Resumo de Financing The First World War

Financing the First World War

Hew Strachan

Financing the First World War consists of largely
independent chapters: The Gold Standard, Financial
Mobilization, The Loss of Budgetary Control, Taxation, Domestic Borrowing, and Foreign
Borrowing. Each of these treats the major belligerent powers in turn,
touches on some of the minor ones, and offers some comparisons and broader
reflections.

This structure makes for fairly dry reading. Strachan also stays fairly
narrowly focused on government finance, occasionally touching on policy-makers
and personalities. There''s no attempt to explore links to industry, broader
economics, or social history. Nor is there any account of post-war events.

There is nevertheless a good deal of fascinating material in Financing
the First World War. A few excerpts will give a feel for the style and
some idea of the scope.

In the sense of an overarching international financial
system, the gold standard did collapse in 1914 into a series of lesser
financial units. But the importance of the Anglo-American nexus, and its
commitment to a gold exchange system, meant that the basis for the revival of
the pre-war gold standard seemed to survive. Pars on the foreign exchanges
remained those set before the war, and at the armistice many responded to the
expectation that that was the level to which they would return, whatever the
financial predicaments of individual countries. The wartime practice changed in
order to preserve the peacetime theory; countries went ''off'' gold in 1914 precisely
in order to go ''on'' it again when normality returned.

During the war inflation had positive effects: it
meant that some of the war''s costs were met by those whose incomes could not
stay abreast of rises in prices. It therefore functioned as a form of indirect,
discreet, and immediately productive taxation. If those on falling real incomes
ultimately ceased to buy goods, they released productive capacity for other
forms of (ideally) war-related production. Simultaneously, those who profited
from inflation simply became liable for higher rates of tax. ...

... Taxation managed inflation by drawing in the surplus
cash of consumers, and so moderating prices."

The fragility of Austria-Hungary''s economic and
industrial development confronted it with irreconcilable demands in its credit
operations. It might have soaked up more note issues if it had raised interest
rates. But it was pathetically anxious not to divorce itself from the patterns
adopted by the other banks of Europe. Only too
aware of its own underdeveloped money market, it mortgaged its short-term
position in the hope of retaining its post-war status.

On 1 April 1917 Britain''s
cash in the United States
was all but exhausted. In New York, against an
overdraft of $358 million and a weekly spend of $75 million Britain had
$490 million in securities and $87 million in gold. At home the Bank of England
and the joint stock banks could command a reserve of £114 million in gold. But
just at the point when the exhaustion of Britain''s finances was about to cut
the Entente''s Atlantic trade Germany declared unrestricted U-boat warfare, with
the intention of achieving the same result. The effect was finally to
precipitate the United
States''s entry into the war.

The Entente''s readier access to foreign credits is
crucial to explaining the proposition that the war cost twice as much to win as
to lose, $147,000 million as against $61,500 million. Those figures focus on
direct fiscal input ? taxation and borrowing; they leave disinvestments and potential
investment foregone out of the account. Effectively denied access to overseas
money markets, Germany and Austria-Hungary
? having taxed their populations and having borrowed from them ? could do no
more than spend their accumulated assets.

Financing the First World War was originally a chapter of
Sand probably the least-read one. It''s not for
everyone ? it assumes an understanding of basic finance, for one thing ? but it
should be useful to students of world financial history as well as anyone after
a broader perspective on the First World War.

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