Economics of WWII

1. Economics of WWII From the following sources: • The Economics of WWII: An Overview by Mark Harrison a chapter in The Economics of WWII, ed. by Mark Harrison • The Economics of the World Wars by Stephen Broadberry and Mark Harrison, an entry in The New Palgrave Dictionary of Economics, 2/E, 2008. Consider two themes (same as WWI themes) • The contribution of economic factors to the outcome of the war. • The effects of war on long-run economic development

2. Economics of WWII The contribution of economic factors to the outcome of the war. Economic Causes: • 1st century of globalization with economic integration was in trouble in the late 19th century and ended in 1914. • After WWI instabilities intrinsic to the global economic order increased (based more on nationalism that classical liberalism).

3. Economics of WWII Economic Causes: • Worldwide trade disintegration due to • Formerly dominant British economy is weak and the U.S. as the dominant economy provides no leadership • Germany isolated by Treaty of Versailles • Russia isolated by Lenin and then Stalin • Great Depression • Protectionism accelerated disintegration • Closed trading blocs organized along colonial lines with rivalry between the trading blocks (not unlike WWI)

4. Economics of WWII Economic Causes: • Worldwide trade disintegration contributed to the causes of WWII. • Economies of Germany, Italy, and Japan were to small to gain economies of scale w/o trade and required external sources of food, energy, and other basic materials. • Their external aggression was the attempt to secure these supplies by imposing a colonial trading regime over conquered territorities.

5. Economics of WWII Non-economic Causes: • WWI ended inconclusively, with a ceasefire and a peace treaty designed to punish the “aggressors.” • There was no unconditional surrender and those in Germany that wanted to try again eventually took power in 1933. • Germany wished to terminate and rescind the Treaty of Versailles

6. Economics of WWII Treaty of Versailles • required Germany and its allies to accept full responsibility for causing the war • to disarm • make substantial territorial concessions • pay reparations (economic)

7. Economics of WWI and WWII One View: Only economic size matters Goldsmith (1946) “The Power of Victory: Munitions Output in WWII” Ferguson (1998) The Pity of War Given the Allied economic advantage WWI should have been over much sooner. • Only explanation: mismanagement , “an advantage squandered” • Economic advantage came into play after much attrition and the military advantage of the aggressors had almost won the day

8. WWII Divided into Two Periods • First period: military factors were more important than economic considerations. • 1937 (Pacific), 1939 (Europe) until 1942 • Germany and Japan had advantages in strategy and fighting power, but no decisive military victory • Stalingrad (July 1942 – February 1943) • Midway (June 5-7, 1942) • Second period: brief stalemate then war of attrition with economic superiority determining the outcome

9. Table 5. Allies vs Axis: Soldiers and Equipment in World War II Allies Axis Ratio Combatant-years, million 106.4 76.9 1.4 Weapons Produced: Rifles and carbines, million 25.3 13.0 1.9 Combat aircraft, thousand 370 144 2.6 Machine Guns, thousand 4827 1646 2.9 Guns, thousand 1357 462 2.9 Armoured vehicles, thousand 216 51 4.3 Mortars, thousand 516 100 5.1 Major naval vessels 8999 1734 5.2 Machine pistols, thousand 11604 1185 9.8 Ballistic missiles 0 6000 … Atomic weapons 4 0 …

10. Table 8. The Military Burden, 1939-44 (military outlays, per cent of national income) 1939 1940 1941 1942 1943 1944 At current prices: Allied powers USA 1 2 11 31 42 42 UK 15 44 53 52 55 53 USSR (constant prices) … 17 28 61 61 53 Axis powers Germany 23 40 52 64 70 … Italy 8 12 23 22 21 … Japan 22 22 27 33 43 76

11. Tbl 9. War Losses Attributable to Physical Destruction (per cent of assets) Human assets Physical assets national wealth industry fixed assets Allied powers USA 1 0 … UK 1 5 … USSR 18-19 25 … Axis powers Germany 9 … 17 Italy 1 … 10 Japan 6 25 34

12. Period 1: Up to 1942 • Prewar rearmament gave Axis powers an early advantage, and • Early pure military advantages account for success • In Europe after France fell in 1940, U.S. neutral and Russia allied with Germany – advantage Germany BUT • U.S. helping Britain with trade • Russia, then U.S. in war in 1941 • With no decisive Axis victory, the war is over in 1942

13. Inter-Ally Cooperation • In WWI and WWII, Germany fails to exploit the advantages economic cooperation with its allies • In WWII, Germany was initially “cooperating” with Vichy France and viewed as a “liberator” from communism in the east. • The Allies achieved fuller cooperation and on a much larger scale in WWII. • U.S. to Britain (Lend-Lease) • U.S. and Britain to USSR • Supplied free of finance charges

14. Economics of WWII Long Run Economic Growth • After WWI globalization does not return • After war, recovery but • Little convergence among the countries to a path of convergence on the global productivity frontier • After WWII the second age of globalization begins • Convergent economic growth (among western bloc) • Allies designed a much better international environment

15. Conclusions • Economics mattered • Given time, resources won WWI and WWII • 1914-1945 was an era of “total war” devoting more than ½ GDP to the war effort • Self-sufficiency was self-defeating • Total war not viable before 1914 • Subsistence agriculture resistant to mobilization • Total war not necessary after 1945 • Nuclear weapons