"War prosperity" is an odd, but enduring myth. Wars destroy some men and material; and, they divert others from making "butter" to making "guns". Nevertheless, one hears people say things like: "

spending lots of money fighting Hitler, brought the U.S. out of depression

"

(1)

. Here's a brief look at the FIRST world-war.

The pro-War case : U.S. production did boom during World War-I. When the war ended in 1918, American production volume was about 25% higher than it had been in 1914. In 1914, the U.S. was a debtor country; by 1918, the positions were reversed: the world owed money to the U.S.

Detailed WW-I timeline:

Peace prosperity:

(2)



Production volume boomed from 1914 to 1917. During this period, Europe looked to the U.S. for production. They sold a lot of their investments in the U.S., in order to buy U.S. goods; they sent large volumes of gold to the U.S.; and, added to this, the U.S. government lent money to European nations. In the U.S., commodity prices rose, and wages followed about a year later. Nevertheless, real production volumes rose too. Then, in 1917, the U.S. entered the war. Look at how things flattened out after that.



Europe : By the logic of the "war prosperity" argument, we would expect Europe to do better than the U.S.. After all, they fought longer. They spent a lot too. At a time when the U.S. national product was about $50 billion, economist Brad de Long estimates (3) that the wartime accumulated budgets of all combatants was $200 billion: four times the entire US national product. WW-I devastated Europe, in terms of lives, an estimated $40 billion in property damage, and lost production of $65 billion. It was the U.S. -- thanks to its "peace prosperity" that helped Europe after WW-I.



Notes:



2. "

3. " 1. I don't claim that serious, professional economists think war is good for the economy; but I have heard this from non-economists.2. " Economics and the Public Welfare " - Benjamin M. Anderson3. " Economic History of the Twentieth Century " - Bradford DeLong



Actually, the U.S. did not enter WW-I in 1914. At first, the U.S. was at peace, while producing and exporting to the warring nations. Only in 1917 did the U.S. declare war. Armistice Day was less than 2 years later, in 1918.Consider the top-most black line in this diagram. It is an index of Production volume. When we examine WW-I more closely, we find that the so called "war prosperity" was actually a "peace prosperity".