INTRODUCTION

Fiscal policy played a major role in the lives of civilians and military citizens of the United States during the second World War. Policies instituted by Roosevelt and later by Truman were integral to the economy for the purposes of both stabilization of the economy to protect it from a second depression and to finance the war sufficiently to ensure victory.

BACKGROUND

In 1941 The United States entered the second world war due to the advancing German forces and the Japanese attack on Pearl Harbor. At the time of this entry the US was undergoing a slow but steady recovery from the Great Depression of the previous decade(Smiley, p.184 ). Our entry into the war caused very swift and drastic changes in the economic conditions present at that time. It was up to the Roosevelt administration to both finance the largest scale war the world had ever seen while stabilizing a fragile economy in a state of recovery. What was once a market economy quickly transformed into a command economy. The actions dictated by that economy, the problems it faced, and the results that ensued are as follows.

ECONOMIC STABILIZATION POLICIES

The war effort increased real income drastically in the United States, as well as in many other countries.(Tax Institute, p.29) It was this increase that caused a large increase in demand for consumer goods since they had been in such short supply during the Great Depression, but most resources were being used to manufacture military and other war related goods. Mainly, these resources were steel, aluminum, and other metals used for making weaponry, but, textiles were also in short supply.(Smiley, p.190) Automobile factories became tank factories and dress shops become uniform shops. Agricultural production also rose while rural population and farm employment both fell(Smiley, p.189). In 1941, the bill which led to legal power being granted to the Office of Price Administration also included special provisions to set the price ceilings for farmers at 100% parity(Compagna, p.158). Parity was set at different rates for different commodities, based on usage and demand. This led to high prices and uneven allocation of the goods most sought after by consumers and the military(Compagna, p.166). Rationing was a commonly used tactic in response to the sharp rise in real income coinciding with the decline in production of consumer goods. The success of this technique was questionable as fraud was common and rationing tickets were often invalidated(Smiley, p.195). The War Production Board (WPB) controlled the distribution of these raw resources between civilian and military uses(Smiley, p.187) Another office concerned with the distribution of goods, but also representing the interests of labor, was The Office of Price Administration. This office was created in 1941 by the President and was urged to be more structured than previous attempts at such commissions. The Office of Production Management (OPM) also concerned itself with dictating military and civilian priorities for goods, but with regard to more finished products than the War Production Board(Smiley, p.187). The OPM set up the Office of Price Administration and Civilian Supply in 1941 and challenged it with the job of setting prices in order to reduce inflation.(Smiley, p.187) Subsequent to the creation of the Office of Price Administration, the Office of Production Management was disbanded due to poor organizational structure and inferior prioritizing of objectives(Compagna, p.157). This disbandment was due to the previously mentioned shortcomings in combination with a nascent recovering economy as well as being severely attacked in 1943 for its part in the Revenue Act of 1943, in which large increases in most rates of tax were proposed and then rejected by the congress (Holmans, p.34). The Office of Production Management was replaced by the Supply, Priorities, and Allocation Board (SPAB). The SPAB was, unfortunately, a makeshift agency and operated no better than The Office of Production Management, which it was created to replace. The general problem with most of the agencies heading the economic mobilization of the war was that they had no real power to enforce their objectives(Compagna, p.158).


Two main economic problems facing the government as a direct result of the war were stabilization of the economy and financing of the war. The way in which the government chose to solve these problems was two-fold; taxation and sale of government securities. The Fed utilized