The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 55

A Lesson in Avoiding Wars

Have you ever wondered if they were right? Back in the 1960s it was fashionable to lambaste the Johnson and Nixon administrations as warmongers. The liberal mindset of the day argued that wars were good for the economy and that politicians and corporate leaders were quite willing to shed a little blood in the name of profit. Well, Johnson and Nixon had plenty of shortcomings. But if you really believe they thought wars were good for the economy, then you also have to believe their principal shortcoming was not warmongering, but ignorance.

There isn't much to see in this chart, except that wars cause tremendous inflation in commodity prices. This chart shows five wars and plots how commodity price indexes behaved during them. The scales at the bottom show the number of years before and after the wars' peaks. A first glance reveals that commodity prices rise about 100 percent from the beginning of a war to its peak. Later, after the war, the commodity prices subsequently fall back to previous levels. This decline is a similar percentage but occurs more gradually, at roughly half the pace of the increase. The decline seems to continue unabated for roughly 15 years. In a singular exception, prices reinflated after World War II, but maybe that's because the Korean conflict came so quickly on its heels.

The early years of the Vietnam War were similar to these other war periods, only more moderate. But then again, the Vietnam War, while smaller, was ...