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International organisation and World War I

Today’s international institutions have roots in the tenuous interwar peace. This column details the importance of Austria as a prototype for international aid and development. In the case of Austria, the interwar powers realized the inefficacy of a punitive peace, and instituted a system by which private credit markets would assist development in a mutually beneficial relationship. The Austrian ‘success story’ is key to understanding today’s international relations.

It is common to identify the origins of global economic and financial organizations in the period following the Second World War – notably at the Bretton Woods Conference of 1944. In fact, many of the ideas, people, and practices that informed the work of the International Monetary Fund, the World Bank, the UN Food and Agriculture Organization, and the European Economic Community lie in the First World War.

A World Organised

The League of Nations was the world’s first intergovernmental organization, with antecedents in European internationalist movements of the late Nineteenth Century. The idea for a new organization to safeguard peace and capture the imagination of citizens around the world was the final proposal of President Wilson’s famous Fourteen Points.

At first there was no intention for the new organization to become involved in economic or financial affairs (beyond a vague paean to free trade).  But the League of Nations reflected lines of continuity from the war into the ‘peace’, in a period that was peace in name only. Between 1918 and 1923, the world was riven by revolution, civil war, and episodes of ethnic cleansing. Waves of violence killed around four million people – a figure higher than the combined figure of war casualties of Britain, France, and the USA (Gerwarth and Horne 2012).

A new definition of security

This disorder reflected the wider definition of security that had emerged during the First World War. Security no longer meant simply protecting people and property against the threat of violence, and the assertion of territorial control. It now related to the stability of the capitalist order and to the ‘intactness’ of the human body, defined in biological and increasingly racial terms.

Among the western allies, the associated powers and key neutrals, the war had promoted a broad framework of inter-governmental cooperation that resulted in an incipient international bureaucracy. This bureaucracy would be invoked by the League of Nations as part of efforts to safeguard a liberal, capitalist world order. After 1920 member governments began to see the League of Nations as a useful tool to meet what they called ‘common economic needs’ (Smuts 1918, Clavin 2013).

These economic needs were most apparent in the new Austrian republic, which was gripped by hunger and runaway inflation between 1918 and 1922. Its empire had dissolved, remained under blockade by the Allies and new unfriendly neighbours until 1919, and the Paris peace settlement prohibited unification with Germany (Clavin 2014).

The Austrian Crisis

But western concern for Austria was not expressed primarily in terms of the risk to human health or political stability – even for ‘Red Vienna’.  Instead anxiety in the west about the fate of Vienna reflected a global ordering that accorded Austria a scientific eminence, and stylized Vienna as a treasury of high culture (Roberts 2009).

Crude definitions of race entered the equation too: Austrians were a people worth saving. They were “sober, hard-working, enterprising....They are a people not unlike the French... and entirely foreign to what is known now as the true German character” (Memo by Oppenheimer 1919). The agency employed by the new republic to solicit aid on Austria’s behalf put it differently: the country had “guarded the West from the inroads of the Eastern barbarians” throughout “the ages” (Office of International Relief and Mutual Understanding 1920).

Of course, the reason Austria needed food aid was because the new state was unable to grow or buy the supplies it needed to feed the population. An unwilling European postcolonial state, Austria was bankrupt and its economy was in a tail-spin. The problem was brought to official and public attention by the men who had overseen the management of food, shipping, and finance for the Allies in the First World War; notably, Herbert Hoover, John Maynard Keynes, Arthur Salter, and Jean Monnet  (Clavin 2014).

Now members of the Allies’ Supreme Economic Council, these men became leading protagonists in organizing a petition of more than 150 leading economists and financiers who argued that economic cooperation should be facilitated by the new League of Nations.  This was agreed at the Brussels Conference of 1920, where the Austrian crisis became the founding moment behind the creation of the League’s Economic and Financial Organization (Marcus 2010).

Although the USA was outside the League of Nations, it was still able to determine the deal forged by the organization. Favourable terms for US investors were backed up by a series of extraordinary political guarantees for a loan scheme that – for the first time – handed financial oversight of a nation state to an intergovernmental organization (Flores and Decorzant 2012, Clavin 2013). State expenditure was slashed. Some 50,000 civil servants lost their jobs, and there were continuing attempts to reduce the pension provision of officials who once administered the empire.


The Austrian ‘success story’ built the ideas about global economic and financial governance to develop within the League (de Bordes 1924). The Austrian case was an important reference for the practices of oversight developed by the IMF (Pauly 1997). It established what were to become key feature of intervention in the twentieth century;  notably that international organization and aid programmes should meet the mores of US capital.

The Austrian case also revealed the limited rights of peoples who were the object of international efforts at currency stabilization – so much for the language of rights spoken at the Paris Peace Conference. They charged the League with offering the promise of global citizenship when in reality it operated like an elite victors’ club. The consequences for Austrians’ fledgling liberal democracy were severe (Berger 2000).


Editors' note: This is the fifth in a series of Vox columns by leading economic historians on the First World War, which will be collected in a Vox eBook at the end of the year: "The Economics of the First World War", edited by Nicholas Crafts, Kevin O'Rourke and Alan Taylor.


Berger, P (2000), Im Schatten der Diktatur. Die Finanzdiplomatie des Verters des Völkerbundes in Österreich, Meinoud Marius Rost van Tonnigen, 1931-1936, Vienna.

Clavin, P (2014), “The Austrian Hunger crisis and the genesis of international organization after the First World War”, International Affairs.

Clavin, P (2013), Securing the world economy. The reinvention of the League of Nations, 1920-1946,  Oxford University Press.

Flores, J and Y Decorzant (2012), “Public borrowing in harsh times: the League of Nations Loans revisited”, Université de Genève, Working Papers series, WPS 12091, http://www.unige.ch/gsem/dsec/research/wps/12091.pdf, accessed 27 July 2014.

Gerwarth, R and J Horne (2012), War in peace: paramilitary violence after the Great War, Oxford University Press.

Marcus, N (2010), “Credibility, Confidence and Capital: Austrian reconstruction and the collapse of global finance, 1921-1931”, Unpublished Ph.D. New York University.

Office of International Relief and Mutual Understanding (1920), Food supply of the republic of Austria, Vienna: Office of International Relief and Mutual Understanding.

Oppenheimer, F (1919), Memorandum by ‘Relative to the situation in Austria’, 3 June, Documents on British Foreign Policy, 1919-1939.

Pauly, Louis, Who Elected the Bankers? Surveillance and Control in the World Economy (Cornell University Press, Cornell NY, 1998).

Roberts, S (2009), “Exhibiting children at risk: child art, international exhibitions, and Save the Children Fund in Vienna, 1919-1923”, Paedagogica Historica: International Journal of Education.

Smuts, J C (1918), The League of Nations: A Practical Suggestion, London: Hodder and Stoughton.

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