1942: United States

Economic Survey.

American economic life in 1942 was increasingly geared to the business of financing, producing and transporting war commodities. The value of the year's war production amounted to approximately $47,000,000,000, of which $32,000,000,000 was for munitions. Up to Nov. 30 Congress had authorized $238,000,000,000 for war purposes, ten times the cost of World War I. By the end of the year the nation was spending $6,000,000,000 a month, or three times the expenditure of World War I at its peak. All told, the nation spent $52,000,000,000 for the war during 1942. In addition to equipping an army of over 4,000,000, of whom 1,000,000 were overseas by December 1942, American industry was exporting about 15 per cent of its products to our Allies under lend-lease agreements, and twice that percentage of combat planes and tanks. By November 30 lend-lease expenditures had totalled $7,500,000,000 and we were spending for that purpose at the rate of $10,000,000,000 a year.

This gearing of production to war needs meant essentially three great changes: (1) increased production by those industries already producing munitions and war commodities; (2) the shift of many industries from production of civilian commodities to production for war; and (3) the shift of labor from peacetime production to that of war. Outstanding examples of the first are the records in steel, shipbuilding, and airplane production. Annual steel production had increased from 52,799,000 tons in 1939 to an estimated production of 86,200,000 in 1942. By that time the United States was producing 50.3 per cent of the world's supply. When the United States entered the war we had 1,179 merchant vessels of 1,000 gross tons or more, aggregating 6,920,163 tons. During 1942 over 700 ships were launched (exclusive of fighting ships) with a tonnage of 8,200,000. By that time the war program for shipbuilding had been raised to 24,000,000 tons, of which 16,000,000 were to be built in 1943. At the beginning of 1942 there were in the United States 65 yards, with 378 ways, building merchant craft exclusively with a capacity of 6,000,000 tons a year; by the end of the year their productive capacity had been tripled. More than 1,000,000 workers were engaged in December 1942 in building merchant vessels, and behind them were another million producing materials in factories. Spectacular also was the record of the airplane industry, which produced 49,000 planes and in doing so increased during 1942 its unit production 100 per cent, its tonnage production 300 per cent, and its engine horsepower 240 per cent. The dollar value of airplane production in 1934 was $225,000,000; in 1942 $4,500,000,000.

As the year progressed, American factories by the thousands turned to war production. The most spectacular of all was the automobile industry, which in peacetime represented the highest dollar value of production of any American industry. On Feb. 11, 1942, the Government ordered the discontinuance of passenger-car production and the industry retooled to manufacture airplane parts, tanks, guns, ammunition, military vehicles and marine parts. When thoroughly geared to war production the automobile industry's potential production is estimated at $12,000,000,000 a year.

At the beginning of 1940 about 500,000 persons were employed in war industries; by the end of 1942 at least 15,000,000 were so engaged, with the possibility of 20,000,000 by the end of 1943.

On the surface, all indications pointed to an ample supply of foodstuffs when war began. Production of most crops had increased steadily during the years 1939 to 1941, and were even higher in 1942. The wheat crop in 1942 was the best on record, except for 1915, and the corn crop the greatest in our history. Goals set by the Department of Agriculture for 1942, emphasizing meat and dairy products, were generally surpassed.

Despite these record crops, increased demand called for even greater production. And although food prices had increased about 17 per cent since 1939, wider employment and higher wages raised the dollar value of domestic food consumption about 20 per cent in 1942. In addition to this were the needs of the armed forces and of the Allied countries.

To take care of this increased production for war, both in manufactured commodities and in agriculture, the American railroads made a remarkable record. In addition to supplying the larger proportion of the traffic needs of the civilian population, the railroads had to deliver war materials to camps and shipping ports, transport the army, and take up the slack occasioned by reduced automobile traffic and the destruction of tankers by German submarines. With one-third fewer locomotives and one-fourth less freight cars than in 1918, the greatest traffic year of World War I, the freight movement in 1942 was estimated at 55 per cent larger than in 1918 and the passenger movement at almost 25 per cent greater. The freight load in 1942 was about one-third larger than in 1941 and more than double the average annual load in the ten-year period ending with 1940. The passenger movement in miles was about 80 per cent larger than in 1941 and 2¼ times better than the average for the ten years ending 1940. The railroads in 1942 were moving about 1,600,000 soldiers a month, exclusive of soldiers on furloughs or individual service men traveling under orders on regular passenger trains. Passenger travel exceeded the previous peak year of 1920 by 13 per cent, and as a whole the job was better done. The miracle of freight movements was accomplished by an increase in the average load of freight cars, and in the length of the average haul. The average carload of freight was ten tons heavier than in World War I and the average freight run almost 100 miles longer.

Note has been made of the shifting of labor to war industries. This affected women as well as men, and included thousands of women who had never before entered the ranks of wage earners. It is estimated that about 2,500,000 women entered industry during World War I, but that 4,000,000 had entered industry in World War II by the end of 1942, most of them directly concerned with war production. The Department of Labor reported the number of nonagricultural employees in November at 38,437,000, an increase of 2,511,000 for the year. During the same time manufacturing employment increased 1,878,000. The employment index for manufacturing industries stood at 156.6 of the 1939 average in November, an increase of 13.1 per cent for the year ending November, 1942. The weekly payroll index for the year stood at 270.8, a gain during the year of 46.4 per cent. Between June, 1940, and October, 1942, about 7,000,000 people left the ranks of the unemployed. By the latter date not more than 1,600,000 were unemployed. So far had the unemployment problem been solved that the President in December announced the end of the Works Progress Administration as of Feb. 1, 1943.

Despite fear of inflation, heavy taxation and dislocations of war, the general financial picture at the end of the year was better than might have been expected. Farmers' net income was up 45 per cent over 1941. Wage scales of industrial workers were generally higher. Contrary to expectations small industries had survived. Bankruptcies dropped to 9,400 or 25 per cent during the year. Railroads for the first time in years were showing large earnings and resuming dividends. Their net income for the first nine months of 1942 was 47 per cent higher than for a similar period in 1941. The national income rose to $117,000,000,000, 28 per cent over 1941. Retail trade reached the unprecedented total of $56,000,000,000, an increase of 3 to 4 per cent over the previous peak of 1941; nevertheless, savings amounted to $26,000,000,000, an all-time high.

The situation in industry, despite increased production, was spotty. Certain industries were making greater profits than in 1941, others, such as steel and automobile companies, much less. A study of the earnings of 331 corporations for the first nine months of 1942 showed a 12 per cent decrease in net income. Dividends for 1942 were about 8.6 per cent below 1941, the result of smaller disbursements by manufacturing and public utility companies, for despite greater gross income, heavy taxation cut heavily into net profits. Speculation was at a low point. Trading in shares approximated only 121,000,000 shares — the lowest since 1914 — and prices moved narrowly.

On the other hand, the purchase of government bonds, which had lagged during part of the year, showed a tremendous spurt at the end. The Victory Loan drive in December which set a goal of $9,000,000,000 raised more than $12,000,000,000, and this in spite of the fact that only a minor part of the loan was allotted to commercial banks which had hitherto been the chief subscribers.

SEVENTY-SEVENTH CONGRESS

The second session of the Seventy-Seventh Congress ended on Dec. 16 after sitting for 711 days, the longest session on record. Its business was chiefly concerned with participation in the war: appropriations, taxation, and further declarations of war, as on June 5 against Bulgaria, Hungary, and Rumania. In all, the second session appropriated $167,979,000,000 mainly for war purposes, provided for $9,000,000,000 in new tax levies, and increased the Federal tax burden to approximately $27,000,000,000 a year. It tackled the problem of inflation by passing a Price Control Act in January, and amended it in October to halt rising farm prices. It granted extensive wartime powers to the President, and lowered the draft age to include youths of 18 years. Essentially it was a continuation of the work of the first session which had already voted large amounts for defense and had declared war on Japan, Germany and Italy.

A brief summary of the principal legislation of the second session follows:

Prosecution of the War.

The largest single appropriation for war was that of $42,820,003,067 for the army in the Military Establishment Supply Act (approved July 2, 1942), covering the fiscal year ending June 30, 1943. In the Navy Appropriations Act (Feb. 7) Congress appropriated $23,738,865,474 for the Navy, a part being additional funds for the fiscal year 1941-42, and the remainder for the year ending June 30, 1943. The Fourth Supplemental National Defense Act for 1942 (Jan. 30) carried direct appropriations for $12,556,672,474 for national defense, and $30,000,000 for the Tennessee Valley Authority to build a power dam on the French Broad River. Of the direct appropriations for national defense, the President might use $4,000,000,000 for defense needs for other countries under the terms of the Lend-Lease Act of March 11, 1941. The Fifth Supplemental National Defense Act of 1942 (March 5) carried direct appropriations of $30,412,737,900, plus $2,350,000,000 in contract authorization, for national defense for the 1941-42 fiscal year. This act included a $1,502,000,000 construction fund for the Maritime Commission, and raised the total which might be used under the Lend-Lease Act to $11,250,000,000. The Sixth Supplemental National Defense Act of 1942 (April 28) appropriated $19,151,597,010 for the Army, the Navy, and general purposes. The last heading covered civil agencies, the training of defense workers, building of roads to camps; as well as $30,000,000 to states for old-age assistance; and $10,000,000 for unemployment compensation. The Act also allowed the War or Navy Departments to insert in contracts of over $100,000 provisions to renegotiate contracts if it appeared that excessive profits were being made. The Seventh Supplemental Supply Act of 1942 (July 23) was for $655,074,740 for the Navy. The First Supplemental National Defense Supply Act of 1943 (July 25) appropriated $1,858,939,211 for various war agencies, including $1,110,000,000 for the War Shipping Administration, $162,500,000 for the Smaller War Plants Corporation, and $120,000,000 for the Office of Price Administration. The Second Supplemental National Defense Appropriations Act of 1943 (Oct. 26) carried $6,351,184,138, of which $5,588,568,308 was for the Navy and of this $3,822,000,000 was earmarked for naval aviation. The Navy Public Works Act (April 28) appropriated $800,000,000 for naval public works.

No Act passed by this Congress received more public attention than the Teen Age Draft Act (Nov. 12) which reduced the age limit for training under the Selective Service and Training Act of 1940 from the minimum of 20 years to 18 years at the time fixed for registration. The Act also provided that any selectee of 18 or 19, if called in the last half of the academic year of any institution of learning, might be deferred until the end of the academic year. The Act also declared that any registrant found by the local selective service board to be engaged in necessary agricultural or industrial war activity might be deferred for as long as he might be so engaged or until a satisfactory replacement could be found. No man over 45 might be inducted without his consent. It was also stipulated that selectees convicted of crime, the punishment for which was not more than one year in prison, might not be exempted.

Without carrying any immediate appropriations, Congress in the Naval Expansion Act (July 9) authorized the composition in underage vessels to be increased by 1,900,000 tons; aircraft carriers by 500,000 tons; cruisers 500,000 tons and destroyers 900,000 tons. The increase for each of the three classes might be shifted downward 30 per cent, as long as the total increase for the three classes was attained. In the Navy Shipbuilding Program Act (Feb. 6) the Navy was authorized to construct 1,799 minor combatant, auxiliary, and patrol vessels, and to provide land, shipbuilding and ordnance facilities within the United States at a cost not exceeding $750,000,000.

In long and complicated acts the pay of the armed forces was raised and dependents provided for. The Army-Navy Pay Act (March 7) raised the pay of enlisted men and warrant officers by 20 per cent if serving in Alaska or outside of continental United States, and the pay of commissioned officers by 10 per cent. When members of the armed forces or civilian employees of the government are reported missing, interned, or captured, such persons would be entitled to regular pay and allowances. Allotments against pay or support of dependents or for payment of increased premiums are continued for 12 months, after which an official finding of death is made, followed by payment of a death gratuity or six months' pay. Income taxes are suspended upon all members of the armed forces and civilian employees who are prisoners of war, or members of the armed forces on duty outside of continental United States. The Servicemen's Dependent Allowance Act (June 23) provided for family allowances for dependents of enlisted men of the Army, Navy, Marine Corps and Coast Guards, beginning June 1, 1942 and continued until six months after the close of the war. This allowance, consisting of a contribution by the Government and an allotment from the pay of the enlisted men, applies to enlisted men of the fourth, fifth, sixth and seventh grades, men receiving $78 to $50 a month under the new pay scale. These allowances are classified under the number and various types of dependents with the Government's contribution running to not more than $50 a month in the aggregate.

The Pay Readjustment Act (June 16) rewrote Title 37 of the United States code relating to the pay and allowances of personnel of the Army, Navy, Marine Corps, Coast Guard, Coast and Geodetic Survey and the Public Health Service. It reenacted the 10 and 20 per cent increases of the Army-Navy Pay Act of March 7, in pay for foreign service, including naval officers on sea duty and nurses in foreign service. It fixed the annual base pay of commissioned officers at $1,800, provided that temporary appointment of officers to higher grade should carry the salary of that grade, and raised the pay of warrant officers and of the seven grades of enlisted men. The pay of the latter, which formerly ran from $30 to $128 a month, was to be from $50 to $138. Subsistence, rental and other types of allowances were raised.

In three special Acts Congress provided for the enlistment of women in the Army, Navy and Coast Guards for noncombatant service. The Women's Army Auxiliary Corps Act (May 14) provided for such a unit of not more than 150,000 women from the ages 21 to 45 years with a director, assistant director and junior officers in three grades and an enlisted personnel, with pay beginning at $30 a month. The Women's Naval Reserve Act (July 30) provided for enlisted women of 20 years or over to be used in shore establishments. The Act placed no restriction on the number that might be entered but restricted the officers of the grade of lieutenant-commander to one and of the grade of lieutenant to 35. By the 'Spars' Act (Nov. 23) a Women's Reserve in the Coast Guard Reserve was established to be administered generally in the same manner as provided for the Coast Guard Reserve. Other provisions closely resembled those already enacted for the 'Waves.'

Budgetary.

The Treasury-Post Office Supply Act (March 10) carried appropriations of $210,351,516 for the Treasury Department and $902,969,923 for the Post Office Department for the 1942-43 fiscal year. The War Department: Civil Functions Supply Act (April 28) was for $343,938,826, the most important item being $128,961,700 for general flood control work and $56,826,800 for additional facilities for the Panama Canal. The Executive and Independent Office Act (June 27) appropriated $2,090,885,128, the major items being $980,440,416 for the Maritime Commission; $601,195,088 for the Veterans Administration and $136,100,000 for the Tennessee Valley Authority. The Legislative Appropriations Act (June 8) amounted to $26,570,708. The State-Commerce-Justice Supply Act (June 2) carried $426,281,885. The largest single item was $199,740,000 for development of aviation landing areas. The Interior Appropriations Act (July 2) granted $178,099,712. It included $21,707,000 for the Bonneville Power Administration and $29,369,466 for the Bureau of Indian Affairs. The Labor-Federal Security Supply Act (July 2) appropriated $1,071,574,318 for the Department of Labor and the Social Security Administration, which latter received more than half. Other large items were $214,801,000 to the Railroad Retirement Board and $141,240,000 to the education and training of defense workers. The Agricultural Appropriations Act (July 22) granted $665,742,646 of which $450,000,000 was for conservation and use of agricultural land resources.

Public Debt and Taxation.

The Public Debt Act of 1942 (March 28) increased the public debt limit of the United States to $125,000,000,000 by providing that the face of obligations issued under the Second Liberty Bond Act and the face amount of all obligations issued by any instrumentality or agency of the United States and guaranteed by the United States as to principal and interest may not exceed $125,000,000,000 outstanding at one time. The Revenue Act of 1942 (Oct. 21) applying to income received since Jan. 1, 1942, considerably increased income from taxation by reducing exemptions and increasing rates. The normal tax on income after exemption was raised from 4 per cent to 6 per cent. The surtaxes, beginning on the first dollar of net income after exemption, starts at 13 per cent instead of the former 6 per cent and increases rapidly over 1941 rates, particularly in the lower brackets. Former exemptions of $750 for single persons and $1,500 for married were reduced to $500 and $1,200. The $400 credit for each dependent was reduced to $350. Enlisted men in the military and naval forces were given an additional exemption of $250 if single and $300 if married. For medical expenses exceeding 5 per cent of net income and not compensated by insurance deductions were allowed. One of the new features of this bill is provision for a 'victory tax' of 5 per cent on 'victory net income' if income is over $624 a year. Certain deductions are allowed including premiums paid in life insurance in force on Sept. 1, 1942 for reduction of indebtedness. The victory tax will be collected at the source by deducting 5 per cent of wages over $12 a week. The Act provided for a postwar credit or refund of 25 per cent of the tax (but not more than $500) for a single person and 40 per cent of the tax (but not more than $1,000) for the head of a family. On corporate income taxes the present normal rate was kept. The rate of surtaxes on corporate income was raised from 6 to 10 per cent on income not exceeding $25,000. Upon corporate income between $25,000 and $50,000 the tax was set at $2,500 plus 22 per cent of the income over $25,000; upon larger incomes the rate was set at 16 per cent of the whole surtax net income.

The existing exemption of $5,000 on corporate excess profits taxes was maintained but the rates of 1941, ranging from 35 to 60 per cent, were replaced by a single rate of 90 per cent on the adjusted excess-profits net income. Corporations will receive a credit of 10 per cent of the excess-profits taxes paid to be returned after the war. Excise taxes were stepped up all along the line. Taxes on distilled spirits were raised from $4 to $6 per gallon; on beer from $6 to $7 per barrel; on cigarettes from $3.25 to $3.50 per thousand; on cheap cigars from $2 per thousand to $2.50 per thousand. The taxes on radio and cable messages were raised from 10 to 15 per cent; on local telephone service from 6 to 10 per cent and on travel tickets from 5 to 10 per cent. These taxes took effect on Nov. 1, 1942. Social Security taxes which were to be increased from 1 to 2 per cent on Jan. 1, 1943, were frozen at 1 per cent. Congressional experts estimated that the Act would raise $9,600,000,000 new revenue of which $1,700,000,000 would be credited for refund after the war. Treasury estimates, on the other hand, put the new income at $8,564,000,000 of which $1,682,200,000 would be returned.

Price Control.

In 1941 the President had set up an Office of Price Administration under his emergency powers to control prices. Since the full legal powers of the OPA were still vague Congress passed the Price Control Act of 1942 (Jan. 30) in an effort to halt inflation. It established an Office of Price Administration to establish fair prices when in the opinion of the Administration they had risen or threatened to rise unduly. The Administration was empowered to regulate or prohibit speculative or manipulative practices. To obtain maximum necessary production the President was empowered to buy or sell at private sale, or store or use any commodity on behalf of the United States except critical materials which function was to be exercised by the RFC. The major limitations upon the Price Administrator were imposed by the 'farm bloc' which provided that the maximum price of agricultural commodities must not be below the highest of any of the following prices: (1) 110 per cent of parity; (2) the market price prevailing on Oct. 1, 1941; (3) the market price prevailing Dec. 15, 1941, or (4) the average price during the period July 1, 1919 to June 30, 1929. The Administrator was empowered also to stabilize or reduce rents in defense areas.

To enforce price regulations the OPA might issue licenses to do business (except on newspapers, books and other business of this type) and appeal to the courts for enforcement. On his part the business man might file protest within 60 days and appeal from a decision of the OPA to an Emergency Court of Appeals. It was clear after eight months that more authority was needed to checkmate inflation. In the Anti-Inflation Act (Oct. 2) the President was empowered on or before Nov. 1 to issue a general order stabilizing prices, wages and salaries affecting the cost of living, such stabilization, as far as practicable, to be on the basis of the levels of Sept. 15, 1942. Thereafter the President might provide for adjustments to correct gross inequalities to the extent that he found it necessary to aid in the effective prosecution of the war. The President was permitted to promulgate regulations necessary to carry on the Act and to use any agency, department or officer he might wish. The chief limitation was again imposed by the farm bloc which forbade setting farm prices lower than 100 per cent of the parity price or the highest market price during 1941 up to Sept. 15, whichever was higher. There were also certain limitations on wages and salaries, the most important of which was the requirement that wages and salaries must not be placed below the highest point reached in 1942 up to Sept. 15. Also they must not be placed at a point inconsistent with the provisions of the Wages and Hours Act and the National Labor Act.

War Powers.

Under the Second War Powers Act (March 27) additional powers were given to various administrative agencies. The Interstate Commerce Commission, for example, was given the same emergency power with respect to motor carriers which had earlier been given to it with respect to rail carriers. The War Purposes Act of July 2, 1917 (hitherto applicable only to the Secretary of War for condemnation of land for military purposes) was now extended to include the Secretary of the Navy and any other officer or agency of the Government. Added powers were given to the President by amending the Priorities Act of 1941 to authorize him to require acceptance of any priority established by him with respect to performance under contracts or orders, in addition to the priorities or deliveries for which there is already authority.

Foreign Relations.

The Foreign Agents Regulation Act (April 27) strengthened considerably the provisions of the Act of 1938 and transferred the administration from the Secretary of State to the Attorney General. The China Aid Act (Feb. 7) authorized the Secretary of the Treasury with the approval of the President to extend credit to China in an amount not exceeding $500,000,000, and the China Appropriation Act (Feb. 12) appropriated the money to be available until June 30, 1943.

Agriculture.

The Interstate Meat Packing Law (June 10) allowed the Secretary of Agriculture to provide meat packing inspection during the war in establishments engaged in interstate commerce to facilitate purchase of meat by Federal agencies. The Farm Loan Interest Act (June 27) extended to June 30, 1944 the reduced interest rate of 3½ per cent applicable on farm mortgage loans made through farm loan associations and the Federal Land Banks. The Agricultural Appropriation Act (July 22) authorized the commodity Credit Corporation to sell not more than 125,000,000 bushels of wheat for feeding purposes at not less than 85 per cent of parity.

Housing.

The Defense Housing Act of 1942 (Jan. 21) amended an Act of 1940 to include living quarters for single men and to permit an increase in the unit cost of family dwellings. It increased the appropriation previously authorized for defense housing from $300,000,000 to $600,000,000 and the appropriation previously authorized for community housing facilities from $150,000,000 to $300,000,000. The National Housing Act Amendment (May 26) increased the aggregate amount of mortgages insurable under Title VI from $300,000,000 to $800,000,000, lengthened the permissible maturity for any mortgage to 25 years and increased the mortgage limitation. The Defense Workers Housing Act (Oct. 1) increased by $600,000,000 the amount authorized for defense housing, making the total now $1,200,000,000.

Miscellaneous.