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The Economics of America’s World War II Mobilization

The mobilization of the U.S. economy during World War II represented a substantial re-ordering of economic priorities. During wartime, markets are subjected to abrupt supply/demand shocks, resulting in dislocations, frictions, and bottlenecks. In order to avoid or at least minimize these problems, governments increase their intervention in the marketplace. In this chapter, we examine the manner in which the U.S. government organized and applied the instruments and mechanisms of intervention and trace their profound effects on the structure and performance of the American economy.
War demands and the preparations for war were the real force bringing the U.S. economy out of prolonged depression; the period from 1940 to 1944 witnessed the largest expansion in industrial production in U.S. history. The switch from butter to guns was clearly depicted by the enormous shift in the composition of America’s income: “War production in 1939 was 2 percent of total output, in 1941 10 percent and in 1943 40 percent.”1 The Depression legacy of high unemployment and low capacity utilization meant that “almost all the war output came from the increase in GNP and the drop in civilian capital formation.”2 While there were many shortages of specific civilian goods, inflation-adjusted levels of consumption actually rose each year from 1942 through 1954. The incredibly impressive


increases in total output and in war material in particular resulted from the employment of previously idle labor and capital, the tremendous expansion in physical capital stock, the reallocation of labor from agriculture and elsewhere to industry, the expansion of the labor force as housewives joined in record numbers, and significant increases in labor productivity. The shift to war efforts was so substantial that by 1944 more than 50 percent of the labor force in the manufacturing, mining, and construction sectors worked on military contracts.

Capacity Expansion Through Public Investment

Expansion of industrial capacity was deemed absolutely essential. To this end the government embarked on an ambitious federal plant and equipment investment program. Additionally, because pre-World War II involvement of private business in defense manufacturing (except for aviation) was quite limited, the urgent need for rapid expansion of weapons production mandated increased participation of private enterprise. While the need to expand output was acute, so was the realization that in 
. . . a democratic country the desired expansion in output and capacity must often be encouraged or supplemented by governmental action. Businessmen are influenced by patriotic motives, desire to win public approval, threats of commandeering, and fear of government prosecution . . .  MORE


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