Keep from All Thoughtful Men: How U.S. Economists Won World War II

Abstract

Keep From All Thoughtful Men: How U.S. Economists Won World War II by Jim Lacey Annapolis, MD: Naval Institute Press, 2011 304 pages $34.95 [ILLUSTRATION OMITTED] Over the past two decades, economic forces have contributed to changing structure and rising interdependence within the global system. As a result, national leaders and security analysts now factor economics into their strategic thinking. Despite that contemporary mindset, Professor Jim Lacey--a one-time US infantry officer and now consultant, analyst, and Ph.D. historian--believes that the majority of his colleagues and nearly all of the general public neither understand nor appreciate the leading role that professional economists played during the years 1941 to 1944. He attributes that blind spot to shortcomings in previous scholarly work. His goal is to set the record straight. Professor Lacey's central premise is that a small group of economists were able to demonstrate in authoritative terms that the strategic plans formulated during 1942 by political leaders and military officers were not economically feasible. As a result of their analysis, leaders decided to postpone a full-scale invasion of Europe from 1943 to June of 1944. If the economists had not been persuasive and the United States and her allies had moved ahead in 1943, soldiers, sailors, and airmen would not have had the material assets needed to achieve a decisive outcome. An earlier invasion of Europe would have certainly prolonged World War II which, in turn, would have necessitated much higher costs in terms of both blood and treasure; more speculatively, it may have even led to a different ultimate outcome. Professor Lacey highlights two innovations in the field of economics that were important to the war effort. First was the revolution in the conduct of monetary policy that proved to be essential in financing the war. That is, the policymakers at the Federal Reserve, the central bank of the United States, became adept at influencing the actions of commercial bankers for the purposes of indirectly controlling the US money supply. They did so by using the tools that are now commonplace, such as altering required reserve ratios and discount rates and engaging in open-market operations. Those actions helped maintain high levels of liquidity in the banking system. That meant that private sector firms could borrow the funds they needed for investing in new plants and equipment at relatively low rates of interest. The key implications of those policies are first, that in contrast to the experiences of other countries in other wars, the US mobilization was financed as much by money creation as it was by government borrowing. Second, that in light of that first fact, mobilization occurred in a growing economy rather than in an economy of fixed magnitude. The second innovation was the creation of the so-called National Income and Product Accounts, which provide to this day the conceptual framework for measuring economic activity on a national level. The framework, which was developed by Simon Kuznets (an accomplishment which earned him the 1971 Nobel Prize in Economics), enabled the team of economists responsible for ramping industrial activity toward military ends--a team which also included Robert Nathan and Stacey May--to make plausible estimates of economic magnitudes; to assess the feasibility of the "wish-list" and "must-need" items identified by military strategists; and to make recommendations about the allocation of scarce resources to competing channels and the sequencing of production activities. …