Keep From All Thoughtful Men

by James G. Lacey

  14 Gerald White, Billions for Defense: Government Finance by the Defense Plant Corporation During World War II (Tuscaloosa: University of Alabama Press, 2005), 45.

  15 For an excellent study, conducted in 1942, of the funding methods being considered by the government and an analysis of their likely effect on the economy, see “Alternatives in War Finance,” Department of Commerce, October 1942, http://library.bea.gov/cdm4/document.php?CISOROOT=/SCB&CISOPTR=3443&REC=9&CISOSHOW=3435 (accessed 1 October 2007).

  16 Interesting statistics and graphs showing the amount of money in circulation, the gold stock, and reserve bank credit throughout the war period can be found in Federal Reserve Bulletins from the war. All these reports and the statistics have been gathered in several volumes, which can be accessed at http://fraser.stlouisfed.org/publications/ (accessed 1 October 2007). A good synopsis of the financial situation of the United States can be found in Anna Youngman, “The Federal Reserve System in Wartime.”

  17 Charles Whittlesey, “The Banking System and War Finance,” National Bureau of Economic Research, New York, Financial Research Program, “Our Economy at War,” Occasional Paper, 8 February 1943, 29.

  18 Ibid., 12.

  19 Federal Reserve Bulletin, July 1942, 592.

  20 Clark Warburton, “Monetary Policy in the United States in World War II,” American Journal of Economics and Sociology 4, no. 3 (April 1945): 378.

  21 Ibid.

  22 According to Secretary of the Treasury Snyder (“The Role of the Federal Reserve in Financing War,” 1951), of these 16,000 banks only 6,300 were members of the Federal Reserve System, although these 6,300 banks controlled more than 75 percent of U.S. financial assets.

  23 Warburton, “Monetary Policy of the United States in World War II,” 380.

  24 For an excellent primer on debt monetization and its potential impact, see Daniel L. Thornton, “Monetizing the Debt,” Federal Reserve Bank of St. Louis (1984). http://ideas.repec.org/a/fip/fedlrv/y1984idecp30-43nv.66no.10.html.

  25 Rockoff, in Harrison, The Economics of World War II, 107.

  26 As we have seen, the debt was issued but then was immediately repurchased from the banks by the Federal Reserve, which is how the United States creates (prints) money in its open market operations.

  27 Rockoff, in Harrison, The Economics of World War II, 108. Freidman shows rather conclusively that the monetary stock continued to increase throughout the war. However, this is a reflection of the multiplier effect earlier government security purchases had coupled with an increased monetary velocity (concepts we will not belabor in this work).

  28 Speech given by Thomas B. McCabe, Chair, Board of Governors of the Federal Reserve System, on the “The Role of the Federal Reserve in Wartime,” to the Industrial War College, 10 January 1951.

  29 Ibid.

  30 The Treasury and the Federal Reserve agreed to hold the interest rate on long-term bonds at 2.5 percent, with a sliding scale for shorter-term notes, depending on their maturity. The pricing of bonds was a complex problem all through the war. For those interested in the complexities of the debt market during the war, the best place to start is Henry C. Murphy, The National Debt in War and Transition (New York: McGraw-Hill, 1950).

  31 McCabe, “The Role of the Federal Reserve in Wartime.”

  32 Whittlesey, “The Banking System and War Finance,” 18.

  33 Nelson, Arsenal of Democracy, 212–38.

  34 Alan Gropman, The Big L: American Logistics in World War II (Fort McNair, Washington, DC: National Defense University, 1997), 160.

  35 See “Alternatives in War Finance.”

  36 For a more thorough discussion of taxation and debt in wartime, readers are referred to Murphy, The National Debt in War and Transition.

  37 Harold G. Vatter, The U.S. Economy in World War II (New York: Columbia University Press, 1985), 111.

  38 Elmus Wicker, “The World War II Policy of Fixing a Pattern of Interest Rates,” Journal of Finance 24, no. 3 (June 1969): 449.

  39 Youngman, “The Federal Reserve System in Wartime,” 49–50.

  40 “Twenty-eighth Annual Report of the Board of Governors of the Federal Reserve System,” (1941): 7–8.

  41 A relatively thorough reading of the literature of the time shows that economists had no doubt that the United States could raise almost unlimited amounts of money. What concerned them was what methods the government would adopt to stabilize this massive growth in the monetary base in order to stifle inflation.

  42 For an excellent study on the Federal Reserve during World War II, see Edward C. Simmons, “Federal Reserve Policy and National Debt During the War Years,” Journal of Business of the University of Chicago 20, no. 2 (April 1947): 84–95.

  43 Author interview with Mary Nathan, 5 October 2007.

  44 Minutes of the Statistical Committee, 26 February 1942, National Archives RG 179, Box 5.

  45 Robert Fogel, “Simon Kuznets (a short biography),” National Bureau of Economic Research, New York, Working Paper 7787 ( July 2000), 1.This paper can be found at http://www.nber.org/papers/W7787.pdf(accessed 1 October 2007).

  46 Fogel, “Simon Kuznets,” 2.

  47 Ibid.

  48 Bureau of Economic Analysis, “GDP: One of the Great Inventions of the 20th Century,” Bureau of Economic Analysis ( January 2000) Survey of Current Business, Washington, D C.

  49 Robert W. Fogel, in a speech given before the Association of American Universities (Washington, DC, 17 April 2000).

  50 Carol Carson, “The History of the United States National Income and Product Accounts: The Development of an Analytical Tool,” Review of Income and Wealth 21, no. 2 (1975): 153–81.

  51 Adolph C. Miller, “War Finance and Inflation,” Annals ( January 1918): 113–34.

  52 Carson, “The History of the United States National Income and Product Accounts,” 154.

  53 Ibid., 155.

  54 Senate Resolution 220, 72nd Congress, 1st Session, Congressional Record, LXXV, 12285.

  55 Carson, “The History of the United States National Income and Product Accounts,” 157.

  56 Rosemary D. Marcuss and Richard E. Kane, “U.S. National Income and Product Statistics: Born in the Great Depression and World War II,” Survey of Current Business, Bureau of Economic Analysis, Washington, DC (February 2007): 35.

  57 U.S. Congress, Senate, National Income 1929–32, S. Doc. 124, 73rd Congress, 2nd Session, 1934.

  58 Marcuss and Kane, “U.S. National Income and Product Statistics,”36.

  59 Carson, “The History of the United States National Income and Product Accounts,” 160.

  60 Fogel, in a speech given before the Association of American Universities (Washington, DC, 17 April 2000).

  61 Survey of Current Business, Bureau of Economic Analysis, Washington, DC ( January 2000).

  62 Paul Samuelson and William D. Nordhaus, Economics (New York: McGraw-Hill/Irwin, 2004), 74.

  63 For those interested in the complete collection of Kuznets’ original datasets, see Simon Kuznets, National Income and Its Composition (1941). Kuznets later updated his data and interpretation to account for the effects of war on the nation’s economic structure and output; see Kuznets, National Product in Wartime (New York : National Bureau of Economic Research, 1946).

  64 Marcuss and Kane, “U.S. National Income and Product Statistics,”37.

  65 It remains to be seen how the ongoing financial crisis as of this writing in 2010 will alter this analysis.

  66 Bureau of Economic Analysis, “GDP.”

  67 The Bureau of Economic Analysis has made all of these studies available in digital form at http://library.bea.gov/(accessed 1 October 2007) .This particular document can be accessed at http://library.bea.gov/cdm4/document.php?CISOROOT=/SCB&CISOPTR=3026&REC=6&CISOSHOW=3023 (accessed 1 October 2007).

  68 FDR Message to Congress on Stimulating Recovery, 14 April 1938. This statement can be accessed at http://www.presidency.ucsb.edu/ws/print.php?pid=15626 (accessed 1 October 2007).

  69 An
nual Message to Congress (4 January 1939). This statement can be accessed at http://www.presidency.ucsb.edu/ws/index.php?pid=15684 (accessed 1 October 2007).

  70 Marcuss and Kane, “U.S. National Income and Product Statistics,”36.

  71 For a wartime analysis of the superiority of GNP calculations over other national income accounts in regards to managing a total mobilization for war, see War Expenditures and National Production, by Milton Gilbert, Survey of Current Business, Bureau of Economic Analysis, Washington, DC (March 1942). This report can be accessed at http://library.bea.gov/cdm4/document.php?CISOROOT=/SCB&CISOPTR=3130&REC=6&CISOSHOW=3122 (accessed 1 October 2007).

  72 GNP statistics also were critical in fighting a concept first outlined by John Maynard Keynes, “The Inflationary Gap.”In gist, this is the expected rate of inflation caused by increased cash flows chasing a reduced amount of goods. While this is an important economic consideration for the proper functioning of a wartime economy, it does not pertain to our topic of production as it affected U.S. military strategy and will not be dealt with in this work.

  73 This statement always rankles those who lived through the war or were raised on stories of rubber drives and rationing. However, the statistics bear out the fact that, except for large consumer durables, most Americans had more of everything than they did in the years preceding the war. For some interesting statistics on U.S. per capita food and other consumer production during the war, see Harrison, The Economics of World War II, 85–94. For the efficacy of scrap drives and other economic initiatives based on consumer participation, see Professor Hugh Rockoff ’s unpublished paper “Getting in the Scrap: The Salvage Drives of World War II,” which can be accessed at http://econpapers.repec.org/paper/rutrutres/200002.htm (accessed 1 October 2007). For studies conducted during and immediately after the war on consumer consumption and related items, see Milton Gilbert, “National Income and Product Statistics of the United States 1929–46,” http://library.bea.gov/cdm4/document.php?CISOROOT=/SCB&CISOPTR=3197&REC=6&CISOSHOW=3141); “National Income and National Product in 1943” (issued by the Bureau of Domestic and Foreign Commerce—http://library.bea.gov/cdm4/document.php?CISOROOT=/SCB&CISOPTR=3231&REC=4&CISOSHOW=3220), and “Monthly Estimates of Total Consumer Expenditures 1935–42”by William C. Shelton (Department of Commerce—http://library.bea.gov/cdm4/document.php?CISOROOT=/SCB&CISOPTR=3327&REC=10&CISOSHOW=33190). All URLs are current as of 1 October 2007.

  74 All wartime production, income, and spending statistics tracked by the Commerce Department were recently posted on the Bureau of Economic Analysis’ website in the digital library (www.bea.gov).

  75 In May’s case he worked in his own section, rather independently of Nathan, but all of his statistical work was now in support of Nathan’s requirements.

  Chapter 5. The Production Organizations

  1 Those who wish to delve deeply into the establishment and development of the production agencies should read Paul A. C. Koistinen’s masterful work, Arsenal of World War II.

  2 Alan L. Gropman, “Mobilizing U.S. Industry During World War II,” McNair Paper No. 50, National Defense University, Washington, DC (1996), 31.

  3 Nathan, “GNP and Military Mobilization,” 6.

  4 See page 26 for more information on this topic.

  5 Nathan, “GNP and Military Mobilization,” 6.

  6 The story of how the government financed the construction of a large part of the munitions industry from 1941 forward is both interesting and complex. Those interested in knowing more are encouraged to read White’s Billions for Defense.

  7 Speech given by William Knudsen to the Industrial War College in 1946, “Problems in War Production,” http://www.ndu.edu–/library/ic1/L46101.pdf (accessed 10 April 2009).

  8 Nelson, Arsenal of Democracy, 227.

  9 Ibid., 232.

  10 Ibid., 233.

  11 Nathan, “GNP and Military Mobilization,” 6.

  12 Henderson presentation to the Industrial War College, “Organization and Administrative Problems of the Price Administrator,” April 1950, http://www.ndu.edu/library/ic1/L50–130.pdf.

  13 Ibid.

  14 Henderson presentation to the Industrial War College, “Price, Profit and Wage Control,” May 1947, http://www.ndu.edu/library/ic1/L50–130.pdf (accessed 1 October 2008).

  15 Edward Stettinius had been a senior officer at both General Motors and U.S. Steel before accepting Roosevelt’s offer to become director of the OPM in 1940. He later took over the direction of Lend-Lease and ended his government service, late in the war, as secretary of state.

  16 Henderson presentation to the Industrial War College, “Organization and Administrative Problems of the Price Administrator,” April 1950, http://www.ndu.edu/library/ic1/L50–130.pdf (accessed 1 October 2008).

  17 Henderson, “Price, Profit and Wage Control.” Will Clayton is one of the great unsung heroes of World War II. Rising from humble origins, he became one of the richest men in America through commodities trading. He put all his trading talents to work for the government during the war, assembling a team of fifty professional traders who purchased almost the entire available global supply of every strategic material and thereby denied them to the Axis. After the war, he became the driving force behind the Marshall Plan.

  18 Gropman, “Mobilizing U.S. Industry During World War II,” 33.

  19 After World War I, the Army and Navy had cooperated to build an IMP that was to go into effect as soon as war was declared. This plan was updated on a regular schedule and provided the basis for military planning for industrial mobilization. The plan was never instituted because it was wildly out of touch with industrial realities in 1941; due to the United States enacting increasing mobilization activities on an incremental basis as the roll to war began, there was no big-bang event that would have called for the plan’s initiation. However, from Roosevelt’s perspective, the most troublesome part of the plan was that it took all industrial activities out of civilian hands and placed them in the military’s. This was something Roosevelt would never countenance.

  20 “The United States at War.”

  21 Gropman, “Mobilizing U.S. Industry During World War II,” 34.

  22 Ibid.

  23 Bureau of the Budget, The United States at War: Development and Administration of the War Program by the Federal Government (Washington, DC: U.S. GPO, 1946).

  24 Franklin D. Roosevelt, The Public Papers and Addresses of Franklin Roosevelt (New York: Macmillan, 1941), 622–31.

  25 “The United States at War.”

  26 Nelson, Arsenal of Democracy, 117.

  27 Koistinen, Arsenal of World War II, 126.

  28 Industrial College of the Armed Forces, Industrial Mobilization for War (1947), 98.

  29 Ibid., 99.

  30 Koistinen, Arsenal of World War II, 128.

  31 Ibid., 130.

  32 Ibid., 131.

  33 Industrial College of the Armed Forces, Industrial Mobilization for War (1947), 103.

  34 Ibid.

  35 Author interview with David Ginsberg on 11 October 2007. David Ginsberg was Leon Henderson’s deputy during this period and later was general counsel to the OPA. In later life he was a counselor to presidents Kennedy and Johnson, but during this period he was Henderson’s right-hand man and was present for many of the meetings discussed in this work. As far as the author can determine, he is the last of the New Dealers still living at the time of writing and his insights into the personalities involved in these debates were invaluable.

  36 Koistinen, Arsenal of World War II, 132.

  37 Industrial College of the Armed Forces, Industrial Mobilization for War (1947), 103.

  38 “He had long since become the foremost mass buyer in the United States. From 1928 through 1938 he bought merchandise that sold for $4,500,000,000—some 135,000 items, from tin cups to tractors, from diapers to tombstones” (Time, 24 February 1941).

  39 Industrial College of the Armed Forces, Industrial Mobilization for War (1947), 113.


  40 Gropman, “Mobilizing U.S. industry During World War II,” 43

  41 Koistinen, Arsenal of World War II, 182.

  42 Nelson, Arsenal of Democracy, 171.

  43 Koistinen, Arsenal of World War II, 183.

  44 Gropman, “Mobilizing U.S. Industry During World War II,” 44.

  45 In mid-1942 the civilian production experts finally forced the military to agree to dismantle the priorities apparatus in favor of a new system called the Production Requirements Plan (PRP). The PRP turned into an administrative nightmare requiring more than twenty thousand bureaucrats to process the paperwork that industry was forced to forward on a quarterly basis. With production scheduling on the verge of seizing up, a simplified system, called the Controlled Materials Plan (CMP) was instituted in late 1942. The CMP controlled just three metals (copper, aluminum, and steel) and assumed all other materials required for war production would fall into proper alignment once these three crucial materials were controlled.This debate took place at the same time as the feasibility dispute, which is the focus of this work. For those interested in the details of this critical facet of production controls, see Christman, “Ferdinand Eberstadt and Economic Mobilization,” unpublished doctoral dissertation, History Department, Ohio State University, 1971; Koistinen, Arsenal of World War II; David Novick, Wartime Production Control (New York: Da Capo Press, 1976); Smith, The Army and Economic Mobilization; and “The United States at War.”

  46 “The United States at War,” 81.

  47 Nathan, “GNP and Military Mobilization,” 8.

  48 Robert Nathan, “An Appraisal of the War Production Board,” a speech presented to the Industrial War College (25 May 1950), http://www.ndu.edu/library/ic1/L50–130.pdf (accessed 30 November 2007).

  49 Nathan, “GNP and Military Mobilization,” 8.

  50 Nelson, Arsenal of Democracy, 32.

  51 Koistinen, Arsenal of World War II, 186.

  52 George C. Herring, Aid to Russia (New York: Columbia University Press, 1973), 16–20.