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Impact of World War I on the British Economy

Introduction
The First World War transformed British society in various ways, humans and resource lost during the World War in Britain were enormous. Between 1914s and 1929s were years of transition in Britain, particularly in economic, real gross domestic product per person in Britain fell around 1 percent, while the same measure of all officially recognized final goods and services rose about 24.5 percent in the rest of the world (source 1). Before the war started, Great Britain was one of the most important world’s trading and lending country but after the First World War, the entire world faced a serious depression (source 2). Britain whose economy had relied on trading, heavily suffered from financial problem. The primary causes were massive debts by borrowing a large sum of money from aboard, especially from the Unite states and the decline of trade (source 3). The purpose of this essay is to discuss about the causes of the long and deep depression of the British economy after World War I.
World War I
World War I took place between 1914s and 1918s. In August 1914, the War engulfed Europe which causes around 9 million soldier deaths and another 20 million wounded. At the beginning of the war, it seems to be just a small conflict between Austria-Hungary and Serbia but it spread rapidly (source 4). Although the First World War began between European countries, it ultimately far away countries such as the United States and Japan also involved in this war.
The British economy on the eve of World War I
In the beginning of the First World War, Britain was the one of world’s leading country in trading and lending. Compared with Germany, commodity imports and exports were almost three times larger than Germany’s and half of the United States’ imports and exports (source 5). In that time, London was central international payments, most of trading in the world was invoiced in the British pound sterling, and largest proportion of official reserves, excluding gold, also was held in British pound sterling. (Source 6) In 1914s, Britain invested in oversea s assets almost £4 billion, far exceeded than any other nations which create massive high incomes (source 7).
British economy during World War I
According to Feinstein (1972: Table 6), Gross Domestic Product in Britain during the World War 1 increased to a peak in 1918s which around 13 percent higher than GDP in 1913, before reducing back close to 1913s after the war ended. GDP during the first World War I increased because an increase in the income tax of worker in Britain by up to 150 percent (Source 8). Even though the GDP in Britain increased during the war but because of production decline, since fighting the war requires people more than producing munitions combine with the loans that had been made to Italy, Russia and France forced Britain to use up its money that has been set aside for emergencies and borrow a large sum of money from the United States. The cost of war is incredibly high, in 1917s the war expenditure was running at £3 million a day in normal situation and can run up to £5 million during the critical situation (Book page 437). Although the ship that used to imports food may vulnerable to undersea boat strike but since it highly expected that the war would not be long, that is reason why agricultural policy took very long time to change. Million tons of British shipping was sunk during the war which consider as another major issue that cause Britain lack of money and resources because Britain was the one of world’s leading country in trading and lending in that time. In April alone, half a million tons of British shipping were sunk then Britain decided to organize convoys for merchant ships (source 9).
Turning to industry, there was a massive decline of coal production at the beginning of the war from 288 million tons per year in 1913s to 254 million tons per year in 1915s. The main problem of decreased production was a heavy loss of manpower, as miners left to be part of the military, with rate of employment in mining falling from about 1.15 million in 1914s to 0.95 million in 1915s (Source2). However, even the shortage of manpower is consider as a main problem but after the employment returned to over than a million in 1917s, production continued to lower, falling to just around 227.5 million tons in 1918s. The declining production and labor productivity appeared in rough relations between employee and employer. This led to government take more action in the industry, starting with export licensing and virtual nationalization of the mines in 1915s and 1918s respectively (source 2).
During the war, Britain was highly counting on other countries especially food supplies which lead to free trade. Free trade is a result of Britain’s policy before the First World War which decreases the growth of domestic agricultural sector.
World War I End
In early 1917, there were unrestricted German submarines along the US East coast had sunk American shipping which make the United States declared war (Book page 437). The United States troops made a significantly difference in the war. The war was to end in the late fall of 1918s, after the Central Powers countries signed armistice agreement, Germany was the last country, signing its armistice on 11th November 1918. As a result of these agreements, Austria-Hungary was divided into several smaller countries. Under the Treaty of Versailles, Germany was punished with hefty economic reparations (2source). In an attempt to pay $33 billion debt in reparations, Germany printed high amounts of paper money which led to severe inflation. Another important circumstance in 1917, Russia withdrawn from the war as an internal revolution that caused Czar lost his power. The new communist government wanted to focus on internal troubles rather than the outside.
Impact of World War I on the British economy
During the First World War, Britain devoted nearly 40 percent of national expenditure to the war. And also Britain borrowed very heavily, especially from the United States, and became big debtor after the conflict. Moreover Britain also sold many of overseas assets, in the results lacked of income. Britain was also be indebted a large sum of money by the Russians but when the communists took over the country, they refused to pay the debt and claimed that it was a debt to the Tsar not the people. Not only this but the technology of Britain’s important industries simply had not improved and some industries such as coal began to suffer especially as the Germany decided to pay their reparations to France in coal, France had been one of Britain main buyers of coal on the eve of World War I. Before the First World War, British economy depended on international transactions which cause a significant impact loss to British economy after World War I because during the war Britain nearly stopped generate goods to sell to trade partners, after World War I, many of previous buyers declined to buy goods from Britain because most of them set up their own industries (Source). The decline of trade directly affects Gross National Product.

* Overvalued exchange rate
The World War I was the impact on Britain’s international financial position. The British government having lent on to allied powers by used money that borrowed from the United States. According to Morgan (1952), 10 of foreign assets that used to belong to Britain were transformed into war fund. With the declaration of the First World War, the exchange rate of the British pound sterling became strengthen, as British investors retrieved their money from aboard back to home land. But after shipping tonnage was transformed to military uses and underwater boat warfare became more violent which contributed to dramatically rise in import of food supplies and war resources from the United States. By 1915, the British pound sterling had begun to fall against the United States dollar. But even then the government was able to maintain the currency exchange rate at a 10 per cent discount against the dollar, using a combination of moral motivation and interference in the foreign exchange market (Source). Moreover that the British pound sterling could be maintained the value against the dollar even in these exceptional situations convinced the belief that the pre-war sterling in exchange to gold and the currency exchange rate against the US dollar could be restored rapidly after the war and that the British economy would confront little difficulty in adapting to the policy. But as events were to disclose, during the war to maintain currency stability between sterling and dollar rate, had more to do with the United States financial support and with limitations, on the capability of individuals to encounter international exchange market transactions than with any essential compatibility of the gold standard with changed economic stabilities (source).

* Unemployment Benefits, the Regional Concentration of Unemployment, and the Depression
The benefits of unemployment were firstly introduced in the Unemployment Insurance Act of 1911, which increased benefits to around 15 percent of the employee. In the Act, the benefit level indicated a fixed amount which depended upon age and gender (source). It was decayed by the inflation that took place during the First World War. The Act also indicated that 15 weeks are a maximum duration per year. Payment paid to unemployed people significantly increase after the First World War. At first, it was intended for returning soldiers but later the act was also covered all adults who registered as jobless (source). In 1920s, the Unemployment Insurance Act of 1920 replaced the Unemployment Insurance Act of 1911 which increased the benefits almost 40 percent compare with the old one. The 1920 Act also increased the maximum duration to 26 weeks per year.

* Exports problem
A number of principal industries such as coal, steel and textiles reduced significantly after the First World War. This decline was mainly caused by exporting issues. According to Alford (1981), the amount of coal exports decrease almost 70 percent during 1913s and 1921s. This reduction led to productivity decrease, loss of advantage in competing with foreign countries and problem with the world trade barriers. The loss of Russian markets and competition from Poland for sale coal to countries in Scandinavia directly affected the British coal industry. British textiles industry suffered by the increased policy about import quota in order to limit on the amount of goods, protecting home industries from overseas competition which led by China, Japan and India.
Conclusion
British economy experienced long and deep depression for 20 years after the end of the First World War. During this period gross domestic product per adult was approximately 20 percent below compare with pre-World War I trend. This decrease was entirely due to exports problem, Unemployment Benefits and Overvalued exchange. The impact of benefits was higher during the interwar period, given the large negative shocks that hit Britain’s export industries immediately after World War I.