The Impact of War on Resource Allocation: 'Creative Destruction' and the American Civil War
What is the effect of wars on industrialization, technology and commercial activity? In economic terms, such events as wars comprise a large exogenous shock to labor and capital markets, aggregate demand, the distribution of expenditures, and the rate and direction of technological innovation. In addition, if private individuals are extremely responsive to changes in incentives, wars can effect substantial changes in the allocation of resources, even within a decentralized structure with little federal control and a low rate of labor participation in the military. This paper examines war-time resource reallocation in terms of occupation, geographical mobility, and the commercialization of inventions during the American Civil War. The empirical evidence shows the war resulted in a significant temporary misallocation of resources, by reducing geographical mobility, and by creating incentives for individuals with high opportunity cost to switch into the market for military technologies, while decreasing financial returns to inventors. However, the end of armed conflict led to a rapid period of catching up, suggesting that the war did not lead to a permanent misallocation of inputs, and did not long inhibit the capacity for future technological progress.
I benefited from comments and discussions with Stanley Engerman, Joseph Ferrie, Claudia Goldin, Naomi Lamoreaux, Robert Margo, Joel Mokyr, Jean-Laurent Rosenthal, Ross Thomson and Mark Russell Wilson. I received helpful suggestions from participants in seminars at Rutgers University, Harvard University, the American Economic Association, the Economic History Association meeting, and the National Bureau of Economic Research. Caroline Quinn and Jonathan Crowley provided efficient research assistance. The National Science Foundation provided funding in part for this project. I am also grateful for general support from the National Fellows Program and the IP2 Working Group at the Hoover Institution, Stanford University. Liability for errors is limited to the author. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
B. Zorina Khan, 2015. "The Impact of War on Resource Allocation: “Creative Destruction,” Patenting, and the American Civil War," Journal of Interdisciplinary History, vol 46(3), pages 315-353.