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Source link: http://archive.mises.org/13077/the-role-played-by-unemployed-factors-of-production-in-the-first-stages-of-the-boom/

The Role Played by Unemployed Factors of Production in the First Stages of the Boom

June 25, 2010 by

The beginning of a new credit expansion runs across remainders of preceding malinvestment and malemployment, not yet obliterated in the course of the readjustment process, and seemingly remedies the faults involved. In fact, however, this is merely an interruption. FULL ARTICLE by Ludwig von Mises

{ 27 comments }

R. Thomas Harding June 25, 2010 at 1:43 pm

Recent figures indicate an increase of corporate profits and a relaxation of credit to encourage investment—normally clues to an expanding economy—but today, after shelves have been picked clean of inventory following cutbacks in production for nearly 2 years and with unemployment immovable from its 10% base, the whole picture looks more like restocking at higher prices and profits than a sustainable recovery based on opportunity investment.

michael June 25, 2010 at 1:54 pm

It’s probably useful when reading this that we understand when it was written. Amazon says “Human Action was first published in 1949 (a German-language edition, Nationaloekonomie, was published in 1940, then completely rewritten in English). So it would describe conditions in the latter part of the Depression, when the great Postwar Boom had not yet even been imagined.

So the future Mises espies in his crystal ball looks like this: “The presence of unused capacity of inconvertible investments is an outgrowth of errors committed in the past. The assumptions made by the investors were, as later events proved, not correct; the market asks more intensively for other goods than for those that these plants can turn out. The piling up of excessive inventories and the catallactic unemployment of workers are speculative.”

That is, industrial spare capacity consists of piles of goods that have to be thrown out (excess inventories) and factories made to build buggy parts instead of sleek convertibles. As we know now, that’s not what happened in 1946. All the surplus jeeps and tanks were thrown away, or dropped by barges at sea. And all the jeep and tank plants switched over in an instant to putting out brand new DeSotos and Studebakers. The problem Mises worried about did not occur.

So what happend with all those unemployed masses? Mises predicted that “The unemployed worker refuses to change his occupation or his residence or to content himself with lower pay because he hopes to obtain at a later date a job with higher pay in the place of his residence and in the branch of business he likes best.” But that shows no understanding of the motivation of an unemployed worker. Everyone quickly got the first job available, to start making some money fast. Leter, those who were unhappy hopped to other jobs.

Mises then characterises the eventual recovery that the deficit spending enthusiasts envion as folows: “The advocates of credit expansion argue that what is wanted is more fiduciary media. Then the plants will work at full capacity, the inventories will be sold at prices their owners consider satisfactory, and the unemployed will get jobs at wages they consider satisfactory.”

But he says it will never work. And as we know from our convenient perch up here in the future, it worked as planned. The plants retooled from a wartime to a peactime, consumer-based economy. Everybody got jobs that paid well. And all the tons of goods that were freshly produced got bought at full retail. It was a win-win-win all around.

And Uncle Sam got his money back in the form of enhanced tax receipts on all that business everyone was doing. Pretty cool, eh?

Here’s Ludwig again, on why such a thing could never work: “For if this were to happen, the real prices and the real wage rates obtained by these owners of unsold inventories and unemployed workers would drop — in proportion to the prices of other commodities and services — to the height to which they must drop in order to find buyers and employers.” That is, I’m guessing, we could never make any new products until we had sold off the last of our warehouses full of gas lanterns and buggy whips. His meaning is not very clear to me.

Meanwhile we were buying new homes, on credit, as fast as Mr Levitt could build them… also on credit. It was an economic miracle, where loaves and fishes seemingly came from nothing.

Seattle June 25, 2010 at 2:31 pm

Michael, can you read?

Inquisitor June 25, 2010 at 4:03 pm

Honestly…

michael June 25, 2010 at 4:34 pm

Recall that throughout the 1940s Hayek was living in England, which had as of 1949 witnessed no recovery. He could not have written anything like the 1949 rewrite of this article had he been aware of events in the US. The gloomy future he envisioned for the postwar world never happened. Instead we prospered… by borrowing from the future.

Britain did not.

mr taco June 25, 2010 at 7:17 pm

facepalm ………..

newson June 25, 2010 at 7:48 pm

…or just maybe the “sick man of europe” wallowed in socialist policies until thatcher performed some substantial reforms.

michael June 26, 2010 at 8:49 am

Newson, the UK did in fact nationalize many industries back then, indulging in socialist policies galore. But that’s not what bankrupted them. A reliance on gold-backed money and fiscal conservatism undid them. At least that’s what the history shows:

“1939–1945: the Second World War

“After war broke out between Britain and Germany in September, Britain imposed exchange controls. The British Government also decided to sell its gold reserves and dollar reserves to pay for munitions, raw materials and industrial equipment from American factories. By the third quarter of 1940 the volume of British exports was down 37% compared to 1935. Although the British Government had committed itself to nearly $10,000 million of orders from America, Britain’s gold and dollar reserves were near exhaustion. The American Government decided to prop up Britain as it neared bankruptcy, so on 10 January 1941 they produced a Bill entitled an “Act to promote the defence of the United States” (its number, H.R. 1776, was the year of American independence) which was put before the United States Congress and which was enacted on 11 March 1941. This Act became known as Lend-Lease, whereby America would lend Britain equipment which she would pay for once the war had finished. One month later British gold and dollar reserves had dwindled to their lowest ever point, $12 million. Under this new agreement with the American Government, Britain agreed not to export any articles which contained Lend-Lease material or to export any goods—even if British-made—which were similar to Lend-Lease goods. The American Government sent officials to Britain to police these requirements. By 1944 British exports had gone down to 31% from 1938. Lend-Lease created problems in reviving Britain’s exports after the war.

“1945–1959: the post-War era

“After World War II, the British economy had again lost huge amounts of absolute wealth. Its economy was driven entirely for the needs of war and took some time to be reorganised for peaceful production. Anticipating the end of the conflict, the United States had negotiated throughout the war to liberalise post-war trade and the international flow of capital in order to break into markets which had previously been closed to it, including the British Empire’s Pound Sterling bloc. This was to be realised through the Atlantic Charter of 1941, through the establishment of the Bretton Woods system in 1944, and through the new economic power that the US was able to exert due to the weakened British economy.” etc.

http://en.wikipedia.org/wiki/Economic_history_of_the_United_Kingdom#1939.E2.80.931945:_the_Second_World_War

So the USA’s Keynesian strategies worked, while the more conservative British approach bankrupted the Empire. Or, you can offer a better interpretation.

michael June 26, 2010 at 8:56 am

Knock yourself out, Seattle. I was rushed and omitted a critical edit: that by the time he finished the 1949 English edition, Hayek should have known that the system he so ridiculed had worked. America had engaged in wholesale deficit spending to pay for the war effort. And by doing so we not only supported the beleaguered Allied nations until the war was won, we then recovered fully from the lingering effects of the Great Depression and entered into a self-created period of general prosperity unparalleled in history. All due to the miraculous powers of wholesale deficit spending… followed by an adjustment period of fiscal responsibility and high taxes.

Meanwhile The British Empire, tied to gold, went bankrupt. They had to rely on loans from us to keep from going under entirely. I think there’s a lesson in there somewhere.

Beefcake the Mighty June 26, 2010 at 9:51 am

I guess I’d ask you why we shouldn’t just run hundred-trillion dollar deficits as a means to permanent prosperity, but you would just answer that in that case we’d miss the “sweet spot in the middle”. The only lesson to be learned here is that even mocking you has lost any entertainment value.

michael June 26, 2010 at 12:28 pm

“.. but you would just answer that in that case we’d miss the “sweet spot in the middle”.”

That, in fact, would be the correct answer. One hundred trillion dollar deficits would be unwise. And for that matter, paying down our debt to zero would also be unwise.

Any idea why? Tick tock, tick tock…

Give up? It’s because giving back 13 trillion dollars to the holders of Treasury bonds would flood the world with more cash than can readily be managed. We’d have price inflation in whatever commodities the recipients of all that money chose to trade in and world financial markets would go haywire with excess liquidity.

The best policy? Depart little by little from where we are right now. Don’t rock the boat too hard one way or the other. But thanks for your $100 trillion suggestion, Beef.

mr taco June 26, 2010 at 7:17 pm

facepalm…………….

mr taco June 26, 2010 at 7:57 pm

you forgot that they had a central bank : )

Matthew Swaringen June 25, 2010 at 7:28 pm

“As we know now, that’s not what happened in 1946. All the surplus jeeps and tanks were thrown away” – that seems to go along with Mises, contrary to your claim. We disposed of the excess inventory…

“But that shows no understanding of the motivation of an unemployed worker. Everyone quickly got the first job available, to start making some money fast. Leter, those who were unhappy hopped to other jobs.” – straw-man here. You do realize Mises is talking about unemployed factors in the first stages of a “boom” right? The end of WW2 was “unemployed factors” due to a huge dumping of excess labor (military) all at once. That’s not the same as an equilibrium economy going into a boom phase at all, so the argument you are making isn’t even what Mises was talking about.

I found this argument funny given your love for the minimum wage, which makes finding the opening job harder to find.

“it worked as planned. The plants retooled from a wartime to a peactime, consumer-based economy. Everybody got jobs that paid well. And all the tons of goods that were freshly produced got bought at full retail.”
Consumer spending rose and there was a recovery due to the mass of savings during the era where people were forced to ration goods. The economy recovered because people went back to work doing useful things instead of useless things (war). Factors of production were employed that weren’t employed during the depression preceding the war because many price and wage controls were no longer in place, dumped along with the governments rationing.

The logic that you use to support the idea that the post war recovery was due to the war itself is doublethink. You have to believe that we were prosperous after the war due to the policy that was ended when the war did. You have to believe that the abandonment of tanks, planes, and ammunition lead to prosperity not in spite of the fact we wasted resources on destruction but because of it, and you have to deny that the reemployment of factors of production (the end of the war “boom”) towards useful consumer chosen ends was the source of recovery.

One has to ignore every reasonable cause of the recovery except that one that makes the least sense. But of course anyone who supports FDRs ridiculous policies of wage and price controls has to do this not to condemn the man for preventing the economy from recovering on it’s own.

“Meanwhile we were buying new homes, on credit, as fast as Mr Levitt could build them… also on credit. It was an economic miracle, where loaves and fishes seemingly came from nothing.”

Except that they didn’t come from nothing, while the government debt was huge, consumer debt was at it’s lowest point in 1946 and the recovery was financed through the increased savings. That generation is known for having many people who are savers and spend thrifts, not like modern Americans.

“Recall that throughout the 1940s Hayek was living in England, which had as of 1949 witnessed no recovery. He could not have written anything like the 1949 rewrite of this article had he been aware of events in the US. The gloomy future he envisioned for the postwar world never happened. Instead we prospered… by borrowing from the future.

Britain did not.”

Michael, ooh.. they didn’t? Hmm… if you would look at the figures you might see that Britains debt during the war and prewar period was also going crazy up until 1946. So you’d be 100% wrong that they didn’t borrow a ton (in fact their debt went up well after the war, unlike ours). There are many differences in post war policy, but also the fact that Britain actually was bombed over and over might have had a teensy effect on their recovery… just… maybe. You can go here to check that out… http://www.debtbombshell.com/images/national-debt-history.png

michael June 26, 2010 at 8:38 am

So much to respond to, Matthew. First, when I said that the US prospered by borrowing from the future while Britain did not, I was pointing to a significant reality that would seem to undermine Hayek’s main point:

The US engaged in a marathon round of deficit spending to fund the war… and when the shooting was over, performed a magnificent save by successfully retooling to a peacetime consumer economy. One which was so successful it not only sent a generation of GIs to college and helped them buy new homes and cars, it managed to also get Europe back on its feet with the Marshal Plan and pay down the accumulated federal debt to very comfortable levels. And recall, please, that it did so when the proportion of debt to GDP was much higher than it is today.

In contrast, Britain stuck with the gold standard and hemorrhaged all its gold and currency reserves in an effort to pay for the war effort with ‘real’ money. And as a result it emerged from the war essentially bankrupt. For a good capsule history see this appropriate stub, for the periods 1939-45 and 1945-59:

http://en.wikipedia.org/wiki/Economic_history_of_the_United_Kingdom#1939.E2.80.931945:_the_Second_World_War

In short it seems to me that given what should have been Hayek’s state of knowledge in 1949, he never should have attempted to uphold the following:

“The existence of unused capacity and unemployment is not a valid argument against the correctness of the circulation-credit theory. The belief of the advocates of credit expansion and inflation that abstention from further credit expansion and inflation would perpetuate the depression is utterly false. The remedies these authors suggest would not make the boom last forever. They would merely upset the process of recovery.”

Not only was the belief that abstention from credit expansion and the consequent risk of price and wage inflation would perpetuate the Depression true, it is abundantly demonstrable in close detail. I know you’re not crazy about proofs that derive from actual evidence… but that’s how life works. The evidence is there. Find some that supports Hayek, and convinces us that our recovery after WW II was just a mirage.

On to your other comments, which I’ll leave to some other post to address in detail. I’m not sure why you think Hayek was referring only to “an equilibrium economy going into a boom phase”, when he was writing at a time when nothing was in equilibrium, nor had it been for forty years. But I’ll go back and re-read the article.

Nor do I understand the charge that the returning GIs all quickly found jobs and that that somehow undermines my belief in current minimum wage standards. Back in 1946 there was no minimum wage, and according to theory there should have been such a sudden glut of workers that wages would have been depressed. But not so. They found jobs earning good pay. I attribute that to pent-up consumer demand. For four years their wives had been earning money that had piled up, unspent, in savings accounts. Once all that deferred demand met up with the new nylons, plastic toys, cheap carpeting, refrigerators and washers, jello molds and coffee tables coming onto the market, there was almost a labor shortage. Every factory was working flat out, paying their workers well, paying high corporate and upper-bracket taxes and STILL making a bundle in profits. If this isn’t a vindication of Keynesian strategies I don’t know what is.

Also I note that it could have happened (a recovery based on massive deficit spending) even if there were no war. But without the war, not even Roosevelt had the cojones to spend that much imaginary money. Nor would Congress ever have approved it. So the war was necessary only to give them the fear-based courage to move forward, and do some serious spending.

On another note, I agree with the following:

“Except that they didn’t come from nothing, while the government debt was huge, consumer debt was at it’s lowest point in 1946 and the recovery was financed through the increased savings. That generation is known for having many people who are savers and spend thrifts, not like modern Americans.”

But I also agree with my own comment: “Instead we prospered… by borrowing from the future.”

The Depression Generation was certainly conservative about saving for a rainy day, having lived through so many rainy years. But those returning GIs all managed to buy new homes (on credit), new cars (on credit), new furniture (on credit) and in many cases go through school (on credit). The GI Bill was a wondrous thing, both telling them “thank you for your service” and expressing confidence that their workplace efforts would form the core of our postwar prosperity. Many hands, increasing both our production and productivity, labored in the service of their debts.

Debts, let’s remember, that were created from scratch. We didn’t need to posit a stack of gold before the plan could commence.

Richie June 26, 2010 at 5:51 pm

“Back in 1946 there was no minimum wage…”

Wrong. The Fair Labor Standards Act of 1938, a summary of which you see displayed (as required by law) at every job site, established a minimum wage.

http://www.dol.gov/oasam/programs/history/flsa1938.htm

mr taco June 26, 2010 at 7:18 pm

facepalm………………………

Matthew Swaringen June 26, 2010 at 10:40 pm

The Wikipedia article provided doesn’t say anything to me about Britain not undertaking deficit spending like the US did. It mentions briefly the matter of gold being tied to the currency, but then goes on to talk about the “absolute wealth” loss, which anyone knows was worse for the UK than it was for us. We were only attacked at Pearl Harbor and the Philippines. Our mainland wasn’t hit. The British were bombed regularly and their conversion to wartime equipment production was much more complete than ours was.

They lost many more men as a percentage of their total population than we did. The devastation in Britain was much worse than it was for us. It had nothing to do with them not undertaking deficit spending (because they did do this, it’s clear from the graph I provided in my earlier reply).

“Every factory was working flat out, paying their workers well, paying high corporate and upper-bracket taxes and STILL making a bundle in profits. If this isn’t a vindication of Keynesian strategies I don’t know what is.”
Workers were getting nothing for those wages due to rationing, price inflation was very high, and resources were consumed that could have been used for something other than war. To act as if the war had no actual cost in this way is to pretend scarcity doesn’t exist. Consumers got a lot of consumption after waiting so long, but they abandoned much consumption they would have been able to partake absent the war. Your claim is that they got more in the long run, but that’s absolutely unsubstantiated. Your only reason to believe the Keynesian claim is that you want to believe it. If the Keynesian way was true we would have had a tremendous crash in 1946 when the government stopped spending, and we did not.

“Also I note that it could have happened (a recovery based on massive deficit spending) even if there were no war. But without the war, not even Roosevelt had the cojones to spend that much imaginary money. Nor would Congress ever have approved it. So the war was necessary only to give them the fear-based courage to move forward, and do some serious spending.”
Why didn’t massive spending of imaginary money save the Weimar Republic?

michael June 28, 2010 at 8:02 am

“Workers were getting nothing for those wages due to rationing, price inflation was very high, and resources were consumed that could have been used for something other than war. To act as if the war had no actual cost in this way is to pretend scarcity doesn’t exist.”

1942-45 was a time when consumerism was forced to defer to the war effort. Gasoline, meat, butter, sugar and coffee were limited for a number of reasons, mostly because the producers were either off to war or were beyond the country’s borders.

We could have just stayed the war out on the sidelines, cheering on whoever was ahead. But that wouldn’t have created a world we’d have wanted. Hitler would have taken over western Europe and the Middle East, so he would have the oil and the consequent industrial power. And Japan would have had the Asian continent, and Australia. We’d have ended up with Canada and Mexico, and no significant share of total industrial output.

So what happened was that consumers deferred consumption for four years. And at the war’s end they all had fat savings accounts, fueling a spending spree that made the transition back to a consumer economy easy.

And which also made it easier to pay down the national debt. War’s end became just as profitable as the war itself ever was.

“Why didn’t massive spending of imaginary money save the Weimar Republic?”

Offhand I’d say it was because there was no increase in production. You can look up the stats, but this is the guess I’ll put my money on. If the money supply increases but production doesn’t, you get runaway inflation. While if the money supply only increases in tandem with production increases, what little inflation you get is easier to bring under control.

If production increases while the money supply doesn’t, then you get deflation. Is it not so?

michael June 27, 2010 at 11:43 am

The Brits spent all their money fighting the war. They bought armaments from us until they were broke. Then we started the Lend-Lease program to extend them credit to buy more. Then in 1946 we stopped that program, leaving them high and dry when they desperately needed more credit to survive financially. So by 1948 they had to confess they were broke, unable to finance any new ventures or continue along their current path of debt repayment. That’s when we took over their obligations to maintain the global empire’s status quo.

Why did they need credit from us? While we just pulled more billions out of our hat? I took your advice and looked up some history. And it looks like it started with WW One. Britain never recovered from their spending in that war, and so entered WW Two already very badly overdrawn. I assume that all their creditors were worriedly demanding gold as opposed to scrip, so politically, printing more paper was not an option.

I’ll look into it further, you raise the important point. Meanwhile here’s a quick history of British debt:
http://www.ukpublicspending.co.uk/debt_brief.php

I note that the peak was achieved in 1946, and that that was the moment the US no longer considered GB to be credit-worthy. So they’d have had no wiggle room. The world had no other wealthy nations for the Brits to go a-begging to.

Weimar? They were collapsing under the weight of unsustainable reparations. The victors squeezed the loser to death… and it blew back in their faces when Hitler came along to rescue the vanquished nation from its experiment in democracy.

Then you say this: “Workers were getting nothing for those wages due to rationing, price inflation was very high, and resources were consumed that could have been used for something other than war. To act as if the war had no actual cost in this way is to pretend scarcity doesn’t exist. Consumers got a lot of consumption after waiting so long, but they abandoned much consumption they would have been able to partake absent the war.”

There were really only two short episodes of price inflation during that period. 1942, 11% and 1947, 14.65%. The first occurred when we made the initial transition to a wartime economy. And during that year (or about 15 months centering on 1942) there would have been an immense number of new jobs forcing earned income into the consumer economy, meanwhile drawing down available stocks of items on the shelf awaiting purchase. From then til war’s end there really wasn’t much to buy, so prices leveled off. Personal savings soared.

The second surge, which I remember all too clearly, actually lasted two full years: from July, 1946 through about August, 1948. It scared the hell out of everyone, spiking at 17-18% for an eight-month period. Why? I’m finding very few web resources that satisfy for this period. They’re just not out there. But I’m thinking there was a pig-in-the python effect, as all those pent-up savings ran through the economy.

Long-term, they just produced more demand… and so I would say the experience was positive. But there would have been obvious losers: those on fixed incomes, of whom there were few, and the fat capitalists who had been living off piles of old money. Still, those ordinary members of the middle class who recall the period remember the sting of inflation, but surrounded by a sea of prosperity. That’s when the middle class came into its own, and came to be thought of as America itself.

Finally, let’s address this: “If the Keynesian way was true we would have had a tremendous crash in 1946 when the government stopped spending, and we did not.”

I recently quoted Keynes on this very subject. I don’t have time to look it up today, but he said just what I’ve been saying, that you should spend during a slump and pay back during the good times. The postwar period certainly saw a red-hot economy arise by mid-1946, as evidenced by our most serious bout of inflation, and it was cured by a compensating period of fiscal responsibility. Just as Keynes would have counseled.

Maybe you should pick up a copy of Keynes in his own words, and not just rely on characterisations of him you may read in the yellow press. It could prove enlightening. :)

Matthew Swaringen June 27, 2010 at 9:03 pm

“Weimar? They were collapsing under the weight of unsustainable reparations”
This doesn’t explain why printing didn’t save them if it saved us. The reason that it didn’t harm us is that we didn’t have the unsustainable reparations, but my point was that “collapsing” isn’t something you recover from by printing money. It didn’t “work” in our case, we recovered despite it, not because of it. If we recovered from a collapse because of it, then Weimar should have as well.

On the matter of inflation, there are not good figures on inflation (or GDP) during the 1940-45 years and many price controls were in place to prevent it, but actual cost of living and limitations on consumption were very high. There were rationing campaigns of all kinds to prevent consumption of various goods like butter, rubber, etc. The standard of living was lower during this period.

You asked this elsewhere, and I don’t know that you got my answer on it but it’s not like I haven’t read Keynes or Krugman or other literature that’s not Austrian absent this site. I haven’t thought of myself as being a libertarian until a few months ago. I’ll admit I’ve never been an advocate for the left myself though. I have never seen the benefit of a large controlling state. The closest I’ve ever went in that direction was thinking that it might make sense to have government health insurance due to “efficiencies” (I don’t believe this at all now).

michael June 28, 2010 at 8:21 am

I’ve covered this in my answer above. Heavily industrialized Germany was crushed by Versailles. While we were dancing through a 1920s where just about everyone was rich, happy and well dressed, the German public was shabby, desperate and hungry. Not metaphorically hungry, but actually at the verge of starvation.

The money supply is supposed to express the amount of wealth in a society. By all rights, Germany should have had not more but FAR less money in circulation, to reflect a condition where there was little for sale anywhere. Instead, they tried to raise false hopes by handing out millions, then billions of marks to everyone. But those billions of marks still had to be divided into fifty loaves of bread the baker put out each morning for the whole neighborhood to share. There just wasn’t enough to go around at any price. Black markets flourished, and people hawked their fur coats to get real eggs and butter.

“On the matter of inflation, there are not good figures on inflation (or GDP) during the 1940-45 years and many price controls were in place to prevent it, but actual cost of living and limitations on consumption were very high.”

I don’t recall anyone feeling very deprived during those years. We were all very patriotic, and any small privation we suffered (gas and coffee were the worst) was toward the good of the war effort. We felt Hitler had to be defeated at any cost.

And again, here (below) are the standard tables I use. Their utility is not that they accurately reflect every last variable in our whole pricing scheme. As you know, some prices are always going up while others are going down, and some staying the same. But the virtue of this chart is that the criteria are unchanged. That means we can compare one year, or even one month, to any other without too much trouble. And then interpret those numbers according to our own subjective scale.

http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=5

My scale’s like that of most Americans. Under four, 4.5 percent everything’s fine. We can adjust. Six or seven becomes worrisome. When we hit ten, panic begins to form.

The scale would go the same in the other direction, if we ever got to that degree of economic mismanagement. Ten percent deflation and the whole country would go haywire. There’d be a revolution. Which, I suppose, the Austrians would applaud.

michael June 28, 2010 at 8:36 am

I’m sure you noticed his when looking over the table. Which were our “best years”, when inflation was closest to zero?

In 1939 and 1940, inflation was -1.3% and 0.73%, respectively. Times must have been great! Of course that was when we were in the depths of the trough, the Double Dip of the Depression.

In 1944, when rationing was at its height, the rate was 1.64%. And then we got to the really good years, 1949 (-0.95%) and 1950 (1.09%). Austrian theory would have predicted those would have been really bad, inflating years, as were suffering from the towering debt loads incurred by our previous profligate spending. Yet they were the good times, finally here!

David June 29, 2010 at 2:12 am

“Austrian theory would have predicted those would have been really bad, inflating years, as were suffering from the towering debt loads incurred by our previous profligate spending. Yet they were the good times, finally here”

Except that government was slashed by around 80% post war from 1945-1947. Mainstream economists predicted that such tremendous cuts would destroy the economy. Instead the opposite happened. Austrians, obviously, would have the cheered the budget cuts. Or do you dispute that too?

And try to keep your reply under 10,000 words. Being wordy is not a replacement for a sound argument.

michael June 29, 2010 at 7:02 am

The late forties were a time when Austrians and Keynesians alike should be in agreement. The pump priming had been done during the war, and now was time for the payback. As you say, government spending plummeted and fiscal responsibility was the order of the day.

And it worked. The economy took off.

2. “Mainstream economists predicted that such tremendous cuts would destroy the economy.”

Really? I’d be interested to find out which ones.

3. “And try to keep your reply under 10,000 words. Being wordy is not a replacement for a sound argument.”

Unfortunately, one-liners don’t adequately describe complex situations. They reduce serious arguments to mere chatter. There are no simple answers.

But if you find me tedious, I’m very easy to just skip over. You’ll find others here you’ll probably agree with more.

mr taco June 29, 2010 at 1:16 pm

you do know that most america’s competitors were destroyed right

mr taco June 29, 2010 at 2:46 pm

go to the forums already

http://mises.org/Community/forums/

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