Postwar Boom

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During the 1940s U.S. business was dominated by preparation for World War II (19391945), by the war itself, and in the late years of the decade by the Cold War. By the end of the decade Americans saw the positive effect the war had on the U.S. economy and realized that they had never had it so good.

President Franklin D. Roosevelt's (19331945) combination of private capitalism and public stimulus accomplished exactly what the government intended: it made the United States the largest arms manufacturer in world history. At the end of World War II, U.S. business and the economy were radically different than they were before the Japanese attack on Pearl Harbor (1941). Americans enjoyed unprecedented prosperity. Corporate profits were astounding. In 1943 alone earnings jumped $2.1 million over the prewar level. Workers' wages on average doubled, increasing from almost $25 a week to $50 a week, and many people earned hefty overtime bonuses. Even farm income increased an incredible 250 percent, despite the loss of nearly 800,000 agricultural workers during the war.

The character of corporate and working America also changed. Despite administration attempts to distribute the benefits of government contracts broadly, 71 percent of all contracts went to the 100 largest U.S. corporations. By the end of 1942 there were 300,000 fewer small companies than there had been before the war. Small farmers lost out as labor got bigger. The total labor force increased by 22 percent during the war, which, along with the draft, eliminated unemployment. Labor unions grew from 10.5 million members in 1939 to 14.75 million members in 1945. An acknowledged power in the U.S. marketplace, big labor insured that many of the wage and benefit gains of the war years would continue into the next decades. Because of wartime labor shortages, moreover, the workforce was more diverse than before. Almost 60 percent of women in the United States were employed during the war. Industry, which for so long had closed its doors to African Americans, now employed 1.2 million. Sixty thousand African Americans migrated to Detroit, Michigan, alone during the war. Even teenagers worked during the war, and their earnings opened up a new consumer market after the warone geared toward music and automobiles and other status symbols of adolescence. The one problem with all this prosperity was that it was purchased with government deficits justified by the pressure of war. With victory, the new administration under President Harry S. Truman (19431953) faced one significant economic problem: how to maintain wartime prosperity without a war.

The Truman administration sought to reconvert U.S. industry to its nonmilitary bases as quickly and as painlessly as the Roosevelt administration had converted it to war production. One way of accomplishing this goal was to use some of the government agencies overseeing war production to supervise the peacetime conversion of U.S. industry. The Office of War Mobilization, retitled in 1944 to the Office of War Mobilization and Reconversion, continued to coordinate manpower, production, and resources after the war. Rations on scarce goods remained in place long after armistices were signed. These wartime agencies and restrictions came under political pressure during peacetime. Truman hoped that the Office of Price Administration and Civilian Supply (OPA), for example, would continue to regulate production and prices in order to check runaway inflation. The OPA, however, faced criticism from businessmen who wanted to raise prices and from individuals who chafed at its limitations on consumer items. In June 1946, Congress extended the life of the OPA but stripped it of much of its power. Truman vetoed the bill, and when price controls expired on July 1, 1946, prices skyrocketed, and the cost of living index rose six percent in one month. By 1947 the cost of living index had risen 24 points20 more than it had risen in the previous year. The rise reflected not only the artificial depression of prices the government had maintained during the war, but also the enormous consumer demand spiked by high wartime wages and wartime product shortages. This demand ultimately evened out the economic dislocations of reconversion. The postwar period was notable, in fact, for an unprecedented consumer revolution, as Americans rushed to buy houses, cars, appliances, and luxuries in record numbers.

The biggest single economic problem the Truman administration faced was the demobilization of its 17 million troops. Administration officials feared a rapid demobilization of the military would plunge the nation back into depression, yet the political pressure from American families for rapid demobilization was enormous, especially after 1946. The problem was partially solved by the Serviceman's Readjustment Act of 1944, commonly known as the GI Bill, which funneled many returning veterans into college, thus delaying their entry into the labor force and improving their working skills. Government, business, and labor-union policies, furthermore, favored the hiring of returning vets, forcing tens of thousands of working women and teenagers out of the labor market.

There was also an enormous increase in the number of new industries in the United States following the war. Often sparked by wartime government research, industries such as television, aviation, and chemical and metallurgical processing absorbed many of the demobilized troops. Finally, the government maintained a larger military force after the war than it had ever maintained in U.S. history during peacetime. Troops were needed as occupying forces in Europe and Asia, and U.S. naval and air fleets remained enormous. The large standing army, the GI Bill, and new industries nonetheless failed to prevent widespread labor dislocations following the war. From 1946 to 1948, as unemployment rose and the U.S economy slowed, strikes became commonplace, and the Truman administration struggled with popular discontent with its economic policies.

U.S. economic planners also hoped that a revival in U.S. international trade and the reconstruction of European economies would increase U.S. production and absorb the veteran labor force. Even before Pearl Harbor international bankers and interventionists viewed the war as an opportunity to prevent the creation of world economic blocs closed to U.S. trade. With the end of the war they constructed international institutions to accomplish this goal.

The World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT) were designed to insure U.S. access to colonial markets formerly closed to U.S. trade. These agreements were also designed to help Europe rebuild and resume trade with the United States. This goal was even more explicit in the 1947 Marshall Plan, whose guidelines specified the terms of renewed trade on a basis favorable to U.S. corporationsoften accompanied by a surprising degree of U.S. interference in the domestic economies of European states.

The Europeans, devastated and bankrupted by the war, rarely objected to the conditions of Marshall Plan assistance, and by 1950 they had resumed domestic production and trade with the United States on a greater basis than before the war. The Soviet Union, however, committed itself to a policy of economic self-sufficiency and independence. Twice spurned in its requests for less restrictive loans by the United States, it rejected Marshall Plan funds and chose to reconstitute its economy by integrating it, rather poorly, to that of Eastern Europe. The Soviets in effect created an economic bloc and closed it to U.S. tradeit was an anathema to U.S. internationalists.

The actions of the Soviets, as well as the economic restrictions of U.S. assistance, formed the economic backdrop to the Cold War. The political, cultural, and military repercussions of this economic confrontation, in turn, transformed the U.S. domestic economy and by 1949 resolved the problems plaguing postwar industry. The potential military confrontation with the Soviet Union not only cemented U.S. economic ties with Western Europe and increased U.S. trade but also provided a viable rationale for increased military expenditures. By the end of the decade prosperity was insured by the twin forces of expansive U.S. trade and the growth of what General Dwight D. Eisenhower (later President, 19531961) would term "the military-industrial complex."

See also: Cold War, Cost of Living Index, General Agreement on Tariffs and Trade, GI Bill, International Monetary Fund, Marshall Plan, Military-Industrial Complex, Office of Price Administration, Postwar Prosperity, War and the Economy, World War II


Fearon, Peter. War, Prosperity and Depression: The U.S. Economy 19171945. Lawrence: University Press of Kansas, 1987.

Higgs, Robert., ed. Arms, Politics, and the Economy: Historical and Contemporary Perspectives. New York: Holmes and Meier, 1990.

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

Nelson, Donald. Arsenal of Democracy: The Story of American War Production. New York: Harcourt, Brace, 1946.

Vatter, Harold G. The U.S. Economy in World War II. New York: Columbia University Press, 1985.

by the end of the decade prosperity was insured by the twin forces of expansive u.s. trade and the growth of what general dwight d. eisenhower (later president, 19531961) would term "the military-industrial complex."