The latest in the VoxEu series of articles on the economics of World War I is written by Avner Offer, whose classic book on the subject I can thoroughly recommend. The article is available here.
I was struck by Offer’s last sentence: “On the winning side, the rentier classes did well too, making their spare money available (and perhaps even some money they didn’t have) in return for war bonds, which delivered a high-interest windfall after the war. This combination of redistribution to the rich and to the poor was stressful for public finance, and exemplified a standoff between money and labour that continued in Europe between the wars”.
Quite a contrast with Piketty, who sees early C20 wartime upheaval as lowering capital-income ratios and making for less inequality. Which is the correct view?
As for war bonds delivering high-interest returns, tell that to German bondholders on the early 20s. Maybe the nominal returns looked high but inflation was high as well, and not just in Germany, in the aftermath of World War I.
John,
Mr Offer talks of the winning side. If you only look at Britain and the US then rentiers did well out of WW2, as they never tried to inflate away the war debt. Germany and (winner) France on the other hand deliberately employed inflation as a way to lower the real value of their war debt, which hurt the rentiers. In France double digit inflation led to boom times that led to full employment and rising real wages. In Germany the powerful labour unions ensured that real wages kept pace with hyper inflation, with the result that the working classes emerged from that debacle in good shape, particularly compared to the middle classes.
My own minor quibble with Mr Offer concerns the sentence “In Britain, conscription applied equally, and had other egalitarian consequences – the shortage of labour gave rise to full employment, increased wages, and opened up new jobs to women.” The word “other” implies a different approach in Germany, but that would be wrong. Britain could offshore some of its labour needs but Germany toiled under a naval blockade and had to rely on its own labour and resources, and the only major group of free labor was women. It’s a stark choice, hire women or wave the white flag.
2 replies on “Avner Offer on World War 1”
I was struck by Offer’s last sentence: “On the winning side, the rentier classes did well too, making their spare money available (and perhaps even some money they didn’t have) in return for war bonds, which delivered a high-interest windfall after the war. This combination of redistribution to the rich and to the poor was stressful for public finance, and exemplified a standoff between money and labour that continued in Europe between the wars”.
Quite a contrast with Piketty, who sees early C20 wartime upheaval as lowering capital-income ratios and making for less inequality. Which is the correct view?
As for war bonds delivering high-interest returns, tell that to German bondholders on the early 20s. Maybe the nominal returns looked high but inflation was high as well, and not just in Germany, in the aftermath of World War I.
John,
Mr Offer talks of the winning side. If you only look at Britain and the US then rentiers did well out of WW2, as they never tried to inflate away the war debt. Germany and (winner) France on the other hand deliberately employed inflation as a way to lower the real value of their war debt, which hurt the rentiers. In France double digit inflation led to boom times that led to full employment and rising real wages. In Germany the powerful labour unions ensured that real wages kept pace with hyper inflation, with the result that the working classes emerged from that debacle in good shape, particularly compared to the middle classes.
My own minor quibble with Mr Offer concerns the sentence “In Britain, conscription applied equally, and had other egalitarian consequences – the shortage of labour gave rise to full employment, increased wages, and opened up new jobs to women.” The word “other” implies a different approach in Germany, but that would be wrong. Britain could offshore some of its labour needs but Germany toiled under a naval blockade and had to rely on its own labour and resources, and the only major group of free labor was women. It’s a stark choice, hire women or wave the white flag.