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The American Economy during World War II

Christopher J. Tassava

For the United States, World War II and the Great Depression constituted the most important economic event of the twentieth century. The war’s effects were varied and far-reaching. The war decisively ended the depression itself. The federal government emerged from the war as a potent economic actor, able to regulate economic activity and to partially control the economy through spending and consumption. American industry was revitalized by the war, and many sectors were by 1945 either sharply oriented to defense production (for example, aerospace and electronics) or completely dependent on it (atomic energy). The organized labor movement, strengthened by the war beyond even its depression-era height, became a major counterbalance to both the government and private industry. The war’s rapid scientific and technological changes continued and intensified trends begun during the Great Depression and created a permanent expectation of continued innovation on the part of many scientists, engineers, government officials and citizens. Similarly, the substantial increases in personal income and frequently, if not always, in quality of life during the war led many Americans to foresee permanent improvements to their material circumstances, even as others feared a postwar return of the depression. Finally, the war’s global scale severely damaged every major economy in the world except for the United States, which thus enjoyed unprecedented economic and political power after 1945.

The Great Depression

The global conflict which was labeled World War II emerged from the Great Depression, an upheaval which destabilized governments, economies, and entire nations around the world. In Germany, for instance, the rise of Adolph Hitler and the Nazi party occurred at least partly because Hitler claimed to be able to transform a weakened Germany into a self-sufficient military and economic power which could control its own destiny in European and world affairs, even as liberal powers like the United States and Great Britain were buffeted by the depression.

In the United States, President Franklin Roosevelt promised, less dramatically, to enact a “New Deal” which would essentially reconstruct American capitalism and governance on a new basis. As it waxed and waned between 1933 and 1940, Roosevelt’s New Deal mitigated some effects of the Great Depression, but did not end the economic crisis. In 1939, when World War II erupted in Europe with Germany’s invasion of Poland, numerous economic indicators suggested that the United States was still deeply mired in the depression. For instance, after 1929 the American gross domestic product declined for four straight years, then slowly and haltingly climbed back to its 1929 level, which was finally exceeded again in 1936. (Watkins, 2002; Johnston and Williamson, 2004)

Unemployment was another measure of the depression’s impact. Between 1929 and 1939, the American unemployment rate averaged 13.3 percent (calculated from “Corrected BLS” figures in Darby, 1976, 8). In the summer of 1940, about 5.3 million Americans were still unemployed — far fewer than the 11.5 million who had been unemployed in 1932 (about thirty percent of the American workforce) but still a significant pool of unused labor and, often, suffering citizens. (Darby, 1976, 7. For somewhat different figures, see Table 3 below.)

In spite of these dismal statistics, the United States was, in other ways, reasonably well prepared for war. The wide array of New Deal programs and agencies which existed in 1939 meant that the federal government was markedly larger and more actively engaged in social and economic activities than it had been in 1929. Moreover, the New Deal had accustomed Americans to a national government which played a prominent role in national affairs and which, at least under Roosevelt’s leadership, often chose to lead, not follow, private enterprise and to use new capacities to plan and administer large-scale endeavors.

Preparedness and Conversion

As war spread throughout Europe and Asia between 1939 and 1941, nowhere was the federal government’s leadership more important than in the realm of “preparedness” — the national project to ready for war by enlarging the military, strengthening certain allies such as Great Britain, and above all converting America’s industrial base to produce armaments and other war materiel rather than civilian goods. “Conversion” was the key issue in American economic life in 1940-1942. In many industries, company executives resisted converting to military production because they did not want to lose consumer market share to competitors who did not convert. Conversion thus became a goal pursued by public officials and labor leaders. In 1940, Walter Reuther, a high-ranking officer in the United Auto Workers labor union, provided impetus for conversion by advocating that the major automakers convert to aircraft production. Though initially rejected by car-company executives and many federal officials, the Reuther Plan effectively called the public’s attention to America’s lagging preparedness for war. Still, the auto companies only fully converted to war production in 1942 and only began substantially contributing to aircraft production in 1943.

Even for contemporary observers, not all industries seemed to be lagging as badly as autos, though. Merchant shipbuilding mobilized early and effectively. The industry was overseen by the U.S. Maritime Commission (USMC), a New Deal agency established in 1936 to revive the moribund shipbuilding industry, which had been in a depression since 1921, and to ensure that American shipyards would be capable of meeting wartime demands. With the USMC supporting and funding the establishment and expansion of shipyards around the country, including especially the Gulf and Pacific coasts, merchant shipbuilding took off. The entire industry had produced only 71 ships between 1930 and 1936, but from 1938 to 1940, commission-sponsored shipyards turned out 106 ships, and then almost that many in 1941 alone (Fischer, 41). The industry’s position in the vanguard of American preparedness grew from its strategic import — ever more ships were needed to transport American goods to Great Britain and France, among other American allies — and from the Maritime Commission’s ability to administer the industry through means as varied as construction contracts, shipyard inspectors, and raw goading of contractors by commission officials.

Many of the ships built in Maritime Commission shipyards carried American goods to the European allies as part of the “Lend-Lease” program, which was instituted in 1941 and provided another early indication that the United States could and would shoulder a heavy economic burden. By all accounts, Lend-Lease was crucial to enabling Great Britain and the Soviet Union to fight the Axis, not least before the United States formally entered the war in December 1941. (Though scholars are still assessing the impact of Lend-Lease on these two major allies, it is likely that both countries could have continued to wage war against Germany without American aid, which seems to have served largely to augment the British and Soviet armed forces and to have shortened the time necessary to retake the military offensive against Germany.) Between 1941 and 1945, the U.S. exported about $32.5 billion worth of goods through Lend-Lease, of which $13.8 billion went to Great Britain and $9.5 billion went to the Soviet Union (Milward, 71). The war dictated that aircraft, ships (and ship-repair services), military vehicles, and munitions would always rank among the quantitatively most important Lend-Lease goods, but food was also a major export to Britain (Milward, 72).

Pearl Harbor was an enormous spur to conversion. The formal declarations of war by the United States on Japan and Germany made plain, once and for all, that the American economy would now need to be transformed into what President Roosevelt had called “the Arsenal of Democracy” a full year before, in December 1940. From the perspective of federal officials in Washington, the first step toward wartime mobilization was the establishment of an effective administrative bureaucracy.

War Administration

From the beginning of preparedness in 1939 through the peak of war production in 1944, American leaders recognized that the stakes were too high to permit the war economy to grow in an unfettered, laissez-faire manner. American manufacturers, for instance, could not be trusted to stop producing consumer goods and to start producing materiel for the war effort. To organize the growing economy and to ensure that it produced the goods needed for war, the federal government spawned an array of mobilization agencies which not only often purchased goods (or arranged their purchase by the Army and Navy), but which in practice closely directed those goods’ manufacture and heavily influenced the operation of private companies and whole industries.

Though both the New Deal and mobilization for World War I served as models, the World War II mobilization bureaucracy assumed its own distinctive shape as the war economy expanded. Most importantly, American mobilization was markedly less centralized than mobilization in other belligerent nations. The war economies of Britain and Germany, for instance, were overseen by war councils which comprised military and civilian officials. In the United States, the Army and Navy were not incorporated into the civilian administrative apparatus, nor was a supreme body created to subsume military and civilian organizations and to direct the vast war economy.

Instead, the military services enjoyed almost-unchecked control over their enormous appetites for equipment and personnel. With respect to the economy, the services were largely able to curtail production destined for civilians (e.g., automobiles or many non-essential foods) and even for war-related but non-military purposes (e.g., textiles and clothing). In parallel to but never commensurate with the Army and Navy, a succession of top-level civilian mobilization agencies sought to influence Army and Navy procurement of manufactured goods like tanks, planes, and ships, raw materials like steel and aluminum, and even personnel. One way of gauging the scale of the increase in federal spending and the concomitant increase in military spending is through comparison with GDP, which itself rose sharply during the war. Table 1 shows the dramatic increases in GDP, federal spending, and military spending.

Table 1: Federal Spending and Military Spending during World War II

(dollar values in billions of constant 1940 dollars)

Nominal GDP Federal Spending Defense Spending
Year total $ % increase total $ % increase % of GDP total $ % increase % of GDP % of federal spending
1940 101.4 9.47 9.34% 1.66 1.64% 17.53%
1941 120.67 19.00% 13.00 37.28% 10.77% 6.13 269.28% 5.08% 47.15%
1942 139.06 15.24% 30.18 132.15% 21.70% 22.05 259.71% 15.86% 73.06%
1943 136.44 -1.88% 63.57 110.64% 46.59% 43.98 99.46% 32.23% 69.18%
1944 174.84 28.14% 72.62 14.24% 41.54% 62.95 43.13% 36.00% 86.68%
1945 173.52 -0.75% 72.11 -0.70% 41.56% 64.53 2.51% 37.19% 89.49%

Sources: 1940 GDP figure from “Nominal GDP: Louis Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1789 — Present,” Economic History Services, March 2004, available at (accessed 27 July 2005). 1941-1945 GDP figures calculated using Bureau of Labor Statistics, “CPI Inflation Calculator,” available at Federal and defense spending figures from Government Printing Office, “Budget of the United States Government: Historical Tables Fiscal Year 2005,” Table 6.1—Composition of Outlays: 1940—2009 and Table 3.1—Outlays by Superfunction and Function: 1940—2009.

Preparedness Agencies

To oversee this growth, President Roosevelt created a number of preparedness agencies beginning in 1939, including the Office for Emergency Management and its key sub-organization, the National Defense Advisory Commission; the Office of Production Management; and the Supply Priorities Allocation Board. None of these organizations was particularly successful at generating or controlling mobilization because all included two competing parties. On one hand, private-sector executives and managers had joined the federal mobilization bureaucracy but continued to emphasize corporate priorities such as profits and positioning in the marketplace. On the other hand, reform-minded civil servants, who were often holdovers from the New Deal, emphasized the state’s prerogatives with respect to mobilization and war making. As a result of this basic division in the mobilization bureaucracy, “the military largely remained free of mobilization agency control” (Koistinen, 502).

War Production Board

In January 1942, as part of another effort to mesh civilian and military needs, President Roosevelt established a new mobilization agency, the War Production Board, and placed it under the direction of Donald Nelson, a former Sears Roebuck executive. Nelson understood immediately that the staggeringly complex problem of administering the war economy could be reduced to one key issue: balancing the needs of civilians — especially the workers whose efforts sustained the economy — against the needs of the military — especially those of servicemen and women but also their military and civilian leaders.

Though neither Nelson nor other high-ranking civilians ever fully resolved this issue, Nelson did realize several key economic goals. First, in late 1942, Nelson successfully resolved the so-called “feasibility dispute,” a conflict between civilian administrators and their military counterparts over the extent to which the American economy should be devoted to military needs during 1943 (and, by implication, in subsequent war years). Arguing that “all-out” production for war would harm America’s long-term ability to continue to produce for war after 1943, Nelson convinced the military to scale back its Olympian demands. He thereby also established a precedent for planning war production so as to meet most military and some civilian needs. Second (and partially as a result of the feasibility dispute), the WPB in late 1942 created the “Controlled Materials Plan,” which effectively allocated steel, aluminum, and copper to industrial users. The CMP obtained throughout the war, and helped curtail conflict among the military services and between them and civilian agencies over the growing but still scarce supplies of those three key metals.

Office of War Mobilization

By late 1942 it was clear that Nelson and the WPB were unable to fully control the growing war economy and especially to wrangle with the Army and Navy over the necessity of continued civilian production. Accordingly, in May 1943 President Roosevelt created the Office of War Mobilization and in July put James Byrne — a trusted advisor, a former U.S. Supreme Court justice, and the so-called “assistant president” — in charge. Though the WPB was not abolished, the OWM soon became the dominant mobilization body in Washington. Unlike Nelson, Byrnes was able to establish an accommodation with the military services over war production by “acting as an arbiter among contending forces in the WPB, settling disputes between the board and the armed services, and dealing with the multiple problems” of the War Manpower Commission, the agency charged with controlling civilian labor markets and with assuring a continuous supply of draftees to the military (Koistinen, 510).

Beneath the highest-level agencies like the WPB and the OWM, a vast array of other federal organizations administered everything from labor (the War Manpower Commission) to merchant shipbuilding (the Maritime Commission) and from prices (the Office of Price Administration) to food (the War Food Administration). Given the scale and scope of these agencies’ efforts, they did sometimes fail, and especially so when they carried with them the baggage of the New Deal. By the midpoint of America’s involvement in the war, for example, the Civilian Conservation Corps, the Works Progress Administration, and the Rural Electrification Administration — all prominent New Deal organizations which tried and failed to find a purpose in the mobilization bureaucracy — had been actually or virtually abolished.


However, these agencies were often quite successful in achieving their respective, narrower aims. The Department of the Treasury, for instance, was remarkably successful at generating money to pay for the war, including the first general income tax in American history and the famous “war bonds” sold to the public. Beginning in 1940, the government extended the income tax to virtually all Americans and began collecting the tax via the now-familiar method of continuous withholdings from paychecks (rather than lump-sum payments after the fact). The number of Americans required to pay federal taxes rose from 4 million in 1939 to 43 million in 1945. With such a large pool of taxpayers, the American government took in $45 billion in 1945, an enormous increase over the $8.7 billion collected in 1941 but still far short of the $83 billion spent on the war in 1945. Over that same period, federal tax revenue grew from about 8 percent of GDP to more than 20 percent. Americans who earned as little as $500 per year paid income tax at a 23 percent rate, while those who earned more than $1 million per year paid a 94 percent rate. The average income tax rate peaked in 1944 at 20.9 percent (“Fact Sheet: Taxes”).

War Bonds

All told, taxes provided about $136.8 billion of the war’s total cost of $304 billion (Kennedy, 625). To cover the other $167.2 billion, the Treasury Department also expanded its bond program, creating the famous “war bonds” hawked by celebrities and purchased in vast numbers and enormous values by Americans. The first war bond was purchased by President Roosevelt on May 1, 1941 (“Introduction to Savings Bonds”). Though the bonds returned only 2.9 percent annual interest after a 10-year maturity, they nonetheless served as a valuable source of revenue for the federal government and an extremely important investment for many Americans. Bonds served as a way for citizens to make an economic contribution to the war effort, but because interest on them accumulated slower than consumer prices rose, they could not completely preserve income which could not be readily spent during the war. By the time war-bond sales ended in 1946, 85 million Americans had purchased more than $185 billion worth of the securities, often through automatic deductions from their paychecks (“Brief History of World War Two Advertising Campaigns: War Loans and Bonds”). Commercial institutions like banks also bought billions of dollars of bonds and other treasury paper, holding more than $24 billion at the war’s end (Kennedy, 626).

Price Controls and the Standard of Living

Fiscal and financial matters were also addressed by other federal agencies. For instance, the Office of Price Administration used its “General Maximum Price Regulation” (also known as “General Max”) to attempt to curtail inflation by maintaining prices at their March 1942 levels. In July, the National War Labor Board (NWLB; a successor to a New Deal-era body) limited wartime wage increases to about 15 percent, the factor by which the cost of living rose from January 1941 to May 1942. Neither “General Max” nor the wage-increase limit was entirely successful, though federal efforts did curtail inflation. Between April 1942 and June 1946, the period of the most stringent federal controls on inflation, the annual rate of inflation was just 3.5 percent; the annual rate had been 10.3 percent in the six months before April 1942 and it soared to 28.0 percent in the six months after June 1946 (Rockoff, “Price and Wage Controls in Four Wartime Periods,” 382).With wages rising about 65 percent over the course of the war, this limited success in cutting the rate of inflation meant that many American civilians enjoyed a stable or even improving quality of life during the war (Kennedy, 641). Improvement in the standard of living was not ubiquitous, however. In some regions, such as rural areas in the Deep South, living standards stagnated or even declined, and according to some economists, the national living standard barely stayed level or even declined (Higgs, 1992).

Labor Unions

Labor unions and their members benefited especially. The NWLB’s “maintenance-of-membership” rule allowed unions to count all new employees as union members and to draw union dues from those new employees’ paychecks, so long as the unions themselves had already been recognized by the employer. Given that most new employment occurred in unionized workplaces, including plants funded by the federal government through defense spending, “the maintenance-of-membership ruling was a fabulous boon for organized labor,” for it required employers to accept unions and allowed unions to grow dramatically: organized labor expanded from 10.5 million members in 1941 to 14.75 million in 1945 (Blum, 140). By 1945, approximately 35.5 percent of the non-agricultural workforce was unionized, a record high.

The War Economy at High Water

Despite the almost-continual crises of the civilian war agencies, the American economy expanded at an unprecedented (and unduplicated) rate between 1941 and 1945. The gross national product of the U.S., as measured in constant dollars, grew from $88.6 billion in 1939 — while the country was still suffering from the depression — to $135 billion in 1944. War-related production skyrocketed from just two percent of GNP to 40 percent in 1943 (Milward, 63).

As Table 2 shows, output in many American manufacturing sectors increased spectacularly from 1939 to 1944, the height of war production in many industries.

Table 2: Indices of American Manufacturing Output (1939 = 100)

1940 1941 1942 1943 1944
Aircraft 245 630 1706 2842 2805
Munitions 140 423 2167 3803 2033
Shipbuilding 159 375 1091 1815 1710
Aluminum 126 189 318 561 474
Rubber 109 144 152 202 206
Steel 131 171 190 202 197

Source: Milward, 69.

Expansion of Employment

The wartime economic boom spurred and benefited from several important social trends. Foremost among these trends was the expansion of employment, which paralleled the expansion of industrial production. In 1944, unemployment dipped to 1.2 percent of the civilian labor force, a record low in American economic history and as near to “full employment” as is likely possible (Samuelson). Table 3 shows the overall employment and unemployment figures during the war period.

Table 3: Civilian Employment and Unemployment during World War II

(Numbers in thousands)

1940 1941 1942 1943 1944 1945
All Non-institutional Civilians 99,840 99,900 98,640 94,640 93,220 94,090
Civilian Labor Force Total 55,640 55,910 56,410 55,540 54,630 53,860
% of Population 55.7% 56% 57.2% 58.7% 58.6% 57.2%
Employed Total 47,520 50,350 53,750 54,470 53,960 52,820
% of Population 47.6% 50.4% 54.5% 57.6% 57.9% 56.1%
% of Labor Force 85.4% 90.1% 95.3% 98.1% 98.8% 98.1%
Unemployed Total 8,120 5,560 2,660 1,070 670 1,040
% of Population 8.1% 5.6% 2.7% 1.1% 0.7% 1.1%
% of Labor Force 14.6% 9.9% 4.7% 1.9% 1.2% 1.9%

Source: Bureau of Labor Statistics, “Employment status of the civilian noninstitutional population, 1940 to date.” Available at

Not only those who were unemployed during the depression found jobs. So, too, did about 10.5 million Americans who either could not then have had jobs (the 3.25 million youths who came of age after Pearl Harbor) or who would not have then sought employment (3.5 million women, for instance). By 1945, the percentage of blacks who held war jobs — eight percent — approximated blacks’ percentage in the American population — about ten percent (Kennedy, 775). Almost 19 million American women (including millions of black women) were working outside the home by 1945. Though most continued to hold traditional female occupations such as clerical and service jobs, two million women did labor in war industries (half in aerospace alone) (Kennedy, 778). Employment did not just increase on the industrial front. Civilian employment by the executive branch of the federal government — which included the war administration agencies — rose from about 830,000 in 1938 (already a historical peak) to 2.9 million in June 1945 (Nash, 220).

Population Shifts

Migration was another major socioeconomic trend. The 15 million Americans who joined the military — who, that is, became employees of the military — all moved to and between military bases; 11.25 million ended up overseas. Continuing the movements of the depression era, about 15 million civilian Americans made a major move (defined as changing their county of residence). African-Americans moved with particular alacrity and permanence: 700,000 left the South and 120,000 arrived in Los Angeles during 1943 alone. Migration was especially strong along rural-urban axes, especially to war-production centers around the country, and along an east-west axis (Kennedy, 747-748, 768). For instance, as Table 4 shows, the population of the three Pacific Coast states grew by a third between 1940 and 1945, permanently altering their demographics and economies.

Table 4: Population Growth in Washington, Oregon, and California, 1940-1945

(populations in millions)

1940 1941 1942 1943 1944 1945 % growth
Washington 1.7 1.8 1.9 2.1 2.1 2.3 35.3%
Oregon 1.1 1.1 1.1 1.2 1.3 1.3 18.2%
California 7.0 7.4 8.0 8.5 9.0 9.5 35.7%
Total 9.8 10.3 11.0 11.8 12.4 13.1 33.7%

Source: Nash, 222.

A third wartime socioeconomic trend was somewhat ironic, given the reduction in the supply of civilian goods: rapid increases in many Americans’ personal incomes. Driven by the federal government’s abilities to prevent price inflation and to subsidize high wages through war contracting and by the increase in the size and power of organized labor, incomes rose for virtually all Americans — whites and blacks, men and women, skilled and unskilled. Workers at the lower end of the spectrum gained the most: manufacturing workers enjoyed about a quarter more real income in 1945 than in 1940 (Kennedy, 641). These rising incomes were part of a wartime “great compression” of wages which equalized the distribution of incomes across the American population (Goldin and Margo, 1992). Again focusing on three war-boom states in the West, Table 5 shows that personal-income growth continued after the war, as well.

Table 5: Personal Income per Capita in Washington, Oregon, and California, 1940 and 1948

1940 1948 % growth
Washington $655 $929 42%
Oregon $648 $941 45%
California $835 $1,017 22%

Source: Nash, 221. Adjusted for inflation using Bureau of Labor Statistics, “CPI Inflation Calculator,” available at

Despite the focus on military-related production in general and the impact of rationing in particular, spending in many civilian sectors of the economy rose even as the war consumed billions of dollars of output. Hollywood boomed as workers bought movie tickets rather than scarce clothes or unavailable cars. Americans placed more legal wagers in 1943 and 1944, and racetracks made more money than at any time before. In 1942, Americans spent $95 million on legal pharmaceuticals, $20 million more than in 1941. Department-store sales in November 1944 were greater than in any previous month in any year (Blum, 95-98). Black markets for rationed or luxury goods — from meat and chocolate to tires and gasoline — also boomed during the war.

Scientific and Technological Innovation

As observers during the war and ever since have recognized, scientific and technological innovations were a key aspect in the American war effort and an important economic factor in the Allies’ victory. While all of the major belligerents were able to tap their scientific and technological resources to develop weapons and other tools of war, the American experience was impressive in that scientific and technological change positively affected virtually every facet of the war economy.

The Manhattan Project

American techno-scientific innovations mattered most dramatically in “high-tech” sectors which were often hidden from public view by wartime secrecy. For instance, the Manhattan Project to create an atomic weapon was a direct and massive result of a stunning scientific breakthrough: the creation of a controlled nuclear chain reaction by a team of scientists at the University of Chicago in December 1942. Under the direction of the U.S. Army and several private contractors, scientists, engineers, and workers built a nationwide complex of laboratories and plants to manufacture atomic fuel and to fabricate atomic weapons. This network included laboratories at the University of Chicago and the University of California-Berkeley, uranium-processing complexes at Oak Ridge, Tennessee, and Hanford, Washington, and the weapon-design lab at Los Alamos, New Mexico. The Manhattan Project climaxed in August 1945, when the United States dropped two atomic weapons on Hiroshima and Nagasaki, Japan; these attacks likely accelerated Japanese leaders’ decision to seek peace with the United States. By that time, the Manhattan Project had become a colossal economic endeavor, costing approximately $2 billion and employing more than 100,000.

Though important and gigantic, the Manhattan Project was an anomaly in the broader war economy. Technological and scientific innovation also transformed less-sophisticated but still complex sectors such as aerospace or shipbuilding. The United States, as David Kennedy writes, “ultimately proved capable of some epochal scientific and technical breakthroughs, [but] innovated most characteristically and most tellingly in plant layout, production organization, economies of scale, and process engineering” (Kennedy, 648).


Aerospace provides one crucial example. American heavy bombers, like the B-29 Superfortress, were highly sophisticated weapons which could not have existed, much less contributed to the air war on Germany and Japan, without innovations such as bombsights, radar, and high-performance engines or advances in aeronautical engineering, metallurgy, and even factory organization. Encompassing hundreds of thousands of workers, four major factories, and $3 billion in government spending, the B-29 project required almost unprecedented organizational capabilities by the U.S. Army Air Forces, several major private contractors, and labor unions (Vander Meulen, 7). Overall, American aircraft production was the single largest sector of the war economy, costing $45 billion (almost a quarter of the $183 billion spent on war production), employing a staggering two million workers, and, most importantly, producing over 125,000 aircraft, which Table 6 describe in more detail.

Table 6: Production of Selected U.S. Military Aircraft (1941-1945)

Bombers 49,123
Fighters 63,933
Cargo 14,710
Total 127,766

Source: Air Force History Support Office


Shipbuilding offers a third example of innovation’s importance to the war economy. Allied strategy in World War II utterly depended on the movement of war materiel produced in the United States to the fighting fronts in Africa, Europe, and Asia. Between 1939 and 1945, the hundred merchant shipyards overseen by the U.S. Maritime Commission (USMC) produced 5,777 ships at a cost of about $13 billion (navy shipbuilding cost about $18 billion) (Lane, 8). Four key innovations facilitated this enormous wartime output. First, the commission itself allowed the federal government to direct the merchant shipbuilding industry. Second, the commission funded entrepreneurs, the industrialist Henry J. Kaiser chief among them, who had never before built ships and who were eager to use mass-production methods in the shipyards. These methods, including the substitution of welding for riveting and the addition of hundreds of thousands of women and minorities to the formerly all-white and all-male shipyard workforces, were a third crucial innovation. Last, the commission facilitated mass production by choosing to build many standardized vessels like the ugly, slow, and ubiquitous “Liberty” ship. By adapting well-known manufacturing techniques and emphasizing easily-made ships, merchant shipbuilding became a low-tech counterexample to the atomic-bomb project and the aerospace industry, yet also a sector which was spectacularly successful.

Reconversion and the War’s Long-term Effects

Reconversion from military to civilian production had been an issue as early as 1944, when WPB Chairman Nelson began pushing to scale back war production in favor of renewed civilian production. The military’s opposition to Nelson had contributed to the accession by James Byrnes and the OWM to the paramount spot in the war-production bureaucracy. Meaningful planning for reconversion was postponed until 1944 and the actual process of reconversion only began in earnest in early 1945, accelerating through V-E Day in May and V-J Day in September.

The most obvious effect of reconversion was the shift away from military production and back to civilian production. As Table 7 shows, this shift — as measured by declines in overall federal spending and in military spending — was dramatic, but did not cause the postwar depression which many Americans dreaded. Rather, American GDP continued to grow after the war (albeit not as rapidly as it had during the war; compare Table 1). The high level of defense spending, in turn, contributed to the creation of the “military-industrial complex,” the network of private companies, non-governmental organizations, universities, and federal agencies which collectively shaped American national defense policy and activity during the Cold War.

Table 7: Federal Spending, and Military Spending after World War II

(dollar values in billions of constant 1945 dollars)

Nominal GDP Federal Spending Defense Spending
Year Total % increase total % increase % of GDP Total % increase % of GDP % of federal
1945 223.10 92.71 1.50% 41.90% 82.97 4.80% 37.50% 89.50%
1946 222.30 -0.36% 55.23 -40.40% 24.80% 42.68 -48.60% 19.20% 77.30%
1947 244.20 8.97% 34.5 -37.50% 14.80% 12.81 -70.00% 5.50% 37.10%
1948 269.20 9.29% 29.76 -13.70% 11.60% 9.11 -28.90% 3.50% 30.60%
1949 267.30 -0.71% 38.84 30.50% 14.30% 13.15 44.40% 4.80% 33.90%
1950 293.80 9.02% 42.56 9.60% 15.60% 13.72 4.40% 5.00% 32.20%

1945 GDP figure from “Nominal GDP: Louis Johnston and Samuel H. Williamson, “The Annual Real and Nominal GDP for the United States, 1789 — Present,” Economic History Services, March 2004, available at (accessed 27 July 2005). 1946-1950 GDP figures calculated using Bureau of Labor Statistics, “CPI Inflation Calculator,” available at Federal and defense spending figures from Government Printing Office, “Budget of the United States Government: Historical Tables Fiscal Year 2005,” Table 6.1—Composition of Outlays: 1940—2009 and Table 3.1—Outlays by Superfunction and Function: 1940—2009.

Reconversion spurred the second major restructuring of the American workplace in five years, as returning servicemen flooded back into the workforce and many war workers left, either voluntarily or involuntarily. For instance, many women left the labor force beginning in 1944 — sometimes voluntarily and sometimes involuntarily. In 1947, about a quarter of all American women worked outside the home, roughly the same number who had held such jobs in 1940 and far off the wartime peak of 36 percent in 1944 (Kennedy, 779).

G.I. Bill

Servicemen obtained numerous other economic benefits beyond their jobs, including educational assistance from the federal government and guaranteed mortgages and small-business loans via the Serviceman’s Readjustment Act of 1944 or “G.I. Bill.” Former servicemen thus became a vast and advantaged class of citizens which demanded, among other goods, inexpensive, often suburban housing; vocational training and college educations; and private cars which had been unobtainable during the war (Kennedy, 786-787).

The U.S.’s Position at the End of the War

At a macroeconomic scale, the war not only decisively ended the Great Depression, but created the conditions for productive postwar collaboration between the federal government, private enterprise, and organized labor, the parties whose tripartite collaboration helped engender continued economic growth after the war. The U.S. emerged from the war not physically unscathed, but economically strengthened by wartime industrial expansion, which placed the United States at absolute and relative advantage over both its allies and its enemies.

Possessed of an economy which was larger and richer than any other in the world, American leaders determined to make the United States the center of the postwar world economy. American aid to Europe ($13 billion via the Economic Recovery Program (ERP) or “Marshall Plan,” 1947-1951) and Japan ($1.8 billion, 1946-1952) furthered this goal by tying the economic reconstruction of West Germany, France, Great Britain, and Japan to American import and export needs, among other factors. Even before the war ended, the Bretton Woods Conference in 1944 determined key aspects of international economic affairs by establishing standards for currency convertibility and creating institutions such as the International Monetary Fund and the precursor of the World Bank.

In brief, as economic historian Alan Milward writes, “the United States emerged in 1945 in an incomparably stronger position economically than in 1941″… By 1945 the foundations of the United States’ economic domination over the next quarter of a century had been secured”… [This] may have been the most influential consequence of the Second World War for the post-war world” (Milward, 63).

Selected References

Adams, Michael C.C. The Best War Ever: America and World War II. Baltimore: Johns Hopkins University Press, 1994.

Anderson, Karen. Wartime Women: Sex Roles, Family Relations, and the Status of Women during World War II. Westport, CT: Greenwood Press, 1981.

Air Force History Support Office. “Army Air Forces Aircraft: A Definitive Moment.” U.S. Air Force, 1993. Available at

Blum, John Morton. V Was for Victory: Politics and American Culture during World War II. New York: Harcourt Brace, 1976.

Bordo, Michael. “The Gold Standard, Bretton Woods, and Other Monetary Regimes: An Historical Appraisal.” NBER Working Paper No. 4310. April 1993.

“Brief History of World War Two Advertising Campaigns.” Duke University Rare Book, Manuscript, and Special Collections, 1999. Available at

Brody, David. “The New Deal and World War II.” In The New Deal, vol. 1, The National Level, edited by John Braeman, Robert Bremmer, and David Brody, 267-309. Columbus: Ohio State University Press, 1975.

Connery, Robert. The Navy and Industrial Mobilization in World War II. Princeton: Princeton University Press, 1951.

Darby, Michael R. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934-1941.” Journal of Political Economy 84, no. 1 (February 1976): 1-16.

Field, Alexander J. “The Most Technologically Progressive Decade of the Century.” American Economic Review 93, no 4 (September 2003): 1399-1414.

Field, Alexander J. “U.S. Productivity Growth in the Interwar Period and the 1990s.” (Paper presented at “Understanding the 1990s: the Long Run Perspective” conference, Duke University and the University of North Carolina, March 26-27, 2004) Available at

Fischer, Gerald J. A Statistical Summary of Shipbuilding under the U.S. Maritime Commission during World War II. Washington, DC: Historical Reports of War Administration; United States Maritime Commission, no. 2, 1949.

Friedberg, Aaron. In the Shadow of the Garrison State. Princeton: Princeton University Press, 2000.

Gluck, Sherna Berger. Rosie the Riveter Revisited: Women, the War, and Social Change. Boston: Twayne Publishers, 1987.

Goldin, Claudia. “The Role of World War II in the Rise of Women’s Employment.” American Economic Review 81, no. 4 (September 1991): 741-56.

Goldin, Claudia and Robert A. Margo. “The Great Compression: Wage Structure in the United States at Mid-Century.” Quarterly Journal of Economics 107, no. 2 (February 1992): 1-34.

Harrison, Mark, editor. The Economics of World War II: Six Great Powers in International Comparison. Cambridge: Cambridge University Press, 1998.

Higgs, Robert. “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s.” Journal of Economic History 52, no. 1 (March 1992): 41-60.

Holley, I.B. Buying Aircraft: Materiel Procurement for the Army Air Forces. Washington, DC: U.S. Government Printing Office, 1964.

Hooks, Gregory. Forging the Military-Industrial Complex: World War II’s Battle of the Potomac. Urbana: University of Illinois Press, 1991.

Janeway, Eliot. The Struggle for Survival: A Chronicle of Economic Mobilization in World War II. New Haven: Yale University Press, 1951.

Jeffries, John W. Wartime America: The World War II Home Front. Chicago: Ivan R. Dee, 1996.

Johnston, Louis and Samuel H. Williamson. “The Annual Real and Nominal GDP for the United States, 1789 – Present.” Available at Economic History Services, March 2004, URL:; accessed 3 June 2005.

Kennedy, David M. Freedom from Fear: The American People in Depression and War, 1929-1945. New York: Oxford University Press, 1999.

Kryder, Daniel. Divided Arsenal: Race and the American State during World War II. New York: Cambridge University Press, 2000.

Lane, Frederic, with Blanche D. Coll, Gerald J. Fischer, and David B. Tyler. Ships for Victory: A History of Shipbuilding under the U.S. Maritime Commission in World War II. Baltimore: Johns Hopkins University Press, 1951; republished, 2001.

Koistinen, Paul A.C. Arsenal of World War II: The Political Economy of American Warfare, 1940-1945. Lawrence, KS: University Press of Kansas, 2004.

Lichtenstein, Nelson. Labor’s War at Home: The CIO in World War II. New York: Cambridge University Press, 1982.

Lingeman, Richard P. Don’t You Know There’s a War On? The American Home Front, 1941-1945. New York: G.P. Putnam’s Sons, 1970.

Milkman, Ruth. Gender at Work: The Dynamics of Job Segregation by Sex during World War II. Urbana: University of Illinois Press, 1987.

Milward, Alan S. War, Economy, and Society, 1939-1945. Berkeley: University of California Press, 1979.

Nash, Gerald D. The American West Transformed: The Impact of the Second World War. Lincoln: University of Nebraska Press, 1985.

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

O’Neill, William L. A Democracy at War: America’s Fight at Home and Abroad in World War II. New York: Free Press, 1993.

Overy, Richard. How the Allies Won. New York: W.W. Norton, 1995.

Rockoff, Hugh. “The Response of the Giant Corporations to Wage and Price Control in World War II.” Journal of Economic History 41, no. 1 (March 1981): 123-28.

Rockoff, Hugh. “Price and Wage Controls in Four Wartime Periods.” Journal of Economic History 41, no. 2 (June 1981): 381-401.

Samuelson, Robert J., “Great Depression.” The Concise Encyclopedia of Economics. Indianapolis: Liberty Fund, Inc., ed. David R. Henderson, 2002. Available at

U.S. Department of the Treasury, “Fact Sheet: Taxes,” n. d. Available at

U.S. Department of the Treasury, “Introduction to Savings Bonds,” n.d. Available at

Vander Meulen, Jacob. Building the B-29. Washington, DC: Smithsonian Institution Press, 1995.

Watkins, Thayer. “The Recovery from the Depression of the 1930s.” 2002. Available at

Citation: Tassava, Christopher. “The American Economy during World War II”. EH.Net Encyclopedia, edited by Robert Whaples. February 10, 2008. URL

Arsenal of World War II: The Political Economy of American Warfare, 1940-1945

Author(s):Koistinen, Paul A.C.
Reviewer(s):Tassava, Christopher

Published by EH.NET (January 2005)

Paul A.C. Koistinen, Arsenal of World War II: The Political Economy of American Warfare, 1940-1945. Lawrence, KS: University Press of Kansas, 2004. xiii + 657 pp. $49.95 (cloth), ISBN: 0-7006-1308-0.

Reviewed for EH.NET by Christopher Tassava, Metropolitan State University.

In this monumental and magisterial work, Paul A.C. Koistinen, professor emeritus at California State University-Northridge, addresses World War II, the key moment in the history of the subject he has spent a lifetime studying: “the political economy of American war — the means that the nation has employed to mobilize its economic resources for defense and hostilities” (p. 1). Over the course of Arsenal of World War II, Koistinen demonstrates, more deeply and broadly than any other scholar, how the federal government directed the American war effort.

Arsenal of World War II is not a general history of American mobilization for World War II, but rather an authoritative examination of five key organizations: the National Defense Advisory Commission, the Office of Production Management, the Supply Priorities and Allocations Board, the War Production Board, and finally, the Office of War Mobilization. The NDAC is the subject of the book’s first and briefest part, OPM/SPAB feature in the second part, and WPB/OWM are the focus of the third and longest part. (Two additional chapters address labor supply and labor relations from 1940 to 1945.)

These major organizations and the scores of others that composed the “alphabet soup” of the wartime federal government were tied together in constituting but also opposing “the growing mobilization alliance between the corporate community, whose members predominated in the WPB and its forerunners, and the armed services, which were responsible for most wartime demand” (p. 8). The nearly two hundred-page section on the War Production Board and Office of War Mobilization is particularly useful as an insightful study of how these two agencies balanced the competing demands of the military services, industrial contractors, and civilians.

As Koistinen explicitly points out in numerous places and implicitly demonstrates with the book’s overall argument, the WPB/OWM achieved only limited success in directing the war economy because both organizations had to work against the strong alliance of the armed forces and industry. “The military remained acutely aware that its long-run interests rested with the corporate structure. … Industry reciprocated since the army and navy negotiated and let contracts. Consequently, more often than not, the armed services and corporate America stood together on mobilization policy even though, at times, their immediate interest differed” (p. 503). As a result, “the World War II American military assumed levels of power that were unusual, and unwise, in a democratic country” (p. 505). Koistinen does not here explore the implications of this bold assertion, which seems to point back to the book’s scholarly genesis in the charged academic climate of the 1960s. Rather, Koistinen uses the book to show how the military and industry cooperated to block the ambitions of the civilian mobilization agencies from NDAC to OWM. Koistinen’s analytic skill knits together the numerous battles between the military and its would-be overseers, orienting them to his overarching argument and preventing Arsenal of World War II from devolving into an unreflective chronicle of that war-within-the-war.

By so ably summarizing and analyzing particular episodes of war mobilization, Koistinen also provides invaluable thumbnail sketches of key episodes in the history of American mobilization. In this sense, the book can serve as a kind of analytic reference work on American mobilization. Two entries in this ostensible encyclopedia are especially impressive. First, Koistinen provides an excellent account of the 1942 feasibility dispute, the War Production Board’s greatest trial by fire (pp. 303-314). The military services predictably argued that American victory depended on all-out production for their needs in 1943, while the WPB held that such a push would irreversibly destabilize the economy, harming the long-term war effort. After bitter in-fighting, the WPB prevailed; more-or-less rational planning of military and civilian requirements obtained throughout the rest of the war — but at great cost, for losing the feasibility debate permanently hardened the military against the WPB. In a second beautifully succinct look at a key moment in mobilization, Koistinen contextualizes the long debate over national service legislation, which would have mandated the conscription of civilian workers for industrial jobs that the military felt were underserved (pp. 390-401). Strongly advocated by the armed forces but few others, the “labor draft” dispute clearly demonstrated the military’s interest in maximizing its control over the civilian economy (and its distrust of organized labor). The debate only withered in 1945 when the Allies’ imminent victory showed that civilian administration of the labor-supply system had worked. In this pair of case studies and numerous others — such as his running castigation of General Brehon Somervell, the blowhard nemesis of civilian administrators throughout the war — Koistinen shows his mastery of the minutiae of American mobilization.

As is unfortunately common in contemporary publishing, the book suffers from numerous relative minor typographical flaws (including an orphaned parenthesis on page 1!) and, more troublingly, a binding error which resulted in the omission of pages 211-242 in the review copy. More substantively, Koistinen does not — and, truthfully, could not — adequately address every major mobilization agency. Despite his claim that “no significant … administration involved in economic mobilization … is neglected” (p. 8), for instance, Koistinen does not substantially examine the U.S. Maritime Commission. Shipbuilding ranked second only to aircraft manufacturing as a sector of the mobilized economy, and the Maritime Commission was responsible for forty percent of all shipbuilding, yet this sibling of the Army and Navy appears only briefly in Arsenal of World War II. (These statistics come from Frederic Lane, Ships for Victory: A History of Shipbuilding under the U.S. Maritime Commission in World War II [Baltimore: Johns Hopkins University Press, 1951], 10).

Overall, however, these issues are more than offset by the density and clarity of the content of Arsenal of World War II and by other features of the book, from its lucid organization and prose to Koistinen’s substantial endnotes and his useful bibliographic essay. Even dedicated students of World War II’s political economy will profit from the essay, which charts Koistinen’s use of sources such as the government’s official postwar histories and key primary records like those in the U.S. National Archives, among others.

Arsenal of World War II is the fourth in a projected five-volume series; the previous three works covered the periods from 1606-1865 (Beating Plowshares into Swords, 1996), 1865-1919 (Mobilizing for Modern War, 1997), and 1920-1939 (Planning War, Pursuing Peace, 1998). The fifth will deal with the Cold War. Judging by the scale and scope of Koistinen’s accomplishment here, students of the institutional and political-economic underpinnings of American warfare should eagerly anticipate the final volume in Koistinen’s series.

A word of caution, however: readers interested in the social or cultural aspects of America’s engagement in World War II will here find little of direct interest. They should look first to other overviews of American culture and society during the war (David Kennedy’s recent Freedom from Fear [1999], John Morton Blum’s classic V Was for Victory [1976], or even Richard Lingeman’s dated but useful Don’t You Know There’s a War On? [1970]). With that grounding, they can then come back to Koistinen for a masterful account of the war’s domestic political-economic backdrop, a chronicle which has no peer in the current literature.

Christopher Tassava, Ph.D., is a member of the community faculty at Metropolitan State University (St. Paul, MN). He is currently revising his dissertation, a study of World War II merchant shipbuilding on San Francisco Bay, for publication.

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Monetary War and Peace: London, Washington, Paris, and the Tripartite Agreement of 1936

Author(s):Max Harris
Reviewer(s):T.G. Otte

Published by EH.Net (November 2021).

Author: Max Harris

Reviewer: T.G. Otte

Max Harris. Monetary War and Peace: London, Washington, Paris, and the Tripartite Agreement of 1936. Cambridge: Cambridge University Press, 2021. Xiii + 279 pp. £85 (hardcover), ISBN 978-1-108-48495-4.

Reviewed for EH.Net by T.G. Otte, Professor of Diplomatic History, University of East Anglia.


The history of interwar international finance presents something of a paradox. In many respects, it is a well-known story; and yet, it is not known well enough. Max Harris’ study of the Tripartite Agreement of 26 September 1936, which provided for informal consultation and cooperation on managing their respective currencies between the governments of between France, Great Britain and the United States and their central banks, throws this peculiarity into sharper relief.

In his seminal study The World in Depression, 1929-1939 (1973), Charles Kindleberger called the agreement a “milestone,” though he immediately qualified this statement. Above all, he gave no indication along which particular road this way-marker was to be found, and in which direction it might have pointed. Harris offers an answer of sorts. Monetary War and Peace is an exercise in macroeconomic history. Its chief concern is with the efforts, conceptual and practical, of central bankers and finance ministry officials to grapple with the financial and broader politico-strategic consequences of the collapse of international finances after the First World War and then the global financial crisis of 1929-31.

The inner workings of the international economy during the “golden age” before 1914, of course, are well known and well understood, as are the attempts by various Western governments to adjust their economic and financial arrangements to the altered landscape of the post-war years. Harris offers a succinct and sure-footed account of this and of the decision of Britain’s National Government, an emergency coalition formed to deal with the financial crisis, to go “off” the gold standard. Thereafter, for the first time in almost two hundred years, there was no precedent to guide policymaking. Senior officials at the Bank of England and the Treasury had to feel their way forward and refine what instruments were to hand and proved useful. In Britain’s case the Exchange Equalisation Account, established in 1932, turned out to be the chief monetary innovation. Endowed with sufficient reserves, it allowed the British authorities to intervene on the currency exchange to prop up Sterling. The Americans followed suit, two years later, with the Exchange Stabilization Fund. The EEA and ESF were the principal instruments for currency intervention. Their actions, in turn, as Harris shows with admirable lucidity and fine sense for relevant detail, were the source of considerable transatlantic friction in the mid-1930s.

Harris’ treatment is enriched by vignettes of key central bank and treasury personnel, primarily in Washington and London. In his telling, Bank of England economists such as Harry Siepmann and George Bolton or David Whaley (né Sigismund Schloss) emerge as perhaps unlikely heroes of this story. So does Henry Morgenthau, the slow-speaking, apple-farmer-turned-Treasury-Secretary and Roosevelt confidante. These men had a shrewd appreciation of the disruptive effect of competitive currency interventions and the mutual suspicions they sowed and then entrenched on both sides of the Atlantic. Above all, they understood that cooperation between the democratic nations in the field of finance might counterbalance the increasingly disruptive actions of the revisionist powers on the continent of Europe.

To no small extent, the Tripartite Agreement obscured fundamental differences between Paris, London, and Washington. And yet, it established in the place of the now defunct gold bloc a system of gold clearing, and this helped to stabilise the currency system, gold convertibility remaining the glue that held the whole edifice together. It was informal but transparent; it was focused on day-to-day transactions, but it helped to engrain habits of constant exchanges between the three sides (Belgium, the Netherlands and Switzerland joined the agreement in November 1936). “Ni accord, ni entente, uniquement coopération journalière,” it worked well enough. The absence of carefully coordinated action, for instance during the gold scare in April 1937, however, meant that it did not work as well as it might have.

In the face of the exigencies of war the arrangements of September 1936 did not survive. Both Britain and France, for instance, introduced exchange controls. But as the war progressed and policymakers began to contemplate post-war international arrangements, they drew on the experiences of the Tripartite Agreement and the spirit of 1936. In Harris’ reading, the agreement, then, was a milestone on the road to Bretton Woods and the post-1945 international financial system.

In examining the Tripartite Agreement in detail Max Harris has done a considerable service to scholars of economic and international history alike. His analysis is forensic, and his judgment is shrewd. Similarly, his tentative conclusions as to the possible lessons of 1936 for present-day, post-hegemonic international politics are sensible. There is much to praise in Monetary War and Peace. If it has a defect, it is that is essentially an Anglo-American story, based on British and American archives. French decision-making is reconstructed largely with the aid of Anglo-American sources, and although Belgian, Dutch, French and Swiss archival materials are listed in the bibliography, these offer no more than a decorative sprinkling. As with other works of macroeconomic history, there is sometimes a lack of granularity with regard to government decision-making. Much of the reconstruction of it is refracted here through Bank of England and Treasury lenses. The concerns of other departments, especially the foreign ministries, are given little consideration, even though most took a strong interest in finance; and Harris’ grasp of government decision-making is occasionally less surefooted. Some of the material which used to support conclusions about Treasury thinking, for example, consists of copies of Foreign Office despatches forwarded to the Treasury for information and kept in that department’s files. Further, it would have been interesting and useful to examine whether Neville Chamberlain, a confirmed America-sceptic as Chancellor of the Exchequer, was influenced by experiences of the Tripartite Agreement after his move from No. 11 to No. 10 Downing Street in May 1937 (just after the gold scare).

None of this, however, should detract from the merits of this work, which are considerable.


T.G. Otte is Professor of Diplomatic History at the University of East Anglia. His works include Statesman of Europe: A Life of Sir Edward Grey (Allen Lane (Penguin), 2020) and July Crisis: The World’s Descent into War, Summer 1914 (Cambridge University Press, 2014).


Copyright (c) 2021 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (November 2021). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Macroeconomics and Fluctuations
Geographic Area(s):Europe
North America
Time Period(s):20th Century: Pre WWII

Corporate Conservatives Go to War: How the National Association of Manufacturers Planned to Restore American Free Enterprise, 1939-1948

Author(s):Whitham, Charlie
Reviewer(s):Phillips-Fein, Kim

Published by EH.Net (December 2020)

Charlie Whitham, Corporate Conservatives Go to War: How the National Association of Manufacturers Planned to Restore American Free Enterprise, 1939-1948. Cham, Switzerland: Palgrave Macmillan, 2020. xvii + 400 pp. $89 (hardback), ISBN: 978-3-030-43907-1.

Reviewed for EH.Net by Kim Phillips-Fein, Department of History and Gallatin School of Individualized Study, New York University.


Recent political histories of the twentieth century have shifted attention to World War II as a critical moment for understanding not only the place of the United States in the world, but also the trajectory of domestic economic policy. While this literature builds on an earlier generation of foundational scholarship on the evolution of liberalism and labor-management relations in the war years — including Alan Brinkley’s The End of Reform (1995), Nelson Lichtenstein’s Labor’s War at Home (1982) and Howell John Harris’ The Right to Manage (1982) — more recent work has been especially focused on the way that World War II transformed American political economy. In particular, James Sparrow’s Warfare State (2011) and Mark Wilson’s Destructive Creation (2016) addressed the extent to which the war both consolidated the changes of the New Deal and inaugurated a new fiscal era, as well as the impact that the massive public investment of the war years had on the capacity of the Allies to achieve victory and the shape of American industry in the postwar years.

Charlie Whitham’s Corporate Conservatives Go to War: How the National Association of Manufacturers Planned to Restore American Free Enterprise, 1939-1948 marks a useful contribution to this body of work. The National Association of Manufacturers has long been portrayed by scholars as a hidebound organization committed in a knee-jerk way to a reactionary set of economic policies. (As one political scientist put it in the title of a 1953 journal article: “NAM: Influential Lobby or Kiss of Death?”)

Whitham does not exactly overturn this interpretation, but he challenges it by portraying the cross-currents of thought and politics within NAM over the wartime years. He suggests that NAM was divided between moderate and conservative businessmen who were compelled to listen to and respond to each other over this time of crisis. The “exposure” of NAM to the “growing and increasingly vibrant community” of liberal business leaders who were invested in planning for the postwar era prodded the organization to abandon its “pre-war, negativistic” position of stubborn resistance to the reforms of the New Deal, pressing them to advocate a more sophisticated conservatism (p. 15).

The war years, Whitham shows, were a time of opportunity and peril for American business. On the one hand, private business was able to portray itself as largely responsible for economic revival as the nation shifted to war production. Despite the massive federal investment that enabled economic growth, corporate leaders presented private enterprise as the moving force. At the same time, though, the very dependence on public contracts and on direct federal investment could not help but raise the question: Would these continue after the war? And what would happen to the power of labor unions, which had grown so much during the war thanks to active federal pressure — would labor be pushed back as at the end of World War I, or would American industry be compelled to accept its power in peacetime as well?

The leaders of NAM were deeply concerned with these issues from early in the war. Even as they were well aware that their role in war production offered a chance to rehabilitate their public image, and even as they appreciated the recovery of economic growth in the war, they viewed the future with trepidation. As early as 1942, NAM formed a Post-War Problems Committee to investigate and propose solutions to the difficulties of reconversion. Frederick C. Crawford of Thompson Products took over as NAM president in 1943. Whitham draws heavily on Crawford’s archives (in addition to those of NAM) to show that he carefully sought to reinvigorate NAM’s image, to embrace new public relations strategies and to rehabilitate the organization in the public mind — to increase “public acceptance” of NAM “while advocating an extremely vigorous labor program, and yet not draw fire as a labor baiting organization,” as Crawford put it (p. 114).

Of special note is Whitham’s description of the “Soldiers of Production” campaign, an elaborate program coordinated by the National Industrial Information Council (a branch of NAM) whereby companies were encouraged to hold rallies on company time. Workers were gathered to listen to music played over the public address system, join in the singing of the national anthem led by a company executive, and then to receive a 20-minute talk by a NAM leader emphasizing “industry’s magnificent contribution” to the war effort and the future “postwar world of production and plenty” (p. 135). Anticipating later efforts — such as those of Lemuel Boulware at General Electric in the 1950s or even the corporate rallies of Wal-Mart — to use work hours and managerial authority to inspire a free-market politics in employees, the “Soldiers of Production” campaigns represented NAM’s attempt to mimic the grass-roots strategies of unions, only turning them to different political ends.

By the end of the war, NAM had moved away from its earlier intransigent opposition to recognizing unions at all, instead backing the Taft-Hartley Act which hemmed in labor power but conceded its legitimacy. The organization had also become cautiously more sympathetic to internationalist policies, helping to rally business support for the Marshall Plan.

Whitham remains tightly focused on the internal politics of NAM throughout, and the result is a book that may appear to some readers overly narrow. Lacking broader context about wartime strikes, ideological tensions and political conflicts during World War II, it can be difficult to fully apprehend exactly why business leaders were so anxious. Jennifer Delton’s recently-published study of NAM (The Industrialists, 2020) and Lawrence Glickman’s Free Enterprise (2019) are both helpful companions to this book, providing a larger framework for Whitham’s detailed history and a sense of how the brief period he chronicles fits into NAM’s larger history and that of free-market thought. Yet at the same time, through his close attention to the war years, Whitham helps us to see NAM — so often viewed as a static, one-note organization — as an entity that was riven by conflict and by disagreement over the right way forward during the 1940s. Far from simply being able to exert its influence, NAM leaders felt compelled to put substantial resources and effort into strategizing about how to influence federal policy and public opinion — thus raising important questions about the fraught relationship between economic might and political power in a democracy.


Kim Phillips-Fein’s most recent book is Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics (Metropolitan Books, 2017).

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2020). All EH.Net reviews are archived at

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The Story of Silver: How the White Metal Shaped America and the Modern World

Author(s):Silber, William L.
Reviewer(s):Richardson, Gary

Published by EH.Net (January 2020)

William L. Silber, The Story of Silver: How the White Metal Shaped America and the Modern World. Princeton: Princeton University Press, 2019. xx + 340 pp. $30 (cloth), ISBN: 978-0-691-17538-6.

Reviewed for EH.Net by Gary Richardson, Department of Economics, University of California at Irvine.


Silver’s “power to provoke passion and fury in the American heartland” should have convinced the Warren Commission to investigate whether John F. Kennedy was assassinated “for downgrading the silver subsidy” (p. 104). This provocative point and a series of stories about the precious metal appear in William Silber’s The Story of Silver: How the White Metal Shaped America and the Modern World.

Silber’s book on silver is entertaining and enlightening. It is published by a university press and has the apparatus of a technical tome, including 64 pages of footnotes and nine pages of bibliography. It should, however, appeal to a wide audience, including anyone interested in American or financial history or who likes to read a well-written story. Silber is an amazing architect of palatable prose. He grabs readers’ attention and keeps them turning pages by incessantly inserting intriguing anecdotes and amusing asides.

Silver’s story is worth telling. The white metal serves as a store of value and means of payment. It has important uses in electronics, photography, housewares, and jewelry. Silver coins and bullion formed the monetary foundation for many regions of the world, including Europe from the fifteenth through eighteenth centuries and China and the Middle East well into the twentieth century. Debates about silver’s monetary use played a large role in the history of the United States, beginning before the founding of the republic and continuing through Great Depression. Silber’s book focuses on the U.S. experience.

The first tenth of the text takes the tale from Alexander Hamilton through William Jennings Bryan. As the first Secretary of Treasury, Hamilton took the lead among the Founding Fathers constructing the U.S. monetary system. He established a bimetallic standard, in which gold and silver served as legal tender. He hoped both gold and silver would circulate. The latter’s abundance would promote economic growth and price stability, in an era when scarcity of coins often generated deflation. Increases in the mint price of the yellow metal, Gresham’s law, the Coinage Act of 1873, and the Gold Standard Act of 1900, however, meant that gold served as the medium of exchange in America throughout the nineteenth century and twentieth centuries.

William Jennings Bryan was the most famous of the politicians who urged returning to a bimetallic standard. Byran represented the mass of Americans living west of the Mississippi, who believed that more circulating currency would bring higher prices for crops, livestock, and farmland, helping them to pay the mortgages on their farms and machinery. Bryan’s “Cross of Gold” speech at the Democratic convention in July 1896 asserted that free coinage of silver would promote prosperity for the common man and free the U.S. from subservience to the gold-standard nations in Europe.

Silber’s concise coverage of nineteenth-century American monetary history is fun to read. I have decided to assign these chapters to the undergraduates in my class on American monetary history, because many of them refuse to read boring books on the topic. Silber’s treatment covers key historical points, clearly explains the forces underlying the monetary system, and rivets readers’ attention. The material is not novel and requires some caveats that I will discuss later, but nothing this entertaining has been written on the topic since Frank Baum penned The Wizard of Oz as a monetary allegory.

The second storyline spans Chapters 4 through 8, or about one-fifth of the book. It involves China, Japan, and the Roosevelt administration’s monetary policies. The historical information in these chapters is novel. You will not find the story told completely, or at all, in books and articles about this era or in widely used textbooks on American history. The story is also important, because it illuminates a clear case where political institutions set up long ago profoundly influenced world events in ways which could not have been anticipated at the moment of creation.

Franklin Roosevelt became president during the depths of the Great Depression. The economy had collapsed because a shortage of money lowered prices, raised interest rates, bankrupted households and firms, and dislocated industry and trade. Roosevelt campaigned on a promise to raise prices back to the level they had been before the onset of the contraction. To fulfill his promise, Roosevelt needed to resuscitate the banking system and expand the money supply, which would, in turn, raise prices, lower interest rates, encourage consumption, and increase investment. Roosevelt’s efforts focused on the financial system, the Federal Reserve, and the gold standard. Silber’s depiction of these events resembles that in standard history textbooks, although he keeps his account lively by gossiping about the personal lives of the protagonists. Roosevelt, for example, after being stricken with polio in 1921 and withdrawing from public life to battle the disease, failed at “a number of business ventures during the 1920s, but the outcomes were as predictable as if a crown prince were running a flea market. FDR’s misadventures included investing in a fleet of blimps to fly passengers from New York to Chicago, introducing vending machines that dispensed premoistened postage stamps, trading in the German mark, and trying to corner the live lobster market. His losses in lobsters should have restrained his foray into manipulating the silver market after he was elected president in 1932, but he never made the connection” (p. 39). In my opinion, self-adhesive stamps were actually a good idea, although perhaps ahead of their time. Given the difficulties of devising glue with suitable properties, the United States Postal Service introduced the its first successful self-adhesive stamp in 1989.

During Roosevelt’s race to resuscitate the American economy, silver was a sideshow. Roosevelt signed the Silver Purchase Act, which authorized the Treasury to buy huge quantities of the metal at gradually increasing prices, and then to use that silver to back currency in circulation. These purchases may have marginally increased the money supply but were not necessary for resuscitating the monetary system. Reforming the gold standard and rescuing the banking system accomplished that task. Silver purchases were, however, necessary to convince senators from Western, silver-mining states to support Roosevelt’s political program. These senators had political influence in Washington, where they chaired key Congressional subcommittees and controlled votes needed to pass the New Deal through Congress.

High school and college history textbooks mention Roosevelt’s silver policies in passing, if at all. The same is true for most scholarship on the subject. Silber shows that this minor event in America played a central role in world affairs and had a huge impact on the lives of one-quarter of humanity. Silver was the foundation of China’s monetary system. China’s currency was backed by silver, not gold as in most of the rest of the world. America’s campaign of massive silver purchases raised the price of silver on the world market. Silver’s skyrocketing price deflated China’s economy. High silver prices encouraged investors to withdraw silver from Chinese banks and sell it in London. China’s money supply declined, as did prices and incomes. Rising silver prices also increased the value of China’s currency, the yuan, in foreign exchange markets, which reduced China’s exports to the rest of the world where currency was not based on a silver standard.

The silver shock put China in desperate straits. China’s economy could not bear the strain from the silver drain. China’s central bank and financial system lacked the skills and knowledge to alleviate the affliction. China’s economic depression deepened. Unrest spread. China’s central government was already fighting on several fronts. A communist insurrection festered in the hinterland. Regional warlords sought to increase their authority at the expense of the national government. Japanese armies, which already occupied north-eastern China, renewed their advances in coastal, central, and southern China.

The Roosevelt administration was warned that its silver policies, which were put in place to purchase the allegiance of a few senators from silver-mining states and to appeal to Democratic voters who still believed in the mythical powers of silver touted by turn of the century populists such as William Jennings Bryan, would weaken China and facilitate Japan’s expansion. Domestic politics, however, overrode international possibilities. China’s weakened condition encouraged Japanese aggression. To protect China, the Roosevelt administration eventually embargoed shipments of oil and other raw materials destined for Japan. To break the embargo, Japan attacked Pearl Harbor, the Philippines, and United States and Allied possessions throughout the Pacific. Japan’s offensive brought the United States into World War II and eventually brought the Communist Party to power in China. This important and insightful story is the heart of Silber’s book. It should be more widely known and taught. The book convinced me that I should include this information in courses that I teach on economic history.

The next chapter discusses silver’s use during World War II. The take-away point is that silver conducts electricity well. The United States had lots of silver stockpiled at the United States Military Academy at West Point, New York. The Treasury lent much of this metal to the Manhattan District of the Corps of Engineers to help produce atomic bombs. So, Roosevelt’s silver purchase policies, which induced silver to flow from Beijing to New York and London, weakened China, and facilitated Japan’s expansion in Asia, also helped the United States build Little Boy and Fat Man, the atomic bombs dropped on Hiroshima and Nagasaki, which convinced Japan to withdraw its troops from China and surrender to the Allied coalition.

After the book discusses the demonetization of silver during the Kennedy administration and the role this had in the Kennedy assassination, the tone changes. The book stops discussing silver’s use as a means of payment and begins discussing its use as a speculative asset. A lot of information is packed in this portion of the text, which spans about forty percent of the book. These chapters describe how commodity markets function and the strategies of famous men who speculated in silver. They also provide investment advice.

A focus is the Hunt brothers, some of the richest men in America, who tried and failed to get even richer by cornering the market for silver. Another notable character is the investment sage from Omaha, Warren Buffett. These chapters are entertaining mainly for their gossip about and character studies of famous and infamous investors. These chapters remind me of the novel Crazy Rich Asians, but the cast of characters is a bunch of rich white men with colorful backstories, profligate tastes, and more greed than good sense (with the exception of Warren Buffett, who just has good sense). Another apt comparison would be the television franchise Real Housewives, but with a focus on rich husbands, their over-the-top investment antics, and their conspicuous consumption.

Overall, the book is entertaining, contains novel insights, and is well researched. I will recommend it to friends and assign portions to my undergraduate students. My students may need guidance, however, on how to interpret portions of the text. The book is filled with metaphors, analogies, funny phrases, wry humor, and outlandish conjectures. Silber writes, for example, that the tension leading to the duel between Aaron Burr and Alexander Hamilton “probably” began because one studied at the College of New Jersey, now Princeton University, and the other studied at King’s College, now Columbia University, making them “natural Ivy League rival[s].” When I read this, I understood it was a joke. Respected biographies of Burr and Hamilton do not indicate that college rivalries played a role in their animosity. Silber’s version of events could not be true, literally, since the Ivy League’s existence (and the use of the term) began in the twentieth century. An undergraduate with less knowledge of American history, however, might miss the humor, believe the statement, and remember it, because readers tend to remember the provocative over the mundane.

A similar danger lies in the hook that reels readers into the Kennedy chapter. I mentioned it at the beginning of this review: “the theory that Kennedy was murdered because he demonetized silver.” The chapter begins and ends with the theory. The last two sentences are: “However, murder for the sake of silver dollars seems excessive, a primitive response to a commercial conflict, perhaps understandable in the more violent nineteenth century but inconsistent with the more civilized twentieth. Or not?” (p. 118). Or not what, I wonder. The only place in this universe where the silver-policies-killed-Kennedy conspiracy theory exists is in the eleventh chapter of this book. The book cites no historical evidence of the idea. A footnote indicates the Warren Commission did not mention the theory among its catalogue of rumors, contentions, claims about, and potential causes of Kennedy’s assassination. The purpose of this provocative claim is to raise eyebrows and increase readership. It serves that purpose well, because it is not just untrue but absurd.

I worry, however, that readers who do not get the humor might take this claim seriously, particularly given its prominence and repetition in an academic book written by a famous scholar. We live in a world where conspiracy theories flourish. Fiction spreads faster than fact. The book contains numerous claims like the Kennedy conspiracy theory that could be misconstrued. As a reviewer (and a professor who will assign part of this text to his students), I want to give readers simple rules that will help them separate fact from fiction. I derive the rules from two observations. One, the author knows what is true and what is not. He indicates spuriousness with adverbs expressing uncertainty, such as perhaps, probably, and possibly. So, readers should be skeptical of all claims in sentences with adverbs like that. These claims are often false. Two, the author keeps readers’ attention by constructing paragraphs whose last sentences are intriguing and provocative. So, readers should also be wary of claims in the last sentences of paragraphs. They are often hyperboles or embellishments open to misinterpretation. Overall, readers should realize that when the last or second-to-last sentence in a paragraph contains an adverb expressing uncertainty, then the conjectures or claims in those sentences have no basis in fact. Ignore these sentences, I will instruct my students. Cross them out.

With that minor caution in mind, Silber’s book is insightful and enjoyable. It deserves to be widely read, particularly the chapters on Roosevelt’s silver policies and their impact on China. These chapters raise questions about the nature of the United States and why our political system at times pursues policies that benefit small groups of our citizens at the expense of not just the rest of our nation but the rest of the world.

Gary Richardson is the author (with Mark Carlson and Kris Mitchener) of “Arresting Banking Panics: Federal Reserve Liquidity Provision and the Forgotten Panic of 1929,” Journal of Political Economy.

This review was originally published in Regulation, Summer 2019.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Feeding the World: Brazil’s Transformation into a Modern Agricultural Economy

Author(s):Klein, Herbert S.
Luna, Francisco Vidal
Reviewer(s):Davis, C. Austin

Published by EH.Net (December 2019)

Herbert S. Klein and Francisco Vidal Luna, Feeding the World: Brazil’s Transformation into a Modern Agricultural Economy. New York: Cambridge University Press, 2019. xvii + 453 pp. $33 (paperback), ISBN: 978-1-108-46097-2.

Reviewed for EH.Net by C. Austin Davis, School of International Service, American University.

In Feeding the World: Brazil’s Transformation into a Modern Agricultural Economy, Herbert S. Klein and Francisco Vidal Luna describe Brazil as “continental.” Indeed, one thing that impresses about the transformation documented by the authors is its broad sweep. The dramatic modernization of Brazilian agriculture took place across an area larger than the continental United States. It included a diversity of crops and livestock cultivated in rain forest, savanna, and subtropical landscapes. But, despite the breadth of modernization, it is by no means uniform or complete. Productivity of land and labor evolved differently across a number of dimensions, including geography, commodity, and farmer characteristics. These are two central contributions of Klein and Luna’s work: first, to describe authoritatively Brazil’s agricultural development and, second, to develop hypotheses from the juxtaposition of broad and uneven progress.

This transition can be systematically observed via agricultural censuses, population censuses, and a range of other data sources. Klein and Luna use detailed, comprehensive, and high-quality data to chart the path of Brazilian agriculture. As late as 1960, they show, Brazil was globally competitive in only sugar and coffee, two crops that grew especially well in certain regions of Brazil. Today, deriving from eye-catching increases in productivity throughout the country, Brazil’s agricultural exports are diversified, including meat, corn, soy, and citrus, among other products.

Exploiting disaggregated data, Klein and Luna reveal the heterogeneity of progress. In three chapters each focusing on the experience of a single state, we see how the adoption of new agricultural practices differed significantly across space. Mato Grosso do Sul exemplifies the development of the cerrado, a vast savanna in central Brazil; the conversion of frontier plains into large soybean farms was facilitated by new varieties and practices, by large stretches of flat land well suited to mechanization, and by significant migration. Rio Grande do Sul entered the late twentieth century as a productive agricultural region with extensive vertical integration and a relative abundance of small commercial farms; since 1970, soybeans have become increasingly important, but the state has increased production of its diverse mix of crops and livestock products. For almost two hundred years, São Paulo has maintained its position as Brazil’s premiere agricultural producer, but it too experienced major change since 1960, with coffee being superseded by sugar, oranges, and pastoral products.

Disaggregating by establishment income, the authors highlight a bifurcation of Brazilian agriculture between large, modern, high-productivity farms and smaller, less productive farms. In a chapter on Brazil’s relatively modest land reforms, we learn that about two-thirds of Brazilian farms generate gross income below two times the minimum wage. Many of these have negative net income. Klein and Luna go on to emphasize regional differences in the distribution of land and the education of farmers, noting that the receipt of technical assistance is highly skewed towards larger farms with well-educated managers.

From the juxtaposition emerges a number of hypothesized causes for the changes in Brazilian agriculture. Klein and Luna develop these hypotheses by combining data with other sources describing events, policies, and institutional arrangements. Broad progress suggests an important role for policy or other forces operating at a national level. For instance, various schemes for subsidized credit, price controls, and regulatory stocks existed during the period of modernization. Many of these were phased out before or during the liberalization of the 1990s, when lowered trade barriers brought international competition to both input and output markets. The government developed a sophisticated network of research institutions to adapt and develop technologies for local conditions.

The authors also present more local explanations; they suggest the astounding expansion of soy cultivation in the Center-West region owes much to the development of transportation infrastructure. A lack of education may be to blame for persistent poverty and low productivity among the country’s many family farms. The reader’s attention is drawn to differences in industrial organization across products and regions. Finally, path dependence is suggested as an explanation for modern outcomes, with historical episodes of international migration and infrastructure development appearing to have lasting consequences.

So where does Klein and Luna’s analysis fit in the broader literature on the modernization of agriculture? In economics, this literature has several strands. One is macro oriented, developing models to explain cross-country productivity differences and the long-run dynamics of structural transformation. A few recent examples include Donovan (2019), Gollin and Udry (2019), Herrendorf and Schoellman (2015) and Lagakos and Waugh (2013). Another focuses on the micro-level determinants of technology adoption in agriculture. Some of these studies analyze historical episodes of technology adoption while others evaluate barriers to technology adoption in contemporary settings. Readers of this site may be acquainted with the historical research, but Alan Olmstead and Paul Rhode have made fine contributions, e.g. (Olmstead and Rhode, 1995). Economists have long been interested in developing-country adoption of agricultural technology, with research preceding the well-known Foster and Rosenzweig (1995) and continuing, for instance, through the Agricultural Technology Adoption Initiative ( Generally, this work aspires to credibly identify causal mechanisms through some combination of high-quality microdata, quasi-experimental variation, randomization, and theory.

Klein and Luna’s work relates to these literatures, but it is not fully contained by them. The book relates to the macro literature insofar as it documents the experience of a large country economy over many decades. They connect to the micro literature both through their use of microdata, from which they draw a rich description of Brazil’s agricultural transformation, and through their attention to causal mechanisms. The authors propose drivers of transformation, with special focus on policy-related explanations. Where the book departs from the economics literature, it is less concerned with developing formal models of structural transformation or rigorously estimating causal relationships from the data.

Reading as a microeconomist, it is these hypothesized drivers of transformation that consistently aroused my curiosity and further convinced me that Brazil offers the opportunity to study first-order questions related to structural change and technology adoption in agriculture. For instance, educational attainment is extremely low among small farm operators, but almost half the operators of large, highly productive farms are illiterate. How important is operator education, then, in productivity and technology adoption? Do the increases in productivity that characterize structural transformation originate within agriculture or result from changes in other sectors? Relatedly, factor prices receive limited quantitative analysis from Klein and Luna. But surely they alter farmer behavior? Can we separate the effects of historic events like the train and port investments in São Paulo from geographic characteristics of the state?

Structural change remains an essential topic in a world that where subsistence agriculture coexists with autopiloted combines, where wealthy, service-driven economies coexist with poor, agricultural economies. Combined with the looming uncertainties of climate change, Klein and Luna’s work towards understanding transformations in agriculture is more relevant than ever.

Donovan, K. (2019). Agricultural Risk, Intermediate Inputs, and Cross-Country Productivity Differences. Working Paper.

Foster, A. D., and Rosenzweig, M. R. (1995). Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture. Journal of Political Economy, 103(6), 1176-1209.

Gollin, D., and Udry, C. R. (2019). Heterogeneity, Measurement Error and Misallocation: Evidence from African Agriculture. NBER Working Paper 25440.

Herrendorf, B., and Schoellman, T. (2015). Why is Measured Productivity so Low in Agriculture? Review of Economic Dynamics, 4(18), 1003-1022.

Lagakos, D., and Waugh, M. (2013). Selection, Agriculture, and Cross-Country Productivity Differences. American Economic Review, 2(103), 948-980.

Manuelli, R. E., and Seshadri, A. (2014). Frictionless Technology Diffusion: The Case of Tractors. American Economic Review, 104(4), 1368-91.

Olmstead, A. L., and Rhode, P. W. (1995). Beyond the Threshold: An Analysis of the Characteristics and Behavior of Early Reaper Adopters. Journal of Economic History, 55(1), 27-57.
C. Austin Davis is an Assistant Professor of Economics at American University’s School of International Service and a Postdoctoral Associate at Yale University

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2019). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: WWII and post-WWII

American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold

Author(s):Edwards, Sebastian
Reviewer(s):Richardson, Gary

Sebastian Edwards, American Default: The Untold Story of FDR, the Supreme Court, and the Battle over Gold. Princeton: Princeton University Press, 2018. xxxiii + 252 pp. $30 (cloth), ISBN: 978-0-691-16188-4.

Reviewed for EH.Net by Gary Richardson, Department of Economics, University of California at Irvine.

The risk-free rate of return on investments is often considered to be the yield on United States government debt. “The risk-free rate is hypothetical,” Investopedia indicates, “as every investment has some type of risk associated with it. However, T-bills [United States Treasury debt obligations with a maturity of 52 weeks or less] are the closest investment possible to being risk-free for a couple of reasons.” The first is “the U.S. government has never defaulted on its debt obligations, even in times of severe economic stress.” Similar statements appear in Wikipedia’s entry on the risk-free interest rate as well as in scores of economics and finance textbooks used around the world. Sebastian Edwards’ new book, American Default: The Untold Story of FDR, the Supreme Court, and the Battle Over Gold, questions this concept underlying modern financial markets by asserting that the United States defaulted on federal debt during the 1930s, when it withdrew monetary gold from circulation and abrogated the gold clause in contracts, both public and private.

Before I delve into the details of Edwards’ insightful study, I want to give you an overall assessment of the book It is fascinating, well-written, and thoroughly researched. It provides new perspective on an important era of American history. It discusses the ideas, personalities, politics, economics, and finance underlying the principal policies by which the Roosevelt administration resuscitated the United States economy after the catastrophic contraction of the early 1930s. An academic press published the book, but the clarity of its prose and vividness of the narrative make it accessible to a general audience. The book should and will be widely read. It’s worth pondering and debating, and I will debate some aspects of it later in this review.

Edwards’ book asks provocative questions about fundamental features of the U.S. and international financial systems. The author lists these questions at two points in the book: the end of the introduction and beginning of the conclusion. The lists contain fifteen total queries. A short summary is:
• Did the United States default on federal government debt in 1934 when it abrogated the gold clause for government bonds (particularly the fourth Liberty Bond)?
• Why did the federal government abrogate the gold clause? Was this action necessary?
• Who made the key decisions during this episode and how did they justify their actions?
• What were the consequences for investors and for the economy as a whole, both in the United States and abroad?
• Could this happen again?

Edwards answers these questions over the course of 17 chapters plus an introduction, an appendix, a timeline, and a list describing the men around whom the story revolves. The introduction lays out the issues of interest. Chapters 1 through 15 narrate the story. The narrative revolves around policymakers, such as President Franklin Roosevelt, Senator Carter Glass, and members of the Supreme Court, and the men who advised them, including Roosevelt’s Brain Trust, whose initial members included Raymond Moley and Adolf Berle, law professors from Columbia University and Rexford Tugwell, an economics professor at Columbia. The narrative describes the decisions that these men made (or had to make), their rationales for making these decisions, and the state of knowledge and state of the world at the times the men made these decisions.

The narrative starts in March 1932, during the economic downturn now known as the Great Depression. A few pages describe the poverty and desperation imposed upon people from all walks of life. Nearly a quarter of the labor force experienced unemployment. Commodity prices declined more than half. These declines proved particularly hard on men and women running small businesses, such as family farmers who made up a quarter of the United States population. Declining farm prices accentuated farmers’ debt burden, since the nominal value of debts remained fixed. This forced farmers who wanted to pay their mortgages and crop loans to double production (which was often impossible) or cut consumption (particularly of durable goods like cars, radios, and clothing) — and forced other farmers (and eventually almost all farmers) to stop paying their debts, default on their loans, and face bankruptcy, which often resulted in the loss of lands and livelihoods.

Chapters 1 through 4 cover Roosevelt’s campaign platform and policies and the economic turmoil from November 1932 through February 1933. During these last five months of the Hoover administration, a nationwide panic drained funds from the banking system and gold from the vaults of the Federal Reserve. The public feared for the safety of deposits, and rushed to convert their claims against banks into coins and cash. The public (particularly foreign investors) also feared for the value of the dollar, since they anticipated that the Roosevelt administration might lower the gold content of U.S. currency or leave the gold standard all together, as had Britain and numerous other nations. In March, gold outflows forced the Federal Reserve Bank of New York below its gold reserve requirement. To prevent the New York Fed from shutting its doors, the newly inaugurated President Roosevelt declared a national banking holiday. This segment of the story ends by describing the policies that the Roosevelt administration implemented as it resuscitated the financial system and sparked economic recovery.

This review will not go into details about decisions and the logic underlying them. For that information, you should read the book, which presents the materials cogently and clearly. You may also peruse other recent readable treatments on the topic, including The Defining Moment (Alter, 2006), FDR: The First Hundred Days (Badger, 2008), Nothing to Fear (Cohen, 2009), and Freedom from Fear (Kennedy, 1999). All of these cover similar material and reach similar conclusions. I also recommend the memoirs of Herbert Hoover and Roosevelt’s principal advisors. A list appears in Edwards’ bibliography. To it, I recommend adding the memoir of Jesse Jones, who was head of the Reconstruction Finance Corporation, Fifty Billion Dollars: My Thirteen Years with the RFC (1951).

Chapters 5 through 10 describe the Roosevelt administration’s efforts to help the economy recover from the spring of 1933 through the winter of 1934. The administration believed a key cause of the catastrophic contraction was the devaluation of the dollar and decline in prices — particularly of farm commodities — that occurred during the 1920s and early 1930s. Prices of wholesale goods fell an average of 25% between 1926 and 1933. Consumer prices fell by the same amount. The average price of farm crops fell more than 66%. Declining prices made it difficult for farmers and other producers to earn sufficient profits to pay their debts, which were fixed in nominal terms, forcing families and firms to cut consumption and investment, in order to avoid bankruptcy, or forcing families and firms to default on their debts, which was often worse for them and which also put banks out of business, restricting the availability of credit, triggering banking panics, and leading to further economic contraction. The administration sought to alleviate this cycle of debt-deflation by convincing (or forcing) individuals and firms to redeposit funds in banks, encouraging banks to lend, and refilling the Federal Reserve’s vaults with gold. All of these actions would expand the money supply and eventually raise prices.

The administration also sought to speed the process by directly influencing commodity prices, particularly those traded on international markets, which had fallen substantially due to foreign governments’ decisions to devalue their own currencies, usually by abandoning the gold standard and allowing the price of their currencies to be determined by market forces. The quickest way to raise commodity prices and alter the exchange rate was to change the dollar price of gold. The federal government had lowered and raised gold’s dollar price in the past. The constitution provided Congress with the power to do so. Congress authorized the president to act, by raising the dollar price of gold up to 100% (or synonymously by cutting the gold content of dollar coins up to 50%), with the Thomas Amendment to the Agricultural Adjustment Act in May 1933. The Roosevelt administration used these powers to the utmost, periodically and persistently raising gold’s dollar price from the spring of 1933 through the winter of 1934. Roosevelt’s gold program concluded in January 1934, with the passage of the Gold Reserve Act, which set gold’s official price at $35 per troy ounce.

Gold clauses in contracts impeded this policy. An example was printed on Liberty Bonds: “The principal and interest hereof are payable in United States gold coin of the present standard of value.” Clauses like this were common in public and private contracts. Their intent was to protect creditors from declines in the value of currency or inflation, which is the same phenomenon but stated as an increase in the average price of goods. Gold clauses ensured lenders that they would be repaid with currency or gold coins with the same real value, in terms of the goods and services that they could purchase, as the funds that they had lent.

Gold clauses had a pernicious effect, however, when deflations and devaluation decisions of foreign governments reduced prices and economic activity. Then, gold clauses prevented governments from quickly and effectively remedying the situation by altering the money supply, interest rates, exchange rates, and prices to push the economy back toward equilibrium. In Chapter 16, Edwards admits monetary expansion was the optimal policy to pursue. He “strongly” believes it was the “main force behind the recovery” (p. 188). He indicates, correctly, that this is the consensus of scholars who have studied the issue. He offers no alternative. The Roosevelt administration understood this problem, and on May 29, convinced Congress to void gold clauses in all contracts retroactively and in the future.

Chapters 5 through 10 do a good job of conveying this material and describing the thought-process of the Roosevelt administration as it struggled to make difficult decisions in real time with limited information. The chapters reflect the conventional wisdom found in canonical accounts of this period including Milton Friedman and Anna Schwartz’s (1960) Monetary History of the United States, Peter Temin’s (1989) Lessons from the Great Depression, and Barry Eichengreen’s Golden Fetters (1992). The chapters also do a good job of describing concerns and criticisms of Roosevelt’s recovery plans. Perhaps as a narrative device, the chapters do not tell you who was right. That material appears one hundred pages later in Chapter 16.

Chapters 11 to 15 contain the novel part of the narrative. They describe investors’ reactions to Roosevelt’s gold policies and the abrogation of the gold clause. Investors quickly sued in state and federal courts, demanding that borrowers repay debts with gold coin, as required by gold clauses, rather than currency, as determined by Congress. Courts consistently ruled against plaintiffs, usually indicating that the Constitution gave Congress the power “to coin money and regulate the value thereof” and to determine what was legal tender for the discharge of public and private debts. Plaintiffs appealed these decisions, and the cases quickly reached the Supreme Court.

American Default’s coverage of these court cases is seminal and stimulating. I know the literature on this topic well. As the official Historian of the Federal Reserve System, I wrote essays on “Roosevelt’s Gold Program” and the “Gold Reserve Act of 1934” which appear on the Federal Reserve’s historical web site. I have read much of what scholars have published on this topic. I know of no comparable source for information on these court cases, the arguments presented by the plaintiffs and defendants, and the rationale underlying the Supreme Court’s confusing decision that Congress’s abrogation of the gold in private contracts was constitutional while Congress’s abrogation of the gold clause for government bonds, particularly the Liberty Bonds, was constitutional in some ways but unconstitutional in others, did not harm the plaintiffs, and therefore would not be overturned by the courts.

Now, we get to one point on which I disagree with the author. Edwards clearly believes the United States federal government defaulted on its debts. The Supreme Court equivocated, but generally seemed to think that the United States did not default, and I agree with the Supreme Court. Let me explain.

Merriam-Webster’s dictionary defines a default as either a (1) failure to do something required by duty or law or (2) a failure to pay financial debts. The United States Supreme Court decision in the gold cases indicated that the federal government defaulted in the first sense. It did not fulfill a promise printed on the bonds, which was to literally repay bondholders with United States gold coins at the standard of value that prevailed when the bonds were issued in 1918. At that time, the basic gold coin was the Eagle. It was worth $10 and contained 0.48375 troy ounces of gold and 0.05375 troy ounces of copper. So, a Liberty Bond with a face value of $100 promised upon maturity payment of 10 gold Eagles containing a total of 4.8375 troy ounces of gold and 0.5375 troy ounces of copper. When Liberty Bonds matured in 1938, however, the government gave bondholders neither the Eagles nor the metals that they contained.

The Supreme Court ruled that the federal government did not default in the second sense. The government fully paid its financial debts. The latter conclusion requires explanation, particularly because the book emphasizes the “American Default” aspect of the Supreme Court’s decision. The Supreme Court justified this conclusion based upon two arguments originally advanced by the federal government. The first argument began with the fact that in 1933, the federal government had withdrawn all monetary gold from circulation and paid in return paper currency at the standard of value which had prevailed since 1900. This meant that an individual holding 10 Eagle coins had to give them to the government and accept $100 in paper currency in return. The government argued that Liberty bond holders could and should be treated the same way as everyone else in the United States. In a hypothetical scenario, when the bonds matured, the government would pay bondholders the gold coins as promised, but then the government would also immediately confiscate those coins and compensate the former bondholders with currency at the same rate as everyone else had been compensated a few years before. This hypothetical sequence of transactions was legal. The U.S. Constitution enumerated Congress’s power to determine the standards of coinage and legal tender. These enumerated powers enabled Congress to convert gold coins to paper currency and/or redefine the standards of value and objects accepted as payment for public and private debts. If the government executed this hypothetical sequence of transactions when the bonds matured in 1938, an individual who had purchased a $100 Liberty Bond in 1918 would in the end receive $100 in currency. The Supreme Court ruled that it was acceptable for the government to give that currency directly to the bondholders upon maturity, rather than go to the hassle of giving them gold coins, taking them back, and then paying the currency to them.

To understand the second argument that abrogating the gold clause did not involve a financial default, it may help to step back from the legal technicalities and think of the repayment in an economic sense. The purpose of the gold clause was the protect bond holders from a fall in the value of American currency, a phenomenon known as inflation. The clause promised that individuals who invested in the United States would be repaid with dollars whose real value in terms of goods and services was equivalent to the real value of the dollars with which they purchased the bonds. Did the United States government do this? The answer is yes. The purchasing power of the dollar rose four percent between 1918, when the fourth Liberty Bond was issued, and 1938, when the fourth Liberty Bond matured. So, an American citizen who in 1918 purchased a $100 Liberty Bond received in 1938 funds sufficient to purchase goods and services that would have cost $104 in 1918. The government also paid 4.5% interest each year along the way. So, the government did honor its pledge to maintain the purchasing power of the funds entrusted to it by purchasers of Liberty Bonds and return that to them plus interest.

What about foreigners? They owned many U.S. bonds. The largest group of foreign investors were English. Their position is worth considering. In October 1918, when the Liberty Bonds were issued, the dollar-pound exchange rate was 4.77. An English investor could exchange ₤1 for $4.77 and purchase a $100 Liberty Bond for ₤20.96. In October 1938, when the Liberty Bonds matured, the dollar-pound exchange rate was 4.77. So, an English investor who redeemed his bond for $100 in U.S. currency could convert that into ₤20.96, exactly what they had paid for it, and with those funds, they could buy goods which would have been valued at ₤46.69 in 1918, since the purchasing power of the pound had risen substantially since that time. So, English investors, like many others overseas, made large profits from investing in Liberty Bonds.

Plaintiffs in the gold clause cases before the Supreme Court hoped that their suit would allow them to reap even higher returns. They argued that the government should be required to pay them with old gold coins, like the Eagle, at the 1918 standard of value, and then they should be able to convert the Eagles to dollars at the price established by the Gold Reserve Act of 1934 ($35 per troy ounce of gold). The government countered that this plan was infeasible. There was not enough gold in the U.S. to pay gold to all Liberty Bond holders. That plan was also illegal. The law no longer allowed the public to own, save, or spend monetary gold. In that case, the plaintiffs argued, they should receive the amount which would result from a hypothetical sequence of transactions where the government gave them gold coins at the 1918 standard of value (as stated on the bonds) and then immediately converted that gold to currency at the 1934 standard of value. This sequence would pay $166.67 on a $100 Liberty Bond upon maturity in 1938, a sum sufficient to purchase goods and services which would have cost $174.19 in 1918. The majority of the Supreme Court rejected this claim and referred to it as unjust enrichment.

Chapter 16 discusses the consequences of the abrogation of the gold clause. At the time, opponents of the policy contended that its effects could be catastrophic. Contracts would not be trusted. Creditors would no longer want to extend loans. Interest rates would rise. Investment would fall. The economy would stagnate. Edwards looks for evidence of these ailments in data on investment, borrowing, bonds, stocks, prices, interest rates, and output and finds none. After abrogation, the government actually found it easier to borrow, rather than harder. Edwards concludes that there is “no evidence of distress or dislocation in the period immediately following the abrogation, or the Court ruling. … it is possible that if the gold clause had not been abrogated, output and investment would have recovered faster than they did, and that the costs of borrowing would have declined even more. Those outcomes are possible, but in my view, highly unlikely” (p. 195).

The reason abrogation had no detectable impact, Edwards concludes, was that it was an excusable default. Excusable defaults occur under circumstances “when the market understands that a debt restructuring is, indeed, warranted, and beneficial for (almost) everyone involved in the marketplace” (p. 197), when the restructuring is done according to existing legal rules, and when the default is largely a domestic matter, with few foreigners involved. Excusable defaults do not stigmatize sovereigns, since they do not change borrowers’ expectations of sovereigns’ probability of repaying future debts. I agree with Edwards that the abrogation of the gold clause fit these circumstances, and I argued, in the preceding paragraphs, that the abrogation fit another classic characteristic of an excusable default. Bondholders received payment equal to (or better than) what they expected when the debt was issued. Since past holders of Liberty Bonds received the repayments that they expected when they purchased the bonds on origination in 1918, despite the tremendous shocks to the United States and world economies between then and maturity in 1938, future bondholders had no reason to doubt that their expectations would not be met.

Could it happen again? The author asks that question at the beginning and end of the book (and in the title to Chapter 17), because he says “among all questions, [it was] the one that kept coming back again and again” (p. 201). In emerging economies, Edwards indicates, “situations that mirror what happened in the United States during 1933-1935 have occurred recently in a number of … countries, and it is almost certain that they will continue to arise in the future” (p 203). Examples from the recent past include Argentina, Mexico, Turkey, Russia, Indonesia, and Chile. Advanced economies are not immune from these economic forces. In 2008, Iceland faced “a gigantic external crisis with a massive devaluation and a complete collapse of the banking sector. It took almost ten years for Iceland to recover” (p. 205). Greece continues to struggle with a similar situation. So do other European nations, such as Portugal, Italy, and Spain. These nations may be tempted to leave the Eurozone, reintroduce independent currencies, and devalue their exchange rate in order to speed economic recovery. But, any nation that tries (or is forced) to do this will struggle with contracts, all of which are written requiring payment in Euros. If these are rewritten to permit repayment in new currencies of lesser value, the issue is sure to end up in domestic and foreign courts as well as the World Bank’s tribunal for international investment disputes.

While the rest of the world may be in danger of experiencing events similar to the U.S. abrogation crisis of the 1930s, Edwards argues that “it is almost impossible that something similar will happen again in the United States” (p. 201). The main reasons are the change in the monetary system and the exchange rate regime. The United States’ exchange rates are now determined by market forces. Gold no longer underlies the monetary system. Most contracts are denominated in lawful currency, not gold, commodities, or foreign currency. Even if a repeat is extremely unlikely, the chance of the United States restructuring its debt, Edwards argues, is not zero. The federal debt outstanding is now nearly equal to gross domestic product. A tenth of the debt is fixed in real terms, because upon maturity, bondholders receive a premium payment linked to increases in the Consumer Price Index. The implicit debt for future entitlement, particularly Medicare, Medicaid, and Society Security, exceeds 400 percent of gross domestic product. There is little agreement on how to pay for these promises, Edwards notes, and at some point in the not-too-distant future, the U.S. government may be forced to restructure these payments. This potential crisis, Edwards argues, differs from the crisis of the 1930s, because the abrogation crisis stemmed from deflation, exchange rates, and the structure of the monetary system. The modern problem arises from promises made in the present for the future delivery of services.

On all of these points, I agree with Edwards. I am, however, less hopeful for the future. The unsustainable federal debt is not an accident. It was consciously created by Republican politicians to justify reducing (or eliminating) future federal entitlements. With Republicans in control of all three branches [When the review was published by Cato, this was true. However, Republicans now control only half of Congress] of the federal government, taxes cut, deficits up, and a recession on the horizon, the day of reckoning may be upon us in the near future. I anticipate a massive abrogation of federal medical and retirement entitlements within the next decade and sooner if Republicans retain control of Congress and the Presidency through 2020.

The roots of the past and current crises may have more in common than Edwards indicates. Most payments for federal entitlement programs are indexed for inflation. Federal entitlement obligations are, in other words, guaranteed in real terms, just like payments for Liberty Bonds one hundred years ago. They cannot be adjusted on aggregate by monetary policies that generate inflation. The can only be adjusted through the legislature and the courts. On this point, Edwards’ American Default ends on a high note. The ability of the United States to deal with the crisis of the 1930s and the abrogation of the gold clause demonstrates the strength of our legislative and judicial institutions. Given these, it is likely that our nation will be able to overcome future federal financial restructurings. Memories of those events will fade. The will be forgotten just like the events that Edwards masterfully recounts in his book, and America’s federal debt will remain the risk-free standard for the rest of the world.

Alter, Jonathan. The Defining Moment: FDR’s Hundred Days and the Triumph of Hope. Simon & Schuster, 2006.

Badger, Anthony J. FDR: The First Hundred Days. Hill and Wang, 2008.

Cohen, Adam. Nothing to Fear: FDR’s Inner Circle and the Hundred Days That Created Modern America. Penguin Press, 2009.

Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. New York: Oxford University Press, 1992.

Friedman, Milton and Anna J. Schwartz. A Monetary History of the United States, 1867-1960. Princeton: Princeton University Press, 1963.

Kennedy, David M. Freedom from Fear: The American People in Depression and War, 1929-1945. Oxford University Press, 1999.

Investopedia. “Risk-Free Rate of Return”. Retrieved June 21, 2018.

Investopedia. “How is the risk-free rate determined when calculating market risk premium?” Retrieved June 21, 2018

Richardson, Gary, Michael Gou, and Alejandro Komai. “Gold Reserve Act of 1934.” Federal Reserve History Web Site. Retrieved June 26, 2018.

Richardson, Gary, Michael Gou, and Alejandro Komai. “Roosevelt’s Gold Program.” Federal Reserve History Web Site. Retrieved June 26, 2018.

Temin, Peter. Lessons from the Great Depression. MIT Press, 1989.

Wikipedia. “Risk-Free Interest Rate.” Retrieved June 21, 2018

This review was originally published in Regulation, Fall 2018.
Gary Richardson was the editor of the Federal Reserve’s historical web site,, on which he wrote a series of articles about the Roosevelt Administration’s gold policies. He is the author of numerous academic articles on the history of money, banking, and the Federal Reserve.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The Oxford Handbook of American Economic History

Editor(s):Cain, Louis P.
Fishback, Price V.
Rhode, Paul W.
Reviewer(s):Rosenbloom, Joshua L.

Published by EH.Net (December 2018)

Louis P. Cain, Price V. Fishback and Paul W. Rhode, editors, The Oxford Handbook of American Economic History. New York: Oxford University Press, 2018. xiii + 961 pp. $300 (hardcover, 2 volumes), ISBN: 978-0-19-994797-3.

Reviewed for EH.Net by Joshua L. Rosenbloom, Department of Economics, Iowa State University.

Over the past several decades economic historians have substantially broadened and deepened our understanding of the development of the American economy. Students or scholars seeking an overview of the state of the field have, however, had few options when looking for a convenient and comprehensive overview. Jeremy Atack and Peter Passell’s New Economic View of American History (second edition) is now more than two decades old, and more up-to-date textbooks are pitched at too low a level to be of much help. The Oxford Handbook of American Economic History thus fills an important gap, providing a one-stop reference that distills and summarizes much of the recent scholarship.

The editors, Louis Cain (Loyola University Chicago and Northwestern University), Price Fishback (University of Arizona) and Paul Rhode (University of Michigan) have all made important contributions to our understanding of American economic history; and they have assembled an all-star cast of contributors. After an introductory chapter, the two volumes contain 37 chapters divided into five topical sections covering population and health; production and structural change; factors of production; technology and urbanization; and government and economic policy. Each of the first four sections contains six chapters, while the final section includes a total of thirteen. The chapters in this final section make something of an odd mix, and it might have been helpful to split this section between the chapters exploring longer-run trends and themes and those focused on specific episodes such as the New Deal or the Civil War.

With the exception of a few of the chapters in the final section, which address chronologically specific events — such as the Constitution, the New Deal, the Civil War and the two World Wars — the great majority of chapters focus on particular topic across the full-span of U.S. economic history. The content is consistently detailed and each chapter includes extensive references. As such, these accounts will be extremely useful for readers seeking to dip into this work to get a quick sense of the state of scholarship on a particular topic. I suspect, however, that few readers will want to make their way through these two volumes cover to cover.

Readers wanting to get an understanding of a particular period or those seeking to understanding the larger narrative of U.S. economic development will find the Oxford Handbook less helpful. Someone seeking to understand the Great Depression, for example, would need to integrate information from chapters on the New Deal, welfare policy, banking and monetary policy and the record of economic growth and business cycles among others.

Despite the breadth and depth of coverage, some topics appear to have fallen between the cracks. Among these the most glaring for this reader was the limited attention devoted to the economics and politics of slavery and race. In a similar vein, while there is a chapter devoted to the topic of executive compensation contributed by Carola Frydman, recent work on the broader topic of income and wealth inequality receives little attention. Finally, while the chronological scope of the essays in this collection varies, the nearly two centuries of American economic history preceding American independence is hardly discussed.

These caveats aside, there is a great deal of useful information to be found in these volumes. The essays collected here are consistently engaging, well-written and provide extensive references for readers wishing to dig deeper. It would be impossible within the scope of this review to touch on each chapter, and by singling out a small number of chapters for specific mention I risk offending authors of the remaining chapters. Yet several of the essays do stand out for going beyond a review of the state of the literature and suggesting fresh perspectives or reframing a topic. Price Fishback’s chapter on the New Deal is one. Fishback has been at the center of efforts to digitize and make available geographically disaggregated data on New Deal policies and economic outcomes, and has authored or co-authored an overwhelming volume of scholarship related to this topic. His chapter offers a concise and accessible summation of the results of this research program. It also provides a clear and accessible illustration of the econometric challenges of identifying causal effects from such data that would be useful in many other contexts beyond economic history courses. Paul Rhode’s chapter on the role of capital is another stand-out, focusing attention on the tensions between macro-growth theorists’ stylized facts and the historical record of growth and capital accumulation.

There has been something of a proliferation of handbooks and edited volumes of economic history in the last few years, but this collection of essays stands out for the quality and depth of its chapters as well as the breadth of its coverage. The individual chapters will be a useful reference for many readers seeking to catch up on scholarship on a particular topic.

Joshua L. Rosenbloom is Chairperson of the Department of Economics at Iowa State University and a Research Associate of the National Bureau of Economic Research. He is the author (with Brandon S. Dupont) of “The Economic Origins of the Postwar Southern Elite,” Explorations in Economic History (April 2018).

Copyright (c) 2018 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2018). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Business History
Economic Development, Growth, and Aggregate Productivity
Economic Planning and Policy
Economywide Country Studies and Comparative History
Education and Human Resource Development
Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Historical Demography, including Migration
History of Technology, including Technological Change
Servitude and Slavery
Military and War
Industry: Manufacturing and Construction
International and Domestic Trade and Relations
Labor and Employment History
Living Standards, Anthropometric History, Economic Anthropology
Macroeconomics and Fluctuations
Transport and Distribution, Energy, and Other Services
Urban and Regional History
Geographic Area(s):North America
Time Period(s):17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Sovereign Soldiers: How the U.S. Military Transformed the Global Economy after World War II

Author(s):Madsen, Grant
Reviewer(s):Taylor, Jason E.

Published by EH.Net (September 2018)

Grant Madsen, Sovereign Soldiers: How the U.S. Military Transformed the Global Economy after World War II. Philadelphia: University of Pennsylvania Press, 2018. xi +328 pp. $45 (hardcover), ISBN: 978-0-8122-5036-7.

Reviewed for EH.Net by Jason E. Taylor, Department of Economics, Central Michigan University.

Histories of war generally focus on the details of key battles, turning points, and heroes. Less examined is the economic aftermath of war. During the twentieth century, the United States employed its military to govern many defeated or troubled areas beyond its borders and these actions continued during the early twenty-first century as the U.S. military become involved in governing Iraq and Afghanistan. This is the motivation behind Brigham Young University historian Grant Madsen’s Sovereign Soldiers, as he documents the American military as an external state in the years just after World War II. These soldiers were not charged with defeating the enemy, but rather, getting civilian populations back on their feet. The book traces the steps of heavyweights such as Dwight D. Eisenhower, Lucius Clay, and Douglas MacArthur — important American generals who subsequently became military governors of postwar Germany and Japan. It also examines the roles of lesser known occupation officials such as General William Marquat, Joseph Dodge, and General William Draper, among others.

The failure to achieve a lasting peace after the First World War generally motivated American military governors to try to create a postwar environment in defeated nations that would not again lead to the rise of dictators. In fact, U.S. State Department planners who began to envision the postwar order in 1943 were determined to bring a healthy and prosperous Germany into the fold of the international community. Still, many back home objected to the notion of American help for defeated nations. When President Franklin Roosevelt was shown a draft of these plans he threw it on his desk saying, “Feed the Germans! I’ll give them three bowls of soup a day, with nothing in them…. Control industry … There’s not going to be any industry in Germany to control” (p. 69). Such attitudes were not unique to FDR.

Madsen shows that the military governors generally understood that they were effectively in no-win situations. If they tried too hard to help the populations of the defeated nations, they would likely be blamed for providing too much sympathy to the enemy. But if they left these populations to starve, history may blame them for creating the vacuum that lead to the next war. In the end, the idea of a “soft” peace in which the U.S. would wholeheartedly attempt to help the defeated economies recover won the day. Madsen does an excellent job of thoroughly documenting the many challenges that these “sovereign soldiers” faced in achieving their recovery objectives in postwar era Germany, as well as in postwar Japan where General MacArthur played a major role. Madsen has an impressive grasp of the key economic issues and the pros and cons of the economic models that were debated and tried at the time.

The final section of Madsen’s book focuses heavily on the creation of the postwar economic environment — and the “military-industrial complex” — in the United States, and specifically Eisenhower’s role in creating it during his own presidency. The background events that shaped Eisenhower’s views prior to taking the highest office, which are gleaned in the earlier chapters, give the reader important insights into Ike’s policies.

The archival research behind Madsen’s research is very impressive. This book will be of high interest to Eisenhower historians, in particular, and to those keenly interested in the postwar transitions in Germany and Japan. For the more casual reader, the book’s 325 pages may be a bit much. There were times when I wished for less detail and name dropping — keeping all the players straight became confusing at times — and for the author to offer more insight as to what important lessons or ideas we should take away from studying these events. I was searching for a major theme, finding, or conclusion from the book and was largely left wanting in that respect. The book ends very abruptly — honestly I did not see the end coming. I simply turned the page from the end of Chapter 13 and the book was over (there is a three-page epilogue). A concluding chapter that summarized the key events, lessons, and themes of the book would have been a welcome addition for this reader. In fairness, however, these critiques may be because of the differences in the ways that economists, of which I am one, and historians approach research. Overall, this is an impressive work of scholarship.

Jason E. Taylor is Professor of Economics at Central Michigan University. His book, Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act, will be published by the University of Chicago Press in December 2018.

Copyright (c) 2018 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (September 2018). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Military and War
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The Political History of American Food Aid: An Uneasy Benevolence

Author(s):Riley, Barry
Reviewer(s):Barrett, Christopher B.

Published by EH.Net (June 2018)

Barry Riley, The Political History of American Food Aid: An Uneasy Benevolence. New York: Oxford University Press, 2017. xxvii + 562 pp. $50 (hardcover), ISBN: 978-019-02-2887-3.

Reviewed for EH.Net by Christopher B. Barrett, School of Applied Economics and Management, Cornell University.

International food aid has long attracted attention from policymakers and scholars far out of proportion to its scale in the global economy. Concessional food shipments have always comprised a small share of international flows of food and a negligible increment of global food production and consumption. Yet a Google Scholar search on “food aid” and “economics” returns more than one million results. Since at least T.W. Schultz more than half a century ago, economists have written about food aid’s direct effects on the economic and nutritional well-being of recipients and, even more, on its indirect effects on outcomes as diverse as food markets and prices, agricultural producer incentives in donor and recipient countries, international trade flows, and conflict in recipient countries. In recent years, special attention has been paid to the political economy of food aid and to the distributional and efficiency effects of statutory restrictions placed on food aid donations by legislatures, especially by the United States Congress since the U.S. has long been, by far, the world’s largest food aid donor. The complex political processes behind those restrictions, however, indeed the motivations and machinations behind the very existence and scale of international food aid donations, has remained a bit of a black box.

Barry Riley has done a remarkable job filling that void. This new volume offers the definitive political history of U.S. food aid. Riley brings impeccable credentials to the task. Now retired after a long and distinguished career with various food aid agencies of the U.S. government and the World Bank, he wrote the volume while a Visiting Scholar at Stanford University. At a time when economists too commonly grab a secondary data set and quickly write about a complex topic without taking time to master essential policy details, Riley’s work stands out as firmly rooted in an immersive understanding of the topic’s finest details. And this comprehensive historical account is meticulously sourced with primary documents from government records, media accounts of the day, and even personal letters.

Riley lucidly explains how and why the U.S. became the world’s primary food aid donor. He tells the story of the constant tension between the humanitarian impulse to assist those imperiled by natural disasters or war and the conservative instinct to resist foreign entanglements and fiscal commitments beyond the nation’s borders. He skillfully explains the time-varying electoral pressures faced by elected officials confronted by agricultural and maritime interests seeking assistance in lean times and reaching for profits opportunistically. He documents both the cynical and the idealistic geopolitical aims various nineteenth and twentieth century U.S. politicians had in deploying American farm surpluses around the world. The central role of key leaders — especially Herbert Hoover, Lyndon Johnson, and Henry Kissinger — in bending others to their will comes through clearly. The case-specific drivers and outcomes of food aid donations are especially nicely illustrated in two chapters that go into particular depth on a single country: Chapter 13’s explanation of the Johnson administration’s management of food aid to India in the 1960s and Chapter 19’s analysis of the Reagan administration’s handling of the mid-1980s famine in Ethiopia.

Riley begins with late eighteenth-century Congressional debates when the framers of the Constitution and their colleagues were struggling to interpret what limits, if any, the new nation’s founding charter imposed on the federal government using scarce tax revenues to shower largesse on foreign populations. Those debates resumed periodically in response to a variety of foreign disasters of various sorts. Into the early years of the twentieth century, American food aid was episodic and modest in volume and impacts.

Riley then focuses attention on the first half of the twentieth century, when the ravages of two World Wars and the Great Depression, combined with rapid technological change in American agriculture, created a perfect storm of U.S. commodity surpluses, extended periods of depressed global demand, and acute humanitarian need. This period put the existential questions surrounding U.S. food aid to rest. Programs became permanent and expansive. That period begat the Agricultural Adjustment Acts of 1933 and 1938, which launched large-scale farm support programs that insinuated the federal government into commodity markets. This laid the foundation for 1954’s passage of the Agricultural Trade Development and Assistance Act, Public Law 480, which created the main U.S. food aid programs ever since. The program’s renaming in the Food for Peace Act of 1966 signaled the growing use of food aid as a foreign policy tool under the Kennedy, Johnson, Nixon, Ford, Carter, and Reagan administrations. The aims varied with the political leanings of the U.S. government of the day: to foster economic development and relieve world hunger, to reward foreign allies and punish those regimes that strayed too near the Soviet orbit, to advance human rights, or to promote American exports. Both Democratic and Republican administrations, however, proved overconfident in food aid’s ability to bend the world to American will.

As food aid’s ineffectiveness as a foreign policy tool and as the fiscal imperative of extracting the U.S. government from the business of propping up grain prices as a buyer of last resort both became clear, the scale of U.S. food aid relative to commercial exports and the domestic food economy has steadily declined since the 1970s. The dominant voices in recent food aid debates have thus been the international development and humanitarian organizations, as well as the agribusinesses — mainly processors, not farmers — and maritime interests that profit from Congressionally-imposed statutory restrictions on commodity and ocean freight procurement. In the twenty-first century, both Democratic and Republican administrations have consistently advocated for reforms to enhance the efficiency and timeliness of increasingly scarce humanitarian food aid. But the complex political economy that begat a permanent and briefly-generous U.S. food aid program now complicates the Congressional politics of reform. Without understanding the political history of U.S. food aid, it’s hard to make sense of the current policy debate.

In twenty-five years of studying food aid, I have probably read the vast majority of published studies on the topic. Rarely have I learned so much as from Riley’s impressive and beautifully written history. This volume is an indispensable reference for anyone studying or writing about U.S. food aid programs. U.S. food aid policy has always reflected a shifting balance among a range of objectives. Thus it has always been deeply political. The complexities of U.S. Congressional authorization and appropriations processes often make it difficult to identify the drivers of policy decisions. Thanks to Barry Riley’s lucid historical account, it is far easier for contemporary policy analysts to appreciate the history dependence of current economic policy.

Christopher B. Barrett is the Stephen B. and Janice G. Ashley Professor of Applied Economics at Cornell University. He has written extensively on the economics of food aid and food assistance programs and is co-author (with Daniel G. Maxwell) of Food Aid after Fifty Years: Recasting Its Role and co-editor (with Julia Steets and Andrea Binder) of Uniting on Food Assistance: The Case for Transatlantic Cooperation.

Copyright (c) 2018 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2018). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII