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The American Pageant (12th Edition)
Chapter 37 – Page 858
858 “The decade of the 1930s had left deep scars. Joblessness and insecurity had pushed up the suicide rate and dampened the marriage rate. Babies went unborn as pinched budgets and sagging self-esteem wrought a sexual depression in American bedrooms. The war had banished the blight of depression, but would the respite last?”
As we saw in the last chapter, World War II did not “banish the blight of depression.” The war, from an economic standpoint, was temporary relief. It merely transferred unemployed men into soldiers’ uniforms and put them on the battlefields to wield expensive weapons. What would happen when the soldiers returned, and the factories ceased making tanks and bombs? Would private industry expand to employ returning soldiers and also the men and women who made war materiel? That was the key question.
The social costs of the Great Depression, which the textbook briefly describes in the first three sentences of this passage, were huge. Yes, suicide rates climbed and so did murder rates and numbers of arrests. During FDR’s first eight years as president, life expectancy in America actually decreased—the only time that happened (over an eight-year period) in the twentieth century.
858 “The faltering economy in the initial postwar years threatened to confirm the worst predictions of the doomsayers who foresaw another Great Depression. Real gross national product (GNP) slumped sickeningly in 1946 and 1947 from its wartime peak. With the removal of wartime price controls, prices giddily levitated by 33 percent in 1946–1947.”
This passage is hogwash. Actually, 1946 and 1947 were boom years for private enterprise—and when that expansion occurred, the Great Depression was truly over. The textbook is using GNP figures for 1946 and 1947 that overvalue the role of government, which was in decline after the war, and undervalue the rise of private industry, which was dramatically expanding after the war. Economist Robert Higgs has done remarkable research on this subject in his book Depression, War, and Cold War. Higgs describes an “investment boom” after the war in which “gross private domestic investment leaped from $10.6 billion in 1945 to $30.6 billion in 1946, $34.0 billion in 1947, and $46.0 billion in 1948. After-tax corporate profits grew after the war and so did the stock market. Unemployment was only 3.9 percent in 1946 and 1947. Civilian jobs in the United States skyrocketed from 39 million to 55 million in the year after the war as industries hired many more people.
President Truman’s economic report for January 1948 said, “The extraordinary rate of business income in general allowed investment to proceed at record levels. Even greater expansion was prevented mainly by lack of material rather than by lack of intention to invest or lack of financial resources.” Higgs agrees. According to Higgs, in 1946, “while total GDP fell by 20.6 percent, private GDP leaped upward by an astonishing 29.3 percent, a growth rate never approached before or since.” This almost miraculous recovery in the United States, Higgs concludes, was largely triggered by “a reduced tax liability—the Revenue Act of 1945 lowered the top corporate income-tax rate and repealed the excess-profits tax—corporations enjoyed rising after-tax profits from 1946 to 1948.” Entrepreneurs could keep more of what they earned and they plowed capital into new investments from televisions to copy machines to ball point pens—and older investments, such as housing, cars, and clothes. The removal of price controls, which is implicitly criticized in the text, actually helped the expansion by pricing products at their market value rather than the value that politicians wanted the products to have.