Despite expansion during Woodrow Wilson’s first term as president, the federal government on the eve of World War I remained small. In 1914, federal spending totaled less than 2 percent of GNP. The top rate of the recently enacted federal individual-income tax was 7 percent, on income over $500,000, and 99 percent of the population owed no income tax. The 402,000 federal civilian employees, most of whom worked for the Post Office, constituted about 1 percent of the labor force. The armed forces comprised fewer than 166,000 men on active duty. Although the federal government meddled in a few areas of economic life, prescribing railroad rates and bringing antitrust suits against a handful of unlucky firms, it was for most citizens remote and unimportant.
With U.S. entry into the Great War, the federal government expanded enormously in size, scope, and power. It virtually nationalized the ocean shipping industry. It did nationalize the railroad, telephone, domestic telegraph, and international telegraphic cable industries. It became deeply engaged in manipulating labor-management relations, securities sales, agricultural production and marketing, the distribution of coal and oil, international commerce, and markets for raw materials and manufactured products. Its Liberty Bond drives dominated the financial capital markets. It turned the newly created Federal Reserve System into a powerful engine of monetary inflation to help satisfy the government’s voracious appetite for money and credit. In view of the more than 5,000 mobilization agencies of various sorts—boards, committees, corporations, administrations—contemporaries who described the 1918 government as “war socialism” were well justified.
During the war the government built up the armed forces to a strength of four million officers and men, drawn from a prewar labor force of 40 million persons. Of those added to the armed forces after the U.S. declaration of war, more than 2.8 million, or 72 percent, were drafted.[3] Men alone, however, did not make an army. They required barracks and training facilities, transportation, food, clothing, and health care. They had to be equipped with modern arms and great stocks of ammunition.
