page_title: Capitalism
section_title: Effects of war
hierarchical_section_title: Capitalism / Effects of war
caption_attribution_description: Assembling the North American B-25 Mitchell at Kansas City, Kansas (USA). Reproduction digitized from original 4x5 color transparency.
context_page_description: Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include private property and the recognition of property rights, capital accumulation, wage labor, voluntary exchange, a price system and competitive markets. In a capitalist market economy, decision-making and investments are determined by every owner of wealth, property or production ability in financial and capital markets whereas prices and the distribution of goods and services are mainly determined by competition in goods and services markets.
  Economists, political economists, sociologists and historians have adopted different perspectives in their analyses of capitalism and have recognized various forms of it in practice. These include laissez-faire or free-market capitalism, welfare capitalism, and state capitalism. Different forms of capitalism feature varying degrees of free markets, public ownership, obstacles to free competition and state-sanctioned social policies.
context_section_description: War typically causes the diversion, destruction and creation of capital assets as capital assets are either destroyed, consumed, or diverted to types of production needed to fight the war. Many assets are wasted and in some few cases created specifically to fight a war. War driven demands may be a powerful stimulus for the accumulation of capital and production capability in limited areas and market expansion outside the immediate theatre of war. Often this has induced laws against perceived and real war profiteering.
  The total hours worked in the United States rose by 34 percent during World War II, even though the military draft reduced the civilian labor force by 11 percent.
  War destruction can be illustrated by looking at World War II. Industrial war damage was heaviest in Japan, where 1/4 of factory buildings, 1/3 of plant and equipment, 1/7 of electric power-generating capacity, and 6/7 of oil refining capacity, was destroyed. The Japanese merchant fleet lost 80% of their ships. In Germany in 1944, when air attacks were heaviest, 6.5% of machine tools were damaged or destroyed, but around 90% were later repaired. About 10% of steel production capacity was lost. In Europe, the United States and the Soviet Union enormous resources were accumulated and ultimately dissipated as planes, ships, tanks and so on were built and then lost or destroyed.
  Germany's total war damage was estimated at about 17.5% of the pre-war total capital stock by value, i.e. about 1/6. In the Berlin area alone, there were 8 million refugees lacking basic necessities. In 1945, less than 10% of the railways were still operating. 2,395 rail bridges had been destroyed (out of a total of 7,500 bridges) along with 10,000 locomotives and more than 100,000 goods wagons. Less than 40% of the remaining locomotives were operational.
  However, by the first quarter of 1946 European rail traffic, which was given assistance and preferences (by Western appointed military governors) for resources and material as an essential asset, regained its prewar operational level. At the end of the year, 90% of Germany's railway lines were operating again. In retrospect, the rapidity of infrastructure reconstruction appears astonishing.
  Initially, in May 1945 newly installed United States president Harry S. Truman's directive had been that no steps would be taken towards economic rehabilitation of Germany. In fact, the initial industry plan of 1946 prohibited production in excess of half of the 1938 level; the iron and steel industry was allowed to produce only less than a third of pre-war output. These plans were rapidly revised and better plans were instituted. In 1946, over 10% of Germany's physical capital stock (plant and equipment) was also dismantled and confiscated, most of it going to the Soviet Union. By 1947, industrial production in Germany was at 1/3 of the 1938 level and industrial investment at about 1/2 the 1938 level.
  The first big strike-wave in the Ruhr occurred in early 1947—it was about food rations and housing, but soon there were demands for nationalisation. However, the United States appointed military governor (Newman) stated at the time that he had the power to break strikes by withholding food rations. The clear message was "no work, no eat". As the military controls in Western Germany were nearly all relinquished, and the Germans were allowed to rebuild their own economy with Marshall Plan aid, things rapidly improved. By 1951, German industrial production had overtaken the prewar level. The Marshall Aid funds were important, but after the currency reform (which permitted German capitalists to revalue their assets) and the establishment of a new political system, much more important was the commitment of the United States to rebuilding a free market economy and establishing a democratic government, rather than keeping Germany in a weak position. Initially, average real wages remained low, lower even than in 1938, until the early 1950s while profitability was unusually high. So the total investment fund, aided by credits, was also high, resultin
caption: The common view among economic historians is that the Great Depression ended with the advent of World War II (assembling the North American B-25 Mitchell at Kansas City, 1942)
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