When the US entered the European and Pacific wars after the attack on Pearl Harbor, classic wartime economic
policies were put in place in most countries by leaders who became more autocratic and whose autocratic
approaches were broadly supported by their populations in opposition to the evil enemy.
Just as it is worth noting what classic economic war techniques are, it is worth noting what classic wartime
economic policies within countries are. Classic wartime economic policies include government controls on just
about everything as the country shifts resources from profit making to war making—e.g., the government
determines a) what items are allowed to be produced, b) what items can be bought and sold in what amounts
(rationing), c) what items can be imported and exported, d) prices, wages, and profits, e) access to one’s own
financial assets, and f) the ability to move one’s money out of the country. Because wars are expensive
classically g) the government issues lots of debt that is monetized, h) relies on non-credit money such as gold for
international transactions because its credit is not accepted, i) governs more autocratically, j) imposes various
types of economic sanctions on enemies including cutting off their access to capital, and k) experiences enemies
imposing these sanctions on them.
The table below shows the economic controls that were put in place during the war years in each of the major
countries.
The market movements during the hot war years were heavily affected by both government controls and how
countries did in battles as the odds of wins and losses changed. The table below shows the controls over markets
and capital flows that were put in place by country during the war years.
Stock market closings in a number of countries were common, leaving investors in stocks stuck without access
to their capital. If you want to see these closures and how they transpired to understand the range of possibilities
and the cause/effect relationships behind them, you can see a list of them in Appendix II.
Because losing wars typically leads to a total wipeout of wealth and power, movements of those stock
markets that remained open in the war years were largely driven by how countries did in key battles as
these results shifted the probability of victory or defeat for each side. For example, German equities
outperformed at the beginning of WWII as Germany captured territory and established military dominance while
they underperformed after Allied powers like the US and UK turned the tide of the war. After the 1942 Battle of
Midway, Allied equities rallied almost continuously until the end of the war, while Axis equities were flat or down.
As shown, both the German and Japanese stock markets were closed for the end of the war, didn’t reopen for
around five years, and were virtually wiped out, while US stocks were extremely strong.

As a principle: Protecting one’s wealth in times of war is difficult, as normal economic activities are curtailed,
traditionally safe investments are not safe, capital mobility is limited, and high taxes are imposed when people
and countries are fighting for their survival. During difficult times of conflict protecting the wealth of those
who have wealth is not a priority relative to redistributing wealth to get it to where it is needed most.
That was the case in those war years.
While we won’t cover the actual battles and war moves, the headline is that the Allied victory in 1945 produced
a tremendous shift of wealth and power.
World War II was an extremely costly war in lives and money. The numbers are gigantic and extremely imprecise.
An estimated 40-75 million people were killed as a result of it, which was 3% of the world’s population,
which made it the deadliest war yet. More than half of these losses were Russian (around 25 million) and
Chinese (around 20 million). Germany lost around 7 million people—just over half were military deaths and the
rest were German civilian deaths, mostly from the Holocaust (and millions more non-Germans were also victims).
Britain and the United States each lost around 400,000. The financial cost of the war was both enormous and
inestimable, according to most experts, but, based on my research, was in the vicinity of $4-7 trillion in current
dollars. What we do know is that on a relative basis the US came out a big winner because the US sold and
lent a lot before and during the war, basically all of the fighting took place off of US territory so the US
wasn’t physically damaged, and US deaths were comparatively low in relation to those of most other major
countries.
In Part 2 of this chapter, we will explore the new world order starting with the US as the dominant power and tell
the story that brings us right up to this moment. Then we will turn to China.
 
Appendix I: Some Historical Cases of Capital Wars

Appendix II: Cases of Market Closures in the World Wars
The table below provides a list of all the key countries that closed their markets during WWII to give you an idea
of how these things go.
[1]As quoted in Harry Elmer Barnes, Perpetual War for Perpetual Peace: A Critical Examination of the Foreign
Policy of Franklin Delano Roosevelt And Its Aftermath, 1953.
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