World War II Didn’t End the Great Depression

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).

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[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.]

Carl Close is Research Fellow and Senior Editor for The Independent Institute and Assistant Editor of The Independent Review and editor of The Lighthouse, The Independent Institute’s weekly e-mail newsletter.
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