Economics of the Cold War

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The decade preceding World War II is most notably remembered for the Great Depression, a world wide economic period of decline on a scale never before seen. Obviously it affected every country differently and as a result the international political system was multi-polar and divided among two groups, the Axis and the Allies. The destruction of World War II left only two countries economically viable enough to be considered a world power, the United States and the Soviet Union. This unprecedented bi-polar international system would lead to a four decade long period of political unrest, which would come to be known as the Cold War. When most people hear Cold War, they think of the arms or space race, proxy wars, and powerful political rhetoric. The Cold War was much more than that, it was a war of economic ideologies, it was Capitalism versus Communism.

As the end of World War II approached many Americans feared a return to the Great Depression once government military spending and production ceased, however, those fears were unwarranted (The Post War Economy). As a result of price controls and rationing established during the war, Americans had built up their saving due to the lack of consumer goods available for purchase. These excess savings led to an immediate increase in demand once the price controls were lifted. Add in the increase in demand from the increase in population from the baby boom and things were looking good for the U.S. Economy. Many industries boomed because of this, most notably the car, housing, and the newly created aviation and electronics industries (The Post War Economy). This booming economy led to a fundamental change in the landscape of America. As family size grew and cars became more popular, Americans left the cities and moved to the suburbs. Businesses and infrastructure quickly followed suit. For example, the number of shopping malls increased from eight at the end of World War II to 3,840 by 1960 (The Post War Economy). Then to expedite travel between suburbs, cities, and the rest of America the Highway Act of 1956 provided $26 million for a new freeway system. For the first decade and a half of the Cold War the U.S. Economy was performing spectacularly. “The nation's gross national product rose from about $200,000 million in 1940 to $300,000 million in 1950 and to more than $500,000 million in 1960 (The Post War Economy). Capitalism was shaping up to be a formidable opponent.

It is difficult to compare a capitalist economy and a communist one due to the fundamental difference in the way resources are allocated. Even with hard to find measures of the economy, their reliability is always questionable do to the secrecy of the time period. However, for the few numbers we do have it is clear that the Soviet Union post war economic recovery is nothing short of remarkable. For a country that saw one in every eight of its citizens and 30% of its national wealth destroyed in World War II, average soviet incomes were back to their pre-war levels by 1948 (The Soviet Union after 1945). A large part of this was due to the non-demobilization of the military following the war. Germany surprised attacked the Soviets in 1941 which greatly devastated the country. Stalin was surely not going to let this happen again. Military spending took a larger percentage of the GDP and was aided by research and development into atomic weapons, rockets, jets and radar, as well as the mass production of weapons for the Korean War (The Soviet Union after 1945). Between 1950 and 1960 Soviet GDP was growing at of 5.2% percent per year compared to the U.S. 3.5% (Economic Aspects). In hind sight we can reasonably deduce that this astounding recovery and growth was the result of an under producing economy realizing its potential (The Soviet Union after 1945). However, at the time this mass mobilization and incredible growth had the U.S. on edge and many people thinking that communism was a...
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