With the onset of World War II, America overnight went from economic stagnation - unemployment and idle plant capacity - to full employment and economic expansion. Instead of consumers lacking income with which to purchase goods, they now had cash, but the goods were not available. Wartime production had priority.
The economic objectives of the federal government were to encourage high levels of wartime materiel and raise revenue to pay for it, while keeping inflation and public debt from spinning out of control. To achieve these objectives, it was necessary to curb spending on civilian goods and encourage private saving.
Higher taxes on the rising incomes, along with various excise and corporate taxes both restricted private sector spending and raised revenue. But there were limits to how much taxes could be raised, while keeping incentives to work and produce.
The sale of war bonds to the public achieved the dual objective of increasing personal saving, while raising revenue. Although it raised the public debt, it had the advantages of being voluntary, and strengthening household balance sheets in the form of financial assets that would prove beneficial to the post-war economy.
However, even with higher taxes and government borrowing through sale of war bonds, inflation remained a threat to continued high wartime production. With short supply of civilian goods, prices would tend to rise, eroding purchasing power of workers, thereby creating demands for wage increases that would give the business sector reason to further escalate prices. Furthermore, rising prices would increase the cost of war production to the government, potentially threatening its ability to finance it. It was thus that a system of price and wage controls was instituted.
Price controls are fraught with problems and are normally discouraged by economists. But World War II was indeed an emergency. The Office of Price Administration (OPA) was established to administer prices. By executive order, President Franklin D. Roosevelt established the National War Labor Board (NWLB), a tripartite agency with public, industry, and labor representatives to preside over disputes that might interrupt work that would deter effective prosecution of the war.
The major problem with price controls is that when prices are set below equilibrium, demand at that price exceeds supply. Goods therefore have to be rationed among consumers. Rationed items during the war included tires, cars, bicycles, gasoline, fuel oil, kerosene, shoes, coffee, processed foods, meats, canned fish, fats and oils, nylons, and even typewriters.
War ration books and tokens were issued to each American family dictating how much of each item one could buy. Some 8,000 local rationing boards were created to administer these restrictions.
By the end of 1942, half of American autos were issued "A" stickers, allowing four gallons of gas per week. The green "B" stickers were for driving deemed essential to the war effort, allowing eight gallons per week. On the backs of the sticker, visible to the driver was the question, "Is this trip necessary?"
The red "C" stickers were for physicians, ministers, mail carriers, and railroad workers. The "T" stickers were for truckers.
Motorists were urged to drive less than 35 mph, to conserve rubber in addition to gasoline: The Japanese had seized the Dutch East Indies that produced 90 percent of the rubber.
The war effort reached from Bugs Bunny to the fashion industry. A WWII cartoon had Bugs' plunging airplane halt just before impact, a result of running out of gas - he had used up the supply allowed by his "A" sticker.
Fashion designers aimed to save 15 percent of the yardage used on women's and girls apparel through restricting hems and belts to 2 inches, and eliminating cuffs on sleeves, except for bridal gowns, maternity dresses, and vestments for religious orders.
During WWII, conservation and recycling was urged to the max. Communities joined together to hold scrap iron drives. People were encouraged to conserve and recycle metal, paper and rubber. Delivering scrap paper to Solomon's salvage yard was a source of a few nickels for Monroe's kids. We could then buy a bottle of pop from the ice-filled coolers found in every gas station. It somehow tasted better out of those ancient dispensers.
World War II was the age of the "victory garden." A few urban dwellers that had never handled a shovel had to be instructed that carrots couldn't emerge with those small seeds planted at a depth of 6 inches. But even novices contributed to the food supply. By 1945, an estimated 20 million victory gardens produced approximately 40 percent of America's vegetables.
It would be Pollyannaish to suggest that wage and price controls were accepted without complaint. Segments of the business sector bitterly resented price controls, fearing a "price Gestapo." It didn't happen. A civilian army of volunteers helped monitor the system, and fines were levied on violators.
Organized labor resented the erosion of purchasing power while the business sector was raking in rising profits through the healthy economy. And it would be naive to believe that there were not some "black market" activities - exchange of goods under the table at prices above administered levels.
As always, there are ways around even the most necessary controls. It was because of wage controls that corporations offered fringe benefits such as health insurance in lieu of higher wages. It was thus that our convoluted system of employer-based health insurance evolved.
Yet, considering the magnitude of rationing, and wage and price controls, these policies were quite successful - during the war, that is. After all, it was an all-out war, its costs widely shared in human and economic terms. And considering that civilians lived far better during the war than during the decade of depression, temporary rationing and price controls seemed a modest price to pay.
It was after the war, patriotic motives no longer applicable, that the dam broke.
Next week: The post-war economy.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
The economic objectives of the federal government were to encourage high levels of wartime materiel and raise revenue to pay for it, while keeping inflation and public debt from spinning out of control. To achieve these objectives, it was necessary to curb spending on civilian goods and encourage private saving.
Higher taxes on the rising incomes, along with various excise and corporate taxes both restricted private sector spending and raised revenue. But there were limits to how much taxes could be raised, while keeping incentives to work and produce.
The sale of war bonds to the public achieved the dual objective of increasing personal saving, while raising revenue. Although it raised the public debt, it had the advantages of being voluntary, and strengthening household balance sheets in the form of financial assets that would prove beneficial to the post-war economy.
However, even with higher taxes and government borrowing through sale of war bonds, inflation remained a threat to continued high wartime production. With short supply of civilian goods, prices would tend to rise, eroding purchasing power of workers, thereby creating demands for wage increases that would give the business sector reason to further escalate prices. Furthermore, rising prices would increase the cost of war production to the government, potentially threatening its ability to finance it. It was thus that a system of price and wage controls was instituted.
Price controls are fraught with problems and are normally discouraged by economists. But World War II was indeed an emergency. The Office of Price Administration (OPA) was established to administer prices. By executive order, President Franklin D. Roosevelt established the National War Labor Board (NWLB), a tripartite agency with public, industry, and labor representatives to preside over disputes that might interrupt work that would deter effective prosecution of the war.
The major problem with price controls is that when prices are set below equilibrium, demand at that price exceeds supply. Goods therefore have to be rationed among consumers. Rationed items during the war included tires, cars, bicycles, gasoline, fuel oil, kerosene, shoes, coffee, processed foods, meats, canned fish, fats and oils, nylons, and even typewriters.
War ration books and tokens were issued to each American family dictating how much of each item one could buy. Some 8,000 local rationing boards were created to administer these restrictions.
By the end of 1942, half of American autos were issued "A" stickers, allowing four gallons of gas per week. The green "B" stickers were for driving deemed essential to the war effort, allowing eight gallons per week. On the backs of the sticker, visible to the driver was the question, "Is this trip necessary?"
The red "C" stickers were for physicians, ministers, mail carriers, and railroad workers. The "T" stickers were for truckers.
Motorists were urged to drive less than 35 mph, to conserve rubber in addition to gasoline: The Japanese had seized the Dutch East Indies that produced 90 percent of the rubber.
The war effort reached from Bugs Bunny to the fashion industry. A WWII cartoon had Bugs' plunging airplane halt just before impact, a result of running out of gas - he had used up the supply allowed by his "A" sticker.
Fashion designers aimed to save 15 percent of the yardage used on women's and girls apparel through restricting hems and belts to 2 inches, and eliminating cuffs on sleeves, except for bridal gowns, maternity dresses, and vestments for religious orders.
During WWII, conservation and recycling was urged to the max. Communities joined together to hold scrap iron drives. People were encouraged to conserve and recycle metal, paper and rubber. Delivering scrap paper to Solomon's salvage yard was a source of a few nickels for Monroe's kids. We could then buy a bottle of pop from the ice-filled coolers found in every gas station. It somehow tasted better out of those ancient dispensers.
World War II was the age of the "victory garden." A few urban dwellers that had never handled a shovel had to be instructed that carrots couldn't emerge with those small seeds planted at a depth of 6 inches. But even novices contributed to the food supply. By 1945, an estimated 20 million victory gardens produced approximately 40 percent of America's vegetables.
It would be Pollyannaish to suggest that wage and price controls were accepted without complaint. Segments of the business sector bitterly resented price controls, fearing a "price Gestapo." It didn't happen. A civilian army of volunteers helped monitor the system, and fines were levied on violators.
Organized labor resented the erosion of purchasing power while the business sector was raking in rising profits through the healthy economy. And it would be naive to believe that there were not some "black market" activities - exchange of goods under the table at prices above administered levels.
As always, there are ways around even the most necessary controls. It was because of wage controls that corporations offered fringe benefits such as health insurance in lieu of higher wages. It was thus that our convoluted system of employer-based health insurance evolved.
Yet, considering the magnitude of rationing, and wage and price controls, these policies were quite successful - during the war, that is. After all, it was an all-out war, its costs widely shared in human and economic terms. And considering that civilians lived far better during the war than during the decade of depression, temporary rationing and price controls seemed a modest price to pay.
It was after the war, patriotic motives no longer applicable, that the dam broke.
Next week: The post-war economy.
- John Waelti's column appears every Friday in the Times. He can be reached at jjwaelti1@tds.net.
