World War II Liberty Ships and the Law of Increasing Opportunity Cost

 See ‘Launching Liberty’ Review: Shipyard Victory The U.S. quickly constructed a fleet of vessels to carry vital war supplies across the oceans. Did the rush to build so fast affect quality? by Marc Levinson. He reviewed the book Launching Liberty: The Epic Race to Build the Ships That Took America to War by Doug Most.

The Liberty ships were cargo ships and at one point during the war they were built very quickly. But as this article points out, as we tried to expand production early on we had to bring in workers with very little experience. And the time it took them to learn how to do this greatly raised the cost.

That is party what the Law of Increasing Opportunity Cost is about. As you produce more of a good you have to take resources out of producing a different good and those resources will not be well suited to producing the good whose output you want to expand.

One example I often used in class was of a school that wanted to have more math classes. If they had to move teachers from other fields into math they would have to be retrained and that would be costly. I also provide a different numerical example below after a list of related posts.

Excerpts from the article:

"Between 1941 and 1945, some 2,700 Liberty ships were built at U.S. shipyards. The goods they transported were critical to the Allies’ victory."

"“The biggest challenge facing shipyards was not building the ships,” Mr. Most writes. “It was hiring a large enough labor force, knowing that none of the workers available would have actual, firsthand shipbuilding experience.” He makes astute use of oral histories to describe the lives of workers willing to relocate to towns that were unprepared to receive them. The social impact was enormous, as the desperate need for labor opened doors that were previously closed. “The idea that white Okies and Arkies and Texies from middle-America farmland could work so easily alongside African, Hispanic, and Asian Americans was an unimaginable thought before the war,” Mr. Most comments. “So was the idea of men welding together a cargo ship alongside women.”"

"Only two Liberty ships were put in service in 1941; the first required about 250 days to complete." [That is a very high opportunity cost since those workers could have been doing something else]

"the enormous improvement in productivity between 1941 and 1944 owed mainly to heavy capital investment. The government owned the yards that built Liberty ships, and where it installed the latest cranes and automatic welding equipment, workers’ productivity was greatest."

Related posts:

Tariffs and the Law of Increasing Opportunity Cost (2025) 

Magnets and the Law of Increasing Opportunity Cost (2024)

EV-Battery Plants and the Law of Increasing Opportunity Cost (2023)

Monoclonal-antibody drugs and the law of increasing opportunity cost (2021)

Flushing out the true cause of the global toilet paper shortage amid coronavirus pandemic (2020)

Ventilators and the law of increasing opportunity cost (2020)

Hand sanitizer and the law of increasing opportunity cost (2020)

Here are some basic terms that economists use to discuss this issue:

Opportunity Cost-The value of the best foregone alternative. There is no such thing as a free lunch. If we want to build one more skyscraper, we may have to give up one submarine, since there may not be enough steel to go around (steel is scarce!).

The law of increasing opportunity cost-As more of a particular good is produced, the opportunity cost of its production rises. Why is the law of increasing opportunity cost true? Different resources are better suited to different productive activities. This is just about the same as saying people have different abilities, like some are more entrepreneurial and some are more bureaucratic.

Let’s assume that we have society with five workers who can make either of two goods, candles or shoes. Now the best candle maker will not necessarily be the best shoemaker and some candle makers will be better than others. This simply means that workers have different abilities.

In the real world, the best doctor would not be the best lawyer. Some plumbers are better than others.

In the table below, the number of candles OR shoes that each worker can make in a day is listed.

Worker	Candles	Shoes
I	7	3
II	6	4
III	5	5
IV	4	6
V	3	7

Again, the workers have different abilities, just as they do in the real world.

What are all of the combinations of candles and shoes that this society can make? If all the workers make candles, they can make 25 (just add up how much each worker can make). How many shoes? ZERO, since each worker spends all day in the candle factory (this is combination A in the table below).

If we want to make some shoes, the first worker we would tell to stop making candles, if we are rational and trying to get the best deal, would be worker V.  So we gain 7 shoes and lose 3 candles. That is why combination A is 22 and 7. Worker V no longer makes candles since they are making shoes. So the opportunity cost of making a shoe is some number of candles (and vice-versa).

The rest of the combinations that show what would happen if we kept moving workers out of candle making and into shoe making is in the table below.

Combination	Candles	Shoes
A	25	0
B	22	7
C	18	13
D	13	18
E	7	22
F	0	25

Now what happens to the opportunity cost as we move from combination A to combination B? Then combination B to combination C, and so on? The table below shows this:

Change	Candles Given Up	Shoes Gained	Candles per Shoe
A to B	3	7	0.429
B to C	4	6	0.667
C to D	5	5	1.000
D to E	6	4	1.500
E to F	7	3	2.333

By moving from point A to point B, we give up 3 candles to gain 7 shoes. The cost of each shoe in candles is .429 (3/7). Then we give up 4 candles to get 6 shoes, with each shoe costing .667 candles. The more shoes we try to produce, the more candles that have to be given up to get each shoe. So the opportunity cost of producing shoes rises.

This is called the law of increasing opportunity cost.

The law of increasing opportunity cost-As more of a particular good is produced, the opportunity cost of its production rises. (see how the numbers rise in the “Candles per Shoe” column in the table above)

Why is the law of increasing opportunity cost true? Different resources are better suited to different productive activities. This is just about the same as saying people have different abilities, which is what we see in the number of candles and shoes each worker can make.