The Myth of World War II Prosperity
Of the 16 million Americans who were in uniform at some time during World War II, fully 10 million were conscripted. (For more on this, see Robert Higgs, “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s.”) The only way economists have to figure out whether someone is better off having a job than being unemployed is to know that the person chose the job. But conscription is the antithesis of choice. To put this in numerical perspective, the civilian labor force during World War II was only 54 to 56 million. It’s not hard to reduce unemployment by almost 7 million people if you use conscription to raise the size of the armed forces by almost 11 million people.
Gross national product increased during World War II, but GNP became a meaningless measure because of price controls and war production. When the US entered the war, it imposed price controls on virtually all goods used in the war effort and put itself at the front of the line for those goods. So when we look at the incomes of consumers and consider what they were able to buy with those incomes, we get an overstatement. Many goods were actually unavailable.
War spending made up nearly half of GNP by the end of the war. All of those expenditures that went for guns, trucks, airplanes, tanks, gasoline, ships, uniforms, and labor were expenditures that were destroyed. Not just the goods, but even the millions of labor hours, were used up without creating value to consumers. It’s not prosperity to produce things that government quickly destroys. If we factor out war spending, we’re left with virtually no increase in real gross national product per capita between 1940 and the last fiscal year of the war.
It’s actually worse than that. The economy was coming out of the Depression in the prewar years. The unemployment rate, which had reached 24.9 percent in 1933, the worst year of the Great Depression, had fallen to 17.2 percent in 1939, 14.6 percent in 1940, and 9.9 percent in 1941. The unemployment rate would probably have continued to fall, absent U.S. participation in World War II, possibly reaching as low as 6 or 7 percent by 1944. This means that GNP per person, properly measured to reflect consumers’ values, would have been well above its actual level in 1944.
“The Myth of US Prosperity During World War II,” by David R. Henderson