WARTIME PROSPERITY?

If we look at a graph of real GDP per capita, as shown in Figure 25.1, the war years stand out as a unique achievement. Apparently, real per capita income was higher during the war than it was before or after. The statistics are matched by personal memories of the war and by historical accounts that single out the war years as a uniquely prosperous period. Robert Higgs (1992), however, has challenged this view of the war: Real prosperity, according to Higgs, did not come until after the war. First, Higgs points out that many problems created by price controls and rationing, as mentioned, make measurement of output and especially civilian consumption during the war problematic. Second, and more important, Higgs points out that war output did not contribute directly to

FIGURE 25.1

Real per Capita Income in 1987 Dollars

Official estimates of real GDP per capita reached an extraordinary peak in 1944. But can we really compare the output of the economy during the war with the output before or after?

Source: U. S. Bureau of Economic Analysis 1992.

Civilian consumption, either at the time or in the future. In his view, war production should be omitted altogether from GDP.

One can take issue with the latter argument. After all, we include categories, such as medical care, in GDP that raise many of the same issues. An operation for cancer, like fighting a battle against a determined enemy, is costly and painful. Indeed, we often use the same language: “He is battling for his life against cancer.” Cancer operations and battles may be good investments because they protect our ability to enjoy life in the future. Simon Kuznets, one of the pioneers of national income accounting, thought that military spending should be excluded in ordinary years, but included for World War II, because there were two great end purposes of economic life: providing for the civilian population and winning the war.

In any case, Higgs’s arguments help us understand the nature of “wartime prosperity.” For many people, the war did mean an increase in their current real consumption compared with that during the grinding poverty of the depression. For others, the important thing was not consumption during the war but the availability of jobs for the asking through which one could earn money that would be valuable in the years to come, even if it couldn’t be spent during the war because of shortages and rationing. Economic Reasoning Proposition 5, evidence and theory give value to opinions, reminds us that evidence matters. Higgs’s analysis reminds us that we must question and probe the evidence for its real meaning.