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