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The Myth of Wartime Prosperity
The American Connservative ^ | July 10, 2012 | Robert P. Murphy

Posted on 07/28/2012 11:02:35 AM PDT by arthurus

When pressed for a “success story” of their policies, Keynesians point with pride to World War II. They claim that it is the perfect illustration of the ability of massive government spending to lift an economy out of the doldrums.

In the effort to battle this myth, Steve Horwitz and Michael J. McPhillips offer an interesting new article that analyzes diaries, newspapers, and other primary source documents from the wartime era. They show that average Americans on the home front certainly did not think they were living amidst a great economic recovery. Yet as I’ll show in this article—relying on the pioneering efforts of Robert Higgs—we can use even the official statistics to turn the conventional Keynesian account on its head.


TOPICS: Business/Economy
KEYWORDS: depression; economy; prosperity; war
It has long been my contention that the Depression continued right through the War and up to the :Eisenhower boom. The War converted the Depression into a full employment Depression. Individuals had a declining amount of resources. Prices were "low" but, supplies were limited. People lived worse than in the immediate past but they all had jobs...
1 posted on 07/28/2012 11:02:40 AM PDT by arthurus
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To: arthurus

I always thought that Quonset huts and bunks beds were the telltale sign of prosperity.


2 posted on 07/28/2012 11:06:53 AM PDT by grumpygresh (Democrats delenda est; zero sera dans l'enfer bientot.)
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To: arthurus

Any “prosperity” that a nation enjoys while in wide armed conflict with another nation, only comes at a fearsome cost in lives and the salvage of a great deal of real wealth taken as spoils from other combatants.

As an example, the large amount of war materials sent to England in 1939 and 1940 and 1941, was being paid for by the English in silver bullion, which was being shipped back to the US on the back haul from delivering the ammunition, armored vehicles, and fuel supplies to England. FDR was not doing this out of the goodness of his heart, it was highly remunerative for the US economy. The English, on the other hand, were spending themselves broke fighting off the Nazi attacks, and they were scarcely better off than the US from the effects of the world wide depression that seemed to grip everywhere. The Nazis, of course, so long as the fighting was not on their own soil, were robbing all the wealth from the nations they had occupied, and in the early years of WW II, the civilian population there enjoyed enormous prosperity.

Of course, the situation reversed as the war went on, and the real costs of making war came back to bite just about everybody in the butt. Big time. The purpose of war is to make noise, kill people and break things. Not to “improve” the economy or “increase” prosperity.


3 posted on 07/28/2012 11:21:50 AM PDT by alloysteel (Voter suppression is needed now more than ever. Only, whom shall be suppressed?)
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To: arthurus

“It has long been my contention that the Depression continued right through the War and up to the :Eisenhower boom.”

One can make the argument that REAL CAPITAL INVESTMENTS by the government, like Hoover Dam and the Interstate System pulled us out of the depression. No one can make a case that useless jobs (like solar panels) did a bit of good.


4 posted on 07/28/2012 11:26:24 AM PDT by BobL
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To: arthurus

There was nothing to buy during the war, thus people were forced to save their money.

The post-war boom was a combination of a release of that money, technological advance, and a unique foreign trade surplus resulting from most every other industrialized country being torn up by the war. It was also the result of FDRs policies of make work finally being put to bed.


5 posted on 07/28/2012 11:28:10 AM PDT by SampleMan (Feral Humans are the refuse of socialism.)
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To: alloysteel

Build expensive stuff, ship it halfway around the world and then blow it up.

The obvious route to prosperity.

That said, WWII absolutely eliminated unemployment in USA.


6 posted on 07/28/2012 11:29:42 AM PDT by Sherman Logan
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To: arthurus
You're right. Here is the short version of hoe we deal with this in "Patriot's History of the Modern World (due out Oct.):

In wartime, bombs, tanks, & ships ARE "consumer goods"---they are what the consumers more or less choose to " buy" to survive. But the minute you have peace, most (not all) of those weapons become superfluous. Now consumers want traditional consumer goods.

But the postwar boom and prosperity did not come from spending on bombs and tanks---that merely replaced "real" consumer spending.

Rather, the boom came from 1) pent up demand for real consumer goods, and 2) the ABILITY to buy, which was missing in the depression. Where did this ability to buy ( and invest) come from? It came from 4-5 years of rationing in which there was nothing to buy--- so consumers saved! In many ways, World War II and the post war period were a giant (forced) supply-side revolution.

7 posted on 07/28/2012 11:44:12 AM PDT by LS ("Castles Made of Sand, Fall in the Sea . . . Eventually (Hendrix))
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To: alloysteel
The purpose of war is to make noise, kill people and break things. Not to “improve” the economy or “increase” prosperity.

And therein lies the trouble with economists that are in love with their tools - i.e., statistics and time series. They don't take the time to look beyond the numbers to get a sense of what those numbers stand for. In a nutshell, a tank is not a ranch house; nor is it a Cat.

There's another trouble. The "World War 2 got us out" argument relies upon patriotism, which makes it hard to question. We're already inclined to believe it because it jibes with World War 2 as a great renewal capstoned by the unconditional surrender of Fascist Italy, Nazi Germany and Imperial Japan. One form of totalitarianism was vanquished: what else but good could result from the good fight?

The trouble with such grand narratives is that they turn into misleading myths long after the fact. The kind of myths that can lead to real trouble down the road.

In the broader sense, scholars like Higgs are the civvie answer to the WWII vets who published post-war tell-alls showing that war was indeed hell. They tell unconfortable truths, true, but they're necessary for subsequent decision-making.

8 posted on 07/28/2012 11:45:18 AM PDT by danielmryan
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To: arthurus

If war is the path to prosperity, then we should be a lot better off after 10 years of war.


9 posted on 07/28/2012 11:48:38 AM PDT by ConjunctionJunction
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To: arthurus

As I pointed out on a thread a couple of months back, World War II was essentially forced austerity, with rationing, victory gardens and bond drives at home, and spartan living conditions on the battlefield.

After the war we were just about the only industrialized economy that hadn’t been bombed all to hell, and so we were primed for a robust revival, assuming the government kept its nose out of as much as possible in the economic sphere. Which it largely did (at least compared to today),


10 posted on 07/28/2012 11:56:07 AM PDT by Stosh
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To: arthurus
It wasn't so much prosperity that people were enthusiastic about. It was full employment. After a decade of depression, that was something new and welcome for most people. People certainly didn't live worse during the War than in the immediate past (the Depression) and that was what mattered to them.

"A full employment depression"? Maybe by the standard of some later decades, but people then didn't demand as much. If they weren't exactly less materialistic, they were certainly materialistic in different ways, focusing on three square meals and a roof over one's head, rather than all the gadgets we've become used to.

The article is a little unexpected for The American Conservative. Shooting at the Keynesian Santa, they manage to hit what I'd have thought were some cherished paleocon notions about the virtues of hard work, discipline, and religious or patriotic -- rather than materialist or hedonistic -- values.

11 posted on 07/28/2012 12:36:59 PM PDT by x
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To: arthurus
During the war, people were willing to give up immediate gratification for the absolute necessity of protecting the country. Yes, there was full employment, but even with that there was rationing and very limited availability of commercial goods.

It comes quite close to the socialist utopia. Instead of EBT cards we had ration coupons. Instead of the government enforcing fuel economy standards on automobile manufacturers, they just redirected their manufacturing capability and no automobiles were produced at all. There was equal employment for women, a lowering of the birth rate and even censorship of information.

12 posted on 07/28/2012 1:14:09 PM PDT by reg45 (Barack 0bama: Implementing class warfare by having no class!)
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To: Stosh
After the war we were just about the only industrialized economy that hadn’t been bombed all to hell, and so we were primed for a robust revival, assuming the government kept its nose out of as much as possible in the economic sphere.

Exactly! Plus, Britain's industry, which was mostly intact, was bombed by the British government by nationalizing the big businesses, which began a long, long decline until Lady Thatcher turned things around.

13 posted on 07/28/2012 1:45:13 PM PDT by colorado tanker
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To: arthurus
Those of us who lived through WWII remember the "glories" of hanging onto and driving on tires (and inner tubes) that were so old, patched and worn that the best of them would fail any auto inspection today. Of course, they lasted longer because gasoline was severely rationed...

And those who look back on those days with fondness probably don't recall being allowed, instead of purchasing butter, a rectangular block of hard, white lard called, "oleo" -- which came with a little packet or reddish dye that you could (laboriously, by hand) mix into to it to help fool yourself that you were eating butter.

And kids today would scoff at the nationally-advertised "toy guns" that were nothing more than a flat board cutout with a broomstick glued on top...

In a box of "old stuff", I recently found a nearly-filled book of "War Bond Savings Stamps" that, when full, could be swapped for a "U.S. War Bond". I wonder what it is worth now...

Actually, my family lived fairly well -- because we had our big "Victory Garden", raised rabbits for meat, and did lots of fishing. Can't help but wonder if urban folks remember "wartime prosperity" even as fondly as I do...

Of course, instead of "hard times" or "austerity", the propaganda of the day, called it "Patriotism".

14 posted on 07/28/2012 2:27:58 PM PDT by TXnMA ("Allah": Satan's current alias...)
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To: TXnMA

“In a box of “old stuff”, I recently found a nearly- filled book of “War Bond filled book of “War Bond Savings Stamps” that, when full, could be swapped for a “U.S. War Bond”. I wonder what it is worth now... “U.S. War Bond”. I wonder”U.S. War Bond”. I wonder what it is worth now...”

I have a partially filled one of them and a partially used book of ration coupons.


15 posted on 07/28/2012 2:42:53 PM PDT by Lurkina.n.Learnin (The democratic party is the greatest cargo cult in history.)
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To: Lurkina.n.Learnin
As I said, "Wonder what they're worth now"...
16 posted on 07/28/2012 3:01:47 PM PDT by TXnMA ("Allah": Satan's current alias...)
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To: arthurus

It’s not war itself that makes us prosperous, but the forcing of technology that comes with it. WW II gave us nuclear energy, rocketry, autobahns, and a variety of rugged and miniaturized electronics. In five years of war, we accomplished technology advancements that would have required fifty years of peace.

This time around, it’s pilotless aircraft and thought-controlled prosthetics.


17 posted on 07/28/2012 3:34:14 PM PDT by BlazingArizona
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To: TXnMA

It’s not war itself that makes us prosperous, but the forcing of technology that comes with it. WW II gave us nuclear energy, rocketry, autobahns, and a variety of rugged and miniaturized electronics. In five years of war, we accomplished technology advancements that would have required fifty years of peace.

This time around, it’s pilotless aircraft and thought-controlled prosthetics.


18 posted on 07/28/2012 3:37:05 PM PDT by BlazingArizona
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To: arthurus
For the hip hop version:

Fight of the Century: Keynes vs. Hayek Round Two

19 posted on 07/28/2012 4:42:44 PM PDT by Vince Ferrer
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To: TXnMA

“Wonder what they’re worth now”...

It doesn’t look like we are rich.

http://www.ebay.com/sch/sis.html?_nkw=WWII%20RATION%20BOOKS%20STAMPS%20WAR%20BOND%20BOOK%20HISTORICAL%20FREE%20SHIPPING%20&_itemId=12090187227


20 posted on 07/28/2012 8:31:26 PM PDT by Lurkina.n.Learnin (The democratic party is the greatest cargo cult in history.)
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To: reg45

Yeah, it was full employment depression. It was followed by the post war recession that didn’t improve until Eisenhower dismantled an encyclopedia of regulations on business and rationalized government. I never thought of him as a conservative until I finally read just what were the things he did.


21 posted on 07/28/2012 8:49:28 PM PDT by arthurus (Read Hazlitt's Economics In One Lesson)
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To: Lurkina.n.Learnin

Nothing rare about ‘em for sure...


22 posted on 07/28/2012 8:50:45 PM PDT by TXnMA ("Allah": Satan's current alias...)
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To: Stosh
assuming the government kept its nose out of as much as possible in the economic sphere. Which it largely did (at least compared to today),

The government did not keep its nose out of the economic sphere after the war. Several years after the war the government under Eisenhower largely removed the government's nose from the economic sphere.

23 posted on 07/28/2012 8:56:13 PM PDT by arthurus (Read Hazlitt's Economics In One Lesson)
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