The 1940s Business and the Economy: Overview

At the end of the 1930s, the American economy was still struggling with unemployment, militant labor unions, and a lack of demand for goods. But as Europe collapsed into conflict in 1939, the United States began to escape the effects of the Great Depression (1930–39). American businesses sold goods such as steel to European countries. When the allied nations (led by France and Great Britain) ran short of money, the Roosevelt administration funded their purchases of weapons, ships, and aircraft. In 1940, the U.S. government policy was one of helping the allied cause but avoiding direct involvement in the war. By supplying arms to the democratic countries, the United States hoped to become the "arsenal of democracy."

During the 1930s, Congress had heard evidence that big business had pushed the United States into World War I (1914–18) because bankers and arms manufacturers had wanted to protect their investments in Europe. By 1940, American involvement in another European war was unthinkable for most politicians. For many businesses, however, the European war was damaging their markets. They wanted to intervene. When the Japanese bombed the American fleet at Pearl Harbor on December 7, 1941, the policy of isolation disappeared overnight. Within weeks, American businesses had begun full-scale wartime production.

For almost a decade, the Roosevelt administration had been wary of big business. But after the attack on Pearl Harbor, business leaders volunteered to work for the government. These "dollar a year" men kept their company salaries, but were paid a dollar a year as government consultants. By doing this, they managed to prevent the federal government from taking control of major industries. The federal government made deals with business to meet war needs. Agencies were set up to help control the kinds of goods being produced and to keep prices at reasonable levels. For example, munitions were ordered on a "cost plus" basis. This meant that manufacturers received their production costs plus a small profit agreed upon by all. The emphasis was on speed of production, not on efficiency. President Franklin D. Roosevelt said that he was changing his name from "Dr. New Deal" to "Dr. Win-the-War."

Wartime production levels finally put an end to the Great Depression. By 1946, unemployment was low, wages were at record levels, and the economy was booming. Labor shortages caused by the war meant that many women and teenagers had entered the labor market. Returning soldiers threatened to push unemployment back up after the war, but President Harry S Truman, Roosevelt's successor, used the GI Bill to put them through college instead. This eased the pressure on the economy and produced a better-educated workforce. Price controls imposed by the Office of Price Administration (OPA) ended on July 1, 1946. Almost immediately, prices jumped up, but this time American industry was ready to respond. Increased production of consumer goods pushed prices back down. In the postwar years, Americans bought huge numbers of cars, refrigerators, televisions, and other household appliances. The consumer age had begun.

Not everything about the postwar world was good for business, however. After the war, politicians and bankers tried to stop the world from being divided into economic areas closed to American trade. Several international agreements and organizations—The Marshall Plan, the World Bank, the International Monetary Fund (IMF), and the General Agreement on Tariffs and Trade (GATT)—were put in place to keep world markets open and to help the global economy recover. Unfortunately, the former Soviet Union refused to help with any rebuilding that had strings attached. It absorbed several countries of Eastern Europe to form a closed economic area isolated behind the so-called Iron Curtain. The scene was set for the cold war, a forty-year nonmilitary standoff between western nations and the Soviet Union.