Hi all,
I was wondering, have any Austrian economists done any work on trying to explain why there wasn't a crash after WW2? If you think about it, all the building blocks are there for a second Great Depression. First, during the War, the Federal Reserve increased the monetary base on such scale that it made look like they were asleep during the 1920s (when expansionary monetary policy supposedly set the stage for the first Great Depression).
Second, the Federal Reserve went beyond manipulating the money supply and used coercion to directly alter the capital structure of the economy. New factories were built for the express purpose of building fighter planes and munitions. Old factories that once produced consumer goods were converted to producing supplies and equipment for a fighting army.
And of course, let's not forget about the men who could have learning/refining skills and getting job experience that instead were off fighting the enemy. Those that didn't come back maimed or dead came back with 4 years of their lives wasted on destruction.
So why, after all this, did the economy not fall into a Second Great Depression in the late 1940s after the war had ended and a capital structure altered to support a war effort had to suddenly support a civilian economy? Certainly, there was a brief recession immediately after the war, but compared to the 1930s it was a cake walk.
This is hard for me to understand. Monetary expansion in the 1920s supposedly distorted the capital structure so much that the economy crashed and unemployment rose to the double digits. But, then, an even greater monetary expansion and government coercion in the 1940s distorts the capital structure so much that the economy unemployment moves to the single digits after demobilization??
Not to say things in the post-WW2 era were perfect, but there is a suspicious lack of a monumental economic crash here.
I tried googling but couldn't find any articles on the subject from an Austrian perspective (may have been the search strings I was using). So if anyone could point me to some sources, I would greatly appreciate it.
Ambition is a dream with a V8 engine - Elvis Presley
Well, I am not actually trying to test the theory. I think the post-WW2 economy does pose interesting questions for ABCT, but I agree that I am not the person to evaluate what the answers to those questions should be. So I was hoping to find articles by trained Austrian economists to see what they were thinking.
As described in the article, the economic intervention during WW 2 was massive. This intervention was released, for the most part, after the war. In short, the recovery could be at least partly attributed to the end of wartime planning. This may not directly address your question regarding ABCT, but I believe it is important to consider. (no need to reply to me regarding this, I'm not able to debate you. I just thought this article is relevant to the conversation.)
http://www.thefreemanonline.org/columns/the-1946-voter-revolt-against-government-regulation/
"The market is a process." - Ludwig von Mises, as related by Israel Kirzner. "Capital formation is a beautiful thing" - Chloe732.
Austrians weren't expecting a massive depression in the post-war economy, it was the Keynesians that did.
Robert Higgs explains this. Pretty sure there's a vid on Youtube split up into parts, titled "Myth of War Prosperity" or something like that. The GDP of the nation declined greatly but the private sector grew by 30%(the greatest ever in American history). The reason the private sector grew was because the government massively cut spending and lifted many controls, thus allowing the private sector to grow because it stopped crowding it out as much.
Furthermore, you can have misallocation of resources but you don't necessarily need large amounts of unemployment as long as wages are not interefered with (no minimum wage means people can adjust their wage preferences downward and thus still be able to find jobs even if resources are still misallocated).
edit - here's part one of the vid series (since i dunno where the vids are on the mises site)
"Myth of War Prosperity (Part 1 of 5)
http://www.youtube.com/watch?v=qBrs4c7ayDk
I don't know of any peer reviewed work on the specific event that interests you. But I think you put too much emphasis on the mis-allocation of capital. It is easy to do because it is so profound and different from any other theory. However, there have been many bank panics in our history, even when we had a gold standard, because of fractional reserve banking. By the way, the gray lines in the fed's chart above indicate recession. So, reasonable people can believe that there was one after 1945 as indicated.
In The Politically Incorrect Guide to the Great Depression and the New Deal. By Robert P. Murphy, Dr Murphy explains that before the great depression, the economic problems following a bust rarely lasted more than 18 months. The great depression was 100% caused by government intervention that prevented economic recovery.
It is well known that during WWII everything that was not rationed directly had its price set by a central bureaucracy in the USA and most other countries. Thankfully FDR was dead when the war ended. So they did not have him trying to continue and extend the new deal. Instead, people who had endured 15 years of hell on earth were able to dismantle most of the government and set people free. The people took care of the rest. And the story was similar for most countries around the world.
There is an article about this period from an Austrian view. It is called, "The Great Depression of 1946."
http://mises.org/journals/rae/pdf/RAE5_2_1.pdf
what does capital market liquidation. how does this play an effect in turning a factory of tanks into a factory for cars?
“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence.""The sweetest of minds can harbor the harshest of men.”
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kelvin_silva:what does capital market liquidation. how does this play an effect in turning a factory of tanks into a factory for cars?
Could you reword that? I'm not sure what the "this" is that you're asking about in the second sentence, and I'm not even sure the first sentence is actually a sentence. I honestly have no idea what that post is asking.