Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

Naturally, when the supply of money was increased in this fashion faster than the supply of goods, prices rose because a larger supply of money was competing for a smaller supply of goods. This effect was made worse by the fact that the supply of goods tended to be reduced by wartime destruction. People received money for making capital goods, consumers’ goods, and munitions, but they could spend their money only to buy consumers’ goods, since capital goods and munitions were not offered for sale. Since governments tried to reduce the supply of consumers’ goods while increasing the supply of the other two products, the problem of rising prices (inflation) became acute. At the same time the problem of public debt became steadily worse because governments were financing such a large part of their activities by bank credit. These two problems, inflation and public debt, continued to grow, even after the fighting stopped, because of the continued disruption of economic life and the need to pay for past activities. Only in the period 1920-1925 did these two stop increasing in most countries, and they remained problems long after that.

Inflation indicates not only an increase in the prices of goods but also a decrease in the value of money (since it will buy less goods). Accordingly, people in an inflation seek to get goods and to get rid of money. Thus inflation increases production and purchases for consumption or hoarding, but it reduces saving or creation of capital. It benefits debtors (by making a fixed-money debt less of a burden) but injures creditors (by reducing the value of their savings and credits). Since the middle classes of European society, with their bank savings, checking deposits, mortgages, insurance, and bond holdings, were the creditor class, they were injured and even ruined by the wartime inflation. In Germany, Poland, Hungary, and Russia, where the inflation went so far that the monetary unit became completely valueless by 1924, the middle classes were largely destroyed, and their members were driven to desperation or at least to an almost psychopathic hatred of the form of government or the social class that they believed to be responsible for their plight. Since the last stages of inflation which dealt the fatal blow to the middle classes occurred after the war rather than during it (in 1923 in Germany), this hatred was directed against the parliamentary governments which were functioning after 1918 rather than against the monarchical governments which functioned in 1914-1918. In France and Italy, where the inflation went so far that the franc or lire was reduced permanently to one-fifth of its prewar value, the hatred of the injured middle classes was directed against the parliamentary regime which had functioned both during and after the war and against the working class which they felt had profited by their misfortunes. These things were not true in Britain or the United States, where the inflation was brought under control and the monetary unit restored to most of its prewar value. Even in these countries, prices rose by 200 to 300 percent, while public debts rose about 1,000 percent.

The economic effects of the war were more complicated. Resources of all kinds, including land, labor, and raw materials, had to be diverted from peacetime purposes to wartime production; or, in some cases, resources previously not used at all had to be brought into the productive system. Before the war, the allotment of resources to production had been made by the automatic processes of the price system; labor and raw materials going, for example, to manufacture those goods which were most profitable rather than to those goods which were most serviceable or socially beneficial, or in best taste. In wartime, however, governments had to have certain specific goods for military purposes; they tried to get these goods produced by making them more profitable than nonmilitary goods using the same resources, but they were not always successful. The excess of purchasing power in the hands of consumers caused a great rise in demand for goods of a semiluxury nature, like white cotton shirts for laborers. This frequently made it more profitable for manufacturers to use cotton for making shirts to sell at high prices than to use it to make explosives.

Situations such as these made it necessary for governments to intervene directly in the economic process to secure those results which could not be obtained by the free price system or to reduce those evil effects which emerged from wartime disruption. They appealed to the patriotism of manufacturers to make things that were needed rather than things which were profitable, or to the patriotism of consumers to put their money into government bonds rather than into goods in short supply. They began to build government-owned plants for war production, either using them for such purposes themselves or leasing them out to private manufacturers at attractive terms. They began to ration consumers’ goods which were in short supply, like articles of food. They began to monopolize essential raw materials and allot them to manufacturers who had war contracts rather than allow them to flow where prices were highest. The materials so treated were generally fuels, steel, rubber, copper, wool, cotton, nitrates, and such, although they varied from country to country, depending upon the supply. Governments began to regulate imports and exports in order to ensure that necessary materials stayed in the country and, above all, did not go to enemy states. This led to the British blockade of Europe, the rationing of exports to neutrals, and complicated negotiations to see that goods in neutral countries were not reexported to enemy countries. Bribery, bargaining, and even force came into these negotiations, as when the British set quotas on the imports of Holland based on the figures for prewar years or cut down necessary shipments of British coal to Sweden until they obtained the concessions they wished regarding sales of Swedish goods to Germany. Shipping and railroad transportation had to be taken over almost completely in most countries in order to ensure that the inadequate space for cargo and freight would be used as effectively as possible, that loading and unloading would be speeded up, and that goods essential to the war effort would be shipped earlier and faster than less essential goods. Labor had to be regulated and directed into essential activities. The rapid rise in prices led to demands for raises in wages. This led to a growth and strengthening of labor unions and increasing threats of strikes. There was no guarantee that the wages of essential workers would go up faster than the wages of nonessential workers. Certainly the wages of soldiers, who were the most essential of all, went up very little. Thus there was no guarantee that labor, if left solely to the influence of wage levels, as was usual before 1914, would flow to the occupations where it was most urgently needed. Accordingly, the governments began to intervene in labor problems, seeking to avoid strikes but also to direct the flow of labor to more essential activities. There were general registrations of men in most countries, at first as part of the draft of men for military service, but later to control services in essential activities. Generally, the right to leave an essential job was restricted, and eventually people were directed into essential jobs from nonessential activities. The high wages and shortage of labor brought into the labor market many persons who would not have been in it in peacetime, such as old persons, youths, clergy, and, above all, women. This flow of women from homes into factories or other services had the most profound effects on social life and modes of living, revolutionizing the relations of the sexes, bringing women up to a level of social, legal, and political equality closer than previously to that of men, obtaining for them the right to vote in some countries, the right to own or dispose of property in other more backward ones, changing the appearance and costume of women by such innovations as shorter skirts, shorter hair, less frills, and generally a drastic reduction in the amount of clothing they wore.