A world undone: the story of the Great War, 1914 to 1918 (76 page)

At the same time, presumably because the law had made cheap labor plentiful, the government ordered massive increases in the manufacture of war matériel. Gunpowder and light artillery production quotas were doubled to twelve thousand tons and three thousand barrels per month respectively. The target for machine guns was tripled to seven thousand per month, and rifle production was boosted to one hundred and twenty-five thousand monthly.

The service law did not go as far as Ludendorff had wanted. He had proposed applying it to women, particularly to all the childless war widows who were, or so he complained, idling away their days. He had wanted to close the schools and universities. He had proposed these things in spite of the fact that unemployed women far outnumbered the available jobs, and every youth of sufficient age and fitness was already in uniform. But even in the limited form accepted by the Reichstag, the measure proved to be unenforceable, a bureaucratic nightmare that angered the workers and their unions while accomplishing little. It was soon abandoned.

The new production quotas likewise were often not met. But they were typical of what all the belligerent countries were trying to do as the war entered its third year. They were throwing everything they had—their people, their production capabilities, all the wealth accumulated over generations of industrial development—into the effort to destroy one another. The longer the war continued, the deeper they were willing to dig. Even as they weakened physically, with able-bodied men growing scarce and essential commodities even scarcer, their commitment to fighting on grew stronger. Almost no plausible measure was regarded as too extreme.

Which gives rise to a rather elemental question: where did the money come from? How did Germany and Austria-Hungary and Turkey and Bulgaria on one hand, Britain and France and Russia and Italy on the other, pay for such an immense and protracted struggle?

The answer, in a nutshell, is that they didn’t. None of them even tried. In addition to being the greatest bloodbath in the history of western Europe and the greatest in eastern Europe until the Second World War, the Great War was a process by which all the great powers, victors and vanquished alike, transformed themselves from bastions of prosperity into sinkholes of poverty and debt. Financially as in so many other ways, the war was a road to ruin.

This development was not unforeseen. As technological progress accelerated in the nineteenth century and fueled tremendous military expansion, the question of how much a general war would cost became one of the great imponderables facing the governments of Europe. In 1898 a Russian named Ivan Bloch produced a six-volume study, Future War, in which he postulated that armed conflict between the great powers would mean “not fighting, but famine, not the slaying of men but the bankruptcy of nations and the break-up of the whole social organization.” He predicted that any such war would be short because financially insupportable. Twelve years later a book titled The Great Illusion, by the Englishman Norman Angell, became an international best-seller by predicting that not even the winners could possibly benefit from a major war. Military power, Angell said, had become “socially and economically futile, and can have no relationship to the prosperity of the people exercising it.” Such a warning seemed credible: when Angell’s book appeared, all the great powers were spending scores and even hundreds of millions of dollars annually on their armies and navies. Such spending continued to increase through the last four years of peace, and much of the increase was made possible by borrowing. Only Britain, wealthiest of the European powers and the one with the smallest army, was balancing its budget.

What was not foreseen was the ability of the industrialized nations to go on fighting year after year even while devouring themselves financially. As astute an economist as John Maynard Keynes was a year into the Great War before he understood that total war would not cause total financial collapse. “As long as there are goods and labor in the country the government can buy them with banknotes,” he wrote in September 1915, “and if the people try to spend the notes, an increase in their real consumption is immediately checked by a corresponding rise of prices.” The truth, he concluded, was that bankruptcy would never force the great powers to stop fighting. They could be stopped only by the exhaustion of their manpower, their physical resources, or their will to continue. The next few years showed him to be entirely right.

With the start of the war, every one of the nations involved cast aside any semblance of financial restraint. As early as October 1914 Chancellor of the Exchequer David Lloyd George was admonishing the British war office not to come to him for approval before ordering whatever it thought it needed. It was the same in every capital: governments worried not about how much they were spending but about whether their military leaders were doing everything possible (which often meant
buying
everything possible) to outmatch the enemy. Budgets ceased to matter.

Great nations found themselves unable not only to pay their bills but even, in some cases, to pay the interest on what they were borrowing. By 1917 the German government’s expenditures amounted to 76 percent of net national product; they had been 18 percent just before the war. Tax revenues were covering only 8 percent of the spending. That same year Britain’s military spending was 70 percent of national output, and revenues were about a fourth of expenses. France’s military budget, thanks to heavy borrowing, was equal to or even more than total output.

On the home front
A French couple with what remains of their home.

The strategies adopted by the various countries for maintaining sources of credit varied greatly and were almost indescribably complicated. The problems were greatest for the least developed nations, Russia and Austria-Hungary in particular. The solution in both cases was reliance on stronger senior partners. Russia began borrowing from its allies as early as October 1914. Eventually it borrowed £568 million from London and three and a half billion francs from Paris—colossal sums for the time, equivalent to billions of dollars. Germany found it necessary to be similarly generous to Austria-Hungary, and later to Turkey and Bulgaria as well. The Russians had compounded their difficulties by shutting down the state monopoly on alcohol early in the war as a gesture of austerity, patriotism, and willingness to sacrifice. This accomplished nothing except cutting off a fourth of Petrograd’s revenues, creating a huge black market in vodka, and worsening inflation.

Not one country attempted to meet its expenses or even reduce its deficits through increased taxes. Where taxes were increased, the purpose was either to inhibit inflation by soaking up some of the wages flowing to workers or to maintain a flow of revenue sufficient to satisfy the credit markets. New taxes were sometimes imposed on profiteers, but more to maintain public morale (damaged everywhere by the spectacle of tycoons reaping fortunes while everyone else suffered) than to increase revenue. Tax systems became less rather than more progressive. Governments tried to limit the amounts of money available to working people for the pursuit of increasingly scarce goods while simultaneously helping the wealthy to retain their assets for investment in postwar rebuilding.

The situation first became serious for the Central Powers, which virtually from the first day of the war had lost their merchant fleets and access both to their own overseas investments and to global sources of credit. They had to do nearly all their borrowing internally, through loans from domestic financial institutions and the sale of bonds. They were surprisingly successful. Germany issued war bonds twice annually. The many marks raised in this way covered two-thirds of its war costs.

The British and French were far more able than the Germans to repatriate money they had invested overseas, and because of the naval blockade only the Entente was able to buy and borrow from the United States. But gradually, inexorably, their treasuries were depleted. Questions arose in New York and Washington about their ability to make good on their debt. In November 1916 the U.S. Federal Reserve Board warned its member banks against continuing to buy foreign—which meant British and French—treasury bills. The result was a near-panic in which London retaliated by briefly ceasing to place orders in the United States and urged France to do likewise. By April 1917 the British were spending $75 million a week in the United States, were overdrawn on their American accounts by $358 million, and had only $490 million in securities and $87 million in gold to draw on to make good their debt. In short, they were only weeks away from insolvency.

But this was a crisis for the United States too. American manufacturers and farmers had become dependent on sales to the Entente, and American banks were owed immense amounts. A British and French financial collapse—never mind the outright defeat of the two nations—would have been a disaster for the U.S. economy. Thus the German submarines were not Washington’s only reason for wanting to save the Entente. In purely practical business terms, it became dangerous for the United States notto enter the war.

It is estimated that the war ultimately cost $208 billion—this at a time when skilled workers were paid a few dollars a day. The final bill was $43.8 billion for Britain, $28.2 billion for France, and $47 billion for Germany. In each case, the result was the same. The wealth of all the belligerent countries was drastically reduced.

The ultimate result is expressed in the word disinvestment. All the European powers stopped making the kinds of investments required for real economic growth. Everything, even the future, went into the flaming cauldron of the war. Britain, that paragon of affluence and commercial success in 1914, ended the war sunk in debt, its civil infrastructure a shambles. The Europeans had begun the war at the pinnacle of the world’s economic and financial hierarchy, and they ended it as wrecks. Ivan Bloch had been wrong about the feasibility of keeping such a war going. About the consequences, however, he had turned out to be dead right.

Chapter 26

A New Defense, and a New Offensive

“This is a plan for the army of the Duchess of Gerolstein.”

—L
OUIS
L
YAUTEY

O
n February 24 British troops near the French city of Arras reported something exceedingly strange. The German lines opposite them were being shelled—by
German
artillery. Scouting parties sent out to investigate discovered something even stranger: the enemy’s trenches had been abandoned. The men who had occupied them were nowhere to be seen. The purpose of the shelling, clearly, was to destroy what the departing soldiers had left behind.

One of the most remarkable tactical moves of the Great War, in its improbable way one of the boldest, was in process. After two and a half years of Western Front combat in which both sides had clung desperately to every yard of barren turf, the Germans were pulling back. Though the extent of the withdrawal remained for a time not at all apparent—at Arras the line shifted just a short distance, so that the British thought they were witnessing nothing more than a minor adjustment—over a period of several weeks the Germans would withdraw twenty miles along seventy miles of front between Arras and St. Quentin. Quietly, voluntarily, they would give up a thousand square miles of conquered French territory. They would turn their backs on ground soaked with their own blood, on positions that Erich von Falkenhayn, when he was head of the high command, had ordered held at all costs.

The withdrawal was Ludendorff’s doing, and it was fraught with risk. If the British and French had attacked while the Germans were abandoning their old line and before they were settled into new positions, the results could have been disastrous. It was also a task of almost unbelievable magnitude; Ludendorff’s plan was not only to shift to a new line but to make that line immeasurably stronger than the one being given up. Three hundred and seventy thousand men (German reserves and civilians, Russian prisoners of war) worked for four months on the construction of the new defenses, digging trenches and subterranean chambers for the concealment of men and equipment, building fortifications of concrete reinforced with steel, and erecting huge barricades of razor-edged concertina wire. Farther east another hundred and seventy thousand workers assembled the necessary materials and sent them forward to the construction crews. More than twelve hundred trains were assigned to the project, hauling steel and concrete and everything else that was needed. And aside from that mystifying bombardment at Arras, most of it was accomplished in secret.