The Bear’s Lair: The eleventh day of the eleventh month

Yesterday was the 100th anniversary of the Armistice that ended the world’s greatest avoidable tragedy, the Great War of 1914-18. In terms of human welfare, we would all have been immensely better off if that war had never been fought, with the benefits extending through the intervening decades even to today. Economically, however, the scale is more closely balanced.

In this discussion, I will consider the effects of both World Wars, taken together. Without World War I, World War II would have been very unlikely, although it is of course quite possible that an alternative world war might have broken out at a later date. However, for this discussion I will assume the alternative hypothesis to be a century of peace, albeit doubtless with smaller regional wars and domestic upheavals breaking out from time to time, as in our world.

There are two first-order effects of major conflicts such as World Wars I and II. One is the devastation, destruction and death that they cause, depriving the world of mostly young men who have not had time to achieve their full potential. Medieval Dresden, for example, is a notable casualty of World War II, while Rupert Brooke, killed early in World War I at the age of 28, had already shown himself to be a major poetic talent, several of whose poems are remembered today.

The other effect, which may well be more important economically over the medium term, is the acceleration that war produces in technological progress. To take one example: both World Wars produced amazing advances in aircraft technology. It is very remarkable in retrospect that Chuck Yaeger’s supersonic flight of 1947 took place only 44 years after the Wright Brothers took off at Kitty Hawk, with the Boeing 707 jet passenger aircraft coming into service only 11 years after that. Both World Wars were huge accelerants of aircraft technology, because of aviation’s military uses; without the wars the first Douglas DC-3 might have been delivered around 1950 and the Boeing 707 only around 1980.

There are many examples of this effect, more from World War II than World War I, whose advances largely consisted of things like tanks, poison gas and flamethrowers, with few civilian uses. We would have had the atomic bomb and nuclear power eventually – John Cockcroft and Ernest Walton had split the atom in the Cavendish Laboratory in peacetime 1932 – but probably not for 20-30 years after their real-life advent, because of the stupendous cost of the Manhattan Project. We would not have had radar so early as the late 1930s either, though with the DC-3 not appearing until 1950 we would not have needed it for air traffic control until after that date. The computer would have appeared by the 1950s – Alan Turing’s theoretical work was pre-war – but the Enigma project’s stimulus to its development probably gave it to us a decade early.

Conversely, penicillin, which was produced in mass quantities in time for the 1944 Normandy invasion, would probably have appeared about when it did – Alexander Fleming had discovered it in 1928 and by the early 1940s its use against infection was well known and the problem of mass-producing it was an obvious one for the big drug companies to solve. The space program, on the other hand, was a product of the Cold War and might never have existed at all, beyond Robert Goddard’s early experiments, since the German V1/V2 research would not have happened, and there would have been no Manichean if peaceful struggle against the Soviet Union in the 1950s.

These benefits of war do not extend forever into the future. Civilian jet aircraft, atomic energy, radar and computers would have continued their development after their invention and would by now have caught up with their actual state, since there are clear market-driven financial incentives for their expansion and further development, once they exist. Even rocketry would have sprung into action once television was universal, which it would have been by 1970, since the desirability of communication satellites would have driven it forward. Once we had communication satellites, perhaps by about 1990, we would have developed GPS and other modern satellite technologies, with private sector companies taking the lead in these developments. We might still not have quite caught up in rocketry, but we would have a much more solid private sector rocket infrastructure and would be moving forward more quickly than in this timeline with Moon and Mars landings and asteroid mining ventures.

The accelerator of war, therefore, pushes some aspects of technology forward more rapidly and hence could advance mankind’s wealth and technological capability ahead of where it would have been. However, this effect is finite; a century into the future, as we are today, it has probably almost disappeared. There are two other second-order effects that might persist longer, therefore affecting us today.

The first is the loss of ideas that would have been generated by the lives lost in World Wars I and II, and by the descendants they did not live to produce. This is of course unknowable; if a second Shakespeare’s father had been a second lieutenant on the Western Front, then even if he would not have come into existence until 1925, say, his entire oeuvre between his reaching adulthood in the 1940s and his death in 2009 would be lost to us. Similarly, and with more technological importance, a second Newton lost in the same manner would never have made the major intellectual advances he did, so by now entire new theories, discoveries, products and even industries could be missing.

The other second-order effect of World Wars I and II is less impossible to assess. Although we don’t know what political developments would have followed the non-war of 1914, we can be fairly sure, with a high probability, of some features in our political/economic environment that would be different. In both Britain and the United States, each World War naturally produced a huge increase in public spending, but that increase proved to be largely permanent, with British peacetime public spending rising from 10% of GDP in 1914 to 25% between the wars to above 40% in the 1950s and since. Similarly, in the United States, while World War I’s increase in public spending was reversed in the blessed 1920s, it was reinstated with the New Deal and further public spending was added by World War II. The mix of public spending has changed since the late 1950s, with more welfare and fewer bombers, but the level has remained roughly constant or even increased somewhat.

We can be quite sure that this additional public spending has had a major economic effect in suppressing growth and increasing inflation. In the British case, diverting around 30% of GDP from the productive private sector to the unproductive public sector can be expected to have subtracted about a third from the rate of productivity growth in the economy – there was that much less private sector whose productivity could grow — and hence reduced living standards by about 30%-40% over the 70 years since World War II ended. That is more than enough to make up for the accelerator of war; if the World Wars had not happened, British people would be much richer than they are today.

There are however countervailing factors involved; we cannot necessarily assume that the level of public spending would have remained at the blissfully low level of 1914. Some of the increase, in debt service payments, would not have happened without the World Wars. However, 1914 was not 1850; Britain had already built the beginnings of a Welfare State, and Bismarckian Germany had shown the way forward for other countries. Hence it is likely that a World War-less 2018 would have fairly extensive welfare systems in most Western countries, and public spending well above the 1914 level, although less than it is in real life.

There is however one major post-1914 change which would almost certainly not have been made without the World Wars – leaving the Gold Standard. Maynard Keynes would have railed against it, but without the two episodes of War Socialism, the Versailles Peace Conference and the Great Depression to give him credibility, he would have been regarded as the eccentric nut-job which in fact he was. This would have had an enormous benefit to Britain, where there would have been no post-World War II inflation paying off debt and decimating the savings of the thrifty British middle classes. With the Gold Standard and without a rampant Keynes, the world would be a much economically sounder and happier place.

There would doubtless be some supranational institutions, several of which in areas such as postal service date back to the 19th Century, but they would be nowhere near as ubiquitous as they are today, and the nations of the world would continue in proud nationalism, with semi-independent colonial empires attached. The Hohenzollerns and the Hapsburgs, though probably not the Romanovs, would still nominally rule their respective countries. (Russia would have overthrown the inept Tsarist monarchy, replacing it by now with the strong if corrupt elected presidency of one Vladimir Vladimirovich Putin).

World Wars I and II brought faster technological progress in some areas. If we were transported into a world without them it would seem old-fashioned, in its art, literature and music, its social systems and morals and its gold coins. But it would also be significantly richer.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)