Tag Archives: Simon Kuznets

The year was 1940. Seeing that war might be imminent, President Roosevelt approached the president of General Motors. Wartime conversion was the issue. To become an “arsenal of democracy,” how could we produce planes instead of Pontiacs?

With GM’s president its informal chair, the National Defense Advisory Committee was created. Serving with other business leaders on the committee, G.M.’s Bill Knudsen helped to facilitate the transition from civilian to defense production. With his friends talking to their friends, private industry was responsible for transforming supply chains and retooling assembly lines.

Auto factories made plane parts, auto bumper assembly lines produced armor plate, Kimberley-Clark in Wisconsin converted from Kleenex to machine-gun mounts. We had to build shipyards and make rifles and bombs. Kellogg’s replaced cereal production with soldiers’ K-rations (that also included a piece of Wrigley’s gum). A new synthetic rubber industry had to replace Japanese controlled natural rubber. The list for the new wartime infrastructure goes on and on and the results were impressive. By December 7, 1941, for example, the US had manufactured 20,000 planes and 4,000 tanks. By 1945 the auto industry alone had produced 100,000 tanks.

While a Barron’s editorial tells this production part of the story, there is more.

I have always been fascinated by the story of Simon Kuznets. A Russian immigrant who received the 1971 Nobel Prize in Economics, Dr. Kuznets had been the head of a statistical office in the Ukraine before he arrived in the US in 1922. Within 5 years, he was 26, had a Ph.D from Columbia and a job at the National Bureau of Economic Research.

During the 1930s, led by Dr. Kuznets, a framework for national income accounting was created. That just means we figured out some numbers that we had never known before. Sometimes called a national balance sheet, the data display what is produced and the incomes that producers earn. By knowing the value of what was produced, statisticians could identify economic strengths and weaknesses, learn about government, business and household spending, and make projections.

And this takes us back to the war.

Simon Kuznets served as the associate director of the Bureau of Planning and Statistics at the War Production Board. Responsible for an “input/output” survey, he quantified the resources that would be available for munitions production. You can see how crucial his numbers were. Here we had a civilian manufacturing sector that had to change its output. To switch the factors of production–the land, labor and capital–to their warime tasks, Kuznets figured out our current capability and what we could do.

And then, with the private sector actively engaged and armed with data that would optimize their effort, they transformed a civilian economy that had been in a depression to a super productive war machine. I am sure it did not look as clear and easy and organized as this sounds but they did it.

And this returns us to national income accounting. Whether fighting a war or a recession, knowing our economic potential helps us fight.

Emphasizing private industry this (gated) Barron’s article briefly tells the war production story as does this government document with more on the role of government. For Simon Kuznets, I used facts from my book Econ 101 1/2 and a University of Pennsylvania commemorative article. And here, at the Nobel site, you can read about Dr. Kuznets.

Please note that this entry was slightly edited after it was posted.