2. World War II: Economics and Legacy
Questions of this lecture
• According to economic historians, why was World War II won?
• What was the growth perspective after the war ended?
• What is the relevance of World War II for today’s economy?
Why do we talk about World War II in an economics class?
We can learn about the difference between economic history and history
• Many historians follow a culturalistic world view. They believe that history is ultimately an
accumulation of random events, actors play a crucial role. This emphasises the role of
individuals (Hitler, Churchill, …), culture (German subordination, Anglo-american democratic
values).
• Economists are intrinsically naturalists. They believe that history can be analysed using
methods from natural science, that there are certain laws that apply to human action. They
emphasise the role of structural determinants of why the war was won (GDP comparison,
resources,...) and how it was fought (U-boat war, Blitzkrieg, air raids)
• Both views have their advantage. Economics cannot help us to write Churchill’s biography
and understand the feelings of a Londoner/Dresdener in an air shelter
Individual experiences: a blessing and a curse for research
If you follow a culturalistic approach, the experience of many attract a lot of research
• The Eastern front had more fighting soldiers and casualties, and the larger land battles
(tanks, etc.)
o Many people would agree this is why World War II was won in Stalingrad, Kursk, and
then D-Day to a minor extent
o The experience of a (relative) few, namely of pilots and navy staff in the Atlantic
battle is less visible
o Reasons for this is include the air raids of civilians were discredited on all sides after
war
• Quantitative research draws a different picture
The Wages of Destruction
Tooze (2008) studies the economic history of the Nazi economy and finds it much weaker than
commonly thought
• The economic policy 1933– is driven by an ineffective allocation of resources
• The German army, unlike Western armies, was mostly not motorised and relied on 400,000
horses
• A large share of the material was already outdated by 1939, especially Panzer I, anti-tank
guns, and the Stuka
• Obsessions with race wars led to a huge destruction of assets
• WWII was a strategic error, Hitler never expected France and Britain to fight war over Poland
An illusionary giant?
• German propaganda had all incentive to overstate their actual power
, • In Britain, there is still a very common narrative that Chamberlain was a naive coward, and it
needed Churchill to see the realities and start armament
• This was not the case. ‘Peace for our times’ was never an expression of realities but a
justification of the Munich negotiations
• When war started, German material was more outdated, and Britain had established an
effective air defence system
• This attributed to the fact that there was never a realistic option for Germany to invade
England, hence they never even prepared it (O’Brien 2015). Only option left for Germany
was to try to starve the British economy
A common, and false narrative
• The Nazis had deeper tactical insight (Rommel, Blitzkrieg), were better prepared, and had
the better material
• Eastern Front was crucial, Western powers had little influence over war’s outcome, and
entered when war was decided, and too little too late (Sicily, D-Day)
• The strategic bombing campaign was altogether a failure (There is actually an American
survey after WWII that concludes this)
O’Brien (2015) on why the war was won
• Blitzkrieg was successful because novel technologies (tanks, planes) were combined.
Without air cover, already France 1940 would have failed
• The Germans had to invest the majority of their resources into defending their territory and
factories from Western air raids
• The vast majority of munition produced was anti-air munition
• The best German planes and pilots were at the Western front
• This supports the Soviets massively
German spending:
This shows us that the most expensive things went to the West and not the East. The Germans didn’t
have good or enough air support in the East.
The impact of the Allied Bombing Campaign
The British Strategic Bombing Campaign, as argued by O’Brien (2015) was an efficient use of its
resources
• Before US entered war, they still could import massive supplies to build planes
• British cargo ship and navy was very capable of bringing these over, and British production
of planes established and effective
, • The ratio of capital/soldier is very high in a fighter. Britain had more capital to bring into the
war compared to Germany, vs. less people (take away colonies)
• When they realised that tactical bombing (targeted, i.e. on an ammunition factory) did not
work because German defence was too strong to attack in day light, strategic bombing was a
efficient use of this resources
Adena et al. (2020) on Moral Bombing
, • Using a spatial regression discontinuity design, the authors find that air raids did have a
substantial effect on the German morale
• They show, for example, that pilots that shot on average 2 planes before their hometown
was bombed only shot down 0.5 after
• They find that the ability to listen to the BBC increased resistance, and amplified the effect
of bombing
• They conclude that the war was significantly shortened by the air raids
Alleys of research
There is a lot of economic research into WWII
• Fishback and Jaworski (2016) argues that the US government spending multiplier during
WWII was small, and hence the Great Depression was not ended by WWII
• Hans-Joachim Voth has several papers with different coauthors into the microeconomics of
WWII
• There is still lots to understand
Why do we care?
• Technologically, it arrested development, which then played out in the 1950–1970s (Smil
2005)
• WWII has had a massive effect on the postwar order, including monetary and fiscal policy
and international cooperation
Europe: a Peace Project
• O’Rourke (2019) argues that fundamental differences in national experiences matter for the
role of EU as a peace project
• In First World War, especially France was devastated, cities were destroyed, and local
population saw the dark side of the war
• In the Second, most continental countries were subject to bombardment and heavy civil
casualties, and wars lost their heroic image
• The need for international cooperation in form of a peace project was strong
Questions of this lecture
• According to economic historians, why was World War II won?
• What was the growth perspective after the war ended?
• What is the relevance of World War II for today’s economy?
Why do we talk about World War II in an economics class?
We can learn about the difference between economic history and history
• Many historians follow a culturalistic world view. They believe that history is ultimately an
accumulation of random events, actors play a crucial role. This emphasises the role of
individuals (Hitler, Churchill, …), culture (German subordination, Anglo-american democratic
values).
• Economists are intrinsically naturalists. They believe that history can be analysed using
methods from natural science, that there are certain laws that apply to human action. They
emphasise the role of structural determinants of why the war was won (GDP comparison,
resources,...) and how it was fought (U-boat war, Blitzkrieg, air raids)
• Both views have their advantage. Economics cannot help us to write Churchill’s biography
and understand the feelings of a Londoner/Dresdener in an air shelter
Individual experiences: a blessing and a curse for research
If you follow a culturalistic approach, the experience of many attract a lot of research
• The Eastern front had more fighting soldiers and casualties, and the larger land battles
(tanks, etc.)
o Many people would agree this is why World War II was won in Stalingrad, Kursk, and
then D-Day to a minor extent
o The experience of a (relative) few, namely of pilots and navy staff in the Atlantic
battle is less visible
o Reasons for this is include the air raids of civilians were discredited on all sides after
war
• Quantitative research draws a different picture
The Wages of Destruction
Tooze (2008) studies the economic history of the Nazi economy and finds it much weaker than
commonly thought
• The economic policy 1933– is driven by an ineffective allocation of resources
• The German army, unlike Western armies, was mostly not motorised and relied on 400,000
horses
• A large share of the material was already outdated by 1939, especially Panzer I, anti-tank
guns, and the Stuka
• Obsessions with race wars led to a huge destruction of assets
• WWII was a strategic error, Hitler never expected France and Britain to fight war over Poland
An illusionary giant?
• German propaganda had all incentive to overstate their actual power
, • In Britain, there is still a very common narrative that Chamberlain was a naive coward, and it
needed Churchill to see the realities and start armament
• This was not the case. ‘Peace for our times’ was never an expression of realities but a
justification of the Munich negotiations
• When war started, German material was more outdated, and Britain had established an
effective air defence system
• This attributed to the fact that there was never a realistic option for Germany to invade
England, hence they never even prepared it (O’Brien 2015). Only option left for Germany
was to try to starve the British economy
A common, and false narrative
• The Nazis had deeper tactical insight (Rommel, Blitzkrieg), were better prepared, and had
the better material
• Eastern Front was crucial, Western powers had little influence over war’s outcome, and
entered when war was decided, and too little too late (Sicily, D-Day)
• The strategic bombing campaign was altogether a failure (There is actually an American
survey after WWII that concludes this)
O’Brien (2015) on why the war was won
• Blitzkrieg was successful because novel technologies (tanks, planes) were combined.
Without air cover, already France 1940 would have failed
• The Germans had to invest the majority of their resources into defending their territory and
factories from Western air raids
• The vast majority of munition produced was anti-air munition
• The best German planes and pilots were at the Western front
• This supports the Soviets massively
German spending:
This shows us that the most expensive things went to the West and not the East. The Germans didn’t
have good or enough air support in the East.
The impact of the Allied Bombing Campaign
The British Strategic Bombing Campaign, as argued by O’Brien (2015) was an efficient use of its
resources
• Before US entered war, they still could import massive supplies to build planes
• British cargo ship and navy was very capable of bringing these over, and British production
of planes established and effective
, • The ratio of capital/soldier is very high in a fighter. Britain had more capital to bring into the
war compared to Germany, vs. less people (take away colonies)
• When they realised that tactical bombing (targeted, i.e. on an ammunition factory) did not
work because German defence was too strong to attack in day light, strategic bombing was a
efficient use of this resources
Adena et al. (2020) on Moral Bombing
, • Using a spatial regression discontinuity design, the authors find that air raids did have a
substantial effect on the German morale
• They show, for example, that pilots that shot on average 2 planes before their hometown
was bombed only shot down 0.5 after
• They find that the ability to listen to the BBC increased resistance, and amplified the effect
of bombing
• They conclude that the war was significantly shortened by the air raids
Alleys of research
There is a lot of economic research into WWII
• Fishback and Jaworski (2016) argues that the US government spending multiplier during
WWII was small, and hence the Great Depression was not ended by WWII
• Hans-Joachim Voth has several papers with different coauthors into the microeconomics of
WWII
• There is still lots to understand
Why do we care?
• Technologically, it arrested development, which then played out in the 1950–1970s (Smil
2005)
• WWII has had a massive effect on the postwar order, including monetary and fiscal policy
and international cooperation
Europe: a Peace Project
• O’Rourke (2019) argues that fundamental differences in national experiences matter for the
role of EU as a peace project
• In First World War, especially France was devastated, cities were destroyed, and local
population saw the dark side of the war
• In the Second, most continental countries were subject to bombardment and heavy civil
casualties, and wars lost their heroic image
• The need for international cooperation in form of a peace project was strong
