U.S. Entry Into World War I Was a Disaster

by David Stockman, Daily Reckoning:

103 years ago, in 1914, the Federal Reserve opened-up for business as the carnage in northern France was getting under way.

And it brought to a close the prior magnificent half-century era of liberal internationalism and honest gold-backed money.

The Great War was nothing short of a calamity, especially for the 20 million combatants and civilians who perished for no reason discernible in any fair reading of history, or even unfair one.

Yet the far greater calamity is that Europe’s senseless fratricide of 1914-1918 gave birth to all the great evils of the 20th century — the Great Depression, totalitarian genocides, Keynesian economics, permanent warfare states, rampaging central banks and the follies of America’s global imperialism.

Indeed, in Old Testament fashion, one begat the next and the next and still the next.

The old liberal international economic order — honest money, relatively free trade, rising international capital flows and rapidly growing global economic integration — resulted in a 40-year span between 1870 and 1914 of rising living standards, stable prices, massive capital investment and prolific technological progress that was never equaled either before or since.

The Great War undid it all.

In the case of Great Britain, for example, its national debt increased 14-fold, its price level doubled, its capital stock was depleted, most off-shore investments were liquidated and universal wartime conscription left it with a massive overhang of human and financial liabilities.

Yet England was the least devastated. In France, the price level inflated by 300% its extensive Russian investments were confiscated by the Bolsheviks and its debts in New York and London catapulted to more than 100% of GDP.

Among the defeated powers, currencies emerged nearly worthless with the German mark at five cents on the pre-war dollar, while wartime debts — especially after the harsh peace of Versailles — soared to crushing, unrepayable heights.

And the Great Depression’s tardy, thoroughly misunderstood and deeply traumatic arrival happened compliments of the United States.

In the first place, America’s wholly unwarranted intervention in April 1917 prolonged the slaughter, doubled the financial due bill and generated a cockamamie peace, giving rise to totalitarianism among the defeated powers and Keynesianism among the victors.

Even conventional historians admit as much. Had Woodrow Wilson not misled America on a messianic crusade, the Great War would have ended in mutual exhaustion in 1917 and both sides would have gone home battered and bankrupt but no danger to the rest of mankind.

Indeed, absent Wilson’s crusade there would have been no allied victory, no punitive peace, and no war reparations; nor would there have been a Leninist coup in Petrograd or Stalin’s barbaric regime.

Likewise, there would have been no Hitler, no Nazis, no holocaust, no global war against Germany and Japan and no incineration of 200,000 civilians at Hiroshima and Nagasaki.

Nor would there have followed a Cold War with the Soviets or CIA sponsored coups and assassinations in Iran, Guatemala, Indonesia, Brazil and Chile to name a few. Surely there would have been no CIA plot to assassinate Castro, or Russian missiles in Cuba or a crisis that took the world to the brink of annihilation.

There would have been no domino theory and no Vietnam slaughter, either.

Nor would we have had to come to the aid of the mujahedeen and train the future al Qaeda in Afghanistan. Likewise, there would have been no Khomeini-led Islamic counter-revolution, and no U.S. aid to enable Saddam’s gas attacks on Iranian boy soldiers in the 1980s.

Nor would there have been an American invasion of Arabia in 1991 to stop our former ally Saddam Hussein from looting the equally contemptible Emir of Kuwait’s ill-gotten oil plunder — or, alas, the horrific 9/11 blowback a decade later.

Nor would we have been stuck with a $1 trillion Warfare State budget today. But I digress.

Economically, the Great War enabled the already rising American economy to boom and bloat in an entirely artificial and unsustainable manner for the better part of 15 years.

The realities of war finance also transformed the new Federal Reserve into an incipient central banking monster in a manner wholly opposite to the intentions of its great legislative architect — the incomparable Carter Glass of Virginia.

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