There is a sweeping arc to human history, but it is punctuated by irregular blips marking events that sharply changed things for peoples and nations. These include natural disasters like volcanoes, earthquakes, hurricanes, drought and floods. They may be pandemics or technological discoveries like the cultivation of rice, invention of the steam engine, vaccines, integrated circuits or genetic engineering.
These events may have demographic and social or cultural effects and usually economic ones. Some are immediate, some take longer. Some are permanent, some passing. Some alter current income or production; others alter wealth or net assets.
Take low-rainfall years like 1988 or excess rainfall ones like 2019. For both, farm output fell sharply. Farms produced less, and gross domestic product was lower than otherwise. Ag machinery sales fell. Farmers lost net worth. But the effect largely was on income and not on assets.
Several dry years and bad crop practices caused the Dust Bowl, coinciding unfortunately with the Great Depression. It cut farm output, GDP and incomes. It changed farming practices, population densities and rural economies permanently. Large migrations from affected Plains states to California shaped both regions’ cultures but also provided millions of people to an area where labor for war production was critically needed a few years later.
Flood years like 1993 and 1997 destroyed housing, farm and transportation infrastructure and factories, meaning lost assets and reduced income. Extreme floods, as in 1927 in the lower Mississippi, caused enormous loss of property. It spurred migration of black people from south to north. It motivated large Treasury outlays for dams on the Tennessee, along Ohio River tributaries and on the Missouri, including the huge mainstem dams from South Dakota up into Montana.
The long-term effect of this historic flood was to get the federal government into funding both disaster relief and flood prevention. Republican President Calvin Coolidge felt government had no role in resolving the plight of millions. Commerce Secretary Herbert Hoover organized relief efforts, but most funds for relief were private donations.
Yet the stage was set for the enormous public works projects in the Great Depression. And these trained hundreds of engineers in managing gigantic projects that would bear fruit in World War II to the following decade.
Moderate earthquakes may destroy much wealth to buildings but harm production little. The 1997 flooding of Grand Forks spurred production, with millions spent repairing property. That doesn’t happen in poorer countries like Peru or Bangladesh. Rebuilding requires funds from savings, insurance or government. Poor countries lack that.
Great quakes cut production, at least temporarily, and destroy wealth. The San Francisco quake and fire of 1906 destroyed buildings for manufacturing and commerce, as well as dwellings. Agricultural areas nearby had minor damage. There was insurance for many. The payouts probably were the largest ones, relative to GDP, of any disaster in our country’s history. They forced major property insurers to liquidate large amounts of bonds. This contributed to the Panic of 1907 that hurt families and businesses but brought forth creation of the Federal Reserve.
Pandemics cut the labor supply, temporarily or long term. The Black Death in the 1300s killed from 75 million to 100 million people in Eurasia and 50% of Europe’s population. Wage rates rose, villages were abandoned, cropland reverted to pasture and key skills were lost. There was no immediate loss of property. Bridges, houses and castles stood, but output plummeted.
The smallpox, measles and other European diseases brought to the Western Hemisphere after 1492 killed many millions of Native Americans from Cape Horn to the Arctic Circle. Seizing their land was easier because Native peoples’ economy and culture reeled from the overwhelming loss of members. But physical capital like Incan irrigation systems in South America were unaffected, and many remain in use 500 years later.
So, what about wars’ effects on economies? When and how do they help economies and when and how do they harm? And what about the thorny question of whether wars alter attitudes and values of a nation in ways that may lead to more fighting and destruction -- or to creating institutions and policies such as the European Union or the United Nations to prevent this?
The ancient civilizations of Egypt, Greece, Rome and Persia are a story in themselves. In the Dark Ages and Middle Ages, the lack of effective national governments allowed enormous fractions of production to be used for castles, arms and human labor in warfare.
Trending toward the Renaissance in Europe, more resources were devoted to commerce. Production began to move from artisans to rudimentary factories. Cities in northern Italy and the Low Countries provided better infrastructure and introduced financial practices like insurance, futures markets, bonds, warehouse receipts, bills of exchange and double entry bookkeeping. But there also was warfare between competing cities and states for control of commerce: Venice versus Genoa or the Portuguese seaborne empire against the Dutch.
Conflicts such as the Thirty Years' War induced enormous death, destruction of cities and ethnic cleansing. But the Peace of Westphalia set rules for the modern nation-state. Later wars between England, France and Prussia for control of Europe were fought with small armies, often mercenary, and saw little destruction of property. They did absorb funds that might have been spent on infrastructure and education.
The same waste of resources was true after the French Revolution and in the Napoleonic wars. Hundreds of thousands of men died; vast treasure was spent on armaments. England’s public debt grew to levels not reached by any industrialized nation until the 1940s.
As technology grew more complex, wars became industrial and killing more efficient. The human losses and materiel used in our Civil War were vast and traumatic. The assertion that one can only understand the history of the Old West as involving mass PTSD has truth.
Yet Civil War veterans and contractors who had learned to manage large logistical operations in that war built the transcontinental railroads. The war catapulted steel and other industry production ahead. And, despite unwise and unjust monetary policy, the U.S. economy burgeoned in following decades from immigrant labor, control of new lands, British capital and rapidly advancing technology.
World War I ushered in a new age -- and wars became more destructive and expensive. The largest cost was in human lives -- potential productive members of labor forces. Enormous physical resources were burned up in armaments. Empires collapsed, and ethnic cleansing was common.
Yet war demands impelled technology. England’s Chaim Weizmann saved Britain’s war effort by inventing a fermentation process to turn starch into acetone needed for explosives. Later, following World War II and the Holocaust, he became Israel’s first president. German Nobelist Fritz Haber synthesized nitrates, revolutionizing many industrial processes and enabling the Green Revolution in food production 30 years later. He also led poison gas research and use.
Lingering economic effects of World War I still affect us and bankrupted all major European economies. Squabbling over who should pay ended up sabotaging economic recovery worldwide. People suffered, demagogues came to power and we were back at war.
World War II involved enormous destruction of cities and industry and unprecedented loss of life, particularly in Soviet Russia and in Asia. However, the United States was spared this damage and afforded billions on new technology including radar, nuclear weapons and myriad other devices. These breakthroughs, spurred by government funding based on fear of the Soviets, gave us boom years in the 1950s and 1960s.
So while Europe, Japan and parts of Asia long occupied by the Japanese were beaten down, the United States emerged with a confident, productive and prosperous populace. We felt we could do anything. Industry was far larger. We dominated the world economically and militarily. The Depression was banished. Everyone had jobs; all nations needed our exports.
The only country with a similar vault ahead was Brazil. It had thrown its lot in with the Allies, sent 20,000 men to our Fifth Army in Italy and hunted U-boats. We gave them a modern steel mill. As for Argentina, the sudden cutoff of exports of manufacturers by the United States and Europe spurred domestic industry. A cohort of Brazilian army officers, trained by the United States, would spur an economic revolution as part of a bloody 21-year dictatorship.
Most importantly, lessons learned in the interwar years and fear of the Soviets overcame old rancor between European nations. They needed to “keep the Americans in, the Germans down and the Russians out,” as one Brit described NATO. The international financial and trade institutions crafted at Bretton Woods facilitated international commerce and financial stability, obviating the turbulence of the 1920s.
Unfortunately, U.S. hegemony after 1945 made us overconfident. We intervened militarily too often in too many places. And a good portion of the population and our leaders still believes that unbridled exercise of U.S. economic and military power is good. Put maximum pressure on Venezuela and Iran. And if the Iranians react to our killing one of their generals, we can always start another war -- but don’t expect the rosy economic outcomes of 1945.
Seventy-five years ago, our nation was fighting the Battle of the Bulge, the largest single battle we had in World War II.
Under the stubborn pharaoh described in the Book of Exodus, the Egyptians had to put up with a lot: boils, frogs, death of firstborn sons. But…
Paul Volcker’s recent death marks the passing of an era, one of bipartisan sanity and reasoned restraint in the making of public policy.
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