Read an extract from To Hell and Back, Ian Kershaw’s compelling new narrative of events in Europe from 1919-1949. 

War and the Economy: Learning Lessons

Each of the world wars was a catastrophic, though relatively short- lived, interruption to long-term economic development. Average growth rates in most European states were lower over the disastrous era of 1914–45 than before the First or after the Second World War.

And it took the defeated countries in the First World War around a decade to recover. But they did recover; and growth, if slower than it had been before the war, continued. It has been estimated that, had pre-war growth before 1914 continued unabated, the level reached in world production by 1929 would have been attained in foodstuffs by 1923, in industrial goods by 1924 and in raw materials by 1927. Whatever caveats may be attached to such extrapolations – which are for world, not just European, production – they indicate a temporary brake on growth through the hostilities, not a long-term reversal.

The levels of globalization reached before 1914 were hampered and interrupted by war, then by protectionism and economic nationalism during the Great Depression of the 1930s. European economic output then fell again during the Second World War and much of what was produced had, of course, to be geared to military hardware. This time, however, the rebound was swift. Following the Second World War, growth was rapid, much stronger than in the aftermath of the First World War, and with more lasting impact. Lessons had been learnt. There was a readiness to embrace international cooperation, so badly lacking between the wars but now accepted as vital to recovery. New levels of state intervention were undertaken to restore stability and regulate the economy. The decisive factor was the complete economic dominance of the USA, and its crucial export of ideas, technology and capital. The basis for the unprecedented economic growth over the subsequent three decades was laid, however, within Europe itself, and in the continent’s darkest years. For in strictly economic terms, war, even on the scale of the conflicts of 1914–18 and 1939–45, did not merely have a negative balance sheet of losses. It also had positive consequences of lasting importance.

The conditions of war provided a marked stimulus to economic growth and technological advance. Even democratic states, let alone dictatorships, were forced to intervene massively in the economy to direct enormously expanded production for the war effort. This necessitated state investment in construction, capital equipment and labour training as the conflict created new demand (which often proved lasting), for instance, for aluminium needed in aircraft production during the Second World War. Mass production of armaments required, already in the First World War, more efficient methods of factory organization and management and more intensive mechanization.

Agriculture benefited from increased mechanization to maximize production from the land at a time when farms were drained of labour. Around 3,000 new tractors were made available to farmers in Britain during the first year of the Second World War, for example, and production of all types of agricultural machinery was increased. In Germany, on the other hand, where the increasingly frantic demand for tanks, guns and planes left little productive capacity over for tractors, farmers had generally to make do with the efforts of family members, forced foreign labour and prisoners of war. Here, as in other parts of the continent where the modernization of farming methods made little headway during the war itself, the mechanization of agriculture and intensification of production largely had to await the era of post-war reconstruction – since there was no way of reversing the relentless long-term decline in availability of rural labour during the period of the conflict.

Technological and scientific innovation was striking in both wars, quite especially in the second, and with lasting effect. It was not necessarily the case that war produced entirely new discoveries. Yet even where a breakthrough had been made in peacetime, the urgency of wartime production often brought rapid advances. Aircraft technology had improved massively during the First World War, since aerial warfare was viewed as decisive in any future conflict, and the innovations fed into the expansion of passenger aviation during the 1920s and 1930s. The jet engine, simultaneously invented and developed in the 1930s by the British Royal Air Force engineer Frank Whittle and the German engineer Hans von Ohain, though first mass-produced in Germany in 1944 for the Me262 fighter, would revolutionize air travel after the Second World War. Later, space exploration would build upon the rocket technology that Wernher von Braun and other German scientists had developed to launch the V2 missile.

The abilities of Braun, a Nazi Party member and honorary SS officer, were swiftly recognized by the Americans and, transported to a new environment in the USA, he would play a major role in the development of the American space programme. The discovery of nuclear fission on the eve of the war, which led to the wartime programme in the USA to produce an atomic bomb, opened the way to the post- war peaceful usage of nuclear energy. Many more wartime innovations or rapid advances on existing technology – for example, radio transmission, radar, production of synthetic materials, electronic computers – were to have a massive impact on the post-war era. Without the war these advances, many of which built on pre-war pioneers, would doubtless have come about anyway. Most likely, however, their development would have been slower.

The Second World War was, to a far greater extent than the First, a ‘total war’, not just for societies under dictatorial rule. The leaders of states learned important lessons from the earlier war in running their wartime economies. They were far more effective than their predecessors had been, for instance, in controlling inflation, which was never allowed to gain destructive momentum as in some belligerent countries during the First World War. In Britain taxation was raised to far higher levels than it had been in the earlier conflict, reducing the need for short-term borrowing, and it enabled the government to continue to borrow long term at relatively low rates of interest. In Germany, where the paranoia about any new descent into hyperinflation was never far from the surface, taxation could be kept much lower than in Britain because the soaring costs of war were paid in large measure by the occupied territories.

Germany and Britain were at opposite ends of the spectrum, too, in state control of the food supply to their populations. The unstoppable momentum of rising disaffection in Germany during the First World War, as living standards fell drastically and food shortages became acute, was deeply embedded in the political consciousness of Nazi leaders. Their ruthless exploitation of the continent’s food and other resources prevented any recurrence during the Second World War. The first significant cuts in rations, made following the winter crisis of 1941–2, were highly unpopular, but drastic reductions did not occur until the final phase of the war. Occupied countries in much of Europe paid the price, with mounting severe food shortages reaching famine proportions in Ukraine and Greece, and near-famine in the ‘Hunger Winter’ of 1944–5 in Holland. Although food prices were officially controlled and allocations rationed, the black market was rampant everywhere. In Britain state subsidies and stringent rationing were used to ensure that food prices rose more slowly than farm incomes. The rationing of all staple foods except potatoes and bread inevitably gave rise to grumbling, but it was nevertheless widely accepted by the population and helped to sustain social harmony. It actually improved the health of many at the same time, though at the cost of dietary monotony.

During the Second World War leading figures from business and industry were brought in to help shape government policy even more than in the First World War. Industrialists were preoccupied not just with war production but with planning for the post-war world. Even in Germany, where the Nazi regime tightened its grip on the economy (as on everything else) and where Allied bombs wrought ever greater destruction on the country, industrialists married their intense war-time collaboration with secret plans for reconstruction. Anxious not to be dragged into the futile self-immolation of the Nazi regime in its death throes during the last months of the war, they worked alongside the Reich Minister for Armaments and Production, Albert Speer, to block the senseless destruction of industrial installations under Hitler’s ‘scorched-earth’ orders of March 1945. In fact, in Germany the destruction of industry was nowhere near as great as the general level of devastation caused by the war, and industrialists were able to continue – in their own interest – their close involvement in measures to stimulate recovery. Much the same was true in other major economies. Mobilization for the war had unleashed enormous economic capacity, which was often badly damaged, but not destroyed, while huge labour resources were available to be used for peacetime reconstruction instead of armaments. The potential for reconstruction lay dormant among the ruins.

Recovery, like wartime economic mobilization, needed the state. The sheer level of material destruction in Europe made any retreat by the state from economic management impossible. Any belief that economies could repair themselves through market forces had been undermined by the economic nationalism of the interwar period. Only the state, French and British planners agreed, could provide the levels of investment necessary for the massive infrastructural projects to rebuild the economy. American leaders, though favouring the free market, could scarcely demur at this juncture, while rigid state control was of course long established in the Soviet Union. Huge house-building programmes had to be organized. Food scarcity also demanded continued state controls and allocation; in Britain rationing continued well into the 1950s.

In the immediate years after the Second World War the economy of Europe was, accordingly, shaped by levels of state expenditure and control in ways never contemplated in the 1920s and 1930s. Under American influence, however, western Germany would not come to follow the model of far greater dirigisme adopted in Britain and France (although in eastern Germany, under Soviet control, the development was of course entirely different). Experience of heavy state controls during the twelve years of Nazism would encourage the removal of constraints on the free market, the drastic reduction of bureaucratization and the abolition of industrial cartels. Indeed, the initially high level of state intervention and direction would soon start to be pared back in most countries, though by then recovery was well under way.

To Hell and Back coverTo Hell and Back, by Ian Kershaw (Allen Lane) is out now.

Ian Kershaw is the author of Hitler 1889-1936: Hubris and Hitler 1936-1945: Nemesis, which received the Wolfson Literary Award for History and the Bruno Kreisky Prize in Austria for the Political Book of the Year, and was joint winner of the inaugural British Academy Book Prize; Making Friends with Hitler, which won the Elizabeth Longford Prize for Historical Biography; Fateful Choices: Ten Decisions that Changed the World, 1940-4; and The End: Germany 1944-45.

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