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This paper assesses the macroeconomic impact of five war periods on the U.S. economy spanning the last seventy years. Seven macroeconomic indicators have been assessed to determine how they have changed during the conflict periods: • GDP • Public debt and levels of taxation • Consumption as a percent of GDP • Inflation
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- War Mobilization Had Overtaken the Homefront
- After All That War Rationing, Americans Were Ready to Spend
- People Bought Homes—And Filled Them With Appliances
After years of wartime rationing, American consumers were ready to spend money—and factories made the switch from war to peacetime production.
In the summer of 1945, as World War II drew to a close, the U.S. economy was poised on the edge of an uncertain future. Would it be able to transition from a full-bore war economy to a fulsome and stable peacetime one? Many experts at the time had serious doubts.
As it turned out, after a half-decade of rationing and war privation, Americans were more than ready to splurge. And postwar U.S. industries pivoted more nimbly than expected, shifting from producing bomber jets and tanks to cars, TVs and home appliances. Here's how America made the shift.
The 1950s
Since President Franklin D. Roosevelt’s call in late 1940 for the United States to serve as the “arsenal of democracy,” American industry had stepped up to meet the challenge. U.S. factories built to mass-produce automobiles had retooled to churn out airplanes, engines, guns and other supplies at unprecedented rates. At the peak of its war effort, in late 1943 and early 1944, the United States was manufacturing almost as many munitions as all of its allies and enemies combined.
On the home front, the massive mobilization effort during World War II had put Americans back to work. Unemployment, which had reached 25 percent during the Great Depression and hovered at 14.6 percent in 1939, had dropped to 1.2 percent by 1944—still a record low in the nation’s history.
A new assembly line at Detroit Tank Arsenal operated by Chrysler which turned out 28-ton tanks by mass-production methods.
Even before the war ended, U.S. business, military and government officials began debating the question of the country’s reconversion from military to civilian production. In 1944, Donald Nelson of the War Production Board (WFB) proposed a plan that would reconvert idle factories to civilian production. Powerful military and business leaders pushed back, and plans for widespread reconversion were postponed.
But with the war wrapping up, and millions of men and women in uniform scheduled to return home, the nation’s military-focused economy wasn’t necessarily prepared to welcome them back. As Arthur Herman wrote in his book Freedom’s Forge: How American Business Produced Victory in World War II, U.S. businesses at the time were still “geared around producing tanks and planes, not clapboard houses and refrigerators.”
Some economists even predicted a new crisis of mass unemployment and inflation, arguing that private businesses couldn’t possibly generate the massive amounts of capital necessary to run the pumped-up wartime factories during peacetime. A report released in mid-1945 by Senator James Mead of New York took this opinion, arguing that if the war in the Pacific ended quickly, “the United States would find itself largely unprepared to overcome unemployment on a large scale.”
View of the assembly line and workers at the Studebaker automobile manufacturing plant in South Bend, Indiana, 1946.
But history proved the pessimists wrong. Most returning veterans had no trouble finding jobs, according to Herman. U.S. factories that had proven so essential to the war effort quickly mobilized for peacetime, rising to meet the needs of consumers who had been encouraged to save up their money in preparation for just such a post-war boom.
By the summer of 1945, Americans had been living under wartime rationing policies for more than three years, including limits on such common goods as rubber, sugar, gasoline, fuel oil, coffee, meat, butter, milk and soap. Meanwhile, the U.S. government’s Office of Price Administration (OPA) had encouraged the public to save up their money (ideally by buying war bonds) for a brighter future. In her book A Consumer’s Republic: The Politics of Mass Consumption in Postwar America, Lizabeth Cohen reported that by 1945, Americans were saving an average of 21 percent of their personal disposable income, compared to just 3 percent in the 1920s.
With the war finally over, American consumers were eager to spend their money, on everything from big-ticket items like homes, cars and furniture to appliances, clothing, shoes and everything else in between. U.S. factories answered their call, beginning with the automobile industry. New car sales quadrupled between 1945 and 1955, and by the end of the 1950s, some 75 percent of American households owned at least one car. In 1965, the nation’s automobile industry reached its peak, producing 11.1 million new cars, trucks and buses and accounting for one out of every six American jobs.
Residential construction companies also mobilized to capitalize on a similar surge in housing demand, as Federal Housing Administration (FHA) loans and the GI Bill gave many (but not all) returning veterans the ability to buy a home. Companies like Levitt & Son, based in New York, found success applying the mass-production techniques of the auto industry to home building. Between 1946 and the early 1960s, Levitt & Son built three residential communities (including more than 17,000 homes), finishing as many as 30 houses a day.
Aerial photo taken in 1947 of the new Levittown, New York homes built by William Levitt and Sons.
New home buyers needed appliances to fill those homes, and companies like Frigidaire (a division of General Motors) responded to that need. During the war, Frigidaire’s assembly lines had transitioned to building machine guns and B-29 propeller assemblies. After the war, the brand expanded its home appliance business, introducing revolutionary products like clothes washers and dryers, dishwashers and garbage disposals.
Driven by growing consumer demand, as well as the continuing expansion of the military-industrial complex as the Cold War ramped up, the United States reached new heights of prosperity in the years after World War II. Gross national product (GNP), which measured all goods and services produced, skyrocketed to $300 billion by 1950, compared to just $200 billion in 1940. By 1960, it had topped $500 billion, firmly establishing the United States as the richest and most powerful nation in the world.
- Sarah Pruitt
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Given background information, students will identify the social and economic impact of World War II on the American home front, such as the Great Depression, rationing, and increased opportunity for women and minority employment.
Sep 25, 2001 · The September 11 attacks in New York and Washington have already cost America thousands of lives and billions of dollars in damages. But those are only the direct costs. How severe and how lasting will the impact be on our economy as whole?
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- Federal Spending and Military Spending during World War II. (dollar values in billions of constant 1940 dollars) Nominal GDP. Federal Spending. Defense Spending.
- Indices of American Manufacturing Output (1939 = 100) 1940. 1941. 1942. 1943. 1944. Aircraft. 245. 630. 1706. 2842. 2805. Munitions. 140. 423. 2167. 3803. 2033. Shipbuilding. 159.
- Civilian Employment and Unemployment during World War II. (Numbers in thousands) 1940. 1941. 1942. 1943. 1944. 1945. All Non-institutional Civilians. 99,840. 99,900.
- Population Growth in Washington, Oregon, and California, 1940-1945. (populations in millions) 1940. 1941. 1942. 1943. 1944. 1945. % growth. 1940-1945. Washington.
America's involvement in World War II had a significant impact on the economy and workforce of the United States. The United States was still recovering from the impact of the Great Depression and the unemployment rate was hovering around 25%.
Key Findings. The post-9/11 wars have cost the U.S. at least $8 trillion and rising since 2001. War spending has been funded almost entirely through debt, which increases the debt/GDP ratio and the interest rate. Interest costs of the post-9/11 wars now surpass $1 trillion and will reach cost several trillion more over the next several decades.
