New Zealand International Review, January/February 2021 Vol 46, No 1: p.28-29

(Oxford University Press, Oxford, 2020, 321pp, £20)

The outcome of a long war is usually determined by the economic strength of the combatants. But how to present this in a lively and interesting way — battles are so much more engaging?

Alan Bollard successfully solves the challenge by describing the involvement of seven economists in the Second World War. Bollard is, of course, well-known as a former secretary of the Treasury and governor of the Reserve Bank. But he has also published a couple of novels, a biography of economist Bill Phillips, a record of his time at the Reserve Bank and some more technical economics books. In addition to considerable literary competence, his geographic background is also wide. His doctorate was a study of the Cook Islands and after his local top-level stints he went on to five years as executive director of the Asia Pacific Economic Cooperation (APEC) Secretariat. So, while he is well-versed in Western economics, his war focus is not only on the Western Front.

Thus, his account of the Second World War begins with the Japanese invasion of Manchuria in 1931. Enter his first economist, Takahashi Korekiyo, who was the head of the Bank of Japan and Ministry of Finance. (Earlier he had been a prime minister.) At the time, Japanese politics was dominated by its military; their demands for financing their ventures were insatiable. (Bollard reports that in 1944 Japanese military spending was 76 per cent of GNP; New Zealand’s was about 51 per cent, similar to the proportion of its allies.)

The military demands required a monetary expansion of a magnitude which would appal any governor of the New Zealand’s Reserve Bank. Takahashi resisted. (Earlier he had, according to Ben Bernanke, ‘brilliantly rescued Japan from the Great Depression’.) The military overruled him in the only way they knew; he was assassinated in his bed in 1936.

Takahashi was well aware of Japan’s economic problem of requiring raw materials but he saw the solution via trade rather than conquest — rightly presaging the success of the post-war Japanese economy. (There is a parallel for Germany.)

The book shifts to Kung Hsiang-hsi, a Chinese minister of finance with many other roles. He was brother-in-law to President Sun Yat-sen and President Chiang Kai-shek (see Jung Chang’s Big Sister, Little Sister, Red Sister). In the 1930s and 1940s there was a three-way war between the imperialist Japanese, the ideological Communists and the corrupt Nationalists. Kung presided over the latter’s financing, while taking his margin, which made him, it was said, the world’s richest man.

Thence to Germany’s Hjalmar Schacht, who served in Adolf Hitler’s government as president of the National Bank and became minister of economics, although he had lost power by 1939. The challenge for him was similar to that of Takahashi and Kung: funding a fiscally undisciplined government bent on warfare. (Short answer: credit creation followed by inflation and shortages.)

Schacht nicely illustrates that the book has the wrong preposition in its title (an admiring review is allowed the odd grumble). In fact, it was ‘Economists in the War’, not ‘at war’. Schacht’s proposals for post-war international momentary reform were built on by Maynard Keynes, despite being on the opposite side of the conflict.

Inevitably, Keynes is the central figure of the seven. Yet he is also transitional, as the book shifts from economists centred on fiscal and monetary management to fund warfare to three who used mathematical economics to enhance the war effort. (Keynes was an able mathematician among his other glittering talents, which included being a stylish writer.)

The three were Leonid Kantorovich of the Soviet Union, Wassily Leontief, a Russian refugee in the United States, and John von Neumann, a Hungarian refugee also in the United States. (The first two were Nobel laureates, the third and Keynes would have been had they lived long enough.) Their contribution was to improve the efficiency of resource usages.

Among Kantorovich’s contributions was designing the route across the ice of Lake Lagoda which muted the siege of Leningrad (now St Petersburg). He is best known for his inventing linear programming, which was (twice) independently invented in the West. The book nicely captures some of the exciting intellectual developments in economics at the time. (I had not realised the importance of the development of computers to the profession.)

Leontief worked on targeting bombing more effectively using the input-output analysis he developed and von Neumann (who is said to have been a model for Dr Strangelove) on the even bigger bombs — at Hiroshima and Nagasaki — where Bollard ends the Second World War (the official Japanese surrender was a week later). This is all written with a droll humour, reporting that in 1939 von Neumann wrote a ‘paper on ‘Estimating Probable Error from Successive Differences’, or, in lay terms, ‘where to aim bombs if you have already missed the target several times’. (Bollard reports that post-mortems suggest the bombing was not as important as was thought at the time.)

The book ends with two chapters on the aftermath of the war and the beginnings of the Cold War which enable Bollard to wrap up the lives of the six economists who survived (although in Keynes’s case by only eight months). There is also a useful appendix which summarises the war time economic policy approaches; military schools may well pore over it.

So we have a rattling good narrative offering a different approach to the Second World War. Other readers may just enjoy following the lives of the seven economists. Like the profession they were politically diverse — a loyal nationalist, a self-aggrandiser, a capitalist Weimar social democrat, a classic British liberal, a Russian apolitical, a centre-leftist and a hard rightist — although a phrase never really captures political views. Bollard also gives their family backgrounds, using them to link the men. Keynes, for instance, had a devoted marriage with a Russian ballerina, Lydia Lopokova, but even he could not extract her family from Leningrad; Kantorovich’s ice bridge did more for them. None of them were particularly likeable except, perhaps, Takahashi, although they could be charming; this proposition does not generalise.

With luck, underpinned by an open world economy, we shall not have another long war to test again the notion of the importance of economic strength in warfare. Shorter conflicts will depend on the sort of efficiency considerations to which economics and allied professions contribute.

But there is a kind of world war at the moment, involving an invasion of ‘Martians’ disguised as coronaviruses. As countries open the spending taps to fight it, economists and others would do well to review the fiscal and monetary experiences of Japan, China, Germany and Britain fighting the last one.