[samgheb]

I’m writing a term paper in history and I have decided to write about the myth that WWII and by extension war helps to create prosperity.

Tom Woods has a ressource page which cites Robert Higgs’ work in the field so I’ll use that. Are there other prominent economists who have tackled this issue from the point of view that WWII didn’t create wealth?

Even more so I’m hoping for a couple of names on the other side of the debate. Are there some people in particular who are famous for using WWII economics to justify government spending? If you can think of any economists who have a free market reputation I think that would especially useful to show that it is not merely a partisan debate.

[jmherbener]

Take a look at the Vedder and Galloway article:

http://mises.org/journals/rae/pdf/RAE5_2_1.pdf

Check the references in Higgs’s article the V and G article for proponents of the war prosperity view. Higgs has a list in footnote 3. V and G have a section in their article on such proponents starting on page 14.

[samgheb]

Have there been any non-austrian economists who have challenged war=prosperity?

Chicago school economists deny that stimulus works in general right? So it would seem logical that they would deny war=prosperity as well. Yet I have not come across such materiale. It seems like an uniquely Austrian insight. Is that right?

[jmherbener]

The reason for the dichotomy is that monetarists, who are otherwise favorably disposed toward the free market (like Friedman) because of their microeconomic analysis, accept the Keynesian aggregate demand framework in macroeconomics. If one presupposes that aggregate demand determines production and employment it seems to follow that war spending must lift an economy out of depression.

Here is Roger Garrison’s article on Friedman and Keynes:

https://mises.org/daily/4067

Check the references in Robert Higg’s seminal article for fellow travelers with the Austrians against the claim of war prosperity:

http://www.independent.org/newsroom/article.asp?id=138

[samgheb]

I might come back to this thread as I do more research on the topic for my term paper.

Thank you very much. You have been very helpful.

[samgheb]

Prof. Herbener,
Is there a unique neoclassical view of the WWII economy distinct from both the keynesian and the monetarist view?

I ask because I have to give an account for each school that is relevant in the discussion.

[jmherbener]

Here is a conventional, economic history of WWII:

http://eh.net/encyclopedia/article/tassava.WWII

It stresses micro-economic analysis instead of macro. Take a look at the citations for more sources.

[samgheb]

Is there any sort of policy recommendation that neoclassicals would take though?

I mean keynesians would focus on the fiscal policy and monetarist would focus on monetary policy. Is there an equivalent policy of that for neoclassicals?

[jmherbener]

Neoclassicals would advise the government on ways to improve the “efficiency” of the their micro-economic policies. For example, if the government nationalized the railroads during the war, neoclassicals might build models to find out the minimum distance trains can travel and deliver all their cargo.

The Rand Corporation had neoclassicals construct game theory models to learn about negotiation strategies during the war.

http://www.indepthinfo.com/rand/game-theory.htm

Perhaps the most famous example from WWII is Milton Friedman advising the Treasury department to institute income tax withholding to improve the efficiency of tax collection.

http://www.lewrockwell.com/rothbard/rothbard43.html

[samgheb]

Ok this is very helpful.

My impression so far has been that the evolution of this debate went from keynesian to a mix of monetarism and keynesianism. I believe Friedman and Schwarz’s book helped create this consensus correct?

Also I found a journal article by J.R.Vernon from 1994 entitled “World War II Fiscal Policies and the End of the Great Depression” where he tries to restablish that fiscal policy matters as well and that consensus view still holds. This was a direct answer to the work of Romer, Delong+Larry Summers which emphazised monetary policy as being important in ending the Great Depression and that it ended before 1942 and did not attribute that to the war. Those are big names so I’m wondering if they have succesfully changed/challenged the consensus view?

Update:
I also just found Krugman basically agreeing with the Romer/Delong/Summer line of thought on the Great Depression. Back in 1998 he was saying monetary policy was the primary driver and not fiscal policy.
Robert Murphy through Scott Sumner found this.
http://consultingbyrpm.com/blog/2012/12/scott-sumner-devastates-paul-krugman-on-the-liquidity-trap.html

I mention this only to further argue that perhaps the consensus was changing among keynesians in the 90’s after Romer/Delong/Summers came out with their work.

[jmherbener]

Don’t make too much of the seeming emphasis of fiscal policy to Keynesians and monetary policy to Monetarists, Both agree on the importance of aggregate spending in determining the macro economy. Only in the special case of a liquidity trap, do Keynesians claim monetary policy is ineffective. Romer’s article focuses on monetary stimulus, not in contrast to fiscal, but in contrast to “self-correction” of the market.

http://www.nber.org/papers/w3829

[samgheb]

Am I right in saying that before Friedman and Schwartz(1963) came out with their book that for mainstream economists the emphasis was mostly on the effectiveness of fiscal policy rather than monetary policy?

I think I understand what you’re saying. But I’m not arguing that the monetarists don’t have a keynesian world view. I’m arguing that their emphasis is different within that world view and that they managed to change the emphasis in the mainstream analysis of the end of the Great Depression or am I overstating the monetarist influence?

[jmherbener]

Romer is a New Keynesian. So, the dispute you’re discussing is between Old Keynesians and New Keynesians.

Take a look at Mankiw on the New Keynesians and the macroeconnomic synthesis:

http://www.econlib.org/library/Enc/NewKeynesianEconomics.html

The literature has moved on from the monetarist-Keynesian debate.

[msickmeier]

How’d the term paper come along Sam?

[samgheb]

I think this will probably be my last question because I’m almost finished.

In Higgs article on Wartime Prosperity he has a table 2(page 6 in the pdf) where he has several numbers for Real Gross National Product. To take Kuznets numbers as an example, it says that in that in 1939 the number is 100 and by 1943 the number is 148.6.

A)What does this index number mean? Because surely this is not GDP growth correct?

B)What does this 50% increase from 1939 to 1940 mean?

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