Written by Ronald Reagan’s Budget Director, David Stockman:
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.
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