WWI Disruptive Effect on Trading and Financial System - Essay Example

Why did the First World War have such a disruptive effect on the international trading and financial system? The First World War has turned huge disasters for all the participants. It has destroyed the third of material assets, caused to a huge loss of natural resources of the planet. The economic accents have changed: England has given the up the place to the USA. There was a split of the world on 2 opposite systems. The national-liberation movement in colonies has begun. The countries-participants have incurred the enormous human, material and military losses. In Europe the inflation, and unemployment has grown, the salary has decreased, there was a narrowing the home markets. Only the USA have won. From the beginning of the 20-th century the pure market (besides it was in many respects an abstract theoretical structure) began to be supplemented and partly to be replaced with the new public institutes. These institutes had various origin and nature. All of them operated, however, in one direction, reducing a degree of capitalism spontaneity with its destructive consequences in the form of periodic mass ruins. Besides these new institutes have allowed realizing the rights to the best life, have raised the workers’ share, actually creating public riches, in distribution of a product created by all society (Ashworth, 1962, p65). Then there was the First World War. It has occurred because of the impetuous aspiration of the private capital to the profit and has brought many sufferings to the nations of the world. After the First World War there were the significant changes for capitalism. The so-called system of ‘free trade’ has been reorganized in system of interstate agreements. In the frames of national economies the top was taken by healthy forces, which understood the banefulness of the impetuous competition for domestic economic structure, first of all for new, progressive industries. The archaic system of the gold standard, which leaned to the prejudices concerning value of gold, has been replaced with more modern international monetary system assumed close coordination of national banks. The impetuous competition has received a worthy counterbalance in the form of the antimonopoly law and, in some cases, elements of economy planning. The social rights of workers became better protected - the role of trade unions has amplified, in some countries the elements of social protection, the forerunner of the modern systems ‘welfare state’ began to appear (Aldcroft, 1978, p68). Then there was the most destructive economic crisis for all world history. It occurred because the out-of-date system ‘laissez fair’ had not been finally overcome. The competition was kept, the monetary facilities all the same has been adhered to gold, speculators in the financial markets bossed without any regulation from the state. All this should cause a deep shock of bases of so-called "free" capitalism. ‘So-called’ - because this so-called freedom means only freedom for the range of richmen dishonestly, who made profit from common people. The Great Depression has begun. It was overcome only after the program of wider and deep transformations of capitalist system. The brilliant results reached by President Roosevelt during realization of the New rate are a good example of this. The ideological basis of the New rate were ideas of the theorist of capitalism transformation in that society in which we all live now - the great English economist and the greatest economist of 20-th century, sir John of M. Keynes. Unlike the "theorists" of "free" "trade" he managed to see the vital necessity of public works, an active monetary and credit policy, wide cooperation of the state and business for the reduction of the unpredictability passing in destructive spontaneity and anarchy of manufacture (Aldcroft, 1978, pp 70 - 75). To the beginning of the 20-th century the struggle of capitalist powers for commodity markets and sources of raw material has reached an extreme acuteness. In 1914 the war between two imperialistic blocks has burst: England, France, Russia, etc., on the one hand; the Tripartite alliance: Germany, Austria-Hungary, Turkey, and Bulgaria, on the other hand. The War became world: 34 countries of 56 existed then took part in it. Directly in the armed struggle 80 million soldiers and officers participated. Nearby 9 million of them were lost for 4 years of the war. The workers of Europe theoretically had enough forces in order all-European political to prevent the war; besides the deputies from working parties in parliaments of the European countries should vote solidary against the statement of the militaries of the budget presented by the governments. But it was stirred by already non-uniformity of development of the European countries: in Russia the working class was in a country ocean, the fraction of workers - opponents of the war in the State Duma consisted of 6 deputies; meanwhile tsar quickly declared about the mobilization (to put under a gun the millions of persons in the huge country with not developed means of communication, mobilization needs to be declared as soon as possible). The World war has made the unknown demands to economy. It has absorbed 1/3 material assets of mankind (it would be possible to increase by six times the incomes of workers of globe). The military charges of the at-war states have increased more than in 20 times, having exceeded in 12 times the cash stocks of gold. The front has absorbed over 50 % of an industrial output (Cain, Hopkins, 1993, p104). The ground rescueed from a machine-gun whirlwind, and the armies have been compelled to bury; war has accepted the item character. The necessity to overcome the domination of machine guns has caused the application of tanks; however their number and fighting qualities were still insufficient for transition of the war from the item to the maneuverable character (it has occurred in the Second World War). The application of aircraft, underwater fleet could not predetermine the results of this war. From the technical and economic party the general outcome of grandiose world fight has solved the huge surface ocean fleet of England which cut off Germany and its allies from the sources of the strategic raw material (Cain, Hopkins, 1993, p110). The help with arms and materials from the United States - the first industrial power of the world, and then its introduction into the war (1917). However only the USA and Japan have increased their national riches during the war - accordingly by 40 and 25 %. The USA due to the sale of arms have concentrated about a half of the world reserves of gold. The countries which have lost the terrible war experienced the reorganization the social, economic and political structures. Turkish and Austro-Hungarian empires have broken up. The revolutions in Russia (February, 1917) and Germany (November, 1918) have finished with monarchy and authority of feudal lords. The German bourgeoisie has managed to keep authority in the hands. The Russian bourgeoisie has not managed to do this and has been destroyed (Dowd, 2000, pp 68 - 69). If the mobilization in Russia has not allowed the European proletariat to prevent the world war defeat of the country but its output from the war have caused world socialist structures and split on hostile social and economic systems. It was the heaviest consequence of the First World War for mankind. From the economic point of view, the most essential problem of post-war time was transition the militarian to the peace-time economy. This process has appeared more difficult and long, than it was expected, and still preceded during the period of Great Depression. Before the depression has ended, on the agenda there was a preparation for a new war. From the political point of view, on the agenda there was a question of improvement of a social status of the population, the relations with Ireland, attitudes within the frames of Commonwealth as a whole, and at last, finding of a necessary balance between relations of the USA and the continental Europe. The demobilization has been lead quickly and effectively, but the accommodation of a plenty of men in peace sector of economy has appeared a difficult problem. The situation in the coal industry changed when the wider application of oil has lowered the need for coal. In 1925 the governments have allocated branches of the grant, but the following year the help has stopped. The Great Depression of 1929 dictated the acceptance of the drastic measures. In 1932 after the imperial conference in Ottawa Britain refused a former free-trade policy and gave some privileges for the goods from the countries of Commonwealth. With Hitlers coming to power in Germany the increasing attention was paid to questions of defense. At the imperial conference of 1926 it was declared, that all members of British Commonwealth of the nations, namely the United Kingdom, Canada, Australia, the Irish independent state, Southern Africa, New Zealand and Newfoundland had the identical status, were independent from each other in internal and foreign affairs though were connected among themselves, being under the authority of a crown. For the United Kingdom this declaration received the sanction of parliament in Westminster statute 1931. The relationships with India remained strained and confused during all intermilitary period. In 1935, after many unfortunate attempts, the law on management of India has been passed. Under the law, among other, the separation of Burma that has been carried out in practice in 1937 was provided. The clauses of the law were realized in parts, and all as a whole it has not received practical realization because the Second World War broke out. After the First World War the United Kingdom has received the mandate on management of parts of German and Osmani empires. From Germany they got Tanganyika, parts of That and Cameroon, small island Nauru in Pacific ocean (together with New Zealand and Australia); from Turkey - Palestin, Transjordan, Iraq. Except for the relations with Iraq, the relations of the United Kingdom with under-mandate territories essentially did not change between wars. Independence has been given to Iraq in 1930 then it has joined to the League of the nations. In foreign policy Britain during this period pursued three overall objectives: maintenance of policy of good will concerning the countries from which the foodstuffs and raw material (especially the USA and Argentina) were imported; mitigation of the contradictions between the European countries to avoid or at least to achieve a delay of the war; the support of League of the nations in that measure in what it could give hope for preservation of the world (John, 2004. P165). The economic relations between Britain and the USA have noticeably improved in 1938 when the important mutually advantageous contract has been concluded. Behind this event which has occured when on the European continent dangerous tendencies have started to be shown, even greater warming diplomatic relations between two English-speaking countries has followed (Hamilton, 2004, p94). The economic crisis after the First World War was the deepest crisis of overproduction for all history of capitalism. Almost four years the economy of the capitalist countries was in a condition of the uttermost disorganization. But especially strongly the crisis has amazed the main country of the capitalist world - the United States America. The first impacts of crisis have burst in October, 24th, 1929 when in the USA the unprecedented exchange panic has begun. The exchange crash of 1929 was only one of the first external displays of the deepest crisis processes occurred in the economy of the capitalist world. Since summer 1929 in the USA the attributes of crisis of overproduction which has quickly captured the industry, agriculture, a financial system and other branches of economy began to affect. It has caused huge shocks in all economic life of the country. The huge destructive force of the economic crisis was showed first of all in sharp falling of industrial production. The strongest falling of output within the economic crisis took place in branches of the heavy industry. It was determined by the fact that the positions of monopolies were there especially strong and curtailment of production was the basic means which they tried to not admit excessive falling of the prices in their hands and to support at a high level the profits. The ruin and bankruptcies of the industrial, trading and financial enterprises and firms have got the broadest sizes within crisis. According to the official data, per 1929-1933 it was nearby 130 thousand commercial bankruptcies. The crisis with huge force has struck on the bank system of the country. For four years, from 1929 to 1932, 5760 banks have stopped existence. The impacts of crisis for bourgeois groups of the population were sensitive; they did not go to any comparison with those disasters which were brought with an economic crisis to working class and other layers of the worker of the population of the country. The capitalists have shifted the greatest part of a catastrophic shock on them. The strongest falling of industrial production, closing of tens thousand factories, mines, huge loss of the industrial devices - all this has led to the enormous growth of unemployment. The army of unemployed, rather significant during capitalist stabilization of 20th years, has increased now over many times. However the progressive public of the USA fairly regarded these official data as much underestimated. So, according to the progressive organization of the American economists - Associations on research of problems of work, the number of unemployed in the USA to the beginning 1933 has made 16,9 million. It meant, that during the greatest aggravation of an economic crisis each third worker has been deprived employment. Very much the wide circulation was received with partial unemployment. The absence of system of social insurance in the USA did not leave any hopes to the aid from the state. The position of those who had the luck to keep the work has sharply worsened also. They constantly had an oppressive feeling of uncertainty in the next day. From the very beginning of crisis, especially from second half 1931, in all industries passed prompt falling of wages. During the strongest aggravation of the economic crisis in consciousness of a significant part of Americans the doubts in validity of the capitalist system began to creep even more often. Certainly, only in few cases the disappointed Americans showed discontent by the existing policy in the precise and clear form. Their anticapitalist moods rather vague and uncertain were much more often. However that characteristic for the period "prosperity" almost general conviction in the superiority of “the American way of life” began to be replaced by doubts, uncertainty, and sometimes and comprehension of injustice of capitalist system, has shown all sharpness to the political situation which have developed in the country in the beginning of 30th years (Steiner, 1977, p87). In conclusion it is worth saying that the first world war has led to the significant deterioration of life of people. They wanted serious changes: greater validity, greater equality, and greater democracy. This aspiration to changes was showed differently. In the countries where the situation was the heaviest, the wish for changes was the greatest. The revolutions took place there. In the others the changes have accepted the peace, and nonviolent form. There were some reforms. Revolutions have occurred in Russia, Finland, Austria, Hungary and Germany. The creation of democratic republics with fairer social device was an overall objective of revolutionary forces. But there were those who under the influence of October revolution in Russia achieved an establishment of dictatorship of proletariat in the form of the Soviet authority. But anywhere in the Europe except for Russia this purpose has not been reached. The German revolution of 1918-1919 had the greatest value, an establishment of the Weimar republic in the country (Stevenson, 1996, pp56 - 62). After the signing of Versailles -Washington system of peace treaties the new states began to be formed in Europe. The League of the Nations - the international organization for maintenance of the world has been created. The new system of the international relations was pawned. It has provided the stabilization of world politics after the war. But it could not prevent a new war. Its fragility has been caused by a number of the reasons. The winners have not shown the magnanimity to the won, having assigned on them the difficulties of post-war restoration. The opinion of people living in one territory was not always considered at a territorial reorganization (Kindleberge, 1987, p126). There were the countries with greater national minorities. The wave of nationalism did not fall. After that there comes a recession of democratic movements. In a number of the countries people were disappointed in democracy. Fascism appeared. The intensity in the international relations was kept. In the 20th years great countries have tried to strengthen this system. The position of Germany has been facilitated. It was accepted to the League of the Nations, and burden of reparations was reduced. The western countries have recognized the Soviet Russia. Anyhow, the world enjoyed rest in 20th. The short period of stability and well-being was replaced by crisis in 1929 (that was mentioned above). The economic crisises were before. But this one has appeared unique in depth of falling of manufacture, on scales of scope of economic and duration. The reason for that was in frustration of the economic after the First World War. The economy of the USA has appeared to be fragile. The governments of the western countries have appeared to be not prepared for the struggle against such disaster. They could not even achieve the coordinated actions in struggle against crisis though everyone was its victims (Saul, 1968, p121). In conclusion the results of the First World War for every country should be mentioned: Germany: full breakdown of all state institutes; disorder of economy; deprivation of colonies, military fleet, famine, and demographic problems; the hardest socially-psychological trauma caused by futility of enormous victims and efforts. Austria-Hungary: disintegration of the country in parts, and components, any of which could not reach the status of great power. Bulgaria: fastening of results of the second Balkan war; the introduction into a long strip economic and political crisises. Turkey: disintegration of feudal Islamic empire and construction on its ruins of the state of the European type. France: the victory, restoration of the sovereignty over Alsace and Lorraine; numerous victims, the hardest economic crisis, display of dependence in foreign policy, the increase of crisis of political structures of the Third Republic. Great Britain: short-term stay at the top of power and glory, absolute leadership by the seas and in world politics. Russia: the destruction of fleet and army, disintegration of the state institutes; revolutions and civil war; transition of authority to bolsheviks, change of the state idea. The USA: the transformation of the country into the financial and economic leader of the countries of the West. Japan: the strengthening of the influence in China, the beginning of creation of the future "the East-Asian sphere". Belgium: the refusal of policy of neutrality, submission of interests of the country to interests of France. Serbia: the transformation of the small mononational country into the unstable multinational federation. Italy: the deterioration of relations with allies and national humiliation. "Lost among winners". So, all these results had a great impact on the international trading and financial system. References Aldcroft, ‘The European economy 1914-1970’, Routledge (1978), Chapters1 and 2 Ashworth, ‘The international economy since 1950’, (1962), Chapter 8. Cain, Hopkins, ‘British Imperialism:Crisis and Deconstruction 1914-1990’, Longman Publishing Group(1993),Chapters 3 and 4. Cameron, Neal, ‘A Concise Economic History of the World: From Paleolithic Times to the Present’, Oxford University Press, USA; 4 edition (2002) Dowd,’Capitalism and economics:a Critical History’(2000), Chapter 3. Hamilton, Herwig, ‘Decisions for War, 1914-1917’, Cambridge: Cambridge University Press, 2004. John H., Morrow Jr., ‘The Great War: An Imperial History’, London: Routledge, 2004. Kindleberge, ‘The World in Depression 1929-1939’ (1987),Chapter 2. Mikuni Akio, JPRI Working Paper No. 68: June 2000: Why Japan Cannot Deregulate Its Financial System http://www.jpri.org/publications/workingpapers/wp68.html Saul, ‘Studies in British Overseas Trade’(1968) Stevenson, ‘Armaments and the Coming of War’, Oxford: Clarendon Press, 1996. Steiner Zara S., ‘Britain and the Origins of the First World War’, London: Macmillan, 1977. Testimony of Chairman Alan Greenspan http://www.federalreserve.gov/boarddocs/testimony/1998/19980916.htm http://www.pbs.org/wgbh/commandingheights/lo/countries/jp/jp_full.html Read More