20 Century

Created 1/24/1997
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Slouching Towards Utopia?: The Economic History of the Twentieth Century

-X. World War I-

J. Bradford DeLong
University of California at Berkeley and NBER

February 1997

The Outbreak:

To much of the industrial world--especially to those engaged in commerce, trade, and enterprise--World War I seemed impossible to imagine beforehand, and like a bad dream as it happened. The British economist John Maynard Keynes, one of those who saw the war as a previously-unimaginable horror, was afterwards to write of the pre-World War I inhabitant of London "for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages," who saw:

...this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of economic and social life, the internationalization of which was nearly complete in practice.

In the summer of 1914, a Bosnian terrorist seeking Bosnian independence from the Austro-Hungarian Empire and union with Serbia assassinated the heir to the throne of the Austro-Hungarian Empire, the Archduke Franz Ferdinand (brother of the ruling Emperor Franz Josef), and his wife. The terrorists had received some assistance from the secret police of the Kingdom of Serbia--although almost surely not with the active knowledge of the King of Serbia: no ruler, monarchical or otherwise, has an interest in the declaration of an open hunting season against heads of state and their near relatives.

The rulers of Austria-Hungary had for a long time been worried about Serbian nationalism, or rather the extension of Serbian nationalism northward as ideologues argued that Serbs, Bosnians, Croats, Slovenes, and others were really one nation--"Yugoslavs"--and that only alien rule by Turks from Istanbul and Germans from Vienna had prevented the previous emergence of a glorious south-slav nation.

From our perspective it is easy to be very, very cynical: less than 80 years separate the time when Serbs and Croats were blood-brothers (so much so that the Serbs would risk bloody war with Europe's great powers to rescue the Croats from oppressive foreign despotism) and our time, when Serbs and Croats cannot live in the same village or province without the political leaders of at least one side calling for the extermination and exile of the other. To fight one set of wars at the start of the twentieth century to unify Serbs and Croats and to fight another set of wars at the end to dissolve the union and "ethnically cleanse" the region seems among the sickest of the jokes History plays on human populations.

From our perspective a semi-democratic, constitutional monarchy like that of the Habsburg-ruled Austro-Hungarian Empire, ruling over various nationalities, a monarchy that respected (most) local customs, kept the peace, and allowed freedom of commerce, belief, and speech (within limits), seems much more than halfway up the list of desirable regimes. The heir of Emperor Franz Josef is now the President pro tempore of the European Parliament in Strasbourg. How much better to have achieved this by peaceful evolution than by war.

But a large number of European statesmen wished to see--or at least were willing to risk the chance of--a war in the summer of 1914.

For the old emperor Franz Josef in Vienna and his advisors, the outrageous murder of his nephew--with help from within the Serbian government--seemed to call for action to chase and punish the guilty, humble and shame Serbia, and make it plain that Austria was the great power in the Balkans. Thereafter Serbian foreign policy had better trim its sails to the Austrian wind. To establish this seemed worth a small risk of a large war.

For the not-so-old emperor in St. Petersburg, Czar Nicholas II, and his advisors, possible involvement of Serbian government officials and agencies in the assassination of his distant cousin Franz Ferdinand was beside the point. Russia, not Austria, was to be the dominant great power in the Balkans. Russia was to be the protector of Slavic-speaking states that had previously been part of Turkey's decaying Ottoman Empire. Russia needed to make it plain that it would fulfill its promises to protect other Slav-speaking states--and especially to protect them against the imperialism of German-speaking Berlin and Vienna. To establish this seemed worth a small risk of a large war.

For the not-so-old German Emperor, the Kaiser Wilhelm II, and his advisors, the decision to back Austria to the hilt in whatever action it chose to take in response to the assassination of Franz Ferdinand-up to and including war-was nearly automatic. For the German government by and large viewed a large war not as a risk but as an opportunity. The rulers of Germany felt that their country deserved a larger place in international affairs: more influence, more respect, and more colonies. They looked back at a nineteenth century in which the standing and power of the core of the turn of the century German Empire, the Kingdom of Prussia, had been radically enhanced by short victorious wars provoked and managed by the so-called Iron Chancellor, Prince Otto von Bismarck, a German politician whose best-remembered sentence is that: "It is not by speeches and debates that the great issues of the day will be decided, but by Blood and Iron."

Bismarck's shoes were hard to fill. His legend was hard to live up to. But attempting to live up to it seemed to involve an eagerness to court and welcome the risks of war. No one remembered that Bismarck had sought war against isolatedpowers without allies--Denmark in 1864, Austria in 1866, and France i 1870--adn only when he had stacked the deck to make rapid victory all but certain. And no one remembered that Bismarck had never had any desire to escalate political conflict in the Balkans. Perhaps his second-best-remembered sentence is that: "There is nothing at stake [in the Balkans] that is worth the bones of a single Pomeranian grenadier."

Complicating German decision-making further--and this is hard to believe--was that the civilian politicians in Germany and the emperor did not know that the German army understood "mobilization" to be "war." For the chancellor of the German Empire and the emperor, mobilization was the final threat before war. But for the army, it was the first tep of the war: German "mobilization" called for troops to assemble and concentrate in Belgium and Luxemburg, outside of Germany's borders. The Belgian border fortress of Liege was to be occupied on the third day of mobilization; the Luxemburg railways were to be seized on the first day. Thus Germany went to war--attacked Belgian fortresses, and occupied Luxemburg--in a fit of absence of mind. The first German acts of war were undertaken by the military high command on the authority of the (political) order to mobilize. The political leadership did not declare war, they realized they were at war.

For the politicians and journalists of the French Third Republic in Paris, as well, war was viewed not as a risk but as an opportunity. The newly-formed German Empire had ripped the provinces of Alsace and Lorraine from France as part of the treaty that ended the Franco-Prussian War of 1870-1871. (The justification was that these provinces had been previously ripped away from Germany by French aggression-but their incorporation into France had taken place more than two centuries before, Alsace in the first half and Lorraine in the second half of the seventeenth century.) And for more than forty years the French army and French politicians had been getting ready for a rematch. So from the perspective of France's politicians and generals, a war with Germany was to be welcomed-as long as France's allies were securely on board as well. A war would restore French predominance in Europe, and dominance over Germany.

For the politicians of the British Empire in London, risks of war were worth running if they were necessary to preserve the European balance of power. In the early twentieth century, preserving the European balance of power was seen mostly as requiring the containment of Germany. Why the containment of Germany rather than France? Britain had been at war with France for more than half of the millennium before 1914, after all. Because Germany had built a modern navy strong enough to challenge and-possibly, if they were lucky-beat the British navy. Such a naval defeat would leave food-importing Britain helpless, with no choice but to surrender.

Why had the Germans built such a fleet? Because the admirals convinced the Emperor Wilhelm II that the British would never respect Germany unless it did have a fleet strong enough to challenge the British navy. It is not clear that the British respected pre-World War I Germany; it is clear that they feared it, and armed against it. As Winston Churchill said,when the magnitude of the German naval construction program became clear, "the politicians proposed [to build] four, the admirals demanded six, and we compromised on eight [new battleships built every year]." Thus Britain allied with France, which showed no signs of wanting to build a fleet large neough to challenge the British navy.

It is worth stepping back, and noting that all of these politicians and military officers were at best badly mistaken, and at worst criminally insane. Nearly ten million people would die in World War I. All of the continental European emperors whose ministers made war would lose their thrones as a direct result of the war, the British monarch alone surviving (the kings of Italy and Belgium also survived: their countries joined the winning Anglo-French side). The not-so-old Czar Nicholas II in St. Petersburg did not demonstrate that Russia was the great power in the Balkans, and that slavic-speaking small nations could count on it to protect them from Viennese hegemony. Instead he lost his throne, his life, and his country. Russia lost a generation of young men dead or mutilated, and lost its chance to have a less-than-totally-unhappy twentieth century. The not-so-old German Emperor Wilhelm II in Berlin did not secure for Germany a dominant "place in the sun" among the great powers of Europe. He lost his throne; his country lost its political and military autonomy, a generation of young men, and took the first steps along the road to Hitler's Third Reich, a regime that will blacken the name of Germany for millennia. The old Emperor Franz Josef in Vienna would die while World War I was still going on; but his Habsburg dynasty would lose its throne, and his empire would be chopped up and handed out to no fewer than seven nation-states (today between thirteen and fifteen, depending on whether you count Bosnia-Herzegovina as one or three).

The French would lose a generation of young men dead or mutilated. And it would take more than thirty more years before French politicians would realize that trying to contain Germany by using your army simply did not work, and that perhaps a better way to try to contain German power would be to integrate it economically into a wider Europe. The British would lose a generation of young men. And the post-World War I British Empire would be much weaker, and eventually find itself in a worse strategic position, than even a pre-World War I Britain facing a German-dominated Europe would have possessed.

The Princeton historian Arno Mayer has attributed the collossal misjudgments and underlying bloodthirstyness of those who started World War I to the persistence of the Old Regime. Europe in 1914 was a Europe of national populations, of industrialists and socialists, of factory workers and technicians. But Europe's governments in 1914--especially the defense and foreign affairs ministries--were populated by aristocrats, ex-aristocrats, and would-be aristocrats who had no social function in the absence of war, and who could look forward only to continued erosion of their influence and status, erosion of their relative wealth, and erosion of their self-respect in the absence of war.

So they rolled the dice, Arno Mayer believes more-or-less understanding that in the losing country the political and social order that had given them influence and wealth would be destroyed. But they believed that the risk was worth the potential gain, with the gain coming from the strengthening of power and influence that would come from victory and resulting international political domination. And--surprising as it may seem--the people responded: they truly saw the world as made up of nations in conflict, so that they should be willing to risk death to recover Alsace for the French Republic. The mass armies were made up of the universally conscripted 18-21 year olds of Europe, augmented by the reserves: those who had gone through the military in the previous decade or two and who did not hold civilian jobs judged "essential" to the war effort. The mass armies marched off to war enthusiastically, singing, taking the causes of the emperors and the generals for their own.

Much of the enthusiasm for war was fueled by a belief that the war would be short. Within memory, most European wars had been short. The Franco-Prussian War of 1870, the Austro-Prussian War of 1866, the Prusso-Danish War of 1864, the Franco-Austrian War of 1859, and the Balkan Wars of the early twentieth century had all seen armies assemble, armies march, a pitched battle or two, one army in retreat or dissolution, and a peace treaty signed. Many thought that the war would be over before the leaves finished falling. Few looked at the bloody trench warfare of the Russo-Japanese War of 1905 or at the slaughter of the American Civil War of 1861-65, or thought what they might mean for World War I.

Some looked forward to the war with more fear. Edward Grey, the British Foreign Secretary who committed the British Empire to the war, is reputed to have looked out his window one evening at dusk in the last days before the shooting, and said: "The lights are going out all over Europe. I do not think we shall see them lit again in our lifetime."

The War Effort

Mobilizing economic resources for total war turned out to be suprisingly difficult. Military plans had all been based on the assumption of a short war: one in which decisive victory would be won or lost in a matter of months, in a single battle or two. And at first it did seem as though victory would be quick, and would go to Germany and its allies, the so-called central powers. The first-mobilized vanguard of the Russian army was decimated in the forests of eastern Germany. The first battles between the French and the Germans saw the French take much heavier casualties, and retreat almost to Paris before the Germans outran their supply lines. But thereafter the front line settled down into a fixed line of trenches in which soldiers hid from flying death. And offensives degenerated into episode of machine-gun target practice in which the attackers always took far heavier casualties, and invariably gained little ground of no strategic value.

As the war settled into stalemate, generals called for greater and greater commitments of resources to the front: if battles could not be won by strategy, perhaps they could be won by the sheer weight of men, metal, and explosives committed to the front. The share of each belligerent's resources devoted to the war effort rose.


In Britain--which attained the highest degree of mobilization--the government was sucking up more than one-third of national product (plus the time of conscripted soldiers) for the war effort by 1916. Production became much more that dictated by the representatives of industry's largest customer, the military, than by market forces. The example of the German war economy made some, like Vladimir Lenin, believe that a "command economy" was possible: that you could run a socialist economy not through the market but by using the government as a command-and-control bureaucracy.

In the end, the weight of men and metal arranged against Germany and its allies did tell. First, however, Russia disappeared from the war in 1917, with the fall of the Czar in March 1917 and the seizure of power by Lenin and the Communists in November 1917. But the United States entered the war in 1917. Final victory was achieved at the end of 1918, when the Austro-Hungarian Empire's army collapsed and the German army in France, facing defeat, sought an armistice.

The Aftermath

When the guns fell silent after fifty months of World War I, the world of relatively rapid growth and progressing civilization of nineteenth century Europe had been shattered. The optimism of the nineteenth century would never be fully restored. Some 65 million men had been mobilized for military service (out of total populations of perhaps 400 million). Of these, perhaps ten million were killed and 21 million wounded, not counting the casualties of the Russian Civil War that erupted at the end of 1917. Civilian casualties were relatively light: less than ten percent of military casualties.

Things were to be different in World War II. Then civilian deaths would exceed military deaths.

In World War I total cumulated war budgets of the combattants amounted to perhaps $200 billion, with total property damage of perhaps $40 billion additional (and lost production that those turned into soldiers would otherwise created of perhaps $65 billion more), all in an era where the gross national product of the United States was $50 billion. In France, which had seen the principal western front battles of World War I, more than 2.5 million people had been driven from their homes by the war-nearly all of whose houses were destroyed or badly damaged. Poor nutrition and refugee movements set the stage for the last great worldwide epidemic, the flu epidemic that followed World War I, which itself killed perhaps fifteen million people.

The victorious allies did not think that they should bear the cost of having been the battlefield in World War I. The peace settlement--the Treaty of Versailles--demanded "reparations." Allied claims for reparations after the war amounted in total to $33 billion, a sum equivalent to two years' worth of German national product. It would have required all of Germany's pre-World War I export earnings in order to amortize this reparations burden over a third of a century. Such reparations were never paid. In fact, transfers from the United States to Germany in the form of post-World War I loans that were never repaid dwarfed actual reparations payments.

Other countries lost as well from default. Perhaps a fifth of a year's GNP for France disappeared with the Bolshevik repudiation of the Czarist debt. But even the notional imposition on Germany of a reparations burden--never mind that it was never paid--weakened the middle class and, perhaps more important, weakened the Social Democratic Party which had signed the allied peace terms. Since the weakness of the social democrats was key to the failure to stop the rise of Hitler, the imposition on Germany of the post-World War I reparations burden turned out to be the most costly political decision of the entire World War I era.

The pattern of international trade was permanently altered by the war. Wartime stimulus to industry expanded the export capacity of North and South America. After the war, the British found themselves exposed to American, Latin American, and Japanese competition in their export markets in ways that had been inconceivable before the war. The interruption of wartime exports from Britain stimulated textile and iron production in Asia and in Latin America.

The final stages of World War I saw the end of three dynasties and three empires, and the first seizure of power by disciples of what was to become the most murderous of the totalitarian ideologies of the twentieth century--Communism. The German Emperor Wilhelm II abdicated in November 1918. A republic was proclaimed, with Social Democratic Party leader Friedrich Ebert as its provisional president. The German army high command agreed to support and defend the republic if the political leaders of the republic would suppress any social revolution that would expropriate and nationalize property and redistribute wealth. The Austro-Hungarian Emperor likewise abdicated in November 1918, and his regime was carved into individual nation-states very roughly following ethno-linguistic borders. The Czar Nicholas II abdicated in March 1917, and after eight months of provisional government Lenin's radical wing of the Russian socialists--the "Bolshevik" or "majority" faction--seized power and claimed to be establishing a working-class dictatorship in November 1917.

Lenin and his comrades confidently expected their revolution in Russia to be followed by other, similar Communist revolutions in the more advanced, industrial countries of western Europe. And he might have been correct had more of the leaders of the left, "violent action" wings of western European socialist movements been like Lenin. A Communist republic briefly held power in Hungary. Another briefly held power in Germany. The "Spartakists"--the left wing of German socialism under Karl Liebnecht and Rosa Luxemburg--called for an uprising in Berlin, declared that the provisional republican government under mainstream social democratic politician Friedrich Ebert was deposed, but did curiously little to attempt to seize power or control over the government.

The flavor of the Spartakist uprising is well-captured by the Spartakist attempt to seize the German Ministry of War:

Karl Liebnecht... ordered a certain Petty Officer Lemmgen to occupy the red-brick edifice of the Ministry of War on behalf of the Revolutionary Council.... But when Lemmgen arrived at the Ministry, he found a young lieutenant, Bruno Hamburger... as duty officer. Lieutenant Hambuger challenged Lemmgen's authority and demanded to be shown his credentials.... Lemmgen produced a typed document with the following text: "Comrades and Workers! The Ebert-Scheidemann government have made themselves impossible.... The undersigned Revolutionary Council has provisionally assumed power."

Lieutenant Hamburger inspected the document and became properly indignant. "But where are the signatures?' he demanded. The documment had none. "Before I can comply with this order, you'll have to go back and get it properly signed. Otherwise any little shorthand typist could declare the government deposed."

Petty Officer Lemmgen... saw the logic of the lieutenant's request. So he and his men saluted... and made their way back to the Revolutionary Council to obtain the necessary signatures.... But by the time he had obtained the signatures, Lemmgen had learned that the People's Naval Division had declared itself neutral. So he did not return to the Ministry of War...

The "revisionist" mainstream social democrats were more ruthless and more Leninist than the left-wing socialists who called for a social revolution to redistribute and nationalize wealth as well as a political revolution to remove the monarchy and institute democracy. The Spartakist demonstrations were suppressed by ex-soldiers hastily organized into a militia. Karl Liebnecht and Rosa Luxemburg were arrested, and "shot while attempting to escape."

A Land Fit for Heroes?

World War I permanently changed European politics. The returning soldiers were heroes: they deserved a land fit for heroes. Working class soldiers who had died in enormous numbers for the state could not be deprived of the vote. The electorate was greatly expanded during and after the war. Women were enfranchised. Property tests restricting voters to the middle and upper classes, or giving more influence to upper-class voters, were eliminated. The result was the rise of the political left. In Britain, for example, where less than half of adult males could vote before World War I, the socialist Labour Party multiplied its vote sevenfold in the election of 1918.

Barry Eichengreen sees the rise of proportional representation as an electoral mechanism in Europe as another result of World War I. The war had arisen because of the suppression of nationalities by the old empires, therefore a just post-war system had to protect minority rights. Proportional representation meant that candidates did not have to receive a majority in a particular constituency, but just a sizable enough proportion of the total national vote. Proportional representation encouraged the multiplication of parties: the principal incentive for politicians to group together into parties was always that if you did not combine you stood no chance of winning an office, and proportional representation greatly reduced this incentive. Non proportional systems encourage the growth of two grand coalitions--one just to the right and the other just to the left of center. Proportional systems encourage the growth of many parties, each one finely calibrated to a particular voter mass point on the ideological spectrum.

The rise of proportional representation reinforced currents hostile to political democracy: "we vote and vote, but nothing changes," critics charged, because the only outcome of elections was a small shift in seats in parliament, and a small reshuffle of portfolios among centrist ministers. It was much easier to make the argument that the democratic franchise had real meaning in non-proportional systems, where an election often led to a change of the entire government and not just a reshuffling of portfolios.

But land fit for heroes required more than giving the working class the franchise. It required governmental policies that would recognize the gift that the people had made the nation during the war. Disability insurance for war veterans, unemployment insurance so that returning soldiers did not have to beg in the street because postwar readjustment was slow, mammoth government expenditures to repair war damage, plus mammoth government expenditures to pay off the war debt--all these placed stresses on and required action from governments orders of magnitude greater than had been seen before.

from "Dulce et Decorum Est"

by Wilfred Owen

Gas! GAS! Quick, boys!--An ecstacy of fumbling,
Fitting the clumsy helmets just in time,
But someone still was yelling out and stumbling
And floundering like a man in fire or lime....
In all my dreams before my helpless sight

He plunges at me, guttering, choking, drowning.

If in some smothering dreams, you too could pace
Behind the wagon that we flung him in,
And watch the white eyes writhing in his face,
His hanging face, like a devil's sick of sin...
My friend, you would not tell with such high zest
To children ardent for some desperate glory,
The old Lie: Dulce et decorum est
Pro patria mori.

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20 Century

Created 1/24/1997
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Associate Professor of Economics Brad DeLong, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
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