To fight against the ghost of neoliberalism, a fierce patrol of scholars has recently rediscovered the entrepreneurial state. From the left (Mariana Mazzucato, Dani Rodrik) to the right (Oren Cass and the American Compass group), scholars and journalists are advocating for new industrial policies to address variously perceived “market failures.”

　　These authors tend to build their theories, explicitly or implicitly, on what is now an economic history cliché: namely, that much of the postwar development in the United States was indebted to the great research and development (RD) effort expended during World War II. In particular, it is now a commonplace belief that the need to win the war led to the development of a whole range of new technologies and new production methods which then found wide use in peacetime.

　　In his new book, The Economic Consequences of US Mobilization for the Second World War, Alexander J. Field of Santa Clara University challenges this narrative. His work demonstrates that the war, in fact, had a negative impact on US productivity—and did not foster a cornucopia of inventions either.

　　Field’s work forces us to face the inconvenient truth that, generally speaking, emergencies will tend to reduce productivity, at least in the short and medium term, because they involve shifting human and financial resources from their previous uses to other, different ones. The way factors of production are combined at a certain time is not necessarily the right way: changes, in technology or consumer preferences, induce many, small adjustments every day. The more radical ones, we know, tend to be painful.

　　But forcing, for instance, workers who are used to making automobiles to make tanks, or ammunition, diminishes their productivity. To say nothing of the need to rework their plants, workers have to learn how to do new things. The knowledge they used to put into their own work becomes anachronistic in part.

　　For Field, the narrative history of US wartime productivity has focused almost entirely on the eventual productivity recoveries that took place, ignoring the negative shocks and losses associated with the altered product mix and the intermittently idled capacity resulting from shortages and hoarding of scarce material, components, and sometimes labor.” As he notes, “In 1948, after demobilization was more or less complete and the output mix reverted to something resembling what had prevailed in 1941, total factor productivity in manufacturing was lower than it had been before Pearl Harbor.”

　　Nor, of course, can we forget the destructive nature of war: it kills people, renders others unable to work, and destroys physical capital, infrastructure, and factories. Americas greatest advantage between 1940 and 1945 was precisely that it was the country furthest from the theater of the fighting:

　　Although WWII did leave the economy with assets that benefited postwar production capability, it distorted physical capital accumulation, crowding out investment in sectors of the economy not critical to the military effort. … The country achieved production success, but this was not the consequence of a productivity miracle. Between 1941 and 1948, total factor productivity declined in manufacturing and construction and, in the aggregate, grew more slowly than had been true between 1929 and 1941.

　　To this, one could retort that no matter how much entrepreneurs and workers were forced to learn new things, these changes nonetheless served them well in peacetime. Fields essay patiently demonstrates in example after example that after the war, most of what was learned producing B-24s and Sherman tanks, and most of the special-purpose machine tools manufactured to facilitate their production, was scrapped, written off, or vastly reduced in value because the country stopped making most of the product. Some mischievous observers might suspect that the level of mobilization necessitated by the Cold War—albeit much smaller than that of WWII—can also be explained as a way to continue exploiting the know-how acquired in the 1940s to sustain the war industry. As Robert Higgs pointed out, in 1945 and 1946 the rapid military demobilization brought defense spending to what would remain the lowest level for the next fifty years, namely 4.3 percent of GDP (still three times the 1939 level). Between 1948 and 1989, arms spending on average weighed in at 7.5 percent of GDP. Operating somewhat like an accordion, periods of (relative) demobilization were followed by moments of remobilization, as during the Korean War, the Vietnam War, and the space wars. Field might remind us, however, that none of these phases of rearmament prepared a subsequent season of economic growth.

　　If you search for it, there was certainly some innovation due to the entrepreneurial military, which then found wide civilian application (such as GPS). Against this point, however, Field reminds us of something obvious: Although some wartime innovations had applications in peace, the overriding objective of RD workers was to win the war, which in most instances meant creating or developing better, more efficient means of destroying buildings, infrastructure, machines, and raw materials, and maiming, burning and killing enemy soldiers and civilians. A key concept in economics is that of opportunity cost, which, simplified, means that the true cost of a good, service, or action is that of the most attractive alternative available. One has to consider the world to be Hegelian in order to find in the wartime economy the secret of American capitalist success.

　　Wartime also starved government investment in civil infrastructure and everything in the private economy which was not deemed critical to the war effort.

　　For as much as the war effort developed some technologies that were later incorporated into products made and consumed in peacetime, there are many more resources it has taken away from economic development. When it comes to human capital, “407,000 mostly prime-age males never returned” home. Field quotes Alan Milward, who wisely observed that “the only recurrent demographic phenomenon related to all or most wars is the fact that war kills many people.” When it comes to physical capital, Field acknowledges that investments in war-prioritized sectors were important and that the country in 1948 had “a vastly expanded aluminum production industry and a reduction in its industrial concentration, increased capacity in steel and magnesium, a synthetic rubber capability that had been developed basically from scratch, and the Big Inch and Little Big Inch pipelines, bringing crude oil and refined petroleum products from East Texas to the East Coast.” But wartime also starved government investment in civil infrastructure and everything in the private economy which was not deemed critical to the war effort. Manufacturing and construction were the sectors most heavily disrupted.

　　Field’s chapter on RD is particularly valuable today, not least because other scholars have suggested that in areas where the greatest military investment was made during the war, the higher the registration of patents in the years following the war. Field recalls that, during the conflict, for aviation and shipbuilding, patenting rates were stable compared to those in the prewar period, but there were declines for chemicals, and even sharper declines for petroleum, rubber and plastics, instruments, fabricated metals, and other machinery, particularly when comparing 1941–48 with 1932–40. The patents that were used in war technology, Field argues, mostly date from the 1920s and 1930s.

　　This is not surprising. Production takes place over time. There are adjustment costs incurred when going from producing a certain good to making another. You have to rearrange the factors of production and try to make them at least as fruitful as before. Productive innovation needs creativity as much as artistic or literary innovation. For these reasons, it is more likely that the war slowed, rather than accelerated innovations. The United States participated in WWII for less than four years: mobilization took place over 22 months. In crediting an innovation to mobilization, one must always pose the counterfactual. … What would have taken place in the absence of the war?

　　For Field, despite the rampant dysfunctionality, a heavily regulated economy produced and distributed what was needed to defeat the Axis powers. War (or emergency) compresses the logic of expediency and drives one to do whatever it takes to win. The problem lies in thinking that what is sadly necessary at some times can also somehow be brought back into the category of expediency. A war economy sees, by definition, the subordination of all ends to the one goal of imposing oneself on the adversary. For this very reason, it worsens the living standards of people (who are forced to endure rationing) and the efficiency of the economy. This is why Ludwig von Mises argued that a victorious war is bad even for the victor.”