Keep From All Thoughtful Men

by James G. Lacey

  The more inclusive total, which should probably be in the neighborhood of $30 billion, measures the production in the economic system of the type of goods that are ordinarily included under munitions and military construction (possibly excepting certain types of semi-durable goods included in such tables of military requirements as exclude pay, subsistence and agricultural foreign exports). How much of hard military production the productive resources that turned out these $30 billion in 1941 can produce in 1942 is a moot question. Even if we could assume that these resources would be transferred completely to military production and construction, there would still be a question of their yield in war use as over and against yield in peace uses. The complex of raw materials, machinery and labor used to produce a truck, a locomotive or a typewriter may, when employed (with some adjustments) to turn out a tank or torpedo parts, yield a higher or lower gross value of finished product. The raw materials may be used more or less economically; the machinery may find, upon conversion more or less productive use; labor may be applied more or less efficiently. These changes in productivity are not clearly taken into account in the usual assumption of constant price level; the changes are not in prices of identical goods, but in the technical conditions of production that make labor, machinery and sometimes even raw materials not quite comparable as between civilian use and use for war production. And while the possible differences in the yield of complexes of productive factors as between peace and war uses tend to be kept within limits (under assumption of constant prices) by the continuity and identity of these factors in the process of transition, there may be sizeable differences nevertheless.

  Until our study of the unit costs of military products has gone much further than it did so far, we shall not be in a position to deal with the problems even by rough approximation. I shall proceed, therefore, on the assumption that $1 billion worth of peacetime goods turned out by these resources in 1941 may be expected to be replaced by $1 billion worth of military goods in 1942. This assumption may underestimate the possibility of military production measured in dollar values, perhaps by as much as 10 or 20 percent; but also overestimate the possibilities of full conversion.

  If we assume that durable goods and construction will form the same proportion of the gross national product in 1942 as they have in 1941, i.e., about 30 percent, the possible output of such durable goods and construction in 1942 becomes roughly $36 billion (in 1941 prices.) This assumption is, however, on the low side, since the pressure for increase will be channelled primarily into augmenting the production of hard items. It is, perhaps, more reasonable to assume that if the total gross national product increases (amounting to $13.5 billion) the major part, say $10 billion will be additions to output of durable goods and construction. On this, more reasonable assumption, the gross value (excluding distributive costs) of durable goods and construction may amount in 1942 to $40 billion (in 1941 prices).

  But of this total we must allow some part for peace time durable commodities and construction (consumers’ durable, producers’ durable and civilian construction). The minimum allowance that can be made here is for $5 billion of civilian goods (1/3 of consumers’ durable in 1941, 1/4 of producers’ equipment, 1/3 of private construction). This would leave a residue for the production of hard military items of some $35 billion in 1942. The range of error in this estimate is such that the true value may well lie anywhere between $30 and $40 billion (in 1941 prices).

  The estimate above refers to hard military production exclusively. It makes no allowances for pay and subsistence; for the non-munitions parts of military requirements; in short, for any items in the war expenditures that represent goods classifiable as perishable or semi-durable commodities. How large these excluded items may be, I have no basis for stating now. But if we assume them to be roughly about $10 billion in 1942 (excluding pay which is a transfer item rather than a draft upon real resources) the feasible expenditures lie somewhere between 40 and 50 billion dollars in 1941 prices. This addition to hard production can safely be made because demand for military items of perishable or semi-durable type can be well satisfied with the productive resources of the country.

  A total war outlay of $40 to $50 billion would amount to a diversion from the gross national product of 34 to 42 percent. The experience of other countries would seem to suggest that this percentage is fairly close to the ratios obtained in countries that have had a longer history in war production. Armament expenditures in Great Britain and Germany in 1941 amounted to about 45 percent of the gross national product; they were at about 35 percent in Canada while the ratio in Japan was not much over 30 percent. However, these figures should be checked further to see whether or not the ratios are comparable. (They are not insofar as they include pay.)

  The situation for 1943 can be foreseen only with great difficulties, since it depends in large part on the developments in 1942 which, in turn, are subject to uncertainty. If in 1942 we do add to our industrial facilities to the sum of $7 billion; if our conversion experience shows that a considerable part of the presently existing equipment can be used for war purposes it may well prove that the increase in the gross national production in 1943 over 1942 equal the percentage increase from 1940 to 1941 (used above to apply to the change from 1941 to 1942.) On this rather rough assumption, gross national product for 1943 would amount to about $135 billion in 1941 prices.

  If we again allow for an increase from 1942 to 1943 in output of durable commodities and construction equal to most of the increase in gross national product (say $12 billion out of the $15); and a minimum of $5 billion for civilian durable goods and construction—the possible hard military production in 1943 would amount to $47 billion. The range of error again is such that the true value may be between $42 and $52 billion. Adding to it $15 billion for subsistence and soft items, we obtain a range of war outlays in 1943 of $57 to $67 billion (in 1941 prices). This total would amount to between 43 and 50 percent of the gross national product.

  My own impression is that these estimates are on the optimistic side, unless the unit cost consideration should be given more weight than I am ready to give it now. The present rate of total war outlay, including both hard and soft items, is somewhat over $2.5 billion per month. To attain a total outlay in 1942 of between $40 and $50 billion, the rate of monthly outlay by the end of the year should amount to between $5 and $6 billion. If such a rate is possible and could be maintained in 1943, we would presumably have a total outlay in 1943 of between $60 and $70 billion. But if we assume the outside limit of total war outlay in 1943 to be say $60 billion, it is unreasonable to expect that this rate will be reached as early as December 1942. As a matter of fact, it may well be that the curve of war outlay will be rising more steeply after the first half of 1942 than during the first 6 months. This means that our estimates for 1942, if not for 1943, are likely to be on the high side.

  Section II. The Raw Materials Situation

  Estimates of the raw material contents of the new set of military requirements were prepared by B. Fox. The military requirements used are described as follows:1. Aircraft based on the 8-I program adjusted upwards by 25 percent approximately at the level of the President’s objectives.

  2. Army other than aircraft—G-4 objectives as of February 11, 1942.

  3. Navy estimates are the more recent ones to run through June, 1943 and extended through the rest of the calendar of 1943.

  4. Maritime Commission Requirements based upon 8,000,000 tons in’42 and 10,000,000 in 1943.

  5. Army-Navy construction with materials included only where construction requirements are large.

  No allowance is made in the tables that I am discussing here for: (a) materials in industrial facilities; (b) essential civilian and indirect military requirements. These are to be supplied by Fox today and will be enclosed with his memo.

  On the basis of this incomplete picture of essential needs, the situation for 1942 is as follows: A definite shortage is expected in rubber, nickel, TNT a
nd smokeless powder and military requirements are so close to total new supply as to suggest critical shortages in aluminum, vanadium, wool and toluol. Also, the copper situation is likely to be very tight even in 1942.

  As for 1943, the war munitions program as presently designed seems to be impossible from the standpoint of raw material supply. The demand for copper alone runs over 3,000,000 tons, whereas the supply is only 2.2 million tons. Significant shortages appear also in zinc, nickel, rubber, wool, toluol, ammonium, nitrate, and smokeless powder. Even for such basic metals as steel and aluminum, in which the new supply for 1943 is still in excess of the military requirements, the demand on the part of essential civilian uses and indirect military is likely to produce an acute shortage.

  Two comments are in order about the raw materials picture. First, the comparison is in terms of raw materials before any fabrication and it is quite possible that a lack or shortage of raw material taken in ingot form may still not solve the situation, insofar as facilities for various semi-fabricated shapes and products may prove insufficient to supply the demand. Second, the fact that shortages are so striking in 1943 is of bearing not only upon the 1943 program but also upon that for 1942. I assume that there is some relation between the requirements worked out for 1942 and for 1943. This should certainly be true of the needs for industrial facilities and military construction in 1942 since they are presumably designed to facilitate production in 1943; and it should be true of other items in the requirements program insofar as there should be correlation among the various parts, both at a given moment of time and over time. If this be true, the impossibility of carrying through the program set for 1943 should lead to a careful reconsideration of the requirements also for 1942.

  Section III. The Problem of Industrial Facilities

  The translation of military requirements into industrial facilities is much more difficult than the translation either into the raw materials or into needs for labor. One cannot add machine hours as easily as one can add the raw material contents or the labor hours needed to produce the variety of items that enter our military requirements. Even if one had for each military item the machine hours needed on various types of machines we would still face a difficult problem of how these hours are to be added and the total number of machine facilities derived. But, as a matter of fact, we don’t have information on machine hours needed in the production of any but a few military items. One must, therefore, recur to other methods. Before summarizing the results of two experiments I would like to present a few general considerations.

  The question: how much military production in addition to essential civilian and direct military, can be turned out with the industrial facilities now available, has two distinct aspects: The first, we may designate the aspect of specific use. Many of our industrial facilities are special purpose instruments and the attempt to increase the proportion of total output devoted to military items may run up against the difficulty that with the large body of industrial machinery in place there may be a shortage of special purpose instruments needed for military production. If this were not the case, if the specific use aspect of the industrial facilities problem could be completely neglected, then its second aspect would provide a basis for optimism. If one could disregard this problem of specific use, if one could proceed on the assumption that industrial facilities can be shifted freely from one use to another, the situation would be very simple indeed. We could then say that, as far as the facilities side of the picture is concerned, there should be no difficulty in attaining huge magnitudes of military production. In peace time, industrial facilities which, with but a few exceptions, were working on a short schedule of hours, produced as much as $30 to $40 billion of durable goods. If we wanted to operate each machine, or each item of industrial machinery or each press, etc. etc., the full number of hours a week that it can be operated consistent with keeping the machine intact and in good condition, the output possible under such conditions could obviously be two or three times as great as the output turned out under normal conditions of peace time. With the problem thus formulated the bottleneck would be in the imported raw materials or in labor, essentially in labor. For, given the huge facilities and domestic availability of raw materials, we could solve the problem of domestic raw materials, the bottleneck would be labor.

  But the difficulty, of course, is that the specific use aspect of the problem of industrial facilities cannot be neglected; or rather could be neglected if we had more time at our disposal.

  But time being costly, the limits of military production are set by the availability of special purpose machinery needed. The resulting question of feasibility has been explored in two studies, both relating to machine tools narrowly defined, i.e., excluding presses, bending machines and other types of metal working machinery.

  The first study was prepared by Norman J. Meiklejohn and gauges the need for new tools, both domestic and foreign. The domestic part of the story is based upon ANMB estimates of requirements, which in turn assemble the needs for new machine tools as presented by the various branches of the armed services, including the Maritime Commission. With few exceptions these estimates are based upon military requirements lower than the most recent set of such requirements evaluated in Homer Jones’ tables. For example, for the Navy Bureau of Ships they are based on the funds available for facilities for 1942. For the various ordnance types, either Navy or Army, they are based on the War Munitions Program, in some cases adjusted to production possibility. The tank and combat vehicles division estimate is based on 45,000 tanks in 1942. With a single exception of the Maritime Commission, whose machine tool requirements are very minor, the estimates are based on a program of military requirements substantially lower than that envisioned in our most recent set-up for 1942. Foreign demand is also a minimum, being based upon allotments rather than upon requirements. Of the $1.7 billion of total need, $1.55 billion are domestic and 0.54 billion are for export.

  The estimates that I am quoting are, therefore, minimum and will be revised sharply upwards in a new set to be transmitted to the Army-Navy Munitions Board by April 1, 1942. As they stand at present, the total requirements for the machine tools for the 11 months of 1942 (from February 15 to December 31) amount to 256 thousands units and $1.7 billion. On the basis of the units and the rates of production during December 1941 and January 1942 it would take 13 months to turn out these tools. But on the basis of value, the picture is much blacker. It would take about 20 months to supply these requirements at the rates of shipments in December and January. Granted that the value of the machine tool needs is exaggerated by being based upon a somewhat higher price level than is implicit in the shipments value. Yet, a substantial part of the difference in unit cost is due to the fact that the units in the requirements are more heavily weighted by complex types of tools than are the current shipments. If so, the time needed to satisfy these needs on the basis of current shipments would lie somewhere between 13 and 20 months; and even allowing a marked growth in output of machine tools there will be a close race between the minimum requirements and the feasible production of new tools in 1942. If one takes into account that no allowance is made for essential civilian and indirect military demands, it seems obvious that even on the basis of the present requirements, new tools could not be produced to an extent sufficient to satisfy these requirements. When they are revised on the basis of an increased military program, the needs for new machine tools will significantly exceed production possibilities.

  Of course, one may say that some of these needs can be satisfied out of the stock of used tools, either in the hands of dealers or in the hands of such firms as are not employing them in the production of critical items. But I doubt that this source is of much importance unless our conversion process and especially the process of spreading military production over a wider area of our productive system is greatly accelerated. These tools are needed because for the special needs of military production there are not enough specific tools available. It
is hardly likely that they would be present in great quantities either in the hands of used dealers or in the hands of industries ordinarily engaged in peace time output. Only a very intensive attempt to “explode” the military products into parts that could be fitted into ordinary peace time facilities would contribute significantly to the alleviation of a shortage of new machine tools.

  One might also add that the comparison of requirements and current shipment rates for specific types of tools (on the basis of units) reveals in quite a number of them a shortage so great that, at shipment rates during the past two months, it would take over 2 years to provide the units required in 1942. Of the 62 types of tools, there are 21 for which the number of months necessary to produce needed amounts at the December–January rate of shipments adds up to more than 24.

  Another approach to the industrial facilities problem is through the analysis of the commitments already made or likely to be made with the appropriated funds, an analysis prepared at my request by Matthew Rose. The following facts emerge: the total program for war industrial facilities as of February 28, including both projects under commitment and the program for which funds are available (but for which contracts have not yet been awarded) amounted to $18.7 billion, including provision for privately financed industrial facilities under certificates for necessity, at the rate of $150 million per month through June 1942. The Federal funds part amounts to $15.6 billion, of which $0.6 were completed by end of 1941. Completed projects under British funds amounted to $0.2 billion. And total private—was estimated at $2.9 billion, with $1.0 billion completed by end of 1913.

  There was accordingly, a total of facilities still under way or yet to be committed of some $16.9 billion as of the beginning of 1942. Knowing the ratio of the value of machine tools to total value of facilities; the expected completion dates; the rates of completion by class of facility, Rose could estimate deliveries of machine tools (in dollars) required during 1942 for equipment. This needed total came out to be $1.28 billion. If we assume that monthly deliveries of new tools in this country rise from $85 million in January 1942 (their recorded level, exclusive of presses etc.) to $169 million in December 1942 (the rise more or less along a straight line), total deliveries in 1942 would amount to $1.52 billion. But of this almost a quarter should go to satisfy foreign requirements (about $380 million); which leaves a domestic new supply of only $1.14 billion, or slightly short of the new tool needs for facilities that are expected to be completed during 1942. The disturbing aspect of these calculations is that the deficit, which could be roughly estimated by months, is concentrated heavily in the early part of the year; that a doubling of the monthly rate of machine tool shipments during 1942 may be rather too much to expect from the machine tool industry; and that the estimates take no account of needs for new tools that may arise on the part of plants engaged in military production that do not apply for certificates of necessities, nor finance their extension by government funds. The needs of such plants for replacement are just as important perhaps as the need to equip the new facilities.