War & Economic Disintegration
Before there were 2 of them, the 1st World War (1914–1918) was known to the millions of Europeans who suffered through it as the Great War. The unsettling aftermath of the “war to end all wars” ensured that there would be another. Germans reparations insisted upon by France instilled a taste for revenge that would only be drowned in more blood.
The toll of the 1st World War was tremendous, and unsurpassed until the 2nd: 10 million combatants killed, and 20 million seriously wounded in WW1; 10 million civilian casualties, and another 20 million died from war-caused famine and disease. All told, over 60 million lives were lost in the Great War.
Most of the material damage – housing, industrial, agricultural, transportation, and communication facilities – occurred in northern France, Belgium, a corner of northeastern Italy, and the battlegrounds of eastern Europe. Central and eastern Europe, effectively economically cut off and disrupted by armies, had its agricultural output drastically curtailed, reducing large areas to famine. At sea, submarine warfare devastated shipping.
Even more damaging was the continuation of economic dysfunction after the war. During the war, governments of every belligerent nation, and even some noncombatants, coerced a controlled economy: wages, prices, allocation of labor, and production we set by governments. These controls artificially stimulated certain sectors while restricting others. Capitalism functionally ceased to exist, though investors continued to profit from workers’ toils.
Although controls were lifted at war’s end, the prior economic ecosystem did not quickly or easily reestablish itself. Income from foreign investments was lost and not recovered. Capital flows that had withered in war did not return.
Trade revived slowly, as the pre-war spirit of free trade was polluted with economic nationalism: the same beggar-thy-neighbor mercantile philosophy of political economy that was practiced 2 centuries earlier was a stumbling block to imports.
Inflation surged throughout the Western world after the Great War. This was, besides sheer shortages, a consequence of trying to paper over sovereign debt incurred during the war. Hanky-panky with the gold standard played a large part.