The U.S Economy in World War II

America had been preparing for war long before the surprise attack on Pearl Harbor. Lend-lease aid had been approved in the spring of 1941 and American production was already starting to pick up speed. America would have to come to the rescue once again, but this time to save the world from fascism and imperialism, a far worse plague than the causes of World War I. America was very fortunate to have Franklin Delano Roosevelt leading the country in its time of struggle. His quick action and ability to appoint effective leaders helped speed along the American production effort and prepare the nation for the demands of war. Many groups, including labor, women, and minorities would benefit from the war and the American economy would emerge stronger than ever. The war brought about some drastic changes in the way the United States and its leaders would need to manage financial policies. The economy in America during World War II would be marked by sacrifice, growth, and innovation.

The Effects of Lend-Lease

The creation of lend-lease by President Roosevelt would give the United States the solid start it needed to go to war. Prior to lend-lease, Roosevelt had given the British old destroyers in exchange for the use of British naval bases in the Atlantic, but by November of 1940 Britain was broke. The threat of invasion by Nazi Germany had passed but Britain was quickly running out of resources that were vital for national defense. The President knew that helping America’s British allies was a must, but he was going to have a tough time aiding Britain without violating the Neutrality Act and the Johnson Act. Combined, the Neutrality Act and the Johnson Act prohibited the United States from becoming a belligerent in the European theater and from giving loans to countries that did not pay their debts for the first war. After receiving desperate letters for aid form British Prime Minister Winston Churchill and other foreign dignitaries Roosevelt decided that it was time for America to act.

In December of 1940 Roosevelt presented the idea of lend-lease to America in a famous fireside chat. Roosevelt stated that the United States must provide a great arsenal for its allies to fight the threat posed by the Nazis and other Axis powers. The lend-lease bill, ironically numbered H.R. 1776, went to the House Foreign Affairs Committee in early 1941. Military chiefs and cabinet heads went before congress to testify on behalf of the President’s historic proposal. These important public figures testified that the best way to defend the United States was to assist Britain in her time of need. The bill would also be a huge boost to America’s struggling defense industry and create many jobs. In the early spring of 1940 H.R. 1776 passed both the House and Senate with votes to spare.

President Roosevelt was given great economic powers and anything that the allies needed would become part of lend-lease. Lend-lease aid was provided to any country that could use the materials in a way that benefited or enhanced the national security of the United States. Lend-lease turned out to be simple charity because few nations gave anything back to the United States in return for aid provided. Lend-lease would prove to be one of Roosevelt’s greatest decisions; the aid given to Russia and Britain was invaluable and the production of that material would prove to be a “shot in the arm” for America’s struggling economy. Roosevelt and his supporters, hampered by a pacifist nation, showed great resilience in pushing through lend-lease legislation and the effort would prove to give American production a head start in preparing for the United States entry into World War II.

Paying for the War

Perhaps the biggest question on the eve of the Second World War was how the United States intended to pay for the raw materials and manpower needed to wage war all over the globe. Only two major avenues were available to the government: the raising of taxes, and the selling of government bonds to individuals and financial institutions.

Besides working in the defense industries and planting victory gardens, America contributed to the war effort by buying government bonds. “From May 1, 1941 to January 3, 1946, the people of the United States loaned the government $185.7 billion, the most money ever raised to fight a war.” A “postwar audit of the country’s wartime economy revealed that forty-six percent of the government’s operating budget was sourced through taxes, and fifty-four percent was realized through borrowing, that is, bonds.” Commercial banks held just over sixty-eight billion dollars worth of government bonds and this accounted for thirty-four percent of total bond sales. Private individuals held close to fifty-four billion dollars worth of bonds which accounted for twenty-seven percent of total bond sales. The other half of government bonds were purchased by corporations, Federal Reserve banks, insurance companies, mutual savings banks, and state and local banks. These figures show that people and groups from many different corners of the economy and social scale helped pay for the war. Rationing of goods and the scarcity of goods left people with a lot of money and the easiest and best way to use it was to buy bonds that would earn them a return on their money. Buying war bonds also made people feel patriotic; they were directly contributing.

Labor jumped onto the bond drive bandwagon with the AFL and the CIO competing against one another to see who could buy the most war bonds. The war bond program was especially strong among labor groups because the union members were benefiting from higher wages in defense industry jobs. The government rallied labor groups into buying war bonds by distributing pamphlets to over fifteen million union members encouraging them to buy defense bonds. “Bond drives also provided common ground between labor and management, as the shared effort to raise funds for defense at least postponed some conflicts between the two groups.” By purchasing war bonds labor would prove to many Americans, especially the political and wealthy class, that it was an essential part of the war effort and would give its sweat and paycheck to the war effort.

The buying of war bonds was not restricted to the white middle class and bankers. Minorities, African Americans in particular, were instrumental in the buying and promoting of war bonds. Blacks saw the buying of war bonds a step in the direction of gaining equality and putting an end to Jim Crow. The NAACP pursued a “two front” policy of being loyal to America and the war effort and still pursuing equal rights and the advancement of black interest, equality. “As the black protest movement shifted to the courts from the streets over the course of the war, bonds were a means of gaining social and economic power through official, institutional channels.” Many poor blacks gave everything they could spare to the war effort. A blind peanut vendor by the name of John Henry Harris saved enough money to buy a twenty-five dollar bond in 1943. Harris was married and had four children and his story of self sacrifice offered proof that people form any situation could help the war effort. By the end of the war African Americans were buying bonds at a rate higher than any other group in America. The NAACP and African Americans around the country thought that buying war bonds would lead them out of second class status. This would prove to be untrue, but there patriotism cannot be questioned. African Americans were unselfishly giving to America even though they were still segregated in all parts of society.

Buying war bonds and participating in bond drives was an activity that united all Americans. When a person heard about and saw pictures of bombs being dropped on the enemy they could see their money at work. Bonds united groups that were historically at odds with each other and allowed people of all ages to contribute to the war effort.

The Government soon realized that increased taxation would be needed to pay for the war. “The Revenue Act of 1942 brought nearly all Americans within the system, increased corporate taxes, and raised the excess profit tax from sixty to ninety percent.” In 1942 the number of taxable returns had increased by seven hundred percent from 1939. So many people were paying taxes that an automatic deduction system had to be implemented. In early 1943 taxes were directly taken out of a paycheck for the first time. In 1941 individual income collected by the federal government amounted to just under four billion dollars. The figure was close to nine billion in 1942 and shot up to fourteen and a half billion in 1943. By 1945 the federal income tax was bringing in seventeen billion dollars a year. In 1941, including the excess profits tax, corporations paid just under two billion dollars in income tax. By 1945 the corporate income tax was bringing in sixteen billion dollars a year. The excess tax was the bulk of corporate income tax; the government sought to stop profiteering but the efforts were largely in vain.

America could not borrow all the money needed to pay for the war. The income tax seemed to be a fair way to tax the people without hurting any one group of individuals. After the war the federal income tax was to become a staple of government finance.

Labor and the Second World War

In 1940, with war on the horizon, labor began to flex its muscle. Labor had begun to prosper after 1940 due to defense related spending and the effects of lend-lease aid to Great Britain and later to Russia. “Between April of 1940 and Pearl Harbor…non-farm employment grew from thirty-five million to more than forty-one million and wage rates increased nearly twenty percent.” Labor was making some gains and strikes were becoming a very common weapon to achieve those gains. By the end of 1941 labor was winning some major concessions from management. The United Automobile Workers negotiated a contract with Ford, a company historically against any type of unionization, which allowed dues check-off and the establishment of a union shop. A wage hike of ten-cents an hour was secured by the Steel Workers Organizing Committee which put an end to the strike with “Little Steel”, and wage differences between southern and northern coal fields were eliminated by the United Mine Workers. In 1941 over “2.3 million workers went on strike…and more walkouts occurred than in any year except 1919 and 1937.”

As early as March of 1941 Roosevelt knew something had to be done to avoid a potential labor crisis that could cripple a country that was on the brink of war. The President established the National Defense Mediation Board to settle labor disputes that could affect the program of national defense. The National Defense Mediation Board was composed of four labor representatives, four management representatives, and three members from the public; the chairman was Clarence A. Dykstra, a public representative. The board immediately ran into problems and it was soon discovered to be ineffective. Strikes continued to erupt and management became increasingly hostile and stubborn in its dealings with labor. While labor desperately wanted a rise in wages, a justifiable demand considering that defense contracts yielded high profits, management was worried that it would have to continue paying inflated wages after the war. This would turn out to be a false assumption by employers, a group that has experienced material gains almost every year since the war and usually to the detriment of their labor force and customers.

After the attack on Pearl Harbor the National War Labor Board, an agency designed to deal with labor problems that could disable war production, was established by the President. Roosevelt also managed to negotiate a no-lockout/no-strike agreement between management and unions. “By the end of the war the NWLB had imposed settlements in some twenty thousand wage disputes affecting some twenty million workers, and had approved 415,000 wage agreements.” Compared to the NDMB the NWLB was a huge success and likely saved millions of man hours by handling disputes between labor and management. Labor did about the best it could during the war, many goals of were realized and the ranks of union membership jumped form “10,500,00 at the time of the Pearl Harbor attack to about 14,750,000 when hostilities ended three years and eight months later.”

In September of 1940 congress passed Bill 1776, the Selective Service Act, and the drain on America’s manpower had started. At the time of the Selective Service Act only half a million citizens belonged to the United States Armed Services. The goal of the military was to have a total of twelve million enlisted personal. In 1940 the civilian labor force was made up of fifty-five million people, and eight million people in America were unemployed. During the war, from 1942 until 1945, unemployment was at its lowest level in American history. By 1944 the military had grown by eleven million people and employment among civilians had grown to over sixty million people. The labor force by 1945 had seven million more workers than a peacetime labor force would normally have. This surplus was made up of teenagers, formally retired men, college students, housewives, and “young married women, most of whose husbands were absent in the armed forces.” The Selective Service Act and American participation in the war helped promote many different groups not usually associated with the labor force or seen as below the average working white man. Women and minorities would rise in stature and become a very important element in labor.

By 1943, with production requirements rising, the “labor supply began to act as the ultimate limit on production. Industries offering relatively low wages or characterized by poor working conditions were unable to hold enough labor to attain desired production levels.” The War Manpower Commission tried to keep workers on the job through stabilization plans, usually implemented on the local level. Under the stabilization plan an employer in an industry considered essential to the war effort avoided hiring a worker that was previously employed “in an essential industry unless he presented a certificate of availability from his previous employer or from the Employment Service.” By the spring of 1943 over forty-four stabilization plans were introduced across the country. These plans did not have a huge effect on reducing turnover. An employee that could not get an availability certificate from their employer would simply get fired and apply for an availability certificate with the Employment Service. In theory, the more workers that were on file with the Employment Service the easier it would be to implement a system that managed labor priorities. Solving the manpower problem, or at least containing it, was a crucial matter and greatly helped the war effort and President Roosevelt’s agenda.

A country that is reading about vast labor problems and labor strife is not going to blame the situation on market forces and labor-management bickering. The public looks to the government for stability in a time of war. Knowing this, Roosevelt was quick to set up a board or agency to deal with any problem, old or new, that could affect American production.

American Production

The American production effort, started by FDR and lend-lease, was the deciding factor in war. “War production in 1939 was two percent of total output, in 1941 ten percent and in 1943 forty percent.” America was able to produce more than all of the Axis powers combined. American production was so high that employment was virtually eliminated. Unlike other countries, America had the burden of producing for its own defense and the defense of its allies. Productions levels of military goods were high because America shifted production away from civilian goods. Valuable resources that would have been used in the production of automobiles and refrigerators were diverted. “Viewing the war as a five-year period, almost 300,000 military and special-purpose aircraft were produced, 72,100 naval ships, 4,900 merchant ships, and 87,000 tanks” were made in U.S. factories. Whatever the United States Military lacked in training or quality it could more than make up for with its volume of weaponry. In the end, the Axis powers were overwhelmed, and the social, political, and natural limitations on their production caught up with them faster than they thought possible.

For small businesses the manufacturing of goods became a battleground. The small business fought hard to maintain a share of military orders and manpower and materials for the manufacturing of scarce civilian goods. “In the early stages of defense and war procurement small manufactures were widely ignored…The procurement agencies of the army and the navy favored the larger concern on grounds of timing and efficiency.” The army and navy were right; it was easier to deal with corporations on the basis of price and efficiency. Small business suffered a major setback during World War II and it would never recover the market share of production it once had. The “Senate and House committees on small business, in a February 1942 report, noted that 56 of the country’s estimated 184,000 manufacturing establishments had been awarded seventy-five percent of Army and Navy contracts.” Despite efforts by Republicans and Democrats, small business was unable to play a major role in the production of war materials.

The Businessmen behind the War Effort

President Roosevelt and the United States government turned to the business community for help in managing World War II. The president knew that he would need proven businessmen around him to deal with the business of mass production. Donald Nelson of Sears, Roebuck, and other successful businessmen came to Washington as “Dollar a Year” men and undertook the task of organizing the war effort.

Don Nelson was given the job of heading the War Production Board that was formed in January of 1942. President Roosevelt wanted Nelson to have the final say on the production and procurement of goods and resources. It was Nelson’s job to make sure that scarce materials were used appropriately; it was a tough job. Don Nelson soon discovered that he had little power. The WPB was “purely advisory, and served to bring around the council table for weekly meetings the top production representatives of the War, Navy, and Commerce Departments, the Board of Economic Warfare, and the Price Administrator as well as a representative of the White House.” Don Nelson was given a tough job of overseeing a vast bureaucracy that had many different interests and his best accomplishment was being able too put a face on production problems and figure out a way for them to be solved.

Other businessmen came to Washington during the war, but were usually put on ineffective boards that had little or no power. America’s image of the business leader and corporate giant improved during the war. Many people thought that the “dollar a year men” were giving something up for their country just like the average citizen. The placement of businessmen in the government may not have had as big of impact as the president would have liked, but it did increase consumer confidence and gave business a solid footing for after the war.

The War Ends

The deadliest war in history ended on the deck of the battleship Missouri on September 2, 1945. World War II was a crucial time in the history of America. The country faced many challenges and met those challenges through hard work and innovation. Much can be said about the leaders and the effect they had on shaping the economy and production habits of America. Eventually the credit has to go to the common worker. It was the common worker that went and fought on foreign battlefields and upon foreign seas. The common worker bought the war bonds and consented to taxes that should have been burdened by the wealthy. It was the wives, mothers, and daughters, of average families that went to work in factories for the first time. In the end the average person did not gain what it should have, and the elitist class still came out on top. The United States showed its muscle in World War II and propelled the allies to victory. It did not take long for the United States to gain the upper hand in the war and in the arms race. The United States laid the groundwork for victory years in advance and it was never a matter of, would America win, but when would America win.

Works Cited

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