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Working Paper #59

Government and the Economy: The World Wars



U.S participation in the world wars gave rise to massive increases in the extent of government involvement in economic life and brought about many important, enduring changes in the government’s relations with private economic actors. In both wars, the federal government expanded enormously the amount of its expenditure, taxation, and regulation as well as its direct participation in productive activities, creating what contemporaries described during World War I as “war socialism.” Each of these great experiences left a multitude of legacies—fiscal, institutional, and ideological—many of which continue to shape the country’s political economy. As William Graham Sumner wisely observed, "it is not possible to experiment with a society and just drop the experiment whenever we choose. The experiment enters into the life of the society and never can be got out again" (Sumner 1934, II, 473). The world wars certainly are among the greatest "experiments" that American society ever endured.


This paper will be published in Price V. Fishback, Robert Higgs, Gary D. Libecap, and others, Government and the Economy, from Colonial Times to the Present (Chicago: University of Chicago Press, forthcoming).


Robert Higgs is a Senior Fellow in Political Economy at the Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, the University of Economics, Prague, and George Mason University.


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