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Quotation of the Day…

… is from page 117 of Robert Higgs’s indispensable 2006 volume – one of the most creative, careful, and important works in the economic and political history of 20th-century America – Depression, War, and Cold War (footnote excluded; link added):

Therefore, even though the [WWII] wartime administration imposed extraordinarily pervasive and forceful controls on the economy, investors and businessmen confidently regarded those controls as temporary.

The speed with which the controls were removed – most of them in 1945 and most of the rest in 1946 – validated that confidence and encouraged investors and businessmen to act, for the first time since the early 1930s, as if their property rights in their capital and the income it generated would remain reasonably secure.  Without that outlook, which elsewhere I have called “regime uncertainty,” the other measures that tended to make the transition a success would have availed relatively little.  Restoring the regime certainty of investors and business people was a necessary condition for the transition to a prosperous postwar economy; nothing could substitute for it, and without it, the economy probably would have fallen back into depression before long, if not immediately.

Bob does economics as it ought to be done; he looks beneath the surface and, therefore, is far less prone than are many other economists to mistake effect for cause, symptom for ailment.  His research and reasoning powerfully support the proposition that the persistence of the greatly depressed conditions of the 1930s was not caused by inadequate aggregate demand, and that the return of genuine economic growth and widening prosperity from 1946 on were not caused by rising aggregate demand.  Microeconomic – structural – problems were the root cause of the Great Depression’s length (with depressed aggregate demand a symptom of those microeconomic problems), and corrections of those problems were the root cause of the post-WWII boom (with rising aggregate demand a symptom of those microeconomic improvements).