Abstract:

The view that war benefits potential output has been influential in treatments of U.S. mobilization for the Second World War, where it has been largely premised on the benefits of learning by doing in producing military durables.  If the thesis that war benefits aggregate supply is correct, it is indeed within manufacturing that we should most likely see its effects. Total factor productivity within the U.S. sector in fact fell at a rate of 1.4 percent per year between 1941 and 1948, 3.7 percent a year between 1941 and 1944, and 5.1 percent a year between 1941 and 1945, and grew anemically between 1949 and 1973 in comparison with rates experienced during the interwar period. The emphasis on learning by doing has obscured the negative effects of the sudden, radical, and temporary changes in the product mix, the behavioral pathologies accompanying the transition to a shortage economy, and the resource shocks inflicted on the country by the Japanese and Germans. From a longer run perspective, the war can be seen, ironically, as the beginning of the end of U.S. world economic dominance in manufacturing. JEL Codes:  O33, O47, N12, N42, N62

View Working Paper: Decline of U.S. Manufacturing Productivity Between 1941 and 1948