2015년 12월 22일 화요일

[발췌: J. Lacey's] Keep from All Thoughtful Men: How U.S. Economists Won World War II (2011)


  • 출처: James Lacey, Keep from All Thoughtful Men: How U.S. Economists Won World War II, Naval Institute Press, 2011.
  • 자료: 구글도서
  • REF: GDP Translation. p. 15.


주요 차례(Contents)
Chapter 1,  Economics and War   (1)
Chapter 2,  Unmaking the Victory Program   (8)
Chapter 3,  The Real Victory Program   (19)
Chapter 4,  The Economist's War   (32)
Chapter 5,  The Production Organizations   (50)
Chapter 6,  The War Production Board and Two Wars   (70)
Chapter 7,  War and Feasibility   (86)
Chapter 8,  The Great Feasibility   (86)
Chapter 9,  Marshall's Commitment to a 1943 Invasion of Europe   (117)
Chapter 10,  Why Marshall Changed His Mind   (p. 133)
Appendix 1~8 (p. 137~202), Notes (203), ...  Index (253)

OF WHICH

※ 발췌 (excerpts): pp. 32 ~

* * *

CHAPTER 4

THE ECONOMIST'S WAR


( ... ... )

How economists infiltrate into almost every area of the federal government is a story in itself. For our purposes, it is sufficient to state that it was rapid and pervasive. Just 50 years before World War II there had been only one individual in the government with the title of economist, and that person was listed as an "economic ornithologist." World War I saw a few trained economists brought to Washington in policy position, but their influence remained constrained to providing advice on price administration and shippling. They had little impact on mobilization planning. It was the Great Depression that brought economists into Washington policy circles, fist by the hundreds and then by the thousands. By the time World War II began, the federal government employed an estimated 5,000 economists.[n. 3]

   These economists made two major contributions that had a significant impact on World War II. 
  • First, they completed the financial revolution begun by the British in their wars with France, a revolution that made it possible to fund a war waged on an unprecedented scale.
  • Second, they created the concepts of national income accounts, GNP and GDP, which together provided the statistical basis for determining the growth and production potential of the American economy. [n. 4] Admittedly, their figures and calculations remained inexact, but, when put in the context of the scale of what the government would demand for mobilization in a global war, they sufficed.

   Moreover, World War II was the first war where money was truly no object. While there were a number of practical concerns about the best method of financing the conflict and the inflationary impact of massive spending policies, there was never any concern the US about the nation's ability to finance the war. Everything American industry could turn out the government could afford to buy. This was also true of Britain, which instituted similar policies in purchasing all the munitions produced by its industry. The financial crisis in Britain came in 1940, when the industry could no longer meet wartime production requirements and the need arose to tap American industrial potential. [n. 5]  Within months, Britain had shipped its entire gold reserve to New York and exhausted its credit. To alleviate this payment crisis, Roosevelt pushed Lend-Lease through Congress just in time to avert a financial disaster that could possibly have forced Britain's withdrawal from the war. [n. 6]


   4.1 The Financial Revolution  (p. 33)

The Roman statesman Cicero once noted, "Endless money form the sinews of war." [n. 7]  It was not until the 20th century, however, that governments discovered how to tap their economic systems to provide "endless" streams of money. Although the three historical methods of financing government spending (raising taxes, borrowing, and printing money) remained, governments had become more sophisticated in the employment of these tools.  ( ... ... )

   Orthodox economic thinking at the beginning of WWII held that taxes should finance wars on a pay-as-you-go basis. [n. 9]  This viewpoint had wide support across the political spectrum since most politicians considered the printing of money as inflationary and debt financing as a burden on future generations.
  • Moreover, most believed that adding additional debt to the national balance sheet was particularly reprehensible because the initial burden of paying it off would fall on the same young men who had fought the war. [n.10]
  • Economist also believed that turning on the printing presses would at best represent an emergency stopgap measure that would rapidly lose its effectiveness as hyperinflation outpaced the presses. [n. 11]

   An examination of WWII's financing, however, indicates that the printing press played a much greater role than commonly assumed, particularly in the early war years. [n. 12]  Although this rapid expansion of the monetary base would have crippled the economy if it had continued for too long, it was at the time critical to jump-starting rapid increases in production. [n. 13]  ( ... ... ) In short, the in-circulation monetary base in 1941 was too small to support the daily activities of the massive American economy as it mobilized for war. [n. 15]  Unless government added cash to the system quickly, there was a real possibility the entire mechanism would seize up. [n. 16]

   The ^Federal Reserve Bulletin^ for December 1942 noted that the government had financed 75% of its expenditures in the first year of the war through borrowing, with the remaining 25% financed through taxation. [n. 17]  This is somewhat disingenuous because it fails to reflect on how the Federal Reserve System creates money. Since the start of Federal Reserve System, the primary method of adding liquidity to the monetary system was by altering the reserve requirement that members of the system had to keep on deposit with the Federal Reserve. In peacetime this is a highly effective method, but in a crisis several overlapping factors often led to lag times between reserve rate changes and expansion of the monetary base. In the emergency of global war, when the funds necessary to finance rapid expansion are needed immediately, the government could not tolerate this lag. [n. 18]

   In the spring 1942 the Federal Reserve's principal method of adjusting the monetary base became a fixed buying rate on Treasury Bills. Under this policy, as the ^Federal Reserve Bulletin^ stated, "Member bank reserves are almost automatically supplied, with the initiative being taken by the member banks rather than by the Federal Reserve System." [n. 19]  The importance of this policy lay in the fact that, in effect, it authorized the member banks to purchase any volume of US government securities, purchase other securities, or make loans as they desired, provided that among these securities they acquired sufficient Treasury Bills to exchange at Federal Reserve banks for whatever additional reserves may be needed becasue of the accompanying expansion in reserves. [n. 20]  ( ... ... )

   How did this work in practice? As the public purchased government securities, the payments were credited to US government accounts in various commercial banks. This process automatically reduced the amount of reserves that banks were required to hold on hand. Treasury transferred these excess reserves to the various regional Federal Reserve banks, which used them in payment for the purchase of war supplies and other government expenditures. ( ... 국채 거래와 지준금 조정의 프로세스에 대한 설명 ... )

   In short, the Federal Reserve gave the banks a license to print money. Two things, however, stopped the banks from undertaking an unbridled monetary expansion that could have led to hyperinflation and financial return.
- First, ( ... ... )

   What the government was doing was issuing debt in quantities so huge that it would be impossible for the economy to digest those sums without massive interest rate increase to make bond purchase attractive. To clear the debt, the Federal Reserve became the buyer of last resort and purchased as much as the debt as necessary to keep the price and interest rate at a previously agreed pegged rate: this is called monetizing debt. [n. 24]  These purchases created government-owned deposits on the books of the central bank, which equated to the banking system receiving additional reserves; banks then used those reserves to expand their asset holdings while creating additional deposit money. [n. 25]  Thus, one must consider the portion of the debt issued by the government that banks or private investors, using bank financing, bought back as printed money, although the Federal Reserve resisted such thinking at the time.

   This means that 75% of the government's expenditure in 1942 were not, in reality, financed through debt securites. Instead, the government funded a substantial portion of its purchases through money creation. [n. 26]  ( ... ... )

   If politicians and economists agreed that money creation was the worst possible measure to finance the war and taxes were the best, how did the reverse become policy, at least in the US during the early war years? ( ... ... )

   For example, the most historians agree that Germany's failure to adequately address its war financing needs was a contributing factor to the general disruption of its economy in the aftermath of WWI. By failing to adequately tax its economy to meet wartime expenditures, the Germans left it up to their central bank to raise the necessary funds on a credit basis. This negligence, plus military defeat, contributed to the ruinous inflation that wiped out the vaue of most of German society's economic assets in the early postwar period. [n. 29]

   ( ... ... )

   In the process, the Federal Reserve confronted a dilemma. On the one hand, the system had to supply the banks with the reserves required to support credit expansion. On the other hand, it was the system's responsibility to neutralize the inflationary potential of newly created money. There was no satisfactory way to neutralize the money that would not raise the cost of debt substantially or contract available credit. The most the Federal Reserve could do was go about its business with sufficient care to slow the impact. [n. 32]

   That inflation remained low, or at least within reasonable limits, was the result of three realities. ( ... ... )

   ( ... ... )

   So why did the government not raise tax levels to cover the expense of war? ( ... ... )

   ( ... ... )

   ( ... ... )

   ( ... ... )

   ( ... ... )

   ( ... ... )


4.2 The Statistical Revolution  (p. 40)

      ( ... ... )

   Simon Kuznets was the recipient of the 3rd Nobel Prize in economics and was a pivotal figure in the transformation of economics from a speculative and ideologically driven discipline into an empirically based science. [n.46]  ( ... ... )

   From 1932 to 1934 he served in the Department of Commerce, where he constructed the first official estimates of US national income and laid the basis for the department's national income section. ( ... ... ) It is almost impossible to overestimate the effect of Kuznets's work on the planning and conduct of America's wartime mobilization. While the US would still have undertaken the production miracle that swamped the Axis, it would likely have taken years longer and been accomplished only after a great waste of resources.

   To see why and how this was so one must understand what national accounts are, how the came into being, and what they were designed to accomplish. National income and product accounts are the comprehensive set of accounts measuring the total value of final goods and services (often called GDP) produced by the US economy and the total incomes earned in producing that output. This integrated set of accounts and similar detailed sets of regional and industrial accounts allow for the comprehensive analysis of the impact of alternative policy actions, or external events, on the economy, as well as on detailed components of final demand, income, and regions of the country. [n. 48]  ( ... ... )

   The concept of national income goes back to Sir William Petty and Gregory King, who developed estimates of English national income during the 17th century. Later economists, including Adam Smith, debated the concept of national accounts and how economists could measure them. Economists were not, however, able to create practical methods to determine or influence government policy until the early 20th century. ( ... ... ) [n. 49]

   Prior to WWI, published national income estimates were the work of individuals. [n. 50]  Most of these attempts were not rigorous and primarily concerned collection of data on the burden of the public debt or on various taxation schemes. It took the exigencies of a world war to prompt the first American attempts at national product estimates for senior government officials to analyze and use. Adolf C. Miller, an economist with the Federal Reserve Bank of NY, prepared estimates to evaluate the "surplus over necessary consumption and maintenance of capital that could be devoted to the war effort." [n. 51]  Moreover, during the war the NBER undertook its first project to study national income─its size, year-to-year variation, and distribution. ( ... ... ) [n. 52]

   It was not until 1926, however, that the first official government estimates, from the Federal Trade Commission, were presented. These estimates, prepared by Francis Walker, showed the value of national product produced by US industry for the years 1918-23. Unfortunately, after completion of this first report the government halted all follow-up work due to a lack of funding. Washington bureaucrats realized the need for such reports only several years later as the economy sank into the Great Depression and the government began to feel the keen lack of a suitable statement on national accounts that politicians could use to guide their efforts to rehabilitate the sinking economy.

  • The NBER (a private organization) tried to provide the required data for policy makers, but it failed to update its earlier estimates and it took many months to calculate new ones. 
  • Congress became fully aware of the extent of the problem when in 1931 it called government and private experts to testify on the current economic crisis. Congress was astounded to discover that no expert could provide any national account figures more recent than 1929. [n. 53]


   ( ... 대공황기 중 1930-31의 경제 위축의 통계 ... )  Neither the public nor elected officials understood the workings of an economy that appeared to be perpetuating the crisis, nor did they know quantitatively its scale and scope. The most up-to-date estimates of national income─that is, economy-wide income─were for 1929, a boom year, that had been marred only by October stock market "crash,", after which the economic slide began.

   Realizing that it was trying to direct economic policy without the necessary tools, in June 1932 Congress passed a law ordering "That the Secretary of Commerce report estimates of the total national income of the United States for each of the calendar years 1929, 1930, 1931, including estimates of the portions of the national income originating from agriculture, manufacturing, mining, transportation, and other gainful industries." [n. 54]

   ( ... ) and the Commerce Department borrowed Simon Kuznets from the NBER to take over. ( ... ... )

   Almost a year to the day after assuming control over the project, Kuznets provided Congress with the Commerce Department's first complete set of estimates. These estimates indicated that [:]
  • between 1929 and 1932 national income had dropped by more than 50%.
  • Incomes in manufacturing had dropped by 70%, while incomes in construction had dropped by more than 80%.
  • Government was the only industry that had grown over the period, although the federal government remained relatively small─federal tax receipts claimed only 3% of GDP in 1932. [n. 56]
The finished product, ^National Income, 1929-32^, was printed as a Senate document in 1933. [n. 57]  The report─261 pages of tables and explanation─was the Senate's first bestseller, and the initial run of 4,500 copies immediately sold out at 20 cents a copy.

   The report also found that between 1929 and 1932 national income had fallen by more than 50% and national income paid out had fallen by 40%, while business savings had become negative in 1930 and remained negative through 1935 as business drew down their financial reserves or borrowed to remain in operation, when fixed costs and wages exceeded revenues. In terms of the new statistics, this meant that national income paid out exceeded national income produced. [n. 58]  The US was, in economic terms, a losing proposition.

   ( ... ... )

   Economic historians credit Kuznets with transforming the field of national income accounting by bringing a far greater precision to the task than economists had ever achieved before. He accomplished this by rooting his estimates firmly in classical economic theory and by solving numerous problems related to using imperfect raw data to create the theoretical conception of "national income." [n. 60]  ( ... ... )

   During the 1930s, national income statements became regularly issued products of the Department of Commerce and were generally accepted as the broadest readings on US economic conditions. [n. 62]  ( ... ... ) By the time Commerce first provided GNP figures in 1942, ( ... ... ).

   ( ... ... )

   Too see just how valuable a policy instrument they proved, one can note the long-term effects engendered by these estimates. According to the U.S. Bureau of Economic Analysis, the national accounts contributed to a reduction in the severity of business cycles and a post-World War II era of strong economic growth. ( ... ... )

   ( ... ... )

   ( ... ... )

   ( ... ... )



4.3 Gross National Product and World War II  (p. 45)

The Department of Commerce launched GNP statistics to answer a policy question for which the national income accounts undertaken by Kuznets and Nathan were providing inadequate. Could the nation meet the Victory Program requirements? If so, at what costs would it be to the civilian standard of living and price stability? As was the case for national income accounts in 1932, the GNP concept elucidated in 1942 was not new, having been discussed and partially formulated during the 1930s. While economists made progress in developing theoretical and statistical standards for GNP, it took a policy requirement (the requirement for economic information during world war) to push the US government to develop an authoritative, consensus-based statistical measurement. When finished, GNP made up the other side of the national income equation─the production side, to match the income-earned side (approximated by national income). It thus helped provide a more complete picture of the economy.

   In his budget message to Congress in January 1940, four months after Germany invaded Poland, Roosevelt asked for a modest defense supplemental appropriation for fiscal year 1940 and a likely increase in defense spending for fiscal year 1941.
  • In 1940 defense expenditures had reached more than $1 billion, approximately 14% of the budget. In his January 1941 budget message, Roosevelt asked for $25 billion in defense expenditures, 62% of the budget, reflecting a "world at war."
  • In his January 1942 budget message, President Roosevelt asked for $53 billion for defense, 90% of the budget, reflecting "a nation at war in a world at war."  
It was the computations of the economists creating national income and GNP accounts that provided the president and his advisers with the basis for estimating what the US was capable of supporting in terms of rapid and massive growth in military spending.

   During the week before the January 1942 budget message and shortly after the attack on Pearl Harbor{1942년 12월 7일}, the president announced the goal of increasing the share of national income spent on war production from the current 17% to 50% by 1943. Such an increase in the speed and scale of the mobilization program was beyond experience, and was "A national effort of gigantic magnitude," according to the president. To accomplish this task the US would have to sustain major economic dislocations as it readjusted to a wartime economy.

   The US rearmament program, begun in 1940, had already boosted national income above the 1929 level for the first time, to achieve an almost 25% increase before Pearl Harbor. The rise was steep, and by December 1941 national income was almost 40% above its level of less than two years earlier.
  • Putting the country on full war footing would boost income even more, but purchases of consumer goods and services, which had boomed in 1941, would find themselves stymied because the country would need to cut back production for civilian purposes to make way for the war's programs. 
  • Rationing, wage and price controls, and other consumption-damping regulations were on the table. 
  • Statistics measuring the total amount as well as the composition of goods and services being produced were a base requirement for evaluating the risks of shortages of civilian goods and services and the bidding up of prices, but those statistics were not available in the US at the beginning of 1942
  • National income sufficed at that time as an informed measure of the economy's size, but it was not up to the task of evaluating production constraints and trade-offs because it measured only the income earned in production and not the greater market value of the goods and services produced
  • In these early days, using current economic statistics for mobilization planning was akin to a corporation bidding on contracts without knowing the capacity of its factories or the financial facilities at its disposal.

   Within two months of the January 1942 budget message, the Department of Commerce produced the first GNP statistics.
  • These figures distinguished only among major categories of expenditures, but they succeeded in bringing the war-production trade-offs into the picture. 
  • Earlier statistical analyses tended to provide overly grim assessments of the risks of shortages of civilian goods and inflation because, among other errors, they underestimated the productive capacity of the US
  • When first published in March 1942, GNP offered a new framework for assessing the feasibility of the 1943 war program by comparing it with 1941 national output. Two months later, the Commerce Department provided historical GNP statistics for 1929-41. [n. 71]  The January 1942 budget message had foreshadowed the new statistical terms presented in the GNP, mentioning for the first time in a fiscal policy context "consumer durable goods" and "industrial plant and equipment."

   Understanding the pressures of the proposed huge war expenditure program required consideration of competing expenditures in the economy─most simply, expenditures for the war versus expenditures for everything else. The expenditure components of GNP provided the material for that comparison.
  • Because economists measure GNP in market prices and therefore include taxes and depreciation allowances, not included in national income, this estimate exceeded national income in 1941 by 25% ($23 billion) and provided a better approximation of aggregate US productive resources
  • The inclusion of business taxes and depreciation resulted in a production measure that was more appropriate for analysis of the war program's burden on the economy, in part because those flows were potential sources of program funding. For example, during wartime, business might delay spending for the replacement of capital goods (i.e., old factories, machine tools) to free up resources for the production of more war materiel.

   Economists define GNP as a comprehensive measure of the production of goods and services in the economy valued at market prices. In addition to being measured as the sum of production components, one can measure GNP as the sum of expenditures on goods and services for final uses, plus the change in business inventories. Put in other terms, GNP represents the sume of value added by all industries in the economy.

   Because data on expenditures were not fully available in early 1942, Nathan and Kuznets had to use other estimates to approximate GNP figures in their early feasibility estimates. They accomplished this by adding business taxes and depreciation to the existing national income statistics, using the budget and other government sources to obtain approximations of government spending. They estimated investment ("gross private capital formation") from business records, including tax returns, and estimated durable goods sold to consumers from census bureau and other government data.

   Before GNP became available, analysts sometimes erroneously subtracted projected defense expenditures from projected national income, producing a residual that was interpreted as the amount of production left for nonwar goods and services.
  • For example, in early 1942 analysts subtracted the president's proposed 1943 defense expenditures of $56 billion from projected 1943 national income of $110 billion, leaving a residual of $54 billion. Comparison of the 1943 residual with the same residual for 1941, $81 billion, indicated that the government would have to find a way to cut income by a third if the resources required for the war program were to be available. 
  • The assessment was overly grim: national income fell short of the total market value of goods and services produced, of which defense spending was a component.

   Substitution of GNP for national income in such an analysis revealed that the effect of war mobilization on living standards would be less dire than predicted and that an even larger war program might be attainable.
  • This was true not only because GNP was larger in value than national income (because analysts measured it at market prices, not factor costs), but also because the expenditure composition of national product showed how the income generated from national production was being spent. 
  • The expenditure composition of GNP suggested that, despite a potentially large forced reduction in nonwar spending, the nation could absorb much of the decrease by reductions in private investment and consumer purchases of durable goods rather than in consumer purchase of nondurable goods and services─purchases of food, clothing, and shelter─in other words, basic needs. 
  • The analysis suggested that only a 4%, price-adjusted reduction in the consumption of nondurables and services below the 1941 level would be required to meet the president's war program goals for 1943, while private investment would have to decline by 80% and the consumption durables by 70%
  • Put another way, the GNP analysis showed that economic growth brought about by the increases in employment and productivity spurred by the war program and the diversion of heavy industry from civilian to war production could provide more than 90% of the additional resources needed for the 1943 program. [n. 72]

   This put the final nail in the coffin for the idea that the US paid for the Victory Program by reducing the amount of resources available for consumer purchases. As the consumption of nondurable would only be reduced by 4%, the president and his economic team knew early in the war that mobilization would require little consumer sacrifice and that they could achieve virtually all required production by economic expansion. Almost all that was asked of consumers was that they postpone purchases of large durable items such as cars and washing machines. [n. 73]  Furthermore, economic statistics for the war indicate that consumer spending in the US actually increased throughout the war. [n. 74]

   In summary, the revolution in economic statistics reached a point in 1940 where those few economists intimately familiar with their intricacies could use them to determine, with a considerable degree of accuracy, how much and how fast US industry could expand to meet wartime demands. It was a truly remarkable coincidence that such a valuable statistical tool was created and perfected in the decade just before it was needed to help win humanity's greatest struggle. ( ... ... ) p. 49.

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