With the onset of WWII, America's once underutilized factories were humming, churning out goods for the war effort. America had overnight gone from unemployment and economic stagnation to full employment.
Instead of consumers wanting and needing goods but lacking cash, as during the 1930s, the situation was now reversed. With the onset of the war and full employment, workers now had money, but civilian goods weren't available. The combination of shortages of civilian goods and increased incomes created the ingredients for "demand pull" inflation - money chasing short supplies of goods.
Economic objectives of policy-makers were to maintain high levels of production of wartime goods, and pay for the war, while keeping prices and public debt from spinning out of control. How could these policy objectives be simultaneously attained?
If inflation is caused by abundant money chasing short supplies of goods, either supplies must be increased or spending reduced. Increasing supplies of civilian goods was out of the question as factories were straining to produce for the war - planes, tanks, guns, ships and ammo. Therefore, to control inflation, civilian spending had to be reduced.
There are both mandatory and voluntary ways to reduce civilian spending. Both were used effectively during WWII, aided by the fact that nearly every family, including those of the sitting president and two wealthy families, Kennedy and Bush, had members in uniform and at risk.
A mandatory means to reduce consumer spending is to raise taxes, which also raised revenue to pay for the war. With rising incomes and a progressive tax structure, government revenues increased (see Times column of April 6). While this reduced pressure on prices and provided revenue to finance the war, it would have been impossible finance the war exclusively through taxes.
Voluntarily reduced consumer spending, i.e., increased personal saving, would take additional pressure off prices. A particular kind of saving would reduce spending while also providing revenue to the government - purchase of government bonds, which is a loan to the government. This was the rationale for the War Bond program.
By summer of 1940, victories of Nazi Germany over Poland, Denmark, Norway, Belgium, the Netherlands, and France pointed to possible U.S. involvement, and first raised issues of war financing. Treasury Secretary Morgenthau began planning a national defense bond program in autumn 1940. With the Japanese attack on Pearl Harbor and declaration of war on the axis powers, they were renamed "War Bonds."
These bonds sold for as little as $18.75 and matured in 10 years at which time the bearer would be repaid $25. The War Finance Committee was in charge of selling the bonds and the War Advertising Council promoted voluntary war bond purchases.
These two organizations launched an emotional appeal to the public. Purchase of bonds was a safe haven for saving, in addition to an act of patriotism - a concept that rang true as the war touched, often through death, virtually every American family.
The government recruited New York's top advertising agencies to aid in the war bond campaign. More than a quarter billion dollars worth of advertising was donated during the first three years of the campaign. In their advertising, even the New York Stock Exchange urged purchasers not to cash in their bonds.
Norman Rockwell created a series of illustrations that became the centerpiece of war bond advertising. This series was reproduced in the Saturday Evening Post magazine. Hollywood stars and celebrities contributed their talents. Greer Garson, Bette Davis, and Rita Hayworth completed seven tours in more than 300 cities and towns to promote war bonds. A "Stars Over America" bond blitz with 337 stars netted more than $838 million worth of bonds.
The celebrated composer, Irving Berlin, who composed "God Bless America," composed a song entitled "Any Bonds Today?" performed often by the Andrews Sisters. A single event - a 16-hour marathon radio broadcast featuring singer Kate Smith's popular rendition of "God Bless America," broadcast by CBS, produced $40 million in bond sales.
No amount of money was too small. I recall, as will readers of that age, grade-school classes periodically marching down to the post office to buy stamps for 10 cents each to paste in our books. When the value of stamps reached $18.75, it could be exchanged for a $25 bond.
Readers of this column may recall my past series featuring the flag raising on Iwo Jima. The three survivors of that iconic incident, Marine PFCs Ira Hayes and Rene Gagnon, and Wisconsin native, Navy Corpsman John Bradley, were temporarily summoned back from the Pacific to participate with movie stars in the Seventh War Bond Drive. Included in this drive were Bob Hope, Joan Fontaine, Jane Wyman, Humphrey Bogart, and Lauren Bacall. The May 22, 1945 radio episode of the comedy team of Fibber McGee and Molly was devoted to the 7th War Bond Drive.
All told, some 85 million Americans, more than half the population at the time, purchased bonds totaling more than $185 billion. It didn't matter that the interest rate on the bonds was below market. Purchase of the bonds was an act of patriotism, a way for every American to participate in and contribute to the war effort. It was a voluntary method by which to increase personal saving and reduce spending, thereby taking pressure off prices while raising revenue to pay for the war.
The accumulated savings in the form of bonds held by the public was to have another beneficial effect: namely, a source of post-war spending that would minimize any post-war decline into recession.
But first, even the successful combination of increased taxes, increased personal saving, and government borrowing needed yet additional policy measures by which to divert resources to wartime use and keep inflation from spinning out of control.
Next week: Wartime rationing and price controls.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
Instead of consumers wanting and needing goods but lacking cash, as during the 1930s, the situation was now reversed. With the onset of the war and full employment, workers now had money, but civilian goods weren't available. The combination of shortages of civilian goods and increased incomes created the ingredients for "demand pull" inflation - money chasing short supplies of goods.
Economic objectives of policy-makers were to maintain high levels of production of wartime goods, and pay for the war, while keeping prices and public debt from spinning out of control. How could these policy objectives be simultaneously attained?
If inflation is caused by abundant money chasing short supplies of goods, either supplies must be increased or spending reduced. Increasing supplies of civilian goods was out of the question as factories were straining to produce for the war - planes, tanks, guns, ships and ammo. Therefore, to control inflation, civilian spending had to be reduced.
There are both mandatory and voluntary ways to reduce civilian spending. Both were used effectively during WWII, aided by the fact that nearly every family, including those of the sitting president and two wealthy families, Kennedy and Bush, had members in uniform and at risk.
A mandatory means to reduce consumer spending is to raise taxes, which also raised revenue to pay for the war. With rising incomes and a progressive tax structure, government revenues increased (see Times column of April 6). While this reduced pressure on prices and provided revenue to finance the war, it would have been impossible finance the war exclusively through taxes.
Voluntarily reduced consumer spending, i.e., increased personal saving, would take additional pressure off prices. A particular kind of saving would reduce spending while also providing revenue to the government - purchase of government bonds, which is a loan to the government. This was the rationale for the War Bond program.
By summer of 1940, victories of Nazi Germany over Poland, Denmark, Norway, Belgium, the Netherlands, and France pointed to possible U.S. involvement, and first raised issues of war financing. Treasury Secretary Morgenthau began planning a national defense bond program in autumn 1940. With the Japanese attack on Pearl Harbor and declaration of war on the axis powers, they were renamed "War Bonds."
These bonds sold for as little as $18.75 and matured in 10 years at which time the bearer would be repaid $25. The War Finance Committee was in charge of selling the bonds and the War Advertising Council promoted voluntary war bond purchases.
These two organizations launched an emotional appeal to the public. Purchase of bonds was a safe haven for saving, in addition to an act of patriotism - a concept that rang true as the war touched, often through death, virtually every American family.
The government recruited New York's top advertising agencies to aid in the war bond campaign. More than a quarter billion dollars worth of advertising was donated during the first three years of the campaign. In their advertising, even the New York Stock Exchange urged purchasers not to cash in their bonds.
Norman Rockwell created a series of illustrations that became the centerpiece of war bond advertising. This series was reproduced in the Saturday Evening Post magazine. Hollywood stars and celebrities contributed their talents. Greer Garson, Bette Davis, and Rita Hayworth completed seven tours in more than 300 cities and towns to promote war bonds. A "Stars Over America" bond blitz with 337 stars netted more than $838 million worth of bonds.
The celebrated composer, Irving Berlin, who composed "God Bless America," composed a song entitled "Any Bonds Today?" performed often by the Andrews Sisters. A single event - a 16-hour marathon radio broadcast featuring singer Kate Smith's popular rendition of "God Bless America," broadcast by CBS, produced $40 million in bond sales.
No amount of money was too small. I recall, as will readers of that age, grade-school classes periodically marching down to the post office to buy stamps for 10 cents each to paste in our books. When the value of stamps reached $18.75, it could be exchanged for a $25 bond.
Readers of this column may recall my past series featuring the flag raising on Iwo Jima. The three survivors of that iconic incident, Marine PFCs Ira Hayes and Rene Gagnon, and Wisconsin native, Navy Corpsman John Bradley, were temporarily summoned back from the Pacific to participate with movie stars in the Seventh War Bond Drive. Included in this drive were Bob Hope, Joan Fontaine, Jane Wyman, Humphrey Bogart, and Lauren Bacall. The May 22, 1945 radio episode of the comedy team of Fibber McGee and Molly was devoted to the 7th War Bond Drive.
All told, some 85 million Americans, more than half the population at the time, purchased bonds totaling more than $185 billion. It didn't matter that the interest rate on the bonds was below market. Purchase of the bonds was an act of patriotism, a way for every American to participate in and contribute to the war effort. It was a voluntary method by which to increase personal saving and reduce spending, thereby taking pressure off prices while raising revenue to pay for the war.
The accumulated savings in the form of bonds held by the public was to have another beneficial effect: namely, a source of post-war spending that would minimize any post-war decline into recession.
But first, even the successful combination of increased taxes, increased personal saving, and government borrowing needed yet additional policy measures by which to divert resources to wartime use and keep inflation from spinning out of control.
Next week: Wartime rationing and price controls.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
