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American Economy in World War II


The United States was not adequately prepared when World War II started even though there were signs telling of a war. The depression had rid the country of many resources and the machine tool industries were also not spared. This only meant that the military was inadequately supplied with proper equipment. However, the depression compelled Americans to discover doggedness and having been involved into a war they willingly coerced.   The build up to the war was handicapped by a shortage of man power; a situation that was solved when more than fifteen million Americans were eventually trained and equipped. This was a challenge in itself.


The great depression affected states and economies worldwide. For instance, Germany’s Adolph Hitler claimed that he could convert the nation into a military and economic power that would be self-sufficient and able to control its own destiny in not only Europe, but also world affairs. This came even as liberal powers like Great Britain and the United States were hard hit by the depression. On the other end of the world, Franklin Roosevelt looked to enact a new deal to reconstruct, on a new basis, American governance and capitalism. As Roosevelt’s deal was taken up between 1933 and 1940, some effects of the Great Depression were mitigated, but the economic crisis was not brought to an end. When World War II erupted in Europe in 1939, there were many signs that indicated that United States was still in an economic quagmire.

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Another measure of the depression’s impact was unemployment. In 1940, a reported five million Americans were unemployed (Whaples, 2010). Though this figure was by far less than the eleven million reported in 1932, it still represented a significant number of unused labour and more importantly suffering citizens. These dismal statistics, notwithstanding the United States was reasonably well-prepared, in other ways for war. The number of new deals and agencies brought to existence in1939; meant that the federal government was more actively involved in social and economic activities compared to earlier years. In addition, the new deal had made Americans adapt to a federal government, which featured prominently in national affairs and under Roosevelt’s leadership led private enterprise.

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Literature Review

The United States formally declared war on Germany and Japan (Connery, 1951). This meant that its economy would have to transform into what President Roosevelt termed as “the Arsenal of Democracy” a year before December 1940. This pointed out the balance between military and civilian need in the United States economy. Throughout the period of war, American leaders disapproved the growth of the economy in an unfettered laissez-faire manner since the stakes were too high. According to Connery (1951) the federal government put together mobilization agencies, which in a bid to ensure it produced the goods needed for war, directed the good’s manufacture and was of great influence to the operations of whole industries and private companies. All this was done since American manufacturers could not be trusted to quit the production of consumer goods at the expense of producing material required in warfare.

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A number of preparedness agencies were created by President Roosevelt to oversee the growth of the economy, however, none of the organizations can be termed to have been successful because they included competing parties (Connery, 1951). Private sector executives were proponents of the government’s mobilization bureaucracy and at the same time continued to put emphasis on the priorities of their companies such as market share and profits. On the other hand, civil servants who were reform minded emphasized the nation’s priorities with regard to war making and mobilization. As a result of this conflict of interests and setting sites on different priorities, the military remained free of the control of mobilization agencies.

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Martijn (2011) argued that in an effort to reconcile civilian and military needs, the War Production Board was established in 1942. He immediately understood that the complexity of administering the war depended on one key issue; striking a balance between the needs of civilians- particularly those that the sustenance of the economy depends on- and the needs of the military- more importantly those of servicemen and women and their civilian and military leaders.

Neither Nelson nor other high ranking civilians found a complete solution to the issue. However, he was able to accomplish a number of key economic goals. First, the feasibility dispute (a conflict over the extent to which the devotion of the American economy should be assigned to military needs) was successfully resolved (Martijn, 2011). He put forth the argument that a complete allocation of production to war would inhibit America’s long-term ability to continue with production for war in subsequent years. Through this he managed to convince the military to reasonably rescale its demands. A precedent was set for efficiently planning war production to ensure that most military needs were met and at the same time some civilian needs. Secondly, the “Controlled Materials Plan” was created for the purpose of effectively allocating steel, copper and aluminium to industrial users (Martijn, 2011). This helped curb conflict over the growing but still scarce supplies of these three key metals among the military services and between them and civilian agencies.

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Being clear that Nelson and the war production board could not control the growing war economy completely, President Roosevelt created the Office of War Mobilization in May 1943 and put James Byrne in charge (Schneider and Troeger, 2006). The existence of the War Production Board became less significant and the OWM became the more dominant mobilization body. Byrnes established a neutral ground with military services over wars production by settling disputes between the board and armed services, taking an arbitral role among opposing forces in the war production board and dealing with other problems of the War Manpower Commission. This was an agency charged with the responsibility of assuring continued supply of military draftees and controlling civilian labour markets.

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According to Schneider and Troeger (2006) the Department of Treasury was quite successful in generating money to finance the war operations. They introduced the first income tax in America’s history and also made “war bonds” available for the public to purchase.  At the start of the year 1940 the government imposed income tax on practically all Americans and collected tax via continuous withholdings from pay checks as opposed to lump sum collections. The number of taxpayers had increased to forty three million by 1945. These large numbers led to a collection of forty five billion dollars in 1945, an obvious enormous amount and quite significant in the total eighty three billion dollars spent on the war in 1945.  Federal tax revenue saw an increase from about 8% to more than 20% of GDP. The tax implication did not spare even the low income earners as it saw Americans who earned as little as five hundred dollars per year taxed at a rate of 23%.

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Taxes provided an estimated 40% of the total cost of the war with the Treasury Department stepping up and creating the famous “war bonds” that was crowded by celebrities and purchased in large numbers (Paul, 2004). President Roosevelt purchased the first war bond on May 1, 1941. Though the bonds had a relatively low rate of return of 2.9% annual interest after a maturity of ten years, they were nonetheless a valuable revenue source for the government and an investment of great importance to many Americans. The bonds provided a platform for citizens to make an economic contribution to the war. However, they could not completely preserve income. This is because consumer prices rose faster than the rate at which interest accumulated on them. Banks and other financial institutions also bought billions of dollars worth of bonds and other treasury paper and by the time war bond sales ended in 1946; 85 million Americans had purchased securities worth about $185 billion, possibly more.

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As Paul (2004) mentioned, other federal agencies dealt with fiscal and financial matters. The Office of Price Administration used its General Maximum Price Regulation to try and curb inflation retaining the price levels as at march 1942. Between 1942 and 1946 there inflation soared to alarming rates reaching 28 percent in the six months following June 1946 (Paul, 2004). Wages rose by about 65 percent over the course of the war and this only served to limit the success in cutting inflation rates meaning that many civilians enjoyed a stable and for some improving quality of life. Improvement in living standards was not observed throughout the United States. Some regions in the south were subjected to standards of living that remained the same or even declined.











Labour unions and especially their members benefited. Maintenance of membership rule gave the unions the go ahead to include as members all new employees. It also allowed the unions to deduct union dues from those employee’s pay checks provided the employer had recognized the unions themselves. Most new employment was at unionized work places and it required employers to accept unions and thus allowed them to grow.

The economic boom during wartime benefited from various social trends. Among these trends was the expansion of employment which paralleled industrial production expansion. In 1944, unemployment reached an all time low of 1.2 percent of the labour force. This was as close to full employment as is likely possible. Those who were unemployed during the depression got jobs and so did about 10.5 million Americans who either would not have then sought employment or who could not then have had jobs. Of the almost19 million women working outside the home, two million worked in war industries while most continued to hold occupations traditionally common with females and these included service and clerical jobs. Employment increased on not only the industrial front but also in the executive branch of the government.

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Another socioeconomic trend was migration (Whaples, 2010). The Americans who joined the military all moved to and between military bases. Migration was particularly strong along the rural-urban axis with most moving to war production centres distributed all around the country. Not to be left out is that technological and scientific innovations made great impact in the war effort and was of economic importance in the Allies’ victory. Almost every facet if not all of the war economy was positively affected by scientific and technological change. At a wider perspective, the war not only ended the Great Depression, but also made conducive conditions for effective post war collaboration between the private enterprise, organized labour and the federal government (Whaples, 2010). The United States emerged from the war physically, but greatly strengthened economically by the industrial expansion during the war. An absolute and relative advantage over both its enemies and allies was achieved.

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The United States laid a firm foundation of economic domination for the next several years. This foundation was deemed to grow to greater heights. The rise of the United States of America to an economic power may just have been the greatest impact of the Second World War.

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