No doubt Americans produced an abundance of munitions during the war: if one accepts the national-product estimates at face value, it transpires that nearly 40 percent of GNP consisted of war-related ouputs from 1942 to 1945.
Figure 2 shows the annual percentage growth rates of the private portion of real GDP, that is, GDP minus government purchases of newly produced final goods and services. Comparing those growth rates with the growth rates of total GDP in Figure 1, one sees that the differences were slight for the years 1930 to 1940. The gap became enormous in 19, when private output fell sharplyby 10.6 percent and 3.7 percent, respectivelyeven though total output increased by 20 percent each year. If we dismiss as spurious the GDP data that indicate a postwar depression, are we warranted as well in dismissing the GDP data that indicate a wartime boom? A glance at Figure 2 suggests that something may be askew in the data series indicative of wartime prosperity and postwar slump. Indeed, the reconversion from a wartime command economy to a market-oriented postwar economy, a transition accomplished with astonishing speed and little apparent difficulty, constitutes one of the most remarkable events in U. With few exceptions, scholars have not yet recognized the problems inherent in dealing with that great event. Once the war was over, these savings were released and created a surge in demand that contributed to a postwar rise in prices and to the reintegration of workers from the armed forces and from defense industries into the peacetime labor force. Spurious Prosperity, Spurious Depression Notwithstanding the orthodox story, the economy seemingly did plunge into depression in 1946at least, that is the conclusion one must reach if one takes seriously the official GDP data on which economists and historians normally base their accounts of macroeconomic fluctuations.
In this article, I consider some major issues of measurement and explanation related to the reconversion of the U. economy between 19, a transition that laid the groundwork for the prosperity of the following half century. Government policy also played a role in smoothing the transition. As Figure 1 shows, the economy began to contract in 1945, when real GDP fell by 4 percent from its wartime peak in 1944. The success of the transition depended on the reestablishment of regime certainty, which in turn depended on diminishing the influence of the more zealous New Dealers. Wartime and postwar political developments created sufficient regime certainty for the postwar market system to generate genuine prosperity. delayed the reentry of many former servicemen into the labor force and provided them with improved skills. Office of War Mobilization and Reconversion, Eighth Report, 1 October 1946, p. Despite the widespread and longstanding acceptance of official GDP data indicative of wartime prosperity from 1941 to 1945, those data have no sound scientific basis. Although the estimates have defects of various sorts, the fundamental problem is that meaningful national-product accounting requires market prices, and the command economy of the war years rendered all prices suspect and many of them, especially the prices paid by the government for goods and services, manifestly arbitrary. After all, it seemed as if enormous levels of government spending during the war were the only thing that had gotten the country out of the depression. Before one dismisses the apparent postwar economic collapse as a misleading statistical peculiarity, one ought to recognize that the same system of economic accounts that gives rise to that oddity also generates the evidence of the wartime prosperity (Figure 1), evidence that economists and historians alike have long credited.