What was the economic result of demobilization on war supply industries and cancelled arms contracts in 1920s America?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Right after World War I, the US economy went into a bit of a recession.  This was largely because of the fact that the war had ended.  So the result, I'd say, was the recession.

As you mention, the end of the war led to a number of problems.  Factories that had been working at full speed producing weapons and such were suddenly put out of business, for example.  And this loss was not made up for by other kinds of business, especially not right away.  This is partly because foreign countries were no longer so able to buy things from the US.

teachsuccess's profile pic

teachsuccess | High School Teacher | (Level 2) Educator Emeritus

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Basically, the demobilization process led to an economic depression during the 1920s.

Many war supply industries suffered substantial monetary loss after war contracts were abruptly cancelled during demobilization. There were two types of war contracts: formal and informal. The formal contracts provided a measure of protection to some war supply industries, but industries that held informal contracts were less fortunate.

At the start of demobilization, the United States government owed more than $6 billion dollars in formal contracts to war supply industries. It owed another $1.5 billion dollars in informal contracts. More than 30,000 war department contracts were outstanding; of these, 3,000 contracts were so near completion and so necessary to the strength of a demobilized military that the United States government had to follow through on payments. Yet, the termination of the rest of the contracts (whether formal or informal) led to an immediate unemployment problem.

More than 2 to 3 million factory workers suddenly found themselves without jobs. Similarly, almost 4 million returning soldiers found themselves in the same predicament. Meanwhile, the Comptroller of the Treasury rendered the $1.5 billion in informal contracts void under the law: this meant that none of these wartime manufacturers could make claims on their contracts. Now, informal contracts were divided into Class A and Class B contracts.

Class A contracts consisted of those which had been improperly executed, while Class B contracts consisted of those which had been agreed to orally (in part). 

Until the Dent Act, informal contractors suffered substantial monetary loss from the abrupt termination of these contracts. Their circumstances were only alleviated somewhat when the Dent Act was signed into law on Mar 2, 1919. The Dent Act allowed there to be adjustments to the cancellation of the contracts. Under the law, Class A contracts were terminated using conventional channels and procedures. The law also made provisions for war industries that brokered Class B contracts. In many cases, the War Department allowed these contractors to receive initial partial payments for their work.

In all, the mobilization process greatly destabilized the war supply industries after the first world war. 

Source:

1) Our Industrial and Military Demobilization After The Armistice by Benedict Crowell and Robert Forrest Wilson.

Sources:
krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

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The world War I ended in 1918, and the demobilization efforts after the war continued up to maximum 1919. Thus there was hardly any demobilization activity in 1920's.

Period immediately after World War I is marked by economic recession in many countries including USA> However impact of such recession in USA was very brief lasting for less than a year. and which did not extend beyond first quarter of 1919. There was another comparatively more severe recession in 1920, but this had no lasting effect on economy. As a matter of fact the economy boomed after that, and this period of American history, for this reason is known as "Roaring Twenties".