Economic Impact of War and Financial Crises: A Historical Analysis

The Incomplete Gold Standard and the Start of War

The onset of war necessitated increased state spending, leading to budget deficits. Governments faced the challenge of covering borrowing through higher taxes or printing money. To prevent excessive gold leakage, governments implemented two measures:

• Prohibition of gold exports without authorization.
• Suspension of convertibility, effectively collapsing the gold standard.

The Fin de Siècle Crisis (Late 19th Century)

The period around 1870 witnessed a shift known as the fin de siècle crisis. Production increased, and land values, rents, and wages rose. However, as Europe imported increasing amounts of agricultural products and materials from overseas countries at competitive prices, agriculture faced a transition from extensive to intensive practices.

This resulted in falling prices, impacting land values, farm incomes, and overall price levels.

Government Actions During 1914-1918 to Maintain Currency Value

World War I (1914-1918) saw the economy play a crucial role, with major industrial powers engaged in conflict. The war had indirect economic impacts, socio-political tensions between countries, and a breakdown of the global economic order, necessitating a new system.

Cost of War

Countries incurred budget deficits, requiring them to balance increased expenditure through tax increases or debt creation.

Inflation of the Money Supply

The issue of reserves was directly related to metal credits earned abroad.

Persistent Imbalances in the Market Economy After the 1930s Crisis

A mixed economy, coexisting with private and public sectors, emerged as a solution to the failures of capitalism. The state intervened to reorganize the system's foundation through monetary and fiscal policies, aiming to eliminate obstacles to general welfare and ensure:

• Full employment.
• Full use of productive capital.
• Price stability.
• Increased production aligned with higher workplace revenues.
• Balance of payments equilibrium.