kernals12
Banned
Actually, the US economy grew rapidly starting in 1933. It's just that we were in such a big hole that it took a while to climb out.
Could military spending be used for boosting employment figures?
- Thread starter Tangles up aubergine
- Start date
Perhaps it could grow even more rapidly, and provide the US (or for the purposes of the OP, Britain) with some equipment and facilities that would be of immense value within the decade. The old 'two birds with one stone' cliche.
kernals12
Banned
By subtracting Gross Final Sales (GDP minus inventories) from Gross Domestic Product we can see that inventories shrank dramatically. If they were producing more than what was demanded, we would see the opposite.
Correct, I did mean demand. But more broadly I'm talking about before people went broke. Factories produced more than people could/wanted to buy. Then the bottom fell out of the economy and people had no money either.
Because factories closed or lessened production, leading to people losing their jobs. Which means people can't afford to buy the crap being made. So that excess production isn't being used anymore. I didn't think I needed to specify because I was talking about the Depression, not economic theory. There's no need to get meticulously detailed when talking about the big picture.
Yes, because once people couldn't afford to buy anything and businesses were closing that production got shut down or at the very least used less. That meant there was a ton of excess productive capability in place when the military production came.
I have to ask, have you just taken Econ I? Because your arguments basically sound like you've taken that class and decided everything you've learned in it is gospel truth.
RousseauX
Donor
This is a really incorrect way of looking at the economy: money represents the usage of labor and capital. Even though the "money stays in the country", you are still decreasing what you can buy with it since you are using labor and capital to produce weapons. By building weapons, you have less resources to build factory equipment and what not.
The symptom of this is usually inflation: which government spending tend to induce. But doubly true when it's military spending.
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History Learner
Banned
Yes, in the modern day every $1 Billion in Military spending generates about 8,000 jobs.
In 1929 Maynard Keynes was heavily involved in formulating the Liberals economic policy for their manefesto for the general election. The policy booklet he wrote was basis of his famous theory of government intervention to stimulate the economy complete with the multiplier. OTL liberals suffered a devestating defeat and effectively handed the Tories and Labour control for the next 80 years. However a better liberal performance could result in a Tory Liberal coalition government which would include some liberal input into economic policy.
Now Keynes theorised that in times of slack production in the ecomomy, government spending could reduce unemployment which would in itself would increase employment. The example Keynes gave was building infrastructure which would have a long term economic effect. However I have seen it successfully argued that it was the rise of the Nazi's and their rearmament and the response by Britain with its own smaller rearmament that lifted the U.K. out of the great depression earlier than the US. Although a key factor was Britain abandoning the gold standard and devaluing the pound which reduced the defamation which plagued the US and turned a severe recession into the Great Depression.
Certainly any increase in government expenditure would have to be funded either by higher taxes which has a negative effect on the economy or through additional borrowing. This was a contentious subject after the Great War and Britains debt repayments where £300m per year (to put this into perspective the sum Churchill quotes in his first book on the war was £87m to retool the regular army for war, which was considered to high in the late 1930's for the government to pay).
It would take some real ASB intervention to get any Chalencer to risk additional borrowing to spend on the military in a time of austerity on an untested economic theory. However producing stuff that have potential military applications would I think be plausible. An example would be government spending on modernising the shipyards and building the for the time ultra modern cargo motor ships. Or subsidising consumer electronics. Or even encouraging modernising British agriculture.
Now Keynes theorised that in times of slack production in the ecomomy, government spending could reduce unemployment which would in itself would increase employment. The example Keynes gave was building infrastructure which would have a long term economic effect. However I have seen it successfully argued that it was the rise of the Nazi's and their rearmament and the response by Britain with its own smaller rearmament that lifted the U.K. out of the great depression earlier than the US. Although a key factor was Britain abandoning the gold standard and devaluing the pound which reduced the defamation which plagued the US and turned a severe recession into the Great Depression.
Certainly any increase in government expenditure would have to be funded either by higher taxes which has a negative effect on the economy or through additional borrowing. This was a contentious subject after the Great War and Britains debt repayments where £300m per year (to put this into perspective the sum Churchill quotes in his first book on the war was £87m to retool the regular army for war, which was considered to high in the late 1930's for the government to pay).
It would take some real ASB intervention to get any Chalencer to risk additional borrowing to spend on the military in a time of austerity on an untested economic theory. However producing stuff that have potential military applications would I think be plausible. An example would be government spending on modernising the shipyards and building the for the time ultra modern cargo motor ships. Or subsidising consumer electronics. Or even encouraging modernising British agriculture.
Inflation is caused by the amount and availability of money within the economy and only becomes an issue if their is limited slack in the economy. This was not the case in the U.K. of the 1930's. The only way inflation is going to rise in this senario is if the UK government decided to fund military expenditure by printing more money. This was something the leading economists in the U.K. where starting to understand in the late 1920's due to studying the for them very recent German hyper inflation.
This is certainly true in purely economic terms, however in the real world broader factors come into play, particularly the need for insurance against unlikely or uncommon but potentially devastating events.
Defense spending is similar to insurance , and just like insurance a nation needs the correct amount : under-insurance invites ruin and over-insurance is a waste of otherwise productive money. Given this fact of life and given that insurance in the form of the military does create jobs the choice for a country in a depression is under insurance or deficit spending on the correct amount and gaining the emploment spinoff.
Yes, it was reading on this very subject that got me to thinking about wether it could be applied. I couldn't remember the name of the admiral who wrote it though.
I would argue that with hindsight and the knowledge that other crazy people would start something, increasing defence spending for GB in early 1930s would not be the worse way to spend money.
The return on investment of say another Ark Royal (allowed by treaty's) might exceed anything that you could get on the civilian market especially if on of them did something special in 40/41 say off Norway, Taranto or Malaya....
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That's right, but its not just a few extra ships but the whole supporting industry. There was a thread here once where someone laid out the naval shipbuilding capacity of Britain in WW1, things like yards able to build certain classes of ships, facilities able to build various gun calibres and the like, and how so many of these closed between the wars; crippling Britain's ability to fight WW2.
Great Britain left the gold standard in 1931. At that point nothing other than ideology constrained the British government's ability to achieve full employment. The government certainly could have employed all of the previously-unemployed workers in war-related industries or in the armed forces. Whether that would have been a good use of British labor is a matter of priorities.
However, in answer to the follow-up question, expansion of the war industry and the military would not have been sustainable in the long run without price controls or increased taxes. Inevitably, the economy recovers from a downturn and the private sector begins hiring workers. If the government has pursued a policy of full employment, it now must make one of two choices:
(1) Encourage/allow workers it hired during the economic downturn to return to the private sector. There are many ways of doing so, and they're tangential to the original question. But the consequence will be a smaller military and war industry.
(2) Compete with the private sector for workers. During an economic downturn the private sector is dismissing workers, so by definition the demand for workers is less than supply and the government can hire workers without competing with the private sector. During a recovery, the private sector is hiring workers; if the government tries to retain workers hired during the downturn or hire more workers, it comes into conflict with the private sector. Since demand for labor exceeds supply, prices on labor will rise, creating inflationary pressure. The government will have to deal with this by either (1) imposing price controls on labor or goods and services; (2) increasing taxes to suppress private sector demand and create space for its own priorities; or (3) eating the consequences of uncontrolled inflation.
For example, Japan pursued aggressive fiscal policy during the interwar period. By 1936 the Japanese economy was operating at full capacity and experiencing inflationary pressure. But attempts to reduce military expenditures, which contributed the least to the real Japanese economy of all government spending, substantially contributed to a failed coup in 1936 which saw the assassination of several cabinet members. So the civilian government abandoned attempts to control the military or reduce its budget. The result, among others, was rampant inflation.
The United States controlled inflation during WW2 through a combination of rationing and price controls. Inflation in the US was not a real issue during the period between 1929-1940 because American fiscal policy was never aggressive enough to achieve full employment or even to reduce real unemployment into the single digits.
However, in answer to the follow-up question, expansion of the war industry and the military would not have been sustainable in the long run without price controls or increased taxes. Inevitably, the economy recovers from a downturn and the private sector begins hiring workers. If the government has pursued a policy of full employment, it now must make one of two choices:
(1) Encourage/allow workers it hired during the economic downturn to return to the private sector. There are many ways of doing so, and they're tangential to the original question. But the consequence will be a smaller military and war industry.
(2) Compete with the private sector for workers. During an economic downturn the private sector is dismissing workers, so by definition the demand for workers is less than supply and the government can hire workers without competing with the private sector. During a recovery, the private sector is hiring workers; if the government tries to retain workers hired during the downturn or hire more workers, it comes into conflict with the private sector. Since demand for labor exceeds supply, prices on labor will rise, creating inflationary pressure. The government will have to deal with this by either (1) imposing price controls on labor or goods and services; (2) increasing taxes to suppress private sector demand and create space for its own priorities; or (3) eating the consequences of uncontrolled inflation.
For example, Japan pursued aggressive fiscal policy during the interwar period. By 1936 the Japanese economy was operating at full capacity and experiencing inflationary pressure. But attempts to reduce military expenditures, which contributed the least to the real Japanese economy of all government spending, substantially contributed to a failed coup in 1936 which saw the assassination of several cabinet members. So the civilian government abandoned attempts to control the military or reduce its budget. The result, among others, was rampant inflation.
The United States controlled inflation during WW2 through a combination of rationing and price controls. Inflation in the US was not a real issue during the period between 1929-1940 because American fiscal policy was never aggressive enough to achieve full employment or even to reduce real unemployment into the single digits.
Just to clarify, I wouldn't suggest Britain 're-arm' like they did from 1937 in order to eliminate unemployment from 1930, abrogating the Naval treaties to build new battle and carrier squadrons, or build several armoured divisions for example.
Rather I'd suggest Britain build and modernise the RN up to the treaty limits, replace the 120 old Medium MkII tanks with ~120 Medium MkIII, build a few more aircraft than OTL for the RAF and FAA and upgrade military facilities. This will meet Britain's defence requirements, provide long-term benefits in terms of facilities and providing employment into the bargain.
Rather I'd suggest Britain build and modernise the RN up to the treaty limits, replace the 120 old Medium MkII tanks with ~120 Medium MkIII, build a few more aircraft than OTL for the RAF and FAA and upgrade military facilities. This will meet Britain's defence requirements, provide long-term benefits in terms of facilities and providing employment into the bargain.
kernals12
Banned
You're understading it. The US saw severe deflation during that time. It took until 1947 for prices to reach 1920 levels.
It would be awesome if he was an admiral but John Maynard Keynes was a famous British economist and is considered the father of macroeconomics.