Professional Documents
Culture Documents
World War I undoubtedly had the most far-reaching impacts of any preceding conflict. It
culminated in the demise of four monarchies: Russia in 1917, Austria-Hungary and Germany
in 1918, and Turkey in 1922. It aided the Bolsheviks' ascent to power in Russia in 1917 and
fascism's triumph in Italy in 1922. It sparked colonial uprisings in the Middle East and
Southeast Asia.
Economically, the war badly devastated European economies, allowing the United States to
overtake Europe as the world's biggest creditor and industrial power. The war also had far-
reaching societal ramifications, such as the massacre of Armenians in Turkey and an
influenza outbreak that killed more than 25 million people worldwide.
But how did it affect global finance? Let’s take a look.
World War I was the most expensive conflict in history. One estimate implies direct expenses
of $125-186 billion and indirect costs of $151 billion, while the actual cost is complicated
and may never be completely known. The Allies had far more potential wealth to spend on
the war. According to another estimate (in 1913 US values), the Allies spent $147 billion on
the war, whereas the Germans and their allies spent just $61 billion. Among the Allies,
Britain and its Empire spent $47 billion, the United States $27 billion (America entered the
war in 1917), and Germany $45 billion.
Britain was the world's economic superpower prior to World War One. The nation possessed
tremendous amounts of wealth and resources due to fast expansion and a huge empire.
However, it was unprepared for the economic consequences of war. In contrast, Germany's
1912 budget authorized increasing military spending through 1917, essentially militarizing
the country's economy ahead of the war.
When war broke out in the summer of 1914, Britain was confronted with market panic and a
severe financial crisis. Not only did the government need to calm the markets, but it also
needed to prepare for the massive economic needs of complete war. Faced with the financial
strains of war, the government needed to find ways to raise funds. They had three key
economic instruments available to them:
1. Taxes
Despite indirect taxes collected some funds, the government relied heavily on direct
taxes - on property and income - to raise far more. In 1913, only 2% of the population
paid income tax. Another 2.4 million individuals were eligible during the war,
bringing the total to 8% by 1918.
2. Borrowing
This took the form of large foreign loans as well as domestic borrowing under the war
bonds system. To motivate the country to contribute in the war effort, large
advertising efforts were deployed.
3. Printing Money
With the Currency and Bank Notes Act of 1914, the Bank of England was empowered
to enhance the available supply of money by printing it, despite the danger of
triggering inflation - rising prices.
Funding the war came at a high economic cost in the United Kingdom. Britain went from
being the world's largest overseas investor to one of its top debtors, with interest payments
accounting for around 40% of total government spending. Despite absence of so many men in
the services, the economy (in terms of GDP) increased by around 7% from 1914 to 1918; by
comparison, the German economy fell by 27%. During the war, civilian consumption
declined, with a significant shift to weapons. The government's proportion of GDP increased
from 8% in 1913 to 38% in 1918 (vs. 50% in 1943).
Between 1914 and 1920, inflation more than doubled, while the value of the Pound Sterling
dropped by 61.2%. Local industry was devastated as a result of reparations in the form of free
German coal, sparking the 1926 General Strike. The Versailles Treaty placed German
reparations for the war's costs at 132 billion Marks. This was to be returned in cash or raw
materials, with land surrendered and services rendered. These repayments were terminated in
1932, after Germany had repaid just 20.5 billion Marks (about $6 billion).
The sale of British private interests overseas raised £550 million. During the war, however,
£250 million in fresh investment occurred. The overall financial loss was thus under £300
million; less than two years investment relative to the prewar average rate and more than
compensated for by 1928. The material loss was "minor," with the most important being the
sinking of 40% of the British commercial fleet by German U-boats. The majority of this was
replaced in 1918, and the remainder quickly after the war.
Despite Britain's eventual victory, the ramifications of the conflict would be felt for many
years to come. Foreign commerce, a vital
component of the British economy, had been
severely harmed by the war. Countries cut off
from British commodities had been driven to
develop their own industries, and were no longer
dependant on Britain, instead competing directly
with her. Britain would undergo its greatest
recession in history in 1920/21.
International War One was a watershed point in
Britain's collapse as an international power. It
would take time, but by the mid-twentieth century,
the United States would have surpassed Britain as
the world's greatest economic power. The graph
below depicts the growth of the US governmental
debt since 1914 to 1941.
Today, about £2 billion of WWI War bonds circulate in the market. War bonds were initially
issued at a 5% interest rate, but in 1932, when the government faced a fiscal crisis, then-
Chancellor Neville Chamberlain modified the conditions of those bonds. He urged holders to
fulfil their patriotic duty and willingly accept a 3.5% interest rate drop. Except for a small
percentage, everyone consented to the rules - and that wasn't their only sacrifice. War bond
investors also agreed to accept the possibility that their money might never be repaid. The
original bonds were intended to be returned in full in 1947, but Chamberlain transformed
them to "perpetuals," allowing the government the power not to pay them back if they so
wished, as long as they continued paying the 3.5% interest.
Surprisingly, no government has decided to redeem these obligations since the 1930s. There
are around 125,000 holders, some of whom may have inherited them from parents or relatives
who purchased them during World War One. The persistent presence of the war bond
obligation is arguably the most visual example of World War One's lingering shadow.
World War I also had a tremendous financial impact on India. To fund the war effort, the
British government put significant financial constraints on India. This included more taxes,
higher military spending, and forced loans.
The war also resulted in a substantial drop in India's exports, as shipping channels were
hampered and demand for Indian goods in Europe fell. As a result, there was a trade
imbalance and the Indian rupee fell in value.
The conflict was also detrimental to India's agriculture industry. Essential commodity prices
skyrocketed, causing inflation and widespread misery.
Overall, World War I had a detrimental influence on India's finances. The conflict resulted in
a significant rise in the government's debt, a drop in exports, and a drop in the value of the
rupee. The conflict also harmed India's agriculture industry, causing inflation and severe
poverty.
Here are some specific examples of the impact of World War I on India's finances:
i. The Indian government's debt increased from Rs. 367 million in 1914 to Rs. 1,211
million in 1919.
ii. India's exports declined from Rs. 2,119 million in 1914 to Rs. 1,474 million in 1919.
iii. The value of the Indian rupee fell from 1 shilling and 4 pence in 1914 to 1 shilling and
2 pence in 1919.
iv. The price of rice increased by 100% between 1914 and 1919.
v. The price of wheat increased by 150% between 1914 and 1919.
The financial burden of World War I on India was a major factor in the rise of the Indian
independence movement.
WW2 and Global Finance
World War II was a global conflict that had a profound impact on every aspect of society,
including finance. The war led to a massive increase in government debt, a decline in global
trade and investment, and widespread economic disruption. However, the war also led to the
establishment of a new global financial system, which helped to promote economic recovery
and growth after the war.
The impact of World War II on global finance is still being debated by historians and
economists today. However, it is clear that the war had a profound impact on the
development of the global financial system. The changes that were made to the global
financial system after the war helped to promote economic recovery and growth. The war
also led to the development of new financial technologies and financial markets, which have
made financial services more efficient and accessible to people around the world.