The economic history of World War I covers the methods used by the First World War (1914–1918), as well as related postwar issues such as war debts and reparations. It also covers the economic mobilization of labour, industry, and agriculture leading to economic failure. It deals with economic warfare such as the blockade of Germany, and with some issues closely related to the economy, such as military issues of transportation. For a broader perspective see home front during World War I. As airplanes were not in use at the time, transportation became much more costly.
All of the powers in 1914 expected a short war; none had made any economic preparations for a long war, such as stockpiling food or critical raw materials. The longer the war went on, the more the advantages went to the Allies, with their larger, deeper, more versatile economies and better access to global supplies. As Stephen Broadberry and Mark Harrison conclude, once stalemate set in late in 1914: "The greater Allied capacity for taking risks, absorbing the cost of mistakes, replacing losses, and accumulating overwhelming quantitative superiority should eventually have turned the balance against Germany".Stephen Broadberry and Mark Harrison, eds. The Economics of World War I (2005) ch 1 online p 2
The Allies had much more potential wealth they could spend on the war. One estimate (using 1913 US dollars) is that the Allies spent $147 billion on the war and the Central Powers only $61 billion, but Germany concentrated the largest industrial conglomerate in the Rhineland region. Among the Allies, Britain and its Empire spent $47 billion and the U.S. $27 billion (the U.S. joined after the war started) while among the Central Powers, Germany spent $45 billion.H.E. Fisk, The Inter-Allied Debts (1924) pp 13 & 325 reprinted in Horst Menderhausen, The Economics of War (1943 edition), appendix table II
Total war demanded total mobilization of all the nation's resources for a common goal. Manpower had to be channeled into the front lines (all the powers except the United States and Britain had large trained reserves designed just for that). Behind the lines labour power had to be redirected away from less necessary activities that were luxuries during total war. In particular, vast munitions industries had to be built up to provide shells, guns, warships, uniforms, airplanes, and a hundred other weapons both old and new. Agriculture had to provide food for both civilians and for soldiers (some of whom had been farmers and needed to be replaced by women, children and the elderly who now did the work without animal assistance) and for horses to move supplies. Transportation, in general, was a challenge, especially when Britain and Germany each tried to intercept merchant ships headed for the enemy. Finance was a special challenge. Germany financed the Central Powers. Britain financed the Allies until 1916 when it ran out of money and had to borrow from the United States. The U.S. took over the financing of the Allies in 1917 with loans that it insisted be repaid after the war. The victorious Allies looked to defeated Germany in 1919 to pay reparations that would cover some of their costs. Above all, it was essential to conduct the mobilization in such a way that the short term confidence of the people was maintained, the long-term power of the political establishment was upheld, and the long-term economic health of the nation was preserved.Gerd Hardach, First World War: 1914–1918 (1981)
Europe
Gross domestic product (GDP) increased for three Allies (Britain, Italy, and the U.S.), but decreased in France and Russia, in the neutral Netherlands, and in the three main Central Powers. The shrinkage in GDP in Austria-Hungary, Russia, France, and the Ottoman Empire reached 30 to 40%. In Austria, for example, most pigs were slaughtered, so at war's end there was no meat.
The Western Front quickly stabilized, with almost no movement of more than a few hundred yards. The greatest single expenditure on both sides was for artillery shells, the chief weapon in the war. Since the front was highly stable, both sides built elaborate railway networks that brought supplies within a mile or two of the front lines, with horse-drawn wagons used for the final deliveries. In the ten-month battle at Verdun, the French and Germans fired some 10 million shells in all, weighing 1.4 million tons of steel.John Horn, ed. Companion to World War I (2012) pp 58, 218
Allies The German counter-blockade with U-boats was defeated by the convoy system and massive American shipbuilding. Britain paid the war costs of most of its Allies until it ran out of money, then the US took over, funding those Allies and Britain as well.David Stevenson, With Our Backs to the Wall: Victory and Defeat in 1918 (2011) pp 350–438
United Kingdom
The economy (in terms of GDP) grew about 7% from 1914 to 1918 despite the absence of so many men in the services; by contrast the German economy shrank 27%. The war saw a decline of civilian consumption, with a major reallocation to munitions. The government share of GDP soared from 8% in 1913 to 38% in 1918 (compared to 50% in 1943).Niall Ferguson, The Pity of War (1998) p 249
Despite fears in 1915-16 that munitions production was lagging, in the longer term the output was more than adequate. The annual output of artillery grew from 91 guns in 1914 to 8039 in 1918. Warplanes soared from 200 in 1914 to 3200 in 1918, while the production of machine guns went from 300 to 121,000.Paul Kennedy, The Rise and Fall of the Great Powers (1987) p 267 Early failures in munitions manufacturing led to full British government intervention in war production. These controls helped its industry produce nearly 4 million rifles, 250,000 machine guns, 52,000 aeroplanes, 2,800 tanks, 25,000 artillery pieces and over 170 million rounds of artillery shells by 1918.
In 1915, the Anglo-French Financial Commission agreed a $500 million loan from private American banks. By 1916, Britain was funding most of the Empire's war expenditures, all of Italy's and two thirds of the war costs of France and Russia, plus smaller nations as well. The gold reserves, overseas investments and private credit then ran out forcing Britain to borrow $4 billion from the U.S. Treasury in 1917–18.Steven Lobell, "The Political Economy of War Mobilization: From Britain's Limited Liability to a Continental Commitment," International Politics (2006) 43#3 pp 283–304 Shipments of American raw materials and food allowed Britain to feed itself and its army while maintaining her productivity. The financing was generally successful,M. J. Daunton, "How to Pay for the War: State, Society and Taxation in Britain, 1917–24," English Historical Review (1996) 111# 443 pp. 882–919 in JSTOR as the City's strong financial position minimized the damaging effects of inflation, as opposed to much worse conditions in Germany.T. Balderston, "War finance and inflation in Britain and Germany, 1914–1918," Economic History Review (1989) 42#2 p p222-244. in JSTOR Overall consumer consumption declined 18% from 1914 to 1919.B.R. Mitchell, Abstract of British Historical Statistics (1962) p 371
Trade unions were encouraged as membership grew from 4.1 million in 1914 to 6.5 million in 1918, peaking at 8.3 million in 1920 before relapsing to 5.4 million in 1923.Mitchell, Abstract of British Historical Statistics (1962) p 68 Women were available and many entered munitions factories and took other home front jobs vacated by men.Gail Braybon, Women Workers in the First World War: The British Experience (1990)
Energy
Light energy was a critical factor for the British war effort. Most of the energy supplies came from coal mines in Britain, where the issue was labour supply. Critical however was the flow of oil for ships, lorries and industrial use. There were no oil wells in Britain so everything was imported. The U.S. pumped two-thirds of the world's oil. In 1917, total British consumption was 827 million barrels, of which 85 percent was supplied by the United States, and 6 percent by Mexico.Harold F. Williamson, The American Petroleum Industry: the Age of Energy 1899-1959 (1963) 2:267 The great issue in 1917 was how many tankers would survive the German U-boats. Convoys and the construction of new tankers solved the German threat, while tight government controls guaranteed that all essential needs were covered. An Inter-Allied Petroleum Conference allocated American supplies to Britain, France and Italy.Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (1991) pp 176-77
An oil crisis occurred in Britain due to the 1917 German submarine campaign. Standard Oil of NJ, for example, lost 6 tankers (including the brand new John D. Archbold) between May and September. The only solution to the crisis lay with increased oil shipment from America. The Allies formed the Inter-Allied Petroleum Conference with USA, Britain, France, and Italy as the members. Standard and Royal Dutch/Shell ran it and made it work. The introduction of convoys as an antidote to the German U-boats and the joint management system by Standard Oil and Royal Dutch/Shell helped to solve the Allies' supply problems. The close working relationship that evolved was in marked contrast to the feud between the government and Standard Oil years earlier. In 1917 and 1918, there was increased domestic demand for oil partly due to the cold winter that created a shortage of coal. Inventories and imported oil from Mexico were used to close the gap. In January 1918, the U.S. Fuel Administrator ordered industrial plants east of Mississippi to close for a week to free up oil for Europe.
Fuel oil for the Royal Navy was the highest priority. In 1917, the Royal Navy consumed 12,500 tons a month, but had a supply of 30,000 tons a month from the Anglo-Persian Oil Company, using their oil wells in Persia.
Scotland Clydebank shipyards before 1914 had been one of the busiest in the world, turning out more than a third of the entire British output. They expanded by a third during the war, primarily to produce destroyers. They additionally constructed two battlecruisers, HMS Repulse and HMS Hood. Confident of postwar expansion, the companies borrowed heavily to expand their facilities. But after the war, employment tumbled as the yards proved too big, too expensive, and too inefficient; in any case world demand was down. The most skilled craftsmen were especially hard hit, because there were few alternative uses for their specialized skills.Lewis Johnman and Hugh Murphy, "An Overview of the Economic and Social Effects of the Interwar Depression on Clydeside Shipbuilding Communities," International Journal of Maritime History, (2006), 18#1 pp 227–254
Ireland
Ireland was on the verge of civil war in 1914 after Parliament voted a home rule law that was intensely opposed by Unionists, especially those in Ulster. When the war broke out the law was suspended and Protestants gave very strong support for the war in terms of military service and industrial output.G. R. Searle, A New England?: Peace and War 1886-1918 (New Oxford History of England, 2005), pp 424-34, 753-54.J.J. Lee, Ireland, 1912-1985: Politics and Society (1990) pp. 1-43.