Pent-Up Entrepeneurism


The thinking behind this post began as a comment over at Jeff Id’s blog The Air Vent
within a guest-post by Mr. Leonard Weinstein on the relevance of the factors that allowed the United States civilian economy to emerge from the Great Depression and the command economy of World War II with such extraordinary vigor in the years following WWII, and how this is relevant to the current administration’s economic policy.  It is Mr. Weinstein’s view that the Obama Administration is making the same Keynesian mistakes that the Roosevelt Administration made in the 1930’s under the Second New Deal that may have actually prolonged and deepened the Great Depression, which is more of an Austrian view of economics.

This of course was in complete in contradiction to Keynesian economic theory which at the time was predicting another depression and massive unemployment – which obviously did not occur – the US in 1946 experienced the greatest surge in economic growth, 30% that year, that it ever has, before or since.

The BIG THREE factors as put forward by Mr. Weinstein are:

There were three major factors that ended the Depression:

  1. The destruction during the war of most of the industrial capacity of most of the major industrial powers (including in Europe and Japan), but not including the United States, left us with a near monopoly on production of major items. In fact, many of the factories greatly built up their capacity for the war, and the increased capacity was used to advantage after the war. This advantage lasted several decades, and gave us a long head start on establishing markets.
  2. A pent-up needs for automobiles, appliances, and many other items developed due to the manufacturing plants converting to manufacturing supplies for the war. After the war, the conversion back allowed huge amounts of sales of these items. This lasted long enough to establish many businesses solidly.
  3. The GI bill allowed huge numbers of military personal to buy homes, and even more important, go to college. The large increase in well-educated people resulting had a major effect on the level of technology that could be developed. The middle class grew to a much larger percent of the population, and consumer buying increased greatly.

Naturally this lead to some lively discussions in the comments section, which is always likely to happen when Keynesians and Austrians and fellow Misesians butt heads.  I highly recommend you reading the post in its entirety.

Thinking about the problem over-night I noticed a FOURTH MAJOR FACTOR that lead to the end of the Great Depression that I think has been overlooked in this discussion so far and maybe even generally, which is the MASSIVE TECHNOLOGY TRANSFER from the military-government complex directly to civilian industry for civilian purposes immediately after the war, where people serving in our military or civilian labs took what they had learned and developed in many new technologies during the war and almost immediately started turning that knowledge to civilian commercial use by founding new businesses – no non-competition agreements apparently.

Having spent time in the pro-audio world, the example of Emmanuel [Bert] Berlant comes to mind, [who the cognoscenti will remember from his Concertone series of magnetic tape recorders].  Berlant worked in the U.S. Signal Corps Photo Center in Astoria, New York, during the war, but moved to Los Angeles in 1946 where he and several former associates of the Signal Corps Center founded Berlant Associates, Inc., which designed, manufactured, and distributed high-fidelity home music systems – a new industry at that time.

And, he was not alone.

Yes, GE and RCA and other big industrials were deeply involved as well, but it is my contention that there was an enormous burst of entrepreneurism immediately after the war – within months – whose impact should not be underestimated. These entrepreneur were smart, capable people, who had been thinking about “What will I do after the war” the whole duration of the war, and the can-do attitude of these people, when flushed with the victory over the Axis enemy, drove them to success in the peacetime world. On the other hand most of the rest of the world had been asking, “How can I SURVIVE to the end of the war”, a completely different mind-set.

Yes, yes, yes there was also Shockley leaving Bell Labs, which lead to Shockley Semiconductors, then Fairchild Semiconductors which spawned dozens of new enterprises [Intel, AMD & etc] eventually creating what we today call silicone valley, but that wasn’t until the late ’50′s and 60′s. What I am talking happened within MONTHS of the end of the war. There was an enormous wave of people who either came home from war, or left government war work who immediately set up shop and went into business –  and nobody stopped them – possibly for the last time in US history.

As an aside, another society that closely emulated this ideal were the defeated Germans who once the post war Allied boot, in the form of the Morgenthau Plan and JCS1067, was lightened from their throats and from 1949 some direct aid to the new West Germany under the Marshall Plan was allowed, produced the Wirtschaftswunder economy.

 

So, I will now introduce a new term to economic theory, PENT UP ENTREPRENEURISM, to explain the dramatic way from which the civilian United States Economy leaped its way out of depression and war-time command economy in 1946.  I  think my statement [if it is actually new] more accurately describes what actually happened to transform our economy over [365] night[s] as much as any other single factor.

To be fair, I must point out that some of the work Roosevelt did during the 1930’s did pay dividends at this time, I am speaking particularly of rural electrification and certain other infrastructure improvements that directly aided commerce and energy availability, but once that process was decoupled from the anti-entrepreneurial, anti-investment, anti-private property policies of the 2nd New Deal, the flood gates of economic creativity were opened, and remained open throughout the 1950’s.

Never the less, it was in addition to Mr. Weinstein’s big three factors, a massive transfer of new technology, developed as a war-time necessity, to civilian industry and which coupled to a creative and generative attitude that finally lifted the effects of the Great Depression from the US civilian society, and set the stage for a period of unprecedented prosperity that lasted for twenty years.

~ Unræd

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