World War II - Business in United States of America
The Event: Global war fought by most of the economic and political powers of the day, who divided into two groups, the Axis and the Allies
Date: December 8, 1941-September 2, 1945
Place: Europe, Asia, North America, South America, Africa, Australia
Significance: World War II played a major role in the recovery of the American economy from the Great Depression, in making the United States the leading economic power in the world, stimulating consumer production, and incurring national debt.
After World War II began in Europe with Germany’s occupation of Poland in September, 1939, the U.S. government declared its neutrality, but President Franklin D. Roosevelt stated that while the United States could be neutral in deed, it could not be neutral in thought. Washington was clearly on the side of the Allies—England and France—and opposed to Nazi Germany. The country was even more concerned with Japan, which had been at war in China since 1937. The war had a major impact on the American economy. Secretary of Agriculture Henry A. Wallace believed that American farmers would suffer, but profits from business began to increase almost immediately.
Before the war, hostility between labor and capital flared because of the Great Depression and business opposition to the New Deal. However, the boom stemming from Roosevelt’s commitment to making the United States the arsenal of democracy to aid the Allies in the war effort led to a new spirit of cooperation between economic rivals, much of it mandated by the government. The confrontation between the U.S. government and business and industry that had dominated the 1930’s ended, as both sides realized that they needed each other. Although isolationism had been popular before the war, businessmen realized that they were losing world markets and turned to Washington for help, readily supporting Roosevelt’s commitment to the Allies. The government, for its part, recognized that it needed the manufacturers to supply the war material necessary to aid the Allies and prepare the American defense. Instead of nationalizing industries, Washington worked with the private sector, providing lucrative contracts guaranteeing cost of production plus substantial profits, called a cost plus policy, heartily endorsed by Secretary of War Henry L. Stimson, a Republican.
Federal Government Spending, 1939-1950, in Millions of Dollars
Source: Data from Historical Statistics of the United States: Colonial Times to 1970 (Washington, D.C.: U.S. Department of Commerce, Bureau of the Census, 1975)
Speed and quantity of production took priority over questionable tactics. For example, Standard Oil received a light fine for an antitrust bargain it made in 1941 (before the United States was in the war) with the German company I. G. Farben, agreeing not to manufacture synthetic rubber. Meanwhile, natural rubber had become difficult to obtain because Japan had invaded Southeast Asia, and the U.S. government had to subsidize the manufacture of synthetic rubber in a crash program during the war, turning the patents and factories over to private companies after the war ended.
Roosevelt created oversight agencies to ensure production and labor peace, including the Office of Production Management (OPM), the War Production Board (WPB), and the Office of Price Administration and Civilian Supply (OPACS), and he adapted other New Deal agencies, such as the National Labor Relations Board (NLRB), for the war economy. The Reconstruction Finance Corporation (RFC), originally created for small businesses and home owners in the Depression, now gave loans on favorable terms to expand industry for wartime production, and as defense jobs increased employment, the government canceled the Works Progress Administration (WPA), which had provided jobs during the Depression.
Early in 1941, with war on the horizon, the U.S. government called for the construction of two hundred merchant ships. Roosevelt also created the Office of Production Management under William S. Knudsen, president of General Motors, to coordinate defense construction. Knudsen immediately announced that the production of aluminum and the manufacture of machine tools were the country’s most important needs. After the United States entered the war, the president replaced the OPM with the War Production Board, under Donald M. Nelson, former president of Sears, Roebuck and Company and an assistant to Knudsen. In April, 1942, the government established the War Manpower Commission under Paul V. McNutt, a former governor of Indiana and head of the Federal Security Agency. In May, 1943, Roosevelt established the Office of War Mobilization (OWM), under former senator James F. Byrnes, to coordinate domestic activity on behalf of the war effort. Chester C. Davis, a former head of the American Agricultural Administration (AAA) in the New Deal, became the government food administrator charged with improving farm production, which had slumped after a boom year in 1942. The government also established the Office of War Information (OWI) under newspaper reporter and radio commentator Elmer Davis to supervise war news and propaganda.
The automotive industry agreed to cut production of civilian cars to concentrate on building vehicles for the military. When the United States entered the war in December, 1941, more drastic steps were taken, and all production of new cars and trucks ceased. During the war, Ford Motor Company alone made 8,600 bombers, 278,000 jeeps, and 57,000 airplane engines.
American workers benefited from plentiful jobs during World War II, although government controls over unions and workers were strengthened. In 1940, the Supreme Court ruled that decisions of the National Labor Relations Board could not be appealed. In another labor decision, the court ruled that Inland Steel of Chicago did not have to recognize the Congress of Industrial Organizations (CIO) as the company’s sole bargaining unit. The forty hour workweek had begun as a result of the Fair Labor Standards Act of 1938, although in February, 1943, the president issued an executive order calling for a forty-eight-hour workweek as a minimum in defense plants, and also in 1943, the WPB forbade 27 million workers from leaving essential defense jobs.
There had been considerable friction between the two largest labor groups in America, the craft oriented American Federation of Labor (AFL) and the Congress of Industrial Organizations, but, in 1940, William Green, the president of the AFL, called for talks with the rival organization. The fiery president of the CIO and leader of the coal miners, John L. Lewis, resigned in November, 1940, in protest of Roosevelt’s unprecedented election for a third term, and Philip Murray of the United Steelworkers succeeded him.
Strikes and labor disputes continued to trouble the defense industry. In January, 1941, the workers at the Allis-Chalmers Manufacturing Company, an agricultural machinery maker, went out on strike. Within two months, the government had established a National Defense Mediation Board under Clarence A. Dykstra, a university president and director of the selective service system, to deal with disputes, and shortly thereafter, Ford settled a strike with CIO autoworkers.
President Roosevelt, in June, 1941, sent in troops to take over North American Aviation in Los Angeles and replace the striking workers there. Meanwhile, A. Philip Randolph, leader of the Brotherhood of Sleeping Car Porters, was planning a march on Washington to demand racial justice in the American workplace. To prevent this strike, the president issued Executive Order 8802 on June 25, 1941, establishing the Committee on Fair Employment Practices and ending racial discrimination in government agencies, job-training programs, and industries and companies with defense contracts. The committee was ordered to investigate violations of the executive order. More African American workers entered in the workforce in the defense plants, and in June, 1943, a large race riot erupted in Detroit. Thirty-five people, mainly African Americans, were killed in two days.
On December 8, 1941, the day after the Japanese attack on Pearl Harbor and the day the United States entered the war, labor and industry leaders agreed to have no strikes or lockouts and settle all disputes peaceably. Both Green and Murray signed no-strike pledges, but Lewis’s United Mine Workers of America (UMWA) withdrew from the CIO. In the spirit of the agreement, General Motors agreed to a 10-cent-an-hour raise and the autoworkers union ended its demand for a closed shop (one that excluded nonunion employees).
Nevertheless, in May, 1943, Lewis called a strike of coal miners. When the National War Labor Board, established in 1942, ordered them back to work, the coal miners refused. The government seized the coal mines, and Congress passed a law authorizing fuel administrator Harold Ickes, former secretary of the interior, to seize coal for industry and private use. Lewis then sought admission of the UMWA into the AFL. Later in the year, Roosevelt ordered the seizure of railroads to prevent a railroad strike but returned them to the private sector after the owners and the unions agreed to settle their dispute. In another case, the National War Labor Board judged that the CIO’s demands for a contract extension with Montgomery Ward was justified, and it ordered the company to comply. However, Seward Avery, the company chair, refused, and federal troops seized the plant. In March, 1945, strikes at the Chrysler Corporation and Briggs Manufacturing closed ten factories.
In March, 1940, Roosevelt prepared to sell war material to England. Because this was technically a violation of American neutrality, the measure was hotly debated. Furthermore, Great Britain could not pay for the material, and it was to be provided because of exchange for the lease of bases for U.S. troops in British colonies and later payment, a policy called lend-lease. The Lend-Lease bill was sent to Congress after Roosevelt’s controversial third-term election victory in November. Congress passed the act in March, 1941, and extended it to France, China, the Soviet Union, and other opponents of the Axis. Initially, it was to end in 1943, but it was continued for the whole war. The Axis powers regarded this as an act of war, and several American ships carrying war material were attacked and sunk by German submarines. Furthermore, Roosevelt and Winston Churchill had met in August, 1940, in Newfoundland and signed the Atlantic Charter, outlining the goals of the war, before the United States had even entered the conflict.
Price Controls and Rationing
The Office of Price Administration (OPA; independent agency since 1942) and War Production Board established price controls and rationing on all manner of goods, starting with gasoline and rubber. The OPA froze the price of steel, but the industry gave the workers a small (10 cents per hour) wage increase as a hedge by the industry against future strikes. In April, 1942, the OPA established rent controls, and in May, sugar was rationed. Soon ration books and coupons appeared. By the end of 1942, coffee was put on the list of rationed items. Different items were added as the war progressed. In 1943, shoes were limited to three pairs a year per person; the agency also rationed canned goods, meat, fish, and cheese. With rationing, a black market flourished, and Americans spent well over a billion dollars in illegal purchasing.
Toward the end of the war, rationing eased. In May, 1944, the agencies cut back on meat, with the exception of some cuts of beef. In August the WPB permitted the resumption of production of some consumer goods, increasing the number in succeeding months, but in March, 1945, the OPA froze the price on clothing until the end of the war, and from January 15 to May 8, 1945, the government ordered a reduction of the use of energy (a dim out) to save on fuel. In April, sugar rations were reduced by a quarter. In June, Congress extended the authority of the OPA for another year, but soon rationing of gasoline and automotive engine oil ended. The War Manpower Commission ended wage controls. As soon as the war was over, President Harry S. Truman ended restrictions on consumer production and collective bargaining, restoring the free market system. The WPB lifted the controls on more than two hundred products. However, rationing of a number of items, such as shoes, tires, butter, and meat, continued for a number of weeks. In August, New York State laid off 100,000 wartime workers. The second half of 1945 saw a number of labor strikes and slowdowns, for example in coal mines, automakers, and the telephone company.
An Office of Price Administration official guides a woman and her daughter as they use war ration book two for the first time. (Library of Congress)
Several financial measures taken during the war included the sale of defense savings bonds, begun in May, 1941. The Revenue Act of 1942 increased those subject to income tax from 39 million to 42 million people, and the Current Tax Payment Act of 1943 started the withholding of income taxes from salaries throughout the year.
Bretton Woods Conference
Even before the United States entered into the war, Secretary of State Cordell Hull proposed a postwar policy for the end of trade barriers and equal access of all nations for raw materials. However, only in July, 1944, did the Allies meet to discuss and plan financial affairs for the postwar world at a conference held at the Mount Washington Hotel in Bretton Woods, New Hampshire. Representatives from forty-five Allied nations attended. Germany had been already defeated, and the war with Japan concluded the following month. The conference discussed the financial needs of the postwar world, the measures to be taken, and what organizations and institutions would have to be formed. One of the effects of the conference, along with other economic conferences of the war era and the war itself, was to shift the world economic center to the United States and make the dollar rather than the British pound and the French franc the standard for international currency.
The delegates agreed that freedom of trade among all nations was a necessary condition of healthy international commerce and that a universal agreement on international exchange was needed to prevent single nations or small groups of nations from disrupting trade, which would lead to war. For this purpose, the conference promoted the International Monetary Fund and the International Bank for Reconstruction and Development to aid in postwar reconstruction.
The war effort proved to be an unprecedented success in providing the armament for the Allied victory. Geographically distant from Axis bombing, the United States could build the weapons needed for its own armies and those of its Allies. The war materials produced included almost 300,000 planes, 400,000 pieces of artillery, 44 billion rounds of ammunition, and an additional 47 million tons of artillery ammunition. The United States also turned out more than 93,000 ships and 86,000 tanks.
World War II created a boom in the American economy. The need for war production lifted the United States out of the Depression by providing full employment, record profits for business, and high wages for workers. New areas of production were introduced, and despite the wartime rationing, manufacture of consumer goods also received an impetus, which took off after the war was over.
The wartime prosperity increased corporate and business profits at an astounding rate. The one hundred largest U.S. corporations received more than 70 percent of the contracts, and hundreds of thousands of smaller companies closed. Farm income increased two and half times, despite the loss of 800,000 hands, as agriculture benefited mainly from the creation of larger farms. Workers’ wages doubled during the war years (from $25 to $50 a week), in part because of overtime. The labor force increased by more than 20 percent, with 60 percent of American women entering the workforce. African Americans found opportunities earlier denied them, and 1.2 million of them entered the workforce. Tens of thousands migrated from the South to the North for industrial jobs. Labor unions increased their membership by almost 50 percent, from 10.5 million to almost 15 million. However, one of the costs of this production was the indebtedness that it brought about.
After the war, the industrial force was converted to peacetime use by an increase of production of consumer goods. The Truman administration tried to keep production in bounds by maintaining the wartime commissions, but pressure from business and the public forced Congress to relax the restrictions. Another consequence was the postwar baby boom, which produced an exceptional spike in the American birthrate after a decade and a half of the Depression and war. The effects of this phenomenon on the economy and society endured throughout the rest of the century and beyond.
Bondi, Victor, ed. American Decades, 1940-1949. Detroit: Gale Research, 1995. Examines all aspects of American life during the 1940’s. Chapter 3 deals specifically with business and the economy. Includes a time line of significant events. Contains a bibliography.
Boughton, James M., and K. Sarwar Lateef, eds. Fifty Years After Bretton Woods: The Future of the IMF and the World Bank—Proceedings of a Conference Held in Madrid, Spain, September 29-30, 1994.Washington, D.C.: IMF, 1995. A detailed examination of the historic conference.
Brandes, Stuart D. Warhogs: A History of War Profits in America. Lexington: University Press of Kentucky, 1997. A scholarly monograph examining profiteering in American wars and the attempts to control it. Covers the whole history of the United States. Contains tables, notes, and a bibliography.
Davis, Kenneth S. FDR: The War Years 1940-1943—A History. New York: Random House, 2000. A scholarly but readable biography of the president by a respected professor.
Koistinen, Paul A. C. Arsenal of World War II: The Political Economy of American Warfare, 1940-1945. Lawrence: University Press of Kansas, 2004. The most important monograph dealing with the subject. Contains notes, bibliography, and figures.
_______. The Hammer and the Sword. New York: Arno Press, 1979. Examines the role of labor in World War II.
Lee, Susan, and Peter Passell. A New Economic View of American History. New York: Norton, 1979. A standard economic history of the United States covering the whole scope of American history, including the World War II era.
See also: Bretton Woods Agreement; Korean War; Lend-Lease Act; military-industrial complex; steel industry; War surplus; World War I.
AFL-CIO: Postwar Developments
A. Philip Randolph
Bretton Woods Agreement