In 1945, as the Second World War ended, the
economy of the United States entered the worst
economic depression in its history (although
2020 may surpass it). In the first year of
this depression, real Gross Domestic Product
shrank by 4 percent, and in 1946 real GDP
dropped by 20.6 percent. Not only was this
way-worse than the year 1932 - the peak of
the ‘Great Depression’ that started with
the Wall Street Crash - but per capita output
did not regain its 1944 level until 1964.
You can see this on charts - like this one
from “THE INSTITUTE FOR ECONOMICS & PEACE”.
The blue line shows that there was a major
reduction in real GDP at the end of the Second
World War, and confirms that it didn’t really
surpass this until the 1960s.
You can find similar looking charts all over
the internet or in the books. Here’s another
from Wikipedia, this time showing that the
real GDP numbers recovered by about 1950.
No matter where you pull the numbers from,
they show a huge decrease in real GDP in this
period - anywhere from 11.6 percent to 20.6
percent, and loads in between. Again, Wikipedia
lists a 12.7 percent decrease on it’s “List
of recessions in the United States” page,
stating -
“The decline in government spending at the
end of World War II led to an enormous drop
in gross domestic product, making this technically
a recession.”
Technically a recession!? Technically!? This
was the worst recession in US history! (At
least prior to 2020.) So of course it’s
a recession!
And according to the real per capita Gross
National Product data, it only took 12 years
to recover from the 1929 crash, whereas it
took 20 years to recover from the 1946 depression.
And this was exactly what mainstream economists
had predicted at the time. They claimed, during
the war, that there would be a massive recession
at the end of the war. Their predictions showed
that unemployment would be massive because
of the huge number of military men coming
back from the war, and the closure of munitions
factories. All these men would just be dumped
into the civilian economy, which wouldn’t
be able to cope. Millions would be lying in
the gutters, and everything would be bad.
And indeed, the official unemployment rate
during the Greatest Recession in US History
(1946) was somewhere around the massive 2.6
percent, although Wikipedia puts it as high
as 5.2 percent - which is still the lowest
unemployment rate in any recession in the
20th Century by its own estimations.
“From all of this the student [of economic
history] will no doubt conclude that the heretofore
neglected Great Depression of 1946 was the
worst cyclical downturn in modern American
economic history, and that by some measures
it had a greater disruptive impact on the
American economy than the earlier, more celebrated
Great Depression of 1929-41.”
And yet, historians have completely ignored
this recession. You won’t find a single
history book which talks about the millions
of unemployed - the massive 2, 3 to 5 percent
unemployment rate - or the contraction of
the economy. In fact, you’ll hear quite
a bit about a supposed “post-war Boom”
in the United States economy.
“The decade following World War II is fondly
remembered as a period of economic growth
and cultural stability. America had won the
war and defeated the forces of evil in the
world. The hardships of the previous fifteen
years of war and depression were replaced
by rising living standards, increased opportunities,
and a newly emerging American culture confident
of its future and place in the world.”
Obviously, human memory must be wrong because
the statistics clearly show that there was
an economic downturn of truly epic proportions
in 1946.
“...the economy seemingly did plunge into
depression in 1946 - at least, that is the
conclusion one must reach if one takes seriously
the official gross domestic product (GDP)
data on which economists and historians normally
base their accounts of macroeconomic fluctuations.”
And -
“...the Great Depression of 1946 has been
worsening every decade. In 1960, when Historical
Statistics of the United States, Colonial
Times to 1957 was published, the reported
decline in real GNP in 1946 was but 7.8 percent,
and for the three years 1944-47 just 9.8 percent,
hardly a great depression. When the next edition
of Historical Statistics was published in
1975, however, the 1946 decline was a more
robust 12 percent, and the total business
cycle downturn (1944-47) saw a drop in real
output of 14.2 percent.
“By 1981, when the Department of Commerce
reported revised national income data, the
1946 drop had reached a truly “depressing”
14.7 percent, with the episodic decline reaching
17.4 percent. Five years later, in 1986, the
1946 depression truly earned the label of
“great” when the latest revisions in statistics
revealed the 19 percent drop discussed above.
The Great Depression of 1946 seems to be getting
constantly worse, and if current trends continue
should soon pass the 1929 depression in magnitude
by any criteria.”
And, indeed, it has passed it. We’re at
a 20.6 percent drop at the moment, although
it looks like it’ll soon be worse than that.
So… what’s going on here? No one remembers
or writes about the Great Depression of 1946.
In fact, median family income at the time
grew slightly, from $2,410 in 1944, to $2,595
in 1945. And then went up to $2,659 in 1946.
And it was during this period that you have
the “Baby-Boom” generation - referring
to the people born between 1946 and 1964 (the
exact years it took to get out of the supposed
Great Depression of 1946). People thought:
‘we’re in a miserable recession, so better
have lots of kids’ because, when I’m suffering
from severe economic hardship, the only thing
I think of is making poverty-babies.
“...contemporary Americans experienced 1946
as a gloriously prosperous year that had nothing
in common with 1932.”
So yes, the statistics show a Great Depression
in 1946, even though this was a period in
US history of unparalleled economic growth
- sometimes referred to as an ‘economic
miracle’. So clearly, these statistics are
flawed.
But here’s the problem. See, the mainstream
traditional narrative states that the Wall
Street Crash of 1929 led to the Great Depression,
and, despite policies like the New Deal, it
was only World War Two which got America out
of the Depression. The narrative is that:
government spending on tanks and bullets during
the war led to a “production miracle”
and a “Great Wartime Boom”, thus proving
that the government should spend its way out
of recessions. The economic statistics used
to show that this is the case, are the ones
we’ve just seen - the GDP and GNP numbers,
as well as unemployment numbers, and so on.
If you look at the GDP numbers, it clearly
shows an economic boom during World War Two,
as well as during Roosevelt’s New Deal era.
Again, proof that World War Two got America
out of the Depression.
But this is where the traditional narrative
stops. Their conclusion: War is good. The End.
Except, no it isn’t. If you use the very
same statistics which ‘prove’ that World
War Two got America out of the Depression
and continue them into the post-war period,
you then get the Greatest Depression in US
history - the 1946 slump. But we know that
this slump is fiction - it simply didn’t
happen. So these statistics are clearly fiction
too, which is perhaps why the predictions
of the mainstream economists of the time - that
there would be high unemployment and so on
- were ever-so slightly completely-incorrect.
And the same fictional statistics that ‘prove’
that the 1946 collapse happened, are the exact
same fictional statistics that are also used
to ‘prove’ that the war-time boom happened
as well. So what does this mean? Well -
“If we dismiss as spurious the GDP data
that indicate a postwar depression, are we
warranted in dismissing the GDP data that
indicate a wartime boom?”
Turns out, yes. Yes we are. These statistics
are pretty much the only evidence we have
for a war-time boom. In fact, we have a LOT
of evidence which goes against the idea of
a war-time boom. This is why historians have
dismissed or ignored the statistics when talking
about the immediate post-war period, because
the statistics go against the contemporary
reports of a booming post-war economy.
Official unemployment figures do show a decrease
in unemployment during the war years by 7.45
or 4.62 million people (depending on the figures
used). Unemployment went from 15.7 percent
in 1940 to 1.3 percent by 1944. Then went
up slightly to 2.6 percent in 1946, and 3.8
percent in 1947.
However, there’s a problem. If say, there
were millions of lazy unemployed in Britain
right now, and I gave them all unemployment
benefits. So, I paid them money even though
they’re not working or contributing to society.
And then I said - “See! I’ve reduced unemployment
because now they’re getting paid!” - you’d
say, no, that’s not solved the unemployment
crisis, you’re just paying them for doing
nothing. They’re not economically productive,
so they’re still unemployed. Okay, well
similarly, if I paid the unemployed people
as before, BUT I also gave them a rifle and
shipped them to France… Does that mean they’re
not unemployed anymore? Well, no, because
they’re still not economically productive.
They’re still technically unemployed. They’re
not contributing to the domestic economy at
all. In fact, they’re actually a drain on
the domestic economy, since the people who
are actually working are having to produce
goods and services for themselves AND the
people you’ve shipped off abroad to die
in a foreign country. So, while they do have
jobs, they’d technically be classed as unemployed
from an economic and logical standpoint.
Now I’m not saying that military people
aren’t doing something useful. Arguably
they are keeping the country safe. Great.
However, you can’t turn around and say that
they’re economically contributing to society,
because they’re not. They’re draining
the resources of society, as if they were
unemployed.
If 20 people made 20 loaves of bread for themselves
- so they consumed 1 loaf of bread each per
day. And then we shipped 10 of them abroad,
then everyone gets half a loaf of bread each.
Living standards would actually go down for
the workers who are working. This is what
happens when you have unemployed people in
the economy, or government employees - because
either way, these people take from the people
who do work and then don’t produce anything
of economic value in return. If they did produce
something of economic value, then they wouldn’t
have to take from the workers in the first
place. Tax would be voluntary. The fact that
it isn’t, is proof that they’re not producing
anything of economic value to the rest of
society. As Rothbard states -
“...any increase of taxes and government
spending will discourage saving and investment
and stimulate consumption, since government
spending is all consumption.”
Now, when looking at the US economy in WW2,
not only have you taken a bunch of unemployed
men, handed them a rifle, shipped them to
France or Iwo Jima, and then claimed that
this has solved the unemployment crisis, but
you’ve also taken some of the employed men
from the economy too. 16 million men worked
in the armed forces of the United States in
World War Two. Well, even taking the highest
figure, unemployment fell by 7.45 million
men. So, you’ve drafted more people during
the war than were unemployed before the war.
Meaning, you’ve taken some of the experienced
workers out of the economy, and you now have
a labour shortage. Thus, you saw women, old
men, teenagers - basically, less skilled or
inexperienced workers - being employed in
the factories in the United States. And the
mainstream economists and historians will
tell you - it was this: the sending away of
some of the most experienced workers (to die
on the shores of foreign lands) and the drafting
of less skilled or inexperienced workers,
which led to the greatest economic boom the
economy of the United States ever had.
Really? Does this make any logical sense to
anyone?
Similarly, producing tanks, bullets, ships
and planes does not equal economic growth.
If it did, building a fleet of ships, sending
them out to the middle of the Atlantic, and
then sinking them, would produce an economic
boom. Clearly that’s stupid. Well, so is
military production in general. What matters
when it comes to economics is that living
standards increase as a result of economic
activity. We all want to be better off than
we were yesterday. Producing war planes doesn’t
equal higher living standards. Building Sherman
tanks might win the war, but won’t put food
on your plate, nor a car in your driveway.
As Left-Wing economist Seymour Melman pointed
out -
“...whatever else you can do with a nuclear-powered
submarine that is almost as long as two football
fields, and capable of cruising underwater
for weeks and at high speeds—you can’t
wear it, you can’t live in it, you can’t
travel in it, and there’s nothing you can
produce with it...”
So clearly there’s a problem with the official,
traditional mainstream narrative, and their
statistics. But what is the problem? Well,
when the US Commerce Department in 1975 and
then 1990 produced real Gross National Product
trend lines, they looked like this -
John Whitefield Kendrick - working for the
Office of Business Economics in the US government
- produced a line looking somewhat similar.
Now, Gross National Product is basically an
estimate of the total market value of all
the goods and services produced by the means
of production which are owned by a country's
residents. However, the numbers given by the
US Commerce Department and by Kendrick also
include some of the military spending and
production too, since, after all, tank factories
built during the war, will easily convert
into car factories after the war, right? So
they put those numbers in as well, and thus,
here’s what they came out with.
But even at the time, some people realized
that there was a difference between domestic
production and military production, and that
military production may not be easily converted
into domestic production after the war. Economist
Simon Kuznets made his own estimates during
the war and then revised them after the war.
In 1952, he corrected the government statistics
for inflation, determined a more accurate
assessment for the price of military goods,
as well as other things, and came out with
his own line.
Yep - that’s a bit different isn’t it.
Kutznet’s revised estimate shows modest
GNP growth during the war, and a definite
increase in real GNP between 1945 and 1946.
But, as Robert Higgs points out, Kutznets
actually didn’t go far enough. Normally
Kutznets would argue that you would have to
use what he called a “peacetime” GNP concept.
Meaning, he thought government spending could
only be counted if it pays for consumer goods
or capital formation. In other words, if production
contributed to living standards or if it boosted
production of machines to produce goods which
would later contribute to living standards,
then that could be counted. What he discovered
when he factored this concept into his calculations
in 1961, was this -
Yes, a decrease in Gross National Product.
The economy of the United States actually
shrank during the war. Worse, his calculations
show that, not only was the war-time economic
boom a fiction, but so was the great depression
in 1946. In fact, by his estimates, we see
a growth in the economy in 1945 to 1946. This
makes more sense historically, since we know
that there was a post-war boom. And that boom
is now reflected in these statistics.
But, even though Kutznets applied this principle
to his long-term studies, he ended up rejecting
it for the Second World War years. The excuse
he gave at the time was that this time was
different because this time was a life and
death struggle. So, when there’s a big war,
you can throw out all your principles and
just make stuff up. ‘Life-and-death struggle
time, therefore two plus two equals five.’
Basically, he could not bring himself to admit
that, not only was there not a wartime boom,
and that World War Two didn’t get America
out of the Great Depression, but that World
War Two actually put the US economy further
into the recession. He couldn’t admit that.
So he came up with some excuse not to admit
it.
Thankfully though, there are economists who
are willing to actually make logical sense
and stand by their own principles. One such
economist (though not the only one) is Robert
Higgs. (His book, “Depression, War and Cold
War” is the one you should read if you want
to dive deeper into this topic.) Robert Higgs
has successfully argued that military production
doesn’t contribute at all to capital formation,
which it doesn’t. A machine in a factory
which produces grenades, can’t suddenly
switch its production to producing something
that civilians want. And, indeed, most of
the war factories didn’t do this. So the
real Gross National Product numbers used by
mainstream economists as provided by the US
government include the means of production
that was in military use - which they’re
not meant to have. Real Gross National Product
is meant to be an estimate of the total market
value of all the goods and services produced
by the means of production which are owned
by a country's residents. If you include the
means of production that are owned by the
state military, then that’s not GNP.
“When one adopts this position on the treatment
of military overlays, that is, when one deducts
all of them from GNP on the grounds that they
purchase (at best) intermediate, rather than
final, goods, one arrives at a starkly different
understanding of economic performance in the
1940s.”
And here is Higg’s own real GNP number,
with the non-civilian military production
taken out. This is a better reflection of
how the economy of the United States performed
in World War Two. It shrank. Living standards
decreased. And this makes sense logically
too. Producing warplanes does not increase
your living standards.
Let me show Higg’s line on it’s own.
Yes, with the corrected GNP numbers, you can
see that, shifting the means of production
from the civilian economy to the war economy,
led to a decrease in consumer goods. Does
that sound logical? Yes it does. It also shows
that, when millions of men came back from
the war, determined not to be unemployed,
and ready to work and make something of themselves,
they boomed the economy in 1946. This fits
what we hear at the time - that there was
a post-war boom. Living standards rose again.
And Higg’s statistics actually show this.
So, not only was there not a ‘wartime boom’
during World War Two, but World War Two didn’t
get America out of the Great Depression. It
turns out that it was the end of World War
Two which got America out of the Great Depression.
But there’s more to this. Let me quickly
explain. If you crash land on a desert island,
how much is a coconut worth in dollars or
pounds?
It’s not. It has no real value in dollars
or pounds because you do not have anyone to
trade it with. The way we generate prices
is by trading with other people. Lots of people
buying and selling goods is what generates
prices. We all agree, okay on average a coconut
is worth so-many dollars, therefore that’s
it’s price. So, without the buying and selling
of millions of goods by millions of people
in a market, you cannot generate prices.
Well, what was the US economy like during
this period?
Starting in the 1930s, but really taking hold
during the War, you had wage controls, price
controls, rent controls, regulations, inflation,
heavy taxation, deficit spending, rationing,
military conscription, an artificial shifting
of the means of production from consumer goods
to to military machines… So basically, lots
and lots of manipulations in the economy.
A significant portion of the economy was no
longer buying or selling goods. The US soldiers
in Europe weren’t buying their rations on
the open market, they were getting them handed
to them by the State. Nobody was negotiating
the price of a Sherman tank, meaning it was
impossible to calculate the actual price of
a Sherman tank. Goods were not being bought
and sold, and those that were had heavy government
intervention. So, the result of all this manipulation
was that prices did not reflect the true value
of the goods produced in the economy. The
prices they did have were fiction. And when
you then gather together a bunch of fictional
numbers and then compile those worthless numbers
into things like Gross Domestic Product, you
get another fictional number. A number you
cannot use to measure how well an economy
is doing.
“Where there is no market there is no price
system, and where there is no price system
there can be no economic calculation.”
“...the fundamental problem is that meaningful
national product accounting requires market
prices, and the command economy of the war
years rendered all prices suspect and many
of them, especially the prices paid by the
government for goods and services, manifestly
arbitrary.”
This is why some economists and historians
have argued that large fictional numbers like
GDP and GNP are basically worthless, unless
you have a totally free market - which we’ve
never had anywhere. This explains why the
US government - and all governments - are
having a hard time with their economic numbers
and are basically making stuff up. Because
without a truly free economy, you cannot have
true market prices. Without true market prices,
you cannot create accurate statistics. Thus,
the US government is constantly revising the
numbers for the Great Depression of 1946,
making the depression deeper with each revision.
And all their statistics that they produced
today are the same - made up. The entire foundation
of their analysis is the price value of the
goods, and they can’t calculate that because
the economy has been manipulated - by them!
Well, the lesson here is pretty straight-forward:
when Roosevelt died and all the governmental
restrictions started coming off the economy
- freeing the economy up - prices returned
to normal, which is why you see a dip in the
official GDP and GNP figures. At the same
time, you had an influx of men returning from
abroad, who decided to work rather than not
work. Because the economy was freed up, they
were actually able to work. This boosted productivity,
which in turn, boosted living standards - hence,
the baby boom.
The lesson isn’t that spending money and
building tanks booms the economy. The lesson
is that: a free economy works. And from 1929
to 1945, America did not have a free economy.
That’s why the Depression lasted as long
as it did. And the Depression was caused by
the government’s credit expansion of the
1920s. You may have heard of the “roaring
20’s”. Well, it was called that because
the US government bank - the Federal Reserve
- was printing currency left right and centre.
This caused malinvestments, which then created
bubbles in the economy, which then popped
in 1929. The government then tried to spend
its way out of the Depression, first under
Hoover, then under Roosevelt.
“...we might have done nothing. That would
have been utter ruin. Instead we met the situation
with proposals to private business and to
Congress of the most gigantic program of economic
defense and counterattack ever evolved in
the history of the Republic. We put it into
action.... For the first time in the history
of depression, dividends, profits, and the
cost of living, have been reduced before wages
have suffered… They were maintained until
the cost of living had decreased and profits
had practically vanished. They are now the
highest real wages in the world.
“Creating new jobs and giving to the whole
system a new breath of life; nothing has ever
been devised in our history which has done
more for… “the common run of men and women”.
Some of the reactionary economists urged that
we should allow the liquidation to take its
course until we had found bottom… We determined
that we would not follow the advice of the
bitter-end liquidationists and see the whole
body of debtors of the United States brought
to bankruptcy and the savings of our people
brought to destruction.”
Rothbard’s book: “America’s Great Depression”
is an amazing read. You can get it online
for free. And I now know why all the socialists
criticise people for reading Rothbard - because
they have nothing that can compete with him.
And he’s not the only one that they cannot
compete with -
“Credit expansion cannot increase the supply
of real goods. It merely brings about a rearrangement.
It diverts capital investment away from the
course prescribed by the state of economic
wealth and market conditions. It causes production
to pursue paths which it would not follow
unless the economy were to acquire an increase
in material goods. As a result, the upswing
lacks a solid base. It is not real prosperity.
It is illusory prosperity. It did not develop
from an increase in economic wealth. Rather,
it arose because the credit expansion created
the illusion of such an increase. Sooner or
later it must become apparent that this economic
situation is built on sand.”
Our economy, in 2020, is built on sand. This
is why the stock market is currently imploding.
Yes, the Communist Cough made things worse.
But Austrian School Economists have been saying
that this crash was coming, and one of them
even predicted that it would happen about
6 months or so after the yield curve inversion
- and he was right.
Rather than just let the air come out of the
bubble and let things return to normal, governments
around the world are taking control of their
economies, and bailing out the corporations
with trillions and trillions of newly printed
currency and adding digits to a screen, at
the cost of the working people, just like
they did in 2008, 1929, and other recessions
too. They’ll tell you that spending newly
printed currency (that robs all of you of
your purchasing power) will get us out of
the depression we’re now in. They’re lying.
All this will do is rob you of your purchasing
power, and deepen the recession. It will empower
the corporate state, and the central banks.
And it will lead to economic ruin. Will the
2020 Great Depression be worse than the 1946
Greatest Depression? My prediction is: yes,
yes it will. Thanks for watching, bye for
now.
