The architects of the Great War set the world on the path to self-destruction. Although the worst has not taken place, the world still treads along the same perilous course. For human beings have yet to devise a sure way of imposing rational limits on irrational acts of violence.


The Progressives could not have been more wrong. Entry into the First World War did not bring about the revolution in American government and society that they anticipated. Nor did it permanently restructure the American economy as they had hoped. Long before the crisis of war seemed to create the opportunity to achieve comprehensive reform, Progressives had warned that disorganization and inefficiency threatened all facets of American public life. From their point of view, the war not only exposed but also worsened this perilous condition, making indispensible both their assessment of the problems and their remedies for solving them. Although the war did prompt a vast reform movement, those initiatives focused on one essential purpose: winning the war itself.

Americans regarded the war as a temporary emergency that, while it imposed hardships and required sacrifices, would not last forever. Once it ended, they assumed that life would return to normal, relieving them of their present difficulties and afflictions. They longed to restore the world that they had left behind when war broke out, not to revive wartime fervor or to endure the upheavals of a permanent revolution. The Progressives had tried to use the war as an occasion to accomplish the changes they had failed to effect in peacetime. In so doing, they appeared to be radicals, fanatics, and zealots, eager to impose their ideological vision and their political will on the American people, and thereby to deprive them of the freedom that was their birthright.

American participation in international affairs also seemed to many Americans more costly than they were willing to tolerate, especially after the economic stimulus of war and reconstruction diminished in 1921. The realities of global politics and economics notwithstanding, Americans still preferred to think of themselves and their country as independent from the rest of the world and immune from its incessant disturbances. If nothing else, the devastating influenza pandemic that struck the United States during the winter of 1918-1919 ought to have alerted them to the truth.

Many of the citizens and politicians who questioned the value of American involvement in world affairs noted at the same time that, contrary to all expectations, the growth of the American economy had continued despite periodic depressions, the alleged closing of the frontier, and the end of railroad construction. By the early years of the twentieth century, the United States had already taken the lead in worldwide industrial production for a mass market. The size of the American domestic market had by itself aided this development, if it had not made it entirely possible. The United States, concluded many businessmen and politicians, did not, after all, need access to European markets in order to prosper. Americans in 1917 had inherited an economy that was still growing, and was, in fact, entering a new stage of development, becoming even more productive, and promising an ever richer material life to a greater number of citizens.

The remarkable economic transformation, which the United States had undergone by 1917, meant that on the eve of American participation in the Great War, the United States had become a predominantly industrial nation; only 28.2 percent of Americans worked in agriculture. The number of arm workers continued to decline.

Table 1: Civilian Labor Force, 1910-1920

Year    Total     Farm    % Farm    Nonfarm    % Nonfarm   
        annual average in thousands of persons 
                 14 years of age or older

1910    34,559   11,260      32.6       23,299            67.4 

1911    34,960   11,107       31.8       23,853            68.2

1912    36,173    11,136      30.8       25,037            69.2

1913    37,004   10,974     29.7        26,030           70.3

1914    36,281   10,945     30.2        25,336           69.8

1915    36,233   10,953     30.2        25,270           69.7  

1916    38,014   10,802    28.4        27,212            71.6

1917    38,175    10,788    28.2        27,387            71.7  

1918    38,540   10,674    27.7        27,866            72.3

1919    39,150   10,498    26.8        28,652            73.2   

1920   39,208   10,440   26.6        28,768             73.4

(Source: Historical Statistics of the United States: Colonial Times to the Present [U.S. Department of Commerce, 1976], 121.)

Even more revealing of the economic transformation the country had experienced, the Gross National Product (GNP) in 1917 was more than eight times larger than it had been in 1870, and the output per individual worker was more than twice as great.

Table 2: Total Gross National Product, 1870-1900

Year         Total GNP
in billions of dollars

1870*          7.4
1880*          11.2
1889           12.5
1890           13.1
1891           13.5
1892           14.3
1893           13.8
1894           12.6
1895           13.9
1896           13.3  
1897           14.6
1898           15.4
1899           17.4
1900           18.7
* decade averages

Table 3: Total Gross National Product, 1901-1910

Year         Total GNP
in billions of dollars

1901           20.7 
1902           21.6
1903           22.9
1904           22.9
1905           25.1
1906           28.7
1907           30.4  
1908           27.7
1909           33.4
1910           35.3 

Table 4: Gross National Product, 1911-1920

Year         Total GNP
in billions of dollars   

1911           35.8
1912           39.4
1913           39.6
1914           38.6 
1915           40.0
1916           48.3 
1917           60.4
1918           76.4 
1919           84.0
1920           91.5

(Source: Historical Statistics of the United States, Part 1, 224.)

Table 5: Index of Worker Output, 1870-1900

Year           Output per Man-Hour
     Base Year 1958=100

1870*                16.0 
1880*                21.8
1889                  21.2  
1890                  22.2                
1891                  22.6
1892                  24.0
1893                  23.0
1894                  23.2                
1895                  24.6 
1896                  24.1
1897                  25.7
1898                  26.1 
1899                  26.6
1900                  27.0

Table 6: Index of Worker Output, 1901-1910

Year           Output per Man-Hour
     Base Year 1958=100

1901                 28.9
1902                 27.8
1903                 28.4 
1904                 28.4
1905                 29.1 
1906                 31.3
1907                 31.2  
1908                 29.7
1909                 31.9
1910                 31.3

Table 7: Index of Worker Output, 1911-1920

Year           Output per Man-Hour
     Base Year 1958=100

1911                 31.9 
1912                 32.5
1913                 33.6
1914                 31.4
1915                 32.7
1916                 35.1
1917                 33.3
1918                 36.0  
1919                 38.4
1920                 38.1

(Source: Historical Statistics of the United States, Part 1, 162.)

Yet, to many contemporaries, ironically, the economy felt stagnant. In the nearly twenty-five years before American entry into the war, between 1893 and 1917, the performance of the American economy had not been consistently impressive. The industrial economy, in particular, seemed at times to falter badly. But, as Progressives repeatedly insisted, even when the economy did operate at maximum productivity, it did not allocate resources and benefits equitably through an autonomous and apolitical market system. Some groups, such as wealthy industrialists and financiers, had apparently seized control of the economy and used it for their private advantage at the expense of the commonwealth. These concerns initially overshadowed another development of at least equal importance: the rise of the consumer economy.

Innovations in machine tools and new systems of manufacturing, such as the continuous assembly line, had, by the 1910s, laid the foundation for the stunning advances in American industrial productivity. The advent of a consumer economy devoted to providing goods, services, and entertainment to the masses rendered viable this system of mass production. By 1917, for example, the motion picture industry was beginning to generate huge profits. Professional sports, especially baseball, were also well on their way to becoming big businesses, while health care, education, the media, and the hospitality trades were undergoing a rapid expansion. Not only a new economy but also a new culture was coming to dominate the United States. The war slowed, but could not stop or reverse, its development. At the heart of this new culture was not the traditional emphasis on hard work, self-sacrifice, frugality, and delayed gratification, but the quest for leisure, entertainment, self-indulgence, wealth, comfort, and pleasure. The cardinal values of this new culture were acquisition, consumption, and enjoyment.

According to the principles governing the so-called culture of consumption, the diffusion of money, goods, and services that brought personal satisfaction became the promise of American life. All Americans now had the right to desire whatever quantity and variety of things they pleased and to harbor expectations that the industrial economy would then fulfill those desires. What formerly they considered the most extravagant luxuries, many Americans now came to think of as everyday necessities.


American entry into the First World War disrupted the smooth operation of this emerging consumer economy and subjected it to new and more stringent regulation. Despite Progressive misgivings, an “organizational revolution” had been reshaping the American economy since at least the 1880s. The “social chaos,” “destructive competition,” and “defective coordination” that apparently threatened liberty, prosperity, and progress had become the targets not only of reformers but of politicians and businessmen as well. By the turn of the twentieth century, three distinct, and at times competing, elites had emerged to dominate the economic life of the nation. The financial elite, composed primarily of investment bankers, such as those who operated the House of Morgan and Kuhn, Loeb and Company, controlled the money supply, credit, and investment capital. The managerial elite enjoyed growing influence within the corporate hierarchy, and addressed the wish for sustained economic growth development combined with a simultaneous desire to maintain social order. These progressive “technocrats” argued convincingly that they could transform an exploitative and wasteful economic system into one that was productive, profitable, efficient, and humane. Finally, the business elite promoted the immense growth of business organizations that took place toward the end of the nineteenth century. Businessmen began to coordinate their activities in part to protect themselves from competitors and rivals such as socialist parties, labor unions, and various reform movements. But they also hoped to master the economic environment and to enhance their ability to predict, rationalize, and control the behavior of the economy.

The impulse toward cooperation in business had led to the emergence of hundreds of industrial and trade organizations and collaborative business councils. Of particular importance was the formation of the Chamber of Commerce in 1912. Designed as an association of associations, the Chamber sought to enable the business community to serve the cause of national economic progress. For good and ill, the image of the yeoman farmer and the myth of the rugged individual had given way to the “organization man.” The appearance of these various organizational elites and the economic model that they helped to fashion proved indispensable to the operation of the American economy during the First World War. The American war experience of 1917 and 1918 accelerated the process of organizational change and established the pattern for future economic management. As one by one the old economic institutions and methods failed under the exigencies of war, the government came to rely more fully on the private organizational elites that had taken shape in the years before the war.

Even as the United States remained officially neutral, Americans were already at war economically with the Central Powers. In September 1915, for example, President Wilson signed legislation that made it possible for American banks to extend long-term credit to the Allies. American lenders had advanced more than $2 billion to the Allies before the United States ever entered the conflict. Early in the war, official declarations of impartiality notwithstanding, American political leaders decided that they had to increase the volume of supplies moving across the Atlantic.

The United States must, in particular, determine to meet the Allies’ urgent requests for credit, weapons, ammunition, and food. This decision, which Wilson and his advisors made in the first year of the war, determined the way in which they sought to manage the American economy at least for the duration.

From the outset, Wilson conceded, efforts to meet Allied demands through existing institutions would likely result in economic ineptitude and disarray, perhaps accompanied by social and political unrest. Witness after witness testified to government incompetence before the Senate Military Affairs Committee. Wilson himself often bore the brunt of the criticism. Although he was no friend of the president, the Republican Senator Henry Cabot Lodge of Massachusetts was merely expressing widespread popular opinion when he told James Bryce, the former British ambassador to the United States, that “the President has no administrative capacity. He lives in the sunshine. He wants nobody to tell him the truth apparently and he has a perfect genius for selecting little men for important places.”[1] However accurate Lodge’s observations, Wilson did understand that, no matter the complications involved, it was imperative for the government to manage the economy.

Unprepared for war, the government had to become more unified and efficient in its operation.[2] Instead of building an elaborate state bureaucracy, the Wilson administration encouraged voluntary cooperation between public agencies and private groups. To that end, officials, such as Wilson’s son-in-law and Secretary of the Treasury William Gibbs McAdoo, began to devise new mechanisms designed to reduce or eliminate economic competition for scarce resources and to bring production into line with wartime needs and standards. Economic mobilization for war in the United States thus differed markedly from that of Great Britain, France, and Germany, for it relied, at least in the beginning, less on legal compulsion and political coercion and more on persuasion and collaboration. But having proven itself inadequate to the task, voluntary compliance, in time, yielded to a substantial and, in many ways, an unprecedented expansion of government power to intervene in the economy.

Administrative and legislative action brought into being several public-private associations. Chief among them was the War Industries Board (WIB), which the Council of National Defense had created in July 1917.[3] The WIB was responsible for supervising the procurement of crucial raw materials and the performance of key defense industries. Until March 4, 1918, the WIB struggled to accomplish its mission. On that day, Wilson appointed Bernard M. Baruch as chairman. Baruch did more than any single figure to shift from a peacetime to a wartime economy. An urbane Wall Street speculator and a generous contributor to the Democratic Party, Baruch set about bringing a semblance of order to wartime industrial production and distribution.

Baruch inherited an organization in near chaos. The WIB was empowered to coordinate the various committees that the government had established in 1917 to oversee the economy. By the end of 1917, the proliferation of these committees (there were almost 500 of them by then, including the Alimentary Paste War Committee and the Chalks and Crayons War Service Committee), the lack of authority to enforce decisions, and the suspicion of the War Department made the work of the WIB nearly impossible. As a result, economic mobilization virtually came to a halt, especially the delivery of essential materiel to the American and Allied armed forces.

Through personal charm, meticulously cultivated relations with the press, and a seemingly encyclopedic command of information, Baruch gave the impression, and thereby created something of the reality, that he was an economic tsar with the power to dictate policy to business and industry.

He alone could award contracts, allocate resources, set prices for all government purchases, fix quotas and standards of production, demand compliance, and punish violations. “It was an industrial dictatorship without parallel,” wrote Grosvenor Clarkson, one of Baruch’s colleagues and the WIB, “a dictatorship by force of necessity and common consent which step by step at last encompassed the Nation and united it into a coordinated and mobile whole…. Individualistic American industrialists were aghast when they realized that industry had been drafted.”[4]

A struggle, which seemed to confirm Baruch’s status as an economic tyrant, involved getting automobile manufacturers to convert their factories to the needs of wartime production. When, during the summer of 1918, automakers complained about Baruch’s requirements, he simply announced that he would withhold steel if they refused to comply. Automakers were quick to respond. They recognized and consented to Baruch’s authority, and modified their production accordingly.[5]

In reality, “Dr. Facts,” as Wilson and reporters nicknamed Baruch, resorted less frequently to confrontation and force and rather more often to stratagems and compromise than his reputation suggests. Baruch recognized that the WIB was only one member of the business-government partnership that had formed to win the war. He and his subordinates, most of whom were not government bureaucrats but businessmen on leave from their companies, such as his principal assistant George N. Peek, the vice president of John Deere, usually made their decisions regarding the economy in consultation with other leading figures in the business community. In addition, by dividing the country into twenty-one industrial production zones, Baruch unexpectedly contributed to the decentralization of the economy, with each district falling under the jurisdiction not of a central bureaucracy but a regional advisory board.[6]

With anti-trust legislation suspended for the duration of the conflict, Baruch persuaded businessmen and industrialists to work together to meet production quotas and conserve valuable resources. He preferred to offer incentives rather than impose penalties, thereby inviting voluntary compliance with the regulations and directives of the WIB. On military contracts, for instance, the WIB guaranteed the payment of all costs while also ensuring a predetermined profit. Far from declining because of excessive governmental regulation, corporate profits soared during the war, tripling between 1914 and 1917 and then leveling off at a healthy annual increase of approximately 30 percent. Net corporate earnings grew from $4 billion in 1913 to $7 billion in 1917. Even after calculating the wartime increase in taxes, corporate profits totaled $4.5 billion in 1918.

To attain maximum efficiency in the acquisition and use of supplies and resources, Wilson enlisted the help of other academic and business experts besides Bernard Baruch and his staff at the WIB. The businessmen he summoned, most of whom continued on the payrolls of their companies, received one dollar per year as compensation for their services, hence becoming known as “Dollar-a-Year” men. Wilson appointed his friend Harry A. Garfield, the son of former president James A. Garfield, to administer the indispensable coal and oil supply. Garfield exemplified the Progressive creed. Americans, he said, must abandon individualism once and for all time. If nothing else, individualism was inefficient and led to waste. Reorganizing the economy for war, Garfield insisted, must rest on the principles “cooperation” and “combination.”[7]

Despite reasonably capable leadership, the initial performance of the American economy under the direction of these agencies fell far below expectations. During the winter of 1917-1918, the economy lurched from one crisis to another. Garfield’s Fuel Administration faced difficulties in getting mine owners to agree on prices and delivery schedules. Wilson had fixed the price of bituminous coal at $2 a ton, a rate that mine owners, with justification, complained made it impossible for them to operate their facilities at a profit. Coal supplies dwindled, reaching shortages of six million tons per month. In the wake of the worst blizzard to hit the Midwest and the East Coast in forty-one years, Garfield had few options save to ration coal and to close all factories east of the Mississippi River for five days in January 1918, and for nine subsequent “heatless Mondays” between January 28 and March 25. These measures conserved 3.4 million tons of coal but cost $4.3 billion in lost wages and production.[8]

Similar problems notwithstanding, the Food Administration became the most successful government regulatory agency. Under the direction of Herbert Hoover, “the Autocrat of the Breakfast Table,” who had resigned as Commissioner for Relief in German-occupied Belgium once the United States entered the war, the Food Administration effectively managed the food supply, transforming Hoover into the most prominent and respected of the wartime managers. Rather than imposing to price controls and mandatory rationing, Hoover advocated increased production and decreased consumption. Operating under the auspices of the Lever Food and Fuel Control Act (1918), which granted the Wilson administration unparalleled authority over the production, distribution, and price of fertilizers, farm implements, and foodstuffs, the Food Administration expanded agricultural production.[9] By 1919, the year after the war ended, the value of agricultural exports, and especially of food, had tripled over prewar levels, helped no doubt by the severe food shortages that had befallen Europe.

Table 8: Agricultural Exports, 1910-1919

Year      Total Exports    % of All Exports
        in millions of dollars 

1910           $869                51
1911           $1,029              51
1912           $1,048             48
1913           $1,121               46
1914           $1,112               48
1915           $1,474              54 
1916           $1,516               35
1917           $1,966              32  
1918           $2,279             39
1919           $3,375              51

(Source: Historical Statistics of the United States, Part 1, 482.)

The income of farmers soared during the war, as the wholesale price of agricultural commodities more than doubled between 1913 and 1918. The wholesale price of raw cotton, which a Congress dominated by southern Democrats protected from government price controls, increased almost three-fold by 1920; the wholesale price of finished cotton more than tripled.

Table 9: Wholesale Price Index for Agricultural Products, 1913-1920

Year           Price
 Base Year 1967=100

1913           43.7 
1914           43.5
1915           43.7
1916           51.7
1917           78.9
1918           90.6
1919           96.4
1920           92.2

(Source: Historical Statistics of the United States, Part 1, 199.)

Table 10: Wholesale Price Index for Cotton, 1913-1920

Year           Price (Raw)           Price (Finished)
              in dollars per unit

1913              .128                       .084 
1914              .121                       .080 
1915              .102                      .068 
1916              .145                      .088
1917              .235                      .145   
1918              .318                      .235     
1919              .325                      .232
1920              .339                     .288

(Source: Historical Statistics of the United States, Part 1, 208.)

Table 11: Farm Income, 1910-1920

Year      Gross Income      Net Income
       in millions of dollars

1910        $7,495                 $4,176          
1911        $7,213                  $3,371 
1912        $7,710                 $4,456
1913        $7,978                 $3,738
1914        $7,793                 $4,181 
1915        $8,147                 $4,307
1916        $9,744                $4,570 
1917        $13,410               $8,304  
1918        $16,547              $8,887
1919        $17,918               $9,078 
1920        $15,944              $7,795  

(Source: Historical Statistics of the United States, Part 1,  483.) 

In conjunction with his assistant, Harriot Stanton Blatch, daughter of the nineteenth-century feminist Elizabeth Cady Stanton, Hoover sponsored an extensive program of economic education aimed primarily at women who did the grocery shopping and the cooking. Asserting that “Food Will Win the War—Don’t Waste It,” Blatch and Hoover promoted economy and began to teach Americans how to conserve food. Twenty million American housewives, including the First Lady, took an oath that bound them to take part:

in the service of food conservation for our nation, and… hereby [to] accept membership in the United States Food Administration, pledging myself to carry out the directions and advice of the Food Administrator in the conduct of my household, in so far as my circumstances admit.[10]

Among the other strategies they devised, Hoover and Blatch sent 500,000 representatives of the Food Administration door-to-door soliciting pledges from households to agree to Wheatless Mondays, Meatless Tuesdays, and Porkless Thursdays and Saturdays. They also persuaded large numbers of Americans to grow vegetables for their own consumption in “Victory Gardens” and established rules to eliminate waste from meals consumed in restaurants. These included limiting the amount of bread, meat, butter, and sugar customers could order. Hoover felt confident that although the American people were willing to make such sacrifices, they would reject any form of governmental compulsion or coercion. “We propose,” he explained, “to mobilize the spirit of self-denial and self-sacrifice in this country.”[11] Compliance must be voluntary, not the result of the dictates of an oppressive bureaucracy.

Yet, Hoover and the experts at the Food Administration estimated that 33 percent of Americans used more food than they needed, mostly as the result of excess and waste. Contemptuous of what he regarded as the improvident and irresponsible eating habits of the American people, Hoover did not hesitate to resort to compulsion to bring about necessary changes. He objected, for example, that “supper is one of the worst pieces of extravagance that we have in this country.”[12]

The war obliged that Americans accept restrictions on the luxuries and comforts that they formerly enjoyed as a matter of course. Like Garfield, Hoover also questioned the abiding utility of individualism in an intricate and complex modern society. “We have gone for a hundred years of unbridled private initiative in this country,” he protested, “and it has bred its own evils and one of these evils is the lack of responsibility in the American individual to the people as a whole.”[13]

Animating the “compelling force of patriotic sentiment,” Hoover and Blatch extolled the virtues of simplicity, conservation, and thrift. Hoover’s progressive outlook, to say nothing of his puritanical inclinations, moved him to restrain the appetite for pleasure and excess that he thought had enervated the American character. His crusade was thus as moral as it was practical. Americans must first master themselves if they wished to prevail against the Germans. He would see to it that they did.


Although some sectors of the economy performed admirably during the war, others faltered. Despite passage of the Overman Act (1918), which gave President Wilson virtually unlimited command to organize national resources, the economic system that emerged by the summer of 1918 was far from satisfactory. Among the major problems that the government faced was the inability or unwillingness of railroad managers to cooperate, which delayed the movement of troops, slowed the shipment of arms and munitions, and interrupted the transport of food. The situation had become intolerable by the autumn of 1917. Efficient transportation was so obviously crucial to the war effort, and the companies that operated the railroads proved so inept or reluctant to provide it, that the federal government at last took over all rail transportation on January 1, 1918.[14]

To assume control of the railroads and untangle the transportation snarl, which, during the summer, had backed up rail cars from the East Coast all the way to Pittsburgh, Wilson appointed William Gibbs McAdoo, his able but frustrated Secretary of the Treasury. As head of the Railroad War Board, McAdoo guaranteed profits for owners and wage increases for workers in exchange for the complete government management of the railroads. McAdoo’s efforts succeeded. By the end of the war, the efficiency of the rail system had dramatically improved. Yet, after the war, the railroads quickly reverted to private ownership, a symbol of the determination of most big businessmen to ensure that government control of the economy during wartime remained a temporary phenomenon.

Although McAdoo eventually resolved most of the problems with rail transportation, neither he nor anyone else could overcome the failure of industry to meet production quotas. The War Shipping Board, for example, failed to build a merchant fleet. The Aircraft Production Board did not deliver even one of the 20,000 proposed airplanes before the armistice was signed on November 11, 1918. As a consequence of these production shortfalls, the United States contributed almost no merchant vessels, heavy artillery, tanks, or airplanes to the Allied cause. Nevertheless, war production, which had made up 1 percent of the GNP between 1914 and 1916, grew to 9 percent in 1917 and 23 percent in 1918. (See Table 4.) The overall output of war materiel, measured in 1914 dollars, rose from $4.1 billion in 1917 to $9.7 billion in 1918.

Along with the increase in the value of wartime production, the costs of war also soared, eventually reaching $35.5 billion, including $11.2 billion in loans to the Allies.[15] By comparison, the entire expenditure necessary to operate the national government from 1789 until April 6, 1917 was $24 billion, and the federal budget for the three fiscal years preceding the war, between July 1913 and June 1916, had averaged $718 million. During those years, the government posted an average annual revenue of $737 million. Yet, the costs of war to the United States were far less than the costs to Great Britain, France, and Germany. In the United States, war expenditures amounted to 8.7 percent of national wealth, while in France they totaled 19 percent, in Germany 32 percent, and in Great Britain 35 percent.[16]

To prosecute the war and support their allies, President Wilson and then-Secretary of the Treasury McAdoo had to identify and exploit additional sources of revenue. They at first opted to raise sixty-seven percent of the revenue they needed through the sale of bonds and the remaining thirty-three percent through taxes. They hoped that the combination of these methods would curtail the inflation that widespread borrowing was sure to provoke. Many business leaders and fiscal conservatives in Congress agreed with Wilson’s and McAdoo’s approach to financing the American war effort. They supported funding a large portion of the costs of war through a federal sales taxes and the extension of the income tax to the working- and middle-class families. This policy, they maintained, had the dual advantages of generating revenue while reducing inflationary pressures on the economy. Others determined that wealthy individuals and corporations should underwrite the costs of war. Senator Robert La Follette of Wisconsin and Representative Claude Kitchin of North Carolina fought tirelessly to impose higher taxes on big corporations and steeply graduated income and inheritance taxes on the rich.

If the conscription of men into military service had met with little serious resistance in the United States, the government “conscription” of money was entirely another matter. After furious debate, Congress did pass the Revenue Acts of 1917 and 1918, which raised both the income tax and the excise tax on goods, services, estates, and corporate profits in excess of ordinary earnings. The Revenue Act permitted the government to pay approximately 31 percent of the costs of war from tax revenues. It ultimately raised $10 billion.

Inflation rather than taxation proved the more politically attractive and expedient way to pay the costs of war. The federal government borrowed approximately 69 percent of the money it needed, a sum that eventually totaled almost $23 billion. (European nations, incidentally, relied almost entirely on loans to finance their war efforts. As a consequence, the national debt of Great Britain, to cite but one example, rose from £625,000,000 to £7,809,000,000.) To restrain private demands for capital and thus to curb inflation as much as possible, the Federal Reserve Board, established in 1913, created the Capital Issues Committee, which was empowered to prevent the investment of capital in enterprises deemed nonessential to the war effort. At the same time, though, the Federal Reserve expanded the money supply, making credit in general easier to obtain.

Federal expenditures skyrocketed to $14 billion for the fiscal year 1918 and to $19 billion for the fiscal year 1919. In the meantime, the federal debt grew from $1 billion in 1915 to $20 billion in 1920 and never returned to prewar levels.

Massive government borrowing and the expansion of the money supply also contributed to rising prices between 1914 and 1918, when the Wholesale Price Index climbed almost 50 percent.

Table 12: Wholesale Price Index, 1913-1920

Year     All Commodities    % Increase
        Base Year 1926=100

1913          69.8                        —       
1914          68.1                        -2.5 
1915          69.5                        2.0  
1916          85.5                        18.7
1917          117.5                       27.2     
1918          131.3                      10.5
1919          138.6                      5.3 
1920          154.4                     10.2 

Table 13: Wholesale Price Index for Food & Fuel, 1913-1920

Year       Food    % Increase    Fuel     % Increase
                 Base Year 1926=100

1913       64.2          —                 61.3        — 
1914       64.7         0.8               56.6       -8.3  
1915       65.4         1.1                51.8        -9.2 
1916       75.7         13.6              74.3        30.3
1917       104.5      27.6              105.4      29.5 
1918       119.1       12.3              109.2       3.7
1919       129.5       8.0              104.3       -4.7
1920       137.4       5.7              163.7        36.3         

(Source: Historical Statistics of the United States, Part 1, 200.)

Although wholesale prices increased at a comparatively low 10.5 percent between 1917 and 1918, and at an even lower 5.3 percent for 1919, they had risen by a total of 54.8 percent between 1913 and 1920. Moreover, the Consumer Price Index also increased by more than 50 percent between 1913 and 1920, with the cost of food climbing almost 53 percent. The Great War brought Americans their first experience with sustained, large-scale government spending and its inflationary consequences.

Table 14: Consumer Price Index, 1913-1920

Year     All Commodities   % Increase    Food    % Increase
                   Base Year 1967=100  

1913          29.7                       —                   29.2         —
1914          30.1                      1.3                 29.8         2.0
1915          30.4                     0.99              29.4         -1.4
1916          32.7                     8.0                 33.1          11.2 
1917          38.4                     14.8               42.6          22.3
1918          45.1                     14.9               49.0          13.1
1919          51.8                     12.9               54.6          10.3
1920          60.0                   13.7                61.5           11.2

(Source: Historical Statistics of the United States, Part 1, 211.)

Having to borrow most of the money the government needed to finance the war placed Wilson in an awkward position. He could either borrow large amounts from wealthy financiers or small amounts from average citizens. In the end, he opted to do both. He depended on Wall Street brokerage and investment firms to make large, short-term loans to the government through the purchase of Treasury bills. This approach had the benefit of raising large amounts of capital quickly and efficiently and of enlisting the financial community in support of the war. But it was also expensive. Since the market determined interest rates, such immense and repeated borrowing could only worsen the already severe inflationary pressures buffeting the American economy. Then, too, relying on Wall Street to finance the war mortgaged the federal government to the financial interests. The quid pro quo required the Wilson administration to alter its tax policies to appease the financiers.

To ensure the long-term financing of the war, Wilson turned directly to the American people, giving them the opportunity to invest in the war effort. The government raised $21.4 billion through a series of popular bond drives, which were the proposal of Secretary McAdoo. The first four were called Liberty Loans and the last, launched in May 1919, was renamed the Victory Loan and was conducted under the supervision of McAdoo’s successor, Carter Glass.[17] Combined with the Liberty Loans, the Treasury also raised $834 million from American children who purchased “thrift stamps” that they could convert into interest-bearing savings certificates. Liberty Loans presented a less inflationary means of paying for the war. The Department of the Treasury fixed the successive interest rates of Liberty Bonds at 3 1/2, 4, and 4 1/2 percent, with a thirty-year maturity and partial redemption possible after fifteen years. Those terms, together with the work of the Price-Fixing Committee under the leadership of Robert S. Brookings, enabled the Wilson administration to attain greater success controlling inflation in 1917 and 1918 than at any time since the outbreak of war.

From Wilson’s perspective, Liberty Loans had some disadvantages. To make the bonds attractive, the earnings they generated had to be exempt from federal taxation. The tax exemption induced wealthy individuals and big corporations to buy bonds in large numbers, costing the government millions in lost tax revenues. In addition, the Federal Reserve Board ruled that banks could include Liberty Bonds as assets against which to issue bank notes.[18] The decision of the Federal Reserve further increased the money supply and partially countered the anti-inflationary exertions of the government. Whatever their economic defects, Liberty Loans conferred an inestimable psychological benefit. They offered the Wilson administration an opportunity literally and figuratively to sell the war to American citizens. Not only did the Liberty Loan campaigns get ordinary Americans to contribute to the war effort, they also furnished a splendid instrument to build morale on the home front.

McAdoo employed the latest advertising techniques to sell bonds. Posters and newspaper and magazine advertisements promoted the bond drives with visually arresting images that were sometimes shockingly violent or, alternately, luridly sexual. Businesses, private clubs, and patriotic organizations staged competitions to boost sales. Liberty Bond assemblies served as occasions to stage huge public rallies at which popular sports figures such as Ty Cobb and Babe Ruth, and matinee idols such as Douglas Fairbanks, Mary Pickford, Charlie Chaplin, and Al Jolson, either spoke or performed. Their efforts, and those of others, were a resounding success. The four Liberty Loan drives and the one Victory Loan campaign elicited more than 60 million subscriptions, representing a broad segment of the American people. They also went a considerable way toward establishing patriotic support for American involvement in the war.


The First War World hastened the growth and development of the American economy. Intervention accelerated the expansion of industry and agriculture, the advancement of technology, especially in the electrical and chemical industries, and the progress of economic organization and management. As had been the case during the Civil War, the military needs of the First World War further encouraged the standardization of products, particularly clothing and shoes. Less cumbersome and expensive equipment for radio transmission was among the other technological innovations of the war, as were improvements in aviation, both of which soon presented civilian and commercial applications. Finally, the requirement for additional sources of energy stimulated the construction of hydroelectric plants at such locations as Muscle Shoals, Alabama along the Tennessee River.

No group profited more directly from the war than American farmers. Even before the United States entered the conflict, the overseas demand for corn, wheat, pork, beef, and cotton brought unrivaled prosperity to American agriculture. Herbert Hoover’s incentives for greater output through more extensive and efficient cultivation raised farm income even further. But this momentary stimulation revived the chronic problem of American agriculture: overproduction. By 1920, when the government withdrew orders for foodstuffs and European farmers again put their land under cultivation, the price of agricultural commodities precipitously declined. Depression haunted American farmers for the next two decades. (See Table 10, agricultural commodity prices.) Organized labor reaped a comparable economic bonanza during the war. Samuel Gompers, the head of the American Federation of Labor (AFL), traded wage restraints and no-strike pledges for government approval of AFL organizing activities. As a result, membership in the AFL rose from approximately 2.4 million in 1917 to more than 4 million in 1920, but began to decline as early as 1921.

Table 15: Membership in the American Federation of Labor, 1913-1920
                    x 1,000 
Year                             Membership    

1913                               1,996
1914                               2,021
1915                               1,946
1916                               2,073 
1917                               2,371
1918                               2,726
1919                               3,260
1920                               4,079

(Source: Historical Statistics of the United States, Part 1, 177.)

Organized labor also received direct support from the War Labor Board, under the leadership of former president William Howard Taft. Taft proved unexpectedly sympathetic to workers. He affirmed their right to collective bargaining, outlined minimum-wage and maximum-hour standards, and required equal pay for female workers.

Although the United States had suffered more than 300,000 casualties (killed and wounded) during the First World War, those losses were minuscule compared what the European belligerents had endured. Moreover, no American civilians had died in combat, and the war had destroyed no American bridges, roads, farms, factories, towns, or cities. The war, by contrast, had laid waste to vast areas of France, Belgium, Italy, Poland, and Russia. As a consequence, the United States profited economically from the war. The Gross National Product (GNP) had risen from $48.3 billion in 1916 to $84.0 billion in 1919 (See Table 4). By 1919, the $7 billion of private investment abroad was more than double the amount of foreign investment in the United States, almost exactly the reverse of the situation that had existed at the outbreak of war in Europe in 1914.

Table 16: U.S. & Foreign Investment, 1908, 1914, 1919, 1924

Year   Total Invest.   Private   Gov’t   Foreign Invest. in U.S.
                in billions of dollars

1908       $2.5              $2.5         $0            $6.4  
1914       $5.0               $3.5         $1.5          $6.7  
1919       $9.7               $7.0         $2.7          $2.5
1924       $15.1             $10.9       $4.2          $2.9

(Source: Historical Statistics of the United States, Part 2, 869.)

In addition, the Allied governments owed the United States Treasury more than $11 billion. The balance of debt shifted, not only making the United States the leading creditor nation in the world, but also the sole remaining economic power.

The Great War devastated Europe, leaving it impoverished and exhausted. Although not immediately apparent, the war in part fulfilled Alexis de Tocqueville’s prophecy that the twentieth century would belong to the United States and Russia. Yet, during the period between the two world wars, Russia lacked the means to become a superpower and the United States lacked the will. Both retreated into isolation.

But the United States emerged from war as the wealthiest nation in the world, while the new Soviet Union was poor. Among other tactics, the Bolsheviks, fighting for their lives, confiscated private and personal property if only so that their government could survive another day. Despite the economic advantages that had accrued to the United States, the Progressives still did not realize the society or the world they had envisioned. President Warren G. Harding’s declaration that the American people wanted “not nostrums but normalcy” indicated that during the 1920s the United States would draw back both from international commitments and domestic reform.

Still, nothing could alter the reality that American money and credit, even more than American manpower and materiel, had turned the First World War in the Allies’ favor. In 1920, the Carnegie Endowment for International Peace estimated that between 1914 and 1917 the daily cost of fighting was $123,000,000. By 1918, the cost had risen to $224,000,000. At that time, international currency was still based on gold as a fixed standard of value. The available supply of gold in the world when war broke out would have enabled the belligerents to fight for approximately fifty days. If the warring powers had paid for the war in cash, they would have run out of money by the end of September, 1914. Two decades before the war, the railroad magnate and financier Ivan Bloch had published a formidable seven-volume work titled The Future of War in Its Technical, Economic and Political Relations: Is War Now Impossible?[19] He demonstrated that modern weaponry and the balance of military strength among the major powers of Europe would quickly reduce any future conflict to a war of attrition, a stalemate, which no country could win or even afford to fight. Bloch was both right and wrong. If Europeans had relied exclusively on cash reserves, their economies would have collapsed. As prescient as he was, Bloch failed to consider the possibility that they would fight the war on credit.

With the costs in blood and treasure escalating, the war took on a life of its own. Continuing without reason or purpose, it resolved none of the problems that had caused it and created new ones with which the next generation would have to cope. The architects of the Great War set the world on the path to self-destruction. Although the worst has not taken place, the world still treads along the same perilous course. For human beings have yet to devise a sure way of imposing rational limits on irrational acts of violence.

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1 Quoted in Robert H. Ferrell, Woodrow Wilson & World War I, 1917-1921 (New York, 1985), 106.

2 Frederic L. Paxson, “The American War Government, 1917-1918,” American Historical Review 26 (October 1920), 54-76. Although nearly contemporary to the events he discusses, Paxson still provides a useful description and analysis of the structure and operation of the wartime government. See also Burl Noggle, Into the Twenties: The United States from Armistice to Normalcy (Urbana, IL, 1974), 55-56.

3 See Curtice N. Hitchcock, “The War Industries Board: Its Development, Organization, and Functions,” The Journal of Political Economy Vol. 26/No. 6 (June 1918), 545-66. A more recent and extensive scholarly treatment of the WIB is Robert D. Cuff, The War Industries Board: Business-Government Relations During World War I (Baltimore, 1973).

4 Grosvenor B. Clarkson, Industrial America in the World War: The Strategy Behind the Line, 1917-1918 (Boston, 1923), 9.

5 On Baruch’s life and career, see Jordan A. Schwarz, The Speculator: Bernard M. Baruch in Washington, 1917-1965 (Chapel Hill, NC, 1981) and James Grant, Bernard Baruch: The Adventures of a Wall Street Legend (New York, 1983). See also Ferrell, 106-108.

6 Despite the achievements of the WIB, tensions remained with the Army and the War Department, both of which were deeply suspicious of the civilian leadership of the WIB and, in particular, of Baruch’s ability to coordinate military procurement.

7 See Robert D. Cuff, “Harry Garfield, the Fuel Administration, and the Search for a Cooperative Order during World War I,” American Quarterly 30 (Spring 1978), 39-53.

8 James P. Johnson, “The Wilsonians as War Managers: Coal and the 1917-18 Winter Crisis,” Prologue 9 (1977), 193-208.

9 See Ferrell, 91-93.

10 Quoted in Maxcy Robson Dickson, The Food Front in World War I (Washington. D.C., 1944), 38. See also William C. Mullendore, History of the United States Food Administration: 1917-1919 (Stanford, CA, 1941).

11 See Robert D. Cuff, “Herbert Hoover, the Ideology of Volunteerism and War Organization during the Great War,” Journal of American History 64 (September 1977), 358-72. Hoover is quoted in The Memoirs of Herbert Hoover: Years of Adventure, 1874-1920 (New York, 1951), 244. See also David M. Kennedy, Over Here: The First World War and American Society (New York, 1980), 118; and Charles Seymour, Woodrow Wilson and the World War (New Haven, CT, 1921).

12 The Memoirs of Herbert Hoover, Ibid.

13 Quoted in George H. Nash, The Life of Herbert Hoover: Master of Emergencies, 1917-1918 (New York, 1996), 154.

14 For details, see Walter D. Hines, War History of American Railroads (New Haven, CT, 1928), 13-17; K. Austin Kerr, American Railroad Politics, 1914-1920 (Pittsburgh, 1968); Kerr, “Decision for Federal Control: Wilson, McAdoo, and the Railroads, 1917,” Journal of American History 54 (December 1967), 550-60; Kennedy, 252-55.

15 Only after the war, during the 1920s and 1930s, did the loans to the Allies become controversial. First, debtor nations insisted on renegotiating interest rates and then, during the Great Depression, all but Finland defaulted. During the war itself, most Americans supported lending money to the Allies since they recognized that the Allies used it to buy supplies in the United States, transactions from which American businesses profited. In addition, Wilson made the logical but erroneous assumption that he could leverage indebtedness to the United States to compel Allied leaders to accept his peace proposals.

16 See Ferrell, 84, 87.

17 See William Gibbs McAdoo, Crowded Years (Boston, 1931), 378ff.; and Charles Gilbert, American Financing of World War I (Westport, CT, 1970), 117-44.

18 Still the loan campaigns jeopardized banks when depositors withdrew funds from their accounts to purchase bonds. In response, the government created the War Finance Corporation to lend money to banks, at interest rates of between five and eight percent, in order to keep them solvent.

19 Ivan Bloch, Is War Now Impossible? (London, 1899), is a one-volume abridgment of the original.

Editor’s note: The featured image is a World War I poster promoting Victory Gardens, “The Fruits of Victory,” courtesy of Wikimedia Commons.

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