Review of Austrian Economics - The Ludwig von Mises Institute

Vedder and Gallaway: The Great Depression of 1946 17
power which hold the potential of some years of great activity . . ," 36
The view expressed by the Council quickly became enshrined in
many cited works published in this period. One of the nation's foremost
experts on business cycles, Robert A. Gordon, wrote:
Even with the decline in government spending, aggregate demand
was sufficient to maintain full employment. . . . Consumption increased
rapidly in the face of a decline in GNP. Here lies the main
part of the answer to the mildness of the reconversion recession.
Alvin Hansen said much the same thing:
The country came out of the war rich in monetary assets and monetary
savings and desperately short of consumers' durables, houses,
business plant and equipment. This laid the ground work for a vast
postwar prosperity. . . .
The Hansen-Gordon interpretation quickly found itself a part of
the standard surveys of American economic history published in the
1950s and later. In the popular second edition of the Harold Williamson-edited
textbook on American economic history, Harold Somers
noted:
A striking aspect of the postwar economy was the failure of predictions
of postwar depression made by most economists. In general, the
effect of deferred demand, financed by accumulated liquid holdings,
was underestimated.
The author of the leading selling textbook for many years, Harold
Faulkner, echoed this theme, somewhat perceptively, however, giving
a bit more emphasis to the investment and export demand dimensions
of aggregate demand:
The "temporary props" for this prosperity were mainly three: business
expenditures for reconversion and for new construction and equipment;
heavy consumer spending, much of it for commodities unobtainable
during the war, and heavy export of goods and services . . .
While modern textbook authors, perhaps bewildered by the contemporary
statistics for that era, now play down the postwar recon-
36 Council of Economic Advisers, First Annual Report to the President, 1946, p. 18.
37 Gordon, Business Fluctuations, pp. 465, 467.
38 The Postwar American Economy Performance and Problems (New York: W. W.
Norton, 1967), p. 5.
39 "The Performance of the American Economy Since 1919," in Harold F. Williamson,
ed., The Growth of the American Economy (Englewood Cliffs, N. J.: Prentice-Hall,
1954), p. 713.
40 Harold U. Faulkner, American Economic History, 7th ed. (New York: Harper,
1954), p. 713.