World War II Didn’t End the Great Depression
By Carl Close • Tuesday January 15, 2013 10:16 AM PDT • 11 Comments
The notion that the Second World War is responsible for ending the Great Depression has met growing skepticism among economic historians, thanks in no small part to the work of Independent Institute Senior Fellow Robert Higgs. Beginning with an article that first appeared in the Journal of Economic History in 1992, Higgs has argued that the much-vaunted “wartime prosperity” is an illusion—a deceptive statistical artifact created by the government’s diversion of production toward the war effort and away from civilian uses; price controls that masked true costs; and a military draft that helped commandeer the labor of 12 million men at below-market wages. The private economy didn’t fully recover from the Depression, he explains, until after the war ended, when various controls were lifted, and labor and capital goods became available for civilian production. (Higgs’s most important articles related to this topic appear in Depression, War, and Cold War.)
Support for this view now comes from economists Steven Horwitz and Michael J. McPhillips, both from St. Lawrence University in upstate New York. In the winter issue of The Independent Review, Horwitz and McPhillips offer new evidence that ordinary Americans saw continued economic hardship, rather than rising living standards: qualitative evidence from letters, diaries, and newspapers of the war years.
Horwitz and McPhillips highlight the case of a series of newspapers ads by an electrical utility in northern New York that sold consumer appliances. Soon after U.S. entry into the war, the ads’ messages began to change. Increasingly they urged consumers to buy their wares before production was discontinued. Eventually, the company’s inventory was refitted or converted to scrap metal for war purposes, and consumers had to invest more in maintaining their appliances and searching for expensive spare parts on the black market.
Similar stories of growing scarcities and shortages could also be told about many other consumer non-durables during the war years. As for the utility company’s advertisements, they had “shifted to encouraging people to buy war bonds as the company became part of the war propaganda effort,” Horwitz and McPhillips write.
Old myths die hard, but Horwitz and McPhillips have hammered another nail in the coffin of a myth that should have died long ago.
See The Reality of the Wartime Economy: More Historical Evidence on Whether World War II Ended the Great Depression, by Steven Horwitz and Michael J. McPhillips (The Independent Review, Winter 2013).
[This article is a slightly modified version of one that appeared in the January 15, 2013, issue of The Lighthouse, the Independent Institute's weekly newsletter. To subscribe to this publication, enter your email address here.]
Tags: American History, Austrian School of economics, Books, Budget and Tax Policy, Business, Economics, Employment, Government subsidies, Great Depression, Labor, Politics, Regulation, Unemployment, War 
Absolutely ridiculous. Horwitz and McPhillips ignore any standard definition of an economic depression and equate it with a shortage of consumer goods.
JonO | Jan 15, 2013 | Reply
Why did everything get so much better during and after WII? Another theory that is wrong.
Roy Smith | Jan 15, 2013 | Reply
PS: i was around duing this time. Had very little. Plenty to eat because my father, my mother, daddy’s brothers, his father raised most of the food. No electric. no inside toliets. During the war, it slowly got better. after the war it got much better. i was their and i am still here, sir.
Roy Smith | Jan 15, 2013 | Reply
JonO,
I don’t think you support your assessment well. Although Horwitz and McPhillips do not deal with standard definitions of ‘economic depression’ directly, they do address the topic indirectly. They do so by challenging the notion that falling unemployment and rising GDP are necessarily indicative of improvements in economic well-being (see, e.g., p. 328 of their paper).
Moreover, I wouldn’t say that they *equate* a depression with a shortage of consumer goods; I’d say they imply that a decrease in the availability of a wide range of consumer goods is a sign of a reduction in economic well-being.
Roy Smith,
Near the end of their paper Horwitz and McPhillip explain why the economy improved after the war (the section heading is “The End of the War”). Perhaps other parts of the article will shed light on your wartime experience.
Carl Close | Jan 15, 2013 | Reply
Let’s see; 10 million or so young men are yanked out of a moribund work force and join/get drafted into the military and the industrial might of the nation is mobilized to support the war effort, which of course, requires hiring Millions of People, who , by the way had NO JOBS BEFORE THE WAR, and these economists say that WWII did not end the depression.
Give me a fu^kin break.
Just another example of the farce, the fraud, the joke, the absolute garbage that is characteristic of modern academic economic “science.”
A “science” that has ZERO predictive capability, a “science” in which a priori assumptions are then “confirmed” by dubious statistical legerdemain, and most damning, a “science” whose adherents make policy recommendations based on their POLITICAL IDEOLOGY!
Am I being to harsh?
Well, just the other day a Nobel Prize economist suggests that a minting a trillion dollar coin will solve a real big problem. That’s right, the US govt. needs money and hey, just print it right up and all is solved. And I am sure that these genius economists can provide the mathematical proof, with all the relevant econo-jargon to “prove” their thesis.
I suggest that readers look up Richard Feynman’s (a REAL scientist) definition of a cargo cult science. I do not know if he originated this concept to describe economics, but boy, it sure fits like a glove.
At least astrologists can tell you where the planets will be any time into the future. Economists cannot predict anything at all. Not even when a recession begins (oh, that’s right, they can tell you this, but only a few months AFTER it began. Wow, how impressive !!)
JA | Jan 15, 2013 | Reply
JA, how were these 10 million or so young men paid for their services? What profitable activities raised the money to pay them? How does killing people and destroying things produce economic gains?
Are you stupid, or what?
shemsky | Jan 16, 2013 | Reply
This idea, that WWII ended the depression has been debunked before this. Most economists today agree that rather than helping the economy, the War cost money, which could only hurt a recovery. However, millions of young GIs signed up for service, creating opportunities for those at home, that did not exist before the war. This gave the impression of a recovery from the depression, to those folks who benefited. Additionally, shortages and privations were attributed to the war effort, and not to the depression, after the U.S. involvement. When the GIs returned to the U.S. after the War, the U.S. was the only industrialized nation that had not been devastated by bombs and enemy attacks. Which left us in an advantageous position, among the countries we traded with. This then was the real recovery! The fact that our nation was the only western country to emerge from WWII INTACT, which allowed a full recovery to ensue after the war.
Marylou Mawson | Jan 16, 2013 | Reply
The effective reduction of the workforce reduces unemployment and puts more dollars into the economy, except that those activities did not produce any economic gain unless we obtained value from defeating the Axis. So, it makes sense that real economic benefit only came after entrepreneurs took a chance on producing goods for sale, which was met with citizens eager to work and buy. The dollars put in out of thin air, I presume, reduced post-war so that value stabilized and risk was reduced.
JimQ | Jan 16, 2013 | Reply
I was a kid at the time. Everyone we knew went from low or no pay to well paying defense jobs. Young men couldn’t sign up for the military fast enough. The war and military duty were popular. Defense jobs brought in “Rosie the Riviter” as many women for the first time in their lives got good paying jobs. Yes, consumer goods were scarce, but my father’s salary tripled in less than a year. The money went into the bank for a solid middle class life after the war. The 1950s were not as good as the late 40s. The Marshall Plan sent a lot of our best jobs to Europe so they could rebuild.
ron carpenter | Jan 21, 2013 | Reply
JA,
Hey, maybe what we need is another world war to get us out of the current slump. Good idea?
Maybe all the lives lost don’t count for anything. How much of the GDP “increase” was actually war goods that didn’t increase the standard of living. Hey, maybe we can get rid of unemployment by killing the unemployed.
Bruce Dovner | Jan 22, 2013 | Reply