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 disinvestment 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 Strachan's To Arms, and 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.
March 2007
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- Hew Strachan - The First World War: A New Illustrated History
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