World War II was–and still is–the most expensive war America ever fought. Before the war, the government allocated several hundred million dollars annually to the military. In 1943, this figure skyrocketed to $85 billion. And, in 1944, it increased even further to a whopping $91 billion. But how did a country amid the Great Depression manage to finance such large expenditures?
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Jetzt kostenlos anmeldenWorld War II was–and still is–the most expensive war America ever fought. Before the war, the government allocated several hundred million dollars annually to the military. In 1943, this figure skyrocketed to $85 billion. And, in 1944, it increased even further to a whopping $91 billion. But how did a country amid the Great Depression manage to finance such large expenditures?
When World War II began, the United States did not have anywhere near the size of its military today. Technological advancements since World War I have also made many of the nation's weapons obsolete. As a result, the United States desperately needed guns, ammo, ships, airplanes, and tanks. The government set out on a mission to expand the defense industry to meet these demands.
With the expansion of the defense industry, the nation recovered from the Great Depression exceptionally fast. Unemployment dropped, and wages rose. Americans now had money to spare daily, and the government wanted to target this newfound wealth to fund the war effort.
There were two significant ways in which the United States government funded the war: taxation and domestic borrowing.
Before World War II, only the wealthiest Americans had to pay income taxes. But, during World War II, the income tax expanded to cover middle and lower-class Americans. This was plausible as much of America had rebounded from the Great Depression as a result of the expansion of the defense industry. To ensure an immediate effect, the federal government introduced a program where taxes would be taken out of each paycheck rather than quarterly.
During World War II, approximately 40 million Americans paid an income tax for the first time.
Another significant way the United States government funded the war was the sale of liberty bonds, a form of domestic borrowing. Every day Americans could buy these bonds with the promise that the government would pay them back at a later date with interest. There were inexpensive options available to make the purchase of liberty bonds more attractive. Most liberty bonds bought were valued at $25 or less (approximately $500 today).
The government asked the Federal Reserve to lower interest rates to keep the cost of war reasonable.
Inflation becomes a real threat when there is an increased money supply in conjunction with fewer goods. The federal government tried to prevent this in several ways. For example, the income tax helped limit the amount of money in circulation. Additionally, the government collaborated with industry leaders to regulate and restrict the prices of goods and workers' wages. The Office of Price Administration (OPA), founded in response to the war, oversaw consumer prices.
Inflation
An economical process in which prices rise and the value of money decreases
There was also a rationing program for scarce commodities, which helped counteract the typical process of supply and demand. (Normally, the scarce supply of a particular good would lead to increased demand for the good and, therefore, a higher price.) Rationed goods included sugar, coffee, meat, tires, and gasoline.
The Rationing of Gasoline
To keep gasoline consumption low in the United States, the government imposed rationing on gasoline. In this system, drivers needed to display tags on their windshield that identified their given ration. For example, the average driver had an 'A' tag that allowed them four gallons a week. In contrast, business owners had a 'B' tag that allowed them eight gallons a week. The government also set a nationwide speed limit of 35 miles per hour and appealed to Americans not to drive for pleasure. As with other industries, the gasoline ration led to a thriving black market.
You might have noticed a common theme in the images in the article–they are all World War II-era propaganda posters. The government distributed many such posters to promote the sale of liberty bonds, the rationing of goods, and the payment of income taxes. But posters were not the only form of marketing or propaganda.
Each of the twelve Federal Reserve Banks created Victory Funds to strategize campaigns in coalition with commercial banks, businesses, and volunteers. In addition to propaganda posters, they used pamphlets, patriotic rallies, and the newly popular radio. The ultimate goal was to popularize contributing to the war effort on the home front.
Between World War I and World War II, radios exploded in popularity, and by the start of World War II, most American families had a radio in their homes. On the airwaves, Americans heard the pleas of famous performers and could tune into the Federal Reserve's variety show, The Treasury Star Parade, which was ripe with propaganda. This is not to say the film industry did not get involved. For example, Disney produced a short film, The Spirit of '43, featuring Donald Duck paying his income taxes.
During the war, Oscars were made of plaster, rather than their typical bronze with gold plating, to support the rationing of scarce commodities.
Propaganda used memorable and impactful slogans to mobilize the public. Often, they painted a picture of a unified America rallying against the evil Axis powers.
But what happened with America's large military after World War II? Well, America entered another war known as the Cold War. Although there was never any direct military conflict, the Soviet Union and the United States were desperate to prove their military's dominance. As a result, both countries worked hard to expand their military's capabilities, including in the arena of nuclear warfare. So, even though World War II was over, America continued to expand and fund the military, strengthening the military industrial complex.
The American government financed World War II through taxation and domestic borrowing.
During World War II. financing the war effort meant collecting enough funding to assure American military dominance.
The American public financed World War II via government programs.
The war was financed via the income tax and liberty bonds.
What were the two major ways the American government financed World War II?
taxation
What form of taxation expanded/increased as a result of the war effort?
the income tax
How did liberty bonds work?
Citizens bought liberty bonds from the government with the promise of being paid back, plus interest, at a later date.
Liberty bonds had a minimum rate of $25.
False
What government organization controlled consumer prices?
The Office of Price Administration
What organizations founded by the Federal Reserve banks helped to strategize the marketing of liberty bonds?
Victory Funds
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