Wartime Wednesday: The Federal Reserve System During WWII

 

Wartime Wednesday: The Federal Reserve System During WWII

What is the Federal Reserve System (AKA Federal Reserve Bank)? Simply put (and per its website http://www.federalreserve.gov), the Federal Reserve Act of 1913 “established the Federal Reserve System as the central bank of the United States to provide the nation with a safer, more flexible, and more stable monetary and financial system.” The impetus for its founding was a history of bank banks, the most recent being the Panic of 1907 when a massive credit crisis almost caused the collapse of the financial system. Several private financiers stepped in to save banks which was a wakeup call to Congress that realized the country had no central lender to give banks emergency loans during a panic. Per Wikipedia “Although an instrument of the US Government, the Federal Reserve System is considered an independent central bank due to its structural insultation from political interference as it is managed by a Board of Governors.

When America found itself at war in 1941, the board announced that it was “prepared to use its powers to assure at all times an ample supply of funds for financing the war effort.” Wars are won by those who can out produce their opponents which takes money, and America was going to need a lot of it. The military was small, numbering fewer than 200,000 soldiers, and its weapons were obsolescent. Thousands of ships, aircraft, and vehicles, and millions of guns as associated weaponry were needed. Add to that the recruitment, training, and deployment of soldiers, sailors, and airmen. Finance became a foundation of the war.

The question became how to raise the money. The Federal Reserve and the Treasury Department

teamed to create the plan and ultimately decided on taxation and domestic borrowing. They felt that taxes on current income would minimize inflation and prompt economic stability at the end of the war. For domestic borrowing, they created a variety of securities that would allow small savers to get involved as well as the wealthy or large corporations to invest at greater levels. The twelve regional Federal Reserve Banks organized Victory Fund committees and created campaigns to market war bonds; eight campaigns in all between 1942 and 1945. Thanks to posters, radio broadcasts, and wide celebrity endorsement, the total raised was $187.5 billion with more than eighty-five million people participating.

Another issue to deal with was to “keep the cost of the war reasonable.” At the Treasury’s request, the Federal reserve kept interest rates at low levels. The Banks purchased Treasury bills at three-eighths of a percent per year, significantly lower than the peacetime rates of 2-4 percent. Wartime can create inflation because of increased income and employment affected by limited consumer goods. As the Reserve put it: When more money chases fewer goods, prices typically rise. To combat the potential for inflation, regulations on the price of goods and workers, and a rationing program were implemented. Consumer credit was also regulated.

The War Manpower Commission declared the Reserve’s work as essential to the war effort, and as a result Reserve employees were not subject to the draft. However, hundreds did volunteer for military service.

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Swedish Sunrise

Espionage. Diplomacy. Resistance. Is there any room for love?

Weeks after being accepted into America’s Office of Strategic Services, Birgit Westgard finds herself in Stockholm, Sweden - “Casablanca of the North.” The job is supposed to be easy: typing and filing. Then her handsome boss taps her to be his “plus-one” at social events where they collect intelligence, plant propaganda, and dance the nights away. How much longer can she remain impervious to his charm?

Silas Cronin is one of the lucky ones, and his plane crash lands in neutral Sweden. Bored with cooling his heels in an internment camp, he raises his hand when the government comes looking for someone who can type. Suddenly, he’s in Stockholm, mired in intrigue and subterfuge, and more than a little attracted to his new secretary who wants nothing to do with him. Is she right that wartime is no time for romance?

Link: https://books2read.com/u/3RRqyv

Sources:
https://www.federalreservehistory.org/essays/feds-role-during-wwii
https://www.chicagofed.org/publications/economic-perspectives/2021/2
https://www.federalreservehistory.org/topics/fed-in-wartime
https://www.atlantafed.org/who-we-are/atlanta-fed-history/first-75-years/world-war-ii
https://www.stlouisfed.org/open-vault/2022/nov/how-fed-served-during-world-wars
https://www.studocu.com/en-us/document/california-state-university-east-bay/economics-for-managers-in-a-global-economy/federal-reserves-financing-role-during-wwii-1941-1945/128748873
https://en.wikipedia.org/wiki/Federal_Reserve
https://www.federalreserve.gov/aboutthefed.htm

Photo Credits:

Marriner Eccles, Chairman, Federal Reserve System 1934-1948: By Harris & Ewing, photographer - Library of CongressCatalog: Public Domain.

War Bond Poster: Public Domain

War bond rally to buy bonds, February 1944.  (Photo: Mark Goebel Photo Gallery/Archive Photos/Getty Images)