Gooner1 wrote:How did the US economy double in size? Well I guess more people working more hours for more money more efficiently would account for it quite satisfactorily.
There was a 20% increase in civilian employment in the US from 1939 to 1944. This increase was made of up workers with lack of experience and human capital (women, mostly), investment to GDP ratio was also very small, hence we would expect a reduction
in productivity with this 20% increase in employment. Number of hours worked also increased though. Overall the best estimate we have is Kuznetz shown a growth of about 30% over the period, an estimate consistent with the facts which is the one I used.
I am extremely well acquainted with all the several different estimates of US GDP variation during the war, I know of half a dozen. They are all very problematic. Madison's estimate is the one based on the 1980 prices made in 1990 by the department of commerce, which shows the greatest variation in output and is the most distorted one.
I quote: http://www.independent.org/newsroom/article.asp?id=138
"Table 2. REAL GROSS NATIONAL PRODUCT, 1939-1949
(index numbers, 1939 = 100)
Year Estimate of
1975 Estimate of
1990 Kendrick Wartime Revised Variant III GNP*
1939 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1940 108.5 107.9 109.7 109.3 109.0 109.0 108.7
1941 125.9 126.9 128.7 125.9 121.8 121.7 119.4
1942 142.2 150.8 145.5 131.9 126.5 118.2 108.4
1943 161.0 178.1 160.6 148.6 132.5 117.6 102.2
1944 172.5 192.7 172.4 135.8 122.1 105.4
1945 169.6 189.1 171.3 139.4 125.6 114.3
1946 149.3 153.1 156.7 151.0 146.5 144.8
1947 148.0 148.9 153.4 154.5 148.0 147.3
1948 154.6 154.7 160.0 155.5 153.1 152.3
1949 154.8 154.8 156.9 152.6 148.5 147.5
Sources: Column 1 was computed from data in U.S. Bureau of the Census, Historical Statistics, p. 224 (series F-3); column 2 from data in U. S. Council of Economic Advisers, Annual Report, p. 296; column 3 from data in Kendrick, Productivity Trends, pp. 291-92 (national security variant); column 4 from data in Kuznets, National Product in Wartime, p. 89 (Variant a); column 5 from data in Kuznets, “Long-Term Changes,” p. 40; and column 6 from data in Kuznets, Capital, p. 487. GNP* is equal to Kuznets’s variant III minus gross war construction and durable munitions and was computed form data in Kendrick, Productivity Trends, pp. 291-92."
"By contrast, Simon Kuznets, a pioneer in national income accounting, expressed many concerns. In National Product in Wartime Kuznets noted that national income accountants must make definite assumptions about “the purpose, value, and scope of economic activity.” He observed that “a major war magnifies these conceptual difficulties, raising questions concerning the ends economic activity is made to pursue; and “the distinction between intermediate and final products.” Moreover, “war and peace type products . . . cannot be added into a national product total until the differences in the valuation due to differences in the institutional mechanisms that determine their respective market prices are corrected for.” During the war Kuznets constructed several alternative series, one of which appears in Table 2, column 4. Its values for 1942 and 1943 are substantially lower than those in columns 1, 2, and 3, in part because Kuznets used preliminary nominal data as well as different deflators for expenditure on munitions.11
After the war Kuznets refined his estimates, producing a series (Table 2, column 5) that differs substantially from the standard series “partly because of the allowance for overpricing of certain types of war production, partly because of the exclusion of nondurable war output (essentially pay and subsistence of armed forces).” Contrasting his estimate and that of the Commerce Department, he found the latter “difficult to accept” because it made too little correction for actual inflation during the war years and did not deal satisfactorily with the decline in the relative prices of munitions during the war.12 Kuznets’s refined estimates follow a completely different profile for the 1940s. Most notable is that whereas the Commerce Department’s latest estimate of real GNP drops precipitously in 1946 and remains at that low level for the rest of the decade, Kuznets’s estimate increases in 1946 by about 8 percent, then rises slightly higher during the next three years.
Kuznets might have made an even greater adjustment, deleting all war outlays. Although computing GNP in this way now seems highly unorthodox, a strong argument can be offered for it, and Kuznets considered it seriously.13 The crucial question: does war spending purchase a final good and hence belong in GNP, or an intermediate good and hence not belong?"
This criticism also applies to the GNP figures of all countries involved in the war. The weapons miracle in Germany's case is a smaller magnitude case of the same type of statistical distortion as these super inflated US GNP figures.
GDP overall, is a figure that makes more sense in peacetime, since it measures total market value of output produced, output directed at satisfaction of consumer preferences. In wartime resources are redirected from it's normal use to the military. Prices times quantity cease to be a good measure of economic output because the things produced change: how can you say the US economy grew if output of everything it used to produce collapsed (i.e. consumer goods), while the stuff it was doing in 1944 were pretty much only aircraft, ships, tanks and bombs, things which were not a significant part of the 1939 economy?
Because everything the US produced in 1944 was priced in dollars, same as in 1939?
BTW Germany in 1939 was in no way, shape or form a normal peacetime economy.
Military expenditures Germany in 1939 were about 15% of GNP. That's a similar rate as the US during the Korean war, not enough to seriously distort the calculation. By 1943-44, military expenditures were 50-60% of GNP in all belligerent countries. Much higher levels of distortion certainly.
The problem is that military "goods" are not priced in the market, they are not part of the civilian economy and are not made to satisfy consumer preferences. Hence wartime figures are more problematic, so I used peacetime figures, however, it's true that in 1939, Germany, UK, France and the Soviet Union were already spending a huge amount of money on the military. Same for the US during the cold war.
Another problem is the reduction in production cost of munitions relative to civilian goods, suppose the following:
In 1939 there are 2 goods: apples and bombers and 100 workers, 99 workers employed in producing apples producing 99,000 apples a year, 1 worker employed in producing bombers, producing 1 bomber a year, at a price of 1,000 apples. Suppose the economy mobilizes for war in 1940, half the workers in the apple sector go to the bomber sector, employment in apples falls to 50 workers, production of apples fall to 50,000 apples while employment production of bombers increase to 50 workers and thanks to economies of scale, productivity in bomber production doubles and output of bombers if 100 bombers, 2 bombers per worker. Price of bomber falls to 500 apples. Hence, measured at prices of 1939, output in 1940 was 150,000 over 100,000 in 1939, hence output was 50% higher than in 1939, but measured at prices of 1940, output was 99,500 in 1939 and 100,000 in 1940, an increase of 0.5%.
See the difficulties in measuring that? US output increased a lot if we use prices of 1939, it did not increase much if we use prices of 1945, when production costs of anything military related were a fraction of 1939 costs. A shift to a war economy will always lead to inflated estimates of output using pre-war prices. The estimates of the department of commerce are even worse because they use prices from 1980 to compute GDP in the 1940's, which was the estimate Madison used in his dataset. A clear problem there. German manufacturing output reportedly doubled from 1936 to 1943, but much of this growth was also distortion.
Also, the Soviet Union had a degree of government control over economic activity that even peacetime estimates of GNP are problematic, since most output was not produced for the private consumers. Overall, it's much more difficult to measure wartime GNP than peacetime.
2 - Because I wanted to compare the economic potential under control by each coalition and not the historical output.
Yes that is what I thought you wanted. It conveniently ignores that the countries and areas that Germany conquered to 1942 did not become their allies and that economies experienced drastic declines, in no small part due to the German policies of theft and pillage.
Which means that those were stupid policies. Yes, they did not become allies but their entire economic potential was under the control of the German government, France paid 40-50% of it's entire GNP to Germany, more than the taxation rate inside Germany itself. In effect the country's border expanded and it "assimilated" other countries. There is essentially no difference between taxing occupied territories and "traditional" territories, it's just a state expanding it's sphere of control.
Also, there is not essential difference between taxation and pillage. Taxation is a more civilized form of pillage, both are essentially the same phenomena: a state confiscating property of individuals. The way the German government pillaged occupied territories was a very stupid way of raising resources.
States are not countries, they are organizations based on organized violence that confiscate the output inside the territories they control. German government increased the amount of resources under their control several times during the war. That explains how Germany was able to spend 500 billion RM (in 1938 prices) over a GNP of 102 billion RM in 1938. Much higher rates of military expenditure relative to GNP than those of other belligerent countries and in 1943-44, Germany was spending 125-150 billion RM over a GNP of 160 billion RM, all thanks to revenues from occupied territories and utilization of the European financial system. This explains how Germany was able to spend as much as the US in the war, even though their initial resources were much smaller:
German military outlays in 1938 RM: 500 billion, 5 times gross national product in 1938.
US military outlays in 1940 dollars: 190 billion, 1.9 times gross national product in 1940.
This discrepancy can be explained by the fact that Germany itself was only 40% of the GNP of the areas they controlled after the Battle of France.
"In tactics, as in strategy, superiority in numbers is the most common element of victory." - Carl von Clausewitz