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

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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. 


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

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