What impact did the outbreak of World War II have on the U.S. economy?
DAVID KENNEDY: It’s interesting to contrast the situation when the United States entered World War II, in 1941, and when it entered World I, in 1917. In 1917 the economy was at full employment, and the effort to move over to a war economy, to shift resources from civilian production to military production, was extremely wrenching and contorting and kicked off immediately a very sharp inflationary round. Prices doubled between 1917 and 1920. Huge inflation. World War II is a different story, not least of all because approximately 20 or 25 percent of the economy’s resources were under- or unemployed in 1941, so the shift to a military economy or war economy could be undertaken without immediately encroaching upon the civilian economy because there was so much idle capacity, both human material. So, in a perverse and a curious way, the Great Depression facilitated the transition to a war economy in World War II. QUESTION: How did the Depression affect economic thinking? DAVID KENNEDY: Wel
