WW2 havent [[Economics of The World Wars

Question 1

Why does economic size of country matter in war?

Answer 1

1. Wealthier countries can mobilise larger proportion of economy (bc less reliance on agriculture), redirect production towards war and mobilise large proportion of national income for soldiers and munitions
2. Aggregate economic size matters but economic development level becomes the multiplier of size

Question 2

Important WWI Data

Answer 2

Broadberry and Harrison (2008): Economics of the Two World Wars
Chickering and Forster (2000): Schlieffen Plan of Germany
Turner (1996): Britain and French debts
Treaty of Versailles (1919)
Heyde (1998): Reparations effect on Germany

Question 3

What is world war?

Answer 3

An era of ‘total war’ where a large share of national income was mobilised towards war efforts
Mobilisation was only plausible for economies that went through industrialisation where their labour force shifted from agriculture to the industry

Question 4

What are the relevant economic theories?

Answer 4

1. Sectoral shift of labour force (agriculture to industry)
2. Production Possibility Frontier (PPF): prioritising input allocation btwn producing munition (e.g. tanks, ammunition, weapons) and food
   -> rationing (limiting quantities consumed per person) to slow down inflation from increasing money supply to produce munition
3. Input scarcity (labour): women moved from consumer industry & services to factories
4. Allocative efficiency (government unconcerned with maximising social welfare of consumers and producers, rather focused on military strategies and training)
5. Solow Growth Model (raising savings rate will raise investment in capital accumulation raising output to steady state rate)

Question 5

What is the historical flow of World War I?

Answer 5

28 June 1914:
1. Caused by: assassination of Austria-Hungary’s Archduke Franz Ferdinand by Serbian nationalist
2. Main Allied Powers: UK, France, Russia
-1917: Russia stepped out of war bc Bolshevik Revolution
-> established Soviet Union (USSR)
-Replaced by US which was a game-changer in terms of economic quantity bc it had larger capacity to risk, experiment and absorb losses
3. Main Central Powers: Germany, Austria-Hungary, Ottoman Empire and Italy

1914-1916: First Economic Phase
Chickering and Forster (2000): Germany’s Schlieffen Plan anticipated victory in 6-weeks using military strategy
-> didn’t go as planned -> economic strategy through mobilisation of people and national income took over
-1915: Italy joined Allies through Pact of London due to political tensions with Austria-Hungary

1916-1918: Second Economic Phase
4. Mobilisation of > 50% of national income towards war effort (became ‘total war’)
with industrial workers being vital contributors due to needing finished goods fast interwar
1918:
-Central Powers had breakdown of economies and falling output
-Allies’ France almost had economic collapse but was propped back up by UK
11 November 1918
4. Ending: Armistice between Germany and Allies ceased First World War

Question 6

How did agriculture determine victory in World War I?

Answer 6

Agricultural productivity determines sustainability of food before running out of munition
Central Powers (Germany, Austria-Hungary and Ottoman Empire) suffered from:
1) Low agricultural productivity: ran out of food before running out of munitions
2) Agriculture sector’s relatively large share in economy meant lower economic development levels (overdependency on agriculture)
3) Points above -> inability to mobilise economy’s resources towards war efforts in the long run and became bankrupt faster

Allied Powers (UK, France, US)
1) High agricultural productivity
2) Agriculture sector only had small share in economy (less reliant on agriculture)
3) Points above -> enabled mobilisation of resources and large proportion of national income towards war efforts and sustain armies in the long run

Mobilisation data:
Broadberry and Harrison (2008):
1) Allies had quantitative advantage in mobilised soldiers (41 million, 1.6x more than Central Powers)
2) Allies had quantitative advantage in rifles, machine guns, aircraft and tanks
3) Central Powers only had quantitative advantage in guns (82,400, 1.38x more guns than Allies) BUT having more guns but less soldiers doesn’t help
4) Overall, Allies had quantitative advantage in both soldiers and weapons

Question 7

What were the economic consequences of World War I?

Answer 7

1. Shift of economic, financial and trade leadership from Britain to the US
   Bc Britain’s BOP surplus shrunk and US since 19th century was already dominating Britain’s labour productivity in many sectors (Britain only being superior in finance/services)
2. Political mistrust btwn UK and France
   Turner (1996):
   -> France borrowed from UK and UK borrowed from US
   -> but UK & France couldn’t agree on debt settlements
   -> France had to resort to raising reparation requirements from Germany to settle its war debts
   -> Infuriated Germans and may have made WWII a self-fulfilling prophecy
3. Significant loss of human lives (labour) and physical capital
   Broadberry and Harrison (2008):
   Table 4:
   1) France lost the most human capital at 7.2% of prewar assets, most domestic assets at 24.6%, overseas assets at 49%
   2) Germany incurring all reparations, taking 51.6% of its prewar assets and losing 54.7% of its national wealth
   -> countries had to rebuild their initial infrastructure and economic conditions
   -> State taking more active role in economy after war
4. Signing of Treaty of Versailles in 1919 during Paris Peace Conference
5. Failure to establish cooperative trade policies
   Bc of unsolved reparations and poltiical mistrust

Question 8

What was agreed in the Treaty of Versailles?

Answer 8

Treaty of Versailles (1919):
1. Establishment of League of Nations (where US never joined as it reduced its war power)
2. Germany was imposed obligations by the Allies:
1) War reparations worth 132,000,000,000 gold Reichsmarks ($32,000,000,000 USD at the time)
2) Surrender approximately 10% of pre-war territory in Europe and all its overseas possessions
3) Allow Saarland to be exploited of economic resources by France until 1935
4) Demilitarisation (limiting army and navy sizes)
5) Tried Kaiser Wilhem II and other high-ranking German officials as war criminals
Against: Keynes -> treaty too harsh, reparations were excessive and counterproductive
For: Foch -> treaty too lenient (but he failed to recognise how this affected Germany)

Question 9

How did World War I affect Germany?

Answer 9

Heyde (1998):
Bc they had to pay all war reparations:
1. Unemployment rapidly increased
2. Banking system collapsed
3. Inability to stabilise economy under Chancellor Heinrich Bruning (replaced by Franz von Papen in 1932)

Question 10

Important WWII Data

Question 11

What was the historical flow of WWII?

Question 12

How did technology determine victory in WWII?

Question 13

What were the economic consequences of WWII?