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Wartime Socialization of Investment: A Reassessment of U.S. Capital Formation in the 1940s

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  • HIGGS, ROBERT

Abstract

During World War II, the U.S. government displaced private investors. According to NIPA data for the period 1942–1945, net private investment was negative $6.2 billion, and net government investment was positive $99.4 billion. Although economists have credited this government investment with various contributions to wartime and postwar economic growth, the bulk of it had little or no value beyond its immediate contribution to winning the war. This episode dramatically exposes a fundamental but false assumption that underlies official data on capital formation: that all expenditures for durable producer goods or munitions form genuine capital. There are circumstances which make the consumption of capital unavoidable. A costly war cannot be financed without such a damaging measure …. There may arise situations in which it may be unavoidable to burn down the house to keep from freezing, but those who do that should realize what it costs and what they will have to do without later on.Ludwig von MisesMises, Interventionism, p. 52.

Suggested Citation

  • Higgs, Robert, 2004. "Wartime Socialization of Investment: A Reassessment of U.S. Capital Formation in the 1940s," The Journal of Economic History, Cambridge University Press, vol. 64(2), pages 500-520, June.
    • Handle: RePEc:cup:jechis:v:64:y:2004:i:02:p:500-520_00
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    Cited by:

    1. Chad Turner & Robert Tamura & Sean Mulholland, 2013. "How important are human capital, physical capital and total factor productivity for determining state economic growth in the United States, 1840–2000?," Journal of Economic Growth, Springer, vol. 18(4), pages 319-371, December.
    2. Price Fishback & Joseph A. Cullen, 2013. "Second World War spending and local economic activity in US counties, 1939–58," Economic History Review, Economic History Society, vol. 66(4), pages 975-992, November.
    3. Turner, Chad & Tamura, Robert & Schoellman, Todd & Mulholland, Sean, 2011. "Estimating Physical Capital and Land for States and Sectors of the United States, 1850-2000," MPRA Paper 32847, University Library of Munich, Germany.
    4. Christopher J. Coyne & Anne R. Bradley, 2019. "Ludwig von Mises on war and the economy," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 32(3), pages 215-228, September.
    5. Alexander J. Field, 2023. "The decline of US manufacturing productivity between 1941 and 1948," Economic History Review, Economic History Society, vol. 76(4), pages 1163-1190, November.
    6. Alexander J. Field, 2008. "The impact of the Second World War on US productivity growth1," Economic History Review, Economic History Society, vol. 61(3), pages 672-694, August.
    7. Cristiano Andrea Ristuccia & Adam Tooze, 2013. "Machine tools and mass production in the armaments boom: Germany and the United States, 1929–44," Economic History Review, Economic History Society, vol. 66(4), pages 953-974, November.

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