The Economic Effects of the Great War

Patrick O'Brien assess the devastating impact of the 'war to end all wars' on an international economic order that had seemed, pre-1914, relatively sturdy.

For more than a century before, the Great War there were a series of  qualitative leaps towards the integration of regions and nations into a global economy. Throughout the world people's incomes and working lives came to be affected more and more by exports and imports, by foreign investment, by the migration of labour across frontiers and by fluctuations in rates of exchange between currencies within the imperfectly understood operations of an embryo international monetary system. In short, nineteenth-century industrialisation integrated national, regional and local economies into an interdependent global economy.

During the era of liberalism (from 1846 to 1914) that process had been supported, more or less enthusiastically, by governments of very different political persuasions, who recognised the baneful effects of aggressive policies pursued against foreign capital and enterprise, and who saw national advantages in co-operating with other states to establish an international economic order, conducive to a relatively free flow of commerce between nations. Their restraint worked because the volume of international trade grew at 4 to 5 per cent a year, compared to around 1 per cent a year during the last century of mercantilism, 1713-1815. Trade also grew much faster than real per capita incomes so that ratios of exports and imports to national incomes rose from 2 to 3 per cent at the beginning of the nineteenth century to roughly a third by 1913.

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