Appendices - Hirohito's War
ECONOMICS OF THE PACIFIC WAR – THE NEW DEAL MOBILIZED
Guns and Butter: The impact on employment and economic activity after the outbreak of World War II was dramatic. Unemployed Americans were brought back into the labor force and ten million new workers entered the production industries. The percentage of the civilian population in employment increased from 47.6 per cent in 1940 to 57.9 per cent in 1944 as teenagers left school early, women left home to work for the first time and older employees came out of retirement. Working hours in manufacturing also increased from an average of 38.1 in 1940 to 45.2 in 1944. Inevitably war had a significant impact on America’s economic performance. In the decade to the end of 1941, the US economy had in effect stagnated with the index of industrial output falling from 100 to 98. From 1940 to 1945 US GNP grew from US$100bn per annum to US$213bn per annum. Military expenditures rose to 20% of GDP in 1941. These formal figures do not tell the whole story however.
In spite of the rapid expansion of the US economy in the war years, there was only a modest rise in domestic consumption and living standards. Unemployment of 9.5 percent, about 9 million people, did indeed disappear within a year of the start of the war as defense employment rose from 1.8 million in 1940 to 25.7 million in 1942 reaching a peak of 39.4 million in 1944. The total labor force of the US rose from 54m to 64m in the war. How happy people felt at swapping the insecurity of unemployment for the fears of death or injury in military service is difficult to estimate. As the Austrian economist Ludwig Von Mises famously noted, “War prosperity is like the prosperity that an earthquake or a plague brings.”18 Nevertheless, the losing of wars is rarely conducive to improved living standards let alone psychological comfort. Generally war is more of a plague on those who lose.
Inevitably, given the demands of the war economy, some products were in short supply; gasoline for private vehicles was rationed, rubber based domestic products such as car tires were scarce, while nylons were also in short supply. At the start of the conflict, the War Production Board had to scrounge for raw materials; patriotic appeals were made: “Give us your scrap metal and help Oklahoma boys save our way of life.”19 Economic growth fed almost entirely into war production that represented 2 percent of total industrial output in 1939, 10 percent in 1941 and 40 percent in 1943.
In spite of these supply constraints, rationing and rising prices, it is notable that both the quality and the amount of food consumed by the civilian population grew. Average per capita consumption of food increased from 1,548 lbs in 1939 to1,646 lbs in 1946. Net wages of industrial labor rose by 21 percent from 1939 to 1944, though less fast than corporate profits that doubled. Nevertheless based on these figures, the US war economy in World War II was seemingly able to sustain ‘guns and butter’ rather than ‘guns or butter’ as was the case with Japan at the start of the Pacific War and Germany after 1943 when it moved to a ‘total war’ economy. In Britain too, real personal consumption fell by 30 percent during the war.
Neither did the war dent agricultural production in spite of the withdrawal of some 8 million employees from the farm sector. Shortage of agrarian labor led to a rapid mechanization of the farm sector. Over the course of the war usage of mechanical power and machinery increased by 44 percent.
Adjusted for the degree to which investment and products produced were in effect ‘waste’ (i.e. military equipment), various figures for wartime GNP have been produced. While the US Council of Economic Advisors annual report in 1990 concluded that GNP rose by 189.1 per cent between 1939 and 1945, economic historian Simon Kuznets adjusted GNP to account for war construction and ‘durable munitions’ to show a rise of just 114.3 per cent. It is interesting to note that the stock markets as measured by the Standard and Poor’s Index rose by just 25 percent over the course of the war, mainly in the last two years.
By midsummer 1944 it was clear that America was entering a new age of prosperity. Stores were full of goods, the war was clearly being won, people were in a festive mood. The beach resort of Coney Island was jam-packed. Finding a hotel room at short notice was near impossible. 1944 turned out to be another record year of farm production with output 30 percent higher than the pre-war average. It was the third year of good weather in a row. Manufacturers, now replete with raw materials, started to turn back to producing for the domestic market and ramped up volumes of tractors, harvesters and other farm equipment. In Washington all the talk was now about reconversion; the return to a normalized peacetime economy. The price of farmland jumped by an average of over 42 percent above the levels of the late 1930s; in Kentucky and Colorado values rose by over 70 percent. Frederick Lewis Allen wrote: “The United States is now being swept by a wave of prosperity that makes 1920 look like a ripple.”20