Financing the War

Financing the War Facts

There were two significant ways in which the United States government funded the war: taxation and domestic borrowing.

Fig. 1 - propaganda poster for the income tax and liberty bonds

Financing the War Facts: The Income Tax

Before World War II, only the wealthiest Americans had to pay income taxes. But, during World War II, the income tax expanded to cover middle and lower-class Americans. This was plausible as much of America had rebounded from the Great Depression as a result of the expansion of the defense industry. To ensure an immediate effect, the federal government introduced a program where taxes would be taken out of each paycheck rather than quarterly.

Financing the War Facts: Liberty Bonds

Another significant way the United States government funded the war was the sale of liberty bonds, a form of domestic borrowing. Every day Americans could buy these bonds with the promise that the government would pay them back at a later date with interest. There were inexpensive options available to make the purchase of liberty bonds more attractive. Most liberty bonds bought were valued at $25 or less (approximately $500 today).

Financing the War Facts: Preventing Inflation

Inflation becomes a real threat when there is an increased money supply in conjunction with fewer goods. The federal government tried to prevent this in several ways. For example, the income tax helped limit the amount of money in circulation. Additionally, the government collaborated with industry leaders to regulate and restrict the prices of goods and workers' wages. The Office of Price Administration (OPA), founded in response to the war, oversaw consumer prices.

There was also a rationing program for scarce commodities, which helped counteract the typical process of supply and demand. (Normally, the scarce supply of a particular good would lead to increased demand for the good and, therefore, a higher price.) Rationed goods included sugar, coffee, meat, tires, and gasoline.

Fig. 2 - propaganda poster for rationing

Financing the War Propaganda

Fig. 3 - propaganda poster for liberty bonds

You might have noticed a common theme in the images in the article–they are all World War II-era propaganda posters. The government distributed many such posters to promote the sale of liberty bonds, the rationing of goods, and the payment of income taxes. But posters were not the only form of marketing or propaganda.

Each of the twelve Federal Reserve Banks created Victory Funds to strategize campaigns in coalition with commercial banks, businesses, and volunteers. In addition to propaganda posters, they used pamphlets, patriotic rallies, and the newly popular radio. The ultimate goal was to popularize contributing to the war effort on the home front.

Financing the War Propaganda: The Entertainment Industry

Between World War I and World War II, radios exploded in popularity, and by the start of World War II, most American families had a radio in their homes. On the airwaves, Americans heard the pleas of famous performers and could tune into the Federal Reserve's variety show, The Treasury Star Parade, which was ripe with propaganda. This is not to say the film industry did not get involved. For example, Disney produced a short film, The Spirit of '43, featuring Donald Duck paying his income taxes.

Financing the War Propaganda: Slogans

Propaganda used memorable and impactful slogans to mobilize the public. Often, they painted a picture of a unified America rallying against the evil Axis powers.

Financing the War: After the War

But what happened with America's large military after World War II? Well, America entered another war known as the Cold War. Although there was never any direct military conflict, the Soviet Union and the United States were desperate to prove their military's dominance. As a result, both countries worked hard to expand their military's capabilities, including in the arena of nuclear warfare. So, even though World War II was over, America continued to expand and fund the military, strengthening the military industrial complex.