Political Science 11. Wars and political economy. Part Two: world wars; the game changers

So we have concluded that wars were invariably fought for economic benefits but, the World Wars, also known as “the war to end all war” truly changed the game. Not the result, that stayed the same; the exploitable continued to be exploited. But the game began to be played with new rules, and more subtly, on a different board.

It however, needed two world wars to bring about the complete change. The second war was essential to complete what the first had started. So, the world fought two world wars in quick succession. The participants [probably] were unaware of this change, [probably] till the second war was about to end and, while we, ordinary mortals can only see this process with the benefit of hindsight. Perhaps the more omniscient among us could see it even when it was beginning.

To perceptive minds, four facts became obvious as WW 1 ended. First, having witnessed the scale at which the globe fought for national interests, nascent nationalist movements among colonials received a massive fillip. Second, before WW 1, the economic and military hub of the world was Europe, the virtual center of the world but, at the end of the war, it was apparent that the military hub was definitely shifting westward.

The Germans surrendered unconditionally but, the Allies were determined to humiliate them in every conceivable and, even inconceivable way, subtle and crude

The third and fourth fact that emerged post WW 1, need an explanation.

The phenomenal damage caused by WW 1, whether in terms of human casualties and/or physical destruction was unprecedented [until WW 11 exceeded WW 1 in all respects]. Cities turned to rubble, thousands of miles of countryside was laid waste, the communication infrastructure lay damaged all over. [On the side, there was also social upheaval, as the Russian Revolution resulted in Russia becoming the first socialist/communist country].

The Germans surrendered unconditionally but, the Allies were determined to humiliate them in every conceivable and, even inconceivable way, subtle and crude. Germany was coerced in accepting [guilt] for the war and a war indemnity of the equivalent [today] of about US $ 450 billion was imposed. This physical, emotional, moral, and financial humiliation would later be cited as one of the causes of WW 11.

Now, what was destroyed had to be rebuilt. Germany was bled white to pay for this destruction. It didn’t have too many colonies but, Germany was forced to cede some of the choices it did have, to the Allies. This meant jobs and increasing demand on industries. Since Europe was rebuilding itself, soon it was again booming.

The US did not benefit from this reconstruction; not being directly involved. While US’ entry to the tilted the balance in favor of the Allies, resulting in their victory; the US was not desirous of accepting global responsibility of a [military] leadership role. Nor was Europe, led by the UK, prepared to accept their [newfound] dependence on the US. Consequently, Europe was rebuilding itself and benefiting from it.

Eleven years after WW 1 ended, in September 1929, the US Stock Exchange crashed. Although some analysts sought to find a link between WW 1 and the crash, it was caused by other reasons. Nonetheless, it has a relevance to our study. This crash perpetrated a worldwide economic recession that turned into, what is referred to as “The Great Depression”.

In England an enterprising British economist, John Maynard Keynes was studying events. Keynes had attended the peace treaty and criticized it for its harsh terms. He called it a “Carthaginian Treaty”. Until this time, economists held to the “Market Perfection Theory” i.e. demand and supply balanced itself and the market was perfect; it needed no outside interference, or the balance would tilt. The followers of market perfection, however, had not studied a depression firsthand.

Keynes didn’t agree. He asserted that a recession left on its own was likely to turn into a depression and, if the latter was also left on its own, it would continue to plummet since demand could never increase because no one would have enough money. Keynes held that only states could rescue the market from this plummeting with infusing money in the market, so as to increase demand.

This could be done by loosening the state purse strings in its fiscal and/or monetary policies. This could be done by reducing taxes and/or increasing wages and/or creating more jobs. Only by one or more of these would people have more money, thus increasing demand, to which supply would have to respond and thus give life to dying economic activity.

In 1936 Keynes’ thesis, “The General Theory of Employment, Interest, and Money” was published. Soon Keynes theory was internationally accepted as the sole solution to receding economies and implemented globally and the depression soon ended. It took Keynes to identify the third fact emerging from WW 1 i.e. wars could enrich nations, even without conquest. Reconstruction also infused money and was enriching.

Finally, all participants of WW 1 realized the need for an international forum which could facilitate dispute resolution to avoid war(s) and/or negotiate peace. The result was a toothless League of Nations. This forum was unsuccessful. As I stated earlier, it would take the Second World War to crystalize what the first began.

Had another World War become a necessity for global progress(?)

The writer is a retired brigadier. He is also former vice president and founder of the Islamabad Policy Research Institute (IPRI)

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