The Process That Led to the Halt of Globalization: World War I

Economic theories cannot be evaluated without considering the social, political, cultural and economic conditions of the periods in which they were put forward and developed. Failure to adequately understand the conditions in which theories were born and developed results in the wrong perception of ideas about theories.

In economics, the explanation of the conditions in which a theory was born or the economic developments that occurred in any period is called positive economics, while the explanation of what should happen is called normative economics. In a normative approach, the cause and effect relationships between economic events depend on one or more conditions within the framework of the perspectives of a particular ideology.

American economist Frank Knight believes that it is impossible to find different answers to the questions of "what is" and "what should be". Knight has worked on the concepts of risk and uncertainty and, influenced by these studies, has come to the conclusion that the distinction between positive and normative economics is impossible. However, it should not be forgotten that he is a passionate advocate of liberal policies and rejects the distinction in question within the framework of liberal policies.

In the approximately 45-50 year period leading up to World War I, economics had made significant scientific progress. The theories produced from the 1870s onwards emerged within the context of the times. England, France, Germany and Austria had played an important role in explaining the development of economics and especially capitalism. However, as the 19th century ended and the 20th century began, academic contributions from the USA were gaining momentum. The conditions in the USA, especially on competition and control of businesses, were developing economic literature and the foundations of a new sub-branch of study were being laid with Veblen: institutional economics.

Economics was making significant scientific progress and was becoming increasingly sophisticated. The conditions described in the previous articles in the series pointed to an increasingly global economic order in the last quarter of the 19th century. However, not all segments of society benefited from economic developments to the same extent. In the USA, tendencies towards monopolisation had increased and many economists who produced their works under the conditions of those days were offering social reform proposals.

The globalization movement in the last quarter of the 19th century was first affected by the crisis of 1873. Then, with extremely important political developments, the road to World War I was paved.

There are many theses about why World War I broke out. However, at the root of all the reasons lies the desire to create economic advantage. In order to better understand the reasons for World War I and to better understand how and for what reasons the globalization process of capitalism came to a halt, it is necessary to go back 40-50 years from the year 1914 when the war broke out.

In the 19th century, capitalism, which developed in Europe and was led by England, benefited from low-cost raw materials and other inputs provided through colonies. France, another important actor in the development process of capitalism, also chose to benefit from colonies as a way to access cheap resources. As explained in the previous articles in the series, France contributed important names to the scientific development of economics.

Germany, despite its deep scientific and cultural heritage, was not a unified country. There were small states with Germanic roots, and all of them were under the control of the Austro-Hungarian Empire. While Bismarck was prime minister of Prussia, a path was planned to the chancellorship of the German Empire. First, he liberated the small states with German characteristics from the control of the Austro-Hungarian Empire in 1866. The independence of these states was achieved with a short war that lasted seven weeks.

Bismarck sought a way to wage war on France, which had always been an enemy of Prussia. In 1870, he invaded the French region of Alsace-Lorraine. Almost simultaneously, he tried to install a Hohenzollern prince, a relative of King Wilhelm I of Prussia, on the throne of Spain. Thus, he forced France into a two-front war, pressing it from both north and south. The Franco-Prussian War of 1870-71 ended in Prussia's victory. Alsace-Lorraine passed to the newly established German Empire. Germany was unified and became a rising power in the middle of Europe.

The "German" elements of Europe, which had deep historical and cultural roots, could not establish a united and powerful state like England, France and Austria, which had similar deep historical and cultural roots. Bismarck was laying the foundations of this powerful state and was trying to make Germany a great power. At the end of the 19th century, the world was made up of countries that were much more interactive and trading with each other than before. The crisis of 1873, as the first major global crisis, affected all the main actors that shaped the development of capitalism. The source of the crisis was actually these main actors.

Germany's emergence as a unified power, its policies to rival England and France in creating colonies, and its constant increase in military power paved the way for confrontations in international relations. While Austria-Hungary, Germany, Italy, and the Ottoman Empire were on the same front, France, England, Russia, and Japan entered World War I as the other front. The USA remained neutral until 1917. The lines had begun to form long before the war with agreements between countries. France could not accept the acquisition of Germany's Alsace-Lorraine region and aimed to implement a revanchist foreign policy against Germany. This policy was one of the important elements on the road to World War I.

England positioned itself at a different point in its relations with continental Europe. The policy it implemented in the last quarter of the 19th century was isolationist, and it called this policy "splendid isolation".

The outbreak of World War I was brought about by the strengthening of imperialist tendencies due to the economic reasons explained above, new balances brought about by military strengthening, increasing nationalist sentiments and polarization and confrontation between countries.

The world has been under the influence of globalization, especially in the last 20 years of the 20th century, with the introduction of neoliberal policies. Although the events and processes experienced differ from the last quarter of the 19th century, some of the resulting results have some common characteristics. The isolationist policies of England in the late 19th century and the vote for England to leave the European Union in the referendum held on June 23, 2016 cannot be considered a coincidence.

As I mentioned at the beginning of the article, the social problems that emerged during the development of capitalism led some economists to propose social reforms. In the USA, John R. Commons presented scientific approaches to the conditions he lived in with his works "History of Labor in the United States (1918-1935)", "The Legal Foundations of Capitalism (1924)" and "Institutional Economics (1934)". Like John Bates Clark, he had been a student of Karl Knies in Heidelberg and was under the influence of the German historical school.

The USA was on the rise with JB Clark, Fisher, Veblen and Commons and was gradually beginning to make its influence felt in the development of economic science.

JB Clark's son, John Maurice Clark (1884-1963), was turning to institutional economics. In the USA, Wesley Clair Mitchell (1874-1948) played an important role in the establishment of the National Bureau of Economic Research (NBER) in 1920. Economic analysis was gradually moving towards a more sophisticated point.

Frank Knight was notable for his work "Risk, Uncertainty and Profit (1921). He was advocating liberal policies and was working with Viner at the University of Chicago. He was attending the Chicago School founded by James Laurence Laughlin. Chicago would continue to be an important academic study location in the years to come in terms of advocating liberal policies.

J. M. Clark focused on the conditions of competition in his work Studies in the "Economics of Overhead Costs" (1923). He touched on many social issues from antitrust laws to employment laws, minimum wage to food standards and urban planning in his work The Social Control of Business (1926).

Edward Chamberlin (1899-1967) focused on market structure and competition with "The Theory of Monopolistic Competition (1933)".

If you pay attention, developing capitalism has focused economists on competition, control of businesses, market structure and institutional structures after the analysis of benefit and marginal benefit. The conditions that prepared the 1929 Economic Depression also developed after the crisis of 1873, the developments that emerged in the last quarter of the 19th century and the process leading up to World War I.

In the next article, we will move on to the conditions that led to 1929 and the crisis itself.

Source: https://www.smithsonianmag.com/history/exclusive-look-new-world-war-i-memorial-180980032/