Week 1 Writing Assignment 2
Karl von Busse
EG 542 Economics and Change
December 14, 2014
Bypassing the free market becomes necessary during war simply because the free market is not perfect and may not respond adequately to wartime material demands. During WW2 immediately following Pearl Harbor the government imposed a system of rationing on needed commodities such as steel, brass, rubber and gasoline. The reason was twofold. First, the demands of the war required massive amounts of of these items to supply the war effort. The military had to have a regular supply base. The second reason is related. In a free market, the sharp rise in demand would ...view middle of the document...
The government has a better idea of what the war effort needs than the civilian market. Furthermore rationing by price, under supply and demand rules, would cause the prices of the needed commodities to go up. The government would then have to pay the inflated price which could quickly make the war effort much too expensive. In the case of war accomplishing the vital task of supplying the military and keeping the domestic economy functioning by-passing the free market becomes unavoidable.
The problems start if governmental rationing is kept up for a long period of time. Because government is artificially distorting the market, the system of supply and demand also becomes distorted. Rationing works for a short period, an emergency situation, but attempting to sustain it can and will wreck the country’s economic system. The Roosevelt/Truman administrations stopped the rationing during WW2 as fast as possible and returned the market back over to the free market system.
Kulshrestha, S. (2010). Wartime Rationing During World War II and the Effect of Public Opinion in Great Britain and Austria - Student Pulse. Retrieved from http://www.studentpulse.com/articles/339/wartime-rationing-during-world-war-ii-and-the-effect-of-public-opinion-in-great-britain-and-austria
Mises on Rationing and Price Controls in WW2 - Online Library of Liberty. (2014, April 10). Retrieved from http://oll.libertyfund.org/pages/mises-on-rationing-and-price-controls-in-ww2
World War II Rationing. (n.d.). Retrieved from http://www.u-s-history.com/pages/h1674.html