An international conflict, known until World War II as the Great War, that disrupted trade and resulted in a peace treaty that led to the Great Depression and a second worldwide conflict within two decades.
On June 28, 1914, Archduke Franz Ferdinand, heir to the Austro-Hungarian empire, was assasinated in Sarajevo by a Serbian. The emperor of Austria, Franz Joseph, made a series of demands on the Serbian government which included a public apology for the act. The Serbs acquiesced in all the demands except for one: that the Austrians be allowed to conduct an independent investigation within the borders of Serbia. The Serbs were particularly sensitive to any action that even appeared to violate their sovereignty recently attained from the Ottoman empire.
While negotiations were proceeding between Serbia and Austria, the threat of war triggered secret alliances. As the Ottoman empire began to crumble, Russia assumed the role as the protector of the Slavic people throughout eastern Europe—a movement known as Pan-Slavism. Consequently, Russia had an alliance with Serbia. When Austria threatened Serbia, the Russian army began to mobilize on July 30. Austria had an alliance with Germany, a country with a large mobilized army. Germany had an alliance with the Ottoman empire, while Russia had concluded a defensive alliance with France. Although U.S. secretary of state William Jennings Bryan attempted to negotiate a peaceful resolution to the conflict, the German military insisted on a quick strike to capitalize on its preparedness. Diplomacy failed. On August 3, Germany invaded neutral Belgium on its way to northern France. The invasion of Belgium drew Great Britain, as the guarantor of Belgium’s neutrality, into the conflict.
Imperial ambitions also factored into the onset of World War I. During the eighteenth century, European nations fought four wars for empire. Throughout the nineteenth century, Europeans concentrated on the expansion of empire, primarily throughout Africa, while Europe itself remained relatively quiet and prosperous. A victory of one European nation over another would result in a shift in colonial power on a global basis. The desire among European countries to dominate economically through trade also increased the risk of war. By the end of the nineteenth and beginning of the twentieth century, the economic power of Great Britain was being challenged by Germany, Japan, and the United States. The formation of the modern state of Germany in 1873 permitted it to establish an empire of its own while dominating trade—primarily in the steel and chemical industries. Strong national pride had also developed throughout Europe during the late nineteenth century and contributed to a reluctance to be dragged into war, especially in France, which had suffered a defeat in the Franco-Prussian War of 1870 and 1871.
Effect of War on Trade
When the fighting in Europe reached France in August 1914, the German strategy that called for a quick defeat of the French forces and then a shift toward Russia in the east did not occur. The German forces became bogged down in trench warfare for the duration of the war. Meanwhile, on the eastern front the Russians engaged the Germans but at a high cost in lives. The Russians retreated back across their own border, attempted another offensive in 1916 that failed, and finally withdrew from the war after the Russian Revolution of 1917, just as the United States entered the war.
The outbreak of war meant that countries other than Germany, which already had a stockpile of military equipment and supplies, had to mobilize their armies and purchase war matériel. Great Britain, Russia, and France turned to the United States, where loans were procured primarily through the banking firm of J.P. Morgan. Between 1914 and 1917, the firm lent more than $2.1 billion to Britain and France. In 1914, Charles Schwab, the president of Bethlehem Steel, traveled to London, where he received contracts for the manufacture of millions of ammunition shells and ten 500-ton submarines. American businesses profited from the outbreak of the war. In 1916 alone, J.P. Morgan earned $61 million in profits. After the United States entered the war, the government established the War Industries Board to coordinate the production of war matériel with private firms.
On the sea, meanwhile, the German navy relied on submarine attacks and mines to offset the British superiority in number of vessels and to block American arms shipments on the Atlantic. German submarine warfare began in September 1914 and targeted the vessels of neutral nations no less than British ships. Even ocean liners came under attack. The Germans contended that passenger ships such as the Lusitania— sunk by a German torpedo in May 1915 en route from New York, costing 1,198 lives—were transporting war matériel to Great Britain. After the interception of the Zimmermann telegram, sent in January 1917 by the German foreign minister to his counterpart in Mexico encouraging an attack on the southern border of the United States with an enticement of reclaiming Texas, Arizona, New Mexico, and California after the war, the United States declared war on Germany.
U.S. businesses profited from the outbreak of World War I and were later blamed by many for the country’s entrance into the war. In 1914, Bethlehem Steel president Charles Schwab traveled to London, where he received contracts for the manufacture of millions of ammunition shells and ten 500-ton submarines. (Library of Congress)
While new recruits were being trained in boot camps, American industry shifted into high gear as the War Industries Board began coordinating the production of needed matériel. Of primary concern was the transportation of goods across the Atlantic Ocean, where German submarines could attack at any time. The British opposed the idea of using the convoy system, claiming that it simply provided a larger target for the Germans. American naval commander Admiral William Sims insisted on the use of the convoy system, believing it would succeed with the use of two new technologies: an experimen tal version of the sonar and depth charges. Submarine warfare became less effective after April 1917 as the United States moved men and matériel across the Atlantic all but unimpeded. German forces soon realized that their enemies were better equipped and supplied than they were and that their cause had become futile. Still, they continued to fight.
President Woodrow Wilson had proposed a diplomatic solution to end the conflict even before the United States entered the war. Under his Fourteen Points, there would be no war-guilt clause, no war reparations, self-determination for all people, and the creation of an international organization to secure the peace in the future. When the representatives met at Versailles to finalize the peace treaty, Wilson insisted on the above-mentioned points, but the Europeans refused to relinquish their empires by embracing the concept of self-determination and insisted on a war-guilt clause and war reparations to be paid by Germany. The only aspect of Wilson’s proposal that was implemented by the Europeans was the creation of the League of Nations—ironically, Congress rejected this clause of the treaty on the grounds that it would require the United States to relinquish some of its sovereignty to a supranational organization.
Legacy of the War
The Treaty of Versailles divided three European empires into twelve new countries. One of the first acts of these new states was to erect tariff barriers to protect their domestic industries. Even in the United States, where Congress had reduced tariff rates through the Sixteenth Amendment (personal income tax), Congress increased rates during the war to defray the cost of combat. Tariff barriers and the inability of European nations to meet the demands of their own populations disrupted long-established trade patterns. The United States became the major producer of goods for the industrialized world as it rebuilt. American farmers, encouraged during the war to grow enough to satisfy domestic consumers as well as the military and European demands, mortgaged their property to purchase additional farmland. Agricultural prices remained high throughout the war and into the early 1920s, but by 1922 farmers were experiencing a decline in prices and had a difficult time making their mortgage payments. European countries by then had recovered from the war and were producing their own crops. Agricultural trade declined significantly. The manufacturing sector continued to grow during the 1920s, but the crash of the stock market in 1929, followed by an increase in U.S. interest rates by the Federal Reserve and the passage of new legislation that increased tariffs, the Hawley-Smoot Tariff, plunged the already fragile world economy into the Great Depression.
In Germany the economic consequence of the war was an inflation rate that forced the ruling government out of power and allowed the rise of Adolf Hitler in 1933. The German government was unable to pay the war reparations demanded by the Treaty of Versailles and refused to make further payments. Thus the treaty to end the “war to end all wars” directly contributed to the outbreak of another war, as Germany under Hitler reacted to the restraints placed on it by developing aggressive designs on the rest of Europe.
Cynthia Clark Northrup
See also: Great Depression; World War II.
Bibliography
Dwyer, John J. “The United States and World War I” (www.lewrockwell.com/orig3/dwyer3.html, accessed January 2004).
Gilbert, Charles. American Financing of World War I. Westport: Greenwood, 1970.
Hawley, Ellis E. The Great War and the Search for a Modern Order. New York: St. Martin’s Press, 1979.
Hoover, Herbert, and Calvin Coolidge. Campaign Speeches of 1932. Garden City, NY: Doubleday, Herbert, 1933.
Keynes, John Maynard. The Economic Consequences of the Peace. Introduction by Robert Lekachman. New York: Penguin, 1988.