Economic causes and impacts of wars

(1) During the Great Depression of the 1930s, millions of Americans could not find work. In 1939, World War II began in Europe. The United States started selling and lending weapons and supplies to Britain and its allies, and in 1940 Congress passed the first peacetime military draft in U.S. history. After Japan attacked Pearl Harbor in December 1941, the United States entered the war.

(2) Factories that had been idle switched to making tanks, planes, ships and uniforms, and more than 16 million Americans eventually served in the armed forces. The graph shows what happened to unemployment.

President Dwight D. Eisenhower gave this speech to the American Society of Newspaper Editors on April 16, 1953, a few weeks after the death of Soviet leader Joseph Stalin. The Cold War arms race between the United States and the Soviet Union was growing.

(1) "Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

(2) "This world in arms is not spending money alone.

(3) "It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.

(4) "The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities.

(5) "It is two electric power plants, each serving a town of 60,000 population.

(6) "It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement.

(7) "We pay for a single fighter with a half-million bushels of wheat.

(8) "We pay for a single destroyer with new homes that could have housed more than 8,000 people."

On December 29, 1940, President Franklin D. Roosevelt gave a radio "fireside chat." World War II had been raging in Europe for over a year, but the United States was not yet fighting. Roosevelt wanted to send far more weapons and supplies to Britain.

(1) "American industrial genius, unmatched throughout all the world in the solution of production problems, has been called upon to bring its resources and its talents into action. Manufacturers of watches, of farm implements, of linotypes, and cash registers, and automobiles, and sewing machines, and lawn mowers and locomotives are now making fuses, bomb packing crates, telescope mounts, shells, and pistols and tanks.

(2) "But all of our present efforts are not enough. We must have more ships, more guns, more planes—more of everything. …

(3) "We must be the great arsenal of democracy. For us this is an emergency as serious as war itself."

(4) The table shows the approximate U.S. unemployment rate in the years that followed.

(1) Both world wars created labor shortages. Millions of men left for the military just as factories needed more workers to make weapons and supplies.

(2) World War I. Fighting in Europe sharply cut immigration to the United States, so northern factories lost their usual supply of new workers. Companies sent recruiters south, and Black newspapers described jobs and better pay in the North. Roughly half a million Black Southerners moved to cities such as Chicago, Detroit and New York between 1916 and 1919, escaping segregation and low-paid farm work. This movement was part of the Great Migration.

(3) World War II. In June 1941, after civil rights leader A. Philip Randolph planned a march on Washington to protest job discrimination, President Roosevelt issued Executive Order 8802. It banned discrimination based on race, creed, color or national origin in defense industries and government, and it created a committee to investigate complaints. The number of women in the workforce rose from roughly 12 million to about 18 million. Beginning in 1942, the Bracero Program, an agreement with Mexico, brought Mexican workers to fill farm and railroad jobs; it was later extended and lasted until 1964.

(4) After World War II, many women and Black workers lost their factory jobs to returning veterans. Still, the share of women working for pay never fell back to its prewar level.

(1) World War II was the most expensive war in U.S. history. Federal spending rose from about $9 billion in 1940 to more than $90 billion a year by 1944. The government paid for the war in two main ways: taxes and borrowing.

(2) Taxes covered a little less than half of the cost. The Revenue Act of 1942 lowered the income level at which people had to pay income tax, so the number of Americans paying it jumped from a few million to more than 40 million. Starting in 1943, employers withheld income tax from every paycheck—a practice that continues today.

(3) The rest of the money was borrowed. The Treasury sold war bonds to banks, businesses and ordinary families; buyers lent the government money and were repaid later with interest. Movie stars and advertising campaigns urged Americans to buy bonds, and many workers had a portion of each paycheck automatically set aside for them. Bond sales also served a second purpose: money used to buy bonds was not being spent on scarce consumer goods, which helped hold down prices.

(4) Because of all this borrowing, the federal debt grew rapidly.

(1) To win the war, the U.S. economy had to produce enormous amounts of military equipment. The War Production Board directed factories to stop making many civilian goods. Automakers, for example, stopped building cars for the public in early 1942 and built tanks, trucks and aircraft engines instead.

(2) With factories busy and workers earning steady wages, Americans had more money to spend but fewer things to buy. Economists feared this would cause runaway inflation—too much money chasing too few goods. The Office of Price Administration (OPA) responded in two ways. It set price ceilings, legal maximum prices, on many goods and on rents. It also rationed scarce goods such as tires, gasoline, sugar, coffee, meat and shoes. Each family received ration books with stamps; to buy a rationed item, a shopper needed both money and the right stamps. Rationing was meant to share scarce goods fairly instead of letting only those who could pay the highest prices get them, and to save materials for the military.

(3) Families also planted "victory gardens" to grow their own vegetables and collected scrap metal and rubber for recycling.

(4) The war created a labor shortage just as millions of men left for the military. Employers recruited women, including many married women and mothers who had not worked for wages before. Women became welders, riveters, machinists and shipbuilders, jobs that had been closed to them. About 350,000 women also served in the armed forces.

(5) After the war, many women were laid off or left their jobs as veterans returned, but women's participation in paid work never fell back to its pre-war level.

(1) To win the war, the U.S. economy had to produce enormous amounts of military equipment. The War Production Board directed factories to stop making many civilian goods. Automakers, for example, stopped building cars for the public in early 1942 and built tanks, trucks and aircraft engines instead.

(2) With factories busy and workers earning steady wages, Americans had more money to spend but fewer things to buy. Economists feared this would cause runaway inflation—too much money chasing too few goods. The Office of Price Administration (OPA) responded in two ways. It set price ceilings, legal maximum prices, on many goods and on rents. It also rationed scarce goods such as tires, gasoline, sugar, coffee, meat and shoes. Each family received ration books with stamps; to buy a rationed item, a shopper needed both money and the right stamps. Rationing was meant to share scarce goods fairly instead of letting only those who could pay the highest prices get them, and to save materials for the military.

(3) Families also planted "victory gardens" to grow their own vegetables and collected scrap metal and rubber for recycling.

(4) The war created a labor shortage just as millions of men left for the military. Employers recruited women, including many married women and mothers who had not worked for wages before. Women became welders, riveters, machinists and shipbuilders, jobs that had been closed to them. About 350,000 women also served in the armed forces.

(5) After the war, many women were laid off or left their jobs as veterans returned, but women's participation in paid work never fell back to its pre-war level.

(1) Wars have many causes—political, religious, ideological. But economic pressures have often pushed nations toward war.

(2) War of 1812. In the early 1800s, Britain and France were at war. Each tried to stop neutral countries from trading with the other. The British navy seized American merchant ships bound for France and forced thousands of American sailors into British service, a practice called impressment. Congress tried the Embargo Act of 1807, which banned American exports, but it hurt American farmers and merchants far more than it hurt Britain. In 1812, the United States declared war, demanding "free trade and sailors' rights."

(3) World War I. When war broke out in Europe in 1914, the United States was officially neutral, but American trade with Britain and France soared, and American banks lent the Allies large sums. Germany used submarines to cut off that trade. In early 1917 Germany announced unrestricted submarine warfare, meaning it would sink ships—including American ones—heading toward Britain. In April 1917, the United States entered the war.

(4) World War II in the Pacific. Japan had few natural resources of its own and imported most of its oil, much of it from the United States. In the 1930s Japan invaded China, partly to gain raw materials and markets. In the summer of 1941, after Japan moved into French Indochina, the United States froze Japanese assets and cut off oil exports to Japan. Japanese leaders decided to seize the oil-rich Dutch East Indies and, to keep the U.S. Navy from interfering, attacked Pearl Harbor on December 7, 1941.

(1) Veloria is a fictional country used for practice. It fought a war from Year 1 to Year 5. The government paid for the war partly by borrowing and partly by creating new money. Factories that made cars and refrigerators were ordered to make military trucks and aircraft instead.

(2) At the start of Year 3, the government set price ceilings—legal maximum prices—on food, fuel and clothing, and it issued ration coupons. Soon, some sellers began trading scarce goods illegally above the legal prices, on what was called the black market. The controls were removed at the start of Year 6, after the war ended, when families rushed to buy goods they had gone without.

On December 29, 1940, President Franklin D. Roosevelt gave a radio "fireside chat." World War II had been raging in Europe for over a year, but the United States was not yet fighting. Roosevelt wanted to send far more weapons and supplies to Britain.

(1) "American industrial genius, unmatched throughout all the world in the solution of production problems, has been called upon to bring its resources and its talents into action. Manufacturers of watches, of farm implements, of linotypes, and cash registers, and automobiles, and sewing machines, and lawn mowers and locomotives are now making fuses, bomb packing crates, telescope mounts, shells, and pistols and tanks.

(2) "But all of our present efforts are not enough. We must have more ships, more guns, more planes—more of everything. …

(3) "We must be the great arsenal of democracy. For us this is an emergency as serious as war itself."

(4) The table shows the approximate U.S. unemployment rate in the years that followed.

(1) When the United States entered World War I in 1917, it needed vast sums for soldiers, ships and supplies. The Sixteenth Amendment (1913) had recently given Congress the power to tax incomes, and wartime laws raised income tax rates sharply, especially on the wealthiest Americans.

(2) Still, taxes did not cover most of the cost. The Treasury held four Liberty Loan drives during the war and a fifth "Victory Loan" after the fighting ended. Buyers could purchase a bond for as little as $50 and be repaid later with interest of 3.5 to 4.25 percent. Posters, parades and movie stars urged everyone to buy, calling it a patriotic duty. About 20 million Americans bought bonds.

(3) According to a Federal Reserve history, the government raised roughly $17 billion through bonds and about $8.8 billion through taxes. Officials also wanted ordinary families, not just banks, to buy bonds: money that people lent to the government was money they did not spend on scarce goods, which helped keep prices from rising even faster.

(4) Even so, prices in the United States roughly doubled between 1914 and 1920. By comparison, during the Civil War the Confederacy, with few banks and a small tax base, had paid for its war mainly by printing paper money, and its prices rose about 9,000 percent.

(1) Both world wars created labor shortages. Millions of men left for the military just as factories needed more workers to make weapons and supplies.

(2) World War I. Fighting in Europe sharply cut immigration to the United States, so northern factories lost their usual supply of new workers. Companies sent recruiters south, and Black newspapers described jobs and better pay in the North. Roughly half a million Black Southerners moved to cities such as Chicago, Detroit and New York between 1916 and 1919, escaping segregation and low-paid farm work. This movement was part of the Great Migration.

(3) World War II. In June 1941, after civil rights leader A. Philip Randolph planned a march on Washington to protest job discrimination, President Roosevelt issued Executive Order 8802. It banned discrimination based on race, creed, color or national origin in defense industries and government, and it created a committee to investigate complaints. The number of women in the workforce rose from roughly 12 million to about 18 million. Beginning in 1942, the Bracero Program, an agreement with Mexico, brought Mexican workers to fill farm and railroad jobs; it was later extended and lasted until 1964.

(4) After World War II, many women and Black workers lost their factory jobs to returning veterans. Still, the share of women working for pay never fell back to its prewar level.

(1) The timeline lists U.S. economic events connected with World War II.

(1) Veloria is a fictional country used for practice. It fought a war from Year 1 to Year 5. The government paid for the war partly by borrowing and partly by creating new money. Factories that made cars and refrigerators were ordered to make military trucks and aircraft instead.

(2) At the start of Year 3, the government set price ceilings—legal maximum prices—on food, fuel and clothing, and it issued ration coupons. Soon, some sellers began trading scarce goods illegally above the legal prices, on what was called the black market. The controls were removed at the start of Year 6, after the war ended, when families rushed to buy goods they had gone without.

(1) Wars change economies after the fighting stops, too. After World War I (1914–1918), the Treaty of Versailles required Germany to pay huge reparations—payments for war damage—to the winning nations. Germany's economy struggled, and in 1923 the German government printed so much money that prices doubled every few days, a disaster called hyperinflation. Savings were wiped out. When the Great Depression hit in 1929, economic misery helped extremist parties, including the Nazis, win support.

(2) After World War II, U.S. leaders took a different path. Under the Marshall Plan (1948–1952), the United States gave about $13 billion in aid to help Western European countries rebuild factories, farms and transportation. Leaders argued that prosperous nations would be stable trading partners and less likely to turn to communism or extremism.

(3) At home, the Servicemen's Readjustment Act of 1944, known as the GI Bill, paid for millions of veterans to attend college or job training and offered low-interest home loans. When OPA price controls ended in 1946, pent-up demand pushed prices up quickly—inflation topped 8 percent in 1946 and 14 percent in 1947—but consumer spending on cars, homes and appliances soon fueled a long postwar boom.

(1) Both sides in the American Civil War (1861–1865) needed money for soldiers, weapons and supplies, but they raised it in different ways.

(2) The Union passed the first federal income tax in 1861 and added taxes on many goods. It sold large amounts of bonds to the public. In 1862 it also began printing paper money called greenbacks that was not backed by gold. Greenbacks paid for part of the war, but most of the Union's money came from bonds and taxes.

(3) The Confederacy had fewer banks, little industry and a much smaller tax base. A Union naval blockade cut off most of its cotton exports, its main source of income. Taxes raised only a small share of its costs, and bond sales lagged. The Confederate government relied heavily on printing paper money.

(4) By the end of the war, prices in the Confederacy had risen roughly 9,000 percent. Prices in the Union rose by roughly 80 percent.

(1) After World War I. When the war ended in November 1918, the government quickly canceled war contracts, and about four million soldiers came home looking for work. Wartime spending stopped almost overnight. After a brief boom, the economy fell into a sharp recession in 1920–1921: prices dropped steeply, farm income collapsed and unemployment jumped.

(2) World War II. During World War II, the government raised taxes steeply, sold war bonds, and used price controls and rationing to hold down inflation.

(3) Vietnam War. In the mid-1960s, President Lyndon Johnson expanded spending on the Vietnam War at the same time as he expanded spending on Great Society programs at home, such as Medicare and aid to education. This "guns and butter" policy added a lot of new government spending to an economy that already had low unemployment. Johnson did not ask for a major tax increase until 1968, when Congress passed a temporary 10 percent income tax surcharge, and there were no wartime price controls. Inflation, which had been under 2 percent a year in the early 1960s, climbed to roughly 5 to 6 percent a year by 1969–1970 (approximate figures).

(1) Wars have many causes—political, religious, ideological. But economic pressures have often pushed nations toward war.

(2) War of 1812. In the early 1800s, Britain and France were at war. Each tried to stop neutral countries from trading with the other. The British navy seized American merchant ships bound for France and forced thousands of American sailors into British service, a practice called impressment. Congress tried the Embargo Act of 1807, which banned American exports, but it hurt American farmers and merchants far more than it hurt Britain. In 1812, the United States declared war, demanding "free trade and sailors' rights."

(3) World War I. When war broke out in Europe in 1914, the United States was officially neutral, but American trade with Britain and France soared, and American banks lent the Allies large sums. Germany used submarines to cut off that trade. In early 1917 Germany announced unrestricted submarine warfare, meaning it would sink ships—including American ones—heading toward Britain. In April 1917, the United States entered the war.

(4) World War II in the Pacific. Japan had few natural resources of its own and imported most of its oil, much of it from the United States. In the 1930s Japan invaded China, partly to gain raw materials and markets. In the summer of 1941, after Japan moved into French Indochina, the United States froze Japanese assets and cut off oil exports to Japan. Japanese leaders decided to seize the oil-rich Dutch East Indies and, to keep the U.S. Navy from interfering, attacked Pearl Harbor on December 7, 1941.

(1) When the United States entered World War I in 1917, it needed vast sums for soldiers, ships and supplies. The Sixteenth Amendment (1913) had recently given Congress the power to tax incomes, and wartime laws raised income tax rates sharply, especially on the wealthiest Americans.

(2) Still, taxes did not cover most of the cost. The Treasury held four Liberty Loan drives during the war and a fifth "Victory Loan" after the fighting ended. Buyers could purchase a bond for as little as $50 and be repaid later with interest of 3.5 to 4.25 percent. Posters, parades and movie stars urged everyone to buy, calling it a patriotic duty. About 20 million Americans bought bonds.

(3) According to a Federal Reserve history, the government raised roughly $17 billion through bonds and about $8.8 billion through taxes. Officials also wanted ordinary families, not just banks, to buy bonds: money that people lent to the government was money they did not spend on scarce goods, which helped keep prices from rising even faster.

(4) Even so, prices in the United States roughly doubled between 1914 and 1920. By comparison, during the Civil War the Confederacy, with few banks and a small tax base, had paid for its war mainly by printing paper money, and its prices rose about 9,000 percent.

(1) After World War I. When the war ended in November 1918, the government quickly canceled war contracts, and about four million soldiers came home looking for work. Wartime spending stopped almost overnight. After a brief boom, the economy fell into a sharp recession in 1920–1921: prices dropped steeply, farm income collapsed and unemployment jumped.

(2) World War II. During World War II, the government raised taxes steeply, sold war bonds, and used price controls and rationing to hold down inflation.

(3) Vietnam War. In the mid-1960s, President Lyndon Johnson expanded spending on the Vietnam War at the same time as he expanded spending on Great Society programs at home, such as Medicare and aid to education. This "guns and butter" policy added a lot of new government spending to an economy that already had low unemployment. Johnson did not ask for a major tax increase until 1968, when Congress passed a temporary 10 percent income tax surcharge, and there were no wartime price controls. Inflation, which had been under 2 percent a year in the early 1960s, climbed to roughly 5 to 6 percent a year by 1969–1970 (approximate figures).

(1) Two fictional historians answer the question above.

(2) Historian A: "Yes. In 1940, about one American worker in seven was unemployed. Government war spending changed that almost overnight. Factories ran around the clock, and by 1944 unemployment was close to 1 percent. No New Deal program had ever brought unemployment that low. The lesson is clear: massive government spending ended the Depression."

(3) Historian B: "Wartime numbers can mislead us. Yes, unemployment fell—but more than 12 million Americans were in uniform by 1945, so millions of jobless men were simply removed from the labor force. Meanwhile, families could not buy new cars or appliances, because factories made tanks instead, and many foods were rationed. People worked long hours and saved because there was little to buy. Real prosperity for ordinary families came after 1945, when they spent those savings and factories returned to consumer goods."

(1) World War II was the most expensive war in U.S. history. Federal spending rose from about $9 billion in 1940 to more than $90 billion a year by 1944. The government paid for the war in two main ways: taxes and borrowing.

(2) Taxes covered a little less than half of the cost. The Revenue Act of 1942 lowered the income level at which people had to pay income tax, so the number of Americans paying it jumped from a few million to more than 40 million. Starting in 1943, employers withheld income tax from every paycheck—a practice that continues today.

(3) The rest of the money was borrowed. The Treasury sold war bonds to banks, businesses and ordinary families; buyers lent the government money and were repaid later with interest. Movie stars and advertising campaigns urged Americans to buy bonds, and many workers had a portion of each paycheck automatically set aside for them. Bond sales also served a second purpose: money used to buy bonds was not being spent on scarce consumer goods, which helped hold down prices.

(4) Because of all this borrowing, the federal debt grew rapidly.

(1) After World War I. When the war ended in November 1918, the government quickly canceled war contracts, and about four million soldiers came home looking for work. Wartime spending stopped almost overnight. After a brief boom, the economy fell into a sharp recession in 1920–1921: prices dropped steeply, farm income collapsed and unemployment jumped.

(2) World War II. During World War II, the government raised taxes steeply, sold war bonds, and used price controls and rationing to hold down inflation.

(3) Vietnam War. In the mid-1960s, President Lyndon Johnson expanded spending on the Vietnam War at the same time as he expanded spending on Great Society programs at home, such as Medicare and aid to education. This "guns and butter" policy added a lot of new government spending to an economy that already had low unemployment. Johnson did not ask for a major tax increase until 1968, when Congress passed a temporary 10 percent income tax surcharge, and there were no wartime price controls. Inflation, which had been under 2 percent a year in the early 1960s, climbed to roughly 5 to 6 percent a year by 1969–1970 (approximate figures).

(1) Two fictional historians answer the question above.

(2) Historian A: "Yes. In 1940, about one American worker in seven was unemployed. Government war spending changed that almost overnight. Factories ran around the clock, and by 1944 unemployment was close to 1 percent. No New Deal program had ever brought unemployment that low. The lesson is clear: massive government spending ended the Depression."

(3) Historian B: "Wartime numbers can mislead us. Yes, unemployment fell—but more than 12 million Americans were in uniform by 1945, so millions of jobless men were simply removed from the labor force. Meanwhile, families could not buy new cars or appliances, because factories made tanks instead, and many foods were rationed. People worked long hours and saved because there was little to buy. Real prosperity for ordinary families came after 1945, when they spent those savings and factories returned to consumer goods."