The U.S. Economy Growth after World War II

World War II was the most destructive armed conflict in the modern history. Most of the countries-participants of the war have suffered the enormous damage in human lives and economic development. The only country, which experienced the significant economy growth after the war, was the United States. The United States ended World War II as the undisputed leader of the capitalist world. The U.S. had had the enormous economic power and had been the richest state in the world even before the war. However, World War II helped to strengthen the power of the United States and led to its dominance in the postwar world. This paper will discuss the course of the United States’ economy growth after World War II.

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The Marshall Plan

World War II became a powerful catalyst for the economic development of the United States, which retained its world domination in the post-war period. During the war, the United States doubled the national income and increased the volume of the industrial production by more than twice. The dynamics of growth of the production capacity was less significant; its growth was only 30%, and the growth of national output was provided by more efficient use of the production capacity, which had been previously underutilized.
The structure of the American economy changed as well. The color and metal industries started to grow at a faster rate; the production of aluminum and planes increased sevenfold; the military-industrial complex was formed. Supply of the raw materials, food and military production to the countries of the anti-Hitler coalition stimulated the renewal of the fixed capital, agricultural intensification and concentration of production.
The implementation of the Marshall Plan contributed to the overcoming of the post-war economic downturn. It was the program of assistance to European countries after World War II, aimed at the restoration and development of Europe. This plan included not only the economic recovery of the countries of Western Europe, but also the stabilization of socio-political situation, the growing influence of the United States and the reduction of Soviet influence on the countries of Eastern Europe. The main objective of the Marshall Plan was to strengthen the economy of the capitalist countries of Western Europe and to strengthen the political unity in the formation of the world socialist system.
The implementation of this plan contributed to the creation of the Organization for European Economic Cooperation (OEEC). The program was attended by 16 European countries: the United Kingdom, France, Italy, Belgium, Netherlands, Luxembourg, Sweden, Norway, Denmark, Iceland, Portugal, Austria, Switzerland, Greece, Turkey, and later Germany. These countries had to prepare the detailed reports on the state of their economies, foreign exchange reserves, and the use of allocated funds. In July 1947, the representatives of the United States and the countries of Western Europe discussed the specific dimensions of assistance and the conditions of its provision. Financial assistance was provided to West Germany with the simultaneous collection of the indemnity for the damage caused to the victorious countries.

The Marshall Plan was in operation from April 1948 to December 1951 as a four-year program of aid to foreign states. During this period, about 17 billion dollars was spent for this purpose. Most of the money was aimed at the purchase of American goods. Four countries (UK, France, Italy and Germany) received the bulk, namely 60%. Seventy percent of this bulk accounted for fuel and food.
Economic assistance to European countries was provided mainly in the form of supply of products, essentials (food, fuel, clothing), necessary resources (steel, cement, coal), and industrial equipment. Financial assistance was provided from the U.S. federal budget in the form of grants and loans that shad to be used to purchase equipment, materials and services.
On the other hand, European countries pledged to contribute to the development of the private sector and free enterprise; not to carry out nationalization of industry; supply some scarce goods and raw materials to the United States; promote private capital investment of the USA in the economies of their countries and reduce customs duties. In addition, these countries had to direct the funds that had not been used as a result of the US assistance to a special fund, the costs of which were controlled by the United States. Half of the goods supplied under the Marshall Plan had been delivered on the U.S. ships.
The Marshall Plan, in addition to the task of rebuilding the economy of European countries, was designed to improve the American economy and strengthen the U.S. position in Western Europe. Implementation of the plan allowed solving some of the economic problems of the United States. The provision of food and technologies to European countries allowed the United States to sell surplus products and increase the share of American capital in European countries. Approximately one third of the assistance funds were spent on the purchase of American agricultural products’ surplus. European markets guaranteed the safety of investments in U.S. companies, and the adequate compensation was provided in case of forfeiture.
Proceeds from the sale of U.S. goods and services received under the Marshall Plan were credited to a special account in the name of American administration in the banks of the country and could be used only for the purchase of the U.S. goods. This fact stimulated the U.S. exports. The Marshall Plan helped to strengthen the shaky position of Western Europe. The Marshall Plan prepared the conditions for the creation of NATO in accordance with the military and economic calculations of the United States.

The Korean War

The Korean War, which began in January 1950, had the stimulating effect on the U.S. economy. The law on production of weapons and military equipment, adopted in September of the same year, expanded the intervention of the federal government in the economy and social relations. It gave the president the right to prioritize manufacturing problem solutions, allocate resources, build new factories, provide tax incentives to private capital in order to promote military production, and impose price and wage controls.
The state of emergency was declared in the country in December 1950. During the first year of the Korean War, the armed forces of the United States increased more than 2 times, military aircraft production – 5 times, armored personnel carriers and other weapons – 4.5 times, and so on. The cost of production of atomic and thermonuclear weapons development in 1952-1953 amounted to 5 billion dollars, which was more than 3 times higher than the costs of the previous years.
During the Korean War, up to 30 billion dollars was invested in the U.S. industry. This amount was more than that spent in the entire World War II. The depreciation of new industrial plants and equipment had accelerated. Two and a half times more enterprises than in the early postwar years were transferred into the full ownership of monopolies, although new plants were built basing on the mixed military and civilian production mainly for public funds. As a result of the Korean War, the volume of the industry increased by 37% in 1953 in comparison with 1958; the employment expanded; the earnings increased as well due to the increase of salaries and overtime work.
Despite the favorable economic conditions, the Korean War was unpopular in the country since it brought 54 thousand of the killed and 103 thousand of the wounded. The Korean War predetermined the defeat of the Democrats in the 1952 elections. General Dwight Eisenhower, a hero of World War II, became the President of the United States. People hope that he could end the Korean War. The war ended in July 1953.

Eisenhower Administration

Republican administration adhered to the policy of moderate government intervention in the economy, relying on the monetary policy. In the spring of 1953, the Eisenhower administration abolished all measures of economic controls imposed by the Truman administration. The government resorted to financial leverage regulation in order to overcome the economic downturn of 1953-1954. The level of reserves of Federal banks was reduced in order to encourage the withdrawal of funds; the discount rate was reduced from 3 to 1.75% in order to facilitate access to credit. Also, the government placed the share of foreign currency reserves in the market in order to strengthen the business. Corporate and personal income taxes were reduced in order to stimulate the investment. These levers were used even more flexibly during the third post-war recession of 1957-1958.

Scientific and Technical Progress

In the second half of the 1950s the United States saw the changes in the economic and social development caused by the beginning of the scientific and technological revolution. The country`s desire to ensure the world leadership at all costs was one of the leading stimulus of the scientific and technical progress. The Launch of the first artificial satellite by the Soviet Union in October 1957 forced the U.S. ruling circles to critically evaluate the level of the scientific research, the degree of preparedness of the teaching staff and the state of education system in the country.
Another important factor, which led to promotion of scientific and technical progress, was the intensified competition from other capitalist countries. Due to integration of European states and revival of the industrial potential of Japan American monopolies faced the problem of serious competition in the foreign, and then in the domestic market. In the 1950s, the United States began to lag behind other capitalist countries in terms of the growth of gross domestic product. The absolute dominance of the U.S. dollar in the world markets became the thing of the past because of the growing economic power of other states; the U.S. currency funds were declining.
One of the key tools used to accelerate scientific and technological progress was the change of pace, volume, orientation and structure of the investment. Total private investment increased from 30.2 billion to 72.8 billion dollars from 1946 to 1965. These huge funds completely modernized all sectors of the U.S. economy. The industry began to operate using an entirely different technology and was followed by agriculture in this aspect. Due to the electrification and chemicalization of the production processes, the labor productivity dramatically increased; the approach to the problem of raw materials was changed; new industries were developed.
A characteristic feature of this period was the automation of production, in particular the creation and use of electronic computing equipment in manufacturing, banking, and service sectors. The commercial use of computers in the United States started in the 1950s. In 1960, there were already 4267 computers in the United States.
The impact of the scientific and technological revolution on the socio-economic development was controversial. On the one hand, it created new opportunities for the accelerated development of production and improved the quality of life. On the other hand, it gave rise to new economic problems that had to be considered by the state. These problems include:
– Rapid and often uncontrolled technological innovation accompanied with predatory exploitation of natural resources, which had a destructive effect on the environment;
– Increased unemployment caused by the changes in the structure of production and, as a consequence, new workforce requirements;
– The gap between goods and services supply and solvent demand of the population;
– Economic slowdown due to increased competition from European countries.
The problems related to scientific and technological revolution required the expansion of the functions and the change of the role of the bourgeois state in terms of identifying the new priorities in the economic management strategy. These new tasks of the state were reflected in the “new frontiers”, proposed by the Democratic administration of George Kennedy in the early 1960s.

Kennedy Administration

The Kennedy administration widely used the levers of budgetary, fiscal and monetary policies. In 1962, it reduced the depreciation period of capital for all corporations and introduced investment tax credit. These measures helped to increase the growth of investment significantly. Public spending on research and development increased, especially in the military field.
In 1963, the Kennedy administration reduced the corporate taxes from 52 to 47% and the rates of personal income tax totaling to about 14 billion dollars. The volume of government spending on social services in 1963-1964 was the same as that of 1962. This unprecedented tax cut in the conditions of the cyclical upswing was the first measure in the history of the U.S. to stimulate economic growth by means of the tax policy. In general, the flexible policy of the “new frontiers” yielded positive results.
After the death of Kennedy Lyndon Johnson became President of the USA. Since that time, the U.S. economy had begun to decline, and the further advent of the Nixon administration made this decline even worse.


Thus, the United States kept and strengthened its position in the economy during the first post-war decades. The role of the state in the regulation of the economic life of the country strengthened, which was especially evident in the Reconversion period . At the same time, the economy growth was “spurred” by the growth of military spending and militarization of the activities carried out in conditions of the great power rivalry and the Cold War.
Currently, the United States is a strong country, which reached a high level of economic development and has a powerful scientific and technical potential. The country has a huge arsenal of nuclear missiles and various means of international influence at its disposal. The American growth model was used by many developed countries and, subsequently, the newly industrialized countries. The United States also claimed to have formed a new system of microeconomic ties.

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