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On Wartime and Postwar Prosperity

Here’s a letter to Jonah Goldberg at The Dispatch:

Mr. Goldberg:

Thanks for your just and eloquent criticisms of National Security Advisor Jake Sullivan’s antediluvian proposal for a new industrial policy (“The Old Deal,” May 12). But you get an important detail wrong.

After correctly insisting that New Deal policies extended rather than ended the Great Depression, you say that the Depression was ended by U.S. participation in World War II. Not so.

Economic historian Robert Higgs documented convincingly that there is no good evidence of economic recovery during the war. Although massive conscription of labor and materiel creates a surface impression of economic vigor, Higgs’s careful investigation of wartime economic reality led him to conclude that “during the war the economy was a huge arsenal in which the well-being of consumers deteriorated.”* Relatedly, Alexander Field has recently shown “that both labor productivity and TFP [Total Factor Productivity] in manufacturing declined during the war in comparison with 1941 and grew relatively anemically after the war.”**

Another point is worth making here. You describe the 1950s as a time when “America had unique advantages. The industrial base of the rest of the world was flattened by war, while ours was intact and firing on all cylinders.” A common interpretation of this reality is that, because most of the immediate-post-war economies were in shambles, Americans reaped unusually great benefits by being able to supply, with virtually no competition, the rest of the world with both consumer goods and capital goods. While having their economy intact was indeed beneficial, Americans in the 1950s would have benefitted even more from international trade had the rest of the world’s economies also been intact.

Selling goods to people who can offer in exchange only little that’s of value is less enriching than is selling goods to people who can offer in exchange much that’s of value. And so while Americans in the 1950s did indeed gain by trading with non-Americans, Americans back then gained from international trade far less than do Americans today. Contrary to popular myth, it was no great boon for immediate post-war America that most of the rest of the world’s economies were severely crippled. It was a misfortune.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Robert Higgs, “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s,” Journal of Economic History, March 1992, Vol. 52, pages 41-60.

** Alexander J. Field, The Economic Consequences of U.S. Mobilization for the Second World War (New Haven: Yale University Press, 2022), page 3.

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