The Myth of War Prosperity

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6, 2003
Letters to the Editor

The Wall Street Journal

To the editor:

Davis and Gref Jaffe’s article (Feb. 4) on the
likely economic consequences of a U.S. war against Iraq errs
by giving past wars credit for creating positive economic effects.
This hoary fallacy, it seems, just can’t
be killed.

The strongest case for it has long been World War II, which
Davis and Jaffe claim u201Cclearly was a boon for the U.S. economy.u201D But a boon
in what sense? Unemployment fell during the war entirely because of the buildup
of the armed forces. In 1940, some 4.62 million persons were actually unemployed
(the official count of 7.45 million included 2.83 million employed on various
government work projects). During the war, the government, by conscription
the most part, drew some 16 million persons into the armed forces at some time;
the active-duty force in mid-1945 numbered in excess of 12 million. Voila,
civilian unemployment nearly disappeared. But herding the equivalent of 22
percent of
the prewar labor force into the armed forces (to eliminate 9.5 percent unemployment)
scarcely produced what we are properly entitled to call

Yes, officially measured GDP soared during the war. Examination of that increased
output shows, however, that it consisted entirely of military goods and services.
Real civilian consumption and private investment both fell after 1941, and
they did not recover fully until 1946. The privately owned capital stock actually
shrank during the war. Some prosperity. (My article
in the peer-reviewed Journal of Economic History,
1992, presents many of the relevant details.)

It is high time that we come to appreciate the distinction between the government
spending, especially the war spending, that bulks up official GDP figures and
the kinds of production
that create genuine economic prosperity. As Ludwig von Mises wrote in the aftermath
of World War I, u201Cwar
prosperity is like the prosperity that an earthquake or a plague brings.u201D

Higgs [send him
] is
senior fellow in political economy at the Independent
, editor of The
Independent Review
and author of Crisis
and Leviathan
the editor of Arms,
Politics, and the Economy

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