World War I and the Economic Impact on the United States - Essay Example

Even though the United States was actively involved in the war for only 19 months, the economic effects of World War I started as the war broke out in Europe and extended way into the 1920s and 1930s long after the war had ended in 1918. The economic impact of World War I on the economy of United States is twofold: Economic impact during the war and impact after the war. The economic impact during the war and immediately after the war, which was short term, was a positive one which helped the American economy to recover from recession.

The economic impact after the war, which was long term, was a negative one which forced the American economy into depression (The Great Depression). During The War Prior to the war, United States was in a recession. The economic situation changed dramatically during the war as United States saw the economy boom during this period. The demand for war goods increased rapidly across Europe and the United States benefited greatly from this increase in demand as Europeans started purchasing war goods from the United States1.

The Manufacturing industry benefitted heavily from the rise in demand from Europe. All kinds of goods were now exported to Europe from America bringing in huge profits. American industries expanded rapidly during the period. Unemployment declined greatly during the war as 3 million people were recruited by the military and half a million jobs were created in the government2. This created employment opportunities for women and immigrants of African origin who were not a major part of the workforce prior to the war.

Manufacturing and other industry related jobs were created and were now filled by the previously unemployed. Unemployment rate fell from 7.9% to 1.4% during the war3. Another major impact of World War I on United States was the graduation from a net debtor to net creditor. Prior to the war United States was a debtor country but by the time war had ended it had become a net creditor. In 1914 foreign investment is the United States was way greater than the amount invested abroad by the United States.

But the equation had changed dramatically during the war and by the end of it United States had emerged as a creditor country. New York had replaced London as the world capital market and Federal Reserve had emerged as the world’s most important financial institution downplaying the bank of England4. This change made great impact on the American economy and contributed to development of America as a global economic superpower in the second half of the 20th century. Post World War Post world war production in industries slowed down and the demand for labor also reduced drastically.

Adding to the already poor unemployment condition was the return of soldiers from the war. There weren’t enough jobs for all. Due to decrease in demand the prices of many farm products fell by nearly 50% and this lead to many farmers going bankrupt. Demand for many industry products had reduced and this meant the overall production went down. Apart from decline in jobs, this also reduced the cash flow into the country. The European demand for American products after the war was not the same as it was during the war.

Industry that thrived during the war was the industries that produced weapons and other war goods. All of a sudden there was no demand for the war industry goods. One of the other negative effects of World War I on United States was inflation. The cost of living by the end of the war rose to 100% above the level before the war5. The seeds of the Great Depression were planted by the rising unemployment and bleak economic situation after World War I. Impact on the Ideas about Economics Apart from