Story

“An Adventure in Prosperity”

Authors: John Steele Gordon

Historic Era: Era 9: Postwar United States (1945 to early 1970s)

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October 2005 | Volume 56, Issue 5

Text Complexity Grade Level

The law of unintended consequences is usually invoked to explain political disasters. Take Prohibition. Its millions of advocates thought that it would free the country from the scourge of drink, inducing fathers to spend time with their children, instead of squandering their pay at the local saloon. What we got, of course, was Al Capone.

Sometimes, however, while the consequences are just as unintended, they turn out to be beneficial. This was true of the Servicemen’s Readjustment Act of 1944, far better known as the GI Bill of Rights. The ostensible purpose of this famous piece of legislation was to reward millions of World War II veterans for a job well done. Its underlying aim was to keep as many of those veterans as possible out of the job market for as long as possible, for nearly every economist was predicting renewed depression with the war’s end.

The GI Bill accomplished these purposes, and much, much more besides. Indeed, it played no small part in powering the longest-sustained burst of economic growth in American economic history and allowing the baby-boom generation to grow up nestled in the bosom of an economic prosperity such as the world had never seen.

Veteran benefits have a long history in the United States. As early as 1636, the Plymouth Colony passed a law stating that “if any person shall be sent forth as a soldier and shall return maimed, he shall be maintained competently by the Colony during his life.” Revolutionary War soldiers who had been wounded were given pensions, as were the widows and dependents of those killed. 19th-century soldiers often got land grants as a reward for service, and these amounted over the course of the century to almost 75,000 square miles, an area larger than the state of Missouri.

In the early 20th century, the frontier having closed, veterans were promised bonuses in future years. After World War I, disabled veterans were eligible for a monthly education-assistance allowance.

fdr signs gi bill — *President Franklin Roosevelt signs the G.I. Bill into law on June 22, 1944. FDR Library*

As early as 1942, while the outcome of the struggle was still far from certain, planning began for the postwar era. With the American economy turning increasingly into a war machine, and with eventually 16 million men and women in uniform, it was clear that strong measures were needed to prevent economic chaos in the wake of victory.

In January 1944, what would become the GI Bill was introduced in Congress, and veterans’ groups such as the American Legion and the Veterans of Foreign Wars pushed it hard. The bill initially called for a large increase in medical benefits for veterans and unemployment benefits of about $20 a week for up to a year.

More importantly, it asked the federal government to underwrite the education of returning veterans up to $500 a year for tuition and a subsistence allowance of $50 a month. Loans of up

to $1000 per veteran were to be available to help them buy or build housing or to begin or acquire a business. By the time the bill emerged from Congress, the loan portion of the legislation had been changed to a government guarantee of half of the loans, up to a maximum of $2000.

There were basically two groups that opposed the bill. The first, unsurprisingly, consisted of those who worried about the cost of such a generous program. It was, of course, impossible to have any sure notion of exactly what that cost would be, but congressional estimates in early 1944 ranged from $3 billion to $3.5 billion—no negligible sum, when you consider that the 1947 federal budget was less than $33 billion.

The other locus of opposition was more surprising: academia. With federal subsidies for education available to millions, the number of people going to college was bound to increase sharply. Many professors and college administrators were appalled. “Education is not a device for coping with mass unemployment,” said Robert Maynard Hutchins, president of the University of Chicago. “Colleges and universities will find themselves converted into educational hobo jungles.”

Pressure to pass the legislation, however, soon became overwhelming; given the fact that fully 16.4 million Americans served in the armed forces in World War II and would therefore benefit from it, that was almost inevitable. The final bill passed both houses unanimously and was signed into law by President Roosevelt on June 22, 1944.

By that time, of course, victory was in sight, and not only the government, but families were beginning to plan for the future. America’s overwhelming success in the greatest war in history induced a mood that was nearly the opposite of what had prevailed just a decade earlier in the depths of the Great Depression.

With the end of the war in August 1945, the pressure to demobilize became intense. There were 12.1 million in the armed forces that month, but only 3,000,000 ten months later, with plans in place for a million-man military in 1947. More than 8,000,000 veterans took advantage of the “52-20” unemployment provisions ($20 a week for a year) of the GI Bill.

This certainly helped keep unemployment down, but far more important was strong civilian demand for goods and services. Many industrial products—automobiles, appliances, tires, even nylon stockings—had been nearly unobtainable during the war, while workers had banked over $137 billion in savings in those years. The demand for renewed industrial production, fueled by those billions in savings, kept the American economy humming.

And veterans poured into the country’s colleges and technical schools, thanks to the GI Bill. In 1947, the peak year, 49 percent of college enrollees were veterans. And, while American campuses hardly turned into the “hobo jungles” feared by President Hutchins, temporary buildings (many of them war-surplus Quonset huts) sprouted like mushrooms to house the influx of students. Altogether, some 7.8 million veterans took advantage of the GI Bill to further their education.

By the end of the program in 1956, this had

cost $14.5 billion, far above the original estimates. But it turned out to be one of the best investments the United States government has ever made. First, it greatly increased what economists call “human capital,” by giving millions the education they needed to handle better-paying and more productive jobs than they would have had otherwise. This helped mightily to power the American economy as the information age began to supersede the industrial age in the next few decades.

Further, because American children on average have traditionally obtained two more years of education than their parents, the educational benefits of the GI Bill have redounded through the generations since.

Equally important to the future of the country were the loan guarantees to help veterans buy houses, farms, or businesses. The original guarantee of half the loan up to $2000 was soon made more generous, with guarantees up to $25,000 or 60 percent of the loan, whichever was less. With banks fully protected against default, many were willing to write mortgages with no money down.

All that was needed was the housing for veterans to live in, and real-estate developers such as William Levitt began to supply it on an industrial scale. Levitt built 17,500 two-bedroom houses on lots that measured 60 by 100 feet in Long Island’s Levittown, and he was copied by many others in cities around the country. The American suburbs, the linch-pin of American politics for the last half-century, were, to a significant extent, the product of the GI Bill.

Of course, this new world had its detractors. One, in a bestselling 1956 book called The Crack in the Picture Window, deplored the fact that the inhabitants of the new developments “were not and are not to know the gracious dignity of living that their parents knew in the big two- and three-story family houses set well back on grassy lawns off shady streets.” Of course, most of those parents had known no such thing, but, instead, had lived in two- and three-story walkup apartments far from even a park. For the veterans who had grown up in the teeming streets of American cities, Levittown and its imitators were paradise.

As with the educational provisions of the GI Bill, the loan guarantees had positive effects for decades after they began. As the families paid off their mortgages, built additions, and enjoyed rising real-estate values, they acquired something that most Americans had not known before: capital, financial assets that they could use to get their children off to a good start or to provide for a comfortable retirement.

Just as the GI Bill was about to be signed, the Wall Street investor Bernard Baruch told Congress that, regardless of the gloom of the economists regarding the future, with proper planning, postwar America could be what he called “an adventure in prosperity.” Not even Baruch knew just how true his words would prove to be, thanks, in no small measure, to the GI Bill.