Rockoff judges that the overall impact of these programs on reallocating resources was "rather small." Timing played a role, since some of the agencies were only established once the United States entered the war, and they took time to begin fulfilling their roles. government also attempted to guide economic activity via centralized price and production controls administered by the War Industries Board, the Food Administration, and the Fuel Administration. As Rockoff notes, "patriotic motives were not sufficient to alter market prices of assets during the war."Īs part of the war effort, the U.S. The prevalence of patriotic themes created social pressure to purchase the "Liberty bonds" (and, after the armistice, the "Victory bonds"), but in practice the new bondholders did not make a tangible personal sacrifice in buying war bonds, since the yields on these debt instruments were comparable to those on standard municipal bonds at the time. Meanwhile, Treasury Secretary William Gibbs McAdoo crisscrossed the country peddling war bonds, even enlisting the help of Hollywood stars and Boy Scouts. The War Revenue Act of 1917 taxed "excess profits" - profits exceeding an amount determined by the rate of return on capital in a base period - by some 20 to 60 percent, and the tax rate on income starting at $50,000 rose from 1.5 percent in 1913-15 to more than 18 percent in 1918. war effort as follows: 22 percent in taxes, 58 percent through borrowings from the public, and 20 percent in money creation. Rockoff estimates the total cost of World War I to the United States at approximately $32 billion, or 52 percent of gross national product at the time. Overall, unemployment declined from 7.9 percent to 1.4 percent in this period, in part because workers were drawn in to new manufacturing jobs and because the military draft removed from many young men from the civilian labor force. Between 19, some 3 million people were added to the military and half a million to the government. federal spending which shifted national production from civilian to war goods. entered the war."Įntry into the war in 1917 unleashed massive U.S. "Real plant and equipment were added, and because they were added in response to demands from other countries already at war, they were added precisely in those sectors where they would be needed once the U.S. neutrality made the ultimate conversion of the economy to a wartime basis easier than it otherwise would have been," writes Rockoff. goods for the war and later as the United States itself joined the battle. But a 44-month economic boom ensued from 1914 to 1918, first as Europeans began purchasing U.S. mobilization and financing for the war, Rockoff concludes that perhaps the greatest impact of World War I was a shift in the landscape of ideas about economics and about the proper role of government in economic activities. Economy in World War I (NBER Working Paper No. economy change in some fundamental and lasting ways as a result of that war? NBER Research Associate Hugh Rockoff addresses these questions in his recent study Until It's Over, Over There: The U.S. The total cost of World War I to the United States (was) approximately $32 billion, or 52 percent of gross national product at the time.ĭid World War I produce a major economic break from the past in the United States? Did the U.S. Transportation Economics in the 21st Century. Training Program in Aging and Health Economics.
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