[Global Financial History] World War II in the United States Was an 'Economic War'

1940s US Economy Grows 125%
Supported by Production of Warships and Military Supplies
Roosevelt Calls US "Great Arsenal" to Britain, Whose Payment Ability Declined
Created Lend-Lease Act to Lease Weapons
War Boom Also Rapidly Increased Jobs

The Great Depression in the United States, which could not be resolved even by the New Deal policies, finally emerged from the depths of the recession only after the outbreak of World War II. The U.S. had already learned from World War I that war was beneficial to its economy and Wall Street. In fact, during the 1940s, the period of World War II, the U.S. economy grew by an astonishing 125%. The production of military supplies, including 6,500 warships and 296,400 aircraft, supported this growth.

Until the late 1930s, the U.S. politically avoided involvement in the European war but economically profited from selling military supplies. However, as currency and gold reserves dwindled, British Prime Minister Winston Churchill declared to U.S. President Franklin Roosevelt that Britain could no longer pay cash for military supplies. In response, the U.S. introduced the Lend-Lease Act. Instead of selling military supplies to countries like Britain, which had diminished payment capacity, the act allowed for leasing these supplies. Roosevelt emphasized the necessity of this policy in his Fireside Chat to the nation on December 29, 1940, declaring the U.S. as the "great arsenal of democracy." Subsequently, the U.S. Congress passed the Lend-Lease Act (also known as the ‘U.S. Defense Facilitation Act’) in March 1941.

The military supplies provided under the Lend-Lease Act ranged widely, from tanks, aircraft, ships, weapons, and road construction materials to clothing, chemicals, and food. At that time, the U.S. economy was practically a planned economy, with all decisions related to wartime production made by the War Production Board. Not even a single clip could be produced without approval. Under this planned economy, the U.S. operated with the precision of a single corporation.

After Japan’s attack on Pearl Harbor in December 1941, the U.S. officially declared its entry into World War II and entered full wartime production mode. The expansion of military production and widespread conscription reduced unemployment to below pre-Depression levels. World War II itself became a significant benefit for the U.S. From 1942 to 1945, the after-tax income of the 2,230 largest American companies increased by 41% compared to pre-war levels, reaching $14.4 billion.

Weapons and war materials mass-produced in American factories poured not only into Britain but also into the Soviet Union under the U.S. government’s Lend-Lease Act. The Allied naval power and the productivity revolution supported this effort. With naval power securing the transatlantic sea routes, bombers, fighters, armored vehicles, artillery, and warships produced in the U.S. could be shipped in large quantities to Europe.

Production in the civilian sector also surged alongside the military industry. The war created special job opportunities. As widespread male conscription created gaps in industrial labor, women who had previously struggled to find employment were able to secure jobs. From 1940 to 1945, the proportion of women in the U.S. workforce increased from 27% to nearly 37%. Previously, women worked mostly in various subordinate positions, but now they could hold jobs in specialized fields. In particular, the aviation industry saw the largest increase in female workers, with 310,000 women employed in the U.S. aircraft industry by 1943.

Personal income of American citizens more than doubled. Rather than investing in securities, they invested in government-guaranteed bank deposits and war bonds. When wartime price controls were lifted in early 1946, consumer goods such as radios, televisions, and automobiles began to sell rapidly. Fueled by consumer demand, the U.S. economy entered a boom phase accompanied by inflation. As a result, the U.S. won the war for corporations and profits.

Baek Young-ran, Representative of History Journal