Today we observe Remembrance Day, 108 years since the guns fell silent across the Western Front at the eleventh hour of the eleventh day of the eleventh month. What began as a war expected to be “over by Christmas” in 1914 became a four-year catastrophe, with an estimated 16 million killed and some 21 million wounded.[1, 2] The Great War promised to be “the war to end all wars.” Instead, it planted the seeds for an even deadlier conflict and fundamentally reshaped the global economic order in ways that still reverberate today.
When the armistice took effect on 11 November 1918, exhausted soldiers climbed from their trenches into eerie silence. Church bells rang across Europe. In London, strangers embraced in the streets. In Paris, crowds gathered at the Arc de Triomphe. The nightmare, it seemed, was finally over. The Kaiser had abdicated, the Austro-Hungarian Empire had collapsed, and the Ottoman Empire was crumbling. Victory had come at an unimaginable cost, but it had come.
For New Zealand, a nation of just over one million people, the cost was staggering. Of the 100,000 New Zealanders who served overseas, more than 18,000 were killed and over 41,000 were wounded or fell ill—a casualty rate among the highest of any nation in the war.[3] Scarcely a family in the country remained untouched by loss.
But the peace that followed proved almost as destructive as the war itself.
The Seeds of the Next War
The Treaty of Versailles, signed in the Hall of Mirrors at the Palace of Versailles in June 1919, was meant to ensure permanent peace. Instead, it guaranteed future conflict. The treaty’s architects (primarily French Premier Georges Clemenceau, British Prime Minister David Lloyd George, and U.S. President Woodrow Wilson) faced an impossible task: satisfy public demands for revenge whilst building a stable European order. They chose revenge.
Germany was forced to accept sole responsibility for the war under Article 231 (the infamous “War Guilt Clause”), stripped of 13% of its European territory and all its overseas colonies, forbidden from maintaining a substantial military, and saddled with reparations eventually set at 132 billion gold marks, roughly US$500 billion in today’s money.[4] The Rhineland was demilitarised. The Saarland was placed under League of Nations administration. Alsace-Lorraine was returned to France.
The treaty didn’t just punish Germany; it humiliated it. German citizens, who had been told their armies were winning right up until the end, felt betrayed by their leaders and enraged by the harsh terms imposed by the victors. The “stab-in-the-back” myth (that Germany’s undefeated army had been betrayed by politicians and socialists at home) took root in the national psyche.
This toxic combination of national humiliation and economic devastation created perfect conditions for extremism. When hyperinflation devastated Germany’s economy in the early 1920s, wiping out the savings of the middle class, followed by the Great Depression, Adolf Hitler found a receptive audience for his promises to restore German pride and overturn the “shameful” Versailles treaty.[5] The war to end all wars had instead set the stage for World War II, which would claim an estimated 70–85 million lives.
The Great Reversal: From Creditor to Debtor
Versailles didn’t just reshape Germany’s future—it marked the end of British financial supremacy and a fundamental shift in global economic power that would define the twentieth century.
In 1914, Britain stood at the apex of global finance. The empire controlled roughly a quarter of Earth’s land surface and population. The pound sterling reigned as the world’s reserve currency, the foundation upon which international trade and finance rested. British investors owned an estimated 20% of American securities and held substantial stakes in U.S. railroads, industry, and land.[6] London was the undisputed financial capital of the world, and the City’s banking houses financed projects from Argentina to Australia.
Four years of total war changed everything.
To finance the conflict, Britain liquidated vast quantities of foreign assets, borrowed heavily from the United States, and ran up enormous debts. The scale of the reversal was breathtaking: Britain transformed from the world’s largest creditor nation, the banker to the world, into its largest debtor. By war’s end, Britain owed the United States approximately US$4.7 billion, nearly US$100 billion in today’s terms.[7] The empire that had bankrolled wars against Napoleon, financed the Industrial Revolution, and underwrote global trade now depended on American loans to stay afloat.
The symbolic and practical implications were profound. British investors went from owning a fifth of America’s wealth to owing America more than the nation could afford to repay. The war had cost Britain roughly 40% of its national wealth. Meanwhile, the United States emerged from the war as the world’s largest creditor nation, having lent billions to Britain, France, and other allies.
The pound’s dominance didn’t collapse overnight; reserve currency transitions rarely do. Britain struggled through the 1920s and 1930s to maintain sterling’s status, returning to the gold standard in 1925 at the pre-war parity, a decision that would prove economically disastrous. But the trajectory was clear. By the Bretton Woods Agreement of 1944, negotiated as World War II still raged, the U.S. dollar officially replaced sterling as the world’s reserve currency.[8] The transition of global financial power from London to New York was complete and irreversible.
Britain continued servicing its World War I borrowing for decades, with the government redeeming the last of its war-era debt in 2015, nearly a century after the armistice. It was a stark reminder of just how catastrophically the war had drained British wealth.[9]
The Investor’s Nightmare: When Everything Changed
For investors of the era, the war and its aftermath delivered brutal lessons in the impermanence of financial dominance and the critical importance of sound, independent advice. The old saying about the Great War (“lions led by donkeys”) referred to brave soldiers commanded by incompetent generals sending men into futile slaughter at battles like the Somme and Passchendaele.[10] The financial world learned its own version of this lesson as supposedly sound investments evaporated.
Consider Germany: its stock exchange surged in the immediate post-war period during the hyperinflation years of 1921–1923, as investors desperately fled worthless paper marks into real assets: property, foreign currency, stocks, anything tangible. Those who understood what was happening and acted early preserved some wealth. Then came the 1930s, when the Nazi regime systematically nationalised assets, persecuted Jewish business owners, and seized private property.[11] Fortunes that had been built over generations were reduced to zero with the stroke of a pen.
British investors who concentrated their wealth in empire holdings (once considered the safest possible investment) watched their portfolios crumble as colonies gained independence after World War II and sterling progressively lost its special status. The empire that had seemed permanent in 1914 was largely dismantled by 1970.
Those who believed German industrial might and technological prowess guaranteed investment safety learned otherwise when totalitarianism seized private property and redirected the economy toward rearmament and war. American investors who thought their booming 1920s economy represented a new paradigm of permanent prosperity faced the Great Depression and saw the Dow Jones lose 89% of its value from peak to trough.
The Enduring Lessons
The lesson echoes across the century since the armistice: nothing is certain in investing or geopolitics. Empires fall. Reserve currencies change hands. Governments nationalise assets. Wars erase wealth. Hyperinflation destroys savings. What seems permanent and unshakeable today may be obsolete or worthless tomorrow.
This is why diversification remains your most reliable friend, and why sound, independent financial advice matters more than ever. Just as soldiers deserved better leadership than they received from generals who sent them over the top into machine-gun fire, investors deserve better than blind faith in any single country, currency, asset class, or political system.
Spreading investments across different countries, currencies, asset types, and geographies doesn’t guarantee returns—nothing does. But it does protect against the catastrophic, portfolio-destroying losses that occur when any single pillar upon which you’ve built your financial future collapses unexpectedly.
Remembering Forward
As we observe Remembrance Day this year, the poppies we wear commemorate not just those who fell in Flanders fields, but the world they left behind—and the hard-won wisdom written in its ruins.
The armistice of 11 November 1918 ended the fighting, but its consequences echo still. It reminds us that punitive peace breeds resentment, that humiliation breeds extremism, that even the mightiest empires can fall, and that the financial certainties of one generation can become the cautionary tales of the next.
In markets as in geopolitics, diversification, sound counsel, and humility serve us better than certainty ever could.
Nick Stewart
(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe,
Ngāti Waitaha)
Financial Adviser and CEO at Stewart Group
Stewart Group is a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm providing personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
References
[1] “First World War,” Imperial War Museums.
[2] “World War I: Killed, wounded, and missing,” Encyclopaedia Britannica.
[3] “New Zealand and the First World War,” Ministry for Culture and Heritage, 2014.
[4] Marks, Sally, “The Myths of Reparations,” Central European History, Vol. 11, No. 3, 1978.
[5] Kershaw, Ian, Hitler 1889–1936: Hubris, W.W. Norton & Company, 1998.
[6] Stone, Irving, The Global Export of Capital from Great Britain, 1865–1914: A Statistical Survey, St. Martin’s Press, 1999.
[7] Gill, David James, The Long Shadow of Default: Britain’s Unpaid War Debts to the United States, 1917–2020, Yale University Press, 2022.
[8] Steil, Benn, The Battle of Bretton Woods, Princeton University Press, 2013.
[9] “UK finally finishes paying for World War I,” CNBC, 9 March 2015.
[10] Clark, Alan, The Donkeys, Hutchinson, 1961.
[11] James, Harold, The Nazi Dictatorship and the Deutsche Bank, Cambridge University Press, 2004.