How does the economics of war affect society?
It is undeniable that war has a dire impact on any economy and the society that depends on it. During times of war, countries tend to suffer from a lack of manpower, free resources and hence production and exports. They also typically require more resources for supporting their war efforts. The value of money decreases and prices start to fluctuate. These effects do not end with the war and usually carry on decades later into modern times.
Before the first World War, the economy was steadily growing worldwide. The world was progressing to a new age with the invention of steamships, the telegraph and the telephone, facilitating global trade, travel and communication. Since there were no restrictions on immigration and no requirement for passports, people were free to migrate to other lands that they perceived as golden opportunities. Governments remained small and were able to manage their finances well. There was a gold standard – a guarantee that the government would redeem any amount of paper money for its equivalent value in gold.
However, World War I erupted, causing major changes in how the world was run. People started to be suspicious of foreigners, particularly those from oppressing nations. Countries began imposing restrictions on trade, capital flow and immigration. The United States and Europe suspended the gold standard and printed more money to pay for their war efforts. Once the war was over, they realized that their currencies did not need to be backed by gold. Although most countries returned to a modified gold standard after the World War, it began to harm the world’s economy by causing deflation and unemployment worldwide. As such, countries began to abandon the gold standard. It is widely argued that this sudden protectionism of each nation paved the way for the Great Depression.
For example, the German government printed paper money to fund their war efforts, significantly increasing the number of Deutschmarks in circulation from 13 billion to 60 billion. As a result, their sovereign debt also went up from 5 billion to 100 billion Deutschmarks. To meet the 132 billion marks of the Treaty of Versailles’ reparations, Germany printed even more money, resulting in hyperinflation as the value of their money decreased due to the excess cash in circulation. Germany was unable to produce enough goods for its needs, especially food. Money became common but nearly worthless, causing the price of everyday commodities in Germany to double every 3.7 days while the people lost buying power.
The rise in technological warfare has been thought to contribute to the hyperinflation in countries that printed money. Wars became more expensive with the advent of heavy equipment and technology, with all parties involved using tanks, submarines, aircraft, long-range artillery, flamethrowers, steel armor and chemical and biological weapons. Chemical warfare was a major culprit of World War I, with more than 100,000 tons of poison gases being used, causing the deaths of an estimated 90,000 people. Moreover, these weapons were not cheap.
Additionally, the World War made governments realize that their people would be willing to pay taxes in exchange for protection from their enemies. Over just three years, the taxation rate in the United States increased by 70 percent, from 7 percent in 1915 to 77 percent in 1918. The rate reached its peak at above 90 percent in 1944 during World War II.
With Russia’s great commitment to the first World War came a shortage of supplies, namely food. When the people were starving, they were more susceptible to agreeing to communism, where resources were promised to be divided evenly. Unfortunately, supplies continued to be scarce, leading to an influenza breaking out in 1918. Over five hundred million people got sick, amounting to one person out of every three. Their prognosis was dire, with 50 million deaths in total, some barely hours after finding out that they were infected.
On the other hand, the United States experienced a surge in its power from the World War, doubling its economic output in just four years. America became a world power both from economic and military standpoints. It was able to mass produce goods and sell them to countries that were suffering from shortages. The United States first exported goods to Europe, which was preparing for the war. It only slowed exports once it prepared to enter the war as well. This decreased unemployment rates from 7.9 percent to 1.4 percent, both from civilians being conscripted into the military and also those who filled in the hard labor positions immigrants would normally take, as the war in Europe meant decreased immigration rates to the United States.
World War II is commonly believed to have occurred partly due to the hyperinflation of World War I, which caused Germany to turn to Adolf Hitler for a solution. Blaming the Jews for Germany’s defeat, he set out to reinstate Germany’s power. The people of Germany looked to communism as an attractive scheme, but the government supported the Nazis in preventing communism from happening. In the end, Hitler betrayed them and turned the country into a dictatorship.
Other reasons included the desire for expansion in other countries. Countries such as Italy and Japan turned to fascist leaders that promoted nationalism and inspired people to forsake their self-interests for the good of their countries. These leaders placed emphasis on having a strong military and conquering other nations, claiming their resources and supplies.
When the second World War occurred, the economy was again thrown into disarray. World War II had the greatest number of casualties than all other wars combined, with an estimated 70 million deaths or four percent of the world’s population. Some countries experienced shortages while the United States continued adding to the economic power that it already had from World War I. The numerous underutilized machinery in the country was put to use and geared for full production, steadily increasing its annual economic growth. Civilians were taxed to pay for these costs. By the end of the war, the United States was the only country that was able to print money. In 1944, the Bretton Woods agreement was signed, establishing the United States dollar as the new global currency instead of the gold standard.
The United States was not the only country that experienced unusually sustained growth after World War II. Despite the losses these countries suffered, Japan, West Germany, France and Italy, among others, were able to get back on their feet and catch up on the global economy. In fact, Japan and West Germany were able to exceed the gross domestic product of the United Kingdom in the years following the war, even while the United Kingdom was already experiencing the best economic growth in its history. Many countries have their own terms for this prosperous period, such as Wirtschaftswunder (economic miracle) in Austria and West Germany, Trente Glorieuses (glorious thirty) in France and Miracolo economico (economic miracle) in Italy.