The Arsenal of Democracy: Financing the War


Figure 1.--The U.S. Government launched a major effort to buy War Bonds. Children cold participate at schoool buying Liberty Stamps each week until they had enough for a bond. The bonds noit only helped finance he War effort, but helped soak up earnings to limit inflation.

The American economy began to surge in 1940, in part responding to war orders from Europe as well as domestic rearmamnt. The underutilization of America's economic capacity because of the Depression allowed the United States to maintain civilian consumption at a relatively high level while trememndouly increasing production to persue the War. The Government used a variety of measure to finance the war. This included deficit spending, increased taxes, and a war bond campaign. The Government's financial policy also included measures to control inflation because the increased employment increased incomes at a time when the supply of consumer goods was limited. The United States Government, even before America entered the War, initiated an ambitious advertising campaign to sell bonds. Before America actually entered the war they were called Savings Bonds. The War Advertising Council and the War Finance Committee sought to promote bond sales to finance the War and build civilian morale. The work of these World War II organizations produced "the greatest volume of advertising and publicity ever given to any product or agency" in American history. Secretary of the Treasury Henry Morgenthau sold the first Series E U.S. Savings Bond to President Franklin D. Roosevelt on May 1, 1941. The War Finance Committees sold over $185 billion of securities. By the end of World War II, over 85 million Americans had invested in War Bonds, a number unmatched by any other country. Even American children participated in the effort. Children bought Liberty stamps every week in their schools.

American Economy

The American economy was the largest in the world. American industrial capacity was of huge strategic importance and any countey planning war, like Germany and Japan, would have had to take American induustrial power into consideration. We know that both the Germans and Japanese were very concerned anout America and the industrial power itv could muster. American industrial power played only a minor role in World War I. Itwas American manpower that would win the War for the Allie. The American Expditionay Force (AEF) largely fought with British and French weapons. It would be World War II that American industrial might would prove to becritical. American industry was mired in the Great Depression for most of the 1930s. The economy seem to be recovering by 1936, but spiraled back (1937-38). This was the so called Roosevelt Recession (1937-38). The American economy finally began to surge in 1940, in part responding to war orders from Europe as well as domestic rearmamnt. The underutilization of America's economic capacity because of the Depression allowed the United States to maintain civilian consumption at a relatively high level while trememndouly increasing production to persue the War.

Cost of the War

The absolute cost of the World War II to America was $321 billion durung the War years (1941-45). This does not sound like much today, but it of course was inthe 1940s. And it does not include the cost of careing for wounded veterans after the War and GI-Bill expenditures. It was, however, greater than any other country paid. This was in part because of the high wages paid to American workers and soldiers. This was very different than the approach Germany used to finance the war--slave labor and pilaging occupied countries. The cost to America was also greater than other countries because through Lend Lease, America helped equip allied armies. It was much greater than the cost of World War I in which America only participted for a year and a half.

Financing Methods

The U.S. Federal Government used a variety of measure to finance the war. This included deficit spending, increased taxes, and borrowing. a war bond campaign. The United States Government, even before America entered the War, initiated an ambitious advertising campaign to sell bonds. Before America actually entered the war they were called Savings Bonds. The War Advertising Council and the War Finance Committee sought to promote bond sales to finance the War and build civilian morale. The work of these World War II organizations produced "the greatest volume of advertising and publicity ever given to any product or agency" in American history. Secretary of the Treasury Henry Morgenthau sold the first Series E U.S. Savings Bond to President Franklin D. Roosevelt on May 1, 1941. The War Finance Committees sold over $185 billion of securities. By the end of World War II, over 85 million Americans had invested in War Bonds, a number unmatched by any other country. Even American children participated in the effort. Children bought Liberty stamps every week in their schools.

Other Financial Measures

The Federal Government's financial policy also included measures to control inflation because the increased employment increased incomes at a time when the supply of consumer goods was limited.







HBC








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Created: 12:52 AM 7/24/2010
Last updated: 10:46 PM 1/30/2013