The economic lessons of World War II

As it has become evident that the financial crisis is comparable, in important ways, to the early stages of the Great Depression, there has been a lot of debate about the lessons to be learned from the responses to the Depression in the US, most notably the various policies that made up the New Deal. There’s a lot to be learned there, but it’s also important to remember that the Depression, in the US and elsewhere, continued throughout the 1930s before being brought to an abrupt end by the outbreak of World War II.[1]

Not only did the slump end when the war began, it did not return when the war ended – a huge difference from previous major wars.[2] Instead the three decades beginning in 1940 were a period of unparalleled prosperity for developed countries, with economic growth higher and unemployment lower than at any time before or since.

What lessons can we learn from this experience?

In the immediate aftermath of the war, the lesson seemed obvious. Planning had succeeded where capitalism had failed, and more planning was needed to maintain that success. As the White Paper on Full Employment (Commonwealth of Australia 1945) put it

Despite the need for more houses, food, equipment and every other type of product, before the war not all those available for work were able to find employment or to feel a sense of security in their future. On the average during the twenty years between 1919 and 1939 more than one-tenth of the men and women desiring work were unemployed. In the worst period of the depression well over 25 per cent were left in unproductive idleness. By contrast, during the war no financial or other obstacles have been allowed to prevent the need for extra production being satisfied to the limit of our resources.

Over time, as the difficulties of planning became apparent, emphasis shifted to the idea that the war had provided a Keynesian stimulus to aggregate demand, and that, with careful management, unemployment (or inflation) due to inadequate (excessive) aggregate demand could be avoided. Thirty years of success seemed to confirm that view.

After the failure of Keynesian economic management in the 1970s, this explanation appeared less adequate, but no adequate alternative was proposed. Given the apparent success of monetary policy in stabilising output and inflation, and reducing unemployment, from 1990 onwards, the issue seemed largely academic, and given the focus of US economists on the New Deal, even academic attention to the question has been limited.

Perhaps stimulatory fiscal policy will produce a rapid and complete recovery from the current crisis, and a restoration of the postwar Keynesian orthodoxy. But given the damage that has already been done to the global financial system, and the prospect of much more to come, this is far from certain. The experience of Japan in the 1990s is not encouraging, and this crisis is far worse in important respects. Perhaps when the collapse of financial intermediation is as near-complete as it was in the Depression, a large element of central direction is needed to restore trade and ensure necessary flows of credit. In the absence of a rapid recovery, questions like this will assume increased urgency over the next year or two.

fn1. In most respects, a continuation of the Great War that began in 1914, but in economic terms a completely different kind of conflict, based on comprehensive planning and mobilisation of economic and labour resources.

fn2. Although I didn’t think it necessary to spell this it out, it appears that I must. I am not suggesting that war is economically beneficial, still less that it would be a good thing to expand the wars in which we are currently involved (and which have, obviously, done the economy no good). The fact that the apparent economic benefits of WWII were more or less unique to that war suggests we need to look at the specific policies of that period, and not at ideas about the supposed economic benefits of war.

75 thoughts on “The economic lessons of World War II

  1. Yes, yes. And none of these objectives could have been achieved from bases in Greece, Albania, Macedonia or Bulgaria.

    And I’m sure the Neo-cons will be astonished to learn that Bill Clinton and Madelyne Albright were on their side all along. Kinda makes you wonder why they worked so hard for his defeat.

    Now explain Australia’s deployment ot East Timor and the Solomon as part of the world-wide advance of “neo-con fanaticism”.

  2. Ian.

    I’d like to pretend we were all noble, but were we really that interested in Timor before oil was found in the Timor straight. I don’t see it as “neo-con fanaticism”, their problems is the couldn’t calculate the cost and weren’t bright enough to see the likely outcome.

    You have to go a long way back in the evolutionary tree before you find things that don’t aggressively compete for resources, why pretend humanity is different.

  3. Shorter Strocchi on Pr Q:

    The Great Depression was cured by the massive bout of centralized state planning undertaken in prosecuting WWII. Fiscal expansion played only a supporting role to factoral collectivism.

    Industrialized states now face a comparable economic malaise given the ubiquity of financial ruin and the generality of the economic downturn.

    This implies an economic requirement for socialist planning, already realized in the partial nationalization of the financial system.

    There is also an underlying need for socialist policy to promote ecological sustainability of a warming Earth and biologicalviability of aging Boomers.

    The political opportunities for socialism have never been greater given that the financial Masters of the Universe – strongest ideological opponents of socialism – are now ruined and in disgrace.

  4. “They hanged the captain of the privatised 2nd Fleet…”.

    While he might also have been the captain of one particular ship, the overall leader would have had a different title in regard to the whole group of ships. E.g., an ad hoc group of ships is technically a flotilla and has a commodore, a true (that is, continuing) fleet gets an admiral, and so on. I don’t know off hand what this title would have been, but precisely in order to avoid confusion with the captains of individual ships, he would not have been a captain.

  5. Charles, at the time of the Falklands War, conspiracy theories abounded about how it was all about the oil supposedly lurking under the sea-bed down there.

    It’s roughly twenty years later, see any sign of that oil yet?

    My contention isn’t that humans are “noble” fro from it.

    But wars get fought for far less rational reasons than direct economic benefit.

    The Falklands, on both sides, was about unpopular right-wing politicians trying to exploit patriotism.

  6. Ian Gould, your rather simplistic argument appears to assume that each of the facilities that comprise the u.s. military industrial complex are fungible commodities, with each facility and it’s military assets capable of serving the role of any other. They do not, and it is a fallacy to believe so.

    Let us have a look at each of these countries bases, shall we:

    1. The mission of US Forces at Souda Bay, Chania (Crete), Greece is to provide Naval Support Activities, Command Control and Logistics Support to US And NATO Operating Forces.

    2. The bases in Bulgaria are namely the Novo Selo training facility, the air force bases of Bezmer and Graf Ignatievo, as well as a storage facility near the town of Aytos in the east.

    3. There are no U.S. military bases in Albania, whilst the two NATO bases have been closed down.

    4. Camp able-sentry in the FYROM, near the capital Skopje, serves as a communications center.

    5. The ever sprawling camp bondsteel known as the “grand dame” with it’s 7000+ military personnel stands apart in the network of u.s. forward-operating sites, running both sides of the border between Kosovo and FYROM, and as part of a chain intended to extend up to the Caucasus. Camp bondsteel does serve to project u.s. military power in the surrounding region into the foreseeable future, period.

    So, Ian Gould, to explore the bleeding obvious, enlighten us with your thesis on how exactly the bases in these countries achieve the projection that bondsteel achieves?

    Much as previous empires of history used their military power to buttress their weakening economic and political hold over their colonies, the u.s. is aggressively inserting itself into new regions of the world to prevent its competitors from doing the same.

    The goal is not to encourage “democracy” or end “terror” the u.s. will not accomplish either of these claimed goals.

    The short-term goal is to station u.s. military forces in regions where local nationalists had evicted them.

    The long-term goal is to increase u.s. corporate control over the oil needed by Europe and East Asia, whether the oil is in around the Caspian or the Middle-East.

    Their ultimate goal is to establish new spheres of influence, and eliminate any obstacles, be they religious militants, secular nationalists, enemy governments, or even allies who may unintentionally stand in their way.

    Yes, yes, yes, Ian Gould, you more than likely also believe the tripe that came out of the bush administration, supported by the clowns blair and howard, to justify their military action towards Iraq.

    With the outright lies regarding wmds’, or bringing democracy to Iraq, or ridding Iraq of an evil dictator, or the fabrication of intelligence to justify their pretext for war is an absolute joke. It is only those who are in deep slumber can continue to believe these clowns and their ilk.

    With respect to clinton and albright, I do not see any significant foreign policy differences between the republicans vis-à-vis democrats, and why should they? They both, after all, have the same national interests and are both “u.s. patriots”, are they not?

    Lastly, do we all recall downer’s overbearing push to secure Australia’s “just” deserves when it came to dividing up the spoils that lie under the Timor Sea, which are now fortuitously under the control of the newly recognised East-Timorese state? Beats having to deal with the Indonesians, wouldn’t you say?

  7. “Ian Gould, your rather simplistic argument appears to assume that each of the facilities that comprise the u.s. military industrial complex are fungible commodities,…”

    No actually it assumes that there are plenty of sites for additional bases in the region which the US could have gotten access to with considerably less effort than waging a full-scale war.

    “Yes, yes, yes, Ian Gould, you more than likely also believe the tripe that came out of the bush administration, supported by the clowns blair and howard, to justify their military action towards Iraq.”

    No actually as long-term readers of this blog can attest I opposed the Iraq war vehemently from the start.

    But my reasons for opposing it had nothing to do with conspiracy theories about the evil Americans.

    Funnily enough, my opposition to the Iraq War earned me = much the same abuse from your far-right opposite numbers as I’m currently copping from you.

    I guess that’s what I get for allowing mere fact to get in the way of ideology.

  8. “No actually it assumes that there are plenty of sites for additional bases in the region which the US could have gotten access to with considerably less effort than waging a full-scale war.”

    Yes, yes, but they did not. Geography does, well, have a habit of being immovable and advantages do precipitate from those who do control certain squares of the chess board, and those squares being occupied, funnily enough, have something to do with the stratagem at play.

    So unless you have greater insight into the u.s. military’s handbook, your take is no more valid than any other that is put forward. This principle, no less, also applies equally to me.

    “No actually as long-term readers of this blog can attest I opposed the Iraq war vehemently from the start.”

    Well I am happy for you–in so far as you have witnesses on this blog that can attest for you. I on the other hand, do not. That aside, my opposition to the Iraq war also has nothing to do with conspiracy theories.

  9. Ikonoclast – you’re the oen advancing the thesis that the US went to war in Kosovo to get a base there. Therefore it’s incumbent upon you to defend your hypothesis.

    I merely point out bthat there were easier, cheaper, lower risk ways to achieve a similar outcome.

    For that matter,given the US’ pattern of support for dictators, why didn’t they simply do a deal with Milosevic to support him in exchange for the base?

    Or was the Butcher of Bosnia too principled to fall in with the evil hegemons.

    Here’s why the US went to war in Kosovo:

    1. Prior to the war, tens of thousands of Kosovars had already been driven into exile. The mass deportation of hundreds of thousands once the war had begun is explicable only in terms of a long-standing plan in place well before the conflict began.

    Now this is the bit you need to listen to – the US’ concern about such mass deportations was not primarily humanitarian. It had to do with the impact on Macedonia which was already around 30% ethnic Albanian and on the verge of civil war.

    A civil war in Macedonia – an area long disputed by Serbia, Albania, Greece and Bulgaria could have easily led to a full-scale regional war.

    Such a war would have been disastrous for US policy in the region involving as it did old US allies like Greece and possibly Turkey and new US allies Albania and Bulgaria.

    2. The US and NATO had just spent several years looking the other way as the Serbs slaughtered hundreds of thousands of Bosniaks.

    There was a widespread and largely correct view in the Muslim world that this indifference was due to the fact that the majority of Bosniaks were Muslims.

    At the time, the Oslo Accord process had brought the Israelis and the Palestinians about as close as they’ve ever been to a peace agreement. (Such an agreement being in US interests because they could then probably wind down their massive subsidies to Israel and Egypt, It would also have been in Clinton’s interests – the Nobel Peace price comes with a nice cheque attached.).

    Standing by again while another massacre of Balkan Muslims occurred would have made it more difficult to get Arab support for a peace deal.

    (The peace deal failed in any event for unrelated reasons.)

  10. “The US and NATO had just spent several years looking the other way as the Serbs slaughtered hundreds of thousands of Bosniaks.”

    Total casualties on all sides in Bosnia were less than 120,000, of whom a quarter were Serbs and a fair number Croats. The Serbs had no monopoly on evil butchers and the war wasn’t between goodies and baddies. I don’t dispute your strategic analysis of US motivations, however Ian.

  11. Hal, yes I should have stopped and checked Wikipedia – or simply written “tens of thousands” as was my initial impulse/

  12. Ian

    So after all the complicated analysis it cames down to not sending a cheque to Israel and Egypt, and a cheque for Clinton.

    And in the case of Falkland war, Thatcher and Galtiers trying to keep their jobs.

    Your making it hard for me to concede defeat.

  13. Charles, the reasons that Great powers do things usually boils down to self-interest but you can argue that even the most selfless act by a politician is intended to curry popular favor and get re-elected.

    Also, I’d argue that while preventing a general war in the Balkans was in America’s interests it was also even more strongly in the interests of the people of the Balkans.

  14. Ian Gould,
    i am advocating that the information that is presented to the public, as so called facts, often do not match the facts on the ground, if one bothers to dig enough and not accept all that is dished up to them.

    The “facts” one believes in are strongly correlated to whom you listen to, to whom you believe in and to their credibility.

    “I merely point out bthat there were easier, cheaper, lower risk ways to achieve a similar outcome.”

    When has cost ever been a limiting factor in u.s. government military spending. You need only look at the u.s. government budget and how it is allocated to realise where their priorities lie, save the massive military industrial complex that supports them. It is blatently obvious that they are more in favour of guns than butter. I will again reiterate, the risk of certain action being taken is *strongly* correlated to the desired outcome and the ensuring spoils of reward that go to the victor.

    “Ikonoclast – you’re the oen advancing the thesis that the US went to war in Kosovo to get a base there. Therefore it’s incumbent upon you to defend your hypothesis.”

    Please pay attention, i am iconoclast and not Ikonoclast.

    Your assertion that it is incumbent of me alone to justify my position is nothing but a straw man, nothing more. I assert that you equally must demonstrate your position as well.

    I, yet, await you to justify your position, and referencing excerpts from wikipedia as a credible source (look at the “discourse” that takes place on these sites, you will soon understand there are considerable disputes), or the main stream media that has shown it’s complete and utter incompetence, save the very few, to be merely a foghorn for the spin doctors won’t cut it.

    Why is it that the sterile media did nothing to force the hand of the complicit governments during the lead up to the iraq war and allowed them to perpetrate and peddle their outright and blatant lies?

    Yet, you continue to use these sources, which have shown to be discredited, as credible and as a means to support your argument. Why?

    Yes, yes and ones belief in a benevolent government that never lies to it’s citizens, it just doesn’t happen, well it did. Yet you appear to continue to believe so. Why? Do you remember Andrew Wilkie?

    Regarding your initial biased point of view, and then subsequently adjusted on the war in bosnia & herzegovina, the croats under tudjman performed their fair share of attrocities, supported by the west and specifically the german government through their supply of arms to precipitate the dismemberment of yugoslavia, which was to benefit the germans and their desire to have a significant influence in this region. The bnd are continually being found scouring this region. hmm….

    Interesting that we now also have an ethnicity that has spontaneously been created–the “bosniaks”. No such ethnicity existed in ottoman census records, another conveniently created ethnicity. These people are predominately of turkish origin with a minority being of slavic intermix who remained after the fall of the ottoman empire.

    These individuals had support by the arab world sending mujaheddin to support their islamic brethren, which also performed their fair share of atrocities. It would be in the interest of the u.s. and the west in general to be seen to be at best neutral to support their own efforts in the middle-east and to the muslim sphere of influence.

    So it is not just the serbians that can be painted with the brush of bloodshed, the croats and the muslims of bosnia & herzegovina can also claim that ghastly cup.

    The strong historical and religious ties the serbs have with the russians, raise questions in my mind as to the west’s motives to focus their efforts on serbia specifically.

    So Ian Gould, what evidence do you have to support the events that you regurgitate from sources other than those already discredited?

    Have you ever traveled to the balkans, have you spoken to people who live in this region and have you ever listened to their opinions? I can tell you i have, and it is far from what you get fed here on a platter, by government and the media pushing their own western brand of propaganda.

    Clinton, i’m sure he is doing very well, thank you very much, even without the “nobel peace prize money”. Frankly, it turns my stomach when someone attempts to justify a humanitarian act with a justification of a monetary reward. Pathetic.

    For kosovo and the injustices that happend there, well, i think i will leave that “behind the news” for another time.

  15. Ikonoclast what little amusement your paranoid blatherings once provided has long past.

    Find another audience for your tedious nonsense.

  16. Ian Gould,

    your rhetoric, is just that, rhetoric.

    You certainly have confirmed that you do shoot from the hip.

    It is obvious that you did not bother to read the post, since you would not be continuing to reference Ikonoclast.

  17. Yes, yes,

    Now go check your bedroom for the bugs the CIA have undoubtedly planted as part of their attempt to silence The Truth.

  18. Ian Gould,

    Truth, I don’t think that you could even define the word.

    I’ll throw down the gauntlet.

  19. Ian I think your significant point is basically right, but I think you’re wrong to assume that iconoclast and Ikonoclast are the same person. Holding to this claim undermines your credibility slightly on the point that actually matters.

    I have opposed most of the US military interventions over the last two decades (and quite a few non-military ones). In one case at some personal cost (although of course nothing compared to those in the fire zone).

    However, I find it fundamentally bizarre when people assume that every action can only be caused by simple efforts to secure hegemonic power for the nation and that neither humanitarian factors, nor personal goals of political leaders could play a part. Even the most faceless bureacracies are made up of real people and sometimes those people’s personal opinions, biases and backgrounds influence behaviour, for good or ill. I’m sure the cheque had no influence on Clinton’s behaviour, but to suggest that he wasn’t influenced at all by a desire to win a Noble Prize suggests a complete lack of understanding of his psychology.

  20. Stephen L, it appears that my statements have come across in a manner not quite intended. There is much more to be said on this matter. Although, time, other commitments, and the limitations of the medium itself, which suppress the nuances that one also benefits from when having a face-to-face discussion need to be factored in.

    It is not that the motives of the u.s., in all cases, can be construed to be of a hegemonic impetus, although, it is certainly hard to tell some actions apart.

    There are a plethora of both covert and overt activities that u.s. has participated in, which have be construed/manipulated to appear one way or the other.

    Both sides, have a right to be heard and their positions duly considered and certainly not dismissed outright, if one is to be truly objective and introspective when they take a position. The fact is that the west, generally, only gets the perspective that the u.s. projects.

    Clinton, no doubt had some interest in securing the nobel peace prize, although ones desires are sometimes met with, well, to coin a phrase used by the israeli military, the facts on the ground.

    President-elect Obama will also be ambushed, sooner rather than later, by the facts on the ground.

    Stephen L, you are correct in reiterating that Ikonoclast and iconoclast are not the same person.

  21. Not only did the slump end when the war began, it did not return when the war ended – a huge difference from previous major wars.

    Unlike the end of any other major war, the world didn’t retrench military expenditure. Rather the world retooled for WWIII. This redirection of enormous military expenditure continued the practices that evolved under wartime conditions during WWII.

    President Eisenhower recognised the syndrome and named it in his farewell address in 1961.

    His naming and shaming in that address of the Military Industrial Complex is certainly the most extraordinary farewell address ever made by a POTUS.

    Thus it is inadvisable to attempt to compare post WWII events with events after any other war.

  22. Ian Gould,

    one other point regarding your statement@61:

    “A civil war in Macedonia – an area long disputed by Serbia, Albania, Greece and Bulgaria could have easily led to a full-scale regional war.”

    Your statement, above, on this subject matter is plain sophistry and incorrect. I will now rebut the above falsehoods as an attempt to stop these perpetual untruths in their tracks.

    A primer on the history of the region is a prerequisite, although this synopsis, by no means, provides it the justice that it deserves.

    Following the Balkan wars of the early 20th century (1912-14), the territory of the present-day Macedonia *region* was divided: 51.6% retained by Greece; 38.3% parceled to Yugoslavia; 10.1% parceled to Bulgaria. Please note, the reader should not confuse the region Macedonia with the country that usurps the name Macedonia.

    During World War II, Yugoslavia’s Marshal Tito established the region of Western Macedonia as one of Yugoslavia’s six republics, calling it simply “Macedonia”. Before World War II the area was referred to as Vardaska Banovina.

    With the appropriation of the name “Macedonia”, Tito also created an artificial language (Slavic in origin, based on West Bulgarian dialects) called “Macedonian”, whose grammar was developed by Krume Kepeski in 1944 and later codified by Blaže Koneski. The objective was territorial expansionism for Yugoslavia. Tito, with the initial support of the Soviet Union, rewrote history by using foibles and propaganda to distort the integrity and heritage of the region as the following 1944 US Circular Airgram from US Secretary of State Edward Stettinius stipulates:

    “The Department has noted with considerable apprehension increasing propaganda rumors and semi-official statements in favor of an autonomous Macedonia emanating from Bulgaria, but also from Yugoslav partisan and other sources with the implication that Greek territory would be included in the projected State. This Government considers talk of “Macedonian Nation”, “Macedonian Fatherland”, or “Macedonian National Consciousness” to be unjustified demagoguery representing no ethnic or political reality, and sees in its present revival a possible cloak for aggressive intentions against Greece.”

    Please note the reference to a Macedonian Nation being “unjustified demagoguery representing no ethnic or political reality.” Tito re-named the region in question (then called Vardarska Banovina) to “Socialist Republic of Macedonia” and promoted the idea that the Slavs of this region, mostly Bulgarian, are actually “ethnic” Macedonians. He did this for two main reasons: to eliminate Bulgarian claims to Yugoslav territory and to lay claim to Greek Macedonia and its warm-water port of Thessaloniki. Although Tito is long dead, the propaganda that he created continues to thrive in the unprecedented irridentism of today’s FYROM. Here are just a few of the irridentist attacks that the Greeks have suffered:

    – the publishing of maps showing Greek Macedonia as part of FYROM.

    – the printing of money featuring the Greek city of Thessaloniki as part of FYROM.

    – the teaching of schoolchildren that Greek Macedonia is occupied territory.

    – the instigation of Slav minorities in Greece.

    – the usurpation of historic Greek symbols and heroes.

    The dispute over the name of Macedonia began in 1946 when the People’s Republic of Macedonia was established as part of Yugoslavia and escalated when the republic announced independence in 1991.

    Under UN resolution an interim name was settled upon, being the “Former Yugoslav Republic of Macedonia” or FYROM. This name had been agreed to by both countries that it be used until a name is amicably agreed upon by both parties. The duration of this negotiation was anticipated to be within an order of months, and by no stretch of the imagination, 17 years.

    Greece has demonstrated its desire to reach a solution that will lead to the full normalization of bilateral relations, facilitate the course of its neighbor towards the Euro-Atlantic institutions, and consolidate stability and cooperation in Balkan region.

    However, FYROM continues to provoke Greece, usurping history which has been Hellenic for thousands of years, while FYROM refuses to negotiate in good faith over the name issue. Unfortunately, actions over the years such as distortion of geographic maps, naming its airport “Alexander the Great,” revisionist textbooks in schools, and inflammatory comments by top government officials, encourages new generations in FYROM to cultivate hostile sentiments against Greece. Further, this continuing systematic government policy will hinder FYROM’s accession to both the EU and NATO.

    This is the real threat to stability in the Balkans, to the detriment of U.S. interests.

    I wish to remind the readers that currently there are over 115 members of the Congress who have signed onto H.Res. 356, calling on FYROM to cease it “hostile activities or propaganda” against Greece.

    The only country that had and has interests in the FYROM is Bulgaria, which considers the citizens of the FYROM as Bulgarians.

    Neither Albania nor Greece have any territorial claims over the FYROM.

    Your statement is factually incorrect, period.

    Ian Gould, unless you are intimately familiar with the history of such a region, you will make statements that are factually wrong, as you have unfortunately done so.

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