War prosperity - WW-I Edition
posted by Realist Theorist @ 10:53 PM
"War prosperity" is an odd, but enduring myth. On the one hand, wars destroy some men and material; and, they divert others from making "butter" to making "guns". Nevertheless, one hears people say things like: "spending lots of money fighting Hitler, brought the U.S. out of depression"(1). In this post, I want to examine the FIRST world-war.
Detailed WW-I timeline: Actually, the U.S. did not enter WW-I in 1914. At first, the U.S. was at peace, while producing and exporting to the warring nations. Only in 1917 did the U.S. declare war. Armistice Day was less than 2 years later, in 1918.
The pro-War case: U.S. production did boom during World War-I. When the war ended in 1918, American production volume was about 25% higher than it had been in 1914. In 1914, the U.S. was a debtor country; by 1918, the positions were reversed: the world owed money to the U.S.
Detailed WW-I timeline: Actually, the U.S. did not enter WW-I in 1914. At first, the U.S. was at peace, while producing and exporting to the warring nations. Only in 1917 did the U.S. declare war. Armistice Day was less than 2 years later, in 1918.
Peace prosperity: Consider the top-most black line in this diagram. It is an index of Production volume(2). When we examine WW-I more closely, we find that the so called "war prosperity" was actually a "peace prosperity".
We see that production volume boomed from 1914 to 1917. During this period, Europe looked to the U.S. for production. They sold much of their investments in the U.S., in order to buy U.S. goods; they sent large volumes of gold to the U.S.; and, added to this, the U.S. government lent money to European nations. In the U.S., commodity prices rose, and wages followed about a year later. Nevertheless, real production volumes rose too. Then, in 1917, the U.S. entered the war. Look at how things flattened out after that.
Europe: By the logic of the "war properity" argument, we would expect Europe to do better than the U.S.. After all, they fought longer. They spent a lot too. At a time when the U.S. national product was about $50 billion, economist Brad de Long estimates(3) that the wartime accumulated budgets of all combatants was $200 billion: four times the entire US national product. WW-I devastated Europe, in terms of lives, an estimated $40 billion in property damage, and lost production of $65 billion. It was the U.S. -- thanks to its "peace properity" that helped Europe after WW-I.
Europe: By the logic of the "war properity" argument, we would expect Europe to do better than the U.S.. After all, they fought longer. They spent a lot too. At a time when the U.S. national product was about $50 billion, economist Brad de Long estimates(3) that the wartime accumulated budgets of all combatants was $200 billion: four times the entire US national product. WW-I devastated Europe, in terms of lives, an estimated $40 billion in property damage, and lost production of $65 billion. It was the U.S. -- thanks to its "peace properity" that helped Europe after WW-I.
Notes:
1. I don't claim that serious, professional economists think war is good for the economy; but I have heard this from non-economists.
2. "Economics and the Public Welfare" - Benjamin M. Anderson
3. "Economic History of the Twentieth Century" - Bradford DeLong
2. "Economics and the Public Welfare" - Benjamin M. Anderson
3. "Economic History of the Twentieth Century" - Bradford DeLong
Comments:
Links to this post:
<< Home
Japan is probably a good example of this distinction as well (WWII combatant v. Korean War supplier v. post-war resurgence). Plus, their losing WWII really puts the potential war costs v. trade option in perspective.
Thanks for the comment. That would make an interesting comparison. Come to think of it, one could probably find more such historical examples.
Thank you, first and foremost for referring to history. History does matter. History--the flow of past human events--affects our lives today, both directly and indirectly, such as providing grounds for philosophical or narrowly contemporary positions.
You made another important point, in a footnote: "1. I don't claim that serious, professional economists think war is good for the economy; but I have heard this from non-economists."
What is interesting about your observation is that, from what I can see of our culture, most economists do not object publicly when non-economists use the war-prosperity argument--or if the economists do object, their voices never enter the mainstream media. So, combating the war-prosperity myth has to be done by others outside the mainstream. Thank you for doing that job too.
You made another important point, in a footnote: "1. I don't claim that serious, professional economists think war is good for the economy; but I have heard this from non-economists."
What is interesting about your observation is that, from what I can see of our culture, most economists do not object publicly when non-economists use the war-prosperity argument--or if the economists do object, their voices never enter the mainstream media. So, combating the war-prosperity myth has to be done by others outside the mainstream. Thank you for doing that job too.
If people blow up houses and buildings and shoot at each other with bullets, they have less time and money to spend on productive activities like inventing new cars, computers, airplanes, medicines, etc. War is a complete and utter waste and diversion of production. Of course, war can be necessary in the sense that a nation must protect itself to survive, but from an economic standpoint it is a total waste considering what would have happened if the war had not happened.
I would argue that even to the extent that Europe was paying U.S. manufacturers for these war materials it was a diversion in terms of our real standard of living in the same way as if Europeans were to have bought rocks or chia pets from us. It certainly was a complete waste for Europe. In WWI particularly, in addition to the Europeans wasting money, lives, and productive time, their governments went in to massive debt and/or printed money causing massive inflation which set the stage for WWII.
I would argue that even to the extent that Europe was paying U.S. manufacturers for these war materials it was a diversion in terms of our real standard of living in the same way as if Europeans were to have bought rocks or chia pets from us. It certainly was a complete waste for Europe. In WWI particularly, in addition to the Europeans wasting money, lives, and productive time, their governments went in to massive debt and/or printed money causing massive inflation which set the stage for WWII.
I think the war-causes-prosperity advocates mean the prosperity is for the guys who make and throw the bombs, not the group that catches them. That is one of the reasons Europe didn't prosper. The war advocates are just more proponents of the consumption-as-the-driver-of-the-economy team, alive and well today.
On your graph I noticed the construction line decreases. Is that due to increased effort going into the existing production, rather than infrastructure and better factories?
Something I always thought, during a time of war, the urgency to 'get things done' allows many of the restrictive rules to be circumvented. As well, the ordinary worker, seeing himself contributing to a 'glorious cause' is willing to devote energy for free that, in a time of peace, he would charge for. Topping everything, we have the capitalists such as Chales Schwab showing everyone how to build ships and things.
gary seinen
On your graph I noticed the construction line decreases. Is that due to increased effort going into the existing production, rather than infrastructure and better factories?
Something I always thought, during a time of war, the urgency to 'get things done' allows many of the restrictive rules to be circumvented. As well, the ordinary worker, seeing himself contributing to a 'glorious cause' is willing to devote energy for free that, in a time of peace, he would charge for. Topping everything, we have the capitalists such as Chales Schwab showing everyone how to build ships and things.
gary seinen
Doug: Right you are. When someone makes a bomb that is going to be exploded in a little while, one cannot really compare that to making (say) some consumer durable. As you say: it would be right if one needed the bomb, but nobody should wish for war!
Seine: yes, most people use their war examples to support a "primacy of consumption" argument. You're right about construction going down because of a diversion of resources. The government forced this by rationing construction licenses and various supplies.
I think there is a tiny little kernel of truth to the idea that a war -- actually any emergency -- can sometimes change something structurally, whether those are "rules to be circumvented" or social mores abandoned(e.g. about where women can work). The other side is that governments can sometimes grab great powers in wartime, and then not give it all back.
In WW-II , the U.S. enacted the "NRA" that was a bit like central planning: fixing prices, wages, market shares. Businessmen were put under a lot of pressure to cooperate. The picture that tells this story is of Sewell Avery, who ran a large retailer, refused to comply and to pay some fines. In the end, the U.S. government sent in troops and they physically carried Avery out of his office. [Avery was not the perfect guy, and some said he was a fascist sympathizer; but, the picture -- more than the story -- illustrates how far the government can go in war-time]
Seine: yes, most people use their war examples to support a "primacy of consumption" argument. You're right about construction going down because of a diversion of resources. The government forced this by rationing construction licenses and various supplies.
I think there is a tiny little kernel of truth to the idea that a war -- actually any emergency -- can sometimes change something structurally, whether those are "rules to be circumvented" or social mores abandoned(e.g. about where women can work). The other side is that governments can sometimes grab great powers in wartime, and then not give it all back.
In WW-II , the U.S. enacted the "NRA" that was a bit like central planning: fixing prices, wages, market shares. Businessmen were put under a lot of pressure to cooperate. The picture that tells this story is of Sewell Avery, who ran a large retailer, refused to comply and to pay some fines. In the end, the U.S. government sent in troops and they physically carried Avery out of his office. [Avery was not the perfect guy, and some said he was a fascist sympathizer; but, the picture -- more than the story -- illustrates how far the government can go in war-time]
There is one thick line missing in the graph which measures production. It's the line which measures the horror, the tragedy, the misery and the vacuum left in lives of those whose loved ones never returned. This is not the "broken window" hypothesis, its the "broken human" hypothesis. Every time I see the old grainy footage of cheerful young soldiers waving to the cameras, I feel very sad and also grateful that today a lot what we have achieved would not have been possible without them. It also makes me mad that people can sit and say that hey, all that wanton destruction of life and property was good for us.
There is no choice but to fight certain wars and they ensure our subsequent survival and economic prosperity. The loss of human lives is the greatest loss of all and anybody who says that we prospered, better not say it in front of me.
There is no choice but to fight certain wars and they ensure our subsequent survival and economic prosperity. The loss of human lives is the greatest loss of all and anybody who says that we prospered, better not say it in front of me.
Links to this post:
<< Home
Post a Comment