Wartime Socialization of Investment: A Reassessment of U.S. Capital Formation in the 1940s

Abstract

During World War II, the U.S. government displaced private investors. According to NIPA data for the period 1942–1945, net private investment was negative 99.4 billion. Although economists have credited this government investment with various contributions to wartime and postwar economic growth, the bulk of it had little or no value beyond its immediate contribution to winning the war. This episode dramatically exposes a fundamental but false assumption that underlies official data on capital formation: that all expenditures for durable producer goods or munitions form genuine capital. There are circumstances which make the consumption of capital unavoidable. A costly war cannot be financed without such a damaging measure …. There may arise situations in which it may be unavoidable to burn down the house to keep from freezing, but those who do that should realize what it costs and what they will have to do without later on.Ludwig von MisesMises, Interventionism, p. 52.

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