War and the Economy

A common presupposition about the relationship between economy and war is that war stimulates the economy. The economic situation in America during World War II shows us that this is not the case.

During WWII, 40% of the labor force was employed by the army, producing weapons, machinery, etc…. The remaining 60% was left to make up for the lost production of consumer goods* by the 40%, on top of what it already had to produce. If it didn’t do this the standard of living would go down. This is not a healthy, booming economy.

An argument that is used to say the economy improved during WWII is that the rates of unemployment fell. The reason for this is that the unemployed were now employed by the army or drafted into the army. Therefore, there were no more unemployed people.

War does not make the economy better. In reality it reduces jobs, productivity and therefore the standard of living of a country.

 

*e.g. milk, socks, toothbrushes, TV’s, cars. Not producer goods, which are machinery used to produce cars, factories, etc….

The Standard Of Living

Does the government have to intervene in order to improve the standard of living? Not necessarily, because the free market can also raise it.

Without capital goods (the equipment that makes production possible, such as backhoes, sewing machines, machines for the transportation of products, etc…) the standard of living falls because we cannot produce enough to keep people all having the same amount of daily living products as before.

How can we raise the standard of living without government intervention?

We would need more consumer goods. For this we need more capital goods to make production faster and more efficient—therefore producing more. To gain capital goods, we need more savings and investments, which come from business men in the free market being able to operate without interference.

This is how the free market can improve the standard of living.