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Where did post WW2 savings come from?

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mstob posted on Tue, Mar 3 2009 1:49 PM

Hello, Robert Higgs especially, is prominent in claiming that ww2 did not bring about the recovery after the great depression, but rather, the end of the war, which brought about massive deregulation and freed up millions of laborers and resources was the cure. He claims the post ww2 boom was the greatest period of growth in American history.

My question is, was freed up labor and resources alone enough to cause the post war boom? I've heard people talk about all the capital that was saved up until the end of the war being invested when it was over, but was not the war excellent in destroying wealth and capital? Would it not have taken at least a few years of saving by Americans before the post war boom could have taken place?

Or was simply the relative increase in labor and free resources, compared to 41-45 enough to jump start the economy?

Thank you.
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Well first of all a big chunk of the capital that was employed by the war industries was liquidated, so for example when General Motors was making tanks, suddenly it had to retool its factories to make consumer automobiles.

Secondly the government had been intensely selling war bonds during the war and consuming the country's savings in the process. (The film Flags of our Fathers by Clint Eastwood is about a group of GIs promoting war bonds around the country so that the desperate final assault of Japan can be financed.) When the government demobilized it could stop selling war bonds and so the country's immense savings rate went into private capital investments.

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Suggested by thomasw78

I think you have to consider where we started from in saying the post ww2 was our greatest expansion in history. Even though many think the war got us out of the depression our economy was still essentially in the same state during the war as it was during the 30's so we started from a very low footing.

As for savings, the war was mainly paid for by government borrowing. This led to high inflation after the war was over but the economy was already expanding by that time and the savings people had accumulated during the 30's was being put to use in the new economy, unburdened by government.

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The problem with your statement is that you're only comparing Post World War II to Pre World War II. After World War II the country was once again a place full of people that were confident in their ability to tackle the challenges facing them, and confident in their place in the world. There were also GIs returning to the country that hadn't been able to spend all of their pay and thus had savings.

As the other poster mentions, the US Savings rate was also much higher.

But what is being ignored is the fact that the "growth" rate wasn't anything compared to the growth rate from 1800 - 1913.

Then there is the fact that another contributing factor to the apparent "Growth" was the devaluing of the currency, a move that effectively increased the "size" of the economy in dollar denominated terms with out actually doing anything to alter the real size of the economy. This happened when FDR dropped the Dollar from 1/22 troy oz of gold to 1/35 troy oz of gold, essentially doubling the number of dollars that the production of the economy was worth.

Essentially, FDR manipulated the US Currency to make .4 Billion Dollars appear out of nowhere for every real 1 Billion dollars in existence. There was no increase in production, or true growth in the economy.

In fact real economic growth Post World War II has been drastically slower than Pre 1913 Economic Growth.

From 1800 - 1913 Years with Real (Inflation Adjusted) Economic Decline were

1815 with -1.97% growth

1816 with -3.62% growth

1817 with -0.86% growth

1819 with -1.37% growth

1838 with -0.10% growth

1860 with -0.68% growth

1861 with -0.20% growth

1864 with -0.79% growth

1866 with -6.65% growth

1867 with -0.44% growth

1875 with -0.16% growth

1884 with -2.05% growth

1893 with -5.02% growth

1894 with -4.27% growth

1896 with -0.64% growth

1904 with -1.92% growth

1908 with -9.31% growth (right after the banking "crisis" of 1907)

1910 with -0.66% growth


from 1913 on the years of negative real growht have been

1913 with -14.79% growth

1914 with -7.52% growth

1917 with -0.11% growth

1919 with -10.07% growth - Post World War I Slow Down

1920 with -2.54% growth - Post WWI Slow Down

1921 with -6.79% growth - Post WWI Slow Down

1930 with -9.70% growth

1931 with -8.02% growth

1932 with -14.45% growth

1937 with -17.19% growth

1945 with -0.75% growth

1946 with -8.22% growth

1947 with -3.92% growth

Of course part of the slow down from 1945 - 1947 was shifting from military production to consumer production

1954 with -0.23% growth

1958 with -1.38% growth

1970 with -0.42% growth

1980 with -4.14% growth

1982 with -1.96% growth

1991 with -0.85% growth

and 2008, which I don't actually have the decline in real economic growth for, but have seen estimates of -6% just for 4Q, 2008.


From 1800 - 1913 there were also 47 years with real growth above 5% compared to just 31 from 1913 with the last year at which economic growth was more than 5% being 1984.

In short the post 1913 Economic growth pales in comparison to the pre 1913 Economic growth during which the economy grew from .47 Billion Dollars to over 44.93 Billion dollars or 95.56x. All of this growth was accomplished with negative inflation of -16.76%, or deflation (increase in the value of money.)

From 1913 on the real growth has been a comparatively anemic 16.34x with total inflation of 2,106.66%. In short it can be concluded that the United States has been suffering from politicians and a Federal Reserve that have collaborating to use mismanagement of the money supply to mislead the public into believing that the economy is 22x bigger than it really is (625.72 Billion in 1913 dollars vs 14 Trillion in inflated 2007 dollars), and have used this fake appearance of growth as an excuse to continue turning what was once an Individualistic Republic into a Socialist Oligarchy.

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I've heard people talk about all the capital that was saved up until the end of the war being invested when it was over, but was not the war excellent in destroying wealth and capital?

Well, massive amounts of capital would have been converted away from military use towards productive use.


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Another thought to consider is that the U.S. was one of the few industrialized nations that had not been subjected to massive destruction from the war.  As a result it became one of the first nations to retool its industries and begin producing and providing consumer goods following WWII.

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