David Stockman has two excellent articles on how the First World War changed and affected the world economy over the past century. He brings to light many points and issues that I'd never seen connected in that way before. Here are a couple of excerpts from the first article.
In fact, 1914 is the fulcrum of modern history. It is the year the Fed opened-up for business just as the carnage in northern France closed-down the prior magnificent half-century era of liberal internationalism and honest gold-backed money. So it was the Great War’s terrible aftermath—–a century of drift toward statism, militarism and fiat money—-that was actually triggered by the events at Sarajevo.
Unfortunately, modern historiography wants to keep the Great War sequestered in a four-year span of archival curiosities about battles, mustard gas and monuments to the fallen. But the opposite historiography is more nearly the truth. The assassins at Sarajevo triggered the very warp and woof of the hundred years which followed.
The Great War was self-evidently an epochal calamity, especially for the 20 million combatants and civilians who perished for no reason that is discernible in any fair reading of history, or even unfair one. Yet the far greater calamity is that Europe’s senseless fratricide of 1914-1918 gave birth to all the great evils of the 20th century— the Great Depression, totalitarian genocides, Keynesian economics, permanent warfare states, rampaging central banks and the exceptionalist-rooted follies of America’s global imperialism.
There's more at the link.
In the second article, he continues and expands on this theme.
... the Great Depression was the step-child of the Great War. American entry had unnecessarily extended it; had greatly amplified its destructive impact on the liberal international order; and had contributed a witch’s brew of Wilsonian nostrums to a Carthaginian peace that laid the planking for a new world war. FDR then delivered the coup de grace, extinguishing the last hope for resumption and insuring that autarky, revanchism and rearmament would hurtle the world to an even greater eruption of carnage, and an even more debilitating rendition of the Warfare State.
World War II soon delivered another blow to the old-time fiscal religion. Not only did that vast expansion of war production fuel the illusion that New Deal statism had alleviated an endemic crisis of capitalism, but it also became heralded as a splendid exercise in Keynesian deficit finance when, in fact, it was nothing of the kind.
The national debt did soar from less than 50 percent of GDP in 1938 to nearly 120 percent at the 1945 peak. But ... the 1945 ratio was an artifact of a command and control war economy which had banished civilian goods including new cars, houses and most consumer durables, and tightly rationed everything else including sugar, butter, meat, tires, shoes, shirts, bicycles, peanut brittle and candied yams.
With retail shelves empty the household savings rate soared from 4 percent in 1938-1939 to an astounding 35 percent of disposable income by the end of the war.
Consequently, the Keynesians have never acknowledged the single most salient statistic about the war debt: namely, that the debt burden actually fell during the war, with the ratio of total credit market debt to GDP declining from 210 percent in 1938 to 190 percent at the 1945 peak!
This obviously happened because household and business debt was virtually eliminated by the wartime savings spree; households paid off what debts they had left after the liquidation of the 1930s depression and business generally had no ability to borrow except for war production. Thus, the private debt ratio plunged from 150 percent of GDP to barely 60 percent, thereby making massive headroom in the nation’s bloated savings pool for the temporary surge of public debt.
. . .
Compare that to the opposite circumstances of January 2013. Urged on by the Keynesian stimulators and election-minded “progressive” politicians, Obama signed a permanent extension of the unaffordable Bush tax cuts for the “bottom” 98 percent of households at a cost of $4 trillion in added national debt over the next decade. But unlike 1945, this came at a time when household, business and financial sector debt was 260 percent of GDP, not 60 percent.
Again, more at the link.
Both articles are crammed with historical facts and a cogent analysis of how they worked together to shape and form our modern economic crisis. IMHO, they're essential reading for anyone who wants to understand how we got into this handbasket - and how to get out again. Very highly recommended.