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Comparing Post-War Japanese and Finnish Economies and Societies: Longitudinal Perspectives

Editor(s):Tanaka, Yasushi
Tamaki, Toshiaki
Ojala, Jari
Eloranta, Jari
Reviewer(s):Heikkinen, Sakari

Published by EH.Net (September 2015)

Yasushi Tanaka, Toshiaki Tamaki, Jari Ojala, and Jari Eloranta, editors, Comparing Post-War Japanese and Finnish Economies and Societies: Longitudinal Perspectives. London: Routledge, 2015. xxii + 253 pp. $168 (hardcover), ISBN: 978-0-415-65620-7.

Reviewed for EH.Net by Sakari Heikkinen, Department of Political and Economic Studies, University of Helsinki.

Japan and Finland are not the most obvious pair of countries to compare in their economic development. Japan is more than twenty times as large as Finland in both population and GDP, and they are located on opposite sides of the globe. Yet there are also similarities between them: both economies grew quickly after the Second World War and succeeded in joining the rich-country club. At the turn of the millennium, Finnish GDP per capita (PPP-adjusted) surpassed Japan’s, and it has remained higher since then.

This book examines the not-so-obvious pair by analyzing the economic and societal development of Japan and Finland after the Second World War. It is a true joint venture of Japanese and Finnish scholarship. Two of the volume’s four editors are from Kyoto Sangyo University (Yasushi Tanaka and Toshiaki Tamaki) and two are Finns (Jari Ojala from the University of Jyväskylä and Jari Eloranta from Appalachian State University). The book consists of an introduction and ten articles, two of which are methodological. The remaining eight analyze different aspects of the Japanese and Finnish economies in the post-World War II decades. All the eight substantial articles were written by teams comprising both Japanese and Finnish scholars.

Comparison is essential in all human understanding and explanation, as Christopher Lloyd reminds us in the conclusion (Chapter 11). But comparisons come in many varieties, as Pavel Osinsky and Jari Eloranta explain in their methodological piece (Chapter 2). “Variable-oriented research” explores a well-defined relationship using a large number of cases, e.g. countries. Here the emphasis is on generality. Another method of comparison is to study a small number of cases and emphasize in-depth comparison, complexity and context. Such is the methodological approach of this volume.

The actual comparative studies of the book are divided into three parts: Welfare Societies, Macroeconomic Policies, and Trade and Industry. This appears a relevant division, promising wide coverage of different aspects of economic development. However, the two or three articles under each of these headings cover only part of these vast thematic fields.

In Part 2 (Welfare Societies), the first article (Chapter 3) by Maare Paloheimo, Kota Sugahara, Tadashi Fukui, and Merja Uotila compares Japanese and Finnish paths to building a welfare society. The focus is on policies related to work and family. Their comparison highlights, among other things, the higher female labor participation rate in Finland (with a high share of public sector jobs) as well as the Nordic principles of universal, uniform and equal social services. They also illustrate how differences in cultural and religious values have influenced welfare policies, granting a greater role to the family in Japan than in Finland.

In Chapter 4, Anu Ojala, Yasushi Tanaka and Olli Turunen examine Japanese and Finnish systems of higher education and the resulting labor market outcomes. They also briefly compare the educational systems in their entirety. The biggest difference between the higher education systems of the two countries is the fact that Japan relies on private-sector solutions, whereas in Finland higher education is organized and financed almost completely by the state. In examining labor market outcomes, the authors point out the expected result that in both countries the unemployment rate is lower than average among the highly educated. Education-related wage premiums are higher in Japan whereas the general gender equality of pay is greater in Finland. Japanese women are the group who benefit most from higher education attainment while their Finnish sisters do not reap the same gains from being more educated than men.

Jari Eloranta and Yasushi Tanaka compare military spending in Japan and Finland (Chapter 5). The rationale for placing this under the umbrella of the welfare state is revealed in the subtitle “From Warfare to Welfare State.” Both countries lost the war, although in a very different manner, and faced direct external pressure from the winners of the war to constrain military spending — the pressure being stronger in Japan’s case. However, there were also domestic pressures: in particular, the tradeoff between military and social spending that the authors analyze in this article, which is the most cliometric in the book. The authors show how military spending quickly took a back seat and social spending benefited from the low level of military spending.

Macroeconomic policies (Part 3) are discussed in three articles. Toshiaki Tamaki and Timo Särkkä examine the role of Keynesianism in macroeconomic thinking and policymaking (Chapter 6). Since neither of the countries was in the front line of economics, this is more a study on importing than on inventing ideas. The authors examine the practical economic policies of the two countries and show that economic theory hardly defines the choices made in economic policy, at least by itself. They emphasize that the active role of the state implied by the Keynesian demand management policy was not a fundamental problem, since in both Japan and Finland the state had traditionally played a relatively large role. However, neither of the two countries applied purely Keynesian policies, perhaps reflecting their somewhat peripheral position in this respect.

Energy supply and regulation is studied by Park Seung-Joon and Esa Ruuskanen (Chapter 7). Energy use per capita has grown rapidly in both Japan and Finland since 1960 and has been consistently higher in Finland. Energy intensity (energy use/GDP) has also been higher in Finland due to its cold climate and energy-intensive industries (paper and pulp). In both countries, energy intensity has declined since the 1970s, after the oil crises. Both countries have invested in nuclear power and have been cautious regarding the possibilities of alternative energy sources. The main narrative in both countries has therefore been a shift from oil dependency to nuclear energy dependency. One difference between the two countries is that in Finland, the deregulation of the energy sector, starting in the 1990s, has been more extensive than in Japan.

Kari Heimonen, Shigeyoshi Miyagawa and Yoji Morita compare the financial crises of the 1990s in Finland and Japan (Chapter 8). These crises, Finland in 1991 and Japan in 1992, are among “the big five” identified by Reinhart and Rogoff (the other three being Spain in 1977, Norway in 1987 and Sweden in 1991). This makes the Japan–Finland comparison immediately interesting in a global context. The boom and bust cycle had many similarities in both countries. Deregulation of financial markets was unsuccessful in both Japan and Finland, creating a bubble economy, the bursting of which was in both cases at least partly initiated by exogenous shocks: the collapse of trade with the Soviet Union/Russia in Finland and the Louvre Accord (1987) obliging Japan to cut its trade surplus and to ease her monetary policy. Yet recovery was very different: it was rapid in Finland but weak and difficult in Japan. The authors emphasize the role of public intervention here. In Finland, the state actively reorganized crisis-stricken banks and recapitalized them, whereas in Japan policy reaction was much slower. Measured by post-crisis economic performance, Finland’s choice was wiser.

The title of the fourth part, “Trade and Industry,” promises a bit too much. It contains only two articles, which are both too specific to make a comprehensive comparison between Japan and Finland. Juha Sahi and Kazuhiro Igawa examine Finnish–Japanese trade relations from 1919 to 2010 (Chapter 9). The authors show that after trade was liberated from post-war regulations in the late 1960s, trade between Japan and Finland was very unbalanced, Japanese exports to Finland being many times Finland’s exports to Japan. This is no wonder, since Finland’s exports until the ICT boom of the 1990s consisted largely of paper, pulp and other processed wood articles with a much lower value-to-weight ratio than automobiles, Japan’s main export article to Finland. The 5,000 mile distance between the countries thus favored Japanese exports over Finnish.

The manufacturing sectors of Japan and Finland are compared in one article: Pasi Sajasalo and Kazuhiro Igawa’s comparison of the paper industries of the two countries (Chapter 10). Both countries have been among the largest paper producers of the world, but the industry’s macroeconomic weight is much greater in Finland. Furthermore, their raw material base and market orientation are very different. Japanese paper mills rely on imported raw material and process it for domestic markets, whereas the opposite is true in the Finnish case. The authors illustrate the idiosyncrasies of Japanese and Finnish business organizations, the Japanese keiretsu and the Finnish sales associations, but point out their common rationale: a long-standing feature of restraint of competition.

This volume is a collaboration between Japanese and Finnish scholars and also a collaboration between economists and historians. It proves that we can learn much from the in-depth two-country comparison about “the wider paths and causation of economic and social development over the long run,” as Christopher Lloyd notes in his conclusion (Chapter 11). Because of the slight heterogeneity of the articles they do not paint the whole comparative picture of the two economies in their process of post-war economic catch-up. Some of the articles speak more to specialist audiences, for instance to those interested in military spending, the paper industry or Finnish–Japanese trade relations, than to those interested in common trends and features of economic development. However, the book is a good pioneer work that will hopefully be continued and amended.

Sakari Heikkinen is professor of economic history in the Department of Political and Economic Studies at the University of Helsinki in Finland. His publications include Paper for the World (2000).  His current research interests are long-term economic growth in Finland compared with Sweden, as well as labor markets in Finland and Sweden during the Great Depression.

Copyright (c) 2015 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (September 2015). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Economywide Country Studies and Comparative History
Financial Markets, Financial Institutions, and Monetary History
International and Domestic Trade and Relations
Labor and Employment History
Macroeconomics and Fluctuations
Transport and Distribution, Energy, and Other Services
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Coordination in Transition: The Netherlands and the World Economy, 1950-2010

Author(s):Touwen, Jeroen
Reviewer(s):van den Berg, Annette

Published by EH.Net (August 2015)

Jeroen Touwen, Coordination in Transition: The Netherlands and the World Economy, 1950-2010. Leiden: Brill, 2014. xiv + 385 pp. $154 (hardcover), ISBN: 978-90-04-27255-2.

Reviewed for EH.Net by Annette van den Berg, School of Economics, Utrecht University.

One of the great debates of the late twentieth century has been around the well-known study Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (VoC) by Peter Hall and David Soskice, in which developed countries are characterized as either a Liberal Market Economy (LME) or a Coordinated Market Economy (CME), based on five interrelated criteria (spheres). Many scholars have applied the VoC approach since then — including economic historians — trying to reconcile the rather static nature of the approach with a historical, more dynamic analysis. Jeroen Touwen (lecturer in Economic and Social History at Leiden University, and the scientific director of the N.W. Posthumus Institute) adds to this line of research, by applying VoC to the case of the Netherlands after World War II in a careful, critical manner. This has resulted in an impressive and voluminous book of which the principal title, Coordination in Transition, neatly captures the key theme: How did a typical CME react to the structural changes as a result of ongoing globalization (influenced by trade liberalization and technological developments, foremost in information and communications technology), causing a shift to a market-based and knowledge-based economy? One of the new contributions of this book is that it also analyzes recent economic history of the Netherlands, in contrast with most other Dutch studies that only treat the twentieth century.

The Netherlands makes for an interesting case because it is seen as a successful and hybrid CME, with a liberal tradition in business relations as in Anglo-American countries; a strong welfare state like in Scandinavia; and a high degree of coordination similar to Germany. Also readers with no particular interest in the Dutch case (or those who think they already know the country, for that matter) will find this book worthwhile to read, as each chapter sets out with a broader treatment of theoretical considerations before analyzing the Netherlands, each time accompanied by a comparison with several other western OECD countries; and as the author makes relevant statements about (developments of) LMEs and CMEs in general. In so doing, he uses theoretical concepts from several socio-political fields of science, and of many statistical sources, thereby providing the reader with ample information and guidance for further research. The large number of interesting footnotes and references underline the thoroughness and dedication with which the book was written.

In my view, Chapter 2 is the most innovative part of the book because here the author comes up with a novel view on how the original, static VoC framework can accommodate for changes through time by adding a temporal dimension and by focusing on the central concept of non-market coordination, which not only encompasses state-induced regulation, but all kinds of information exchange and negotiation between different stakeholders operating at various levels in the economy. He argues that CMEs, despite all having become more liberal in reaction to structural change, remained characterized by a high degree of deliberative institutions (although often in an adjusted form). Hence, whereas Hall and Soskice theorized that due to institutional complementarities, deregulation of financial markets could “snowball into changes in other spheres as well,” possibly causing a break-up of CMEs, Touwen contends that the overall convergence to the LME did not take place, for which he provides plentiful evidence in the subsequent four chapters.

The limited space in this review does not allow me to elaborate on these chapters in depth. In a nutshell, in all of them Dutch postwar economic history is analyzed by focusing, in succession, on the business system, labor relations, the welfare state and economic policy. As these concern strongly overlapping topics an inevitable disadvantage thereof is that the same themes are addressed several times (be it from different perspectives), which is somewhat tiresome if one would read the whole book in one go. On the other hand, each chapter comes up with additional information and interesting details, thereby delivering further building blocks for the main message of the book: when faced by shocks and external threats, almost in all time periods (except during the polarized 1970s) the Dutch responded gradually but nevertheless adequately via an intricate system of coordination in all five distinguished spheres of the economy (in industrial relations, information sharing with employees, corporate governance, inter-firm networks, and vocational training). Although a deliberate choice of the author, it is a missed opportunity not to elaborate on this last-mentioned sphere, for reasons not explicitly mentioned.  Here and there he just touches upon this important topic, while a bit more comprehensive discussion thereof would have made the application of VoC to the Dutch case complete.

The book clearly describes how non-market coordination in the Netherlands originated in the interwar years and how it developed thereafter. At first this occurred in great harmony under guidance of the state (demand-side, Keynesian policy) in order to restore international competitiveness, culminating in the so-called Golden Years (1950s-1960s). There was close collaboration between government, employer associations and unions at all levels. During the stagflation period of the 1970s unemployment rose, labor relations hardened and the government failed to cut spending. Finally, forced by the structural changes in the world economy, by 1982 the sense of urgency was strong enough for all parties to switch to a more liberal, supply-side economic policy. Wage restraints were accepted in return for the creation of jobs, which were often part-time and temporary. The labor market thus became more flexible. Although this whole process coincided with a drastic reform of the welfare state, it was also accompanied by an active labor market policy, preventing segregation of the labor market as well as a rise in income inequality. So, “more market” went hand in hand with sustained coordination. Addressing the most recent time period, the financial crisis of 2007-10 clearly demonstrates the negative consequences of introducing too much free market, and underscores the continued need for coordination and government regulation. Touwen describes the success of the Dutch CME in terms of “managed liberalization under the wing of consultation.” The ability of non-market coordination to accommodate change forms the connecting thread.

Annette van den Berg (lecturer at Utrecht University School of Economics) is the author (together with Erik Nijhof) of “Variations of Coordination: Labour Relations in the Netherlands” in: K. Sluyterman (ed.), Varieties of Capitalism and Business History. The Dutch Case (Routledge, 2015) and (together with John Groenewegen and Antoon Spithoven) of Institutional Economics. An Introduction (Palgrave Macmillan, 2010). Her email address is

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Subject(s):Economic Planning and Policy
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Macroeconomics and the Phillips Curve Myth

Author(s):Forder, James
Reviewer(s):Mazumder, Sandeep

Published by EH.Net (June 2015)

James Forder, Macroeconomics and the Phillips Curve Myth. Oxford: Oxford University Press, 2014. ix + 306 pp. $90 (hardcover), ISBN: 978-0-19-968365-9.

Reviewed for EH.Net by Sandeep Mazumder, Department of Economics, Wake Forest University.

The Phillips curve has long been considered a workhorse of modern macroeconomics, and the term is thrown around frequently by both academics and central bankers alike, without much consideration as to its origin. In his book, James Forder forces us to reconsider the inception of this term, and how the model itself developed in the 1960s and 1970s in the macroeconomics literature.

In particular, in response to the foundational work of A.W.H. Phillips (1958) — where the negative relationship between inflation and unemployment is posited — three other papers stand head and shoulders above the others in the formation of the literature. Namely, Paul Samuelson and Robert Solow (1960) who argue that policymakers can choose a point along the Phillips curve, and then Edmund Phelps (1967) and Milton Friedman (1968) who introduced the movement of the curve itself via changes in inflation expectations.

At least, this is how the story goes according to the current literature. The author of this book argues that the true account of proceedings did not evolve in this aforementioned way at all. Further still, all of these so-called new findings to the literature were already widely known. Thus the term “myth” is used alongside “Phillips curve.”

In this book, James Forder successfully convinces the reader of many points, which indeed should force the current state of the inflation-unemployment literature to treat the formation of the story more carefully. For example, Phillips was not the first to discuss inflation-unemployment tradeoffs (David Hume, Irving Fisher, and Jan Tinbergen had already done so), while there is evidence that Phillips himself disregarded much of his own 1958 paper. Forder does an excellent job of highlighting Phillips’ key contributions, which does not include the discovery of an inflation (or wage change)-unemployment tradeoff. Namely, Phillips suggested that this relationship would be stable over time, and he was even revolutionary with his claims that wages were being driven by supply and demand without the need of considering social forces. Arguably, Phillips’ biggest contribution was the idea that an observable “law of motion” in economics might actually exist.

Likewise, Forder does a thorough job of convincing the reader that Samuelson and Solow (1960) were not pursuing “inflationism” in their paper, while Friedman (1968) was not the first to discuss expected price changes with regards to wage bargaining. Moreover, a persuasive case is made that Richard Lipsey (1960) is a paper that possibly belongs in the “hall of fame” when it comes to the formation of the Phillips curve as we know it today.

That being said, the book suffers from several problems with its arguments. One such problem is that the author condemns the literature for using the term “Phillips curve,” both in the past and today, in a way that does not resemble what Phillips had originally intended with his research back in 1958. Indeed it is true that the term “Phillips curve” can be used in a variety of different settings. But surely this makes Phillips’ contribution vital, not trivial. Yes, the model may not be used in the exact way he was originally thinking, but arguably he (and others) crucially began a new genre of the study of inflation-unemployment tradeoffs that has evolved in many different ways over the past few decades to what we have today. Another way of putting it is this: the curve today may not resemble what we find in Phillips (1958), but that does not mean that Phillips was not instrumental (whether by intention or fluke) in putting the subject matter at the forefront of macroeconomics, regardless of whether it happened a few years after he wrote or a few decades afterwards.

At times, the book also suffers from putting forth trivial arguments in too strong of a manner. For instance, the lack of self-citation of authors such as Samuelson, in no shape constitutes that they did not believe in their own previous work. Many economists simply prefer not to self-cite. Additionally, one could argue that many of the cited papers in this book are done so in a misguided and confused way. For example, the author says in chapter 7 that Guillermo Calvo “did not use the [New Keynesian Phillips Curve] expression.” Calvo’s pricing work was a foundational assumption that eventually led to the NKPC — he was not the originator of the model himself — so there is no reason to expect references to the NKPC in his work.

Furthermore, the author argues that several other researchers use Phillips curves without citing the original Phillips (1958) paper. This again in no way means that authors are not using Phillips’ work, but rather that it has become status quo in the literature to take the term “Phillips curve” for granted. Moreover, the author tries to argue that the Phillips curve was not relevant to policymaking, despite being used frequently in reports such as the Economic Report of the President. Does not the appearance of the term in the report in of itself constitute use by policymakers?

Another recurring problem in the book is that the author often makes strong arguments out of situations that do not warrant it. For instance, while the case for Friedman not being the first to bring inflation expectations to the model is well made, the fact remains that Friedman almost definitely is responsible for bringing the idea to the forefront of macroeconomic thinking given his prominence in the profession. Further still, in chapter 5 of the book, the author argues against the “inflationist” movement of the Phillips curve by presenting the case of those who were “anti-inflationists.” Is it any surprise, especially among macroeconomists, that there were people on either side of the debate? This does not represent a rejection of the Phillips curve, but rather a healthy debate about the merits of some of its implications. Indeed, the absence of “inflationist” ideas from policymakers’ own words (chapter 6) should also not be a surprise, and certainly does not constitute evidence against the Phillips curve. When would we ever expect a Federal Reserve official to publicly declare the benefits of inflation, even if they really thought it was true? Doing so would almost certainly be a death sentence on their own central banking career.

In conclusion, Forder has compelled me to consider Phillips’ role in the formation of the current model as we know it today more carefully, as well as the contributions of Samuelson, Solow, and Friedman. But I would imagine that this is true of almost anyone in history: if you look back in time, we probably frequently attribute more praise to certain individuals and not enough to others. Just ask Trevor Swan about his work on growth models! Regardless of whether this happened or not, the Phillips curve to this day remains a workhorse in macroeconomics when considering issues of price stability and full employment. Indeed, the policy implications are as vital as ever — not for picking a point on a menu of choices — but in terms of using the model to compute forecasts of possible future inflation rates, a point which is completely missed by the author. For these reasons, the Phillips curve is far from being a “myth.”


Calvo, G.A. (1983) “Staggered Prices in a Utility-Maximizing Framework,” Journal of Monetary Economics, 12(3): 383-398.

Friedman, M. (1968) “The Role of Monetary Policy,” American Economic Review, 58(1): 1-17.

Lipsey, R.G. (1960) “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1862-1957: A Further Analysis,” Economica, 27(105), 1-31.

Phelps, E.S. (1967) “Phillips Curves, Expectations of Inflation and Optimal Unemployment over Time,’ Economica, 34(135): 254-281.

Phillips, A.W. (1958) “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957,” Economica, 25(100): 283-299.

Samuelson, P.A. and R.M. Solow (1960) “Analytical Aspects of Anti-Inflation Policy,” American Economic Review, 50(2): 177-194.

Sandeep Mazumder in an Associate Professor of Economics at Wake Forest University. His recent research has focused on inflation dynamics in the United States.

Copyright (c) 2015 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2015). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

John Allen James: A Scholarly Remembrance

Submitted by: Chris Hanes, Hugh Rockoff, Mark Thomas and David Weiman

John anniversary 2013

John entered the MIT graduate program during the early, lofty days of the “new” economic history, and emerged as one of its most deft, sensible and versatile practitioners.  His PhD dissertation—directed by Peter Temin—exemplifies the promise of this new approach to historical analysis.  It addresses a central issue in American political economic development, the formation of a more integrated (or “perfect”) money market in the late nineteenth-century.  Influenced by the earlier contributions of Lance Davis and Richard Sylla, John set out to document systematically the timing and spatial extent of this financial innovation, and then to explain why it occurred where and when it did.  He adapted current finance theory (CAPM) to the historical context by incorporating possible market imperfections due to spatial factors such as local market power.  He collected mounds of data on national banks across the country to derive average annual loan rates—the key variable to be explained —over the period 1888 to 1911.

John’s results, subsequently published in his early scholarly articles (one of which was awarded the prestigious Arthur H. Cole prize by the Economic History Association) and then masterfully synthesized in his book Money and Capital Markets in Postbellum America, still constitute the received wisdom on this topic.  Part of the staying power of John’s work can be attributed to the wide range of techniques that he mastered and used.  John refined the art of descriptive statistics especially graphical analysis—or “eye balling the data” in his words—but he also built sophisticated models and tested them using the most current econometric methods.  And then true to his calling as both economist and historian, he constructed a compelling narrative showing the interaction between popular (or in the case of regional interest rates, more accurately Populist) politics and banking development.  First, he showed that the convergence of bank rates to levels in the Northeast occurred unevenly across the regions of the U.S.  It was most pronounced in the Midwestern and Pacific Coast states, and least evident in the South.  The latter observation was the subject of a separate article on Southern financial underdevelopment, and resurfaces in his recent co-authored research on the evolution of the American currency-monetary union.  Second, he dated this convergence from the late 1880s, timing which defied the alternative hypotheses based on the formation of a national commercial paper market (which occurred earlier) and passage of relevant federal banking reforms (in 1900).  Finally, his results emphasized the importance of local market power as a factor in explaining the delayed and uneven narrowing of regional interest differentials.  Reinforcing this conclusion, John marshaled statistical and qualitative evidence relating the erosion of bank market power to the liberalization of state banking laws in the 1880s, but only where populist candidates challenged incumbents.  Regional differences in the risks of lending, although present, it turned out were of secondary importance in explaining regional differences in interest rates.

John’s subsequent research shows his continued fascination with the manifold, profound transformations in the American economy from the Civil War era through the Roaring Twenties.  He contributed significantly to the debates over the first and second industrial revolutions in a series of articles on the causes and consequences of technological innovation over the nineteenth century.  He first investigated whether labor scarcity induced American manufacturers to adopt more capital-intensive, labor-saving (that is mechanical) innovations.  His most widely cited paper on this issue, co-authored with then University of Virginia colleague Jonathan Skinner, provided the definitive resolution of the “labor scarcity” paradox, showing that new mechanical technologies substituted for relatively scarce skilled labor but were strategic complements to unskilled labor and natural resources.  In turn, the James-Skinner view corroborates empirically an alternative frontier thesis, which emphasizes America’s relative abundance of natural resources and not the lure of abundant farm land on labor supplies.  Applying a similar production function analysis to the late nineteenth century period, John also furnishes one of the few statistical tests of Alfred Chandler’s influential thesis relating shifts in the pattern of technological innovation to the rise of big business.

The James-Skinner article is also noteworthy for its application of general equilibrium simulation modeling in economic history.  John had first deployed this methodology in his analysis of U.S. tariff policy before the Civil War.  Armed with a new sophisticated—and disconcertingly intractable—technique for deriving general equilibrium outcomes, John corroborates the conventional view on the distributional impacts of antebellum tariffs: all other things equal, they burdened Southern cotton exporters but benefitted Northern manufacturers and their workers.  At the same time he challenges the mainstream by suggesting that average tariff rates across the period may have been economically “optimal.”

John also made many important contributions to the general macroeconomic history of prewar United States. Working solely and with several co-authors including Christopher Hanes, Jon Skinner, and Mark Thomas, John’s program embraced pay and wealth inequality during the first industrial revolution; public and private savings behavior and economic growth; unemployment-inflation dynamics and the shifting Phillips curve relationship; and changes in the sources and extent of unemployment and cyclical fluctuations.  John’s work in these areas appealed to macroeconomists and made use of the latest econometric methods.  His 1993 article in the American Economic Review pioneered the use of structural vector autoregression analysis in economic history.  A decade later he published another paper in the AER, which used nineteenth century wage data to look for evidence of downward nominal wage rigidity, a phenomenon that had only recently become a focus of research in monetary policy (and has become even more relevant in the post-2008 slump).  Though much of John’s work in these areas appeared in general-interest economics journals, it displayed all the virtues of the best economic history.  John was careful to account for peculiarities of historical data and institutions, and to point out the implications of his findings for the larger sweep of American social history.

John’s foray into the history of U.S. savings tackled thorny questions at the macro and micro levels.  Complementing his earlier work on the impact of Civil War debt repayment (or public savings) on late nineteenth century growth, John, in tandem with Skinner, analyzed the dramatic rise in the personal savings rate during the first industrial revolution (published in a volume that placed him among the elite in the profession).  True to form, they identified a novel mechanism operating through changes in the occupational rather than the age distribution of the population.  And ironically (at least for John), their results downplayed the importance of financial market innovations, such as the spread of deposit banking so important in his earlier work.  But typical of John’s commitment to following the lead of the data, he could not and did not resist the apparent paradox.

A number of years later John investigated the microeconomics of saving behavior with former Virginia graduate student Michael Palumbo and colleague Mark Thomas.  Grounded in the historical equivalent of ‘big data’—almost 28,000 observations of late 19th century working-class households from Federal and State Bureau of Labor Statistics surveys—they modeled the distribution of savings by age group, derived estimates of the persistence of family income and savings rates over time, and then simulated wealth accumulation by 10,000 model households.  Their striking conclusions challenged critics of old-age insurance and working-class profligacy: workers did not save at higher rates in the era before Social Security than in the 1980s.  They also showed that few late nineteenth century working class households saved enough before age 65 to meet their living expenses in old age (an expected 10 more years of life), and conjectured that they likely depended on their children, in particular co-habitation with an older son or daughter in the very houses where they had raised their families.  Further research revealed that workers smoothed their consumption over a medium-period time horizon, indicating the influence of precautionary savings motives in response to a world of considerable riskiness from unemployment, illness, incapacity, and premature death of the household head.  Attesting to his growing interest in Japan, John (in work with Isoa Suto) extended this approach to Japanese savings behavior in the era before the social safety net.[2]

John’s other major contributions to the micro-economic foundations of macro-economic outcomes focused on wage and unemployment dynamics in late 19th century labor markets.  In characteristic fashion, he collected all available data on these topics and then framed questions of historical and current import.  Besides challenging earlier research showing signs of nominal wage rigidity, John also investigated and did not find evidence of increasing wage inequality over the period.  On the unemployment front, he estimated flows into and out of jobs based on the 1885 Massachusetts census, and found evidence of significant positive duration dependence, for employment and non-employment spells.  With a vaster dataset (containing over 100,000 observations), John estimated the natural rate of unemployment in 1909 to be just under 6 percent, strikingly similar to estimates today.  To explain this relatively high rate, his simulation analysis, which divided the labor market into stable-primary and floater-secondary workers, pointed to an eclectic mix of factors: seasonal disturbances for many stable workers, lay-offs for workers in cyclically sensitive sectors, and brief, relatively frequent spells for the floaters.  The paper, co-authored with Mark Thomas, won John his second Arthur H. Cole Prize from the Economic History Association.  Their joint work also challenged the findings of Christina Romer by showing that unemployment was more cyclically volatile during America’s first Gilded Age than it was during its Golden Age (in the post-WWII period).  His broader conclusion from these various strands of research is both simple and striking—labor markets and the macro-economy worked differently in the past and historians need to focus on the role of changing institutions and changing policies to try to explain how and why history matters.

Just prior to his sudden and untimely death, John returned to a topic briefly addressed in his dissertation and subsequent book on banking-financial markets in postbellum America.  At a St. Louis Fed conference, he presented data showing the increased efficiency of a largely private, decentralized banking system in greasing the wheels of commerce by moving money from one location to another, even across the country, at relatively low cost.  Teaming up with David Weiman, they explained this trend by the formation of a tiered network of correspondent banks centered on New York.

James and Weiman elaborated this initial paper into a book-length project to explain the evolution of this neglected economic infrastructure from the demise of the Second Bank of the United States to the formation of the Fed.  Informed by current policy debates, they conceived these transformations in terms of the “benefits and costs” of alternative institutional forms—private versus public and hierarchical networks versus bureaucracies.  En route, they decided to write on the Civil War era banking legislation, which institutionalized the emerging private correspondent banking network.  Their initial foray uncovered a striking connection between the adoption of a common currency and a longer-term trend toward a “more perfect” bank money (or payments) union.

Armed with this serendipitous result, James and Weiman have broadened the scope of their project to show the complex interplay between the “punctuated” evolution of the interbank payment network and the American monetary union.  Conceived along these lines, their book (in progress with a manuscript expected by the end of 2015) will complete what for John was a lifetime’s exploration of the development of the banking system in postbellum America.  Banks, we know, are peculiar financial institutions, both credit and payments intermediary.  John’s first book Money and Capital Markets analyzed their former dimension, and his forthcoming book will attend to the latter.

John’s scholarly contributions cannot be measured solely by his outstanding research record.  He was an academic mensch, to use a most fitting Yiddish expression.  John never refused the thankless tasks of a productive scholar—the endless referee reports, book reviews and discussant comments—but even when critical, he always struck a constructive tone sweetened with a good dose of his dry wit.  (In the case of the discussants’ role, we should also note that ever the cosmopolitan John would rarely pass up the opportunity to venture far and wide to see new sites and especially opera productions.)  But John’s spirit truly shone through in his interactions with younger scholars from all walks of intellectual life.  He was an intellectual gourmand ever curious to broaden his own substantive and theoretical-methodological horizons, but also a genuinely gifted mentor who guided others down their own paths, not his own.  And he was always ready to share his data, and willing to explain how to use them.  This aspect of John’s career can be best measured by the outpouring of affection from his “juniors,” who now can proudly call him a colleague, collaborator, and friend.  And they all describe him in virtually identical terms: brilliant, probing, curious, supportive, generous, decent, kind, humane, compassionate and passionate.  We are sure that this list is not complete but can attest to one fact.  John will be sorely missed by all of those whose lives he touched so profoundly.


Selected Highlights from John’s Career

Capitalism in Context: Essays on Economic Development and Cultural Change in Honor of R. M. Hartwell, ed. (with Mark Thomas). Chicago: University of Chicago Press, 1994.

Money and Capital Markets in Postbellum America. Princeton: Princeton University Press, 1978.

“Political Economic Limits to the Fed’s Goal of a Common National Bank Money: The Par Clearing Controversy Revisited” (with David F. Weiman). Research in Economic History.

“Main Street and Wall Street: The Macroeconomic Consequences of New York Bank Suspensions, 1866 to 1914” (with David F. Weiman and James A. McAndrews), Cliometrica,7 (2013), 99-130.

“The National Banking Act and the Transformation of New York Banking after the Civil War” (with David F. Weiman), Journal of Economic History, 71(June, 2011), pp. 340-364

“Early Twentieth-Century Japanese Worker Saving: Precautionary Behavior before a Social Safety Net” (with Isao Suto), Cliometrica, forthcoming.

“From Drafts to Checks: The Evolution of Correspondent Banking Networks and the  Formation of the Modern U.S. Payments System, 1850-1914” (with David F. Weiman), Journal of Money, Credit, and Banking, 42 (April, 2010), pp. 237-265.

“Consumption Smoothing among Working-Class American Families before Social

Insurance” (with Michael Palumbo and Mark Thomas), Oxford Economic Papers, 59 (October, 2007), pp. 606-640.

“The Political Economy of the U.S. Monetary Union: The Civil War Era as a Watershed” (with David F. Weiman), American Economic Review Papers and Proceedings, 97 (May, 2007), pp. 271-275 .

“Romer Revisited: Long-term Changes in the Cyclical Sensitivity of Unemployment” (with Mark Thomas), Cliometrica, 1 (April, 2007), pp. 19-44.

“Have American Workers Always Been Low Savers?” Patterns of Accumulation among Working-Class Households, 1885-1910,” (with Mark Thomas and Michael Palumbo), Research in Economic History, Volume 23, Amsterdam: Elsevier, 2005. Pp. 127-175.

“Financial Clearing Systems” (with David F. Weiman). In Richard Nelson, ed.,

Complexity and Limits of Market Organization, New York: Russell Sage, 2005. Pp. 114-155.

“A Golden Age? Unemployment and the American Labor Market, 1880-1910” (with Mark Thomas), Journal of Economic History, LXIII (December, 2003), pp. 959-994.

“Wage Adjustment under Low Inflation: Evidence from U.S. History” (with Christopher L. Hanes), American Economic Review, 93 (September, 2003), pp. 1414-1424.

“Industrialization and Wage Inequality in Nineteenth-Century Urban America” (with Mark Thomas), Journal of Income Distribution, 9 (2000), pp. 39-64.

“Savings and Early Economic Growth in the United States and Japan,” Japan and the World Economy, 11 (1999), pp. 161-83.

“The Early History of Nominal Wage Rigidity in American Industrial Labor Markets,” Rivista di Storia Economica, XIV (December, 1998), pp. 243-73.

“The Rise and Fall of the Commercial Paper Market, 1900-1930.” In: M. Bordo and R. Sylla, eds., Anglo-American Finance: Financial Markets and Institutions in 20th Century North America and the UK, Homewood, IL: Dow Jones-Irwin, 1996. Pp. 219-59.

“Reconstructing the Pattern of American Unemployment Before World War I,” Economica, 62 (August, 1995), pp. 291-311.

“Job Tenure in the Gilded Age.” In: George Grantham and Mary MacKinnon eds., Labour Market Evolution, London: Routledge Kegan Paul, 1994. Pp. 185-204.

“Economic Instability in Nineteenth-Century America,” American Economic Review, 83 (September, 1993), pp. 710-31.

“The Stability of the Nineteenth-Century Phillips Curve Relationship,” Explorations in Economic History, XXVI (April, 1989), pp. 117-34.

“Sources of Savings in the Nineteenth-Century United States” (with Jonathan Skinner). In: Peter Kilby, ed., Quantity and Quiddity: Essays in U.S. Economic History in Honor of Stanley Lebergott, Middletown, CT: Wesleyan University Press, 1987. Pp. 255-85.

“The Resolution of the Labor Scarcity Paradox,” (with Jonathan Skinner), Journal of Economic History, XLV (September, 1985), pp. 513-40.

“The Use of General Equilibrium Analysis in Economic History,” Explorations in Economic History, XXI (July, 1984), pp. 231-53.

“Public Debt Management Policy and Nineteenth-Century American Economic Growth,” Explorations in Economic History, XXI (April, 1984), pp. 192-217.

“Structural Change in American Manufacturing, 1850-1890,” Journal of Economic History, XLII (June, 1983), pp. 433-60.

“The Optimal Tariff in the Antebellum United States,” American Economic Review, LXXI (September, 1981), pp. 726-34.

“Some Evidence on Relative Labor Scarcity in Nineteenth-Century American Manufacturing,” Explorations in Economic History, XVIII (September, 1981), pp. 376-88.

“Financial Underdevelopment in the Postbellum South,” Journal of Interdisciplinary History, XI (Winter, 1980), pp. 443-54.

“Cost Functions of Postbellum National Banks,” Explorations in Economic History, XV (April, 1978), pp. 184-95.

“The Welfare Effects of the Antebellum Tariff: A General Equilibrium Analysis,” Explorations in Economic History, XV (July, 1978), pp. 231-56.

“Banking Market Structure, Risk, and the Pattern of Local Interest Rates in the United States, 1893-1911,” Review of Economics and Statistics, LVIII (November, 1976), pp. 453-62.

“The Conundrum of the Low Issue of National Bank Notes,” Journal of Political Economy, LXXXIV (April, 1976), pp. 359-67.

“The Development of the National Money Market,” Journal of Economic History, XXXVI  (December, 1976), pp. 878-97.

“Portfolio Selection with an Imperfectly Competitive Asset Market,” Journal of Financial and Quantitative Analysis, XI (December, 1976), pp. 831-46.


[1] Composed by Christopher L. Hanes (SUNY-Binghamton), Hugh Rockoff (Rutgers University), Mark Thomas (University of Virginia), and David F. Weiman (Barnard College, Columbia University)


[2] John had earlier explored the different historical savings patterns in Japan and the U.S. and their implications for economic growth.



Organizations in Time: History, Theory, Methods

Editor(s):Bucheli, Marcelo
Wadhwani, R. Daniel
Reviewer(s):Smith, Andrew

Published by EH.Net (July 2014)

Marcelo Bucheli and R. Daniel Wadhwani, editors. Organizations in Time: History, Theory, Methods. Oxford: Oxford University Press, 2014. xii + 338 pp. $83 (hardcover), ISBN: 978-0-19-964689-0.

Reviewed for EH.Net by Andrew Smith, Management School, University of Liverpool.

How should history be incorporated into the curriculum of business schools? What type of historical research should be published in top-tier management school journals?  What can mainstream organization studies scholars learn from the research methodologies of historians? These are some of the fundamental questions that this edited collection raises.

The appearance of this volume is timely, as the last five years have witnessed a “historic turn” in business schools. Until the 1960s, economic history and business history had an important place in business school teaching and research.  Many management scholars then decided to emulate research models developed in the hard sciences, which led to history becoming marginal in most business schools. History lost respect among positivistic management academics because historians made few broad theoretical claims, rarely discussed their research methodologies, and did not explicitly identify their independent and dependent variables. Historians in management schools became, effectively, disciplinary guests in their institutions.

The period from 2008 to the present has witnessed a revival of interest in history on the part of consumers of economic knowledge in a variety of academic disciplines, not to mention society as a whole. After the “Minksy moment” of the Global Financial Crisis, many readers turned to history to make sense of a chaotic present.  Classic works on financial history such as Kindleberger’s Manias, Panics and Crashes climbed on the Amazon popularity rankings, whole new books such as Reinhart and Rogoff’s controversial study began to influence policymakers on both sides of the Atlantic (Baker, 2013). Management schools were influenced by the zeitgeist, which meant that the historic turn called for by Peter Clark and Michael Rowlinson back in 2004 started to be realized (Rowlinson, 2013). Historical research began to appear in top-tier management journals.

It is now widely recognized that there needs to be more history in business school research and teaching. However, as Marcelo Bucheli and Dan Wadhwani note in the introductory essay, this apparent consensus obscures a lack of clarity about what a “historic turn” would, in practice, involve (p. 5).

This volume argues that the historic turn cannot simply be about going to the historical record to gather data points for the testing of various social-scientific theories, which is what scholars such as Reinhart and Rogoff do. Rather than being yet another device for allowing the quantitative social sciences to colonize the past, the historic turn should involve the adoption of historical methods by other management school academics. At the very least, people in the field of organization studies should borrow more tools from the historian’s toolkit.

Many of the contributors to this volume were trained in history departments and now teach in business schools. Indeed, only one of the contributors (Ken Lipartito) works exclusively in a history department. Two of the contributors (Howard Aldrich and Stephen Lippmann) are sociologists. Eleven of the contributors work in the United States, three are based at British universities, four are in Canada, and one works at a university in Turkey. The contributors range from a Ph.D. student to the holders of prestigious endowed chairs at Harvard (Geoffrey Jones) and MIT (JoAnne Yates).

Part I of the book, “History and Theory,” identifies the major philosophical differences between historical research and the forms of intellectual inquiry that have dominated management schools for the last five decades.  Repeating philosophical debates that economic historians had in the 1960s, qualitative scholars often argue that the aprioristic approaches taken in management schools are ahistorical and thus illegitimate, while other management academics complain that narrative historical research lacks the scholarly rigor associated with quantification.

The essays in Part II, “Actors and Markets,” suggest various ways in which historical research methods could be usefully applied in understanding business. In the opinion of the reviewer, this section of the book is the most important as it provides us with concrete proposals for future avenues of research.  Jeff Fear’s paper outlines five possible research methods for applying historical methods to understanding corporate change.  Fear stresses that researchers much take the social and historical embeddedness of organizations into account. Perhaps the most important of Fear’s comments relates to the need to understand the self-perceptions of economic-historical actors (p.178-79). The importance of studying individuals’ self-perceptions is also emphasized in the paper by Dan Wadhwani and Geoff Jones on historical reasoning in entrepreneurship research.  In a key passage that may be overlooked by some readers, Wadhwani and Jones outline a research agenda of “constitutive historicism” for scholars of business and management.  Constitutive historicism involves investigation of how economic actors’ perceptions of their own place in historical time shape their strategies (p. 208-210). The paper on industry emergence and industry life-cycles by David Kirsch, Mahka Moeen, and Dan Wadhwani focuses on the industry as the main unit of analysis. It argues that historical methods, particularly the use of analytical narratives, can complement more traditional positivist social-scientific explanations for studying the origins of industries and, crucially, the decisions that result in the non-creation of industries. The paper by Marcelo Bucheli and Jin Uk Kim calls on researchers to pay more attention to the antecedents of the organizations they study. This paper focuses on “the State” as a particular type of organization whose meaning is, in their view, dependent on historical context. Bucheli and Kim question whether it is appropriate to apply concepts of the State that were developed in modern Western environments to radically different cultures and historical periods.

Part III, “Sources and Methods,” examines the nature of historical research methods. The papers in this section of the book should be of interest to both academics and to the librarians and archivists who help academics to research. In fact, this part of the book should on the required reading list for all postgraduate students in archival studies and library science. Ken Lipartito’s essay will be particularly useful to librarians and archivists. The last essay in the volume, which is by Matthias Kipping, Wadhwani, and Bucheli outlines a research methodology for the integration of historical approaches into the study of organizations.  This research methodology incorporates key devices from the historian’s toolkit, namely intensive source criticism, triangulation, and hermeneutic interpretation (p. 306).

This important book ought to be on the shelves of every business historian. The essays in it are of a uniformly high caliber and will be useful to a wide range of academics and graduate students.  However, the book has several weaknesses that need to be addressed. First, while the book says a great deal about the research lives of academics, relatively few pages are given over to the question of precisely how history should be used in teaching undergraduate business students. A few chapters on curriculum design would have been welcome here, especially as many universities expect academics to deliver “research-led teaching.”

Another problem with this book is that it fails to acknowledge the fact that historical research as it is done in history departments is in the process of being transformed by new research technologies. The contributors mention that the discipline of history changed between the 1970s and the 1990s with the rise of social, cultural, and gender history (p. 149, 150, 172). However, the much more profound changes in the discipline that are currently being driven by technology go largely undiscussed here.  Digital Humanities research tools such as text mining/distant reading, GIS for historians, and social-network analysis are changing history departments. The contributors also should have paid more attention paid to the role of new technologies in driving past intellectual trends.  We know that the acquisition by universities of mainframe computers undoubtedly contributed to the so-called cliometric revolution in economic history (Whaples, 1991) by making it easier for scholars such as Fogel and Engerman to crunch numbers.  The use of the same mainframe computers likely encouraged the parallel trends towards quantification in business schools, although computerization is not mentioned in this book. It may be that the new research technologies, such as the Digital Humanities tools mentioned above, will contribute to the reversal of the trends of the 1960s and the legitimation of historical research in business schools. In fact, these tools may be crucial in maintaining the momentum of the historic turn in management studies.

The volume also says relatively little about how historical research reaches the end users of academic knowledge. These end users include the taxpayers who fund our research in the hopes of getting some sort of return. Business historians who use narratives are able to communicate with non-academics and thus have an advantage over other business-school academics, since narrative works and business biographies are accessible. Many businesspeople read business biographies and business-history books in their spare time. Ensuring the long-term viability of the historic turn in management schools will require thinking about the needs of stakeholders outside of the gates of the university.


Baker, Dean. 2013. “How Much Unemployment Was Caused by Reinhart and Rogoff’s Arithmetic Mistake?”  The Guardian,

Clark, Peter and Michael Rowlinson. 2004. “The Treatment of History in Organisation Studies: Towards an ‘Historic Turn’?” Business History, 46(3), 331-352.

Kindleberger, Charles P. and Robert Z. Aliber. 2011. Manias, Panics and Crashes: A History of Financial Crises. London: Palgrave Macmillan.

Reinhart, Carmen M. and Kenneth S. Rogoff. 2009. This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press.

Rowlinson, Michael. 2013. “Management and Organizational History: The Continuing Historic Turn.” Management and Organizational History, 8(4), 327-328.

Whaples, Robert. 1991. “A Quantitative History of the Journal of Economic History and the Cliometric Revolution.” Journal of Economic History, 51(2), 289-301.
Andrew Smith’s publications include “A Successful British MNE in the Backyard of American Big Business: Explaining the Performance of the American and Canadian Subsidiaries of Lever Brothers, 1888-1914,” Business History (2013).

Copyright (c) 2014 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2014). All EH.Net reviews are archived at

Subject(s):Business History
Development of the Economic History Discipline: Historiography; Sources and Methods
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Taylor Rule and the Transformation of Monetary Policy

Editor(s):Koenig, Evan F.
Leeson, Robert
Kahn, George A.
Reviewer(s):Gentle, Paul F.

Published by EH.Net (April 2014)

Evan F. Koenig, Robert Leeson, and George A. Kahn, editors, The Taylor Rule and the Transformation of Monetary Policy. Stanford, CA: Hoover Institution Press, 2012. xix + 347 pp. $35 (hardcover), ISBN: 978-0-8179-1404-2.

Reviewed for EH.Net by Paul F. Gentle, NCC British Higher Education (Guangzhou, China).

This book explains the creation and application of the Taylor Rule, one of the most important and well-known rules of monetary policy. The volume includes chapters by Pier Francesco Asso, Ben Benanke, Richard Fisher, Otmar Issing, George Kahn, Evan Koenig, Donald Kohn, Robert Leeson, John Lipsky, Robert Lucas, Edward Nelson, Guillermo Ortiz, Lars Svensson, John Taylor, Michael Woodford and Janet Yellen. These chapters make it very clear that the Taylor Rule is one of the most important monetary policy devices to come along in the last three decades.

The volume provides a detailed history of economic thought, leading up to the Taylor Rule equation, then reviews applications of the Taylor Rule in the United States, the United Kingdom, Australia, Japan and other countries.  As the preface explains, “back in the late 1970s and early 1980s, John Taylor and a few others embraced the notion that households and firms are forward-looking in their decision-making and intelligent in forming their expectations, but rejected the view that wages and prices adjust instantaneously to their market-clearing levels” (p. vii).  In Taylor’s view of New Keynesian economics, consumers try to develop rational expectations about the future. Yet due to nominal frictions (sticky prices and sticky wages), market-clearing levels of wages and prices are not reached instantaneously.  “Taylor helped bridge the gap between monetary theory and applied monetary policy when he showed that the set of activist feedback rules consistent with a well-behaved equilibrium includes certain interest-rate rules” (p. xi). Due to the need to see how well different performance rules worked, Taylor “developed the Taylor Curve, which shows efficient combinations of output and inflation variability” (p. x). Keeping unemployment low and inflation low are goals that are especially important given both the Great Depression of the 1930s and the Great Inflation of the 1970s. Many rules or guidelines have been created to deal with these twin concerns.  The Taylor Rule attempts to do this and its results have often been very good, although many economists believe that the Taylor Rule should be used in conjunction with other policy rules.

Here is John Taylor’s expression of his rule:[1]

r = p + .5y + .5(p – 2) + 2

where r = the federal funds rate; p = the rate of inflation over the previous four quarters; and y = the percent deviation of real GDP from a target.

Convertibility of money to a commodity, such as gold, was one of the first rules for monetary policy.  However, now we have fiat money, which needs a rule or rules to govern its growth.  “The Taylor rule synthesized (and provided a compromise between) competing schools of thought in a language devoid of rhetorical passion” (p. 5). The Taylor Rule with its equal weights has the advantage of offering a compromise solution between y-hawks (output hawks) and p-hawks (price hawks).  The rule is intended as a formative guide to policy and actually describes the conduct of U.S. monetary policy during a period of macroeconomic stability.  This fact helped influence the embrace of the Taylor Rule by policy makers.  Federal Reserve Governor Kohn gives a historical perspective of past episodes, suggesting that the Fed acted gradually in a certain period of time, though not at the slower pace as in estimated Taylor rules.  “These rules do not account for changes in the Fed’s inflation target from 1987 to the second half of the 1990s while the Fed was pursuing opportunistic disinflation” (p. 82). And the Fed’s monetary policy deviated from the Taylor Rule, from 2003 to 2006, when the funds rate was kept below Taylor Rule prescription for a long time (p. 83).  Of course that deviation of the Federal Reserve has been criticized by many economists. The deviation resulted in too much credit, which led up to the U.S. housing bubble and its aftermath.

As mentioned previously, there is also the idea of the Taylor Curve (pp. 148-151). The diagram has a vertical axis that denotes the variance of output.  The variance of inflation is shown on the horizontal axis.  The Taylor equation has proven to be more useful for policy than the Taylor Curve.  The Taylor Rule equation provides prescriptions for monetary policy.  Then there’s the “Great Moderation” – the reduced volatility of inflation and output in the decades before the 2008 recession. Some economists argue that such a moderation can by more readily achieved by central bankers, if they try to follow the Taylor equation.  But Taylor also refers to the “Great Deviation” (p.163) – the period when the Taylor Rule was not followed, to the point of a boom, followed by a bust.  Several economists discuss the ideas of inflation forecasts and the Taylor Rule contending that “forecast targeting and instrumental rules (such as the Taylor Rule) are complementary, rather than alternatives” (p. 236).

Lars Svensson argues that the “institutional framework for monetary policy rests on three pillars:  1. There is a mandate for monetary policy from the government or parliamentary, normally to maintain price stability. 2. There is independence for the central bank to conduct monetary policy and fulfill the mandate. 3. There is accountability of the central bank for its policy and decisions (pp. 245 -246).  Taylor has done in his work with these ideas in mind.  According to former Fed chair Ben Bernanke, the influence of Taylor upon “monetary theory and policy has been profound indeed” (p. 277), while the current Fed chair, Janet Yellen, states that Taylor’s work and “his research has affected the way policy makers and economists analyze the economy and approach to monetary policy” (p. 281).

Ultimately, this book is well worth the read.  A large array, of distinguished contributors give the reader a spectrum of viewpoints about the Taylor Rule.  The views of the Fed and many other central banks are given.  The academic side of monetary theory as it relates to the Taylor rule is covered in detail.  Taylor has done his research work in academic settings, government settings and within the commercial areas of financial markets — and from all those perspectives economists in this book have provided valuable analysis and commentary.

1. John B. Taylor, “Cross-Checking ‘Checking in on the Taylor Rule.’” Economics One blog, July 16, 2013,

Paul F. Gentle is the author of articles in Applied Economics, Applied Economics Letters, Economia Internazionale, Banks and Bank Systems and China and World Economy. He has taught at Samford University, Peking University, University of International Business and Economics, and City University of Hong Kong.

Copyright (c) 2014 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (April 2014). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):20th Century: WWII and post-WWII

The Great Depression of the 1930s: Lessons for Today

Editor(s):Crafts, Nicholas
Fearon, Peter
Reviewer(s):Hanes, Christopher

Published by EH.Net (January 2014)

Nicholas Crafts and Peter Fearon, editors, The Great Depression of the 1930s: Lessons for Today. Oxford: Oxford University Press, 2013. xiv + 459  pp. ₤68/$125 (hardcover), ISBN: 978-0-19-966318-7.

Reviewed for EH.Net by Christopher Hanes, Department of Economics, SUNY-Binghamton.

This is not an ordinary edited volume. Every paper seems to have been specially written for it and fits the title. Each views an aspect of the interwar era in light of theoretical and policy issues related to our own post-2008 depression, and draws explicit lessons. And check out the list of contributors, which (in addition to editors Nicholas Crafts and Peter Fearon) includes Michael Bordo, Charles Calomiris, Forrest Capie, Barry Eichengreen, Alexander Field, Price Fishback, Timothy Hatton, John Landon-Lane, Joseph Mason, Roger Middleton, Kris Mitchener, Albrecht Ritschl, Peter Temin, Mark Thomas, John Wallis, and Nikolaus Wolf! The volume includes many of the best economic historians working on the interwar era, scholars worth reading. Crafts and Fearon contribute two papers that would be, by themselves, worth the price of the book if the book were not so absurdly expensive. All of the papers are admirably up to date on the current macroeconomics literature, including recent attempts to account for events of the 1930s in terms of real business cycle and New Keynesian models. Monetary policy at the zero bound, hysteresis in the natural rate of unemployment, recovery from a financial crisis and regulatory reforms, the euro and the gold standard – these and many other topics are well-covered.

Of course, some things are not covered so well. The geographic scope is limited. All but one contribution focuses on the interwar experience of America and/or Britain. The exception is a paper about Germany by Albrecht Ritschl. Not well covered: the current policy issue of fiscal stimulus versus “austerity,” the value of the fiscal policy multiplier and “expansionary austerity” – can a country’s bond rates be so strongly affected by forecast budget balance as to counteract direct effects of government spending on employment? Roger Middleton’s paper, about Britain, is supposed to get at that. It is even titled “Can Contractionary Fiscal Policy be Expansionary?” But it does not answer its own question. This is partly because Britain and America do not provide the right natural experiments. Neither country tried fiscal stimulus; neither was ever in serious danger of losing international investors’ confidence that its bonds would be repaid (in domestic currency, at least). I suspect other countries’ 1930s experience would be more relevant. A few issues dear to this reviewer’s heart appear in the volume hardly at all, though they are quite approachable through interwar British and American experience: the possibility of “secular stagnation” (or, can the natural rate of interest be negative?); the effect of “quantitative easing” on term and liquidity premiums; policies to deal with widespread underwater mortgages. But no one book can cover everything.

I do criticize the book, seriously, on two counts. First, the names of authors of works cited by the contributors do not appear in the index, with three exceptions: Harold Cole, Paul Krugman and Alan Meltzer. (What’s so special about these guys?) It is impossible for a reader to, for example, look for discussions of recent papers that particularly interest him. I guess the editors originally intended to have a separate Index of Cited Work, then forgot to provide one. Second, there is no introduction to the volume explaining its origin and purpose. Who is the intended audience? The book jacket says it is “written at a level that will be comprehensible to advanced undergraduates in economics and history while also being a valuable source of reference for policymakers.” No, it isn’t. Let alone policymakers, very few undergraduates will comprehend the book’s charts of VAR variance decompositions and statements like this: “Let yt be an [n,1] vector of i = 1,…..n time series yi … Let xt be an [n,p+1).1] vector that includes the first p lags …” (p. 120). Actually, the book reads like the Journal of Economic Perspectives. I imagine it was really intended for economists and graduate students. I recommend it especially to the latter, as it provides reliable overviews of many important issues and should inspire several dissertations.

Christopher Hanes has published papers in numerous journals including the American Economic Review, Quarter Journal of Economics, Journal of Economic History, and Explorations in Economic History.  He is the author of “The Liquidity Trap and U.S. Interest Rates in the 1930s,” Journal of Money, Credit and Banking (2006).

Copyright (c) 2014 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (January 2014). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Macroeconomics and Fluctuations
Geographic Area(s):Europe
North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

The Great Inflation: The Rebirth of Modern Central Banking

Editor(s):Bordo, Michael D.
Orphanides, Athanasios
Reviewer(s):Hetzel, Robert L.

Published by EH.Net (December 2013)

Michael D. Bordo and Athanasios Orphanides, editors, The Great Inflation: The Rebirth of Modern Central Banking. Chicago: University of Chicago Press, 2013. xii + 532 pp. $120 (hardcover), ISBN: 978-0-226-06695-0.

Reviewed for EH.Net by Robert L. Hetzel, Federal Reserve Bank of Richmond.

The editor requested a one thousand word review of The Great Inflation, starting with a summary of the fourteen major essays, eight pithy commentaries, and accompanying wide-ranging discussion by eminent economists.  Given the richness of the material, that request is like asking someone to catch a bucket full of water from Niagara Falls and then pour it out in order to capture the falls for someone in a different location.  The first point to make is that the preface understates the value of the book.  The preface promotes the book with the observation that high inflation is costly and policy makers need to learn not to repeat the experience.  True enough, the incentive to adopt price controls when faced with high inflation came close to setting the United States on a path leading to state control of the economy and away from free enterprise.  However, the book is far more than a morality tale for central bankers.  The long, stumbling process of learning engaged in by central banks about operating in a regime of fiat money provides the kind of experiments that economists require in order to identify shocks.  When it comes to these experiments, the period known as stop-go monetary policy and as the Great Inflation is “as good as it gets.”

Economists form qualitative assessments of the economic outcomes of different monetary regimes and develop priors over the nature of the shocks in those regimes, real or monetary.  They then construct models that embody frictions that translate those shocks into real and nominal instability.  Ideally, estimation of the resulting models quantifies the shocks.  The methodological North Star is the formulation of hypotheses about what classes of policy rules provide for economic stability by eliminating monetary shocks and by mitigating real aggregate-demand shocks.  All such hypotheses are provisional.  They remain useful only to the extent that they predict outcomes in monetary regimes not observed in constructing the model.  Future outcomes are the obvious candidates, but experiences in other times and countries offer a largely unexcavated goldmine.

There is no way to short-circuit this process.  Different economists read the historical record of monetary policy experiments differently and build different models, which embed different frictions.  As pointed out by Chari, Kehoe, and McGrattan (2009), these different models when estimated produce very different shocks, and yet they all fit the data equally well.  One can use microeconomic evidence to distinguish among models.  However, no matter how sophisticated, models never will yield accurate measures of “natural” values of variables like the real interest rate, the unemployment rate, and the output gap.  Furthermore, modern models are not close to a satisfactory modeling of a phenomenon like monetary nonneutrality.

This state of affairs means that in narrowing the class of models economists explore the returns are very high to a better understanding of the historical policy “experiments” conducted by central banks.  What experiment did policy makers conduct in the Great Inflation?  Based on the essays in The Great Inflation, I take the following to be a least-common-denominator answer to this question (see also Hetzel 2008 and 2012).

Over a fifteen year period starting in the mid-1960s, the Federal Reserve operated within and largely accepted a political and intellectual consensus that aggregate-demand management should concentrate on achievement of a level of the unemployment rate consistent with full employment, widely taken to be four percent.  By the 1970s, the Keynesian consensus had come to accept that monetary policy constituted a significant influence on aggregate demand.  At the same time, that consensus assumed that inflation was a real phenomenon.  It follows that inflation is a phenomenon with multiple causes, which divide into the classifications of demand pull, cost push, and wage-price spiral.  From the perspective of inflation as a real phenomenon, the Fed had to make a difficult decision about balancing the benefits of low inflation against the real costs of the high unemployment required to control inflation.  Incomes policies (price and wage controls in the extreme) were considered to be an important means of alleviating the high cost of controlling inflation and relaxed the need for monetary policy to aim for low inflation rather than low unemployment.

Although the Fed avoids the language of trade-offs, implicitly, the Phillips curve, which makes lower inflation depend upon higher unemployment, organized the debate over the cost-benefit calculus of the degree of control the Fed should exercise over inflation.  Given the assumed chronic lack of a level of aggregate demand sufficient to assure full employment, policy makers believed that observed inflation was of the cost-push variety.  Price stability would, they believed, require socially unacceptable levels of unemployment (an unemployment rate sufficiently high in order to persuade labor unions to relinquish inflationary wage demands).  During the stop-go era, on an ongoing discretionary basis, the Fed implicitly weighed the benefits of monetary stimulus directed at moving unemployment toward its full-employment level against the costs of removing unemployment as a deterrent to cost-push inflation.  The contemporaneous behavior of unemployment and inflation caused the Fed to shift between monetary stimulus (the go phases) and monetary restriction (the stop phases).

The central characteristic of stop-go monetary policy was the absence of a nominal anchor.  Michael Bordo and Barry Eichengreen (“Bretton Woods and the Great Inflation”) document how the constraint on monetary policy exercised by gold outflows disappeared starting with the Johnson administration when capital controls replaced monetary policy as the instrument for rectifying international payments imbalances.  Andrew Levin and John B. Taylor construct an important measure of expected inflation, which places the start of the unanchoring of inflationary expectations in the mid-1960s.  After slowly drifting up, inflationary expectations rose dramatically toward the end of the 1970s.

Athanasios Orphanides and John Williams (“Monetary Policy Mistakes and the Evolution of Inflation Expectations”) use FOMC documents to demonstrate the activist character of policy directed toward achievement of a low unemployment rate.  In the spirit of the Phillips curve, Board staff at the Fed forecast that monetary stimulus would raise output (lower unemployment) with no impact on inflation in the presence of a negative output gap (“high” unemployment).  That is, the Fed could stimulate aggregate demand without fear of creating demand-pull inflation.  The inflation that did occur had to arise from cost-push forces.  Ricardo DiCecio and Edward Nelson (“The Great Inflation in the United States and the United Kingdom: Reconciling Policy Decisions and Data Outcomes”) show the prevalence of this view.

The discretionary character of monetary policy meant that the FOMC weighed off each period whether to move policy in a restrictive direction (raise the funds rate) or in a stimulative direction (lower the funds rate).  The emphasis placed on financial conditions conducive to the encouragement of investment in the housing and corporate sectors led the FOMC to limit the magnitude of increases in the funds rate.  Marvin Goodfriend and Robert G. King (“The Great Inflation Drift”) provide a model showing one way in which interest rate smoothing imparts random drift to the price level.

Alan Blinder and Jeremy Rudd (“The Supply-Shock Explanation of the Great Stagflation Revisited”) defend the traditional Keynesian view of aggregate-demand management aimed at balancing employment and inflation goals.  They argue that there is an underlying core rate of inflation determined by the difference between the growth rate of aggregate nominal demand and potential output with monetary policy only one of many influences on aggregate nominal demand.  The large fluctuations in inflation in the 1970s came from inflation shocks (increases in the relative price of energy and food) that pushed inflation above its core value.

As recounted by William Poole, Robert H. Rasche, and David C. Wheelock (“The Great Inflation: Did the Shadow Know Better?”), the Shadow Open Market Committee challenged the prevailing cost-push explanation of inflation and the inference that the control of inflation required an ongoing calculation of the costs of that control in terms of excess unemployment.  In contrast to the prevailing Keynesian sentiment, the Shadow made the monetarist assumption that monetary policy is the dominant force in the growth rate of aggregate nominal demand at cyclical and trend frequencies.  Given the stability of the trend rate of growth of M1velocity at the time, it follows that steady M1 growth would have produced steady growth in aggregate nominal demand at cyclical and trend frequencies.  Given steady growth in potential output, the policy of steady, moderate growth of M1 espoused by the Shadow would have provided a nominal anchor and steady trend inflation.

Given the Blinder-Rudd explanation of the Great Inflation that exonerates the Fed from any blame, the discussion of monetary policy in Japan and Germany is especially interesting.  Takatoshi Ito (“Great Inflation and Central Bank Independence in Japan”) contrasts monetary policy before and during the two inflation shocks of the 1970s, the first in 1973-1974 and the second in 1979-1980.  He argues that expansionary monetary policy in the early 1970s had already created high inflation before the first shock.  In the second episode, monetary restraint led to only a short-lived, moderate increase in inflation.  In a similar spirit, Andreas Beyer, Vitor Gaspar, Christina Gerberding, and Otmar Issing (“Opting Out of the Great Inflation: German Monetary Policy after the Breakdown of Bretton Woods”) credit a monetary policy, which started in the mid-1970s, with a firm nominal anchor for price stability as a source of nominal and real stability relative to other countries.  They especially emphasize the role of money targets as a commitment device for aligning inflationary expectations with the goal of price stability.

Macroeconomists cannot run controlled experiments, but they can do a much better job of identifying and elucidating the extraordinary range of experiments that central banks have delivered.  The Great Inflation is a terrific example.


V.V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan. “New Keynesian Models: Not Yet Useful for Policy Analysis.” American Economic Journal: Macroeconomics 1 (January 2009), 242-66.

Robert L. Hetzel. The Monetary Policy of the Federal Reserve: A History. Cambridge: Cambridge University Press, 2008.

Robert L. Hetzel. The Great Recession: Market Failure or Policy Failure?  Cambridge: Cambridge University Press, 2012.

Robert L. Hetzel is an Economist and Senior Policy Advisor at the Federal Reserve Bank of Richmond. The views expressed in this review are those of the author not those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

Copyright (c) 2013 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2013). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The National Recovery Administration

Barbara Alexander, Charles River Associates

This article outlines the history of the National Recovery Administration, one of the most important and controversial agencies in Roosevelt’s New Deal. It discusses the agency’s “codes of fair competition” under which antitrust law exemptions could be granted in exchange for adoption of minimum wages, problems some industries encountered in their subsequent attempts to fix prices under the codes, and the macroeconomic effects of the program.

The early New Deal suspension of antitrust law under the National Recovery Administration (NRA) is surely one of the oddest episodes in American economic history. In its two-year life, the NRA oversaw the development of so-called “codes of fair competition” covering the larger part of the business landscape.1 The NRA generally is thought to have represented a political exchange whereby business gave up some of its rights over employees in exchange for permission to form cartels.2 Typically, labor is taken to have gotten the better part of the bargain; the union movement having extended its new powers after the Supreme Court abolished the NRA in 1935, while the business community faced a newly aggressive FTC by the end of the 1930s. While this characterization may be true in broad outline, close examination of the NRA reveals that matters may be somewhat more complicated than is suggested by the interpretation of the program as a win for labor contrasted with a missed opportunity for business.

Recent evaluations of the NRA have wended their way back to themes sounded during the early nineteen thirties, in particular, interrelationships between the so-called “trade practice” or cartelization provisions of the program and the grant of enhanced bargaining power to trade unions.3 On the microeconomic side, allowing unions to bargain for industry-wide wages may have facilitated cartelization in some industries. Meanwhile, macroeconomists have suggested that the Act and its progeny, especially labor measures such as the National Labor Relations Act may bear more responsibility for the length and severity of the Great Depression than has been recognized heretofore. 4 If this thesis holds up to closer scrutiny, the era may come to be seen as a primary example of the potential macroeconomic costs of shifts in political and economic power.

Kickoff Campaign and Blanket Codes

The NRA began operations in a burst of “ballyhoo” during the summer of 1933. 5 The agency was formed upon passage of the National Industrial Recovery Act (NIRA) in mid-June. A kick-off campaign of parades and press events succeeded in getting over 2 million employers to sign a preliminary “blanket code” known as the “President’s Re-Employment Agreement.” Signatories of the PRA pledged to pay minimum wages ranging from around $12 to $15 per 40-hour week, depending on size of town. Some 16 million workers were covered, out of a non-farm labor force of some 25 million. “Share-the-work” provisions called for limits of 35 to 40 hours per week for most employees. 6

NRA Codes

Over the next year and a half, the blanket code was superseded by over 500 codes negotiated for individual industries. The NIRA provided that: “Upon the application to the President by one or more trade or industrial associations or groups, the President may approve a code or codes of fair competition for the trade or industry.” 7 The carrot held out to induce participation was enticing: “any code … and any action complying with the provisions thereof . . . shall be exempt from the provisions of the antitrust laws of the United States.” 8 Representatives of trade associations overran Washington, and by the time the NRA was abolished, hundreds of codes covering over three-quarters of private, non-farm employment had been approved.9 Code signatories were supposed to be allowed to use the NRA “Blue Eagle” as a symbol that “we do our part” only as long as they remained in compliance with code provisions.10

Disputes Arise

Almost 80 percent of the codes had provisions that were directed at establishment of price floors.11 The Act did not specifically authorize businesses to fix prices, and indeed it specified that ” . . .codes are not designed to promote monopolies.” 12 However, it is an understatement to say that there was never any consensus among firms, industries and NRA officials as to precisely what was to be allowed as part of an acceptable code. Arguments about exactly what the NIRA allowed, and how the NRA should implement the Act began during its drafting and continued unabated throughout its life. The arguments extended from the level of general principles to the smallest details of policy, unsurprising given the complete dependence of appropriate regulatory design on precise regulatory objectives, which here were embroiled in dispute from start to finish.

To choose just one out of many examples of such disputes: There was a debate within the NRA as to whether “code authorities” (industry governing bodies) should be allowed to use industry-wide or “representative” cost data to define a price floor based on “lowest reasonable cost.” Most economists would understand this type of rule as a device that would facilitate monopoly pricing. However, a charitable interpretation of the views of administration proponents is that they had some sort of “soft competition” in mind. That is, they wished to develop and allow the use of mechanisms that would extend to more fragmented industries a type of peaceful coexistence more commonly associated with oligopoly. Those NRA supporters of the representative-cost-based price floor imagined that a range of prices would emerge if such a floor were to be set, whereas detractors believed that “the minimum would become the maximum,” that is, the floor would simply be a cartel price, constraining competition across all firms in an industry.13

Price Floors

While a rule allowing emergency price floors based on “lowest reasonable cost” was eventually approved, there was no coherent NRA program behind it.14 Indeed, the NRA and code authorities often operated at cross-purposes. At the same time that some officials of the NRA arguably took actions to promote softened competition, some in industry tried to implement measures more likely to support hard-core cartels, even when they thereby reduced the chance of soft competition should collusion fail. For example, with the partial support of the NRA, many code authorities moved to standardize products, shutting off product differentiation as an arena of potential rivalry, in spite of its role as one of the strongest mechanisms that might soften price competition.15 Of course if one is looking to run a naked price-fixing scheme, it is helpful to eliminate product differentiation as an avenue for cost-raising, profit-eroding rivalry. An industry push for standardization can thus be seen as a way of supporting hard-core cartelization, while less enthusiasm on the part of some administration officials may have reflected an understanding, however intuitive, that socially more desirable soft competition required that avenues for product differentiation be left open.

National Recovery Review Board

According to some critical observers then and later, the codes did lead to an unsurprising sort of “golden age” of cartelization. The National Recovery Review Board, led by an outraged Clarence Darrow (of Scopes “monkey trial” fame) concluded in May of 1934 that “in certain industries monopolistic practices existed.” 16 While there are legitimate examples of every variety of cartelization occurring under the NRA, many contemporaneous and subsequent assessments of Darrow’s work dismiss the Board’s “analysis” as hopelessly biased. Thus although its conclusions are interesting as a matter of political economy, it is far from clear that the Board carried out any dispassionate inventory of conditions across industries, much less a real weighing of evidence.17

Compliance Crisis

In contrast to Darrow’s perspective, other commentators focus on the “compliance crisis” that erupted within a few months of passage of the NIRA.18 Many industries were faced with “chiselers” who refused to respect code pricing rules. Firms that attempted to uphold code prices in the face of defection lost both market share and respect for the NRA.

NRA state compliance offices had recorded over 30,000 “trade practice” complaints by early 1935.19 However, the compliance program was characterized by “a marked timidity on the part of NRA enforcement officials.” 20 This timidity was fatal to the program, since monopoly pricing can easily be more damaging than is the most bare-knuckled competition to a firm that attempts it without parallel action from its competitors. NRA hesitancy came about as a result of doubts about whether a vigorous enforcement effort would withstand constitutional challenge, a not-unrelated lack of support from the Department of Justice, public antipathy for enforcement actions aimed at forcing sellers to charge higher prices, and unabating internal NRA disputes about the advisability of the price-fixing core of the trade practice program.21 Consequently, by mid-1934, firms disinclined to respect code pricing rules were ignoring them. By that point then, contrary to the initial expectations of many code signatories, the new antitrust regime represented only permission to form voluntary cartelization agreements, not the advent of government-enforced cartels. Even there, participants had to be discreet, so as not to run afoul of the antimonopoly language of the Act.

It is still far from clear how much market power was conferred by the NRA’s loosening of antitrust constraints. Of course, modern observers of the alternating successes and failures of cartels such as OPEC will not be surprised that the NRA program led to mixed results. In the absence of government enforcement, the program simply amounted to de facto legalization of self-enforcing cartels. With respect to the ease of collusion, economic theory is clear only on the point that self-enforceability is an open question; self-interest may lead to either breakdown of agreements or success at sustaining them.

Conflicts between Large and Small Firms

Some part of the difficulties encountered by NRA cartels may have had roots in a progressive mandate to offer special protection to the “little guy.” The NIRA had specified that acceptable codes of fair competition must not “eliminate or oppress small enterprises,” 22 and that “any organization availing itself of the benefits of this title shall be truly representative of the trade or industry . . . Any organization violating … shall cease to be entitled to the benefits of this title.” 23 Majority rule provisions were exceedingly common in codes, and were most likely a reflection of this statutory mandate. The concern for small enterprise had strong progressive roots.24 Justice Brandeis’s well-known antipathy for large-scale enterprise and concentration of economic power reflected a widespread and long-standing debate about the legitimate goals of the American experiment.

In addition to evaluating monopolization under the codes, the Darrow board had been charged with assessing the impact of the NRA on small business. Its conclusion was that “in certain industries small enterprises were oppressed.” Again however, as with his review of monopolization, Darrow may have seen only what he was predisposed to see. A number of NRA “code histories” detail conflicts within industries in which small, higher-cost producers sought to use majority rule provisions to support pricing at levels above those desired by larger, lower-cost producers. In the absence of effective enforcement from the government, such prices were doomed to break down, triggering repeated price wars in some industries.25

By 1935, there was understandable bitterness about what many businesses viewed as the lost promise of the NRA. Undoubtedly, the bitterness was exacerbated by the fact that the NRA wanted higher wages while failing to deliver the tools needed for effective cartelization. However, it is not entirely clear that everyone in the business community felt that the labor provisions of the Act were undesirable.26

Labor and Employment Issues

By their nature, market economies give rise to surplus-eroding rivalry among those who would be better off collectively if they could only act in concert. NRA codes of fair competition, specifying agreements on pricing and terms of employment, arose from a perceived confluence of interests among representatives of “business,” “labor,” and “the public” in muting that rivalry. Many proponents of the NIRA held that competitive pressures on business had led to downward pressure on wages, which in turn caused low consumption, leading to greater pressure on business, and so on. Allowing workers to organize and bargain collectively, while their employers pledged to one another not to sell below cost, was identified as a way to arrest harmful deflationary forces. Knowledge that one’s rivals would also be forced to pay “code wages” had some potential for aiding cartel survival. Thus the rationale for NRA wage supports at the microeconomic level potentially dovetailed with the macroeconomic theory by which higher wages were held to support higher consumption and, in turn, higher prices.

Labor provisions of the NIRA appeared in Section 7: “. . . employees shall have the right to organize and bargain collectively through representatives of their own choosing … employers shall comply with the maximum hours of labor, minimum rates of pay, and other conditions of employment…” 27 Each “code of fair competition” had to include labor provisions acceptable to the National Recovery Administration, developed during a process of negotiations, hearings, and review. Thus in order to obtain the shield against antitrust prosecution for their “trade practices” offered by an approved code, significant concessions to workers had to be made.

The NRA is generally judged to have been a success for labor and a miserable failure for business. However, evaluation is complicated to the extent that labor could not have achieved gains with respect to collective bargaining rights over wages and working conditions, had those rights not been more or less willingly granted by employers operating under the belief that stabilization of labor costs would facilitate cartelization. The labor provisions may have indeed helped some industries as well as helping workers, and for firms in such industries, the NRA cannot have been judged a failure. Moreover, while some businesses may have found the Act beneficial, because labor cost stability or freedom to negotiate with rivals enhanced their ability to cooperate on price, it is not entirely obvious that workers as a class gained as much as is sometimes contended.

The NRA did help solidify new and important norms regarding child labor, maximum hours, and other conditions of employment; it will never be known if the same progress could have been made had not industry been more or less hornswoggled into giving ground, using the antitrust laws as bait. Whatever the long-term effects of the NRA on worker welfare, the short-term gains for labor associated with higher wages were questionable. While those workers who managed to stay employed throughout the nineteen thirties benefited from higher wages, to the extent that workers were also consumers, and often unemployed consumers at that, or even potential entrepreneurs, they may have been better off without the NRA.

The issue is far from settled. Ben Bernanke and Martin Parkinson examine the economic growth that occurred during the New Deal in spite of higher wages and suggest “part of the answer may be that the higher wages ‘paid for themselves’ through increased productivity of labor. Probably more important, though, is the observation that with imperfectly competitive product markets, output depends on aggregate demand as well as the real wage. Maybe Herbert Hoover and Henry Ford were right: Higher real wages may have paid for themselves in the broader sense that their positive effect on aggregate demand compensated for their tendency to raise cost.” 28 However, Christina Romer establishes a close connection between NRA programs and the failure of wages and prices to adjust to high unemployment levels. In her view, “By preventing the large negative deviations of output from trend in the mid-1930s from exerting deflationary pressure, [the NRA] prevented the economy’s self-correction mechanism from working.” 29

Aftermath of Supreme Court’s Ruling in Schecter Case

The Supreme Court struck down the NRA on May 27, 1935; the case was a dispute over violations of labor provisions of the “Live Poultry Code” allegedly perpetrated by the Schecter Poultry Corporation. The Court held the code to be invalid on grounds of “attempted delegation of legislative power and the attempted regulation of intrastate transactions which affect interstate commerce only indirectly.” 30 There were to be no more grand bargains between business and labor under the New Deal.

Riven by divergent agendas rooted in industry- and firm-specific technology and demand, “business” was never able to speak with even the tenuous degree of unity achieved by workers. Following the abortive attempt to get the government to enforce cartels, firms and industries went their own ways, using a variety of strategies to enhance their situations. A number of sectors did succeed in getting passage of “little NRAs” with mechanisms tailored to mute competition in their particular circumstances. These mechanisms included the Robinson-Patman Act, aimed at strengthening traditional retailers against the ability of chain stores to buy at lower prices, the Guffey Acts, in which high cost bituminous coal operators and coal miners sought protection from the competition of lower cost operators, and the Motor Carrier Act in which high cost incumbent truckers obtained protection against new entrants.31

On-going macroeconomic analysis suggests that the general public interest may have been poorly served by the experiment of the NRA. Like many macroeconomic theories, the validity of the underconsumption scenario that was put forth in support of the program depended on the strength and timing of the operation of its various mechanisms. Increasingly it appears that the NRA set off inflationary forces thought by some to be desirable at the time, but that in fact had depressing effects on demand for labor and on output. Pure monopolistic deadweight losses probably were less important than higher wage costs (although there has not been any close examination of inefficiencies that may have resulted from the NRA’s attempt to protect small higher-cost producers). The strength of any mitigating effects on aggregate demand remains to be established.

1 Leverett Lyon, P. Homan, L. Lorwin, G. Terborgh, C. Dearing, L. Marshall, The National Recovery Administration: An Analysis and Appraisal, Washington: Brooking Institution, 1935, p. 313, footnote 9.

2 See, for example, Charles Frederick Roos, NRA Economic Planning, Colorado Springs: Cowles Commission, 1935, p. 343.

3See, for example, Colin Gordon, New Deals: Business, Labor, and Politics in America, 1920-1935, New York: Cambridge University Press, 1993, especially chapter 5.

4Christina D. Romer, “Why Did Prices Rise in the 1930s?” Journal of Economic History 59, no. 1 (1999): 167-199; Michael Weinstein, Recovery and Redistribution under the NIRA, Amsterdam: North Holland, 1980, and Harold L. Cole and Lee E. Ohanian, “New Deal Policies and the Persistence of the Great Depression,” Working Paper 597, Federal Reserve Bank of Minneapolis, February 2001. But also see “Unemployment, Inflation and Wages in the American Depression: Are There Lessons for Europe?” Ben Bernanke and Martin Parkinson, American Economic Review: Papers and Proceedings 79, no. 2 (1989): 210-214.

5 See, for example, Donald Brand, Corporatism and the Rule of Law: A Study of the National Recovery Administration, Ithaca: Cornell University Press, 1988, p. 94.

6 See, for example, Roos, op. cit., pp. 77, 92.

7 Section 3(a) of The National Industrial Recovery Act, reprinted at p. 478 of Roos, op. Cit.

8 Section 5 of The National Industrial Recovery Act, reprinted at p. 483 of Roos, op. cit. Note though, that the legal status of actions taken during the NRA era was never clear; Roos points out that “…President Roosevelt signed an executive order on January 20, 1934, providing that any complainant of monopolistic practices … could press it before the Federal Trade Commission or request the assistance of the Department of Justice. And, on the same date, Donald Richberg issued a supplementary statement which said that the provisions of the anti-trust laws were still in effect and that the NRA would not tolerate monopolistic practices.” (Roos, op. cit. p. 376.)

9 Lyon, op. cit., p. 307, cited at p. 52 in Lee and Ohanian, op cit.

10 Roos, op. cit., p. 75; and Blackwell Smith, My Imprint on the Sands of Time: The Life of a New Dealer, Vantage Press, New York, p. 109.

11 Lyon, op. cit., p. 570.

12 Section 3 (a)(2) of The National Industrial Recovery Act, op. Cit.

13 Roos, op. cit., at pp. 254-259. Charles Roos comments that “Leon Henderson and Blackwell Smith, in particular, became intrigued with a notion that competition could be set up within limits and that in this way wide price variations tending to demoralize an industry could be prevented.”

14 Lyon, et al., op. cit., p. 605.

15 Smith, Assistant Counsel of the NRA (per Roos, op cit., p. 254), has the following to say about standardization: One of the more controversial subjects, which we didn’t get into too deeply, except to draw guidelines, was standardization.” Smith goes on to discuss the obvious need to standardize rail track gauges, plumbing fittings, and the like, but concludes, “Industry on the whole wanted more standardization than we could go with.” (Blackwell Smith, op. cit., pp. 106-7.) One must not go overboard looking for coherence among the various positions espoused by NRA administrators; along these lines it is worth remembering Smith’s statement some 60 years later: “Business’s reaction to my policy [Smith was speaking generally here of his collective proposals] to some extent was hostile. They wished that the codes were not as strict as I wanted them to be. Also, there was criticism from the liberal/labor side to the effect that the codes were more in favor of business than they should have been. I said, ‘We are guided by a squealometer. We tune policy until the squeals are the same pitch from both sides.'” (Smith, op. cit. p. 108.)

16 Quoted at p 378 of Roos, op. Cit.

17 Brand, op. cit. at pp. 159-60 cites in agreement extremely critical conclusions by Roos (op. cit. at p. 409) and Arthur Schlesinger, The Age of Roosevelt: The Coming of the New Deal, Boston: Houghton Mifflin, 1959, p. 133.

18 Roos acknowledges a breakdown by spring of 1934: “By March, 1934 something was urgently needed to encourage industry to observe code provisions; business support for the NRA had decreased materially and serious compliance difficulties had arisen.” (Roos, op. cit., at p. 318.) Brand dates the start of the compliance crisis much earlier, in the fall of 1933. (Brand, op. cit., p. 103.)

19 Lyon, op. cit., p. 264.

20 Lyon, op. cit., p. 268.

21 Lyon, op. cit., pp. 268-272. See also Peter H. Irons, The New Deal Lawyers, Princeton: Princeton University Press, 1982.

22 Section 3(a)(2) of The National Industrial Recovery Act, op. Cit.

23 Section 6(b) of The National Industrial Recovery Act, op. Cit.

24 Brand, op. Cit.

25 Barbara Alexander and Gary D. Libecap, “The Effect of Cost Heterogeneity in the Success and Failure of the New Deal’s Agricultural and Industrial Programs,” Explorations in Economic History, 37 (2000), pp. 370-400.

26 Gordon, op. Cit.

27 Section 7 of the National Industrial Recovery Act, reprinted at pp. 484-5 of Roos, op. Cit.

28 Bernanke and Parkinson, op. cit., p. 214.

29 Romer, op. cit., p. 197.

30 Supreme Court of the United States, Nos. 854 and 864, October term, 1934, (decision issued May 27, 1935). Reprinted in Roos, op. cit., p. 580.

31 Ellis W. Hawley, The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence, 1966, Princeton: Princeton University Press, p. 249; Irons, op. cit., pp. 105-106, 248.

Citation: Alexander, Barbara. “National Recovery Administration”. EH.Net Encyclopedia, edited by Robert Whaples. August 14, 2001. URL

The American Economy during World War II

Christopher J. Tassava

For the United States, World War II and the Great Depression constituted the most important economic event of the twentieth century. The war’s effects were varied and far-reaching. The war decisively ended the depression itself. The federal government emerged from the war as a potent economic actor, able to regulate economic activity and to partially control the economy through spending and consumption. American industry was revitalized by the war, and many sectors were by 1945 either sharply oriented to defense production (for example, aerospace and electronics) or completely dependent on it (atomic energy). The organized labor movement, strengthened by the war beyond even its depression-era height, became a major counterbalance to both the government and private industry. The war’s rapid scientific and technological changes continued and intensified trends begun during the Great Depression and created a permanent expectation of continued innovation on the part of many scientists, engineers, government officials and citizens. Similarly, the substantial increases in personal income and frequently, if not always, in quality of life during the war led many Americans to foresee permanent improvements to their material circumstances, even as others feared a postwar return of the depression. Finally, the war’s global scale severely damaged every major economy in the world except for the United States, which thus enjoyed unprecedented economic and political power after 1945.

The Great Depression

The global conflict which was labeled World War II emerged from the Great Depression, an upheaval which destabilized governments, economies, and entire nations around the world. In Germany, for instance, the rise of Adolph Hitler and the Nazi party occurred at least partly because Hitler claimed to be able to transform a weakened Germany into a self-sufficient military and economic power which could control its own destiny in European and world affairs, even as liberal powers like the United States and Great Britain were buffeted by the depression.

In the United States, President Franklin Roosevelt promised, less dramatically, to enact a “New Deal” which would essentially reconstruct American capitalism and governance on a new basis. As it waxed and waned between 1933 and 1940, Roosevelt’s New Deal mitigated some effects of the Great Depression, but did not end the economic crisis. In 1939, when World War II erupted in Europe with Germany’s invasion of Poland, numerous economic indicators suggested that the United States was still deeply mired in the depression. For instance, after 1929 the American gross domestic product declined for four straight years, then slowly and haltingly climbed back to its 1929 level, which was finally exceeded again in 1936. (Watkins, 2002; Johnston and Williamson, 2004)

Unemployment was another measure of the depression’s impact. Between 1929 and 1939, the American unemployment rate averaged 13.3 percent (calculated from “Corrected BLS” figures in Darby, 1976, 8). In the summer of 1940, about 5.3 million Americans were still unemployed — far fewer than the 11.5 million who had been unemployed in 1932 (about thirty percent of the American workforce) but still a significant pool of unused labor and, often, suffering citizens. (Darby, 1976, 7. For somewhat different figures, see Table 3 below.)

In spite of these dismal statistics, the United States was, in other ways, reasonably well prepared for war. The wide array of New Deal programs and agencies which existed in 1939 meant that the federal government was markedly larger and more actively engaged in social and economic activities than it had been in 1929. Moreover, the New Deal had accustomed Americans to a national government which played a prominent role in national affairs and which, at least under Roosevelt’s leadership, often chose to lead, not follow, private enterprise and to use new capacities to plan and administer large-scale endeavors.

Preparedness and Conversion

As war spread throughout Europe and Asia between 1939 and 1941, nowhere was the federal government’s leadership more important than in the realm of “preparedness” — the national project to ready for war by enlarging the military, strengthening certain allies such as Great Britain, and above all converting America’s industrial base to produce armaments and other war materiel rather than civilian goods. “Conversion” was the key issue in American economic life in 1940-1942. In many industries, company executives resisted converting to military production because they did not want to lose consumer market share to competitors who did not convert. Conversion thus became a goal pursued by public officials and labor leaders. In 1940, Walter Reuther, a high-ranking officer in the United Auto Workers labor union, provided impetus for conversion by advocating that the major automakers convert to aircraft production. Though initially rejected by car-company executives and many federal officials, the Reuther Plan effectively called the public’s attention to America’s lagging preparedness for war. Still, the auto companies only fully converted to war production in 1942 and only began substantially contributing to aircraft production in 1943.

Even for contemporary observers, not all industries seemed to be lagging as badly as autos, though. Merchant shipbuilding mobilized early and effectively. The industry was overseen by the U.S. Maritime Commission (USMC), a New Deal agency established in 1936 to revive the moribund shipbuilding industry, which had been in a depression since 1921, and to ensure that American shipyards would be capable of meeting wartime demands. With the USMC supporting and funding the establishment and expansion of shipyards around the country, including especially the Gulf and Pacific coasts, merchant shipbuilding took off. The entire industry had produced only 71 ships between 1930 and 1936, but from 1938 to 1940, commission-sponsored shipyards turned out 106 ships, and then almost that many in 1941 alone (Fischer, 41). The industry’s position in the vanguard of American preparedness grew from its strategic import — ever more ships were needed to transport American goods to Great Britain and France, among other American allies — and from the Maritime Commission’s ability to administer the industry through means as varied as construction contracts, shipyard inspectors, and raw goading of contractors by commission officials.

Many of the ships built in Maritime Commission shipyards carried American goods to the European allies as part of the “Lend-Lease” program, which was instituted in 1941 and provided another early indication that the United States could and would shoulder a heavy economic burden. By all accounts, Lend-Lease was crucial to enabling Great Britain and the Soviet Union to fight the Axis, not least before the United States formally entered the war in December 1941. (Though scholars are still assessing the impact of Lend-Lease on these two major allies, it is likely that both countries could have continued to wage war against Germany without American aid, which seems to have served largely to augment the British and Soviet armed forces and to have shortened the time necessary to retake the military offensive against Germany.) Between 1941 and 1945, the U.S. exported about $32.5 billion worth of goods through Lend-Lease, of which $13.8 billion went to Great Britain and $9.5 billion went to the Soviet Union (Milward, 71). The war dictated that aircraft, ships (and ship-repair services), military vehicles, and munitions would always rank among the quantitatively most important Lend-Lease goods, but food was also a major export to Britain (Milward, 72).

Pearl Harbor was an enormous spur to conversion. The formal declarations of war by the United States on Japan and Germany made plain, once and for all, that the American economy would now need to be transformed into what President Roosevelt had called “the Arsenal of Democracy” a full year before, in December 1940. From the perspective of federal officials in Washington, the first step toward wartime mobilization was the establishment of an effective administrative bureaucracy.

War Administration

From the beginning of preparedness in 1939 through the peak of war production in 1944, American leaders recognized that the stakes were too high to permit the war economy to grow in an unfettered, laissez-faire manner. American manufacturers, for instance, could not be trusted to stop producing consumer goods and to start producing materiel for the war effort. To organize the growing economy and to ensure that it produced the goods needed for war, the federal government spawned an array of mobilization agencies which not only often purchased goods (or arranged their purchase by the Army and Navy), but which in practice closely directed those goods’ manufacture and heavily influenced the operation of private companies and whole industries.

Though both the New Deal and mobilization for World War I served as models, the World War II mobilization bureaucracy assumed its own distinctive shape as the war economy expanded. Most importantly, American mobilization was markedly less centralized than mobilization in other belligerent nations. The war economies of Britain and Germany, for instance, were overseen by war councils which comprised military and civilian officials. In the United States, the Army and Navy were not incorporated into the civilian administrative apparatus, nor was a supreme body created to subsume military and civilian organizations and to direct the vast war economy.

Instead, the military services enjoyed almost-unchecked control over their enormous appetites for equipment and personnel. With respect to the economy, the services were largely able to curtail production destined for civilians (e.g., automobiles or many non-essential foods) and even for war-related but non-military purposes (e.g., textiles and clothing). In parallel to but never commensurate with the Army and Navy, a succession of top-level civilian mobilization agencies sought to influence Army and Navy procurement of manufactured goods like tanks, planes, and ships, raw materials like steel and aluminum, and even personnel. One way of gauging the scale of the increase in federal spending and the concomitant increase in military spending is through comparison with GDP, which itself rose sharply during the war. Table 1 shows the dramatic increases in GDP, federal spending, and military spending.

Table 1: Federal Spending and Military Spending during World War II

(dollar values in billions of constant 1940 dollars)

Nominal GDP Federal Spending Defense Spending
Year total $ % increase total $ % increase % of GDP total $ % increase % of GDP % of federal spending
1940 101.4 9.47 9.34% 1.66 1.64% 17.53%
1941 120.67 19.00% 13.00 37.28% 10.77% 6.13 269.28% 5.08% 47.15%
1942 139.06 15.24% 30.18 132.15% 21.70% 22.05 259.71% 15.86% 73.06%
1943 136.44 -1.88% 63.57 110.64% 46.59% 43.98 99.46% 32.23% 69.18%
1944 174.84 28.14% 72.62 14.24% 41.54% 62.95 43.13% 36.00% 86.68%
1945 173.52 -0.75% 72.11 -0.70% 41.56% 64.53 2.51% 37.19% 89.49%

Sources: 1940 GDP figure from “Nominal GDP: Louis Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1789 — Present,” Economic History Services, March 2004, available at (accessed 27 July 2005). 1941-1945 GDP figures calculated using Bureau of Labor Statistics, “CPI Inflation Calculator,” available at Federal and defense spending figures from Government Printing Office, “Budget of the United States Government: Historical Tables Fiscal Year 2005,” Table 6.1—Composition of Outlays: 1940—2009 and Table 3.1—Outlays by Superfunction and Function: 1940—2009.

Preparedness Agencies

To oversee this growth, President Roosevelt created a number of preparedness agencies beginning in 1939, including the Office for Emergency Management and its key sub-organization, the National Defense Advisory Commission; the Office of Production Management; and the Supply Priorities Allocation Board. None of these organizations was particularly successful at generating or controlling mobilization because all included two competing parties. On one hand, private-sector executives and managers had joined the federal mobilization bureaucracy but continued to emphasize corporate priorities such as profits and positioning in the marketplace. On the other hand, reform-minded civil servants, who were often holdovers from the New Deal, emphasized the state’s prerogatives with respect to mobilization and war making. As a result of this basic division in the mobilization bureaucracy, “the military largely remained free of mobilization agency control” (Koistinen, 502).

War Production Board

In January 1942, as part of another effort to mesh civilian and military needs, President Roosevelt established a new mobilization agency, the War Production Board, and placed it under the direction of Donald Nelson, a former Sears Roebuck executive. Nelson understood immediately that the staggeringly complex problem of administering the war economy could be reduced to one key issue: balancing the needs of civilians — especially the workers whose efforts sustained the economy — against the needs of the military — especially those of servicemen and women but also their military and civilian leaders.

Though neither Nelson nor other high-ranking civilians ever fully resolved this issue, Nelson did realize several key economic goals. First, in late 1942, Nelson successfully resolved the so-called “feasibility dispute,” a conflict between civilian administrators and their military counterparts over the extent to which the American economy should be devoted to military needs during 1943 (and, by implication, in subsequent war years). Arguing that “all-out” production for war would harm America’s long-term ability to continue to produce for war after 1943, Nelson convinced the military to scale back its Olympian demands. He thereby also established a precedent for planning war production so as to meet most military and some civilian needs. Second (and partially as a result of the feasibility dispute), the WPB in late 1942 created the “Controlled Materials Plan,” which effectively allocated steel, aluminum, and copper to industrial users. The CMP obtained throughout the war, and helped curtail conflict among the military services and between them and civilian agencies over the growing but still scarce supplies of those three key metals.

Office of War Mobilization

By late 1942 it was clear that Nelson and the WPB were unable to fully control the growing war economy and especially to wrangle with the Army and Navy over the necessity of continued civilian production. Accordingly, in May 1943 President Roosevelt created the Office of War Mobilization and in July put James Byrne — a trusted advisor, a former U.S. Supreme Court justice, and the so-called “assistant president” — in charge. Though the WPB was not abolished, the OWM soon became the dominant mobilization body in Washington. Unlike Nelson, Byrnes was able to establish an accommodation with the military services over war production by “acting as an arbiter among contending forces in the WPB, settling disputes between the board and the armed services, and dealing with the multiple problems” of the War Manpower Commission, the agency charged with controlling civilian labor markets and with assuring a continuous supply of draftees to the military (Koistinen, 510).

Beneath the highest-level agencies like the WPB and the OWM, a vast array of other federal organizations administered everything from labor (the War Manpower Commission) to merchant shipbuilding (the Maritime Commission) and from prices (the Office of Price Administration) to food (the War Food Administration). Given the scale and scope of these agencies’ efforts, they did sometimes fail, and especially so when they carried with them the baggage of the New Deal. By the midpoint of America’s involvement in the war, for example, the Civilian Conservation Corps, the Works Progress Administration, and the Rural Electrification Administration — all prominent New Deal organizations which tried and failed to find a purpose in the mobilization bureaucracy — had been actually or virtually abolished.


However, these agencies were often quite successful in achieving their respective, narrower aims. The Department of the Treasury, for instance, was remarkably successful at generating money to pay for the war, including the first general income tax in American history and the famous “war bonds” sold to the public. Beginning in 1940, the government extended the income tax to virtually all Americans and began collecting the tax via the now-familiar method of continuous withholdings from paychecks (rather than lump-sum payments after the fact). The number of Americans required to pay federal taxes rose from 4 million in 1939 to 43 million in 1945. With such a large pool of taxpayers, the American government took in $45 billion in 1945, an enormous increase over the $8.7 billion collected in 1941 but still far short of the $83 billion spent on the war in 1945. Over that same period, federal tax revenue grew from about 8 percent of GDP to more than 20 percent. Americans who earned as little as $500 per year paid income tax at a 23 percent rate, while those who earned more than $1 million per year paid a 94 percent rate. The average income tax rate peaked in 1944 at 20.9 percent (“Fact Sheet: Taxes”).

War Bonds

All told, taxes provided about $136.8 billion of the war’s total cost of $304 billion (Kennedy, 625). To cover the other $167.2 billion, the Treasury Department also expanded its bond program, creating the famous “war bonds” hawked by celebrities and purchased in vast numbers and enormous values by Americans. The first war bond was purchased by President Roosevelt on May 1, 1941 (“Introduction to Savings Bonds”). Though the bonds returned only 2.9 percent annual interest after a 10-year maturity, they nonetheless served as a valuable source of revenue for the federal government and an extremely important investment for many Americans. Bonds served as a way for citizens to make an economic contribution to the war effort, but because interest on them accumulated slower than consumer prices rose, they could not completely preserve income which could not be readily spent during the war. By the time war-bond sales ended in 1946, 85 million Americans had purchased more than $185 billion worth of the securities, often through automatic deductions from their paychecks (“Brief History of World War Two Advertising Campaigns: War Loans and Bonds”). Commercial institutions like banks also bought billions of dollars of bonds and other treasury paper, holding more than $24 billion at the war’s end (Kennedy, 626).

Price Controls and the Standard of Living

Fiscal and financial matters were also addressed by other federal agencies. For instance, the Office of Price Administration used its “General Maximum Price Regulation” (also known as “General Max”) to attempt to curtail inflation by maintaining prices at their March 1942 levels. In July, the National War Labor Board (NWLB; a successor to a New Deal-era body) limited wartime wage increases to about 15 percent, the factor by which the cost of living rose from January 1941 to May 1942. Neither “General Max” nor the wage-increase limit was entirely successful, though federal efforts did curtail inflation. Between April 1942 and June 1946, the period of the most stringent federal controls on inflation, the annual rate of inflation was just 3.5 percent; the annual rate had been 10.3 percent in the six months before April 1942 and it soared to 28.0 percent in the six months after June 1946 (Rockoff, “Price and Wage Controls in Four Wartime Periods,” 382).With wages rising about 65 percent over the course of the war, this limited success in cutting the rate of inflation meant that many American civilians enjoyed a stable or even improving quality of life during the war (Kennedy, 641). Improvement in the standard of living was not ubiquitous, however. In some regions, such as rural areas in the Deep South, living standards stagnated or even declined, and according to some economists, the national living standard barely stayed level or even declined (Higgs, 1992).

Labor Unions

Labor unions and their members benefited especially. The NWLB’s “maintenance-of-membership” rule allowed unions to count all new employees as union members and to draw union dues from those new employees’ paychecks, so long as the unions themselves had already been recognized by the employer. Given that most new employment occurred in unionized workplaces, including plants funded by the federal government through defense spending, “the maintenance-of-membership ruling was a fabulous boon for organized labor,” for it required employers to accept unions and allowed unions to grow dramatically: organized labor expanded from 10.5 million members in 1941 to 14.75 million in 1945 (Blum, 140). By 1945, approximately 35.5 percent of the non-agricultural workforce was unionized, a record high.

The War Economy at High Water

Despite the almost-continual crises of the civilian war agencies, the American economy expanded at an unprecedented (and unduplicated) rate between 1941 and 1945. The gross national product of the U.S., as measured in constant dollars, grew from $88.6 billion in 1939 — while the country was still suffering from the depression — to $135 billion in 1944. War-related production skyrocketed from just two percent of GNP to 40 percent in 1943 (Milward, 63).

As Table 2 shows, output in many American manufacturing sectors increased spectacularly from 1939 to 1944, the height of war production in many industries.

Table 2: Indices of American Manufacturing Output (1939 = 100)

1940 1941 1942 1943 1944
Aircraft 245 630 1706 2842 2805
Munitions 140 423 2167 3803 2033
Shipbuilding 159 375 1091 1815 1710
Aluminum 126 189 318 561 474
Rubber 109 144 152 202 206
Steel 131 171 190 202 197

Source: Milward, 69.

Expansion of Employment

The wartime economic boom spurred and benefited from several important social trends. Foremost among these trends was the expansion of employment, which paralleled the expansion of industrial production. In 1944, unemployment dipped to 1.2 percent of the civilian labor force, a record low in American economic history and as near to “full employment” as is likely possible (Samuelson). Table 3 shows the overall employment and unemployment figures during the war period.

Table 3: Civilian Employment and Unemployment during World War II

(Numbers in thousands)

1940 1941 1942 1943 1944 1945
All Non-institutional Civilians 99,840 99,900 98,640 94,640 93,220 94,090
Civilian Labor Force Total 55,640 55,910 56,410 55,540 54,630 53,860
% of Population 55.7% 56% 57.2% 58.7% 58.6% 57.2%
Employed Total 47,520 50,350 53,750 54,470 53,960 52,820
% of Population 47.6% 50.4% 54.5% 57.6% 57.9% 56.1%
% of Labor Force 85.4% 90.1% 95.3% 98.1% 98.8% 98.1%
Unemployed Total 8,120 5,560 2,660 1,070 670 1,040
% of Population 8.1% 5.6% 2.7% 1.1% 0.7% 1.1%
% of Labor Force 14.6% 9.9% 4.7% 1.9% 1.2% 1.9%

Source: Bureau of Labor Statistics, “Employment status of the civilian noninstitutional population, 1940 to date.” Available at

Not only those who were unemployed during the depression found jobs. So, too, did about 10.5 million Americans who either could not then have had jobs (the 3.25 million youths who came of age after Pearl Harbor) or who would not have then sought employment (3.5 million women, for instance). By 1945, the percentage of blacks who held war jobs — eight percent — approximated blacks’ percentage in the American population — about ten percent (Kennedy, 775). Almost 19 million American women (including millions of black women) were working outside the home by 1945. Though most continued to hold traditional female occupations such as clerical and service jobs, two million women did labor in war industries (half in aerospace alone) (Kennedy, 778). Employment did not just increase on the industrial front. Civilian employment by the executive branch of the federal government — which included the war administration agencies — rose from about 830,000 in 1938 (already a historical peak) to 2.9 million in June 1945 (Nash, 220).

Population Shifts

Migration was another major socioeconomic trend. The 15 million Americans who joined the military — who, that is, became employees of the military — all moved to and between military bases; 11.25 million ended up overseas. Continuing the movements of the depression era, about 15 million civilian Americans made a major move (defined as changing their county of residence). African-Americans moved with particular alacrity and permanence: 700,000 left the South and 120,000 arrived in Los Angeles during 1943 alone. Migration was especially strong along rural-urban axes, especially to war-production centers around the country, and along an east-west axis (Kennedy, 747-748, 768). For instance, as Table 4 shows, the population of the three Pacific Coast states grew by a third between 1940 and 1945, permanently altering their demographics and economies.

Table 4: Population Growth in Washington, Oregon, and California, 1940-1945

(populations in millions)

1940 1941 1942 1943 1944 1945 % growth
Washington 1.7 1.8 1.9 2.1 2.1 2.3 35.3%
Oregon 1.1 1.1 1.1 1.2 1.3 1.3 18.2%
California 7.0 7.4 8.0 8.5 9.0 9.5 35.7%
Total 9.8 10.3 11.0 11.8 12.4 13.1 33.7%

Source: Nash, 222.

A third wartime socioeconomic trend was somewhat ironic, given the reduction in the supply of civilian goods: rapid increases in many Americans’ personal incomes. Driven by the federal government’s abilities to prevent price inflation and to subsidize high wages through war contracting and by the increase in the size and power of organized labor, incomes rose for virtually all Americans — whites and blacks, men and women, skilled and unskilled. Workers at the lower end of the spectrum gained the most: manufacturing workers enjoyed about a quarter more real income in 1945 than in 1940 (Kennedy, 641). These rising incomes were part of a wartime “great compression” of wages which equalized the distribution of incomes across the American population (Goldin and Margo, 1992). Again focusing on three war-boom states in the West, Table 5 shows that personal-income growth continued after the war, as well.

Table 5: Personal Income per Capita in Washington, Oregon, and California, 1940 and 1948

1940 1948 % growth
Washington $655 $929 42%
Oregon $648 $941 45%
California $835 $1,017 22%

Source: Nash, 221. Adjusted for inflation using Bureau of Labor Statistics, “CPI Inflation Calculator,” available at

Despite the focus on military-related production in general and the impact of rationing in particular, spending in many civilian sectors of the economy rose even as the war consumed billions of dollars of output. Hollywood boomed as workers bought movie tickets rather than scarce clothes or unavailable cars. Americans placed more legal wagers in 1943 and 1944, and racetracks made more money than at any time before. In 1942, Americans spent $95 million on legal pharmaceuticals, $20 million more than in 1941. Department-store sales in November 1944 were greater than in any previous month in any year (Blum, 95-98). Black markets for rationed or luxury goods — from meat and chocolate to tires and gasoline — also boomed during the war.

Scientific and Technological Innovation

As observers during the war and ever since have recognized, scientific and technological innovations were a key aspect in the American war effort and an important economic factor in the Allies’ victory. While all of the major belligerents were able to tap their scientific and technological resources to develop weapons and other tools of war, the American experience was impressive in that scientific and technological change positively affected virtually every facet of the war economy.

The Manhattan Project

American techno-scientific innovations mattered most dramatically in “high-tech” sectors which were often hidden from public view by wartime secrecy. For instance, the Manhattan Project to create an atomic weapon was a direct and massive result of a stunning scientific breakthrough: the creation of a controlled nuclear chain reaction by a team of scientists at the University of Chicago in December 1942. Under the direction of the U.S. Army and several private contractors, scientists, engineers, and workers built a nationwide complex of laboratories and plants to manufacture atomic fuel and to fabricate atomic weapons. This network included laboratories at the University of Chicago and the University of California-Berkeley, uranium-processing complexes at Oak Ridge, Tennessee, and Hanford, Washington, and the weapon-design lab at Los Alamos, New Mexico. The Manhattan Project climaxed in August 1945, when the United States dropped two atomic weapons on Hiroshima and Nagasaki, Japan; these attacks likely accelerated Japanese leaders’ decision to seek peace with the United States. By that time, the Manhattan Project had become a colossal economic endeavor, costing approximately $2 billion and employing more than 100,000.

Though important and gigantic, the Manhattan Project was an anomaly in the broader war economy. Technological and scientific innovation also transformed less-sophisticated but still complex sectors such as aerospace or shipbuilding. The United States, as David Kennedy writes, “ultimately proved capable of some epochal scientific and technical breakthroughs, [but] innovated most characteristically and most tellingly in plant layout, production organization, economies of scale, and process engineering” (Kennedy, 648).


Aerospace provides one crucial example. American heavy bombers, like the B-29 Superfortress, were highly sophisticated weapons which could not have existed, much less contributed to the air war on Germany and Japan, without innovations such as bombsights, radar, and high-performance engines or advances in aeronautical engineering, metallurgy, and even factory organization. Encompassing hundreds of thousands of workers, four major factories, and $3 billion in government spending, the B-29 project required almost unprecedented organizational capabilities by the U.S. Army Air Forces, several major private contractors, and labor unions (Vander Meulen, 7). Overall, American aircraft production was the single largest sector of the war economy, costing $45 billion (almost a quarter of the $183 billion spent on war production), employing a staggering two million workers, and, most importantly, producing over 125,000 aircraft, which Table 6 describe in more detail.

Table 6: Production of Selected U.S. Military Aircraft (1941-1945)

Bombers 49,123
Fighters 63,933
Cargo 14,710
Total 127,766

Source: Air Force History Support Office


Shipbuilding offers a third example of innovation’s importance to the war economy. Allied strategy in World War II utterly depended on the movement of war materiel produced in the United States to the fighting fronts in Africa, Europe, and Asia. Between 1939 and 1945, the hundred merchant shipyards overseen by the U.S. Maritime Commission (USMC) produced 5,777 ships at a cost of about $13 billion (navy shipbuilding cost about $18 billion) (Lane, 8). Four key innovations facilitated this enormous wartime output. First, the commission itself allowed the federal government to direct the merchant shipbuilding industry. Second, the commission funded entrepreneurs, the industrialist Henry J. Kaiser chief among them, who had never before built ships and who were eager to use mass-production methods in the shipyards. These methods, including the substitution of welding for riveting and the addition of hundreds of thousands of women and minorities to the formerly all-white and all-male shipyard workforces, were a third crucial innovation. Last, the commission facilitated mass production by choosing to build many standardized vessels like the ugly, slow, and ubiquitous “Liberty” ship. By adapting well-known manufacturing techniques and emphasizing easily-made ships, merchant shipbuilding became a low-tech counterexample to the atomic-bomb project and the aerospace industry, yet also a sector which was spectacularly successful.

Reconversion and the War’s Long-term Effects

Reconversion from military to civilian production had been an issue as early as 1944, when WPB Chairman Nelson began pushing to scale back war production in favor of renewed civilian production. The military’s opposition to Nelson had contributed to the accession by James Byrnes and the OWM to the paramount spot in the war-production bureaucracy. Meaningful planning for reconversion was postponed until 1944 and the actual process of reconversion only began in earnest in early 1945, accelerating through V-E Day in May and V-J Day in September.

The most obvious effect of reconversion was the shift away from military production and back to civilian production. As Table 7 shows, this shift — as measured by declines in overall federal spending and in military spending — was dramatic, but did not cause the postwar depression which many Americans dreaded. Rather, American GDP continued to grow after the war (albeit not as rapidly as it had during the war; compare Table 1). The high level of defense spending, in turn, contributed to the creation of the “military-industrial complex,” the network of private companies, non-governmental organizations, universities, and federal agencies which collectively shaped American national defense policy and activity during the Cold War.

Table 7: Federal Spending, and Military Spending after World War II

(dollar values in billions of constant 1945 dollars)

Nominal GDP Federal Spending Defense Spending
Year Total % increase total % increase % of GDP Total % increase % of GDP % of federal
1945 223.10 92.71 1.50% 41.90% 82.97 4.80% 37.50% 89.50%
1946 222.30 -0.36% 55.23 -40.40% 24.80% 42.68 -48.60% 19.20% 77.30%
1947 244.20 8.97% 34.5 -37.50% 14.80% 12.81 -70.00% 5.50% 37.10%
1948 269.20 9.29% 29.76 -13.70% 11.60% 9.11 -28.90% 3.50% 30.60%
1949 267.30 -0.71% 38.84 30.50% 14.30% 13.15 44.40% 4.80% 33.90%
1950 293.80 9.02% 42.56 9.60% 15.60% 13.72 4.40% 5.00% 32.20%

1945 GDP figure from “Nominal GDP: Louis Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1789 — Present,” Economic History Services, March 2004, available at (accessed 27 July 2005). 1946-1950 GDP figures calculated using Bureau of Labor Statistics, “CPI Inflation Calculator,” available at Federal and defense spending figures from Government Printing Office, “Budget of the United States Government: Historical Tables Fiscal Year 2005,” Table 6.1—Composition of Outlays: 1940—2009 and Table 3.1—Outlays by Superfunction and Function: 1940—2009.

Reconversion spurred the second major restructuring of the American workplace in five years, as returning servicemen flooded back into the workforce and many war workers left, either voluntarily or involuntarily. For instance, many women left the labor force beginning in 1944 — sometimes voluntarily and sometimes involuntarily. In 1947, about a quarter of all American women worked outside the home, roughly the same number who had held such jobs in 1940 and far off the wartime peak of 36 percent in 1944 (Kennedy, 779).

G.I. Bill

Servicemen obtained numerous other economic benefits beyond their jobs, including educational assistance from the federal government and guaranteed mortgages and small-business loans via the Serviceman’s Readjustment Act of 1944 or “G.I. Bill.” Former servicemen thus became a vast and advantaged class of citizens which demanded, among other goods, inexpensive, often suburban housing; vocational training and college educations; and private cars which had been unobtainable during the war (Kennedy, 786-787).

The U.S.’s Position at the End of the War

At a macroeconomic scale, the war not only decisively ended the Great Depression, but created the conditions for productive postwar collaboration between the federal government, private enterprise, and organized labor, the parties whose tripartite collaboration helped engender continued economic growth after the war. The U.S. emerged from the war not physically unscathed, but economically strengthened by wartime industrial expansion, which placed the United States at absolute and relative advantage over both its allies and its enemies.

Possessed of an economy which was larger and richer than any other in the world, American leaders determined to make the United States the center of the postwar world economy. American aid to Europe ($13 billion via the Economic Recovery Program (ERP) or “Marshall Plan,” 1947-1951) and Japan ($1.8 billion, 1946-1952) furthered this goal by tying the economic reconstruction of West Germany, France, Great Britain, and Japan to American import and export needs, among other factors. Even before the war ended, the Bretton Woods Conference in 1944 determined key aspects of international economic affairs by establishing standards for currency convertibility and creating institutions such as the International Monetary Fund and the precursor of the World Bank.

In brief, as economic historian Alan Milward writes, “the United States emerged in 1945 in an incomparably stronger position economically than in 1941″… By 1945 the foundations of the United States’ economic domination over the next quarter of a century had been secured”… [This] may have been the most influential consequence of the Second World War for the post-war world” (Milward, 63).

Selected References

Adams, Michael C.C. The Best War Ever: America and World War II. Baltimore: Johns Hopkins University Press, 1994.

Anderson, Karen. Wartime Women: Sex Roles, Family Relations, and the Status of Women during World War II. Westport, CT: Greenwood Press, 1981.

Air Force History Support Office. “Army Air Forces Aircraft: A Definitive Moment.” U.S. Air Force, 1993. Available at

Blum, John Morton. V Was for Victory: Politics and American Culture during World War II. New York: Harcourt Brace, 1976.

Bordo, Michael. “The Gold Standard, Bretton Woods, and Other Monetary Regimes: An Historical Appraisal.” NBER Working Paper No. 4310. April 1993.

“Brief History of World War Two Advertising Campaigns.” Duke University Rare Book, Manuscript, and Special Collections, 1999. Available at

Brody, David. “The New Deal and World War II.” In The New Deal, vol. 1, The National Level, edited by John Braeman, Robert Bremmer, and David Brody, 267-309. Columbus: Ohio State University Press, 1975.

Connery, Robert. The Navy and Industrial Mobilization in World War II. Princeton: Princeton University Press, 1951.

Darby, Michael R. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934-1941.” Journal of Political Economy 84, no. 1 (February 1976): 1-16.

Field, Alexander J. “The Most Technologically Progressive Decade of the Century.” American Economic Review 93, no 4 (September 2003): 1399-1414.

Field, Alexander J. “U.S. Productivity Growth in the Interwar Period and the 1990s.” (Paper presented at “Understanding the 1990s: the Long Run Perspective” conference, Duke University and the University of North Carolina, March 26-27, 2004) Available at

Fischer, Gerald J. A Statistical Summary of Shipbuilding under the U.S. Maritime Commission during World War II. Washington, DC: Historical Reports of War Administration; United States Maritime Commission, no. 2, 1949.

Friedberg, Aaron. In the Shadow of the Garrison State. Princeton: Princeton University Press, 2000.

Gluck, Sherna Berger. Rosie the Riveter Revisited: Women, the War, and Social Change. Boston: Twayne Publishers, 1987.

Goldin, Claudia. “The Role of World War II in the Rise of Women’s Employment.” American Economic Review 81, no. 4 (September 1991): 741-56.

Goldin, Claudia and Robert A. Margo. “The Great Compression: Wage Structure in the United States at Mid-Century.” Quarterly Journal of Economics 107, no. 2 (February 1992): 1-34.

Harrison, Mark, editor. The Economics of World War II: Six Great Powers in International Comparison. Cambridge: Cambridge University Press, 1998.

Higgs, Robert. “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s.” Journal of Economic History 52, no. 1 (March 1992): 41-60.

Holley, I.B. Buying Aircraft: Materiel Procurement for the Army Air Forces. Washington, DC: U.S. Government Printing Office, 1964.

Hooks, Gregory. Forging the Military-Industrial Complex: World War II’s Battle of the Potomac. Urbana: University of Illinois Press, 1991.

Janeway, Eliot. The Struggle for Survival: A Chronicle of Economic Mobilization in World War II. New Haven: Yale University Press, 1951.

Jeffries, John W. Wartime America: The World War II Home Front. Chicago: Ivan R. Dee, 1996.

Johnston, Louis and Samuel H. Williamson. “The Annual Real and Nominal GDP for the United States, 1789 – Present.” Available at Economic History Services, March 2004, URL:; accessed 3 June 2005.

Kennedy, David M. Freedom from Fear: The American People in Depression and War, 1929-1945. New York: Oxford University Press, 1999.

Kryder, Daniel. Divided Arsenal: Race and the American State during World War II. New York: Cambridge University Press, 2000.

Lane, Frederic, with Blanche D. Coll, Gerald J. Fischer, and David B. Tyler. Ships for Victory: A History of Shipbuilding under the U.S. Maritime Commission in World War II. Baltimore: Johns Hopkins University Press, 1951; republished, 2001.

Koistinen, Paul A.C. Arsenal of World War II: The Political Economy of American Warfare, 1940-1945. Lawrence, KS: University Press of Kansas, 2004.

Lichtenstein, Nelson. Labor’s War at Home: The CIO in World War II. New York: Cambridge University Press, 1982.

Lingeman, Richard P. Don’t You Know There’s a War On? The American Home Front, 1941-1945. New York: G.P. Putnam’s Sons, 1970.

Milkman, Ruth. Gender at Work: The Dynamics of Job Segregation by Sex during World War II. Urbana: University of Illinois Press, 1987.

Milward, Alan S. War, Economy, and Society, 1939-1945. Berkeley: University of California Press, 1979.

Nash, Gerald D. The American West Transformed: The Impact of the Second World War. Lincoln: University of Nebraska Press, 1985.

Nelson, Donald M. Arsenal of Democracy: The Story of American War Production. New York: Harcourt Brace, 1946.

O’Neill, William L. A Democracy at War: America’s Fight at Home and Abroad in World War II. New York: Free Press, 1993.

Overy, Richard. How the Allies Won. New York: W.W. Norton, 1995.

Rockoff, Hugh. “The Response of the Giant Corporations to Wage and Price Control in World War II.” Journal of Economic History 41, no. 1 (March 1981): 123-28.

Rockoff, Hugh. “Price and Wage Controls in Four Wartime Periods.” Journal of Economic History 41, no. 2 (June 1981): 381-401.

Samuelson, Robert J., “Great Depression.” The Concise Encyclopedia of Economics. Indianapolis: Liberty Fund, Inc., ed. David R. Henderson, 2002. Available at

U.S. Department of the Treasury, “Fact Sheet: Taxes,” n. d. Available at

U.S. Department of the Treasury, “Introduction to Savings Bonds,” n.d. Available at

Vander Meulen, Jacob. Building the B-29. Washington, DC: Smithsonian Institution Press, 1995.

Watkins, Thayer. “The Recovery from the Depression of the 1930s.” 2002. Available at

Citation: Tassava, Christopher. “The American Economy during World War II”. EH.Net Encyclopedia, edited by Robert Whaples. February 10, 2008. URL