I claim that the only examples of a modern democratic government with a developed economy that had direct control of capital are the WWII governments of the United States and the United Kingdom. Other democratic governments have had influence over the control of capital to varying degrees and other non-democratic modern governments have had control over capital to be sure but I still think the WWII example is a valuable one for any claims about the historical performance of democratic government command economies as it is the only modern example of such an economy amongst developed economies.
I have no expertise in economics and I’m sure my approach is amateurish to the point of making even a second year economics major cringe and for that I apologize. I use methods and tools that I myself find highly objectionable in this discussion and it is by no means complete. I do justify my horrors by stating that this is merely an attempt to effectively participate in an informal and laid back discussion with a friend of mine. I may bring up objectionable stuff when it occurs and sometimes I may neglect to do so. It should be known that I do not fully agree with my methods or my results. I do include every calculation I have done on this topic.
WWII American society is unique and any terse comparison will be inaccurate and unjust but I won’t invest in a non-terse comparison. I will compare the economic performance of the United States during WWII which was a command economy with that of WWI which was a pre-new-deal market economy. The comparison will be rife with errors as the entirety of American society was not mobilized for the war effort and there was greater opposition to WWI in America then there was for WWII. Because of these and other factors such a comparison is highly inaccurate but I will talk about the economic performance of the United States during these wars in comparison with one another to comment on the effectiveness of a command economy under a democratic government.
I will also be doing a disservice to such a comparison by only looking at GDP as a measure of an economy. The GDP is not an accurate measure of an economy but it is the most convenient approximation of a measure. Even as an approximation it is very poor. I won’t go into the reasons for this assertion but I believe most economists don’t share them, so for the purposes of my argument with my friend I will use GDP as a measure of an economy.
In order to compare the two economies I will use 1915-1919 as the WWI economy and 1939-1944 as the WWII economy. There is good reason to use different dates but for my purposes I chose two dates of equal time to be easy to compare. The United States didn’t join the war at its onset but it did support Britain’s war effort to some degree.
According to Measuring Worth the following table lists the values for the real GDP and GDP per capita as measured in 2000 dollars:
| Total | Per Capita | |
|---|---|---|
| (bill$) | ($) | |
| 1914 | 490.4 | 4,948 |
| 1919 | 614.8 | 5,852 |
| 1939 | 950.7 | 7,256 |
| 1944 | 1,806.5 | 13,053 |
The following table lists the total change and average annual change compounded continuously:
| Total | Per Capita | |||
|---|---|---|---|---|
| Total Change | Average Change | Total Change | Average Change | |
| year^-1 | year^-1 | |||
| 1914-1919 | 25.4% | 4.52% | 18.3% | 3.36% |
| 1919-1939 | 54.6% | 2.18% | 24.0% | 1.08% |
| 1939-1944 | 90.0% | 12.8% | 79.9% | 11.7% |
There are two things that stand out to me. The first is that total economic growth occurred at 2.8 times the rate during WWII then it did during WWI and the second is that total war time growth far outpaced peacetime growth in both cases with WWI growth occurring at 2.1 times the rate of peacetime growth. The naive conclusion is that war is more useful for economic growth then peace is and that a command economy produces more growth, at-least during war. It seems that when this nation really needed to ramp up production it used a command economy to do so with great effect.
This overlooks what production is occurring during war. War production actually destroys wealth instead of creating wealth but is counted in the GDP like useful production is. The growth in production during war is thus not beneficial to the economy. The drop in GDP after 1919 and 1945 (not shown) is evidence of this and there was a steeper drop after WWII then after WWI and the drop lasted longer. The growth in production during WII was not the reason for the American economic dominance of the 1950’s but rather the destruction of industry in most of the industrialized world was. I have no doubt that had WWI and WWII not occurred that Americans (and everybody else) would have been better off and would be better off today. I will not proceed with this argument any further here except to say that when this nation really wanted to accomplish a task with all of its might, it accomplished just that using a command economy.
There is also the question of evidence for the historical examples of democratic government involvement in capital control decisions that fall short of direct control. This same time period offers such an example and recently, with the current recession, people have made the claim that there would have been greater economic growth pre-1939 had the new deal not been implemented. My libertarian friend also made this argument and I will address it here.
There are difficulties with measuring the economic growth of the “roaring twenties” and of the new deal that are far from trivial. A major reason for this was that one of the major reasons for the depression was the massive use of credit during the 1920s. When somebody or a society saves, one is buying prosperity tomorrow with poverty today and when one uses credit excessively, one is buying prosperity today with poverty tomorrow and this dynamic is certainty at play during the 1920s and 1930s. For this reason the GDP figure in 1929 and throughout the 1920s is sure to be artificially inflated.
Another difficulty is the presence of four years of the policies of President Hoover. There is ample evidence that President Hoover did not strictly fallow the laze-fair capitalist policies of his predecessors in dealing with the depression, but his policies were certainly not the new deal. I claim that Hoover’s policies were more in-line with his Republican predecessors then with the new deal but there are others that argue otherwise. Any accurate assessment on the performance of the new deal is contingent and an accurate assessment of this issue.
Attributing all the GDP growth from 1933 until 1939 to the new deal is not correct because part of that was realizing past growth that was not accounted for in 1933 but also attributing the GDP growth from 1919 to 1929 is also inaccurate because the GDP numbers are certainly inflated and a portion of the downturn in GDP must be attributed to policies leading to the downturn. I use two naïve compromises to correct for these inaccuracies. I compare the period from 1919-1929 with the period from 1933-1939 in order to have both inaccurate and give Hoover to nobody, I also compare 1919-1931 with 1931-1939 giving some of the downturn to the unrestrained market period and taking away from the new deal to take at-least some undue credit for any downward overshoot of the GDP.
From the same source these were the GDP figures for the various time frames: all figures are in 2000 dollars:
| Total | Per Capita | |
|---|---|---|
| (bill$) | ($) | |
| 1919 | 614.8 | 5,852 |
| 1929 | 865.2 | 7,099 |
| 1933 | 635.5 | 5,056 |
| 1939 | 950.7 | 7,256 |
| td> | ||
| 1931 | 739.9 | 5,960 |
The following table lists the total change and average annual change compounded continuously:
| Total | Per Capita | |||
|---|---|---|---|---|
| Total Change | Average Change | Total Change | Average Change | |
| year^-1 | year^-1 | |||
| 1919-1929 | 40.7% | 3.42% | 21.3% | 1.93% |
| 1919-1933 | 3.4% | .24% | -13.6% | -1.04% |
| 1919-1939 | 54.6% | 2.18% | 24.0% | 1.08% |
| 1929-1933 | -26.6% | -7.71% | -28.8% | -8.48% |
| 1929-1939 | .9% | .94% | 2.2% | .22% |
| 1933-1939 | 9.6% | 6.71% | 43.5% | 6.02% |
| 1919-1931 | 20.3% | 1.54% | 1.8% | .15% |
| 1931-1939 | 28.5% | 3.13% | 21.8% | 2.46% |
In both comparisons the new deal outperformed the “roaring twenties” by a factor of 2-3 times in GDP growth. GDP certainty does not complete an accurate picture of the strength of an economy but the evidence that GDP does give suggests that government intervention in capital control decisions does not spell disaster for an economy. There is ample evidence both in this example and others where democratic intervention in an economy produces positive results.
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