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The Economics of World War Two

Posted June 23rd, 2012 at 08:42 PM by Guaporense

The Second World War was one of the wars in which economic factors played a decisive role. There were wars, such as the Mongol invasions, where economics didn't play a role at all: the Mongols conquered enemies dozens of times larger economically. In modern warfare, however, as combat is mostly mechanized (it was explosive power that created the damage and not muscle power), while states became more organized (and thus could transform the economic resources of their territories into armies and fleet), the capacity of manufacturing munitions, demographics and the overall degree of economic became more and more decisive. By WW2, economics and warfare became intertwined to such an extent that per capita income ratios and casualty ratios between great powers were almost perfectly inversely correlated.

Also, WW2 is the best documented Great War, thus we have huge amounts of statistical information about each side, in contrast, for instance, with the ancient wars, which we know very little about the resources of each side (only point data on thingies such as Athens had 6,000 talents at her treasury in 431 BC).

Let's start with the pre-war Gross National incomes (1938) of the respective great powers computed using the current market exchange rates:

Allies

USA: 84.7 billion dollars
Britain: 27.51 billion dollars
France: 18.28 billion dollars

Axis

Germany: 41.97 billion dollars
Italy: 8.68 billion dollars
Japan: 5.73 billion dollars

Sources:
GDP numbers - Harrison, The Economics of WW2 for US, Germany, Japan and Italy, UK Public Spending As Percent Of GDP for United Kingdom 1900-2010 - Central Government Local Authorities for UK, http://www.cepr.org/meets/wkcn/1/1628/papers/White.pdf for France.

Per capita figures:

Allies

USA: 650 dollars
UK: 550 dollars
France: 470 dollars

Axis

Germany: 600 dollars
Italy: 230 dollars
Japan: 80 dollars

These numbers reflect the international market value of the final output of goods and services produced in each country. Since the Soviet Union wasn't integrated into the global economy, I didn't have a GDP that could be measured in dollars (if you see a Soviet GDP estimate, I should warn you that it is a constructed estimate and therefore, subject to reestimation, etc, these numbers are not disputable).

Notice that USA, France, UK and Germany had about the same level of per capita incomes, while Italy's per capita income is much lower and Japan's income is much lower still. Italy and Japan weren't industrialized countries by the time of WW2: their economies still had a large agricultural sector and were underdeveloped. In Japan, half of the entire labor force still worked in agriculture even by 1942, while in the UK, only 6% of the labor force worked on agriculture.

In 1938, the developed world consisted of: USA, Canada, UK, Sweden, Norway, Germany, Denmark, Switzerland, Austria, France, Belgium, Argentina (yes, Argentina managed to transition from the first world to the third world over the last 70 years) and the Netherlands. The rest was third world. I don't have specific GDP figures for the smaller European countries, however, the PPP GDP per capita estimates by Maddison show similar levels to Germany, France and UK. The Soviet Union and Japan were very poor if compared to North Western Europe and the United States, which PPP per capita incomes at 30% of their level. Most of the population in the Soviet Union and Japan still lived in huts in the countryside by the time of the war: Manstein complained that while in France he had confiscated a nice country house in the invasion of the USSR he choose to sleep in an army tent, which was better than the peasant huts that he found.

By 1940 Germany was at war with Britain and France and also had to get though Belgium and the Netherlands. Assuming a per capita income of 500 dollars for Belgium, Luxembourg and the Netherlands we have the following economic balance of power:

Allies (1940)

UK: 27.51 billion dollars
France: 18.28 billion dollars
Low countries: 10 billion dollars

total: ca. 56 billion dollars

Axis (1940)

Germany: 41.97 billion dollars
Italy: 8.68 billion dollars

total: ca. 51 billion dollars

That was similar to the balance of steel production:

Allies (1940)

UK: 13.2 million tons (1937)
France: 7.9 million tons (1937)
Luxemburg: 2.47 million tons (1937)
Belgium: 3.8 million tons (1937)
Netherlands: 0.5 million tons (1937)

total: 27.9 million tons

Axis (1940)

Germany: 23.3 million tons (1938)
Italy: 2.3 million tons (1938)

total: 25.6 million tons

I don't include the colonies but, however, note that besides Canada, all colonies had zero industrial production and thus zero warmaking potential. Note also that total steel production in Little Europe was about 53 million tons, compared with 40 million tons average for the United States in 1937-1938. Total GNP in Little Europe was 106 billion dollars, compared with 85 billion dollars for the United States in 1938. This still reflected the fact that these countries still represented the Center of the World in the 1930's, producing the vast majority of the world's culture, technology and science (90% of the Nobel Prize winners in sciences between 1901 and 1938 came from Little Europe).

Notice the general equality of economic power between the Axis and the Allies in 1940. However, the Allies had slightly larger resources, they also had access to the international markets, which the Axis countries lacked and Germany was specially hurt due to her dependency on external raw materials and they also had the backing of the United States, thus they had the advantage on a long term war against Germany and her italian sidekick. Germany, however, had one advantage that was that she was one country, while the Allies had to coordinate their efforts: the German victory in 1940 was partly thanks to the Allies inability to coordinate fully against the German offensive.

By 1941-1942, the war changed drastically: The Soviet Union and the United States entered the Allied side, increasing by a huge extent Allied resources both in terms of manpower (mostly thanks to the USSR) and in terms of economic resources (mostly thanks to the United States). In the Axis side, the second rate power of Japan entered the war, mostly to take advantage of the fact that as Germany was drawing the attention of the great powers, Japan hoped to grab the colonial territories of France, Netherlands, Belgium, UK and the US in Asia (notice that Germany had already conquered three of these countries by 1941), Japan had already done the same in WW1 ( Japan_during_World_War_I ).

Germany, however, managed to greatly increase her resource base by conquering France and the Low Countries, territories with a population of 60 million, a GDP of nearly 30 billion dollars and steel production of 15 million tons, in aggregate, France, Belgium, Netherlands and Luxembourg they were slightly larger than Britain. Germany also conquered Denmark, Norway, Greece, Yugoslavia and Poland, further increasing her empire. By the time of Barbarossa, Germany's empire controlled huge resources: It had a population of 250 million and a 1938 GDP of around 100 billion dollars, larger than the United States', and was a region that produced 70% of all Nobel Prizes in sciences from 1918 to 1938: it was most the core regions of Western Civilization. However, obviously, Germany couldn't simply make the French, Dutch and Polish to fight the war for them with the same degree of commitment, specially considering the retarded Nazi policies over the occupied territories. Thus, Germany's economic resources during the war mostly consisted of her own resources, the most important contribution of the occupied territories was in providing labor to replace the ones that were conscripted to fight in the eastern front.

The Soviet Union had developed her heavy industry under Stalin's brutal regime and by 1940 had become the third largest steel producer of the world after US and Germany and the fourth largest consumer of coal after US, Germany and Britain, with a total coal supply of 140 million tons of black coal, for a population of 170 million, a per capita level of coal consumption of 0.8 tons, still 4 to 5 times lower than the German, American and British levels of per capita black coal consumption. Japanese levels of black coal consumption per capita were similar to the USSR's at 0.85 tons per capita during the duration of the war.

Balance of economic potential (1941-1943):

GDP

Allies

USA: 84.7 billion dollars
Britain: 27.51 billion dollars

total: 112 billion dollars

Axis

Germany: 41.9 billion dollars
Occupied France and the Low countries: 28.3 billion dollars
Occupied Poland, Denmark, Norway, Greece, Yugoslavia, etc: I guess about 10 - 15 billion dollars
Italy: 8.68 billion dollars
Japan: 5.74 billion dollars

total: 94 - 99 billion dollars

Notice that without the USSR the comparison lacks an important Allied asset. And also note that Germany's occupied territories didn't have nearly the same level of contribution to the war effort as the proper-National territories of each power. Specially since the German occupation of France and the Low Countries in 1940, the Allies cut all sea trade with continental Europe, which lead to the economic ruin of this crucial area of Europe, Germany's economy managed to compensate for the lack of external trade by cannibalizing the other European countries for natural resources.

Including the USSR we have the following statistic regarding the energy supplies of the major powers by 1943:

Allies

USA:
Black Coal: 586 million tons
Oil: 191 million tons (1942, including Mexico's)
total: 777 million tons of fossil fuels or 580 million tons of oil equivalent.

UK:
Black Coal: 202 million tons
total: 202 million tons of fossil fuels or 130 million tons of oil equivalent

USSR:
Black Coal: 55 million tons
Brown Coal: 38 million tons
Oil: 18 million tons
total: 111 million tons of fossil fuels or 73 million tons of oil equivalent

total allies: 783 million tons of oil equivalent

Axis

Germany:
Black Coal: 354 million tons (Germany proper, 268 million tons, occupied territories 86 million tons)
Brown Coal: 286 million tons (Germany proper only, production in the rest of continental Europe was 21 million tons in 1939)
total: 640 million tons of fossil fuels or 360 million tons of oil equivalent

Japan:
Black coal: 61 million tons (55 million tons Japan proper, 6 million tons in occupied territories
total: 61 million tons of fossil fuels, or 40 million tons of oil equivalent

Italy:
Total energy consumption (coal, oil, natural gas) in 1941 at 17 million tons of coal equivalent, or 12 million tons of oil equivalent.

total Axis: 412 million tons of oil equivalent

Note that Germany's supply of fossil fuels is 640 million tons, not much smaller than the American supply of 780 million tons, but much of it consists of low quality brown coal, whose energy content was less than half's of oil (i.e. Germany's 286 million tons of brown coal were equivalent to less than 140 million tons of oil in energy equivalent terms), thus it wasn't 80% of the American energy supply in terms of tons of oil equivalent: So American energy supplies totaled 580 million tons of oil equivalent, while German supplies totaled about 360 million tons of oil equivalent.

Iron and Steel supplies (1943):

Allies

USA:
Steel: 80.6 million tons
Iron: 55.8 million tons

UK:
Steel: 13.2 million tons
Iron: 7.3 million tons

USSR:
Steel: 8.5 million tons
Iron: 4.2 million tons

Canada
Steel: 2.7 million tons
Iron: 1.8 million tons

total Allies:
Steel: 105 million tons
Iron: 69.1 million tons

Axis

Germany:
Steel: 34.6 million tons (Germany proper 30.6 million tons, occupied territories, 4 million tons)
Iron: 27.8 million tons (Germany proper 24.2 million tons, occupied territories, 3.6 million tons)

Japan:
Steel: 6.1 million tons
Iron: 5.1 million tons (1942)

Italy:
Steel: 2.8 million tons
Iron: 1.7 million tons

total Axis:
Steel: 43.5 million tons
Iron: 34.6 million tons

So, even though Germany conquered territories with a comparable GDP and a greater population than the United States, the economies of the occupied regions collapsed, leaving Germany with significantly smaller resources than the United States. This had important effects in the war: Germany's supplies of iron and steel were not enough to meet the demands, Germany needed to increase her steel supply to levels around 45-50 million tons to have a comfortable supply to satisfy all war needs, the USA, on the other hand, invested heavily in increasing their steel production capacity to nearly 90 million tons, enabling the US to produce all the steel they needed, including the supplies required to produce 40 million tons of merchant ships to replace the ones sunk by German U-boats and further increase Allied logistical resources.

Notice also that the USSR was the smallest Allied economy out of the major powers, and arras previously argued that the USSR was the largest producer of weapons in World War Two, well, it is true that the USSR was the largest producer of machine guns, rifles and tanks in the war, it is also true that these items had a very small weight in the German, American and British war effort: production of tanks was only 2-3% of total German war production, while production of weapons, including rifles, artillery pieces, naval guns, etc, totaled only 4-5% of total war production, so the production of those items was only in the order of 7-8% of the total German war production, explaining the difference. The Atlantic Wall, for instance, cost more money than all tanks Germany produced during the war, and the 1,200 submarines Germany produced cost more money than all rifles, machine guns and artillery pieces produced during the war. Also, the quality of German rifles, artillery pieces and tanks was surely superior: Soviet T-34 had badly machined parts and the tank's engine usually suffered total breakdown after 3-4 months of service, due to badly machined parts, the Soviet tanks were almost ammunition in the sense that they were discarded in large quantities: in total the USSR lost about 100,000 tanks and assault guns during the war. The United States and even Great Britain surely outproduced the Soviet Union during the war: British production of heavy bombers, alone, was of greater value than total Soviet tank production, British production of naval vessels was also very large, larger than of any other power besides the US.

German war production was basically focused on artillery ammunition: in 1944, Germany allocated 4.8 million tons of steel for the production of artillery ammunition (about the same as the total Soviet steel allocation to the war effort), leading to the output of 3,350,000 tons of artillery ammunition. Including 42 million rounds of 105 mm shells and 11 million rounds of shells over 150 mm. For comparison, the United States produced 8.7 million rounds of ammunition over 115 mm. Germany was the largest producer of artillery ammunition in WW2 (as in WW1), and it was artillery ammunition that produced 60-70% of all casualties in the war: it was the main fuel of the army and thus the single most important munitions item of the war.

Industrial capacity

One aspect of the German war economy was that it was more focused on the army, while the US and British war efforts were more focused on navy and air forces. This was reflected even in the overall distribution of the manpower in their economies: in Germany, for every worked employed in factories producing munitions, there were 1.5 persons employed in the Wehrmacht, while in the US for every worker employed in the war factories there were 0.8 - 0.9 persons employed in the US Armed Forces. This is because ground warfare was less munitions intensive: infantry divisions need less equipment than naval or air forces. However, one result of the massive manpower demands of the Wehrmacht was that German industry was understaffed: while US, British and Soviet factories mostly worked on a two shift basis, German industries worked mostly on a single shift basis: in 1942, 93% of German factories were working on a single shift. And while there were only 2.3 workers per machine tool in Germany, there were 5.7 workers per machine tool in Britain in the machine tool using industries, which were exactly those industries most heavily employed during the war: British industrial capacity was utilized twice as intensively as German industrial capacity. The same applies to the United States, which also had scarcity of industrial capacity during the war. In fact German stocks of machine tools were greater than in any country in the world, even the US, until 1944:

Machine tool stock:
-------Germany ------ USA
1940 - 1,177,600 ---- 942,000
1941 - 1,305,800 ---- 1,053,500
1942 - 1,427,800 ---- 1,246,500
1943 - 1,554,900 ---- 1,529,400
1944 - 1,656,800 ---- 1,770,900

Notice that US machine tool stock grew at faster rates than German stocks: that's because US machine tools were used more intensively than German machine tools, thus demand was higher leading to a faster growth rate of machine tool stocks. Soviet, British and Japanese machine tool stocks were a small fraction of German and American stocks (British stocks were 30% of German/American stocks in 1943, Soviet and Japanese stocks were probably even smaller).

Sources:

1. Harrison, The Economics of WW2
2. United States Strategic Bombing Survey, The Effects of Strategic Bombing on the German War Economy
3. United States Strategic Bombing Survey, The Effects of Strategic Bombing on the Japan's War Economy
4. World Economic Survey, 1942-1944
5. The Steel Industry, 1939-1959: A Study in Competition and Planning
Por Duncan Lyall Burn
6. Economics, Production and Logistics

Appendix: German - Soviet comparison

Steel ingot production, millions of metric tons

------ Germany --- USSR
1942 -- 31.9 ------ 8.1
1943 -- 34.6 ------ 8.5
1944 -- 28.4 ------ 10.9

Pig iron production, millions of tons

------ Germany --- USSR
1942 -- 24.9 ------ 4.8
1943 -- 27.8 ------ 5.6
1944 -- 20.9 ------ 7.3

Black coal production, millions of tons

------ Germany --- USSR
1942 - 338.2 ----- 48.9
1943 - 353.6 ----- 54.8
1944 - 354 ----- 76.3

Coke production, millions of tons

------ Germany - USSR
1942 - 64.8 ----- 6.9
1943 - 66.7 ----- 8.2
1944 - 67.1 ----- 11.5

All data includes occupied countries under German control.

Source: http://sturmvogel.orbat.com/WarEcon.html

Wanna more statistics? How about these data, for Germany they refer to supply (production + imports) over the whole 5 years of the 1940 to 1944 period, for the USSR they refer to the 6 years from 1940 to 1945. They always show a large German superiority, even including American aid.

Machine tools, units:
Germany: 813.880 (4)
USSR: 160.104 (domestic production: 115.400, imports: 44.704 ) (2)

Explosives, metric tons
Germany: 1,595,000 (7)
USSR: 600,000 (domestic production: 505,000, imports: 95,000) (6)

Powder, metric tons
Germany: 830,000 (7)
USSR: 399,800 (6)

Copper, metric tons:
Germany: 1.531.000 (1)
USSR: 857.600, (domestic production: 470.000, imports: 387.600) (2)

Aluminum, metric tons:
Germany: 1.888.200 (1)
USSR: 591.100, (domestic production: 263.000, imports: 328.100) (2)

Lead, metric tons:
Germany: 1.215.000 (1)
USSR: 406.000 (only includes domestic production) (3)

Zinc, metric tons:
Germany: 2.054.000 (1)
USSR: 384.000 (only includes domestic production) (3)

Nickel, metric tons:
Germany: 46.500 (1)
USSR: 69.000 (3)

Tin, metric tons:
Germany: 57.200 (1)
USSR: 17.302 (3) (only includes domestic production)

Germany was a much more developed economy than the Soviet Union. Explaining why the Soviet Union lost many more men than Germany in the Eastern front: it was the case of a developed economy fighting an undeveloped economy.

sources:

(1) http://wwiiarchives.net/servlet/document/149/121/0
(2) http://www.sturmvogel.orbat.com/SovLendLease.html
(3) http://www.sturmvogel.orbat.com/sovprod.html
(4) http://wwiiarchives.net/servlet/document/149/234/0
(5) http://wwiiarchives.net/servlet/document/113/122/0
(6) http://forum.axishistory.com/viewtopic. ... 0#p1210875
(7) USSBS:Strategic Air Attack on the Powder and Explosives Industries
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    Zero comments and 5,000 views?
    Posted November 11th, 2014 at 05:51 PM by Guaporense Guaporense is offline
 
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