How did they manage the economy during world war 1?

NBER Research Associate Hugh Rockoff addresses these questions in his recent study Until It's Over, Over There: The U.S. Economy in World War I (NBER Working Paper No. 10580). After surveying the U.S. mobilization and financing for the war, Rockoff concludes that perhaps the greatest impact of World War I was a shift in the landscape of ideas about economics and about the proper role of government in economic activities.

When the war began, the U.S. economy was in recession. But a 44-month economic boom ensued from 1914 to 1918, first as Europeans began purchasing U.S. goods for the war and later as the United States itself joined the battle. "The long period of U.S. neutrality made the ultimate conversion of the economy to a wartime basis easier than it otherwise would have been," writes Rockoff. "Real plant and equipment were added, and because they were added in response to demands from other countries already at war, they were added precisely in those sectors where they would be needed once the U.S. entered the war."

Entry into the war in 1917 unleashed massive U.S. federal spending which shifted national production from civilian to war goods. Between 1914 and 1918, some 3 million people were added to the military and half a million to the government. Overall, unemployment declined from 7.9 percent to 1.4 percent in this period, in part because workers were drawn in to new manufacturing jobs and because the military draft removed from many young men from the civilian labor force.