Economic history of World War I
Okay kiddo, let me explain the economic history of World War I to you.
Firstly, imagine you and your friend have a lemonade stand, and you both have your own money box. You make a deal that you'll sell your friend a drink for 2 cents and they will sell you a drink for the same price. Now let's say, another kid wants to buy a drink, but only has one cent. You both agree to sell him a drink for one cent each.
Now, let's imagine that instead of lemonade, countries are selling things to each other like food, clothes, and machines. Each country has its own money (currency) like the US dollar, the British pound or the French Franc.
During WWI, a lot of countries were fighting with each other. When that happens, countries don't want to sell things to their enemies. They also don't want to use the enemy's currency because they don't trust each other! So, for example, Britain wouldn't sell wheat or machinery to Germany, and Germany wouldn't sell coal or oil to Britain.
This created a big problem because countries had to find new buyers for their products and new places to buy the things they needed. Also, wars are expensive, and countries needed money to keep fighting. So, they got creative and started borrowing money from other countries!
The US was a neutral country during the war, meaning they weren't fighting, so they were happy to lend money to the countries fighting the war. But they charged a lot of interest (kind of like when you lend your friend some money, but they have to pay you back more!).
Because so much money was being borrowed, inflation happened. Inflation means that everything costs more, like how a candy bar that used to cost 1 dollar, now costs 2 dollars. The value of money decreased, making it harder for countries to pay back their loans. When the war finally ended, countries were in a lot of debt to each other and needed to come up with a way to pay all that money back. This led to the creation of international institutions like the International Monetary Fund (IMF).
In summary, during WWI, countries stopped selling goods to their enemies and started borrowing money from neutral countries to finance their war efforts. This created inflation and a lot of debt amongst countries that had to be addressed after the war ended.
Firstly, imagine you and your friend have a lemonade stand, and you both have your own money box. You make a deal that you'll sell your friend a drink for 2 cents and they will sell you a drink for the same price. Now let's say, another kid wants to buy a drink, but only has one cent. You both agree to sell him a drink for one cent each.
Now, let's imagine that instead of lemonade, countries are selling things to each other like food, clothes, and machines. Each country has its own money (currency) like the US dollar, the British pound or the French Franc.
During WWI, a lot of countries were fighting with each other. When that happens, countries don't want to sell things to their enemies. They also don't want to use the enemy's currency because they don't trust each other! So, for example, Britain wouldn't sell wheat or machinery to Germany, and Germany wouldn't sell coal or oil to Britain.
This created a big problem because countries had to find new buyers for their products and new places to buy the things they needed. Also, wars are expensive, and countries needed money to keep fighting. So, they got creative and started borrowing money from other countries!
The US was a neutral country during the war, meaning they weren't fighting, so they were happy to lend money to the countries fighting the war. But they charged a lot of interest (kind of like when you lend your friend some money, but they have to pay you back more!).
Because so much money was being borrowed, inflation happened. Inflation means that everything costs more, like how a candy bar that used to cost 1 dollar, now costs 2 dollars. The value of money decreased, making it harder for countries to pay back their loans. When the war finally ended, countries were in a lot of debt to each other and needed to come up with a way to pay all that money back. This led to the creation of international institutions like the International Monetary Fund (IMF).
In summary, during WWI, countries stopped selling goods to their enemies and started borrowing money from neutral countries to finance their war efforts. This created inflation and a lot of debt amongst countries that had to be addressed after the war ended.