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Title Name:
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cent between 1913 and 1920, less than the European combatants but enough
to unleash an unprecedented wave of labour unrest.
26
But, the role of
Keynesians in the USA in the early phase of the Second World War was
not to argue for compulsory saving, as their master was doing in the UK, but
to warn against higher taxation, which might retard the long-awaited recov-
ery.
27
Provided the USA reorganized its tax system, as the Harvard Keynesian
Alvin Hansen wrote in 1941, the war boom promised to generate
‘enormous
revenues
’.
28
No change brought by the war to American society was more
profound than that in its tax system. The First World War had laid the
foundations of America
’s modern fiscal apparatus. The number of Americans
filing income tax returns leapt from 350,000 in 1914 to 5 million by 1918. But it
was in the Second World War that
filing federal income tax became a truly
national experience. Between 1939 and 1943 the numbers
filing with the
Internal Revenue Service (IRS) increased from 7.5 million to 45 million. In
total between 1942 and 1945, 47 per cent of US spending was covered by taxes,
27
per cent from borrowing and the rest through money creation. Though
this meant that the money supply doubled, highly effective price regulations
were enough to hold in
flation in check for the duration of the war at least.
Economics of occupied Europe
For Hitler and the SS the announcement of Lend-Lease in the spring of
1941
was con
firmation that London and Washington were firmly in the grips
of the world Jewish conspiracy. As in the First World War, whether war was
declared or not, Germany
’s real antagonist was the economic might of the
USA. When Hitler
’s victory over France had the effect not of forcing Britain to
surrender, but of bonding London and Washington more closely together,
this drove the Third Reich toward a two-pronged response. In military-
industrial terms, it responded by ploughing further investment into raw
material autarchy and preparations for a large-scale air war. The synthetic
chemicals complex at Auschwitz, the largest single industrial investment
project of the Third Reich designed to produce rubber and air fuel, was a
pillar of this new strategy. At the same time, the invasion of the Soviet Union,
26
Earl J. Hamilton,
‘The Role of War in Modern Inflation’, Journal of Economic History
37
:1 (1977), 13
–19 (p. 170).
27
Donald Winch, Economics and Policy: A Historical Survey (New York: Walker and Co,
1969
), pp. 263
–4, 274–7.
28
Alvin Hansen,
‘Deficit Financing and Inflation Potentialities’, Review of Economics and
Statistics 23
:1 (1941), 1
–7.
a d a m t o o z e a n d j a m e s r . m a r t i n
44
Comp. by: SSENDHAMIZHSELVAN
Stage: Proof
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Title Name:
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Date:2/2/15
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expected to take no more than one campaigning season, was conceived as a
way of securing for Germany the oil, grain, alloy metals and slave labour that
it would need to pursue an intercontinental war. It was in the autumn of 1941,
therefore, as the resistance of the Red Army broke the onrush of the Babarossa
offensive that the strategic dilemma of German war planning became fully
apparent. If it could not win quickly in the east, the Third Reich faced a two-
front war of epic proportions. In the west the Germans faced the British and
American economies whose combined output in 1942 was four times larger
than that of the Reich. In the east they faced the Soviet Union with a
population at least twice that of Germany
’s and an economy of similar scale,
commanded by the most radical mobilization regime the world had ever seen.
The performance of the Soviet war economy was one of the true surprises
of the Second World War. In the First World War poverty and underdevel-
opment had undermined the tsarist war effort and brought Russia to collapse
by 1917. In October 1941 Stalin
’s regime was shaken by the onslaught of the
Wehrmacht and came close to breaking point. But Moscow rallied and,
sustained by the capital investment, organization and coercive capacity
stamped out of the ground since 1928, it performed the most remarkable
mobilization of any of the combatants. Despite suffering a fall in output of at
least 35 per cent as a result of the German invasion, defence production in
1942
was 3.7 times that of 1940. There were huge gains in productivity in the
Soviet armaments factories, which achieved the most remarkable perform-
ance of any of the combatants, under extremely adverse circumstances. Since
the onset of forced industrialization in 1928 Soviet engineers and factory
managers had become inured to the stresses of
‘storming growth’ and
imperative production targets. After 1941 the triumph of the Soviet war
economy lay in its success in surviving one crisis after another. Among the
major European combatants no other population suffered such hardship. In
1942
the year in which the Red Army stopped the onslaught of the Wehr-
macht, civilian consumption was reduced to less than 40 per cent of Soviet
GDP. Inessential spending of all kinds was slashed to the bone. To contain
in
flationary pressures, taxes were increased dramatically. But the prices of
what little food and clothing could be bought through regular retail channels
tripled. The urban population that did not enjoy high priority in ration
allocations was reduced to the level of starvation. In the cities mortality
sky-rocketed. In a desperate bid to hold Stalin in the war against Germany,
Lend-Lease was extended to the Soviets in October 1941 and by the end of the
war the Soviet Union would receive US$11.3 billion in funds. But the pipeline
of foreign aid took time to build up. In 1942, the year of Stalingrad, Soviet net
The economics of the war with Nazi Germany
45