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America’s Economic Way of War: War and the U.S. Economy from the Spanish-American War to the Persian Gulf War
Published by EH.NET (July 2011)
Hugh Rockoff, America’s Economic Way of War: War and the U.S. Economy from the Spanish-American War to the Persian Gulf War. New York: Cambridge University Press, 2012. xii + 357 pp. $27 (paperback), ISBN: 978-0-521-67673-1.
Reviewed for EH.Net by Robert Whaples, Department of Economics, Wake Forest University.
Although the general public and professional historians focus considerable attention on wars, economists tend to neglect them as deviations from the norm. Hugh Rockoff (Rutgers) sees this as especially ironic, because America was at war somewhere in the world during a significant portion of the twentieth century and because the basic tools of economics are demonstrably useful for understanding how wartime economies worked and for examining their causes and consequences. In this volume he pulls together decades of research by economic historians, providing a succinct, adeptly-written, even-handed, well-organized tour of war and the U.S. economy from the 1890s to the 1990s.
America’s Economic Way of War opens with a chapter that poses – and then answers – the big questions that an economic analysis of war is suited to address. Were these wars – the Spanish-American War, the often-neglected Philippine-American War, World War I, World War II, the Korean War, the Cold War, the Vietnam War, and the Persian Gulf War – fought for economic reasons? Rockoff concludes that they were not, but that “economic forces often played an important secondary role in pushing the nation toward war. Special interests that definitely favored war, or at least had an economic interest in doing so, could be identified for every war. These interests frequently added their voices to the chorus demanding war, often offering economic justifications. … Special economic interests, however, were never enough to push the United States into war. For one thing, [other] special interests opposed wars” (p. 2). How did America fight its wars? Rockoff argues that it was unique in employing a high capital-to-labor ratio. Did wars alter the financial system? Yes. “Wars have produced the most important reorganizations of the world’s financial system” (p. 10). How did America finance its wars? How costly were these wars? The wars of the twentieth century were “extraordinarily costly” and Appendix 3 provides estimates of these financial costs in constant dollars and as a share of GDP. Because of these incredible costs, “ultimately, this book is about war finance” (p. 11).
Chapter 2 lays out tools to analyze the economics of war. It carefully and clearly examines recurring themes including methods of financing war (taxation vs. borrowing vs. inflation vs. confiscation, such as the draft), the mobilization of resources and the guns vs. butter tradeoff, and how to conceptually measure the costs of war – a task fraught with ambiguity. The chapter is ideal for students.
The heart of the volume systematically examines each of the eight wars. Each chapter opens with a brief chronology, then analyzes the origins of the war, the course of the war, how the war was financed, the costs of the war, its impact on the economy, its legacy, and (an oft-overlooked, but critical topic) the economics of its veterans’ benefits. These chapters showcase Rockoff’s sure grasp of a wide range of issues – from the Treaty of Versailles, to distinctions between an excess-profits tax and a high-profits tax, to an analysis of strategic bombing and synthetic rubber production during World War II.
Throughout these chapters Rockoff persistently identifies the hidden costs of war, and is especially clear about why the authorities often turn to paying for war by “turning on the printing presses,” which unleashes inflation that the public often blames on “war profiteers” rather than monetary policy. He resists the economist’s urge to put a price tag on every cost of war and acknowledges that the potential benefits of war usually lie in another dimension.
The strongest chapter is probably the one on World War II. Rockoff cautions that WWII did not demonstrate the strengths of central planning, forcefully debunking claims by Eliot Janeway and others that the Controlled Materials Plan was the masterstroke that won the war. “If the activities of the War Production Board (in particular the often-heralded Controlled Materials Plan) and other government agencies do not explain the success of mobilization, what does? I would suggest that historians have been using the wrong metaphor. They have viewed the war economy as an example of central planning. … I would suggest, however, that a better understanding comes from a different metaphor; it was the gold rush of 1942. When gold was discovered in California in 1848 the favorable relationship between the price the government would pay for gold and the cost of producing it was recognized immediately. Men and women stopped plowing, unhitched their horses and headed for California. There were shortages and overcrowding, and many people who hoped to get rich did not … Something similar was true in 1942. Once the favorable relationship between the prices the government would pay for munitions, or for the factories to produce munitions, and the cost of producing them was recognized the rush was on. … One can imagine, for the sake of argument, gold being produced by federal employees in nationalized mines, or by tightly regulated and coordinated private firms. And one can imagine munitions being produced in 1942 in nationalized arsenals or by tightly regulated and coordinated private firms. But this was not the way it was done in 1849 – or in 1942” (pp. 191-93).
Robert Whaples is the editor, with Randall Parker, of The Handbook of Economic Events (Routledge, forthcoming). Among the courses he has taught is a seminar on The Economics of War in American History.
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