Robert Higgs

Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s

Relying on standard measures of macroeconomic performance, historians and economists believe that “war prosperity†prevailed in the United States during World War II. This belief is ill-founded, because it does not recognize that the United States had a command economy during the war. From 1942 to 1946 some macroeconomic performance measures are statistically inaccurate; others are conceptually inappropriate. A better grounded interpretation is that during the war the economy was a huge arsenal in which the well-being of consumers deteriorated. After the war genuine prosperity returned for the first time since 1929.

Public opinion: A powerful predictor of U.S. defense spending?

Public opinion survey responses regarding the desirability of changes in defense spending can be compressed into a single variable, the public opinion balance, which, when accompanied by a control variable measuring the proportion of responses in the “residuum” (no opinion or keep the status quo), permits an accurate prediction of subsequent changes in the rate of change of U.S. defense outlays from the mid-1960s through the 1980s. This finding cannot be interpreted as a simple case of “the public got what it wanted,” however, because public opinion was not autonomous or spontaneous, and defense decision makers themselves played a central role in shaping public opinion.

From Central planning to the Market: The American Transition, 1945–1947

The orthodox view of U.S. reconversion after World War II relies on unacceptable GDP figures for the wartime economy and misinterprets the low level of unemployment during the war. For the postwar transtition, the emphasis on consumer demand financed by drawing down liquid assets accumulated during the war is inconsistent with the facts. The success of the transition depended on the reestablishement of “regime certainty,†which in turn depended on diminishing the influence of the more zealous New Dealers. Wartime and postwar political development created sufficient regime certainty for the postwar market system to generate genuine prosperity.

Profits of U.S. defense contractors

During the period 1970–1989 the profit rates of the top 50 defense contractors substantially exceeded those of comparable nondefense companies. This conclusion holds regardless of whether profits are measured by the firms’ accounting rate of return on investment or assets or by the stock‐market payoff to shareholders in the form of dividends and capital gains. Investing in defense contractors was not significantly riskier than investing in comparable nondefense companies. In the cross section the relation between stock‐market returns to investors and the defense‐intensiveness of the contractors was a polynomial of second degree.

Wartime Socialization of Investment: A Reassessment of U.S. Capital Formation in the 1940s

During World War II, the U.S. government displaced private investors. According to NIPA data for the period 1942–1945, net private investment was negative

Coercion is not a societal constant: Reply to Samuels

6.2 billion, and net government investment was positive

Origins of the corporate liberal state

99.4 billion. Although economists have credited this government investment with various contributions to wartime and postwar economic growth, the bulk of it had little or no value beyond its immediate contribution to winning the war. This episode dramatically exposes a fundamental but false assumption that underlies official data on capital formation: that all expenditures for durable producer goods or munitions form genuine capital. There are circumstances which make the consumption of capital unavoidable. A costly war cannot be financed without such a damaging measure …. There may arise situations in which it may be unavoidable to burn down the house to keep from freezing, but those who do that should realize what it costs and what they will have to do without later on.Ludwig von MisesMises, Interventionism, p. 52.

Purcell, Aaron D., ed.Interpreting American History: The New Deal and the Great DepressionKent, OH: Kent State University Press234 pp.,

Warren Samuels maintains that every society has a constant amount of coercion and order, which vary only in terms of who gains and who loses, because every society has a government that establishes property rights. In making these arguments, Samuels exaggerates the extent to which governmental decisions predetermine the workings of a market society, and he fails to recognize that, with regard to the attainment of specific socioeconomic outcomes, governmental stipulation of private property rights differs fundamentally from governmental command and control.

29.95 ISBN 978-1-60635-220-5Publication Date: August 2014

Martin J. Sklars The Corporate Reconstruction of American Capitalism, a revisionist account of the early antitrust laws in particular and the political economy of the Progressive Era in general, offers a wealth of detailed research and a particularly valuable reinterpretation of the jurisprudence of antitrust law during the period 1890–1911. A neo‐Marxist framework of analysis, however, detracts from the work and causes Sklar to misread the valuable evidence he has compiled. By misinterpreting standard economic models of market structure, he incorrectly concludes that the large corporations could “regulate” the market if the government did not do so. By viewing the political economy as a comprehensively and tightly integrated structure of technologies, property rights, political powers, ideology, and social classes, he fails to give due weight to the diversity of influential interests contending within the political economy, especially within the “capitalist class,” and shaping its historical transformation.

On Ackerman's Justification of Irregular Constitutional Change: Is Any Vice You Get Away With a Virtue?

This book is the second volume to appear in the Interpreting American History Series, edited by Brian D. McKnight and James S. Humphreys, a series intended primarily for graduate students. The book’s editor, Aaron D. Purcell, is a professor and director of special collections at Virginia Tech, who has written on the management of academic archives and on topics related to the history of the Tennessee Valley Authority. The contributors are younger historians; only the editor is identified as a full professor. The editor explains that his purpose in creating the collection is not simply to provide overviews of what historians have written over the years about the Great Depression and the New Deal but, more specifically, to alert readers to relatively recent writings by historians who have focused on social and cultural aspects of the story, rather than the more traditionally treated political and economic aspects. These latter aspects, however, are by no means ignored. Indeed, the editor identifies the collection’s coverage as including “labor relations, politics, minority groups, race, agriculture, the natural environment, radicalism, social programs, the arts, the economy, overseas intervention, memory, and regional or local topics within the context of the New Deal” (24). In the introduction, the editor presents a broad survey of how historians have interpreted the Great Depression and the New Deal, beginning with contemporaries, proceeding through progressive historians (e.g., Arthur Schlesinger Jr. and Frank Friedel); consensus historians (e.g., Louis Hartz and Daniel Boorstin); an important transitional figure (William Leuchtenburg); and the new left historians (e.g., Paul Conkin and Ronald Radosh) and concluding with various historians of the past several decades who have written from a more bottomup perspective, with a focus on the social and cultural aspects of the events at issue, giving more attention to ordinary people and to those who tended to be ignored or marginalized by previous generations of historians. Many examples of works by the most recent group are described briefly in the ten essays that follow. Nevertheless, the area specialists devote the greater part of their space not to more recent work, but to what historians wrote before, say, 1980, or even earlier. Despite the enhanced understanding that social and cultural historians have surely brought to the field, it would be a mistake to suppose that they have fundamentally altered the main contours of historical understanding in regard to the Great Depression and the New Deal. Thus, Purcell is correct to conclude that, for historians in general, “even with the proliferation of new studies, no single work has fully replaced William Leuchtenburg’s Franklin D. Roosevelt and the New Deal (1963). Leuchtenburg’s assessment . . . has withstood criticism from both the historical right and left” (22). A short review does not allow detailed commentary on the individual chapters in Purcell’s collection. It must suffice to say that all of them are well written, cover substantial ground, and should prove helpful to graduate students. A problem that plagues most, if not all, of them, however, is that the Great Depression was essentially an economic phenomenon, and the bulk of the New Deal consisted of diverse policies and programs to intervene in the economy, ostensibly to alleviate economic suffering, aid economic recovery, and alter the basic institutions that sustained the economic order. Given these realities, it is imperative that anyone who attempts to understand and interpret these great events have a solid understanding of economics. Unfortunately, very few of the historians (and others) who have written about them have such understanding. Indeed, much of what these scholars affirm or, at least, take seriously are little more than man-in-the-street fallacies and crackpot economic ideas. This failing especially affects these historians’ attempts to understand the Depression’s causes and, hence, to consider what might have been done effectively to alleviate it and promote full recovery (something that nearly all historians now recognize the New Deal failed to achieve). From the literature surveyed in this collection, it would appear that few historians of the Great Depression and the New Deal consult the Journal of Economic History and other professional outlets for the historical research of economists, even though the most compelling research in this area has come from economists, not historians.