One More Time: World War II Did Not Bring Us Out of the Depression

I don’t listen to talk radio all that often, but appreciate all efforts from whatever quarter that get people rebelling against reckless government actions. As far as I can tell, there’s general talk radio consensus at this point that bailouts and stimulus packages don’t help the economy. But a huge hole remains—the perennial myth that “World War II brought us out of the Great Depression.”

As Bob Higgs has shown, in numerous scholarly as well as popular publications and interviews, the private sector of the economy continued to perform poorly throughout World War II and normal, civilian-oriented prosperity only resumed after the war, in 1946.

The misconception that World War II was a period of prosperity
apparently comes from measurements such as the unemployment rate falling from an estimated range of somewhere between 9 and 15% in 1940, down to 1.2% in 1944. As Dr. Higgs points out, this is not surprising given that a total of 16 million people served in the military forces during the course of the war, and were thereby removed from the labor force. Meanwhile, industry shifted to producing vast amounts of materiel to be destroyed—planes, ships, guns, etc. If such production created prosperity, then building airplanes simply to crash them into the ocean would indeed be good economic policy. At the same time, consumer goods became largely unavailable and/or rationed, and standards of living remained quite low. Yet the attitude of “shared privation for the common good” in many ways made people feel no longer depressed despite the very real fact that the economy remained below pre-1929 levels of prosperity.

Thus, the Depression continued despite the end of idle labor or the perception of the people living at the time. As Dr. Higgs points out:

diverting nearly 40 percent of the total labor force into military-related employment and producing mountains of guns and ammunition do not create genuine, sustainable prosperity, as people would discover if they tried to operate an economy on this basis for more than a brief period.

If the war is supposed to have ended the Depression, then why didn’t the end of the war plunge the country back into depression, or at least recession? Instead, despite more than 10 million men reentering the civilian work force and large-scale government spending ending with FDR’s death and the war’s end:

The year 1946, when civilian output increased by about 30 percent, was the most glorious single year in the entire history of the U.S. economy. By 1948, real output was back on its long-run growth trend, and during the decades that followed, the economy was spared the sort of deep and long debacle that a congeries of wrongheaded government policies had caused during the 1930s.

This repudiation of Keynesianism by actual events should have sounded the death knell for the fatally flawed theory. Yet Keynesianism instead continues to thrive, wreaking havoc upon yet another generation. And the myth of wartime prosperity is simply part and parcel of this same theory that feeds further calls for large-scale government spending programs to “stimulate” the economy, “create” jobs, pursue bail-outs, or any other misdirection of resources from private to public hands.

As Ludwig von Mises observed, “War prosperity is like the prosperity that an earthquake or a plague brings.” What will it take to get the message out?

Mary L. G. Theroux is Chairman and Chief Executive of the Independent Institute.
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