Review of Austrian Economics - The Ludwig von Mises Institute

16 The Review of Austrian Economics, Vol. 5. No. 2
soldiers led some of them to revise their estimates of unemployment
upward. For example, on September 1 Business Week predicted GNP
in 1946 would be 20 percent below the 1944 levels and that unemployment
would peak "closer to 9,000,000 than 8,000,000." 30 The
9,000,000 figure represented about 14 percent of the projected civilian
labor force.
Businessmen and Wall Street did not listen to the economists.
The Standard and Poor Industrial stock index rose more than 30
percent from the fall of 1945 to the fall of 1946. As one commentary
put it, "the simple fact is that the transition from war to peace
production isn't proving too rough." 31 As early as September 1945,
Business Week was revising its estimate of unemployment for the end
of 1945 down to 4.0 to 4.5 million from 6.0 million. 32 A CED survey of
top businessmen predicted relatively high employment levels, with
the number of jobs to rise 24 percent above the 1940 level and only
12 percent below the wartime peak. 33
Still, even in December 1945 economists were predicting that
"depression is just around the corner." Robert Nathan predicted six
million unemployed by the spring of 1946, implying an unemployment
rate of 10 percent. 34 Veteran Department of Labor economist
Isidore Lubin decided, in Business Week's opinion, to "play in safe,"
predicting a wide range; six to nine million unemployed. 35 Even the
minimum estimate turned out overly pessimistic by nearly a factor
of three.
The Revised Keynesian Interpretation of Reconversion
Yet within a year of the war's end, it was clear that the pessimistic
predictions were spectacularly wrong. Accordingly, economists
rushed to put a new interpretation on events consistent with the new
Keynesian theology that became deeply instilled in many of them.
The postwar prosperity (they did not have the benefit of the statistics
in the 1990 Economic Report of the President) was attributed to
pent-up demand. In December 1946, the first report of the newly
created Council of Economic Advisers, drafted primarily by Edwin
Nourse, was representative of the new interpretation: "We have a
postponed consumer demand, enterpriser ambitions, and purchasing
^Business Week, September 1, 1945, p. 9.
31 Business Week, September 15, 1945, p. 9.
^Business Week, September 29, 1945, p. 9.
33 New York Times, September 10, 1945, p. 32, col.3 .
^Business Week, December 27, 1945, p. 10.
35 Ibid.