 Our next and final lecture for today is going to be given by Dr. Robert Higgs. Dr. Higgs is a scholar with the Independent Institute and the editor of the Independent Review. I always wanted to establish the nickname Dr. Doome for myself, but with Dr. Higgs around, that's just not going to happen. As you can see, his talk tonight is on the catastrophic impact of war on liberty. Would you please help me welcome Dr. Robert Higgs? Thank you, Mark, for that very gloomy introduction. And thank all of you for being out here to listen to my talk. And I'll also say thank you to all those people who may be watching and listening somewhere else via the live feed that the Mises Institute has provided for this conference. It's really quite nice. I was in my room this morning watching some of the talks in that way, and very pleasantly surprised to see what nice quality the transmission was. So to those people who are in Iowa for this lecture, you're welcome to. The organizers of the conference gave the title War and Power to this session, and I have a slightly more definite title I like to use. And one might think that no extensive argument is required to maintain that work is catastrophic, but at the same time, if that's true, one has to wonder why so many people favor war, often on such flimsy grounds, so quickly, without much thought. Americans like to describe themselves as peace-loving people, for example. Maybe everybody does that, but certainly Americans consider themselves peace-loving people. And yet, despite that belief, I think sincere belief in many cases, this country has been at war in more places and more frequently in the world than any other for the past 113 years. And so one has to wonder, is this cognitive dissonance that's taken hold of the American people, have they never stopped to think about their own history? And yet, every time some little pretext for war arises, shockingly, many Americans rush to support the states going to war once again. And most recently, the adventure in Libya laid on top of three other wars already going on. So war is definitely a critically important part of our history and most other nation's histories as well. The libertarians have thought about, written about, argued about war for a long time, and indeed, eventually, one of the libertarian mantras became a statement from Randolph Bourne, which he wrote in 1918 shortly before his untimely death. And he said, along with a lot of other things that are well worth reading, that war is the health of the state. And in the essay where this statement appears, he explains why that is so. And so this essay, which you can find on the web quite easily by just searching Randolph Bourne and war is the health of the state, is well worth your attention, well worth your attention still, even though it's almost a century old. Long before Randolph Bourne, however, others had recognized the same fact of life. In 1795, in a letter, James Madison wrote, of all the enemies to public liberty war is perhaps the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies. From these proceed debts and taxes. And armies, debts, and taxes are the known instruments for bringing the many under the domination of the few. No nation could preserve its freedom in the midst of continual warfare. A few years later in 1798, in another letter, Madison wrote, perhaps it is a universal truth that the loss of liberty at home is to be charged against provisions against danger real or pretended from abroad. And finally, one more quotation, this one from Bruce Porter, who wrote a book called War and the Rise of the State, which I recommend. It's a survey of 500 or 600 years of Western history, not just the history of the United States. But Porter concluded from this massive survey that a government at war is a juggernaut of centralization determined to crush any internal opposition that impedes the mobilization of militarily vital resources. This centralizing tendency of war has made the rise of the state throughout much of history a disaster for human liberty and rights. Again, that conclusion rested not simply on the history of the United States, but on basically the history of all the countries that make up Western Europe. So the relationship between war and the loss of liberty has long been recognized, but continues to receive too little weight, especially from people who think of themselves as conservatives. But they are certainly not in a class by themselves, as we've seen since Barack Obama became president of the United States. His supporters who formerly made a lot of noise about George W. Bush's wars have fallen strangely silent since their own man took the helm. Well, I want to talk to you about how this relationship between war and the loss of liberty has worked out, especially in American history. But before I do that, I want to walk you through the logic of why this relationship exists. It's not a coincidence, and it's important to understand the logic because it'll help you to accept the fact, I believe it is a fact, that it doesn't matter why the war is being waged. Every war is going to have to some extent the same logic in its prosecution. And one aspect of that logic is the culmination in the loss of liberty. Often the government represents itself, of course, as waging war to preserve our liberties. But as we look back through our history, we find that invariably, every major war has left the American people in the possession of fewer liberties when the war was over than they had before the war began. Okay, what is going on here? When government goes to war, or prepares to do so in an accelerated way, it has to divert resources from their current uses to military uses, often in massive amounts. The United States historically did not have a large standing army before World War II. So when a war was entered into, the government basically didn't have the means to carry out a war and had to build those means up abruptly. So it would have to take resources that currently were being used for civilian purposes and divert them to military uses, indirectly military uses, if not direct military uses. Can it change the allocation of resources to support its war enterprise? There are three possible ways for the government to do this. The first way is it could call for gifts basically, it could accept donations of resources. The government could make an announcement. We've decided to undertake a war to do this. We need a certain amount of money, for example. And so we'd like you to send money. Here's the address. Well, if you've read some history, you've probably noticed that this is not done. And the reason it's not done is that very little response would come forth if the government asked people to donate. There is a kind of exception to what I'm saying and that is that sometimes the government asks for soldiers to come forth and some people do voluntarily come forth. So in effect, because they're typically not being paid the same wage that they would earn if they remained in their present occupation, they are in effect donating some of their labor services to the government to help it carry out a war. So voluntary, truly voluntary enlistment is a kind of donation. But voluntary donations usually don't get the job done. And besides labor, the government needs a lot of other things, many of which require money to purchase. So the donation option is not very promising. The second way is that government can buy what it needs to carry out the war. And the third way is that it can demand transfers. It can order people to hand over resources or money. Now, it's interesting that when we consider the fact that not many people are willing to donate funds for the government to carry out a war, that very fact is telling us something. I've never seen any mainstream analysts stop and ask, what is that telling us? Instead, they invariably provide an answer to the unspoken question by saying that because of the free rider problem, you couldn't just go ask people to donate because everybody would want a free ride. That's what mainstream economists think people will always do in a situation that involves collective goods or collective action. Well, of course, people will free ride. That's the quote-unquote rational thing for people to do in a situation like that. But if that's true, why do people voluntarily donate and sometimes donate so massively for the attainment of other collective purposes? Churches don't have any ability to threaten people with confiscating their money if they don't contribute to the support of the church. And yet churches receive massive amounts of money from people for their support. All kinds of public-spirited actions and organizations, activities appeal to the public for support and get it. So there's something askew here when the government finds it can't just ask people to cough up what it needs to finance a war because it knows they won't. And I think what that fact tells us is that the government is trying to carry out a war that really is not supported very much or very deeply by the population. If they really cared deeply about it, and if enough of them cared deeply about it, they would be willing to pay for it without thinking their way through some excuse of fighting, but they don't in general. So the government now has the option of only buying what it needs or commanding with threat of violence what it needs to carry out the war. Buying goods and services for war creates difficulties because the government is bidding against other people for the use of these resources in free markets. And if it does that, it will tend to bid up the prices. So it's making the war more expensive by trying to carry it out. And it may find that if it's trying to divert a large quantity of resources quickly, prices are bid up greatly. This was discovered at the beginning of both world wars by the U.S. government that tried to go out and purchase various raw materials, for example. The prices rose very rapidly. And so the government was always appalled, but we can't do that. We can't pay these high prices. That creates all kinds of other trouble for us. So how do they go about dealing with the necessity of buying resources to carry out war? And the answer, of course, is they have the usual ways of getting funds, which is they can levy taxes or they can borrow. Now, if they raise taxes, they've got some more problems to solve because abruptly increased taxes are certainly going to be resisted to some extent, evaded, avoided. People are going to try to get out of paying much higher taxes, at least many people will. That's why they weren't willing to donate in the first place. They don't place value in what the government is doing. And so even when the government threatens them with penalties for failure to pay taxes, some of them will try to wriggle out of paying taxes. So just getting all the funds the government needs by taxing people enough, to literally carry out a large-scale war, creates a terrific compliance problem for the government. And of course the government will threaten people with fines and prison terms for convictions of tax evasion, but nonetheless the greater the increase in taxes, the more non-compliance we can expect to see. So it can try to solve this problem of rapidly bidding up market prices by rigging the markets. It can use its coercive power to put on some kind of price controls. And we see great examples of that in World War I. The price controls in World War I were not comprehensive. They were only on a selected group of goods. And one time or another several score goods were subject to government price controls. And if you look at what those goods have in common, they're quite diverse. They have one thing only in common, and that is they were all goods the government was trying to buy for its war program in great quantities. So the government was obviously putting those controls on not to protect the public from inflation, which was sometimes the storyline, but to protect its own budgetary ability to carry out the war. And of course when price controls are put on, there's a compliance problem there because price controls create incentives for people to avoid those controls and to make dealings at illegal prices in black markets. And so they have to do that and the government has to look around to find the black market activity and try to suppress it and put evaders in prison and whatnot. So every step the government is taking here to divert resources creates a train of additional problems the government has to solve to get the job done. So we usually do see this market rigging through price controls, use of formal priorities, physical allocations of certain raw materials and so forth. So we've got the government raising taxes, rigging markets and trying to resolve the compliance problems, but all the time there's pressure remaining on prices because they're being held below market levels. And so there's always a strong motive for the government to borrow rather than trying to get tax revenue to pay for its war. So all the American wars, the large ones, have been financed mainly by borrowing. Over time the government got a little better at collecting taxes, but even in World War II about 60% of the war spending was financed by borrowing. Now that's not trouble-free either. Even though the people buy the bonds voluntarily, they won't buy them on any terms whatsoever. And the government finds the more it wants to borrow the better the terms it has to make. It has to offer what amounts to higher interest rates to the bond purchasers. But when it does that, once again, it's raising the cost through debt service of carrying out the war. And there's a limit to how far it can go there too. So it distorts the capital markets, it ends up having to put controls on investment very often, and controls on raw materials and controls on what projects can be undertaken, what have you. And ultimately you can get an almost fully controlled economy as we had during World War II because of the succession of interventionist problems, each one growing out of the preceding one. As I say, the government can just command the use of resources by drafting them. It can draft raw materials, it can draft land. There's always been a fair amount of land confiscation or condemnation, as is legally known, during wartime. The war department or the Navy department just go out and ask the judge to condemn a certain property because it wanted to build a base there or naval yard or put it to some other use. And it was a done deal. They would take the property and the court would pay what was deemed fair compensation to the owner. And finally, of course, you can draft people, which the U.S. actually did long back, but at the state level for the militia draft and started drafting people during the war between the states directly and then kind of mastered the art of drafting or close to mastered it during World War I and then did it much more successfully during World War II and on a very large scale. So most of the people who served in the armed forces in World War II were draftees. And eventually toward the end of the war, the government had pretty much stopped accepting enlistments altogether. They drafted everybody. They assigned them to the air corps and the Navy and the Marine Corps and all the rest of it, not just to the army. So the government uses all these methods to suddenly divert resources to war purposes. And when that happens, there's various forms of resistance. I've already mentioned the black markets, the evasions of the price controls, the attempts to get out of the draft and so forth. So the government needs to suppress the resistance and in doing that, it needs to suppress efforts people are making to encourage resistance. And this means that it takes a number of actions that amount to the suppression of liberty. It issues threats against resistors. It restricts rights of assembly, speech, press, petition for redress of grievances and due process of law. The populace is whipped up to act as informants to tell the government about those who are violating the government's new rules and to intimidate resistors. And the government often ceases control of the means of communication and the means of spreading information about the war, how it's going, what how censorship was used quite extensively during the world wars. And then, of course, there are show trials that can be used to make examples of people who didn't cooperate with the government's efforts. And the upshot of all this is that liberty takes a beating during wartime. Because the government is trying to make people do things they don't want to do. And all its attempts to pound them into line create new problems with their resistance. And ultimately, the government resorts to more or less full-fledged suppression of liberties in order to carry out its war program. Now, many people are of the idea, especially Americans, that although this may be true of how government goes to war and carries out war, this is all temporary. The war ends, wartime measures are dismantled, the government stops suppressing liberties and everything is hunky-dory. Oh, that it were so, but it never is. Because legacies always remain different kinds of legacies. Economists have long talked about a fiscal ratchet effect when government spending runs up during a war, a peacetime national emergency. The emergency ends, but the spending never falls back to the pre-crisis level. In fact, it doesn't usually fall back even to where it would have been if it followed the previous growth trend. There's always some gain with each crisis. But the ratchet effect I argue and have been arguing for 30 years is not simply a fiscal phenomenon. It's much bigger than that. There are ratchets in taxation as well as spending. There are ratchets in regulation. There are ratchets in laws and legal precedents. There are ratchets in institutions. Government organizations and bodies that are built for war purposes don't always disappear at the end of the war. They take on new missions or they creep into new activities or they weddle themselves into old departments that are permanent. So the law and the government organizations are changed permanently. And finally, I argue that perhaps the most important kind of ratchet of all is an ideological ratchet, which is to say that people's thinking about how the government should act, where the lines should be drawn between public and private, what is proper for government to do and not do changes when the government is for years on end doing extraordinary things. People get used to things. They even get used to things that seemed outrageous to them in the beginning if they go on for years. And so they begin to fall into a kind of thinking where they're more easily persuaded that these powers ought to be for some laudable reason continued. The government should still be allowed to exercise what was once viewed as an outrageous extraordinary power. So that kind of ideological ratchet effect is the most dangerous of all because fundamentally, every government stands or falls on the ideological acceptance of the mass of the people. If most of the people despise the government and hate its actions and believe it to be acting outrageously, they're going to be ungovernable. To make them governable, you have to make believers out of them. National emergencies have been in American history the best ways to break ideological resistance and to move the ideology to a new level, more forgiving of government. Well, this has been fairly general. Now I want to get more specific and talk about particularly the two occasions that were most important with regard to the relationship between war and liberty in American history. This is a subject that could be discussed in relation to many countries. There's not enough time for me to do that here tonight. It could be discussed in relation to other wars such as the war between the states. But again, I'm going to confine myself to the two world wars for the most part because I believe they were the most important for illustrating this relationship. Despite expansion during Woodrow Wilson's first term as president, the federal government on the eve of World War I remains small. In 1914, federal spending totals less than 2% of GDP, 2%. The top rate of the recently enacted federal individual income tax was 7%. On an income over $500,000, which adjusted for changes in the purchasing power, the dollar would be equivalent to roughly $10 million today. And in 1914 virtually no American had an income that large, maybe Rockefeller and a handful of others did. So the top income tax rate was really more theoretical than real in the beginning. 99% of the population paid no income tax in 1914. There were 402,000 federal employees, civilian employees, and most of them worked for the post office. All of them together constituted 1% of the labor force. Who says there was never a golden age? The armed forces comprised fewer than 166,000 men on active duty. And although the federal government meddled in a few areas of economic life, including prescribing railroad rates and bringing any trust suits against a handful of unfortunate firms, the federal government was for most citizens remote and unimportant. They had nothing, whatever to do with it, other than picking up the mail. In the U.S. entry into the Great War, the federal government expanded enormously in size, scope, and power. It virtually nationalized the ocean shipping industry. It did nationalize the railroad, which is the largest industry in the country. Telephone, domestic telegraph, and international telegraphic cable industries. It became deeply engaged in manipulating labor management relations, security sales, agricultural production and marketing, the distribution of coal and oil, international commerce, and markets for raw materials and manufactured products. Its Liberty Bond drives dominated the financial capital markets. It turned the newly created Federal Reserve System into a powerful engine of monetary inflation to help satisfy the government's voracious appetite for money and credit. In view of the more than 5,000 mobilization agencies of various sorts, boards, committees, corporations, administrations, contemporaries who described the 1918 government as war socialism were well justified. That was the term at the time, war socialism. During the war, the government built up the armed forces to a strength of 4 million officers and men drawn from a pre-war labor force of 40 million. Of those who added to the armed forces after the U.S. declaration of war, more than 2.8 million or 72 percent were drafted. Men alone, however, did not make an army. They required barracks and training facilities, transportation, food, clothing, and healthcare. They had to be equipped with modern arms and great stocks of ammunition. As the mobilization began, the requisite resources remained in the possession of private citizens. Although manpower could be obtained by conscription, public opinion would not tolerate the outright confiscation of all the property the government required to turn the men into a well-equipped fighting force. Still, ordinary market mechanisms threatened to operate too slowly and at too great an expense to facilitate the government's plans. The Wilson administration therefore resorted to a vast array of interventions as mentioned a minute ago. All of these may be seen as devices to hasten the delivery of the requisite resources and to diminish the fiscal burden of equipping the huge conscript army for effective service in France. Notwithstanding those contrivances to keep the Treasury's expenses down, taxes still had to be increased enormously. Federal revenues rose by nearly 400 percent between 1917 and 1919 and even greater amounts had to be borrowed. The national debt swelled from a little over $1 billion in 1916 to $25.5 billion in 1919. So almost 25-fold increase in the national debt took place in two years' time. To ensure that the conscription-based mobilization could proceed without obstruction, critics had to be silenced and there were many critics in World War I. Many. The Espionage Act of June 15, 1917 penalized those convicted of willfully obstructing the enlistment services by fines up to $10,000 and imprisonment as long as 20 years. That is to say, if you were out in the street corner saying, don't join the army, don't join the army, you could be fined $10,000 and sent to prison for 20 years. Yelping about your first amendment rights wouldn't do you any good. An amendment to the Espionage Act known as the Sedition Act passed in May 1918 went much further, imposing the same severe criminal penalties on all forms of expression in any way critical of the government, its symbols, or its mobilization of resources for war. So if you stood out on the street and told the soldier going by, that looks like a monkey suit. He being in uniform, you might end up with a 20-year sentence in federal prison for speaking your mind. Many men were sentenced for speaking their mind to long prison terms. Those suppressions of free speech subsequently upheld by the Supreme Court established dangerous precedents that derogated from the rights previously protected under the First Amendment. The government further subverted the Bill of Rights by censoring all printed materials, preemptorily deporting hundreds of aliens without due process of law, and conducting and encouraging state and local governments and vigilante groups to conduct warrantless searches and seizures, blanket arrests of suspected draft evaders and other outrages too numerous to catalog. In California, the police arrested Upton Sinclair for reading the Bill of Rights at a rally. In New Jersey, the police arrested Roger Baldwin for publicly reading the Constitution. Land of the Free, the government also employed a massive propaganda machine to whip up what can only be described as public hysteria. The result was countless incidents of intimidation, physical abuse, and even lynching of persons suspected of disloyalty or insufficient enthusiasm for the war. People of German ancestry suffered disproportionately, up to and including death. Foolish things were done. Orchesters stopped playing Beethoven, other German composers and music, for example. Schools stopped teaching German language in their classes. This was the old world of Europe. The old world of the 19th century with the free trade and the gold standard and easy travel across national borders. Hardly any nation on earth required a passport of people entering the country. You could use gold to make purchases in any civilized country in the world. Capital flowed readily all over the world. People moved readily all over the world to find better jobs. You'll recognize that the map of Europe was changed forever by the war. Versailles Treaty and other post-war treaties after the war, of course, split up the German Empire, the Austro-Hungarian Empire, the Russian Empire, and the Ottoman Empire into pieces. And either made new countries in their stead or created in the Middle East mandates, which were quasi-colonies for France and Great Britain. The trouble that caused is not ended yet. The Ottoman Empire was reduced to a much smaller nation of Turkey, which led to new troubles between Turks and Greeks, for example. And the map was generally redrawn in all sorts of ways by people who purported to have the wisdom and knowledge necessary to do this intelligently. Fatal conceit is what Hayat called this kind of presumption. So we had a settlement of that old world. We had a remaking of it in a way that even contemporaries in 1919 recognized was nothing but a recipe for a timeout in the war. And later, of course, it did resume again in 1939 and went on for six years. And again, the world was remade in various ways, and the Communist Empire was pushed deeply into central Europe, and four decades of Cold War were set in motion. Of course, the biggest winner of World War II was Stalin. So if you're one of those inclined to think this was a really great idea, bear in mind what you've got for your money. There were some data to show you something about the extent to which government grew during the war. If you look, for example, in the first two columns there you see the federal receipts and outlays. Before the war, the government was balancing its budget pretty much. It ran up huge outlays during the war, multiplied more than 20 times. It's spending level at the peak, and then as you see it came down after the war, but not back to where it had been before the war. You see the giant deficit that was run in 1918 and 1919, the run-up of the federal debt, the money stock grew very rapidly to accommodate the government's fiscal actions. Between 1915 and 1920, you see an exact doubling in this definition of money stock, which is the M2 definition, and you also see in the GDP defliter an exact doubling of the general price level during that same five-year period. So if you ever believed in the quantity theory of money, here is that perfect example of the quantity theory of money. This is how the Fed made it possible. What you see here is that huge run-up in discounts and advances. The rules for Fed lending were changed early in the war so that instead of requiring commercial paper as collateral for its loans to banks, the Fed was now allowed to accept U.S. government bonds. So a bank would buy a bond, use that bond as collateral to borrow a comparable amount of money from the Federal Reserve Bank, and the interest rates were quite low considering the rate at which money was depreciating in purchasing power. In fact, they were negative in view of that. So banks had a great incentive to keep turning this cycle over again. Buy another government bond, use it to borrow a comparable amount, keep going, because every time they got a gift in effect from the Fed, a loan at negative rate of interest, and so the banks pumped up their holdings of investments in U.S. government bonds, and the whole financial system became flush as a result of this Fed action, and a lot of that flushiness spilled over into the purchase of government securities, which was the idea that was the goal of what the Fed was doing here, and it did achieve its goal. So you can't say the Fed can't do anything right. It can do the wrong thing right, and that's what it was doing here. But of course, as a result of these actions, it caused the purchasing power of the dollar to fall by half in less than five years. Here we see something about what happened to the overall economy and the government's role in it, and what I'd like to call your attention quickly, because time is short, is that if you take private gross domestic product and adjust it for changes in the price level, that's in the far right column, what you see is that the peak was actually reached in 1916, and then 17 was lower, 18 was lower. So what we're seeing here is not what most economists and economic historians have described it to be, which was just a general war prosperity period, but it was a perfect case of guns being substituted for butter. Private products declined by more than 10% while the government's war-making apparatus and production munitions went up enormously to fill that gap. So that was the story there. When the war ended, the government abandoned most, but not all, of its wartime control measures. The draft ended, but the armistice, when the armistice took effect in November 1918, by the end of 1920, the bulk of the economic regulatory apparatus had been scrapped, including the food administration, fuel administration, railroad administration, war industries board, and war labor board, but some emergency powers migrated into regular government departments such as state, labor, and treasury and continued in force. The Espionage Act and the Trading with the Enemy Act remained on the statute books, and indeed they are there now. Congressional enactments in 1920 preserved much of the federal government's wartime involvement in the railroad and ocean shipping industries. The war finance corporation shifted missions, subsidizing exporters and farmers until the mid-1920s, and wartime prohibition of alcoholic beverages, which was a purported conservation measure, transmogrified into the ill-fated 18th Amendment, prohibiting the manufacture and sale of alcoholic beverages. And most important, the dominant contemporary interpretation of the war mobilization, including the belief that federal economic controls had been instrumental in achieving the victory, persisted, especially among the elites who had played leading roles in the wartime economic management. It was hardly surprising that 15 years later, in the depths of the Great Depression, the federal government employed the wartime measures as models for dealing with what Franklin Roosevelt called a crisis in our national life comparable to war. Let's move ahead to chapter two of the Thirty Years' War. When World War II began in Europe in 1939, the size and scope of the federal government were much greater than they had been 25 years earlier, owing mainly to World War I and its peacetime progeny the New Deal. Federal spending now equaled 10 percent of GDP of a labor force of 56 million. The federal government employed a little over 2 percent in regular civilian and military jobs and another 6 percent in emergency work relief jobs. The national debt held outside the government had grown to nearly $40 billion. And most important, the scope of federal regulation had increased immensely to embrace agricultural production and marketing, labor management relations, wages, hours, and working conditions, securities markets and investment institutions, petroleum and coal marketing, trucking, radio, broadcasting, airline operation, provision for income during retirement and unemployment and many other objects. Notwithstanding these prodigious developments, during the next six years, the federal government would assume vastly greater dimensions. In some respects, its greatest size, scope, and power ever. During the war, the conscript-based Armed Force, which ultimately comprised more than 12 million men and some women, required enormous amounts of complementary resources for its housing, subsistence, clothing, medical care, training, and transportation, not to mention the special equipment, arms, ammunition, and expensive weapons platforms that now included tanks, fighter and bomber aircraft, and naval aircraft carriers. For the Treasury, World War II was ten times more expensive than World War I. Ten times. Many new taxes were levy. Income taxes were raised repeatedly until the personal income tax rates extended from a low of 23 percent. Remember when the high was seven back before World War I? Now the low during World War II got to 23 percent and the high 94 percent. So if you were a very high income earner, you got to keep six cents on every additional dollar you earn. The income tax, previously a class tax, became a mass tax as the number of returns grew from 15 million in 1940 to 50 million in 1945. Even though federal revenues soared from 7 billion to 50 billion between 1940 and 45, most war expenses still had to be financed by borrowing. The publicly held national debt rose by 200 billion dollars or more than five fold. The Federal Reserve System itself bought some 20 billion dollars worth of government debt, thereby serving as a de facto printing press for the Treasury. Between 1940 and 48, the money stock M1 definition increased by 183 percent and the dollar lost nearly half of its purchasing power. The authorities resorted to a vast system of controls and market interventions to get resources without having to bid them away from competing buyers in free markets. By fixing prices directly allocating physical and human resources, establishing official priorities, prohibitions, and set-asides, then rationing the civilian goods in short supply. The war planners steered raw materials, intermediate goods, and finished products into the uses they valued most. Emphasis. They valued most. Market prices became essentially irrelevant during the height of World War II. They were not any longer in a significant way serving to allocate resources or inputs. Markets no longer function freely and in many areas they did not function at all. Entire industries were ordered to close, including by that time the largest American industry, the automobile industry, which had to cease production of civilian products in March 1942 and convert its facilities to the production of tanks, airplanes, and other munitions. World War II witnessed massive violations of human rights in the United States, apart from the involuntary servitude of military conscripts. Most egregiously about 112,000 blameless persons of Japanese ancestry. Most of them U.S. citizens were uprooted from their homes and confined in concentration camps without due process of law. Those subsequently released as civilians during the war remained under parole-like surveillance. The government also imprisoned nearly 6,000 conscientious objectors, three-fourths of them were Jehovah's Witnesses, who would not comply with the service requirements of the draft laws. That is to say, they wouldn't even work in non-combat capacities. They simply said, we will not serve you, God, not you. Signaling the enlarged federal capacity for repression, the number of FBI special agents increased from 785 in 1939 to 4,370 in 1945. Scores of newspapers were denied the privilege of the males under the authority of our old friend, the 1917 Espionage Act, which remained in effect. Some newspapers were banned altogether. The Office of Censorship restricted the content of press reports and radio broadcasts and censored all personal mail entering or leaving the country. And that included Canada. The Office of War Information put the government's spin on whatever it deigned to tell the public, and the military authorities censored news from the battlefields, sometimes for merely political reasons. The government seized more than 60 industrial facilities, sometimes entire industries, including the railroad industry, bituminous coal industry, and a meat packing industry for varying lengths of time. Most of these seizures were in order to impose employment conditions on employers favorable to labor unions engaged in disputes with the management. At the end of the war, most of the economic control agencies shut down, but some powers persisted, either lodged at the local level, like New York City's rent controls, which, as altered, still exist today, or shifted from emergency agencies to regular departments, such as the international trade controls that moved from the Foreign Economic Administration to the State Department. Federal tax revenues remained high by pre-war standards. In the late 1940s, the IRS's annual take averaged four times greater in constant dollars than in the late 1930s. In 1949, federal outlays amounted to 15% of GDP, up from 10% in 1939. The national debt stood at what would have been an unthinkable figure before the war, 214 billion in constant dollars, roughly 100 times the national debt of 1916, just 30 years earlier. I have some data that we don't have time to do much with because of our time constraints, but here you can see, for example, how the government solved the unemployment problem. You've all heard that the war got us out of the Depression. Here it is. Look at columns one, two, and three. Any fool can get you out of a Depression if you're willing to draft 20% of the labor force and take another 20%, put them to work building weapons for those people you drafted. That's what happened during World War II. It's just no Keynesian miracle, that's for sure. This was the miracle of force. And after the war, you see when the government drastically cut back its spending, cut it by more than 60% in two years' time, and all the Keynesians forecasted doom as a result of that. You'll see that what happened instead was that the non-military employees blossomed. They increased from $39 million to $56 million in a single year. So that was a telling episode, but a widely misunderstood one. We're all told that there was a miracle of production. Here you see that civilian hours worked during the war. This comes from an article of mine and libertarian paper a couple of years ago. Increased between 1940 and 1943 at the peak only by about 20%. And if you think you can increase the civilian labor force by 20%, at the same time you're replacing prime-age male workers with teenagers, old men, and women with no previous labor market experience, you'll see that. You'll see this labor market experience and get anywhere from 60% to 90% increase in output as the official data tell us, you're nuts. Can't be done. Wasn't done. Bad data. Here's some of those bad data from one of my articles and if you look at the bars which measure private output, non-government part real GDP, what you see is that from 1941 on private output failed substantially, did not recover until the war was over. And then in 1946 leapt up during the demobilization, more than any other year in American history, at least 30%, because of the way the data are all fouled up, we can't put a precise number on it, but it was at least 30% increase in private output in one year. So there was your miracle. It's too bad that most economists never recognized it. It was part of the way the government got away with this by rationing civilian goods, as you can see it's very ordinary stuff, things that virtually everybody was accustomed to buying. And here we see finally some information on the federal government's fiscal situation, its huge run up in spending and taxing, gigantic deficits incurred during the war, and the way the money stock was increased with Fed policies to accommodate this. The prevailing interpretation of the wartime experience gave unprecedented ideological support to those who desired a big federal government actively engaged in a wide range of domestic and international tasks. To many, it seemed that a federal government capable of leading the nation to victory in a global war had a similar capacity to remedy peacetime, economic and social ills. Accordingly in 1946, Congress passed the Employment Act, pledging the federal government to act as America's permanent macroeconomic warden. Unfortunately, the government has undertaken to carry out that charge ever since. Thank you very much.