The Allies collectively owed $12 billion to the United States. The UK was the biggest debtor, owing $5 billion. The US was adamant that these debts be paid in full, earning the US the title “Uncle Shylock” in Europe.
In Westminster, the accumulation of multiple domestic and foreign policy crises led to the fall of David Lloyd George’s government and a general election. The new Tory government, led by PM Andrew Bonar Law was faced with the task of attempting to renegotiate the UK’s debts to the US.
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Great episode as usual.
To give a listener an idea of how much $12 billion was back then, you give an estimate of how much that would be in today’s money. The 1 to 15 ratios from the podcast results in $180 billion in today’s dollars. This figure is no doubt impressive, however a listener might wonder whether this would be enough to cripple multiple economies. For example the French public debt alone is around $3 trillion today, Italy and the UK are comparable, so adding ‘merely’ $180 billion in today’s dollars may not seem as having much of an impact.
As an alternative, to convey how much money $12 billion was in 1920s, I suggest a comparison to the size of the economies at the time (so to speak debt to GDP ratio). For instance, if the French economy was in total $20 billion at the time (I couldn’t find an actual estimate, this is just a guess. I hope you have sources where you can look it up), then $4 billion of French debt would make up 20% of GDP. That would be like adding more than $4 trillion to the US debt today, or $1.2 trillion to the French debt.
Of course, no comparison is perfect, but I think considering the relative sizes is more telling.
Warm wishes,
Viktor B
You are right, but I worry how much patience my listeners have for getting into these details. The difference in purchasing power of US$1 in 1920 versus a hundred years later is affected by inflation and by productivity increases (per capita GDP). That’s on the microeconomic level. On the macroeconomic level, when talking about state debts, we have to consider not only purchasing power/ changes in per capita GDP, but the fact that the world population is much larger today. To take an extreme example, the population of the USA today is more than triple what it was in 1920, so to get an accurate feel for how much a US government obligation “cost” in 1920, you would have to triple it, beyond the inflation adjustment.
Some sources I have looked at attempt to do this by expressing these debt figures in dollars but adjusted for changes in GDP since 1920. That’s defensible, and arguably more accurate, but I feel that saying the Allies demanded x dollars from Germany and using a figure many, many times larger than the historical figure, leaves a misleading impression. That’s why I say “It’s complicated.”
Perhaps I should revisit this topic in a future episode. (We are not done with international debts yet, by any means.) In the meantime, at least we have your comment posted here to add some clarity.