The Economic Impact of War - The United States of America and World War II

Objectives The main objectives of this study were to examine how wartime affects a nation’s economy, what factors play a part in a nation’s economic change during wartime, and what the long-term and short-term effects of those factors are. More specifically, with the United States of America during World War II as the chosen case study, this study attempts to compare the economy of the United States of America during three time periods - the Interwar Period, World War II, and the post-war era of 1945-1955 – and see if there are certain patterns in the U.S. economy. Additionally, the factors that influenced change in the economy will be identified and analyzed as to whether they had long-term or short-term positive or negative effects. Summary By using the following economic variables to measure the state of the U.S. economy during the three time periods examined – real GDP, real GDP per capita, unemployment rate, international trade, national spending, national debt, inflation, labor force participation rate, and the marginal income tax rate – the study reveals certain patterns in the U.S. economy during the shift to a wartime economy, during a wartime economy, and when the nation’s wartime economy reverted back to a peacetime economy. During the shift to a wartime economy, the increase in production and employment encouraged economic growth that lasts throughout wartime which is sustained by massive federal spending and debt accumulation. Once the economy shifts back to peacetime, a brief recession occurs once price controls and supply shortages are removed. Nevertheless, following the recession, the economy continues to prosper before the pattern repeats itself. However, the observations made of the economic patterns should be applied once the context of the war has been fully understood, meaning since United States infrastructure remained fully intact throughout the duration of the war, the production of goods and services were able to continue uninterrupted – making the USA an outlier. Conclusions The results of this study show that war can have a positive effect on a nation’s economy if the context is right. The massive increase in production and employment is enough to accelerate the recovery of a nation’s economy from economic slumps such as the Great Depression of the 1930s. The observations made from this research can be used as a complementary work of literature to other scholarly texts, or future research that shall explore other economic variables in order to develop our understanding of the economic impact of war, or in aiding the decision-making process of countries during times of crisis