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The Impact of World War II - The Economy

   

The Slide from Isolationism

Isolationism before WWII

    •  Post-WWI: US 'isolationist' (eg refused to join League of Nations).

    •  The 1939: allowed ‘cash-and-carry’ sales to warring countries.

    •  Johnson Act 1934: banned loans to nations (eg Britain) who hadn't repaid WWI debts.

    •  Many Americans opposed war involvement (eg 'America First Committee', 'Mothers' Crusade', Republicans); after Pearl Harbor, some accused Roosevelt of abetting the attack as an excuse to join the war.

Steps towards war

    •  5 Jul 1940: Export Control Act banned trade with Japan to hinder its expansion.

    •  2 Sep 1940: 'Destroyers for Bases' – US gave UK 50+ destroyers for 99-year base leases.

    •  17 Dec 1940: The agreement was proposed by FDR to help UK (value £1.075bn, repaid by 2006). Later extended to 30+ countries, incl. USSR.

    •  29 Dec 1940: FDR’s '' speech emphasized US role in defending democracy.

    •  Feb 1941: Some Americans volunteered abroad (eg Eagle Squadrons in UK, Flying Tigers in China).

    •  Apr 1941: US extended naval protection to Iceland.

    •  Sep 1941: U-boat sank USS Greer; FDR ordered US ships to attack U-boats on sight.

    •  7 Dec 1941: Japanese attack on Pearl Harbor; US entered the war.

 

Economic Impact of the War

a. Arsenal of Democracy

    •  Lend-Lease and 'Cash-and-Carry' boosted US profits; by 1944, USA produced 50% of all weapons in the war.

b. Federal Spending

    •  Massive federal spending ($9bn in 1940 → $98bn in 1945); War cost US $341bn; $185bn raised via war bonds.

c. Technological Advances

    •  Innovations: radar, penicillin, ( computer), jet engines, synthetic rubber, atomic bomb

    •  Spin-offs: superglue, duct tape.

    •  Mass production innovations (eg Kaiser's Liberty Ships built in 4 days).

d. Employment

    •  Ended Depression: unemployment fell (14.6% in 1940 → 1.2% in 1944).

    •  16m served in armed forces; 14m worked on home front.

    •  Workforce: > 33% female by 1943; minorities entered industry.

    •  Wages rose (worker income doubled; bottom 20% ↑68%).

e. Regulation and Rationing

    •  The (OWM) & (WPB) coordinated war effort;

    •  The Office of Price Administration (OPA) managed price controls; the General Maximum Price Regulation (‘’) kept inflation to 15%.

    •  Rationing (eg tyres, meat) ensured fair distribution.

    •  War Manpower Commission allocated workers; leased prisoners-of-war to farms.

    •  Union leaders agreed no strikes; union membership grew.

f. Production Capacity

    •  Firms adapted: beer cans → grenades; Ford's Willow Run plant produced B-24 bombers.

    •  US Maritime Commission built using, eg, the Kaiser Shipyards.

    •  Railroads (tonnage doubled), ports (NY shipped 3m troops), power generation (Grand Coulee Dam 1942).

g. Production Growth

    •  Economy grew 11%pa. GDP: $101bn (1940) → $212bn (1945); 500k+ new businesses started.

    •  US produced 300k aircraft, 102k tanks, 20m small arms, 2.5m trucks.

    •  The grew 1.5% of GDP (1937) → 50% (1945).

    •  Major non-war firms (eg Coca-Cola, Heinz) expanded with ration pack production.

    •  Farming ↑33% (esp. large-scale farms).

    •  Anti-big-business ethos dropped; war firms made huge profits (eg Ford > Italy’s war output).

    •  By 1945: US = 50% of global manufacturing output.

h. Results

    •  Prices ↑15%; wages ↑65% → living standards improved.

    •  Post-war policies: G.I.Bill (training, loans, benefits); (VHA) expanded healthcare services for veterans; housing development for white veterans in New York.

    •  Shift from isolationism to global interventionism.

    •  US = global economic superpower.

    •  ‘Military-industrial complex’: defence spending rose to 20% GDP (vs 1% pre-war).

    •  War boom savings → post-war spending → sustained prosperity, rise of middle class.