America’s response to World War II was the most extraordinary mobilization of an idle economy in the history of the world. During the war 17 million new civilian jobs were created, industrial productivity increased by 96 percent, and corporate profits after taxes doubled. The government expenditures helped bring about the business recovery that ;had eluded the New Deal. War needs directly consumed over one-third of the output of industry, but the expanded productivity ensured a remarkable supply of consumer goods to the people as well. America was the only that saw an expansion of consumer goods despite wartime rationing. BY 1944, as a result of wage increases and overtime pay, real weekly wages before taxes in manufacturing were 50 percent higher than in 1939. The war also created entire new technologies, industries, and associated human skills.
The war brought full employment and a fairer distribution of income. Blacks and women entered the workforce for the first time. Wages increased; so did savings. The war brought the consolidation of union strength and far-reaching changes in agricultural life. Housing conditions were better than they had been before.
In addition, because the mobilization included the ideological argument that the war was being fought for the interests of common men and women, social solidarity extended far beyond the foxholes. Public opinion held that the veterans should not return jobless to a country without opportunity and education. That led to the GI Bill, which helped lay the foundation for the remarkable postwar expansion that followed. The war also made us more of a middle-class society than we had been before.
It is no exaggeration to say that America won the war abroad and the peace at home at the same time. No doubt the historical conditions of America’s economic surge during World War II were singular. But we have much to learn from that achievement as we face our troubles today.
Historians, economists, and politicians have long wondered why this remarkable social and economic mobilization of latent human and physical resources required a war. The answer, I think, is partly ideological. World War II provided the ideological breakthrough that finally allowed the U.S. government to surmount the Clutch Plague. Despite the New Deal, even President Roosevelt had been constrained from intervening massively enough to stimulate a full recovery. By 1938 he had lost his working majority in Congress, and a conservative coalition was back, stifling the New Deal programs. When the economy had begun to bounce back, FDR pulled back on government spending to balance the budget, which contributed to the recession of 1938. The war was like a wave coming over that conservative coalition; the old ideological constraints collapsed and government outlays powered a recovery.
For a time the government became the purchaser of one-half of all the goods produced by the American people. A magnificent and little-appreciated fact, however, is that even though the government intervened far more deeply than in World War I by imposing wage and price controls and surtaxes, raising funds through war bonds, rationing goods, and compelling industries to work for war production FDR negotiated a sense of partnership rather than simply imposing the government’s will.
The stereotype of FDR as a regulation-lover flies in the face of experience in the 1940s, when Roosevelt ended his cold war with business. Wartime planning was far more corporatist than New Deal planning, with far less class warfare. Eleanor Roosevelt was still much more anti-business than Franklin, and was often furious at him.
After 1940, antitrust enforcement virtually shut down. Liberals were upset that ALCOA was a big, bad monopoly. But, as Secretary of War Stimson observed, “I’d rather have more sinful aluminum now than good aluminum too late for the war.” Nevertheless, the government did finance a competitor in Reynolds Aluminum, which helped to motivate ALCOA to produce aluminum and gave the government a second supplier.
Despite the entente with business, FDR was still willing to go forward on the employment of blacks and women, in part because he believed that full productivity and wartime morale required it. He also continued to advance trade unionism. He did insist, for example, that Ford Motor Company live up to its responsibilities under the Wagner Act. When Ford refused, Roosevelt cancelled a lucrative government contract. This helped to produce the momentum for the big Ford strike in the spring of 1941 that brought the first union into Ford. But on other regulatory issues FDR compromised. A government that depended on these businesses to mobilize during the war could not be slapping them with antitrust suits at the same time.
Basically, Roosevelt made the decision that he had to mobilize the proprietors of the mines, the factories, and the shops. He realized Congress could provide the money, but it could not build the planes, design the tanks, or assemble the weapons. Without the cooperation of industry, massive production would never get off the ground. So the challenge was to bring the proprietors of the nation’s chief economic assets into the defense effort as active participants. He recognized also that private business could not find all the capital required for the expansion of the plants nor take the risk that the end of the war would leave them with no orders and excess capacity. So the federal government, through the Reconstruction Finance Corporation, advanced the necessary money to expand the factories, often leasing them to industry. The government developed new sources of supply for raw materials and created quick mass transportation. The government also went into the business of producing synthetic rubber and aluminum, as well as other emerging industries, and helped stimulate new technologies.