In my three-part series, I explore how World War I changed America and what a German victory in 1914 would’ve meant for the country; in writing those blogs, I’ve kept circling this nagging thought. What if the United States had not provided the Entente the capital and resources to fight that war? Could that have ended the war earlier than 1918? And what would that mean for the US economy, given how it benefited from providing resources to the war effort? This blog will explore the United States' impact on the Entente’s war effort. In doing so, I hope to uncover how the war would’ve been prosecuted if the US did not support the war.
The Rise of Woodrow Wilson
One, if not the most consequential US election of the 20th century, was the 1912 election, where Woodrow Wilson defeated Republican nominee William Howard Taft and his once ally-turned-adversary Theodore Roosevelt, who formed the Blue Moose Party after he lost to Taft to gain the nomination. This split in the ticket helped Woodrow Wilson gain victory, which would prove significant in shaping America.
Wilson’s campaign wanted new antitrust laws, limits on corporate campaign contributions, tariff reductions, new banking and currency reform, direct election of senators, a federal income tax, a single-term presidency, and the independence of the Philippines. The federal income tax would help generate revenue for the government in the coming war years.
While it was already drafted and proposed before Wilson became president, he supported the passing of the 16th Amendment, which received sufficient votes from the states. I cover this aspect extensively in “What-if Scenarios: America and the Impact of a German Victory in 1914 (Part 3)” and recommend people go back and read it. But here’s an excerpt from that blog that sums up the significance of the federal income tax and how the US funded the war:
While only 5% of the US population was required to pay taxes then, U.S. tax revenue increased from $809 million to $3.6 billion by 1918. By the war’s end, income tax revenue had funded one-third of the war effort, and the federal budget for 1917 equaled the combined budgets of the administrations between the years 1791 (the year the Bill of Rights was ratified) and 1916—read that again; that’s staggering.
However, the federal income tax was one mechanism in which the US raised the funds to pay for the war. Taxes overall accounted for 22 percent (The War Revenue Act of 1917 also added a tax on ‘excess profits,’ defined as profits exceeding an amount determined by the rate of return on capital in a base period), with 58 percent coming through borrowings through the public and another 20 percent in money creation. However, direct government funding for the war didn’t come until 1917. Before that point, it was mainly provided through private means.
The Economic Backstop to Allied Nations
Before the US entered the war on the side of the Entente, war financing passed through London to New York’s Wall Street. J.P. Morgan & Co. (JPM) partner Henry Davison traveled to London and arranged a deal with the Bank of England that made JPM the official sponsor of all credits to the British government from American markets. By the war’s end, JPM had underwritten $1.5 billion in loans to London. Wall Street eventually funds France and Russia after the US government lifted restrictions. For its effort, JPM earned an 8.3% commission, earning them $200 million in profits.
The Entente took out $16 billion in foreign credit during the war, with the US being the largest wartime creditor, providing $7 billion. $3.7 billion went to Britain, $1.9 billion to France, and $1 billion to Italy. The US economy also benefited, with exports to Europe rising from $1.479 billion in 1913 to $4.062 billion in 1917. By the war’s end, 4,791,172 Americans served, with 2,084,000 reaching France and another 1,390,000 seeing active combat.
While many have downplayed the significance of US involvement in the war, these numbers tell a different story and showcase just how important the US was in keeping the Entente financially secure to prosecute the war. Wilson initially went against private funding during the war but then changed course. He felt that he had a Godly destiny to be president and to shape the world post-war, helping Europe's “backward” imperial nations avert another such conflict in the future (tried and failed given World War II would start ramping up in the 30s).
I intend to do a deeper dive into Wilson’s role in all of this in the future. But I’ll end this train of thought with a note that his campaign slogans in his second election are ironic given what was happening inside the administration in the leadup to the war.
Now, while income provided a smaller contribution to funding versus other means, it did have the benefit of keeping inflation at bay and providing greater stability to war economies during the war. So, we get to the billion-dollar question—without the financial support of the US, what would that mean for the war?
The course of the war without the US
The US significantly funded the war, providing nearly half of all foreign credit to the Entente. Without the US providing this, it’s hard to imagine where the Entente would acquire the necessary funding to prosecute the war for as long as they did without wrecking their economies. Britain was the second largest lender and was in better shape than France by the war’s end, but that’s largely because France had a lot of debt wrapped up with Russia, which they lost with the Bolshevik Revolution.
So, let's consider that France’s economy and military would’ve been in dire straits in this scenario by 1917 ( the latter seen in our timeline with the French Army mutinies of 1917). It’s not out of the scope of possibility that France would fall out of the war. Britain would have no choice but to sue for peace with France and Russia no longer in the fight.
Moreover, with the ramping up of the German U-boat campaign in early 1917, 25% of all shipping heading to Britain was sunk in just three months. So, in this scenario, the Central Powers may have won the war by 1917. The recession seen after World War I would happen sooner and usher in social unrest as it did in reality, leading to a Europe that could look far different than what we saw after the war ended in 1918.
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