Submitted by David Stockman via The Japan Times,
The first big wave of embracing a liberal international economic order - relatively free trade, rising international capital flows and rapidly growing global economic integration - resulted in something remarkable.
Between 1870 and 1914, there was a 45-year span of rising living standards, stable prices, massive capital investment and prolific technological progress. In terms of overall progress, these four-plus decades have never been equaled — either before or since.
Then came the Great War. It involved a scale of total industrial mobilization and financial mayhem that was unlike any that had gone before. In the case of Great Britain, for example, its national debt increased 14-fold.
In addition, England’s price level doubled, its capital stock was depleted, most offshore investments were liquidated and universal wartime conscription left it with a massive overhang of human and financial liabilities.
Despite all that, England still stood out as the least devastated of the major European countries. In France, the price level inflated by 300 percent, its extensive Russian investments were confiscated by the Bolsheviks and its debts in New York and London catapulted to more than 100 percent of GDP.
Among the defeated powers, currencies emerged nearly worthless. The German mark was only worth five cents on the prewar dollar, while the country’s wartime debts — especially after the Carthaginian peace of Versailles which John Maynard Keynes skewered so brilliantly — soared to crushing, unrepayable heights. In short, the wave of debt, currency inflation and financial disorder from the Great War was immense and unprecedented.
With all that in mind, one important question only rises in importance: Was the United States’ intervention in April 1917 warranted or not?
And did it only end up prolonging the European slaughter?
Never mind that it resulted in a cockamamie peace, which gave rise to totalitarianism among the defeated powers. Even conventional historians like Niall Ferguson admit as much.
Had President Woodrow Wilson not misled the U.S. on a messianic crusade, Europe’s Great War would have ended in mutual exhaustion in 1917.
Both sides would have gone home battered and bankrupt — but would not have presented any danger to the rest of mankind.
Indeed, absent Wilson’s crusade, there would have been no allied victory, no punitive peace — and no war reparations. Nor would there have been a Leninist coup in Petrograd — or later on, the emergence of Stalin’s barbaric regime.
Likewise, there would have been no Hitler, no Nazi dystopia, no Munich, no Sudetenland and Danzig corridor crises, no need for a British war to save Poland, no final solution and Holocaust, no global war against Germany and Japan — and, finally, no incineration of 200,000 civilians at Hiroshima and Nagasaki.
Nor would all of these events have been followed by a Cold War with the Soviets or CIA-sponsored coups and assassinations in Iran, Guatemala, Indonesia, Brazil, Chile and the Congo, to name just a few.
Surely, there would have been no CIA plot to assassinate Castro, or Russian missiles in Cuba or a crisis that took the world to the brink of annihilation.
There would have been no Dulles brothers, no domino theory and no Vietnam slaughter, either. Nor would the U.S. have launched a war in Afghanistan’s mountain valleys to arouse the mujaheddin from their slumber — and hence train the future al-Qaida.
Likewise, in Iran there would have been no shah and his Savak terror, no Khomeini-led Islamic counter-revolution, no U.S. aid to enable Iraqi President Saddam Hussein’s gas attacks on Iranian boy soldiers in the 1980s.
Nor would there have been an American invasion of Arabia in 1991 to stop our erstwhile ally Saddam from looting the equally contemptible emir of Kuwait’s ill-gotten oil plunder — or, alas, the horrific 9/11 blow-back a decade later.
Most surely, the axis of evil — that is, the Washington-based Cheney-Rumsfeld-neocon axis — would not have arisen, nor would it have foisted a near-$1 trillion warfare state budget on the 21st-century U.S.
The real point of that Great War, in terms of the annals of U.S. economic history, is that it enabled the already-rising U.S. economy to boom for the better part of 15 years after the onset of the war.
In the first stage, the U.S. became the granary and arsenal to the European allies. This triggered an eruption of domestic investment and production that transformed the nation into a massive global creditor and powerhouse exporter, virtually overnight.
U.S. farm exports quadrupled and farm income surged from $3 billion to $9 billion. Land prices soared, country banks proliferated and the same was true of industry. For example, steel production rose from 30 million tons annually to nearly 50 million tons.
Altogether, in six short years from 1914 to 1920, $40 billion of U.S. GDP turned into $92 billion — a sizzling 15 percent annual rate of gain.
The depression that could have been avoided
Needless to say, these figures reflected an inflationary, war-swollen economy. After all, the U.S. had loaned the Allies massive amounts of money — all to purchase grain, pork, wool, steel, munitions and ships from the U.S.
This transfer amounted to nearly 15 percent of GDP, or an equivalent of $2 trillion in today’s economy. It also represented a form of vendor finance that was destined to vanish at war’s end. As it happened, the U.S. did experience a brief but deep recession in 1920. But it was not a thoroughgoing end-of-war one that would “detox” the economy.
The day of reckoning was merely postponed. It finally arrived in 1933 when the depression hit with full force. The U.S. economy was cratering — and Germany embarked on its disastrous “recovery” experience under the leadership of Adolf Hitler.
These two events — along with so many of the above-listed offenses later on — could have been avoided if only the U.S. had shown the wisdom of staying out of World War I.