Economic Effects of the War
A Review, With Some Opinions

[The Outlook, August 11, 1915]

During the past twelve months many millions of men have been withdrawn from their ordinary work. They have either joined the various fighting forces or have been employed in the war industries.

For instance, in Germany, under arms on the two fronts there are now about four billion men; in training perhaps a million more; two million men are said to be killed, wounded, missing, or made prisoners; about a million extra men are employed on the German railways (all are used for war and controlled by the military authorities), at the Krupp and other arsenals and factories engaged in the manufacture of war munitions, in the coal mines, and in the factories which make clothing, army boots, and other articles necessary to equip and provision the forces. The total would thus aggregate, say, eight million men withdrawn from ordinary industry, less the ordinary peace force of the German army.

Nor is this all. War is killing and maiming men at the front without reducing the number of their dependents. Even at the very moderate figure of two dependents for each there may be many millions dependent on the state for rations.

Nor is this all. The loss of life does not merely mean the loss of numbers; it also means a loss of the ideas and inventions which some off these young and vigorous men might have given to the world. Such a loss may well be regarded as the greatest loss of the war.


Great Britian






In computing the losses of the war one should include the earnings and gains that would have been made if there had been no war. This amount, however, is somewhat lessened by the gratifying results already achieved in England in the munitions works and in Germany in many a department by the women who have replaced the men. A recent writer in the New York "Sun" describes this feature in Germany:

In all parts of the country I saw women working in the fields doing a man's work.… In a small town near Berlin I saw twenty young women digging a drainage ditch. Not peasant women, but girls neatly dressed in white, clean blouses, who had volunteered to do the work since no men were available. The conductors in the tram-cars of many German cities are now women.… They do their work well and politely—a decided improvement on the average male.

There is scarcely an occupation which German women have not taken up with success; but most interesting of all is their direct share in the equipment of the forces in the field.

Forty per cent of the workers engaged in the manufacture of high explosives, of shells, and in the packing of cartridges are women. Women form fifteen per cent of the "hands" occupied in the making of harness, saddles, bridles, and other leather goods used for military purposes; fifty per cent of the makers of tents, shelters, haversacks, and other equipment; thirty-three per cent of the workers in pharmaceutical industries; fifteen per cent of the surgical instrument makers; and twenty per cent of the field-glass producers. Seventy-five per cent of all the employees in the tinned meat and conserve factories working exclusively on army contracts are women; a similar number are engaged in textile mills providing the clothing for the soldiers, as are seventy per cent of the tobacco workers.


With regard to the cost of food in various countries we quote a report of the United States Bureau of Labor Statistics made public at the end of July. The effect of the outbreak of war on prices "was the same practically throughout Europe"—that is to say:

Its outbreak was followed by a sharp rise in prices, due mainly to panic and uncertainty. In some countries legislative measures were at once undertaken to check this rise; in others the Government strictly adhered to the hands-off policy, and trusted to the natural course of events for a readjustment. Within a fortnight the first panic was over, and except in the actual war zone prices began to sink. In most places, however, prices did not get back to the July level.

Prices then became largely dependent upon local conditions. Requisitions by the army increased prices, while the approach of the enemy lowered them. Transportation had also much to do with them. The cessation of tourist travel lowered them in those countries where the inhabitants were left with an over-supply. Within the same countries prices showed wide fluctuations. For instance, in Paris there was no increase in the general price level, and an actual decrease in the price of fruits, vegetables, and some meats, while in Marseilles there was an increase of eighty per cent.


In this connection we should record the successful application by Germany of the system of intensive economics—or scientific management, as we should say—both in keeping the foodstuff supply going and maintaining the supplies for her factories as well. Germany has, of course, been greatly by the new crops and by her occupation of Polish grain and oil fields, of French coal and iron fields, and of such manufacturing centers as Lodz and Liège.

Germany has shone in the domain of material efficiency. Her war machine has worked well because it has had much administrative and economic strength behind it. This causes the "Kölnische Zeitung" to boast as follows:

This year's war has proved clearly the perfection of these [administrative and economic] institutions in Germany. There are no gaps in them through which Germany could be hit. The finest brain, or the most pitiless humorist, could not imagine a more overwhelming satire than that which has been written by the history of the past year of the failure to destroy Germany. It could have succeeded only if the Allies had possessed the organization which Germany possesses.


An economical and interesting phase of the whole situation is seen in the capture of German industrial efficiency by German militarism, just as politically a startling feature of the war lies in the hypnotism of the German people by their Government. The Germany which brought on the war is not the German nation as a whole. It is practically the Prussian part of the nation, and that part which is mostly resident in East Prussia. East Prussians have always resisted transformation and development. They also remained a military caste, though all Germany had become industrialist. Their landed aristocracy was derided by the rest of Germany, and their landlords dubbed Junkers! Despite their outrageous suffrage system, the Junkers finally grasped, however, the necessity of centralizing the nation's resources, and allied themselves whenever possible with the industrialists. Germany's splendid economic development, and her equally splendid growth in social legislation and municipal government, this became connected with medievalism. In Junker judgment, the nation's chief prop is not Parliament, but the army, and German economic development must always be controlled by military needs.


As to the special labor conditions in England, Mr. Robert McCormick writes to the Chicago "Tribune" as follows:

Britain, by far the richest and greatest manufacturing country in the war, was turning out less than one-tenth of the munitions turned out by any of the other contestants, and was unable decently to supply her army in the field, so far from providing for the new, great army in training.

The fault is partly due, no doubt, to the military authorities who had had no opportunity of becoming acquainted with affairs on a large scale, and who, in the first glow of new-found authority, were unwilling to associate with themselves competent business men.

It was due in a greater part to the workmen who insisted on limiting the output per man, as they had become accustomed to do during the many years of easy peace England's advantageous position had brought them. They were never told how serious was the situation of the nation; on the contrary, they were entirely deceived at the beginning of the war, and have been given only a small part of the truth to date.


It has been asserted that the basis for this war is economic rivalry. Economic conditions have been greatly relieved by the action of various governments in direct support to industries. In this connection the "Bankers' Magazine'' asserts:

The situation would look chaotic and very dangerous if it were not for the knowledge of what the governments have already done in the way of sustaining industry.… With peace restored it is certain that nothing but time and credit is required to set the industrial machine running again. If there is credit enough to carry on war, there should be credit enough after war is ended to support the reorganization of industry. Indeed, it is fundamental that, if necessary, all old debts would have to be made secondary to new obligations for this purpose, just as in every corporate reorganization where new capital is necessary to save an old investment. Old debts are not made less secure by such a policy; on the contrary, they are protected.


The largest borrowings have been by England. This is not surprising when we learn that the war is causing her upwards of $15,000,000 a day (the total cost of the war in money per day is about $60,000,000). Now, as England's revenue system yields her only a part of this daily cost, she has to raise money and has been able to do so to an unparalleled extent on her simple promise to pay. For instance, she has just floated an enormous loan from her people to herself of $3,000,000,000. The nearest approach to this loan was the second German war loan of $2,250,000,000. Germany is the second largest borrower, and France the third.

In addition to England's borrowings for herself, however, she is also borrowing for her allies. Both England and France have loaned large amounts to Russia, Belgium, and Servia.

The borrowings by Germany and France are especially interesting when we remember that France's public debt is the largest in Europe, $167 per capita, whereas Germany's is less than half, $77 per capita.


The question is frequently asked, How is it possible for the French to maintain their credit at such a high rate? The answer may be found in two words: Economy; cheerfulness. These qualities have been recently alluded to by M. Ribot, Minister of Finance in the French Cabinet:

The increases in direct taxation have been paid cheerfully by those able so to do, the revenues from indirect taxation are increasing, while the customs deficits are diminishing, and we are able to hope that on the day of peace there will be an exposition of activity in the development of the riches of our country which will permit us to overcome all difficulties.…

If it is possible to administer wisely the finances of the country, the merit is that of the entire people. It is the little savings in the woolen stockings which have come to the aid of the country; the gold has come in the beginning, not from the large cash boxes, but from pocketbooks.


As to trade, there is no reduction as yet in the material imported into Great Britain for carrying on the war—the food, cotton, timber, wool, metals, petroleum, machinery, and munitions.

Much the same is true of France. As to Germany and Austria, however, their foreign commerce has almost ceased. The abnormal importations at the beginning of the war through Italy, Switzerland, Holland, and Scandinavia have been but a feeble offset in the immense loss sustained in general trade.

It is interesting also to note that in four of the belligerent countries—France, Italy, Austria, and Germany—which have the system of protection, the tariffs broke down, in the language of the New York "Evening Post," "precisely at the moment when revenue was more needed than at any other time in their history." The "Post" quotes an article in the London "Economist" to the following effect:

In the autumn of 1914 the French had to suspend their duties on corn, potatoes, fresh, frozen, and salted meats, and live cattle. Austria suspended her duty on corn in October, 1914, and Italy abolished hers in February, 1915, while in September, 1914, the Germans suspended all duties on bread, beans, butter, eggs, poultry, fish, and all foodstuffs prepared from cereals and flour.

Meanwhile, as the "Post" adds, "free-trade England has neither reduced nor suspended her revenue duties, and has been in better shape to weather the crisis than any of her allies" or enemies." This raises the question; If a certain Mr. Rich, the banker, were forced by a sudden crisis to sell his automobiles and carriages, his jewelry and plate, while Mr. Poor, a well-known day-laborer, were under no such obligation, would this mean that the day-laborer was in better condition to "weather the crisis" than the banker?

As to special commercial conditions in England, the London "Statist" says:

We are limiting the profits which capitalists may make during the war. We are suspending all the rights and privileges acquired by the trade unions during the past century. And, in addition, we are taking to the hands of the Government the greater part of the whole trade of the Country. We have given protection to the banks, the insurance companies, the Stock Exchange, the acceptors of bills, and so on. We have taken the wheat trade of India into our hands. We have taken the buying of food from Argentina also into our hands. In fact, we have adopted State Socialism to so large an extent that it is hardly an exaggeration to say that England at the present moment is practicing Socialism.


The history of the twelvemonth is not altogether a military history. There has also been a coincident diplomatic and economic history. Victory arid defeat resulting from it were seen when Russia declared war against Turkey and when Italy declared war against Austria.

That history is still registering important, if hidden, events in connection with Rumania, Bulgaria, and Greece. Should they enter the war on the side of England, France, Italy, and Russia, the triumph those Powers will be largely an economic triumph. Rumania in especial degree, because of her immense agricultural resources, emphasized by this year's unprecedented crop, is a prize worth striving for by either side. With the wish father to the thought, it is natural to find the London "Times" reporting that Rumanian public sentiment is pronounced in favor of union with the Allies and day by day its manifestations become stronger and louder. The invitation which Russia has given that state to occupy the Bukowina and Transylvania cannot fail to confirm this view."

On the other hand; Mr. Alexander Brociner in the New York "Times" declares that Rumania is as likely to be influenced by a promise from Austria to give her, in case of victory, the Russian territory of Bessarabia, formerly Rumanian, as by the Russian promise of the gift of the Austrian territory inhabited by Rumanians.


Economically, America has suffered greatly by the twelvemonth of war. Our imports have been enormously diminished nor has this been offset by the extraordinary demand upon this country for explosives, ammunition, automobiles, and foodstuffs. We must also give new credits. In discussing this subject we quote from a recent address before the Academy of Political and Social Science of Philadelphia by Mr. Alexander J. Hemphill, Chairman of the Board of the Guaranty Trust Company of New York City:

The destruction and wastage of capital occasioned by the war has been estimated on the basis of a year's duration at $40,000,000,000; and while it may not be necessary to restore all this at once, yet from present indications the demand on us will be enormous. First, there will be the call on our merchants to furnish materials in connection with the rehabilitation or rebuilding of the devastated country, and secondly, we will have to give credit either through making direct loans or through the repurchase of American securities held abroad. From present indications the foreign investors will part from our securities slowly and will be tempted to liquidate only at high prices. It is more than probable that several of the foreign countries will ask us for some of our gold in order that they may restore or build up their gold reserves.


Apart from its effect on the morals of the soldiers and people, the economic value of the abolishment of vodka-drinking in Russia is indicated by the gratifying increase of five hundred per cent in the savings bank deposits. Vodka had yielded an annual revenue to the Government of about $450,000,000, but to offset this loss as much as possible the Government is authorized to use the savings bank deposits for the purposes of investment in bonds.

Thought the French are not addicted to drunkeness, just after the outbreak of the war, General Gallieni, Military Governor of Paris, forbade the sale of absinthe, on the ground that it was responsible for a large percentage of mental diseases. Last February the Chamber of Deputies prohibited the manufacture of absinthe.

In England the agitation against liquor has resulted chiefly in giving extraordinary powers to the Minister of Munitions in the district in which Government munitions work is carried on. This however, is a great gain if we recall the report of the Admiral of the Fleet in which he recorded his uneasiness "about the labor situation on the Clyde and the Tyne" because of the heavy drinking, and added that in four weeks 670,000 working hours had been lost.


What is the outlook for the future? It looks as if the element of foreign commerce might decide the duration of the war. Certainly, with the stoppage of their foreign trade Germany and Austria cannot always go on fighting. They may have foodstuffs and munitions of war enough to support their peoples and armies for a considerable time to come, it is true. But the ultimate economic as well as military victory must rest, we believe, with those whose foreign commerce has not been stopped and who have the greater potential resources.

No matter who wins, "finance is opposed to war, and will be more so than ever. Commerce is opposed to war. Labor is opposed to war," asserts the Topeka "Capital," and adds:

Trade rivalry is in reality more co-operative and mutually advantageous than it is conflicting and warlike. Business men are coining to accept that proposition as sound and confirmed by experience. So the leading business men of Germany are reported to be saying, quite openly, that when this war ends it is not going to end in a peace determined by German diplomats. German industrial leaders, bankers, and merchants are talking to-day in terms of disrespect of German diplomacy, as well they may. If these sensible Germans are properly represented, and German Socialists and laboring men, in the peace settlement, it will be a great step in advance. So English merchants are now saying that when the war ends it must not mean the crushing of Germany, because Germany is England's best customer.…

What does such talk mean, except that enlightened capital and enlightened labor, which together make up this new civilization of international industrialism, realize for the first time that there are no advantages worth grabbing by war?

© J. Fred MacDonald, 2013

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