Economy

In the decades immediately following World War II, the United States entered one of the longest sustained economic expansions in the history of the country while contending with COLD WAR anxieties and the persistence of poverty.

The economic optimism that characterized America in the 1920s ended with the stock market crash of 1929. With the onset of the Great Depression in the 1930s, Americans witnessed poverty at its deepest levels. The illusion of permanent prosperity shattered as the unemployment rate and bread lines continued to grow. When President Franklin D. Roosevelt entered office in 1932, a new hope spread across the United States as he implemented his New Deal, a welfare program to work in conjunction with the capitalist system, that sought to help those who could not help themselves. While the New Deal created dozens of relief measures and initiated the slow process to economic recovery, America remained unable to fully escape the Great Depression. The advent of World War II, however, brought the impetus needed to mobilize American industry for wartime production. Men and women not serving overseas went to work in the factories, building and producing everything from airplanes and merchant ships to uniforms and chemical weapons. The unemployment rate fell and the economy boomed as the entire country took part in the war effort.

As Americans returned home after World War II, the thriving economy relieved any lingering doubts of another depression and strengthened the position of the United States as the richest nation in the world. The gross national product (GNP) took a giant leap from just over $200 billion in 1945 to almost $300 billion in 1950. By 1960, the GNP surpassed $500 billion and reached $685 billion in 1965. It jumped to a staggering $970 billion by 1970. In 1945, per capita personal income was $1,223, and by 1970, that figure rose to $3,945. Almost 60 percent of all families in the country could boast of being a part of the middle class by 1970.

Cognizant of the role of spending in promoting economic revival, just as English economist John Maynard Keynes had predicted, legislators attempted to put in place such a program that could prevent a future downturn. The Employment Act of 1946 was one way in which economists worked to institutionalize the ideas of Keynes. The initial bill called for the government to monitor the economy and maintain full employment by requisite spending or other fiscal tools if a downturn threatened. Though liberals and labor leaders supported the bill, business leaders denounced it as anticapitalist. In its final form, the act created a Council of Economic Advisors to report to the president on the state of the economy. The president would then make an annual address to both Congress and the nation on the report’s findings. The act, however, did not commit the government to use fiscal policy to maintain full employment when the economy turned downward.

Although the war energized American industry, factories concentrated on producing goods for the military rather than consumers. During the war, many Americans

Made more money than they ever had previously, but they could not spend all they earned. By the war’s end, Americans had an estimated total savings of $140 billion that they were eager to spend. Furthermore, families had more discretionary income than ever before. Real purchasing power rose by 22 percent between 1946 and 1960, allowing more people to satisfy both their needs and wants. This was a dramatic change from the Great Depression era when less than 25 percent of all families had any discretionary income.

United States production companies after the war quickly realized the increased purchasing power of the working American and began to offer a whole host of new products for the average consumer. Using wartime TECHNOLOGY, companies developed a wide variety of machines and gadgets to be used in the home. With the use of ADVERTISING, the CONSUMER MOVEMENT of the 1950s created a constant demand for the newest products. By 1956, 81 percent of American families owned TELEVISION sets, 67 percent owned vacuum cleaners, and 89 percent owned washing machines. The expansion of private credit made it possible for a large majority of Americans to benefit from the material abundance of the 1950s. Families could purchase the new products with less savings, using a store’s installment program or CREDIT CARDS. Throughout the 1950s and 1960s, indebtedness grew fivefold and surpassed income increases.

The AUTOMOBILE INDUSTRY played an important role in the economic boom as well. The total number of cars made in the United States jumped from 2 million in 1946 to 9 million in 1965. By 1960, 74 million automobiles were in operation throughout the country, while millions of outdated models piled up in junkyards. Companies offered a wide variety of engines and colors; each year’s model featured its own distinguishing options, including grills and tail fins. Owning the latest or fastest model became part of the American dream and symbolized middle-class status. President DwIGHT D. Eisenhower’s administration spent $26 billion on the INTERSTATE Highway Act of 1956, allowing for the construction of over 40,000 miles of federal highway and boosting car sales even more. While it became the largest public works expenditure in American history, the act failed to invest in mass transportation, increasing both pollution and the nation’s dependence on a constant supply of cheap oil.

Like the automobile industry, the housing industry also played an important role in the postwar economic expansion. As servicemen returned home from the war, they needed affordable and well-located housing. Construction companies began mass-producing houses just outside the cities, resulting in the SUBURBANIZATION of the 1950s and 1960s. The 1944 GI Bill offered low-interest home mortgages to servicemen along with priority for many jobs and educational benefits. With the use of automobiles and the new highway system, millions of veterans were able to purchase their own suburban homes and commute to jobs in the cities. With the onset of the BABY BOOM, owning a home became even more of a necessity for the average American family. In 1940, 43 percent of American families owned their own homes, compared to 63 percent in 1970.

Though the United States produced half of the world’s goods, the country continued to move from a goods-pro-ducing economy to a service-providing economy in the years after World War II. In the 1950s and 1960s, the number of people working to sell, distribute, or maintain goods continually increased. By 1956, the majority of American workers held white-collar jobs in the service industries. While clerical workers enjoyed better pay and more leisure time than did factory workers, work in huge corporations was often monotonous and subject to bureaucratization. Many labor leaders worried about worker displacement and alienation, while business leaders argued that the increase in white-collar jobs actually led to more employment opportunities and safer work.

Not all Americans held white-collar jobs. Many people still worked as factory workers on assembly lines. They, too, were able to take part in the American dream of owning a house in the suburbs and having two cars in the garage thanks to substantial union gains made throughout the 1950s and 1960s. By the end of the 1950s, a COST-OF-LIVING ADJUSTMENT (COLA) was a common feature in most union contracts, protecting workers against inflation. With the 1955 merger of the American Federation of Labor (AFL) and the Congress of Industrial Organizations (CIO), both trade and industrial unions unified under a single organization that represented more than 90 percent of the country’s 17.5 million union members. Union members largely succeeded in gaining middle-class affluence, but by the end of the 1960s, the union movement slowed down as membership stabilized.

Following World War II, government and big BUSINESS became more dependent on one another than at any previous time in the history of the United States. During the war, the government relied on American industry to supply the necessary materials for the war effort. It was the government’s active economic role in business that finally stimulated the economy and ended the depression. After the war, government continued to take part in the economy by allowing business to buy almost 80 percent of the factories built by the government during the war. In 1950, public spending accounted for 7 percent of the GNP, and by 1960, that figure rose to 9.4 percent. When cold war tensions escalated, Congress created the Department of Defense in 1947 with a budget of $13 billion, rising to $47 billion by 1953. More than half of the total national budget each year went to the Department of Defense, boosting both the aircraft and electronics industries.

The close ties with big business produced a government policy that favored industrial concentration. Government contracts encouraged the expansion of big corporations, shutting out smaller firms. Few antitrust actions resulted in the rise of oligopolies and conglomerates that dominated American capitalism in the postwar years. Franchise operations such as McDonald’s and Kentucky Fried Chicken also expanded. Foreign markets became a viable option for large corporations, as the development of plants overseas increased market size and offered cheap labor costs.

Most Americans accepted the government’s active role in the economy as a way to both stimulate and sustain the economic expansion. They recognized that military spending had a positive impact on the economy. At a time when the United States was both peaceful and prosperous, most citizens of middle-class status were content to enjoy the economic boom. They praised the American capitalist system as a way to maintain the freedom of business enterprise and private institutions while redistributing income so that all citizens could partake of the wealth. John Kenneth Galbraith, a prominent economist, went so far as to call the entire nation an “affluent society” and argued that poverty was not a “massive affliction” for the country.

Under the Eisenhower administration, this affluent society dominated the nation’s consciousness. Before World War II, economic health was commonly measured by the volume of employment and industrial productivity. By the 1950s, however, most economists placed a heavy emphasis on overall economic growth measured in the GNP. Although inflation continued and the unemployment rate remained steady at 6 percent, the GNP and average personal income continued to increase during Eisenhower’s presidency. The United States experienced the greatest peacetime prosperity it had ever known, and Eisenhower remained fiscally conservative throughout his time in office, making little effort to manipulate federal fiscal policy to stimulate economic growth.

The realization that the economy was heavily dependent on government spending temporized the economic optimism that characterized the 1950s. After the Korean War when the defense budget was cut, the economy took a similar dive. Although the economy soon recovered, many experts wondered what would happen when the government again made further cutbacks. In his 1961 farewell address, Eisenhower cautioned against the growing “economic, political, and even spiritual” influence of the military-industrial complex.

When President John F. Kennedy took office in 1961, his administration began to look for ways to stabilize the economy and sustain the expansion of the 1950s. The Kennedy administration made clear its support of the economic theories of John Maynard Keynes, whereby government regulation of the money supply and fiscal policy prevented the regular pattern of booms and busts that characterized the capitalist system. In 1962, Kennedy proposed a tax cut to stimulate the economy based on the advice of Keynesian economists but did not live long enough to see it through. Once in office, President Lyndon B. Johnson pushed the tax cut through, and it worked. The GNP rose 7.1 percent in 1964, 8.1 percent in 1965, and 9.5 percent in 1966. The economic policy of both Kennedy and Johnson met with distrust and hostility from business leaders as they saw government interference in the free market a step closer to socialism. In reality, this economic policy largely favored individual corporations and did little to curtail the existing distribution of wealth and power in America.

Despite the continuing economic expansion of the 1960s, some economists and social critics began to address the issue of poverty in the United States. While economists in the 1950s argued that the poor benefited from the economic boom in ways comparable to the very rich, poverty remained a significant and persistent part of the American landscape. In 1962, Michael Harrington published The Other America, a work that emphasized the existence of poverty and the inequality of income distribution throughout the country. The existence of persistent poverty led Kennedy to initiate an expansion of the welfare state that had stagnated under the Eisenhower administration. While Kennedy brought these issues to the forefront of America with his New Frontier, President Johnson and his Great Society made the greatest strides for America’s poor. The Great Society consisted of social programs to help the poor and disadvantaged, as well as middle - and upper-class Americans. Although Johnson’s programs failed to eradicate poverty, they did serve to bring the issue of socioeconomic disadvantage to public attention. No longer could Americans claim that all was well in the country due to the economic boom and growing middle class.

Though poverty remained an issue for the United States, the decades immediately following World War II brought unprecedented prosperity and productivity to the country. The economic growth that characterized postwar America continued to affect the nation well into the 20th century.

Further reading: Charles C. Alexander, Holding the Line: The Eisenhower Era, 1952-1961 (Bloomington: Indiana University Press, 1975); Stephen Kemp Bailey, Congress Makes a Law: The Story behind the Employment Act of1946 (New York: Columbia University Press, 1950); Alonzo L. Hamby, Man of the People: A Life of Harry S. Truman (Oxford, U. K.: Oxford University Press, 1995); Allen J. Matusow, The Unraveling of America: A History of Liberalism in the 1960s (New York: Harper & Row Publishers, 1956).

—Donna J. Siebenthaler