There is a scene in the Flags of Our Fathers (about the marines who raised the flag on Iwo Jima during WW2) where a treasury official tries to convince the marines to go on a war bond publicity tour by going on a long rant about how if people didn’t buy enough war bonds, US might go bust and be forced to sue for peace due to not having enough war materials.
Now I realize this is a fictionalized* account of someone who had every reason to be economical with the truth in order to convince them to go on a publicity tour. But is there any sense in which this statement (whether or not its fictional) is not a complete and out right lie? Everything I have read about the state of the US economy during WW2 says it is (esp in comparison to other countries like the UK which did come close to collapsing I beleive)
The character, Bud Gerber of the Treasury Dept, who said it is fictional AFAIK. But its not unusual for several real people to be combined into one fictional one in a film like this, so its not impossible someone said something like this IRL.
I have no idea how taxation worked back then, but given that the U.S. was having roaring economic activity going on during the war, surely tax revenues were skyrocketing as well?
The problem was the economy was roaring because the government was spending so much on the war effort. And it was lending capital to allies like the United Kingdom.
I don’t know if U.S. was actually going broke or if that was just a story told to rally the troops but it seems plausible. In theory, the government could have just printed more money (or more formally, increased the money supply) to pay its bills but that would have just caused ruinous inflation. Getting people to buy bonds meant that those people were willingly forgoing current consumption, so that portion of their income wasn’t fueling inflation. This is a common sense macroeconomic choice to reduce inflation during a time of government deficits.
How accepted was Keynesian economics at this point? Because older thought was that running a deficit would ruin the country. I wouldn’t be surprised if that wasn’t the predominant thinking on deficit spending.
I have a vague idea that buying war bonds was a way to reduce civilian spending - so that civilian dollars weren’t chasing the limited number of non-war related supplies, and thus causing inflation.
I am not an economist but since the Government controls the money supply it can’t run out of money. Whether expanding the money supply more than was done would have caused runaway inflation is always debatable, but unlikely. There was a spike in inflation after the war, but of course during the war there were price controls. Some countries, like the UK, were running out of foreign exchange (ie gold) but even they had the ability to print money and so couldn’t run out of money. The US was a creditor Nation and didn’t have that problem.
Don’t forget the wage and price controls that were in effect during the war. My father’s employer wanted to raise his pay but couldn’t (although they found a way–doubtless illegal) around that. But that did control inflation, obviously. So did rationing.
" The last time the United States issued war bonds was during World War II, when full employment collided with rationing, and war bonds were seen as a way to remove money from circulation as well as reduce inflation."
Yup. My mother worked for that agency for a period during the war. The government was well aware of the problem.
As for the OP, if that argument was actually made it was no doubt advertising hyperbole to increase war bond sales. Not the worst used during the war. None of my war-time Astoundings have war bond ads, alas.
I’ve heard that because fringe benefits were a way to evade wage limits, employer health coverage began in this period - with long term effects on how health care is handled in the US
The US rationed all sorts of basic materials. In a very real “guns vs butter” sense, it was operating at the limits of its economic capacity. The US was close to running out of everything in WWII.
No question that the deficit soared during WWII. It was $5 billion in 1941 and $55 billion in 1943, an incredible sum for the time. It wouldn’t get that high again until 1976.
The $172 billion deficit from 1942-1945 was more than offset by the $186 billion purchased of government securities, of which $54 billion were in war bonds (aka liberty bonds). The campaign to get the public to buy bonds started in 1940. By Pearl Harbor 97% were aware of war bonds. The rush to buy bonds overwhelmed capacity.
Keeping the money flowing regularly was of course an issue. Bond drives took place in Dec. 1942, and April and Sept. 1943. Hollywood stars toured the country regularly. Other single day events raised as much as $50 million. The pressure to raise money was constant.
But I don’t believe that it ever hit a serious low. In fact, the whole issue of forced purchases was abandoned after those successful bond drives. Keynes was an advocate of them and they were used in Britain. Unlike the UK, the US was swimming in cash. Although propaganda stressed the small sums - bond stamps down to ten cents were heavily advertised in comic books - most of the voluntary money came from the wealthy despite the fairly low returns.
Could some official somewhere sometime have used dire predictions to pry money loose? Sure. Maybe some people in 1942 when nothing was certain and everything was going wrong believed that. In hindsight, the claim is exaggerated, though we need to remember that virtually nobody in government in 1942 had a clue about what the U.S. would achieve by 1945. The turnaround in wartime was spectacular and unprecedented. Arsenal of democracy indeed.