Not Fit for War: Austria-Hungary's Economy

Skoda Armaments Factory in Pilsen

By Max-Stephan Schulze

I think we will all die of hunger before a bullet gets us… Ah dear mother, our dog is better fed than I am here. In the cabbage there are worms… we have to live and fight like this.

Polish Soldier, 10th Austro-Hungarian Army, on the Italian Front

Austria-Hungary’s war economy can be summarized as follows. First, the war effort was sustained into 1918 on the basis of a rapidly decreasing resource base. Constrained by scarcity of input materials and cumulative labor shortages, aggregate output fell continuously over the course of the war. Moreover, the share of war expenditure in real GDP fell from an initial peak of 30 percent (1914/15) to about 17 percent in 1917/18. Hence the scale of mobilization, both in absolute terms and relative to the size of the economy, was small to that achieved in major belligerent economies such as the United Kingdom and Germany. 

Second, the Allied blockade worked and its impact was augmented by a serious lack of foreign exchange: Austria-Hungary’s foreign trade was far too limited to reduce significantly the shortage of essential war materials and foodstuffs. 

Flour for Sale, Vienna, 1915

Third, the Empire’s complex macro-political structure, a legacy of the 1867 constitutional compromise between Austria and Hungary, undermined the efficiency and effectiveness of intra-empire resource allocation and utilization. 

Fourth, a small domestic capital market proved incapable of sustaining wartime borrowing at high levels. After a short-lived rise in the initial stages of the war, the debt/GDP ratio remained just above peacetime levels. To the extent that Austria-Hungary did fight the war on the cheap, that was not an outcome of choice, but of necessity in light of inadequate resources.

Budapest Tram, 1918, Used To Transport Food — By War's End the Transportation System of the Empire Was Approaching Collapse

Finally, the persistent and widespread food scarcity and resultant physical exhaustion of both civilian population and the armed forces was a key factor in bringing about the collapse of the Habsburg Empire.

Source: Max-Stephan Schulze, "Austria-Hungary’s Economy in World War I" in Stephen Broadberry and Mark Harrison (eds.), The Economics of World War I, Cambridge: Cambridge University, 2009