Post-World War Economics?

[Crazynorth562]

Why was The United States in good economic shape following World War I as opposed to nations in
Western Europe, and why did the U.S. experience an economic boom during the 1920s?

[Randal]

The United States of America was never invaded during World War 1. At no time was any territory of the USA under enemy hands.
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When the war began, the U.S. economy was in recession. But a 44-month economic boom ensued from 1914 to 1918, first as Europeans began purchasing U.S. goods for the war and later as the United States itself joined the battle. "The long period of U.S. neutrality made the ultimate conversion of the economy to a wartime basis easier than it otherwise would have been," writes Rockoff. "Real plant and equipment were added, and because they were added in response to demands from other countries already at war, they were added precisely in those sectors where they would be needed once the U.S. entered the war."

Entry into the war in 1917 unleashed massive U.S. federal spending which shifted national production from civilian to war goods. Between 1914 and 1918, some 3 million people were added to the military and half a million to the government. Overall, unemployment declined from 7.9 percent to 1.4 percent in this period, in part because workers were drawn in to new manufacturing jobs and because the military draft removed from many young men from the civilian labor force.

Rockoff estimates the total cost of World War I to the United States at approximately $32 billion, or 52 percent of gross national product at the time. He breaks down the financing of the U.S. war effort as follows: 22 percent in taxes, 58 percent through borrowings from the public, and 20 percent in money creation. The War Revenue Act of 1917 taxed "excess profits" -- profits exceeding an amount determined by the rate of return on capital in a base period -- by some 20 to 60 percent, and the tax rate on income starting at $50,000 rose from 1.5 percent in 1913-15 to more than 18 percent in 1918. Meanwhile, Treasury Secretary William Gibbs McAdoo crisscrossed the country peddling war bonds, even enlisting the help of Hollywood stars and Boy Scouts. The prevalence of patriotic themes created social pressure to purchase the "Liberty bonds" (and, after the armistice, the "Victory bonds"), but in practice the new bondholders did not make a tangible personal sacrifice in buying war bonds, since the yields on the se debt instruments were comparable to those on standard municipal bonds at the time. As Rockoff notes, "patriotic motives were not sufficient to alter market prices of assets during the war."

As part of the war effort, the U.S. government also attempted to guide economic activity via centralized price and production controls administered by the War Industries Board, the Food Administration, and the Fuel Administration. Rockoff judges that the overall impact of these programs on reallocating resources was "rather small." Timing played a role, since some of the agencies were only established once the United States entered the war, and they took time to begin fulfilling their roles. Also, management problems emerged. For example, the War Industries Board attempted to create a "priorities system" for determining the order in which producers would fill government contracts for industrial goods. Unfortunately, all policymakers gave their order the highest rating ("A"). Leaders then created several higher priority ratings (such as "A1"), with much the same result. "Replacing price signals with priorities is not as simple as it sounds," surmises Rockoff.

Finally, the author assesses the legacies of World War I for the U.S. economy. When the war began, the United States was a net debtor in international capital markets, but following the war the United States began investing large amounts internationally, particularly Latin America, thus "taking on the role traditionally played by Britain and other European capital exporters." With Britain weakened after the war, New York emerged "as London's equal if not her superior in the contest to be the world's leading financial center."

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I hope this is helpful.

[Nevets]

Because all we babyboomers were pay high interest for and to the USA's participation in the war, What! did you actually think they entered the conflict free of charge!.