WORLD WAR I

When the United States entered World War I (1914–1918) by declaring war on Germany on April 6, 1917, the global conflict had been underway for more than two and a half years. Also known as the Great War, World War I started as a result of the assassination of Archduke Franz Ferdinand, heir to the Austro-Hungarian throne. What began as a skirmish between Austria-Hungary and Serbia (the archduke was killed in the Serbian city of Sarajevo) quickly snowballed into a massive conflict when these nations' more powerful allies joined the dispute. Europe's existing alliance structure pitted the Central Powers—Germany, Austria-Hungary, and Turkey—against the Triple Entente—France, Britain, and Russia. After provocation from Germany, whose naval fleets had begun to sink American merchant ships in British waters, President Woodrow Wilson (1913–1921) made the decision to mobilize U.S. troops.

Wilson's decision had immediate economic repercussions, as the U.S. government faced the task of raising money for the war effort. Analysts determined that the country would need upwards of $33.5 billion to finance its participation in the war, plus money for loans to European allies. With the War Loan Act (1917), Congress proposed that the U.S. would provide $3 billion in such loans, though the sum was later increased. Now it fell upon President Wilson and Congress to determine where the necessary money would come from. They offered a solution by passing the War Revenue Act (1917), which stated that 74 percent of funding for the war would come from taxation imposed on the highest individual and corporate incomes. With this bill Wilson and Congress demonstrated an intent to place the financial burden on the wealthy and to give a break to middle- and low-income individuals and families. A year later Congress passed another revenue act, which increased this burden on the nation's wealthiest, who were now called upon to provide 80 percent of funding for the war.

In another move designed to raise money, the U.S. Treasury Department issued a series of bonds called liberty loans. These were long-term bonds that promised to earn the holder 3.5 to 4.25 percent in interest. The campaign to sell the bonds was massive in scope. Liberty loan committees formed in all regions of the country, and spokespersons appeared in theaters, hotels, restaurants, and other public gathering places. Even clergymen contributed to the marketing effort, urging members of their congregations to support the country through liberty loan purchase. Banks stepped forward to lend money for liberty loans at rates lower than the interest on the bonds. The campaign was a tremendous success. Of the five bonds issued between May 1917 and April 1919 (the last of these was called a victory loan), all of them were oversubscribed.

Although participation in World War I required vast government spending, the country's domestic economy benefited greatly from the effort. Established in July 1917, a War Industries Board endeavored to tap the nation's industrial resources while protecting its basic economic infrastructure. A demand for supplies, weaponry, food, and other materials resulted in increased productivity among manufacturers and farmers. It was a boom time not only for large corporations, many of whose profits wildly multiplied, but also for farmers, who saw a rise in agricultural prices, and for blue-collar workers, whose wages increased. Businesses expanded their international markets by exporting goods to European ally countries. All in all, American industry profited enormously from increasing its production, exploiting its resources, and mobilizing its workforce.

Other participating nations, however, suffered more losses than gains during the course of the war. After the defeat of the Central Powers and the signing of an armistice in 1918, the Triple Entente and its allies pressed for reparations from Germany, which more than any other nation was held responsible for the war. The Treaty of Versailles, signed on June 28, 1919, placed the bulk of financial responsibility on Germany, and a Reparations Commission was established to determine the amount that the defeated Country would pay in damages to property and civilians. When the U.S. Senate refused to ratify the 1919 treaty, the United States forfeited its place on the commission, which decided in June 1920 that Germany would pay upwards of three billion gold marks a year for 35 years. The committee increased this amount in the following year, demanding a sum that Germany simply could not produce (indeed, in 1933 then-German leader Adolf Hitler (1889–1945) announced Germany's refusal to make further payments). Although the United States did not receive compensation for damages directly from Germany, it did collect payment on loans from its European allies, who derived these sums from German reparations.

American participation in World War I resulted in the loss of lives and a tremendous output of its financial resources. In addition to the $33 billion the U.S. government initially spent on the war, interest rates and veterans' benefits increased this sum to $112 billion. Yet the economic gains that were achieved during wartime far outweighed such losses. Between 1914 and the end of the decade, average annual incomes rose from $580 to __BODY__,300. Moreover, the increase in international trade continued to raise profits for various industries. Propelled by the economic boost of war, America ushered in a new decade—the prosperous 1920s.

WORLD WAR I

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