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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 Senior Fellow in Political Economy at the Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. His many books include most recently Taking a Stand: Reflections on Life, Liberty, and the Economy, as well as such volumes as Crisis and Leviathan: Critical Episodes in the Growth of American Government, Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity, and Neither Liberty nor Safety: Fear, Ideology, and the Growth of Government.

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TAKING A STAND: Reflections on Life, Liberty, and the Economy
Organized into 99 short, accessible chapters Taking a Stand offers the grand opportunity to make Robert Higgs’ vast insights available to general readers by combining his keen analysis with his engaging wit, humility and compassion.

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