Home > economics, state power, summaries > Summary of Milward’s “The Economic Effects of the Two World Wars on Great Britain” and Cooley & Ohanian’s “Postwar British Economic Growth and the Legacy of Keynes” (Part 2)

Summary of Milward’s “The Economic Effects of the Two World Wars on Great Britain” and Cooley & Ohanian’s “Postwar British Economic Growth and the Legacy of Keynes” (Part 2)

June 7th, 2010

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Milward argues his points well, based on numerical data and the statistical research of many individuals. His sound arguments allow him to give accurate information with a clear level of detail on Britain’s economy during the two wars. Cooley, on the other hand, focuses on the time period following WWII. This war imposed a tremendous financial burden on Britain’ economy; Cooley investigated different possible methods to pay for it compared to the actual payment scheme used by the British government. He argues that the high tax rate Britain utilized after the war was very costly, and impeded economic performance after the war.

Cooley’s method differed greatly from that of Milward, in that it was primary research based on a mathematical model. Cooley’s method compares Britain’s economic data from the time after the war to predicted data if Britain had instituted other financial policies. He wished to investigate the potential of the tax system that had been suggested by John Maynard Keynes, which called for high tax rates immediately following the war, versus a “tax smoothing” policy that defers the costs by means of government borrowing. These are both compared against the actual policy employed, that utilized aspects of both theoretical policies.

The format of the work begins with an overview of the government’s financial situation at the time. During the 200 years preceding WWII, the British government had traditionally used the tax smoothing policy relying on heavy borrowing to pay for the wars. However, at the time, Keynes, a prominent economist, criticized government economic policy and suggested a system relying on sharp increases on taxes of capital income. This would immediately cover the cost of the war, instead of postponing it for later decades. The government ended up following much of Keynes’s advice, but not all. Nonetheless, the financing of WWII represented a striking change in public finance for Britain.

The paper then divulges the details of the mathematical model used to predict economic performance for both Keynesian and traditional financial schemes. The model is used to predict capital stocks, government spending and output, economic investment and consumption, among other factors. After giving thorough and detailed descriptions of the mathematical methods used for the research, the paper states the conclusions made by it. Cooley successfully proves his points, basing his argument off of real world data and mathematical models. He is able to objectively prove his argument based on these facts.

Cooley finds that the policy suggested by Keynes would have been dramatically more costly than the one followed by the government. Furthermore, tax-smoothing policy would have been much less costly to the British economy than the actual policy employed. However, the welfare implications of the policy followed were just as good as those for the tax-smoothing policy. The lower and working classes were not hurt by the economic policy followed. This finding agrees with Milward’s work, demonstrating that the lower classes ultimately benefitted from the wars. Despite the overall damage to the economy, the income gap was reduced, the lower and working classes ended up with a higher standard of living.

The two works provide an encompassing viewpoint on the effects the wars had on Britain’s economy. They provide a prime example of how total war can disrupt a nation’s foothold in foreign trade. Furthermore, they describe the local impact, describing the manner in which the lower classes were able to benefit from changes during these wars even while the overall economy suffers. These changes are indeed thought provoking. One is lead to question whether the United States would have gained its manufacturing economy without the gap left by Britain because of the wars. The latter half of the twentieth century may have played out very differently, had the wars not occurred. Britain may still have been a world economic leader. Additionally, one is led to wonder if similar domestic effects resulting from other wars. Even if a country is not ravaged or defeated in a war, will there be lasting social effects? Do special conditions during a war allow political changes that would otherwise not occur, such as the National Health Service? If one is to generalize the conclusions coming from Britain’s example, it seems that wars can have a far reaching impact long after they have concluded. The First and Second World Wars disrupted Britain’s economic structure, and produced lasting forces of change.

Sources:

1. Milward, A. The Economic Effects of the Two World Wars on Britain. 2nd ed. Hong Kong: Macmillan, 1984.

2. Cooley, Thomas. "Postwar British Economic Growth and the Legacy of Keynes. " The Journal of Political Economy 105 no. 3 (1997): 439-472.

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