The Economics of World War II:
Six Great Powers in International Comparison

Mark Harrison (editor)

Cambridge University Press 1998
A book review by Danny Yee © 2002
The Economics of World War II is a high level overview of the economies of the major participants in the Second World War, and of the effects of the war on their subsequent history. An introduction by Harrison provides an overview and a comparative survey of the six countries covered, the United Kingdom, United States, Germany, Italy, Japan, and the Soviet Union. Separate chapters by specialists then analyse the wartime economies of those countries, looking at their military potentials, their mobilisation, their constraints, and their management; they also examine the long-term costs of the war, the structural changes it brought, and the implications for the post-war period. The focus in this is quantitative, with extensive tables of statistics, but the analysis and interpretation is discursive and readable and The Economics of World War II is accessible to non-specialists with a basic grasp of economics.

Harrison's introduction begins with an overview of the war at the level of GDP, population, land area, and level of development. Obviously one wouldn't want to read too much into summary numbers such as 1.9 and 1.2 (the Allied/Axis population ratios in 1942, with and without China), but they are nevertheless interesting. When Harrison turns to discussing the "quality" of armed forces, some of his generalisations seem dubious, for example, "the fighting power of the Red Army meant that they could beat Germany with a smaller quantitative edge than the western Allies required". And in a truly bizarre inclusion, there are six pages of tables with technical specifications for selected weapon systems — such facts as that a T-V Panther tank weighed 45 tons and had a 79 round magazine, while a Spitfire IX had a maximum speed of 657 km/hour! Looking at the post-war economies, Harrison takes some relatively simple statistics (GDP figures for 1938, 1950, 1973, and 1987, for each of the six countries) and applies measures of sigma- and beta-convergence to them — in an excellent example of the use of mathematics to obfuscate rather than enlighten.

Stephen Broadberry and Peter Howlett follow a traditional Keynesian perspective in their analysis of the wartime economy of the United Kingdom, though they suggest that an alternative "classical" view deserves attention. They look at the implementation and extent of mobilisation (which peaked at around 55% of GDP in 1943), fiscal and monetary policy, government and national deficits, and industrial output. Net wartime loses amounted to around 20% of prewar wealth. (They base human capital losses on the cost of raising and educating a worker from birth.)

The United States economic surge started in 1940 and 1941, a prelude to the wartime "production miracle" which managed to maintain civilian consumption while growing the overall economy. Contributions to this came from increasing labour force participation and reducing private investment, while war financing followed the traditional approach of deficit spending until tax increases caught up. In evaluating the cost of the war to the United States, Hugh Rockoff takes a counterfactual approach, attempting to calculate what would have happened without the war. And he argues that the change in the macroeconomic policy regime may have been the most important contribution of the war to subsequent prosperity.

Werner Abelshauser's chapter on Germany goes back to 1933, arguing that the "economic miracle" preceded Keynesianism and exploring the financing of rearmament. Spending to prevent social unrest, delays in rationalisation, and excessive attention to job creation and training were among the factors hindering full war mobilisation, which really only started under Speer in 1942, reaching around 70% of nominal GNP in 1943. The introduction of new methods of management and production laid the groundwork for growth in the 1950s. Pre-war attempts to increase autonomy by increasing trade with Southeastern Europe (much of it in inconvertible, blocked currencies) had limited success; and during the war the occupied countries of western Europe were the most significant source of external resources.

In "How to lose the war but win the peace" Vera Zamagni describes how Italy never effectively mobilised, devoting at peak around 20% of GDP to military expenditure. Italian industry was hampered by materials shortages (most importantly of coal, oil, and steel), organisational weaknesses, and a net flow of resources to Germany. But wartime investment in heavy industry laid the basis for the post-war expansion in manufacturing. The overall cost of the war and the damage done to the Italian economy were relatively slight.

In Japan, the war brought a steady increase in government controls on the economy, with an emphasis on heavy industrialization. During the China war (1937 to 1941) the major constraint on the economy was the availability of materials; during the Pacific war (1941 to 1945) the shortage of shipping became critical. Japan's war effort was sustained only by drastic diversion from civilian consumption and reduction in living standards — hence the "guns before rice" title of Akira Hara's chapter. The social and organisational changes brought by the war — in areas such as wages, health insurance, trade unions, corporate structures, and rice policy — were to play an important role in the post-war economic system.

Mark Harrison contributes the chapter on the Soviet Union himself. To some extent Soviet military mobilisation preceded the war; it later came close to destroying the civilian economy on which it depended. In the end the Soviet Union managed to mobilise as high a fraction of its GDP (around 50% in 1943, even omitting foreign aid) as much more developed countries (though there are measurement problems, with reductions in the price of weapons producing differences between constant and current price figures). The immense physical and especially human losses sustained by the Soviet Union during the war left it "the defeated victor" — and the institutional legacy was the entrenchment of the military-industrial system and the leaders that had won the war.

Focused on macroeconomics, The Economics of World War II makes no attempt to cover economic history more broadly. There is almost nothing, for example, on specific regions or the interaction of economics and logistics with particular campaigns. How much did the German need for oil contribute to their decision to push south during the invasion of Russia? How close did submarine attacks on shipping in the Atlantic come to crippling Britain? Those are questions for a different book.

May 2002

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%T The Economics of World War II
%S Six Great Powers in International Comparison
%E Harrison, Mark
%I Cambridge University Press
%D 1998
%O paperback, references, index
%G ISBN 0521785030
%P xxiii,307pp