Money in America — Part Eight

 

In our last dramatic episode, we saw America ready for war … with British help, looked at a war economy from the vantage point of Main Street, and touched on post-war conditions.

 

World War Two loose ends

The behind-the-scenes activities of the British Security Coordination (officially know as the British Passport Control Office in NYC) not only derailed the ‘isolationist’ element of the American public, it also succeeded in deposing Vice President Henry Wallace as FDR’s running mate in 1944.

One factor was Wallace’s vision of a post-war world which conflicted with Churchill and others, hoping to retain their stature as a world power. Recall that Great Britain insisted on returning to a gold standard at the pre-WW1 value of the pound. During WW2 years, they feared the growth and ambition of their American cousins. Perhaps the most significant area of disagreement was the role of civil aviation and who would claim the lion’s share of world domination.

Juan Trippe’s Pan American had received a $260 million war contract to build some 16 airfields in South America for military use. One provision of this contract granted the reversion of “$38 millions worth of work” to Pan Am and exclusive use of these facilities after the war. The final cost was estimated upwards of one billion dollars …

Pan Am also had their Boeing 314s (the Clipper flying boat) taken over by the government as they were the only existing aircraft that could carry large payloads across an ocean. The airline had other contracts, ferrying bombers and other aircraft, and flew all up more than 90 million miles for the U.S. Government.

Perhaps one of the factors that drew Churchill’s approval of Harry Truman was that the latter disliked Pan Am’s monopoly in South America.

Most of this aviation war work fell under the auspices of the Army Air Transport Command. What started in wartime as a very small scale operation ended up larger than the entire United States commercial airline establishment. The British were right to worry about their future.

(A slight digression)

The Tokyo Skytower, world’s largest freestanding tower, opened on 21 May 2012. This is a significant rhyme … and Skytower’s “curves and arches reflect[ing] a traditional Samurai sword” katana imagery offers interesting symbolism.

Although the first skyscraper was built in Chicago in 1884-5, the great push for really big building occurred even as the Great Depression unfolded.

  • NYC – Chrysler Building, 1930, Empire State building, 1931.
  • Chicago – Palmolive building, Carbide and Carbon building, and Medinah Club building, 1929.
  • Cincinnati – AT&T building, 1929, Carew Tower, 1930, and Times-Star building, 1933.
  • Kansas City, Missouri – Power and Light building, 1931, and Jackson Country Courthouse, 1934.
  • Hartford, Conn. – Southern New England Telephone building, 1931.
  • Providence, RI – County Courthouse, 1930.
  • Philadelphia, PA – Lewis Tower, 1929, and Ritz-Carlton , 1931.
  • Pittsburgh, PA – Gulf Building, 1932.

Just a few examples then and here we are now in another similar era with tall, taller, tallest buildings springing up around the globe. Do you feel lucky, punk?

The Post-War Economy

In a fine example of linear thinking, the pundits looked forward by looking backward. Some remembered the Bonus Army. Others anticipated a new depression … “the greatest and swiftest disappearance of markets in all history” … “insecurity, instability, and maladjustment” … “the infections of a postwar disillusionment” … “a declining birthrate” …

Fearing a thinning population and collapsing economy, the U.S. Government began planning a massive campaign, involving two hundred organizations, to provide work relief on the scale of the original New Deal.

It wasn’t necessary.

The Fourth Turning, pg. 146

With vast examples of wartime spending, many economists feared the subsequent drop in military spending would see the economy revert to depression hard times. Not so – a dozen years of thwarted consumer demand assisted strong economic growth. The 1940 GNP of $200 billion in 1940 went to $300 billion by 1950. And a decade later, GNP surpassed $500 billion.

Rebuilding Europe via the Marshall Plan aid and U.S. exports certainly was a factor. And an ‘Iron Curtain’ descending over eastern Europe supplanted the Nazi menace with a Soviet one and the Cold War was underway. Cue the MIC.

Also, the union movement threw off the government shackles imposed by the war effort. 1945 ended with automobile, electrical and steel strikes.

A gathering of elites from allied nations had met at Bretton Woods in 1944 and established a regulated method of exchange rates, referenced to the U.S. gold backed dollar – and thus the US$ became the world reserve currency.

Whether or not it’s true that the U.S. held 80% of world gold reserves then, “he who owns the gold makes the rules.” As of 2010, the total of gold reserves was 30,807 tonnes and the U.S. is said to have 8,133.tonnes, even if it’s now “only tradition” …

“After World War II, the United States held over 20,000 tons of gold in its reserves much of it having come from Europe to pay for war supplies and arms.”

Alex Stanczyk – Beijing China Jan. 7th, 2012 speech

Businessmen, industrialists, entrepreneurs, all demonized in the 30s and co-opted in the 40s saw a ‘sea change’ in attitudes. Having assisted in victory, albeit via government spending, the post-war years saw new attitudes welcoming progress. And innovation. An industrial conference certainly embraced innovation – and even depression-era experiments like television quickly became a reality that grew. Radar and microwaves turned from war to civilian use. The potential of computers was discussed; the only one willing to take a chance was Thomas J. Watson, who said he would probably lose money but it was worth exploring.

As quickly as Detroit factories had converted to war work, they changed back even faster. The first 1946 civilian cars rolled off the lines before year’s end.

In the farm sector, increased productivity led to agricultural overproduction. Small farms were losing competitive ability and the 1947 farm workforce of 7.9 million people declined over the next forty years to less than half that. Farming grew to become Big Agra.

Nothing goes up forever – business eased off from expansionary investment. President Truman responded to an eleven month slump beginning in November 1948, shortly after his “Fair Deal” economic reforms. Coincidentally the Federal Reserve had initiated a period of monetary tightening. Also, there was the new, improved threat of the Cold War – and Truman reinstituted the draft. Economists had forecast a much worse period, deflation, gloom and doom. The GNP declined 1.5%, consumerism had lessened and unemployment went up to 7.9%. A little deficit spending wouldn’t hurt …

The face of the urban workplace environment changed, too. By the 1950s more service works would be counted than those who produced goods. By 1956, more white-collars were employed than blue-collars. Unions won their first long-term employment contracts, with generous benefits …

Business activity has expanded greatly since the spring of 1946 in response to the stimulation of a large postwar civilian demand for goods and services. As a result of this increased activity, as well as of advancing prices and a sharp reduction in corporate taxes, business profits after taxes reached new high levels by the end of 1946. In this period expenditures by business for plant, equip- ment, and inventories have been in unprecedented volume. In order to finance the great increase in assets, business in general has invested the largest annual volume of retained earnings in history, has drawn upon its large wartime accumulation of cash and Government securities, has borrowed from banks, and has floated new issues of securities.

Federal Reserve Bulletin, May 1947

The Fed also noted that the dollar volume of sales in 1946 was 75 percent greater that the previous peacetime peak year of 1929. Wartime profits for business contributed to unusually high levels of plants and equipment spending – aided by a large volume of investment funds. Banks with large holdings of short-term Treasuries could sell or pledge against advances from the Federal Reserve and thus increase their loan portfolios. Special tax credits adjustment wartime taxes for business reduced the 1946 tax liabilities.

Wartime financing by the twelve Federal Reserve Banks, after statutory dividends to the member banks in 1947 yielded a net earning of 60 million dollars. About 90 percent was paid into the Treasury.

 

The Rise of Suburbia

William Levitt addressed the problem of affordable home ownership first in New York and four other locations. A generation accustomed to ‘government issue’ found the identical ‘cookie-cutter’ houses acceptable, especially since they were cheaper than renting. Assembly-line production techniques in building houses for the first time proved effective.

Levitt & Sons and other builders were guaranteed by the V.A. and FHA which benefitted veterans significantly. The first homes were offered in March, 1949, even as the administration fought deflation.

The typical blue collar family had an option for better living also.

http://tigger.uic.edu/~pbhales/Levittown/Life%20magazine%20images%201949-/Bernard%20Levey%20family%20in%20front%20of%20original%20Cape%20Cod.jpg

Levittown, New York was the model of an ideal American suburb. It would take decades for these modest homes to morph into McMansions all across the nation – but once a paradigm shift has begun, it must stay the course.

The symbiosis of automobiles for Everyman as well as tidy little suburban homes was irresistible. Those hordes who once escaped the family farm for city life now expanded inexorably into something that was neither. The average new car cost $1,510 in 1950 and a gallon of gas to put in it set you back 18 cents. That Cape Cod house style averaged $8,450 and it came with modern kitchen appliances!

A middle-class wage averaged $3,210 and one of the biggest discretionary expenses was a B&W TV at $249.95, and it was made in America.

The sprawl continued over the years: inner suburbs, outer suburbs, exurbs, and by the 1990s, suburbs mingled with commercial centres, industrial parks, and corporate headquarters.

The Treasury-Federal Reserve Accord

The Federal Reserve System formally committed to maintaining a low interest rate peg on government bonds in 1942 after the United States entered World War II. It did so at the request of the Treasury to allow the federal government to engage in cheaper debt financing of the war. To maintain the pegged rate, the Fed was forced to give up control of the size of its portfolio as well as the money stock. Conflict between the Treasury and the Fed came to the fore when the Treasury directed the central bank to maintain the peg after the start of the Korean War in 1950.

http://www.richmondfed.org/publications/research/special_reports/treasury_fed_accord/background/

Actually, Truman wanted that peg maintained for his U.N. police action. The Fed argued the low peg produced an excessive monetary expansion causing inflation. The Accord, eliminated the obligation of the Fed to monetize the debt of the Treasury at a fixed rate. This agreement became essential to the independence of central banking …

Thus, 1951 ushered in “the modern Federal Reserve System”.

Sociologically, all you need to know about the decade of the 50s was written in William H. Whyte’s “The Organization Man.” Americans inspired to win World War 2 returned to an empty suburban life, conformity, and the pursuit of the dollar. Kurt Vonnegut would have agreed. His first novel, “Player Piano”, reflected the corporate culture of uniformity, team work, collectivism and stability that he experienced at General Electric.

And there was McCarthy and reds under the bed. The Rosenberg trial. HUAC. The ever-present threat of the Cold War and mushroom clouds. Captain America and Mickey Spillane taking out Commies. A new chapter in ‘War is the health of the state’ …

The business magazine Steel had applauded Truman’s policies: “the firm assurance that maintaining and building our preparations for war will be big business in the United States for at least a considerable period ahead.”

In 1950, the U.S. Budget was $40 billion with $12 billion for the military. By 1955, that year’s budget was $62 billion with $40 billion for the military. When John F. Kennedy was elected in 1960, it was 49% of about $91 billion total. Very soon after his inauguration, JFK asserted the country was spending too much for war and intended to cut back the size of the active military. Then he reversed course, adding $9 billion to the ‘defense’ kitty. A curious observation has been made about the Nixon-Kennedy debates: those who felt JFK won were primarily television viewers; the radio audience leaned toward Nixon. The 1960 election was incredibly close.

Of course, news of Soviet buildups, the “bomber gap” and the “missile gap” turned out to be exaggerated. Nonetheless, the 1970 military budget had grown to $80 billion – half of that to about 15 industrial corporations.

The fear factor card never gets old, continually played and believed. From an Iranian threat, the panic of “Reds” only 90 miles away to Bay of Pigs to the Cuban missile crisis and then an assassination to wonder about. On and on.

But by 1964, the American High had worn out and the greatest antiwar movement ever experienced in America had its effect – enter the Second Turning, the Consciousness Revolution. Perhaps the prelude to this season shift was the founding of the AARP in 1958 – another type of looking ahead from the previous generation.

After the ‘death of Camelot’ (smothered by glitz, hype and myth) America embraced the Great Society with good intentions and no ability to do simple arithmetic. The 1964 election saw the biggest Democratic landslide since 1938. Liberals would eliminate poverty – and any slight failures were blamed on the excessive spending on the Vietnam War.

And along came Nixon

Aside from health problems, LBJ also faced dissension within the ranks, from an antiwar movement, complete with Hollywood celebrities – and depressing polling results indicated the pragmatic decision to “not seek … not accept the nomination of my party for another term.” Following his earlier remarks in that speech, suspending bombing in North Vietnam and being in favor of peace talks, this decision was unexpected.

With LBJ’s withdrawal from a race that was looking promising for antiwar Eugene McCarthy likely to win large numbers of convention delegates, Hubert Humphrey announced his candidacy. So did Robert Kennedy. The latter’s ambition ended with another lone nut with a gun … McCarthy was overshadowed by Humphrey. The 1968 Democratic Convention in Chicago, complete with antiwar riots and police brutality seen by “the whole world” had some influence in the outcome of the election. The failed Paris peace talks … for whatever reason … added to the shift to the Republican brand.

Nonetheless, the end result was squeaky close with but 0.7% in favor of Nixon.

Nixon assumed office after about eight years of expansion. By the end of 1969, attempts to handle the budget deficits of the Vietnam War and Federal Reserve monetary tightening via raised interest rates spawned an eleven month recession. Confidence grew with the Christmas present of the end of a mild (0.6%) recession and 1971 started looking bright.

Meanwhile, what had begun at Bretton Woods was slowly unraveling. With a little bit of coercion, the U.S. Dollar had been accepted as the world reserve currency and a fixed-exchange system would reign.

Everything worked well in the post-war era. The Marshall Plan and other aid was designed to assist growth of nations, such as Japan, as targets for export of U.S. goods – and thus able to absorb U.S. Dollars. The U.S. was producing half of the world’s manufactured goods. Initially holding half of the world’s reserves, and a creditor nation. But by 1970, U.S. Reserves were down to 16%, the Deutsche Mark and yen were undervalued with neither country willing to revalue – this being the justification for weaker currency being good for exports. Trade imbalances were worsening.

And then there was de Gaulle. With the U.S. insisting on the FDR gold price fix of $35/oz., an open market for gold made the pegged convertability between central banks a problem.: the U.S. had to keep running deficits to keep the system liquid and other countries were tempted to buy gold at the Bretton Wood price and sell on the open market for the artifically maintained strength of the U.S. Dollar.

In about 1967, de Gaulle realized the reserve currency was unsustainable and intended returning France to a gold standard. Having been a party to the establishment of the London Gold Pool in 1961, he responded to his prime minister’s later analysis:

“The international monetary system is functioning poorly because it gives advantages to the country issuing the reserve currency. Such a country can have inflation by making others pay for it.”

George Pompidou

France pulled out and the London Gold Pool collapsed in 1968. By 1971, U.S. Reserves were only around $10 billion and foreign banks held $80 billion in dollars.

In early 1971, de Gaulle sent a French battleship with a hoard of dollars to convert to gold at the Federal Reserve Bank of New York. The British ambassador to Washington conveyed the August 11 instruction of his government, conversion of $3 billion dollars into gold, to be stored in the underground vault of said bank. Other foreign governments had gold stored there also.

On August 16, 1971, Nixon abandoned the gold standard, asserting that the United States would no longer redeem dollars.

 

Fiat on!

And it’s been downhill ever since.

 

Epilogue to come …

 

Money in America Part Seven

Previously, we saw the so-called do nothing Hoover do far too much, sowing the seeds of the New Deal and making the depression Great. The example of 1920-21 had been forgotten. Eight years of FDR experimentation included the 1937-38 ‘recession within a depression’, and some recovery.

 

Did the Great Depression End in 1940?

The conscription act certainly improved the employment statistics. Meanwhile, the tocsin of European war grew louder. This offered new policy opportunities but also internal conflict. A Neutrality Act had been in place and often ignored. Is there, though, any difference between the WPA and “training and service”?

At any rate, England was already in the war, one result of the mutual assistance treaty with Poland, August 25, 1939. A week later, the Nazis invade Poland. Two days after, Britain, France, Australia, and New Zealand declare war on Germany. America proclaims neutralist on September 5. By the end of the month, the Nazis and Soviets were slicing and dicing Poland.

Dateline, May 26, 1940, the evacuation of Allied troops from Dunkirk begins. Two weeks later is the start of the Battle of Britain. There was worse to come in the next months.

August 9, 1941 – Churchill arrives off the coast of Newfoundland on the HMS Prince of Wales for his first meeting with FDR, on the USS Augusta. Churchill hopes for a U.S. Declaration of war on Germany. What he gets is the Atlantic Charter, first titled the “Joint Declaration by the President and the Prime Minister” of which no signed copy exists. Even though a film crew was on hand, the equipment failed. Twice. Churchill first used the term ‘Atlantic Charter’ on August 24 in Parliament, describing not a blueprint but hopeful goals for the post-war period.

What Churchill did get was more Lend-Lease.

Back in December, 1940, FDR had suggested the U.S. Should sell munitions and so on to Britain and Canada. Opinion in the U.S.was already sharply dividied. Three month earlier, the America First Committee had formed, a non-interventionists group that peaked at 800,000 paid members and folded after Pearl Harbor.

Although the selling scheme was shot down, the Lend-Lease idea floated in early 1941 gained favor with a majority of the people – they believed it would keep American out of the war. FDR signed the Lend-Lease bill on March 11, 1941 and improvements to aid China and Russia were added. Britain got $1 billion in aid by October.

Prior to this, Britain had been selling assets and working on a ‘gold-and-carry’ principle and was running out of gold. The earlier 50 USN destroyers for basing privileges had helped some. That agreement also initiated the building of Liberty Ships.

Also back in 1940, there was another ploy. FDR proposed sending B-17 bombers and crews to Britain for testing. The Department of Justice reckoned it was illegal but recognized British orders that had not been fulfilled. General George Marshall certified that the new bombers were not essential and the deal was done. The bombers were flown to Britain with American crews.

After the loss of the HMS Hood to the Bismarck in May, 1941, the latter’s escape was short-lived: first it was sighted by the U.S. Coast Guard cutter Modoc and radio reported to the British. This information soon assisted a Catalina aircraft piloted by a U.S. Naval reserve ensign who radioed the location and heading to the Admiralty. British warships pursued and went for the kill. Some 2,200 dead, 110 captured. A cat survived. The British had three casualties from friendly fire.

Meanwhile, on the high seas, the German U-boat packs were menacing shipping. As a courtesy, U.S. Naval ships were sent to shepherd the merchant vessels. Up until 1941, America had only the naval fleet at the West Coast.

Various units were detached to become the Atlantic Fleet. The shipping lanes were declared a security zone, then the greater Atlantic as a Neutrality Zone, by invoking the Monroe Doctrine. But submarines make mistakes, especially when viewing at periscope depth. In June, 1941 the U.S.merchant ship Robin Moor was torpedoed; most of the crew survived. A formal apology from Germany was met by FDR freezing German assets in the U.S. and sending consular officials home.

On September 4, the USS Greer (DD-145) had received a radio message from a British aircraft about a German submarine. The Greer followed, reporting updated location for hours, which assisted attacks from British planes repeatedly. Finally, the U-boat (U-652) fired a torpedo which missed. The Greer countered with depth charges, lost the target but searched without result for three more hours.

FDR had a fireside speech about the incident. The Senate demanded an inquiry and asked for the Greer’s log. They never got it.

In any case, what passed for neutrality ended with the attack on Pearl Harbor.

*

To answer the question of this section, one must look for prosperity. Unemployment had peaked at 19% in the recession within the depression – at 17.2% in 1939 but was still at 15% in 1940.

From there to 1944, the curve drops steadily down to 2.4%, a combination of the selective service act and the many Rosie the Riveters and their peers. Forty percent of the labor force were either in the military or engaged in war work.

And GDP peaked that year – with gross public debt at 120% of GDP. War is expensive. So, was Main Street prosperous? It didn’t look like it and it didn’t feel like it. Wartime rationing had its bite on the domestic public; so did supply and demand. If it wasn’t rationed, it was less readily available and cost more. Personal income taxes rose to 91 percent (and later increased to 94%); corporate excess profits tax hit 91%.

On Wall Street, the Dow did not reach its 1929 level until 1954.

Washington, D.C. Invaded!

The Brits invaded the Capitol in 1940. Unlike 1814, they didn’t set fire to the White House; indeed, they were welcomed with open arms by President Roosevelt. Churchill had sent his favorite Canadian, William Stephenson, to head the British Security Coordination. This outfit and others planned a systematic propaganda campaign to “do all that was not being done and could not be done by overt means”.

Aside from propaganda and political subversion, they would also assist the new American intelligence unit, the OSS – and ensure an unprecedented fourth term for FDR.

None better to impress the American public than a handsome war hero, Roald Dahl, whose near-fatal crash put an end to his flying. Assigned in a minor diplomatic position, he befriend Charles Marsh, an influential newspaper tycoon who had moved to D.C. With high-level business and political contacts, as well as household names of journalism, the pair elevated Dahl into an intelligence elite agent. Others were added to the team: Ian Fleming, for one.

“I have in my possession a secret map made in Germany by Hitler’s government – by the planners of the new world. It is a map of South America and a part of Central America as Hitler proposes to reorganize it.

“That map, my friends, makes clear the Nazi design not only against South America but the United States as well.”

FDR Navy Day radio speech, March 11, 1941

Be very afraid – Nazis in your backyard! A work of art, that map. Here’s the thing: one of Stephenson’s proteges, Ivar Bryce – Ian Fleming’s Eton classmate and his closest friend – came up with the idea. His draft map went to Canada, BSC’s technical arm at Station M. Forty-eight hours later, an authentic-looking German map, even worn and discolored from use, arrived on Stephenson’s desk. Whether by guile or with a wink, the bogus map was given to Donovan, who took it to FDR. Plausible denialability, in any case.

America First and other isolationists” didn’t stand a chance. That, and countless other dirty tricks were played on the American people when Britannia waived the rules. But there was home-grown help: Walter Winchell, Drew Pearson, Walter Lippmann and other stenographers dutifully relayed the ‘facts’ to the public. American dramatist Robert Sherwood who did propaganda work for Donovan’s OSS, later said:

 

If the isolationists had known the full extent of the secret alliance between the U.S. And Britain, their demands for the president’s impeachment would have rumbled like thunder across the land.”

Let God save the King! had been the slogan of a fair number of Americans, mindful of WW1. But Pearl Harbor was a game changer. There had been a hint from Proclamation 2487 on May 27, 1941 “that an unlimited national emergency confronts this country … “

 December 8, 1941 – “The country seemed to remember again what it always knew: that the adventurer was the force that pushed the country forward. It was the adventurer’s America too that the soldier would shortly be defending. And no one wanted to serve more than the Forgotten Man.”

Amity Shlaes, “The Forgotten Man” (2007)

 

The War Years

January 1, 1942 – the Declaration of the United Nations was signed by 26 Allied countries.

On the 26th, the first American forces officially arrived in Great Britain.

February 19, 1942 – FDR signs Executive Order 9066 authorizing Japanese-American internment. The Census Bureau assisted locating those of Japanese ancestry from their records in 1944. (The Supreme Court asserted the constitutionality of the internment. Little did they know that FDR appointee Charles Fahy withheld the Office of Naval Intelligence report concluding Japanese-Americans on the West Coast posed no military threat.)

The FDR administration is a study in evolution: in the early years, the plan was to demonize business. Later, New Deal 2.0 instituted the idea of cartelization. And then, co-opting business for war was natural. Some might conclude this was the building of the military-industrial complex.

In March, 1942, the Federal Reserve published a “Pay-as-you-go Income Tax plan”. Social Security had initiated withholding in 1937. Now, the income tax would take another upfront bite. The problem that created was that, before, income tax was paid the following year in one hit. A double dip would be impossible for most people, so the Congress came up with a modified plan cancelling either the 1942 or 1943 amount by 75% – the main thing was to implement this ‘temporary’ scheme.

And there was more – April 27, 1942, FDR tells Congress: “No American citizen ought to have a net income, after he has paid his taxes, of more than 25,000 a year. The Treasury Department issued a memorandum to Congress wanting a 100 percent tax on incomes over $25,000. (And people whine about a health insurance mandate today.)

October 3, 1942, FDR executive order 9250 “providing for the stabilization of the economy” to implement such a plan. Does this look like prosperity?

The rise of withholding tax created a dramatic expansion of the IRS. This was all a ‘temporary’ wartime measure …

March 18, 1942 – the War Relocation Authoritywas initiated. WRA hired Dorothea Lange and other photographers to document the Japanese relocation effort. About 13,000 photographs were produced – and impounded for many years … (Shlaes, pg 387)

FDR issued executive orders from 9017 in 1942 to 9508 in 1944. So much history with social and economic impact. Executive Order 9300 on Subversive Activities by Federal Employees. February 5, 1943, one interesting example of many.

Following the money, though, shows how completely the economy was impacted by necessity … from 1940s defence spending as 17.53% of federal spending to 1945s 89.49% record.

Taxes provided some $136.8 billion to pay for part of the war. The other $167.2 billion came from Treasury bonds and “war bonds” the latter often by payroll deduction. Banks also indulged in Treasury bonds and paper, accrusing $24 billion by the end of World War Two. The 2.9% interest on the ten year war bonds, though, were after the maturity and never compensated for the rise in consumer prices over the period. So it goes.

Overall, Robert Higgs (1992) calculated that the national living standard varied through the war years from level to slightly declining.

Still, it wasn’t all doom and gloom. Civilian employment had increased from the 1940 statistic by 13.4% in 1944 and unemployment was but 0.7% of the population. Some 10 million women worked outside the home by war’s end. Two million women had been involved in war work.

 

The Post-war Years

Actually, the major monetary event preceding peacetime was the 1944 Bretton Woods Conference. Formalizing rules for currency conversion and esablishing the International Monetary Fund and the International Bank for Reconstruction and Development (now part of the World Bank) provided an international monetary order.

The experts of the day looked past August 15, 1945. Emperor Hirohito’s surrender of Japan by radio broadcast at noon and General Order No. 1 signed by President Truman on August 17. They forecast 1946 in Chicken Little’s words, or maybe they mistook Randolph Bourne’s 1918 essay as a policy.

Defence spending in 1946 was still at 77.3% of federal spending. It halved by 1947 and was still at 32.2% in 1950. Some economists had predicted a slide back into depression with the return of servicemen and women. The #13 billion Marshall Plan and the $1.8 billion for Japan reconstruction helped a lot. It also built in a trading potential mindful of America’s import and export requirements. Building your markets, perhaps. Not exactly the ‘broken window’ fallacy’.

There was the G.I. Bill – access to suburban housing, vocational training, college education, and private cars available again. And peacetime consumer production certainly ramped up. Innovations of the 1930s were readily available to a new generation establishing homes. Post-war implementation of wartime invention added new ideas for commerce and prosperity.

The initial post-war outcome proved the experts wrong. Nonetheless, the recession of 1948-49 arrived, a confluence of Truman’s economic reforms and monetary tightening by the Federal Reserve. This downturn began in November, 1948 and only last eleven months. Unemployment peaked around 7.9% and the wholesale price index was down by 12 points. GDP had fallen by 1.7%, and Chicken Little’s sky shone even more brightly in 1950.

GNP had been $200 billion in 1940, rose to $300 billion by 1950 and surpassed $500 billion in 1960 during those “baby boom” years.

The growth of production of consumer goods, affordable low-cost mortgages and other benefits for returning military and general post-war euphoria led to a rising middle class. The overall work force was changing, too. During the 50s, services jobs grew to equal and then surpass goods production. The farm sector over-productivity’ led to decline of small farms as Big Agra grew. The decline of the farm sector from 1947 at 7.9 millions continued for generations. By 1956, there were more white-collar workers than blue.

The availability of personal automobiles, demand for single-family homes, and the rise of suburbia began and continued. Only eight shopping centers existed at war’e end and grew to 3,840 in 1960.

As individuals left the big cities for suburbia, so, too, industries fled Metropolis for the Sun Belt. Even air-conditioning became a ‘must have’.

And there was the federal highway system to facilitate the migration.

The decade of the 1950s, a time of complacency and conformity, would dramatically change in the 1960s. It was the time of the Second Turning, the High had peaked and cultural revolution was upon America.

 

In the exciting conclusion to come …