Economic Impact Of Both World Wars

Question 1

In general, what was the economic impact that WWI had on Britain?

Answer 1

The First World War was economically exhausting for Britain. As well as costing the lives of almost a million Britons, the war was extremely expensive, requiring the whole economy to be placed on a war footing. Huge amounts of public finances were directed towards the war effort, leaving Britain in severe debt.

• Much of Britain’s capital investment overseas had been wiped out.
• The pound sterling had to be removed from the gold standard for the duration, because gold reserves ran so low.

Question 2

How much did the war roughly cost?

Answer 2

About £35,000 million. Over 13 times as much as the Boer War. Over $4 billion had to be borrowed from the USA, as the country’s reserves ran so dangerously low.

Question 3

What was the gold standard?

Answer 3

Since it’s foundation in 1694 the Bank of England had issued notes promising to pay the bearer the sum of money. For much of its history the promise could be made good by the Bank paying out gold in exchange for its notes. The link with gold helped to maintain the value of the notes and its suspension of this ‘gold standard’ in wartime was considered a measure of last resort.

Question 4

What were the severe consequences for some of Britain’s most important export industries?

Answer 4

• Production for the war was prioritised over making goods for export to traditional overseas markets, and this meant that Britain’s competitions were able to win markets traditionally dominated by British exports. Not all these overseas markets were won back after the war.
• Britain’s traditional industries, such as textiles, shipbuilding, coal, iron and steel, which created income to pay for running and defending the Empire, experienced great difficulties between the wars as they faced new overseas competition, for example from the Japanese in textile production.
• The same was also true of Britain’s financial sector: the banks and financial institutions, which generated profits from lending money overseas. The result was that the economic burden of the empire grew, as Britain’s ability to pay for it diminished.

Question 5

What made the financial problem worse?

Answer 5

This problem was intensified in the 1930s by the Great Depression, which saw a collapse of international trade and markets for British industrial exports. A financial crisis in 1931 forced the country off the gold standard again. This in turn reduced earnings from overseas investments. However, the Empire offered economic compensations as well as problems.

Question 6

Economic impact on India

Answer 6

India contributed around £146 million. In 1914 2/3 of India’s imports came from Britain, but this started to fall - initially because of wartime distribution to trade, but in the longer term because of the growing strength of foreign competition. India’s own economy partly benefited from this; India manufacturers began to capture more of the domestic market.

Question 7

What did Britain do to bolster their control in India?

Answer 7

After the war, desperate for revenue to help bolster their control in the face of the rising nationalist movement, the British placed high taxes on Indian imports, rising from 11% in 1917 to 25% in 1931. The effect was to give Indian industry protection against its competitors, and it grew accordingly.

Question 8

Economic impact on Canada

Answer 8

Canada emerged an industrial power. Increasingly looked to its southern neighbour, the USA, for investment and markets as the inter-war period progressed.

Question 9

Economic impact in Australia and New Zealand

Answer 9

As exporters of food, relied heavily on the British market, and consequently were hit hard by the disruption of trade caused by war.

Question 10

What did Britain do during the 1920s to stabilise its international trade?

Answer 10

In the 1920s Britain tried to recreate the economic system which had existed before 1914. Thus Britain returned to the Gold standard in 1925, in order to stabilise its international trade. One exception to this policy was the Colonial Development Act of 1929, which provided Treasury funds to support colonial development projects.

Question 11

What was the Colonial Development Act of 1929?

Answer 11

The Colonial Development Act of 1929, which earmarked £1 million of British Treasury funds for development projects across the Empire, helped several of the British colonies in Africa. However, like many other parts of the British Empire, the African colonies suffered from the global impact of the Great Depression of the 1930s. Economic problems, combined with the limited imperial development policy, was expressed in a wave of strikes by African workers in affected areas, such as the copper mines of Northern Rhodesia.

Question 12

What did Britain do after the Great Depression?

Answer 12

In the aftermath of the Great Depression a much greater emphasis was placed on the importance of the Empire for British commerce and imports from the Empire increased (although exports to it did not do so well). Britain was again forced to abandon the gold standard in 1931 but trade with the Empire in sterling proved a great asset.

Question 13

What happened to the value of imperial trade and commerce for the Empire?

Answer 13

Some Dominions, particularly Australia and New Zealand, experienced serious economic problems in the inter war period. The cost of their imports from Britain outstripped the income from their exports. Both countries ran up debts with Britain although, as the smaller country, developing more slowly than its neighbour, New Zealand suffered less than Australia. Imperial preference became especially important for these countries when international trade turned down sharply in the 1930s.

Question 14

How important was Empire during the inter war period?

Answer 14

Exports to the Empire included a wide variety of commodities, but historically cotton textiles had always figured prominently, especially to the markets of Asia and India. Significantly, in the inter war period, these began to fall as tough competition from Japan and other emerging industrial economies began to be encountered. Nonetheless, at least until the 1930s, the Empire remained important for cotton textile exports, as it did for a range of other industrial products at a time of tough competition, particularly from the USA.

Question 15

Who argued for a return to ‘imperial preference’?

Answer 15

As world trade shrank, imperialists, such as Lord Beaverbook, the newspaper magnate, again argued for a return of the idea of ‘imperial preference’, ending Britain’s historic policy of free trade. This met with opposition from the Dominions which wished to protect their own growing industries and eventually a compromise was reached at the Ottawa Conference of 1932:

• The British introduced a general 10% tax on all imports but the Crown Colonies were exempted.
• Britain and the Dominions gave each other’s exports preferential treatment in their own markets.

This reinforced the important role of the Empire in supplying foodstuffs and raw materials to Britain.

Question 16

Numbers of Imports coming from the Empire 1913 compared to 1934

Answer 16

Total value of British imports from the world: 1913 - £769m; 1934 - £727m
Total value of British imports from the world: 1913 - £191m; 1934 - £257m
Imperial imports as a percentage of total British imports: 1913 - 24.9%; 1934 - 35.3%

Percentage of certain imports coming from the Empire to Britain increased in 1934 apart from jute imports which ever so slightly decreased.

Question 17

Was imperial trade uniform?

Answer 17

Imperial trade was not uniform - certain parts of the Empire increased their commercial links more than others. The Dominions became both an increasingly important market for British exports and a more significant supplier of imports. However, while India largely remained an important supplier of tea and jute, and grew in importance in supplying raw cotton, it absorbed fewer British exports, as key Indian and Asian markets such as cotton textiles were won first by the Japanese and subsequently by emergent Indian cotton textile producers.

Question 18

What was the economic impact of the Second World War?

Answer 18

The Second World War hit Britain even harder than the first. The British economy, which had to be geared entirely to war in the years 1939 to 1945, entered the war in a far weaker condition than it had done in 1914 and major defeats in the West and the Far East in the first three years of war proved cripplingly expensive.

Question 19

What was the impact of the Second World War on British trade?

Answer 19

• German U boat attacks on British sea traffic were devastating especially in the early years of war. Overall Britain lost 11.7 million tons of shipping in the war, or about 54% of the country’s merchant fleet strength at the beginning of the war.
• The loss of major colonies in South East Asia to the Japanese from 1942 disrupted trade and cut off supplies and vital raw materials such as rubber from Malaya.
• The diversion of industrial production to producing weapons of war meant that less was produced for export. The British tried to reduce imports, by campaigns to increase home production and food rationing, but Britain’s balance of trade was heavily in deficit during the war.
• A third of Britain’s overseas assets (investments in businesses) were sold to pay for the war. Britain borrowed from the USA from 1941 in the form of Lend-Lease, and emerged from war with massive debts.
• Britain increased its dependence on the Empire for imports. There was considerable investment by colonial governments, for example in Africa, to help increase the supply of foodstuffs and raw materials.
• Colonial reserves held in Britain (the so called ‘sterling balances’) were used to help Britain pay for the war effort.

Question 20

What made Britain’s post war position worse?

Answer 20

Britain’s post war position was made worse when, in late August 1945, the USA ended Lend-Lease, largely because it was not prepared to support a revived British Empire financially. John Maynard Keynes negotiated a massive US loan (approximately £900 million) in 1945, but the conditions were tough; the pound sterling had to be made freely convertible to dollars by the spring of 1947.

Question 21

What was the Sterling Crisis of Spring 1947?

Answer 21

Free convertibility would require the Bank of England to be able to exchange sterling for dollars, at a fixed rate. The US dollar loan was supposed to enable Britain to build sufficient reserves to do this by 1947. However, Britain almost ran out of its dollar reserves within six weeks (largely because of imperial demands) and had to suspend free convertibility. It revealed how weak the British economy had become.

Question 22

What problem did Britain face after WWII?

Answer 22

Britain faced a dilemma. The costs of re-establishing it’s world power, which had been challenged by the wartime Japanese occupation in the East and emergent nationalism in countries such as India, threatened to exceed the potential economic or political benefits.

Question 23

What approach did Britain implement to combat their dilemma after WWII?

Answer 23

Consequently a dual approach emerged. Where the costs of controlling a colony massively outstripped its actual or potential value (as in India, Burma and Palestine in 1947 to 1948), imperial control was abandoned. However, where colonies were regarded as of economic benefit to Britain, a new emphasis was placed on colonial economic development. The rubber and tin industry of Malaya which could command major international markets, for example, received heavy government investment since it was hoped that this would earn large amounts of foreign currency (especially dollars) and benefit Britain’s international trading position.

Question 24

What did the Colonial Development and Welfare Act of 1940 do?

Answer 24

The Colonial Development Act of 1940 formed the foundation for the new approach. This:

• wrote off some colonial debts
• provided colonial grants or loans of up to £5 million per year

Question 25

What did the Colonial Development Act of 1945 do?

Answer 25

The Colonial Development Act of 1945:

• increased the aid available to colonies to £120 million over ten years
• required each colony to produce a 10 year development plan showing how it would use such funds.

Question 26

One of the reasons for decolonisation was the impact of the Second World War. Why?

Answer 26

All of the imperial powers emerged from the war economically much poorer than they entered it. None could really afford to fight a series of prolonged colonial wars, fighting against insurgent nationalist movements.