Destructive Creation

American Business and the Winning of World War II

Mark R. Wilson

• Publisher: University of Pennsylvania Press
• Year: 2016
• Print ISBN: 9780812224313, 9780812248333
• eBook ISBN: 9780812293548
• Topic: History
• Subtopic: Economic History
• Index: History

During World War II, the United States helped vanquish the Axis powers by converting its enormous economic capacities into military might. Producing nearly two-thirds of all the munitions used by Allied forces, American industry became what President Franklin D. Roosevelt called "the arsenal of democracy." Crucial in this effort were business leaders. Some of these captains of industry went to Washington to coordinate the mobilization, while others led their companies to churn out weapons. In this way, the private sector won the war—or so the story goes.Based on new research in business and military archives, Destructive Creation shows that the enormous mobilization effort relied not only on the capacities of private companies but also on massive public investment and robust government regulation. This public-private partnership involved plenty of government-business cooperation, but it also generated antagonism in the American business community that had lasting repercussions for American politics. Many business leaders, still engaged in political battles against the New Deal, regarded the wartime government as an overreaching regulator and a threatening rival. In response, they mounted an aggressive campaign that touted the achievements of for-profit firms while dismissing the value of public-sector contributions. This probusiness story about mobilization was a political success, not just during the war, but afterward, as it shaped reconversion policy and the transformation of the American military-industrial complex.Offering a groundbreaking account of the inner workings of the "arsenal of democracy, " Destructive Creation also suggests how the struggle to define its heroes and villains has continued to shape economic and political development to the present day.

Chapter 1

Shadows of the Great War

In late October 1940, Samuel Crowther was worried. The successful biographer of American business leaders had spent the last several years as a public-relations consultant to the mammoth U.S. Steel Corporation. As the war in Asia and Europe entered its second year and Franklin D. Roosevelt ran for an unprecedented third term as U.S. president, Crowther shared his feelings with two top U.S. Steel executives, Irving S. Olds and Edward Stettinius, Jr. Crowther complained that the Republican candidate for president, Wendell Willkie, was too liberal for his tastes. But above all, Crowther was concerned about the wartime expansion of public enterprise. “The trend which alarms me,” Crowther wrote, “is the effort to put the Government more and more into business.”

Crowther’s worries about this trend were informed by his understanding of the past: not only the recent New Deal but also the events of World War I, over two decades earlier. New rumors that the federal government might join with organized labor to build a steel plant evoked Crowder’s memory of 1917–18, when the administration of President Woodrow Wilson took over American railroads, “with disastrous consequences.” In Crowther’s mind, such initiatives were dangerous. “The last war proved that the more Government entered the picture, the less got done,” Crowther asserted. “The railroads under McAdoo almost ceased to function.” If current trends continued, Crowther warned, the United States would likely emerge from World War II with a national economy riddled with inefficient but entrenched government enterprises, in competition with the private sector. “The outstanding example of this sort of thing” in World War I, he reminded the U.S. Steel executives, “was Muscle Shoals, out of which we eventually got T.V.A. [the Tennessee Valley Authority].”¹

Crowther’s worries in 1940 suggest the inadequacies of popular understandings of business and war, which often assume that corporations favored military conflict and the large profits that accrued from it. Historians often suggest that industry and the armed forces held hands during World War I and into the 1920s and 1930s.² This was also the assumption of many contemporaries, in an era that saw widespread critiques of “merchants of death,” along with plenty of support for isolationism in Congress, which passed Neutrality Acts designed to keep profiteers from dragging the nation into another overseas conflict.

Yet Crowther remembered correctly: a powerful regulatory state had operated during World War I. If many firms had profited from making munitions, they had also chafed under many of the wartime measures imposed by the Wilson administration and progressives in Congress, including new taxes, a government-assisted expansion of labor unions, and the growth of government enterprise. These developments were partially reversed in the 1920s, as Republicans regained power. But in the 1930s, President Roosevelt and congressional Democrats enacted a series of New Deal programs that revived, and expanded, the national government’s regulatory activities. As another global military conflict started, many business leaders, like Crowther, feared that any potential benefits of a new American war mobilization would be overshadowed by its political costs.

Private and Public Enterprise in World War I

In 1917–18, the United States sent nearly two million soldiers to fight in Europe. Because it took months to set up new military production lines, the American Expeditionary Forces, led by General John J. Pershing, would end up using lots of French and British equipment. Nevertheless, the United States undertook a major industrial mobilization. During the nineteen months that the nation was at war, American factories delivered about two million rifles, three billion rounds of small arms ammunition, 375 million pounds of explosives, eighty thousand Army trucks, and twelve thousand airplanes. To carry the troops and their equipment across the Atlantic, nine hundred new cargo vessels were built in a crash effort by U.S. shipyards.³ All this required major new initiatives in manufacturing and logistics across many different segments of the economy, from individual plants to the national and international levels.

Most histories of the American economic mobilization for World War I focus on the War Industries Board (WIB), an emergency, civilian-led agency. These histories tell the story of how business leaders came to Washington in wartime to solve big problems of economic coordination. The WIB was populated by “dollar-a-year” men, who could work without compensation from the government because they continued to receive salaries from the companies loaning them to Washington. These businessmenmobilizers, working closely with trade associations and big corporations, capped prices to control inflation and used a system of priority ratings to distribute critical materials. Most historians have agreed that this was a business-friendly economic mobilization that relied heavily on private enterprise and voluntarism instead of on coercion.⁴

But if the Great War industrial mobilization was so business-friendly, how do we explain the negative memories of pro-business conservatives such as Crowther, as they looked back during the early months of World War II? Certainly, the Great War showed some business leaders that military conflict could bring opportunities for unprecedented profits, as well as new gains in power and efficiency via state-approved self-regulation. At least as important, however, was the lesson that wartime could enhance and nationalize populist and progressive initiatives for public enterprise, which before 1914 had been confined largely to the state and local levels.⁵ As the great public entrepreneur David E. Lilienthal pointed out at the beginning of World War II, it was really the Great War crisis that caused “the entry on a major scale of the Federal Government in the conduct of business, as opposed to its regulation.”⁶

The full story of the American mobilization in 1917–18 is not only about voluntarism and the leadership of corporate executives but also about military capacity, government enterprise, and heavy regulation.⁷ Even the WIB, despite its evidently business-friendly staff, wielded the threat of coercion far too often for the taste of most executives. Bernard Baruch, the wealthy Wall Street investor who led the WIB, favored using personal contacts and appeals to patriotism to gain price concessions for military orders. He did this in March 1917 with copper producers, who agreed to sell to the United States at far below market prices. But when Baruch made less headway with the steel industry, he resorted to threats. In a heated discussion in September 1917, Baruch told Elbert H. Gary, the formidable chairman of U.S. Steel, that if the steelmakers could not agree to price reductions, the WIB would use President Wilson’s commandeering powers to take over their plants. When Gary protested that the government would have no clue how to operate U.S. Steel, Baruch reportedly replied, “Oh, we’ll get a second lieutenant or somebody to run it.” Soon after this, an agreement was reached. According to Baruch’s colleague Robert S. Brookings, the WIB’s chief price fixer, the steel case was not exceptional. “We threatened to commandeer concerns,” Brookings recalled after the war, “unless they abided by our decisions as to prices.”⁸

Even Herbert Hoover, the Food Administration chief known for his commitment to voluntarism, found himself considering the prospect of mandatory production orders and forced takeovers. This occurred when the nation’s leading meatpacking companies refused to come to terms with Hoover on an agreement to limit wartime prices. Annoyed by this impasse, Hoover asked President Wilson to sign a mandatory price order, which the packers would be compelled to observe. Meanwhile, an even more coercive solution was drafted by the Federal Trade Commission (FTC), which proposed to nationalize one of the “big five” meatpacking companies. This would later be known as a “yardstick”: a public enterprise that would give the government firsthand knowledge of production costs, to be used in price negotiations with private companies. This scheme was too much for Hoover, whose aversion to such practices would be demonstrated in the decades to come. But the fact that the FTC’s seizure scheme was considered seriously by Wilson spoke to the depth of wartime tensions between government and business.⁹

Although threats were more numerous than actual seizures, plenty of real commandeering did occur. After the country entered the war in early 1917, the Navy Department seized goods from hundreds of warehouses and exporters; it also issued more than three thousand mandatory production orders, which required reluctant companies to sell it goods at a “reasonable profit” to be determined later. The assistant secretary of the Navy, Franklin D. Roosevelt, apparently considered the commandeering option but decided against it, before awarding a large torpedo contract in December 1917. But earlier that year, Roosevelt carried through on a threat to have the Navy seize two battleships built by Bethlehem Steel’s Fore River Shipyard, after the company refused to release them to Argentina until payment was guaranteed. The coerced procurement of finished goods was also carried out by the War Department, which issued roughly a thousand compulsory orders of its own.¹⁰

Among the most remarkable instances of government coercion in the Great War industrial mobilization, which set important precedents for World War II, were the outright takeovers of privately owned enterprises. One of the most prominent of these involved the Smith & Wesson Company, which was filling large military contracts for revolvers. Like many other private employers on the home front, Smith & Wesson had been affected by a wartime surge in labor-union membership and activism, boosted by the Wilson administration’s friendly relations with the American Federation of Labor (AFL).¹¹ In July 1918, Smith & Wesson fired eight workers at its Springfield, Massachusetts, plant for joining a union. These workers, like their counterparts across the country, were calling for measures such as a 25 percent raise to offset wartime inflation, a standard forty-eight-hour week with time and a half for overtime, and collective bargaining rights. On July 12, about five hundred of the 1,400 employees at the Springfield plant went out on strike. The company’s president, Joseph H. Wesson, threatened to replace them. When the dispute dragged on, it was referred to the National War Labor Board (NWLB), the wartime agency charged with mediating such disputes.¹²

On August 22, the NWLB ruled that Smith & Wesson had to reinstate the fired workers and stop forcing its employees to sign “yellow-dog” contracts forbidding them to join unions. Wesson responded by saying that he would rather have the government seize the plant than obey the order, although he did agree to move to an eight-hour day. On September 13, the War Department seized the plant, which ended up being run by Ordnance Department officers through early 1919.¹³ Meanwhile, President Wilson threatened to seize several war plants in Bridgeport, Connecticut. In this case, it was striking workers, not company leaders, who were failing to observe an NWLB decision. If the government did take over the Bridgeport plants, Wilson warned the workers, they would lose their draft exemptions. After this announcement, production resumed, without any seizures.¹⁴

Even more dramatic takeovers occurred on a national scale. Before the conflict ended in November 1918, various agencies of the United States government had taken formal control over the railroads; the telegraph and telephone industries; and the nascent radio industry. The national state was also in the midst of constructing its own massive fleet of merchant ships; and it owned hundreds of millions of dollars’ worth of industrial facilities, including shipyards and explosives plants. For anyone interested in the present and future role of government in the American economy, these were significant developments. And they were not attributable simply to some kind of natural logic or necessity of modern war but also to political choices—most notably, those of the members of President Wilson’s cabinet, who together demonstrated a great enthusiasm for expanding public enterprise.

At least four prominent members of Wilson’s cabinet—Secretary of State William Jennings Bryan, Postmaster General Albert S. Burleson, Treasury Secretary William Gibbs McAdoo, and Navy Secretary Josephus Daniels—qualified as champions of public enterprise. Bryan, one of the era’s best-known political figures, favored government ownership of the railroads and was friendly to organized labor.¹⁵ Burleson, as chief of the postal system, ran a well-established enormous government enterprise; but he wanted more. After taking office, encouraged by a sympathetic President Wilson, he called for public ownership of telecommunications—a measure that, during this era, had considerable public support. Burleson’s goal was realized in the summer of 1918, when telegraph workers threatened to strike if the companies would not recognize their union. When Western Union executives refused (and fired several hundred union members), Wilson sided with the AFL and nationalized the telephone and telegraph. Burleson ended up having formal control over telecommunications for one year, during which he managed to alienate workers and consumers, as well as corporate executives. Although this experiment in public operation failed, it was part of a larger pattern of government intrusion into business, which alarmed the private sector.¹⁶

McAdoo, the energetic secretary of the Treasury (and Wilson’s son-in-law), led two major wartime initiatives in what would soon be called “state capitalism.” During Wilson’s first term, McAdoo called for the creation of a large new American merchant fleet, managed by a government-controlled corporation. McAdoo, a former urban railroad executive, did not normally prefer government enterprise over private action, but he advocated for it in this case because of market failure. Merchant shipping, he contended, was one of those fields “where the intervention of the government is urgently demanded in the interest of the public welfare.” At first, McAdoo’s dream was thwarted by conservatives. The powerful banker J. P. Morgan, who controlled a private shipping company, paid him a visit to express his disapproval of the scheme. The Chamber of Commerce of the United States, the leading business association at the national level, called it “un-American.” Elihu Root, a former secretary of war and secretary of state who was then serving as a Republican senator from New York, compared the plan to “state socialism.”¹⁷

McAdoo was frustrated by this opposition, which he regarded as more ideological than rational. But after the country went to war in April 1917, McAdoo got his public enterprise. This was the Emergency Fleet Corporation, established under the auspices of the U.S. Shipping Board. These entities oversaw the construction of some 1,400 merchant ships, most of which were constructed in giant new government-owned, contractor-operated (GOCO) shipyards. The government spent a total of $270 million on dozens of new shipyards. The biggest of them all was “Hog Island,” near Philadelphia. Hog Island, owned by the government but run by the American International Corporation, cost the government about $65 million to build. The world’s largest shipbuilding complex, Hog Island was home to a workforce of thirty-four thousand people.¹⁸

After his merchant-shipping scheme was well under way, McAdoo became concerned with the railroads. Regulated by the Interstate Commerce Commission (ICC), which had the power to set freight rates, the American railroad industry was still composed of independent private companies. Their executives had been dismayed by the Adamson Act of 1916, in which Congress, backed by Wilson, had provided railroad workers with the ei...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• Introduction
• Chapter 1. Shadows of the Great War
• Chapter 2. Building the Arsenal
• Chapter 3. War Stories
• Chapter 4. One Tough Customer
• Chapter 5. Of Strikes and Seizures
• Chapter 6. Reconversions
• Conclusion
• List of Abbreviations
• Notes
• Index
• Acknowledgments