American History Essay Notes

The American Economy during World War II

Written by Christopher J. Tassava, from the Economic History Association
http://eh.net/encyclopedia/the-american-economy-during-world-war-ii/

Overview
Wars effects were varied and far-reaching:
o Decisively ended the Great Depression
o Government emerged from the war as a potent economic actor, with the ability to
partially control the economy through spending and consumption
o Economy was essentially revitalized by the war, and fueled growth of many sectors
o Strengthened the organized labor movement
o Quality of life increases
o War damaged the economy of other superpowers, giving the US unprecedented
economic and political dominance after the war

Background The Great Depression

A global economic slowdown, which helped shape many political movements around the world
as well (i.e. rise of Hitler and the Nazi party with the promise of economic power)
U.S. President Roosevelt promised to enact a New Deal to reconstruct American capitalism
It waxed and waned between 1933 and 1940, mitigating some effects of the Depression but
not ending the crisis
In Germanys invasion of Poland in 1939, US was still deeply mired in the depression:
o Showed by GDP, which dropped for 4 years in a row after 1929
o Showed by unemployment; between 29 and 39 the US employment rate averaged 13.3
percent; in the summer of 1940, 5.3 million americans were still unemployed; 11.5
million had been in 1932

Background Preparedness and Conversion

As war spread throughout Europe starting from 1939, the federal government readied the
nation for war, by enlarging the military, strengthening certain allies, and converting Americas
industrial base to produce armaments and other war materials rather than civilian goods
Conversion was resisted by some company executives, and was a goal pursued more by public
officials and labor leaders
Auto companies fully converted to war production in 1942, and only began substantially
contributing to aircraft production in 1943 > initially the car-companies rejected producing
aircraft, but the Reuther Plan called the publics attention to US lagging preparedness for war

Over the course of the war US produced increasing amounts of ships, overseen by the US
Maritime Comission; 71 ships only produced between 30-36, 106 between 38-40, and almost
that amount in 1941 alone
US also exported aircraft, military vehicles, munitions to Britain and Soviet Union via the lendlease program
US also exported food to Britain

War Administration
From 1939, American leaders recognized that war economy could not be unfettered, left in a
laissez-faire manner; manufacturers could not be trusted to stop producing consumer goods,
etc.
Federal government created an array of mobilization agencies that purchase goods for the Army
or Navy
GDP increased dramatically, as did federal and military spending
Table 1: Federal Spending and Military Spending during World War II
(dollar values in billions of constant 1940 dollars)
Nominal GDP

Federal Spending

Defense Spending

Year total $ % increase total $ % increase % of GDP total $ % increase % of GDP % of federal spending
1940 101.4

9.47

9.34% 1.66

1.64%

17.53%

1941 120.67

19.00% 13.00

37.28% 10.77% 6.13 269.28%

5.08%

47.15%

1942 139.06

15.24% 30.18 132.15% 21.70% 22.05 259.71% 15.86%

73.06%

1943 136.44

-1.88% 63.57 110.64% 46.59% 43.98

99.46% 32.23%

69.18%

1944 174.84

28.14% 72.62

14.24% 41.54% 62.95

43.13% 36.00%

86.68%

1945 173.52

-0.75% 72.11

-0.70% 41.56% 64.53

2.51% 37.19%

89.49%

Taxation
Taxation increased dramatically; government extended the income tax to virtually all Americans
# of americans who payed federal taxes rose from 4 million in 1939 to 43 million in 1945
Rates also increased; americans who earned as little as $500 per year paid income tax at a 23
percent rate, while those who earned more than 1 million paid a 94 percent rate

Standard of Living
With wages rising about 65 percent over the course of the war, this limited success in cutting
the rate of inflation meant that many American civilians enjoyed a stable or even improving
quality of life during the war (Kennedy, 641)

Accomplished through General Maximum Price Regulation from the Office of Price
Administration, which curtailed inflation by maintaining prices at their March 1942 levels
National War Labor Board imposed a wage-increase limit of about 15 percent

Labor Unions and Employment

Labor unions and their members benefited a lot
NWLBs maintenance of membership rule allowed unions to count all new employees as union
members
Therefore, unions grew dramatically; the organized labor movement expanded from 10.5 million
members in 1941 to 14.75 million in 1945
By 1945 35.5 percent of non-agricultural workers were unionized
The wartime economic boom also allowed unemployment to dip to 1.2 percent in 1944,a record
low in American economic history
Those that were unemployment in the depression found jobs
Percent of blacks who had jobs was 8%, while black percentage of total population was 10%
Two million women also served in war industries, half in aerospace alone
Table 3: Civilian Employment and Unemployment during World War II
(Numbers in thousands)
1940 1941 1942 1943 1944 1945
All Non-institutional Civilians
Total

99,840 99,900 98,640 94,640 93,220 94,090

55,640 55,910 56,410 55,540 54,630 53,860

Civilian Labor Force % of Population 55.7% 56%

Total

57.2% 58.7% 58.6% 57.2%

47,520 50,350 53,750 54,470 53,960 52,820

% of Population 47.6% 50.4% 54.5% 57.6% 57.9% 56.1%

Employed

% of Labor Force 85.4% 90.1% 95.3% 98.1% 98.8% 98.1%

Total

8,120 5,560 2,660 1,070 670

1,040

% of Population 8.1% 5.6% 2.7% 1.1% 0.7% 1.1%

Unemployed

% of Labor Force 14.6% 9.9% 4.7% 1.9% 1.2% 1.9%

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