World War I and the Economy

WORLD WAR I AND THE ECONOMY

Mobilizing the Economy

The United States officially participated in World War I for only nineteen months, but the war had a tremendous impact on domestic America. President Wilson declared that belligerency would require "the organization and mobilization of all the material resources of the country." Indeed, the government worked hard to get both the hearts and minds of the American public behind the war effort.

Benefits of Belligerency

The United States sent a much-needed influx of men and materiel to Europe and insured the defeat of the Central Powers. The war initially cost the U.S. government about $33 billion plus interest, and veterans' benefits would later bring the total to $112 billion. However, this figure hides the great profitability of the war for the nation. Instead of hurting the domestic economy, the war effort strengthened and improved America's competitive position in the world. Farmers enjoyed boom years as agricultural prices rose and the international market for their products expanded. Farmers also used new technological advances that helped them modernize. Real wages for blue-collar workers increased modestly, and all sectors profited from the war. Wartime demands for industrial products raised profits for many companies. The DuPont Company's stock multiplied by 1,600 percent between 1914 and 1918, and DuPont grew from a debtor company to one with a surplus of $68 million at the end of fighting. Steel production reached twice its prewar level by 1917. The standardization effort during the war led to greater postwar industrial efficiency and production.

Arsenal of Democracy

President Wilson encouraged America's changing role in the world economy. Free trade, in his view, promoted both universal prosperity and universal peace. International commerce led to a strong domestic economy, and exports were essential for continued American economic growth. Wilson felt that restrictions on trade, such as tariffs and trade agreements, hindered efficiency and denied the natural cycle of the international economy. The president firmly believed that goodwill flowed along with goods, and that commercial contacts were effective guarantors of peaceful relations among states. American business certainly seemed to benefit from both Wilsonian rhetoric and the new realities created by the war. The war almost instantly reversed the credit standing of the United States. The nation, by the war's end, held billions of dollars in European debt obligations and was the globe's greatest creditor as well as its greatest economic power. By forcing the Europeans to accept goods instead of loans, the Wilson administration guaranteed that the country would be banker, arsenal, and breadbasket to the Allies.

Economic Hegemony

World War I solidified the changes that had been occurring in the economy prior to the war. The United States used its abundant natural resources and technological advances to dominate the world's manufacturing output. Large corporations needed markets to flourish, and the war, by devastating the manufacturing output of the belligerents, gave companies new outlets for their products worldwide. The federal government encouraged and helped businesses increase their presence overseas. The general public, for the most part, did not protest the partnership between big business and the government because most benefited from the war. Annual incomes rose steadily, from $580 in 1914 to more than $1,300 by the end of the decade. Thus, World War I dramatically changed the domestic and international economy and set the stage for the prosperity of the 1920s.

Sources:

Peter Fearon, War, Prosperity and Depression: The U.S. Economy 1917—45 (Lawrence: University of Kansas Press, 1987);

David M. Kennedy, Over Here: The First World War and American Society (New York: Oxford University Press, 1980).