World War I played a crucial role in U.S. history, quickly turning the U.S. into an economic and a great power. Even though there is more than one reason for U.S. involvement in the war, the greatest motive was economics. The U.S. was dependent on the international market, and American bankers loaned money to support the Allies. The war pushed the U.S. from being a dependent indebted state, to being independent and influential over the global economy. The U.S. did not enter the war until 1917. One can argue that the interests of the U.S. were due to the sinking of Lusitania; however, the U.S. would not have had a choice, but to support the Allies win the war. What at first seemed beneficial to the U.S. economy later became crucial to secure U.S. loans to Britain and the future economy of the U.S.
The war broke out in Europe between Austria-Hungary and Serbia in June 1914. It was an outcome of the assassination by a Serbian nationalist on Francis Ferdinand and his wife, the future king and queen of Austria-Hungary.[1] Within a week, the war broke out and the countries of Europe were stepwise joining the two different sides: The Central Powers and The Allies. The Central Powers consisted of Germany, Austria-Hungary and Bulgaria, and The Allies were England, Russia, France, Italy, Belgium and Serbia.
While the bloody war was going on in Europe, the current U.S. President, Woodrow Wilson, asked for, and listened to, the will of the U.S. majority. The common stand was at that time that the U.S. must keep its neutrality as stated in the Monroe Doctrine. “The citizens of the United States cherish sentiments the most friendly in favor of the liberty and happiness of their fellow men on that side of the Atlantic. In the wars of the European powers in matters relating to themselves we have never taken any part, nor does it comport with our policy so to do.”[2] The official stand of the U.S. was to stay neutral, but with escalating economic changes and historically close ties to the European market this became impossible.
The war in Europe affected the world economy, including the U.S. In 1914, when the war broke out the U.S. was in a recession, but it was still one of the richest nations in the world. The U.S. had gone from an agricultural country to becoming industrialized since the Civil War. However, the growing economy also made the U.S. economy weaker, putting the U.S. in a position where they were dependent on other countries importing their excessive goods.[3] With the war and its interference in naval trade routes, and a switch of priorities in the British economy the U.S. could no longer stay neutral, but had to adapt.
Firstly, to understand the economic situation that the U.S. was put in one must look at the economic situation among the Allied forces, especially Britain. The British economy was to be shaped by the war, considering that national expenditure would increase. Britain spent almost 40 percent of their national spending to financing the war. With a strong economy this made up for a great sum of money.[4] The war expenses affected other British industries. Unlike Germany, and the majority of the European countries, Britain relied on imported food supplies. The labor force in the U.S. was cheaper and the British market could not compete with the lower prices, resulting in Britain importing most of their food from the U.S.[5] Britain’s need of resources to supply the war, mainly munitions and food, provided a new market for the excess in the U.S.
Apart from increasing the export of goods to England in 1914, Britain was loaning money from U.S. bankers. The issue of whether or not the U.S. could stay neutral and still contribute money to Europe was debatable. To ensure the neutrality Wilson ordered, “(…) that all instructions to customs officers concerning the enforcement of the neutrality laws of the United States, shall, until otherwise directed, be issued by the Treasury Department.”[6] August 16th the New York Times published an announcement made by Secretary Bryan “There is no reason why loans should not be made to the Governments of neutral nations, but in the judgment of this Government loans by American bankers to any foreign nation which is at war is inconsistent with the true spirit of neutrality”[7]. In order for the U.S. government to change their mind and to get the majority on their side the war would have to directly affect the U.S.
In 1915, the views on involvement in the war were changed. In May 1915, a German submarine attacked the ship Lusitania. Among the casualties on the Lusitania, 130 were U.S. citizens. The image given by the U.S. newspapers pictured the U.S. as innocent and effectively changed the public opinion. May 7th 1915 the New York Tribune wrote, “The news of the heavy loss of life on the Lusitania stirred Washington as it has not been stirred since the sinking of the Maine. (…) President Wilson made little effort to conceal his feeling.”[8] Once the public attitude on U.S. involvement in the war had been changed Wilson declared open trade with the Allies. The increased demand boomed the U.S. economy considerably between 1914 and 1918.[9]
The demand created by the market in Europe changed the focus of U.S. production to war goods rather than civilian. Overall, the unemployment rate dropped from 7.9 percent to 1.4 between 1914 and 1918. At first the decreased unemployment was due to higher production, but later many served in the U.S. army, creating more job opportunities for people back in the U.S.[10]
The total costs of the War to the U.S. have been approximated to $32.4 billion (or approximately $377.9 billion in 1982). That was 52.2 percent of the GNP.[11] During the war years, the U.S. went from being a country that foreign nations invested in to a country that invested abroad. From 1914 and 1919, foreign investments decreased from $7.2 billion to $3.3.[12] On the other hand, U.S. investments abroad went from $5.0 billion to $9.7 billion during the same years. During the years 1914 to 1929, the U.S. went from being a country in debt and increased the investments abroad, going from $2.2 billion indebtedness to $13.1 billion.[13]
In 1916, the Allies started looking into the possibility of U.S. financial support. The same year Britain stated that they could not continue the war without U.S. support. Wilson did not take advantage of his position, which according to Gregory, was due to unawareness. The U.S. economy had become a fundamental part of the Allies economics the same way as the U.S. were tied up with the allies. The British planned no immediate change, but to improve relations with U.S. bankers and individuals to loan money.[14]
The origin of U.S. involvement in the war is often referred to the sinking of Lusitania in 1915. The crisis between the U.S. and Germany turned into a conflict, but Wilson did not officially declare war on Germany until April 1917.[15] Lusitania was not the only U.S. ship being attacked by the Central Powers, but because of media coverage, it played an essential role in convincing the American citizens. According to the Washington Times, it was the “hardest blow of the war to date so far as neutral commerce was concerned.”[16] The media coverage of the war in the U.S. was biased towards favoring the Allies. Philadelphia’s The Evening Ledger describes, “While England and America are grief-stricken at the tragedy of the torpedoed Lusitania, all Germany is rejoicing at the master stroke of the Von Tirpitz policy of extermination of Britain on the seas.” The sinking of Lusitania was, of course, unfortunate for the U.S.; however, it created an opportunity to change the stand of the public opinion.
When the U.S. officially declared war on Germany in April 1917, the U.S. economy was closely tied with The Allies. By influencing the U.S. media and creating a negative picture of the war Wilson managed to turn around the public opinion. Lusitania may have been one of the major turning points for the U.S., but the U.S. would have gotten involved in the war without the sinking of Lusitania.
Economic benefits were one of the major reasons to why the U.S. got involved in WWI in 1917. However, getting involved in a foreign conflict today, due to a country’s own economical interests are frowned upon. Using media coverage, Wilson managed to convince the U.S. citizens that fighting in the war was necessary. The sinking of Lusitania may have speeded up the process in turning the U.S. opinion, but due to economic reasons, the U.S. would have had no choice, but to support the Allies in the war. With the European economy closely tied to the U.S. market and bankers the U.S. were dependent on the Allies’ victory. U.S. history was vastly changed during these years. The U.S. went from being a country economically dependent on other nations, to one that other nations were dependent on.
[1] Strachan, Hew. The Outbreak of the First World War. Oxford: Oxford University Press, 2004. Print. 127
[2] James Monroe. Annals of Congress, Senate, 18th Congress, 1st Session.
[3] Ross Gregory, The Origins of American Intervention in the First World War (United States: W.W. Norton & Company, 1971), 4
[4] UK government spending (percentage GDP at constant prices). Graph. Derived from Feinstein (1972: table5). Found in Steven Broadberry and Mark Harrison, ed., Economics of World War I (New York: Cambridge University Press), 211
[5] Broadberry, S. N., and Mark Harrison. The Economics of World War I. Cambridge: Cambridge University Press, 2005. Print. 211
[6] Woodrow Wilson. Executive Order 2017- Giving the Treasury Department Full Authority to All Customs Officers in the Enforcement of the Neutrality Laws During Emergency. Washington, DC 8 Aug 1914.
[7] “Opposes Loans to Those at War” New York Times, Aug 16, 1914.
[8] The Tribune Bureau, “Capital Aroused, Situation Gravest Yet Faced in War,” New York Tribune, May 8, 1915.
[9] US Census Bureau (1975) USA: The international investment position, 1914-1929. Table. Found in Broadberry, S. N., and Mark Harrison. The Economics of World War I. Cambridge: Cambridge University Press, 2005. Print.
[10] Carlos Lozada, “The Economics of World War I,” the National Bureau of Economic Research, September 17, 2013.
[11] Edelstein (2000: 342) A Cost of War in a Comparative Perspective. Table. Found in Broadberry, S. N., and Mark Harrison. Ibid.
[12] US Census Bureau (1975) USA: The international investment position, 1914-1929. Table. Found in Broadberry, S. N., and Mark Harrison. Ibid.
[14] Gregory, Ross. The Origins of American Intervention in the First World War. [1st ed. New York: Norton, 1971. Print. 109
[15] Woodrow Wilson. Proclamation 1364 – Declaring That a State of War Exists Between the United States and Germany. Washington, DC 6 April 1917.
[16] “Passengers Saved Early Cables Say,” The Washington Times, May 7, 1915.