making history the second world war buy and sell weapons

The New York Fed was designated the Treasury’s fiscal agent for bond sales, and the governors of the Reserve Banks headed committees organized in each district to sell Treasury bonds.

The Federal Reserve took an active role in marketing war debt to commercial banks and the public. Spending quickly outpaced tax revenues, and the Treasury mounted a series of war bond or “liberty loan” drives to raise additional funds. In addition, the Treasury lent generously to US allies. Outlays for troop training, weapons, and munitions increased fifteen-fold from 1916 to 1918. Still learning the ropes of a new system of monetary control, the Fed was called upon to help marshal the country’s financial resources for war.įederal spending surged as the military mobilized. For two and a half years the United States remained neutral, but in April 1917, Congress declared war on Germany. Initially, Great Britain, France, and Russia allied against Germany and Austria-Hungary. The Great War inflicted enormous human and economic costs on the combatants. “The war reshaped the Federal Reserve System in many ways,” writes economist Allan Meltzer in his landmark work A History of the Federal Reserve. And once the nation entered the war, the Fed dedicated itself mainly to supporting the war effort.īut the conflict accelerated the evolution of the Federal Reserve into a true central bank by increasing its financial resources and transforming the US dollar into a major international currency. The young Fed was powerless to offset the gold inflow or halt the resulting inflation. A large inflow of European gold to pay for US exports increased the money supply. The crisis soon passed, but within months a new problem emerged.

Meanwhile, the Federal Reserve Board and the twelve Reserve Banks were still getting organized.

The stock market closed and banks faced runs by depositors. The outbreak of war in Europe in August 1914 touched off a financial crisis. World War I was the first test of the new Federal Reserve System, and it was a trial by fire.

Making history the second world war buy and sell weapons