LITMIR.BIZ

      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

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