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EH101 > Chapter 11 > Flashcards

Chapter 11 Flashcards

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1
Q

Direct effects of war:

National income/output increases

A

mostly extensive growth -> increase in labour and capital inputs into production process and mobilisation

Growth not through intensive growth (productivity gain)

WWII GNP increase (1939-1944): US 52%, UK: 25%, Germany: 16%, USSR: -23%

WWI government spending (1913-1918): US: 2% to 17%, UK: 8% to 35%

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2
Q

Direct effects of war:

Smaller effects on GDP per capita

A

Higher income is due to increase labour/capital inputs -> not due to increase in productivity

Increase in GDP/capita less pronounced than output change.

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3
Q

Direct effects of war:

Medium-term growth potential reduced:Lost human capital

A

16 million in WWI, 70-85 million in WWII (> 60% in Europe)

Capitalised value of war deaths: Allies: $23 billion, Central Powers: $11,000

Destruction of human capital (% of pre-war assets): Britain: 3.6%, France, 7.2%.

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4
Q

Direct effects of war:

Medium-term growth potential reduced: Reduced labour supply

A
  • Human losses (% population) in WW1: UK: 4%, France: 7%, USSR: 2%, Germany: 6%, US: 0.3%
  • Human losses (% population) in WW2: UK: 1%, France: 2%, USSR: 19%, Germany: 9%, US: 0.3%
  • productivity falls → growth potential reduces
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5
Q

Direct effects of war:

Medium-term growth potential reduced: War-time debt and reparations

A
  • UK owes US $4100 million (end of WWI)
  • German reparations: £6600 million (WWI) -> represented 52% of pre-war capital
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6
Q

Direct effects of war:

Non-war investment:

A

During war, redirected investment to war efforts -> production of less productive goods and services for war (weapons etc.) -> post-war recovery slower

UK non-war investment is 5%/GDP (1938) ◊ -10%/GDP (1945)

Physical damage of capital wider in WW2.

Destruction of physical domestic capital (% of pre-war assets): Britain: 10%,

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7
Q

Peace in 1918-1921

Britain

A

Nov 1918: Lloyd George: “I hope we may say that thus, this faithful morning, came to an end all wars” -> suggests willingness to sustain peace

But: Politics meant Lloyd George wins Dec 1918 election with slogans such as “Hang the Kaiser” and “Make Germany pay” -> indicates harsh post-war attitudes of victor countries

PM sacrificed conscience for success in General Election.

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8
Q

Peace in 1918-1921

France

A

Wanted harsh peace to ensure no more German invasions

1871 Franco-Prussian war shaped attitudes in 1918 -> forced reparations of 5 billion gold marks and lost Alsace-Lorraine

Shaped attitudes towards Germany post-WWI.

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9
Q

Peace 1918-21

USA

A

Wilson favoured liberal, progressive peace (idealist)

Observing Germany’s treatment of defeated Russia -> eventually favoured harsh settlement -> US not yet a global dominant force.

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10
Q

Treaty of versailles

A
  • Germany declared guilty ◊ peace not “negotiated”
  • Loses land (Rhineland) and military restrictions (100,000 men)
  • Reparations: £6,600 million
  • Typical of c.19th peace treaties e.g. Franco-Prussian war -> historical pattern of settling conflicts and determining peace.
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11
Q

What were the reparations from West Germany?

A
  • German external assets: $260 million
  • Industrial capital equipment: $140 million
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12
Q

Why were there reparations from Germany?

A

Implicit reparations from West Germany:

German coal exported free/at subsidised price to France ($8 per ton instead of $22) -> Ruhr coal manufacturers not receiving full price

Unpaid Prisoner-of-War labour post-war: 200,000 (UK), 500,000 (Commonwealth), 1 million (France) -> estimated value of £140 million in West and £840 million in USSR -> implicit subsidy and reparations to victors.

Western Aid: reparations offset

UK spent more importing food into Germany ($260 million on food aid) than reparations ($100 million).

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13
Q

Concept – Post-war monetary overhang:

A

Large money holdings due to a lack of ability to spend them and shortages of goods and services.

Savings increased during war -> decreased production -> forced reduce consumption -> saved disposable income for post-war consumption

End of war: industrial production not yet producing civilian goods (production not satisfying large demand) -> demand > supply -> money chasing too few goods -> “monetary overhang” -> inflation

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14
Q

Controlling monetary overhang:

A
  • Responded by contractionary fiscal and monetary policies (1920-21) -> collapsed prices. Suppressed demand (monetary overhand full spent) -> unemployment reaches 2 million (1921)
  • Price and quantity controls (e.g. UK rationing 1945-51) -> prevent effects of monetary overhang seen post-WWI -> reduce inflation as no excess demand

Devaluation to encourage exports -> exports more attractive internationally -> purchasing power of incomes reduced (more expensive imported goods) to extract overhang savings

High taxation rates and investment -> tax regimes to reduce generating savings in immediate post-war years -> suppress monetary overhang

Marshall Plan and other international programs

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15
Q

Intellectual changes

A

Post-WWI:

  • Globalisation in retreat: less trade and emigration, lower capital flows
  • Lack of international cooperation
  • Interwar period Great Depression -> painful and undesirable.

Post-WWII:

  • Unified desire to avoid second 1930s recession
  • Trade liberalisation and economic cooperation
    • Integration encouraged through (WTO/GATT allowed tariffs and trade level back to 1914 levels by 1960s) -> institutionally supported globalisation
    • But no return to pre-1914 levels of migration and capital mobility.

Internal commitment to lower unemployment -> increased interventionism and social welfare spending -> more government intervention and social spending.

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16
Q

Marshall Aid

A

July 1947

: Funds from US to European nations in reconstruction from WWII damage.

$13 billion – only 0.5% of European GDP for four years and 20% of gross investment -> only symbolically significant

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17
Q

Impact of Marshall Aid

A
  • $13 billion – only 0.5% of European GDP for four years and 20% of gross investment -> only symbolically significant
  • Real contribution to growth 2% (Eichgengreen and De Long)
  • 1946-47: food supply only 80% of 1938, capacity to import was 30% lower
  • Marshall Plan: 65% to production and 35% to investment -> important industrial capital and raw material products -> remove bottlenecks to growth
  • Social returns as high as 50% a year.
  • Facilitated rapid growth: Germany 12%, Austria 10%, Italy 7%
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18
Q

Condtions of Marshall Aid

A
  • import US goods, lower tariffs, increase integration, fiscal discipline etc
  • Not about cash transfers
  • Labour peace encouraged: labour organisations to push for productivity improvements -> shifted Europe to “social contract” path -> bonded workers and employers in common goal of enhancing productivity and competitiveness.
  • Ensured Europe’s commitment to open free trade -> paved way for more cooperation EPU, ECSC, WTO, GATT etc.
  • Emblematic of a new cooperative, world economic order (Washington Consensus)
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19
Q

Trilemma:

A
  • Economies not able to follow 3 policies simultaneously
  • Economies can follow only 2 of 3 of:
  • Fixed exchange rates (Gold Standard defended by “Rules of the game”)
  • Independent monetary policy (Central bank intervention)
  • Free movement of capital
  • Determines possible macro policies -> which 1 to sacrifice?
  • Pre-1914: Gold Standard -> fixed exchange rate required following of “rules of the game” and cyclical fluctuations less important (workers less voice). Independent monetary policy sacrificed.
  • Post-1945: Keynesian economics (interventionism) -> required independent domestic monetary policy (important to manage fluctuations) -> but Bretton Wood fixed exchange rate agreed. Free movement of capital sacrificed.
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20
Q

Post WW2: Economic policy changes

USA

A
  • Economically integrationist
  • Supports more free trade -> not completely.
  • Offered Marshall Aid: “IMF style” aid programme conditional on economic liberalisation and structural adjustment while aiming to prevent spread of communism in Europe
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21
Q

Post WW2: Economic policy changes

Britain

A
  • Aims for more free trade
  • Does not seek harsh peace settlement with Germany
  • Adoption of Keynesian policy approach -> interventionist and active economy management by state (sacrifice capital mobility for independent monetary policy and fixed exchange rate under Bretton Woods).
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22
Q

Post WW2: Economic policy changes

France

A

Aims for more free trade

Did not seek harsh peace settlement with Germany

Adoption of social contract -> union-management compact offering wage moderation to fund investment (long-run growth).

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23
Q

Post WW2: Economic policy changes

Germany

A

Aims for more free trade.

Accepts peace settlement and integration into Western economy

Also adopts of social contract.

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24
Q

Role Economics during WW1:

Territory and population

A

Allies 5x more population, 11x more territory, 3x more output than Central Powers

America replacing Russia: average GDP/head rose to 1.6x more than Central

Central powers limited resource -> chance of victory decreased with time.

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25
Role of economics during WW1:
Resources more important than human factors and military experience. Germany entered with “the most formidable army in the world, past victories, exploitation of shock and rapid movement” -\> quality But overcome by Britain and France after mobilisation and effort to improve position On the other hand, deficit of resources not overcome by Germany.
26
What did the mobilisation of resources depend upon?
economic development, proximity to front line and duration of engagement. Richer countries -\> ability to transfer resources to wartime uses more rapidly.
27
Substinence farming in WW1:
Increase subsistence farming in poor countries means food supplies fell ◊ famine, revolution and downfall of emperors. Peasantry in Russia -\> resources diversion -\> low prices reduced motivation for farmers to sell food at low prices -\> subsistence farming -\> urban famine, revolution, downfall of emperors. Britain and France paid more to producers -\> increased production.
28
What economic factors enabled the allies to win?
Quantitiative superiority Taking risks, Absorbing the cost of mistakes United States entrance in 1917, richest power entered the war
29
Reason for allied victory: Territory
Larger population, territory and GDP (productivity to transfer to armed forces/ development level) = easier to overwhelm the armed forces of another country * By the end of the war, governments representing 64% of its prewar output had declared war on the Allied side By 1917: US added 106.3 millions of people and $522.2 billion with high GDP per capita ($5,301 in US and $1,088 in colonies)
30
WW1: Why was economic development essential for victory? Needed for territory adn population to count
* Enables transfer of the population to the armed forces * Reflective of infastructure * Representative of the government and financial system necessary to redirect resources to the national priorities
31
WW1:Why were the addition of colonies not so helpful in victory?
Limited governance Far away from warfare colonial annexations of the axis became poorer and difficulty of extracting resources increased,
32
Allied population numbers
November 1914: 793.3 million ($1,096.50 billion GDP) November 1918: 1,271.7 ($1760.5 Billion GDP) In the first stages of War, allies had access to 5 times the population, 11 times the territory and 3 times the output of the central powers
33
WW1:Central powers population and GDP product
November 1915: 156.1 mllion people ($383.9 billion)
34
WW1:Allied and central powers resource and development rations
November 1914 * GDP: Allies advantage of 2.9 November 1918 * GDP: Allies had an advantage of 4.6
35
WW1: What happened to British ans American economie during war?
Expanded by 10% German and Austrian economies flatlined to 20-25% below their pre-war real output
36
WW1: Why did Britian and France win in the long run? Resources
Dramatic change as they saw that they were loosing, so refined technology, organisation and strengthen morale * Germans were poorly equipped * Rich countries (Allies) were always funded by government expenditure whilst the poor countries in the Central powers left them skint * Richer countries able to mobilise more men, able to support capital-intensive war, * Poor countries when mobilising take reosurces away from farming, young men and horses * In Britiain and America, farmers produced more because they were offered higher prices and incnetives * Large peasant population hard to mobilise because they behaved like a netural trade partner and small producitivyt adn governmetn planning meant there was little incentive to produce (Italy, Austria Hungary and Germany had large peasant populations) *
37
WW1:Large peasant population Substinence farming
Large peasant population hard to mobilise because they behaved like a netural trade partner and small producitivyt adn governmetn planning meant there was little incentive to produce (Italy, Austria Hungary and Germany had large peasant populations) Substinence farming = reduced supply = market prices soar and soilders are hungry = mutiny
38
WW1: Nitrate in Germany
International interrupted Germany tried to develop production but this was costly and farming lost nitrate
39
WW1: Direct Gross cost | (Bogart)
$ 208, 306 million
40
WW1: Estimated property losses on land
29,960
41
WW1: Death as a total percentage
Total Allies: 0.7% Total Central Powers: 2.6%
42
WW1: National wealth
Britiain: 14.9 Germany: 54.7
43
Why was British war economcy successful in WW1?
Ahmed: Smooth operation of market forces during the war itself
44
WW1: Growth of real GDP World War 1 neutrals vs those who fought in WW1:
WW1 neutrals * Sweden: 1.9% * Norway: 2.9% WW1 fighters * France 1.9% * UK: 0.7%
45
New economic development:
1917: Bolsheviks revolution Break up of Ottoman empire, affected trade in protectionist world, as economic disintergration Reunited parts of Poland that had previously been partitioned between Prussia, Austria and Russia, therefore economic intergration
46
WW2: Population and territory superiority 1938
Allies outweighed Axis by 2.7:1 in population and 7.5:1 in territory Allies to empire in terms of empire gains 1.4:1
47
WW2: Axis aim
Self sufficency
48
WW2: Pre war GDP ratio Allied to Axis
2. 4:1 1941: 2:1 1944: 3.3:1
49
Why did the Allies have an advantage after 1942?
1942 onwards: US joined the war, and they had a huge mobilisation drive Soviet was stabilised and mobilised a higher level of output Italy was knocked out of Axis GDP of occupied France fell By the end of the war, German and Japanese forces were collapsing
50
Where did the Allies did not have an advantage?
Eastern Front GDP was the same size in Germany and Russia despite Russia having a bigger population and territory Soviet economy collapsed under the weight of German attack Germany grew as a result of mobilisation But Soviet economy recovered in 1943
51
WW2: Impact of Allied naval supremecy
Limited German and Italian overland trade with netural neighbours and the neturals adjacent to occupied Europe Trade with neutrals
52
WW2: Ground and air mutinition (Allied supremecy)
Ratio of 5:2 (ridles, combat and aircraft) 3: 1 for guns 5: 1 for tanks, mortars and warships 15: 1 for machine pistols
53
Why poor counrties suffered more?
They were dependent on agriculture Mobilisation disrupts trade internally and externally Less surplus to sell Lacked Commercial and administrative infastructure which modern govermnets used to foster the objectives of wartime economic policy Therefore poorer states collapsed (Italy in 1943 then Japan in 1945)
54
What is a counter to territory
Collapse of Russia in WW1 Collapse of China in WW2
55
WW2: British stability
* Mobilised with no shortages in food or power supplies * Very developed features of high GDP per head, able to expand home production of calories, ration fuel adn energy efficently * Easier to supply their economy from across the world unlike Axis who exploited inefficent low income colonial areas
56
WW2: Trade
Allied blockade intterupted global trade and other resources Italy and Japan depended on international trade
57
British and American accumulation between 1942-1943
Accumulate three to one advantage
58
WW2: Percentage of human assets loss
UK: 1% USSR: 18-19% Germany: 9%
59
WW2: National wealth loss:
UK: 5% USSR: 25% Japan: 25%
60
Human capital impact after WW2
UK: Wartime experience improved human capital, schemes for universal healthcare, secondary education and social insurance Germany and Japan: Emphasis on job rights, craft trainning and worker participation
61
Craft production after WW2
Losers realised it didn't work
62
Allies advantage in weaponary explanation
Standardised productios interchangeable parts, specalised factories, industrial equptment, conveyor belt system and workers who were very unlikely to switch jobs Provided the Allies with an advantage in weaponary

EH101 (19 decks)

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