In times of war, nations are forced to abandon all other goals in order to focus on the war effort. This has been consistent throughout generations. There is generally growth, particularly in industries needed for the military. National unity and the desire to work hard and support the country, are magnified. In the era when women were generally homemakers, jobs usually done by males were taken over by females who entered the workforce by necessity. War is often thought to be good for the economy. However, there is another aspect that is often overlooked. Economists have long been debating whether wars are actually good for the economy in the long-term. Although the high demand for labor boosts unemployment and the high production and steady consumer, the government, puts more money into the economy, is war truly beneficial to the economy? While there is an apparent wartime boom in the economy, it is limited to the time of conflict. Once the war is over, the demand for wartime goods is no longer there and the dependable consumer, the government, again shifts and decreases it’s expenditures toward other industries. War veterans return and need to re-enter the workforce which is already saturated by those who “covered” for them during the war. The economy is in transition again and in jeopardy, leading it to need to re-invent itself yet again. Amongst the many consequences of war, its long-term impact on the economy is often mistakenly assumed to be positive.
The economic transitions that occur surrounding conflict bring many demands on a nation. It has to be able to supply soldiers with food, weapons, vehicles, uniforms and more. Imports and exports may be affected due to relationships which may be fractured between nations. Cost is increased, but the number of jobs due to the growth in the military industry, is also increased thus decreasing unemployment rates. There is an influx of people working, many of whom had not been working before such as housewives during the two world wars in the last century. In this regard, war changes social dynamics as well. Since war is not planned for, many of the changes needed are immediate and hastily done. The entire economy must be converted, shifting the budget to the needs of the military. Factories and laborers need to adjust to new demands. Factories that once produced cars must now produce tanks and planes. Companies that once packaged candies must now start packaging munitions. All of these requirements must be met while also providing services and goods to the people. Businesses flourish and there is a steady consumer: the government.
The demand for labor and new factories seems positive in the short-term, but has long term implications once the war is over. Many attribute the end of the Great Depression to World War II. Indeed, economic crises are often the impetus for war as was the case with Nazi Germany. There is the hope that a war will improve a nation’s economy. Indeed, wars have created empires. War has also destroyed empires, and while the victors have often amassed wealth, amongst the many spoils of war, other nations have succumbed to poverty and division.
War has helped boost the economy by boosting production and increasing employment across a nation. One article written by Tracey Warm of OAH magazine describes what happens to production during war. Preparations had to be made before World War II in America, even before Pearl Harbor. During the war, companies were forced to meet a demand in wartime goods, beyond what they were normally able to meet. Especially during the Great Depression, production was low since demand was also low. Suddenly, World War II brought a surge of demand and they had to quickly re-adjust. That boom helped stimulate parts of the economy that were otherwise dead. Automakers began making tanks and planes, while other companies that produced normal consumer goods began making ammunition and using their packing techniques to package the ammo.Many of these companies had to convert their entire supply lines to produce only wartime goods. With every man at war, there was a huge labor shortage in America. One way the government encouraged companies to produce high amounts and hire more workers was to offer rewards. Thanks to the labor shortage and government encouragement, companies began hiring more workers, finally putting money into people’s pockets again. After such a slump in the Great Depression people were finally able to work again and earn wages to pay for their homes and feed their children. That money finally being put back into the economy contributed a huge amount to the economy. From 1939 to 1943 wartime production in America increased from 1 billion dollars to 55 billion dollars. with 59% of all production for the military. For the first time since the roaring ‘20s the economy was booming again. With this growth, people were ready to spend money again, including on new consumer goods. However, there was a shortage of basic goods such as household appliances because of the shift in industry demands. Not only had production been given a huge boost, but also the labor market. Even as late as 1940, the unemployment rate was at a whopping 15%. However, by 1942 it fell to 5% and finally to a stunning 1% in 1944. The number of federal civilian employees quadrupled from 950,000 in 1939 to 3.8 million in 1945. In order to fill the massive demand created by the war, many preparations were made. New plants had to be built and old plants had to be converted to produce wartime goods. Wartime supplies and materials needed to be delivered to the plants. A large amount of money and manpower was also needed for such a rapid expansion of the economy.
This is only one take on the economic impact of war. Economists argue that this positive impact is inaccurate. While all these changes to the American economy seemed to be doing no harm, an in depth look at both during and after World War II suggests otherwise.
Despite the appearance of wartime prosperity, a war can prove more costly than helpful to the economy of a nation. World War II America, for instance, appeared to be recovering from the Great Depression as a result of the war. Unemployment rates decreased, production increased, new factories were built and government spending increased. All of these appear to indicate prosperity. However, this was an artificial growth. The gross national product (GNP) grew, but not as much as it appeared since most was as a result of government rather than consumer spending. In order to avoid the draft, people instead began volunteering to do other jobs. Everyone was forced to join the war effort in some way, whether enlisting, being drafted or volunteering to do other jobs. After the unemployment rates resulting from the Great Depression, people joining the war effort led to an artificial decrease in unemployment rates. While more people were working, the people that did join were given significantly lower than expected salaries for their service. Ultimately, removing millions of people from the job market due to the draft resulted in inaccurately low unemployment rates as well. Just like GNP, unemployment figures were also unreliable.
Throughout the war the GNP increased tremendously. One must look at where that came from. Most of that money came from government spending. During the war, there was very little consumer spending which is essential to a healthy economy. Consumer spending was a result of the lack of consumer goods as well as low wages. Also, most production was redirected and focused on the war effort. For a long time, one could not buy common household appliances such as new stoves or ovens. In war, using wage and price controls is common to keep the constant government spending from affecting inflation. This means that prices do not actually reflect real market value prices that consumers would pay. In order to try to account for wartime tools like price controls, economist and historian Robert Higgs, used a different method to evaluate the effect of war on the economy. What he found was that real personal consumption per capita was essentially flat from 1939 to 1945 rising only 6.8%. In addition he used a war adjusted concept of GNP and found that it had remained relatively stagnant rising just 5% from 1939 to 1945. Although on the surface, wartime economy seemingly improved, a closer look at the circumstances that created this apparent growth shows it at best to be stagnant.
Despite apparent wartime prosperity, low unemployment rates and increased production and demand, war can actually prove more costly to a nation than helpful. Looking back at wars like World War II, one sees there is tremendous growth in the economy. The unemployment rate dropped to almost zero, and the GNP grew rapidly. However, further dissection reveals that this growth is artificial and not sustainable leaving a nation vulnerable after the war is over. The take-home message is that war is never the solution.