent during the war years. Overall, even with increased government spending on the war effort, the capitalist American economy was booming for much of the 1920s. For Russia, massive changes were ahead. Their war spending combined with a rush to industrialize led to the Russian Revolution. Socialism and then communism won in the end, allowing the newly created Soviet Union to ramp up efforts that would mobilize and modernize their military. These improvements would prove beneficial as another global conflict that no one really expected was just a couple of decades away.
Over in Africa and parts of Asia there were some pretty terrible economic impacts during the war and after. European powers used their colonial territories as a resource during the war, both in terms of industry and for military conscripts (drafted soldiers). After the war ended, the colonial territories that had belonged to the Central Powers were redistributed to the Allies, in particular to the British and French. Suddenly there were a lot more agricultural and mining projects in these areas because European colonial powers really needed some profits after all that wartime spending.
Almost all markets were hurt by the war. International trade and shipping routes were disrupted. Some nations, such as the United States, actually benefitted by being geographically close to European battlefields in terms of producing and distributing supplies to the Allied forces. But most areas, in particular those that had been under imperial control, saw a decrease in trade. As a result, areas such as Australia and New Zealand took longer to recover than others. South America, especially Chile, was also negatively impacted with the disruption of trade as well as the shift in traffic due to the opening of the Panama Canal.

Conclusion

After World War I, the United States emerged as a dominant force militarily and economically. Industrial production was up and a growing consumerism fueled industry. Life seemed to be pretty good in the West, unless you lived in Germany. When the global markets began to falter at the end of the 1920s, no one expected the financial devastation that was around the corner. Capitalist nations felt the worst effects of the Depression. As a result, many people became disenchanted with free markets and even democratic governments that encouraged capitalism. These changes would lead to new tensions and conflicts in the remaining years of the twentieth century.
Author bio
Bridgette Byrd O’Connor holds a DPhil in history from the University of Oxford and has taught Big History, world history, and AP US government and politics for the past 10 years at the high school level. In addition, Bridgette has been a freelance writer and editor for the Big History Project and the Crash Course world history and US history curricula.

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