In June, 1940, German forces overran France. U.S. industrial mobilization became necessary when large British orders for military supplies were received. European events also aided the Roosevelt administration in passing a number of military appropriations bills. Although more money was becoming available for war production, U.S. industry was reluctant to exploit this market. Conditioned by the static economic situation of the Depression, many capitalists expected such conditions to return after the war.
In June, 1940, German forces overran France. U.S. industrial mobilization became necessary when large British orders for military supplies were received. European events also aided the Roosevelt administration in passing a number of military appropriations bills. Although more money was becoming available for war production, U.S. industry was reluctant to exploit this market. Conditioned by the static economic situation of the Depression, many capitalists expected such conditions to return after the war.
Expanding plants for wartime production was seen as a risky, short-term investment. The Roosevelt administration tried in various ways to persuade industrialists that this was not true. The federal government offered to finance expansion through low-interest loans from the Reconstruction Finance Corporation. The Revenue Act of 1940 provided an incentive in the form of a 20 percent per year depreciation of new defense plants, instead of the former 5 percent tax write-off. Most important, however, was the “cost-plus” provision incorporated into government defense contracts. Private industry was guaranteed the cost of producing particular military hardware, plus a profit of a certain percentage of the cost. This plan proved lucrative to industry but led to excessive waste in production. Eventually, Senator Harry S. Truman of Missouri led a special investigation into the waste and corruption in defense work, the revelations of which resulted in improved efficiency.
Roosevelt wrestled desperately with the problem of centralizing control of industrial mobilization. Drawing upon his experiences during World War I, he first established a War Resources Board (WRB) in August, 1939. The WRB drew up a plan of mobilization providing for rigid government controls. Roosevelt rejected this plan for political and personal reasons and permitted the WRB to be dissolved in October, 1939, after organized labor accused it of being prejudiced in favor of big business. A pattern of establishing an agency with a vague mandate and then reorganizing it when its attempts to operate provoked criticism was repeated during succeeding years.
The next attempt at central direction was the establishment of the National Defense Advisory Commission on May 28, 1940. Composed of representatives of labor, industry, the armed services, and the consuming public, the commission was under the direction of a former General Motors executive, William S. Knudsen. Knudsen was expected to balance these various interests. The most vexing problem was the assignment of priorities to the various manufacturers for the acquisition of scarce materials. Ideally, such materials ought to have gone to factories in proportion to the relative importance of their finished products to the health of the economy as a whole. Knudsen never solved this problem but permitted the Army-Navy Munitions Board to gain great power in acquiring scarce materials.
On January 7, 1941, Roosevelt tried another reorganization. The Office of Production Management (OPM) was set up, with Knudsen and Sidney Hillman of the Congress of Industrial Organizations (CIO) as joint directors. The OPM did succeed in beginning the shift toward a war economy, but it placed strains on domestic needs and shortages developed in the electric power, aluminum, steel, and railroad equipment industries. By August 28, 1941, Roosevelt was ready for another change. At first, a slight adjustment was made by creating a Supplies Priorities and Allocation Board headed by Sears Roebuck executive Donald M. Nelson. Within a few months, the OPM had gone the way of the WRB, and Nelson was called to the White House to head an entirely new organization, the War Production Board (WPB).
Established on January 16, 1942, the WPB was to have supreme command over the entire economy. Nelson, however, proved inadequate for the job; he permitted the military to regain control over priorities and seemed to favor big corporations in the allocation of contracts. He also permitted the economy to develop unevenly. Ship factories were built at a pace far exceeding the ability of the steel industry to supply material for ship construction. Nelson remained as head of the WPB until 1944, but long before then control of economic mobilization had been assigned to yet another agency.
Recognizing that problems were developing under the WPB, Roosevelt asked Supreme Court associate justice James F. Byrnes to head the new Office of Economic Stabilization (OES). This new office replaced the WPB as supreme arbiter of the economy. Byrnes did solve the problems of priorities and brought order to the entire mobilization scheme. He seemed to have the political astuteness required to make the OES work. In May, 1943, his agency’s official title was changed to Office of War Mobilization, and in October, 1944, it became the Office of War Mobilization and Reconversion.
Despite such frequent reorganization of the government’s regulatory bodies, U.S. industry performed fantastic feats of production during the war years. Statistics tell part of the story. In 1941, the United States produced approximately eight and one-half billion dollars’ worth of military equipment. Using the same dollar value, in 1944 the sum was sixty billion dollars. Included in these gross figures was an increase in the annual production of planes from 5,865 in 1939 to almost 100,000 in 1944. Ship tonnage rose from one million tons in 1941 to nineteen million in 1943. Certain parts of the economy performed miracles. As public director of WPB, William M. Jeffers, president of the Union Pacific Railroad, directed the creation of a great synthetic rubber industry; Admiral Emory S. Land, head of the United States Maritime Commission, prodded the shipping industry into building ships in fewer than ten days; comparable production feats were achieved by other industries.
Probably most significant in the long run was the fact that this remarkable production was accomplished with little effect on the basic corporate structure of the economy. Shortages existed in the civilian community during World War II, and rationing was introduced for foodstuffs, including meat and sugar. While restraints were imposed on free enterprise, outright government seizure of private industry was never attempted. For the most part, government gave businessmen exceptional latitude in what they could produce and how, as long as it met national goals. The government let contracts for a wide variety of experimental or unusual projects, such as the famous Spruce Goose developed by Howard Hughes’s engineers. Government allowed exceptional industrialists, such as Andrew Jackson Higgins, Preston Tucker, and Henry Kaiser, to mass-produce patrol torpedo (PT) boats and landing craft, gun turrets, and ships with little interference and with almost no concern for cost. Kaiser, for example, cut the production time of a Liberty Ship (a basic freighter crucial to the war effort) from 120 days to 4.5 days. As British historian Paul Johnson observed, the war “put back on his pedestal the American capitalist folk-hero.”
A young boy presents his family’s ration book while making a grocery purchase. Individual consumer goods were assigned point values, and the books were used to keep track of the points that each family expended. (National Archives)
The efforts of the War Production Board also involved businesses in planning future economic activities more than ever before, and persuaded many that government could and should play a role in that planning. The size of government has never returned to its pre-Depression levels, and only in the administration of Ronald Reagan did the military share of the gross national product remain at less than 6 percent for more than a year. Ironically, many business leaders took from the war the exact opposite message from what it had taught. Rather than reaffirming the phenomenal productive capacity of the United States, business left the war expecting special favors and government considerations.