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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 eight-hour day. Indeed, this issue, along with the activities of McAdoo and other progressives in the cabinet, had persuaded much of the American business community to oppose Wilson in 1916.¹⁹

By late 1917, the strain of increased wartime demand for transport, combined with the lack of coordination among the various companies, had brought the railroad network to a breaking point. McAdoo urged Wilson to have the government take over the railroads. In December, Wilson gave the order; McAdoo, despite his other commitments, became chief of a new Railroad Administration. For the next two years, the federal government served as the nominal operator of the nation’s railroads. Although the private railroad companies continued to manage most day-to-day operations, this nationalization was more than just a formality. McAdoo relieved four hundred managers working for the private lines, replacing them with U.S. government officials, who oversaw seven regional districts. In May 1918, he ordered a significant increase in workers’ wages, paid for by a hike in shipping rates. The workers were now U.S. employees, whose paychecks bore McAdoo’s signature.²⁰

Whereas McAdoo claimed to support state enterprise only in cases of market failure, Navy Secretary Josephus Daniels often seemed to prefer it as the default option. Indeed, despite stiff competition, it was Daniels who emerged as the most energetic public entrepreneur of all the members of Wilson’s cabinet. Like many of his fellow Southern Democrats, Daniels was both a booster of white supremacy and an advocate of progressive economic policies. A newspaperman from North Carolina, Daniels had long been a thorn in the side of the tobacco “monopoly.”²¹ At the Navy Department, his reflexive hostility to big business quickly embroiled him in clashes with some of the nation’s biggest industrial concerns. This conflict in the mid-1910s revived older struggles. Since the 1890s, when the nation started to spend large sums on steel warships, several members of Congress had been accusing the Navy’s leading contractors of collusion and profiteering.²² Now, with Daniels at the helm in the Navy Department, these critics were in a position to shake up the system.

In 1913, soon after he took up his new post, Daniels began to investigate collusion among contractors for armor plate, which the Navy required for its new vessels. Daniels concluded that the steel companies had been cheating the government. So he worked with Senator Benjamin R. (“Ben”) Tillman (D-SC) to urge Congress to fund a government-owned, governmentoperated (GOGO) armor-plate plant. In 1916, they fought a publicrelations battle over the issue with Charles M. Schwab of the Bethlehem Steel Corporation, which, thanks to abundant European war orders, had become one of the world’s largest military contractors. As Daniels saw it, this fight was a clear-cut contest “between those who stood for the big interests fattening on government favors and those who were hostile to seeing the taxpayers mulcted by profiteers.”²³ In the short term, Daniels and Tillman prevailed. In August 1916, President Wilson signed the bill authorizing the GOGO armor-plate plant. Ironically, the growing American role in the war delayed the completion of the $22 million plant, as construction materials were diverted to more urgent projects.²⁴

The armor-plate business was just one of many in which Daniels worked to expand the Navy’s GOGO capacities. Here he was able to build on a strong foundation because the Navy had long operated its own network of shipyards, which dated back to the earliest days of the republic. Daniels believed that the GOGO yards should be expanded, so that they could provide the Navy with even more independent production capacity and more leverage to drive down contractors’ prices. When he entered office in 1913, Daniels appeared at times to favor a full nationalization (that is, government takeover) of warship construction. During the Great War, Daniels told Congress that the Navy should use in-house facilities to produce between a third and two-thirds of its needs, depending on the prices offered by contractors.²⁵ At the end of the war, Daniels used his annual report to Congress to explain that he believed that the Navy should have enough in-house capacity to make it independent of private industry. “The Navy’s policy,” he stated in December 1918, “is that in its own plants it should be able to construct every type of ship and every character of munition required.”²⁶

During the Great War, under Daniels’s leadership, the Navy relied on a combination of public and private yards. Many orders for new warships went to contractors, including Bethlehem Steel, New York Shipbuilding, Newport News, Bath Iron Works, and Electric Boat, which built the vessels in their own yards. In other cases, the Navy—like the Emergency Fleet Corporation and the War Department—paid for large new facilities ($71 million worth, in all) operated by contractors. The biggest of these GOCO warship facilities created during the Great War was an eighteen-acre destroyer yard in Squantum (Quincy), Massachusetts, run by the Fore River Shipbuilding Corporation, a division of Bethlehem Steel.²⁷

The Navy’s own yards also served as an important source of supply. Although they were occupied with the repair and refitting of older ships, the U.S. Navy yards also handled a considerable amount of new construction. Their share of this work had fallen in the 1890s, although the Brooklyn Navy Yard had built some of the new steel battleships. During Wilson’s first term, before the United States entered the war, Daniels pushed to have more new shipbuilding done by the Navy yards.²⁸ He stepped up this effort in 1917–18, when the eight U.S. Navy yards were expanded significantly, with more than $70 million of new construction. At the Philadelphia Navy Yard, which employed fifteen thousand people by war’s end, a $20 million expansion was used to allow the facility to build the largest warships, such as battle cruisers. The Navy used its own yards to build about half of the ninety-nine submarines that it ordered during the Great War, along with several destroyers and dozens of submarine chasers. By the end of 1918, the eight Navy yards employed about a hundred thousand people, four times what they had done in 1914.²⁹

Even outside the Navy’s core business of warship construction, Daniels championed a major expansion of government ownership and operation. He was well pleased with the Navy’s takeover of the nation’s infant radio industry.³⁰ Daniels expanded the Navy’s own smokeless powder plant, so as to make the government less dependent on Du Pont. In 1917, he ordered the creation of the Naval Aircraft Factory, with which the Navy could design and build its own planes. Daniels approved the construction of a new GOGO torpedo-manufacturing plant at Alexandria, Virginia, which complemented the Navy’s existing in-house torpedo works in Newport, Rhode Island. Daniels also laid the groundwork for the Naval Research Laboratory, which would open after the war. Throughout his time in the Wilson administration, Daniels supported the permanent nationalization of the railroads and telecommunication industries. After leaving office, he would continue to support these measures, along with government control of coal mining and hydroelectric power.³¹

The push for more public enterprise was somewhat more restrained at the War Department, led by Newton D. Baker. A few years before the Great War, as the mayor of Cleveland, Baker had supported municipally owned and operated streetcars and electric utilities. But he was more cautious than Daniels about bypassing the private sector.³² One reason for this was Baker’s greater (and growing) sympathies for capitalism. But it was also related to the different economics of Navy and Army procurement. In peacetime, much of the U.S. Army’s demand for equipment and weapons was handled by its own GOGO arsenals, which included the rifle works at Springfield, Massachusetts; an ammunition plant in Philadelphia (the Frankford Arsenal); and artillery-making operations in Watervliet, New York, and Watertown, Massachusetts. These were modern, efficiently run operations, whose costs were competitive with those of contractors. But most War Department officers did not want these long-standing operations to be the sole source of supply, especially in wartime. In comparison with the Navy, the Army was responsible for outfitting a far larger number of men; it needed a wider range of goods, many of them in huge quantities.

Just before the United States entered the war, an internal War Department inquiry concluded that it would be foolish not to order military equipment from the private sector, especially given that it had already started to produce munitions for European customers. This report recommended a major GOGO expansion only at the Rock Island Arsenal, on the Illinois-Iowa border.³³ This was the policy blueprint that Baker’s department followed during World War I. Rock Island, where the workforce rose from about 2,200 people in 1916 to about fifteen thousand by the end of the war, did become a major facility. Meanwhile, the operations of the U.S. Army’s other GOGO arsenals also expanded, but only by a factor of two or three.³⁴ For most needs of the nation’s nearly four million soldiers, the Army would turn to private contractors.

Still, Baker and many Army officers understood themselves as independent of private business leaders, whom they saw not just as friendly partners but as rivals.³⁵ This dynamic was illustrated by a conflict that broke out in late 1917 between the War Department and Du Pont, which had served for decades as the nation’s leading supplier of military explosives. Although the Army and Navy each had small in-house gunpowder plants, most of the national production capacity was held by Du Pont. (The other top private suppliers were the Atlas Powder Company and the Hercules Powder Company, both spun off from Du Pont in 1912 as part of an antitrust settlement.) Before the United States entered the war, it was private companies, led by Du Pont, that met the demand of European customers. Between July 1914 and April 1917, Du Pont expanded output at its own three smokeless gunpowder plants from one million to 33 million pounds a month. By April 1917, Du Pont had already sold the Allies 400 million pounds of smokeless powder, along with 50 million pounds of TNT.³⁶

When the United States entered the war, the jump in requirements for explosives overwhelmed even the greatly expanded capacities of Du Pont and private suppliers. So the Army’s Ordnance Department started a major effort to build large new government-owned plants, most of which were GOCO facilities, designed and operated by the private companies. By the end of the war, the government had spent $350 million on a network of fifty-three explosives plants.³⁷

The explosives-plant program created tensions between the Wilson administration and business executives, who wondered if the government would end up creating a public monopoly. The most serious controversy occurred at the end of 1917. In October of that year, the Ordnance Department negotiated a contract with Du Pont to have the company build and run an enormous new GOCO smokeless powder plant. According to the original contract, Du Pont would be paid a fee amounting to at least 7 percent of the expected $90 million in construction costs (over $6 million), plus fees for powder production that were likely to amount to at least 15 percent of the cost of the powder. The terms of this deal raised eyebrows at the WIB. One of its top price controllers, Robert Brookings, believed that the fees were at least twice as high as they should be. These criticisms convinced Baker, who ordered the Ordnance Department to cancel the deal.

Having alienated Du Pont, Baker engaged private engineering and construction firms to design and build a large government-owned powder works in Nitro, West Virginia. In May 1918, the War Department hired Hercules Powder to operate the Nitro plant. By the time of the armistice, six months later, this big GOCO powder facility had barely started production.³⁸

In the meantime, Baker and Du Pont had a rapprochement. Because the Nitro plant would be large enough to supply only about half of the nation’s projected additional demand, the War Department went back to Du Pont. In March, they agreed on a contract that would have Du Pont build and operate a new GOCO plant on a 4,700-acre site outside Nashville, Tennessee. Known as “Old Hickory,” this huge complex included housing for thirty thousand people, along with its own fire department, hospital, and segregated schools. Designed to produce 900,000 pounds of smokeless powder a day, Old Hickory cost about $84 million to build. On this deal, the government managed far better terms than those contained in the canceled October 1917 contract.³⁹

Despite the Old Hickory deal, the earlier clash with the government had alienated Pierre du Pont, president of the nation’s leading explosives supplier. Proud of their expertise and their contributions to the war effort, Pierre du Pont and his peers regarded their critics as ignorant ingrates. And, as they watched the government build giant public-owned facilities in their own industries, they could not help but worry about the consequences of this potentially serious encroachment into the private sector. As we shall see, similar concerns would lead Pierre du Pont and other top American business leaders to inveigh against the New Deal in the mid-1930s. But as the case of Pierre du Pont suggests, many of those executives came into the 1930s with a political sensibility that had been shaped by their experiences during the Great War, under an administration led by President Wilson and his progressive lieutenants.

Pierre du Pont and his allies may have had some cause to complain of the public’s under-appreciation of their expertise, but few ordinary Americans would shed them many tears, given the evidence of what came to be called wartime “profiteering.” In April 1917, as he led the nation into war, President Wilson had warned American companies to avoid “unusual profits.”⁴⁰ But it was already too late. Thanks to big orders from the Allies, many American companies, including Du Pont and Bethlehem Steel, were making record returns. Until the summer of 1916, Du Pont had been selling smokeless powder to the Allies for a dollar a pound, twice as much as it charged the U.S. military. The big-margin powder sales helped Du Pont earn $82 million in profits in 1916 alone—more than ten times its average annual earnings before the war.⁴¹

As long as the United States remained neutral, objections to these windfall profits were limited, at least domestically. But in April 1917, this changed. As hundreds of thousands of young men prepared to risk their lives in the trenches, some Americans—including those who held the fastappreciating stock of the munitions makers—were amassing wealth. “War brings prosperity to the stock gamblers on Wall Street,” said Senator George W. Norris (R-NE), an outspoken progressive. But their gains would always be “soiled with the sweat of mothers’ tears,” as they cashed in “coupons dyed in the lifeblood of their fellow man.”⁴²

Whether or not one agreed with Norris that war profits amounted to blood money, it was impossible to deny that the Great War earnings of many American companies were huge. Bethlehem Steel, the nation’s leading shipbuilder, as well as a steelmaker, recorded $43.6 million in net earnings in 1916, about seven times its 1914 profits. Bethlehem’s president, Eugene G. Grace, was paid about $3 million in wartime bonuses. At U.S. Steel, the biggest of the steelmakers, profits for 1916 were $272 million—nearly twelve times what they had been in 1914. Meanwhile, J. P. Morgan, the leading Wall Street bank, had collected at least $30 million in fees for serving as the Allies’ main purchasing agent in North America. At Du Pont, where executives and stockholders shared millions of dollars in dividends and bonuses, there was enough left over for the company to buy a 25 percent share in the General Motors Corporation.⁴³

To many business leaders, the growing chorus of criticism of Great War “profiteering” failed to do enough to recognize the decline in corporate earnings in 1917–18, the period when the United States was actually at war. The biggest reason for this fall was taxes. The Sixteenth Amendment, which authorized federal income taxes, had been ratified in 1913. At first, federal tax rates were very low. But during the Great War, the Wilson administration and Congress relied on high income taxes, on corporations and individuals, to cover a large fraction of the cost of the war. (Initially, Treasury Secretary McAdoo hoped that taxes would pay half the expense. In the end, taxes covered only a quarter of war costs; most of the remainder was paid for with bonds.)⁴⁴

From 1916 to 1919, Congress passed a series of new tax measures, which reined in corporate profits. High taxes on manufacturers were favored by many Southern and Western members of Congress, most of whom represented rural districts. One of these men was House Ways and Means Committee chairman Claude Kitchin (D-NC), who joined forces with McAdoo to devise the new laws. The first step came in September 1916, before the United States entered the war, when Congress passed a new revenue law containing a special 12.5 percent “munitions tax.” This would be paid mainly by Du Pont.

A much larger group of companies was affected by the revenue law enacted in October 1917, which—besides hiking the income tax for individuals—created a new “excess profits tax” (EPT). The EPT applied a progressive ladder of rates, ranging from 20 percent to 60 percent, on any earnings in excess of what had been a company’s average rate of return on capital investment during the designated prewar base period of 1911–13. The individual income tax and EPT rates were raised slightly in the last wartime revenue bill, which was not enacted until February 1919, after the armistice. But that law also created an additional “war profits” tax, which allowed the government to take 80 percent of any profits above the baseperiod average, in dollar terms. This meant that for 1918, companies paid two major new taxes on “excessive” profits: one calculated on the basis of the ratio of earnings to invested capital; and the other by looking at the difference between actual dollar profits in the prewar and wartime periods. This was a complex system but amounted to a robust, progressive corporate income tax, which succeeded in trimming business profits sharply during the last year of the war.⁴⁵

Certainly, it is possible to overstate the strength of the regulation of American business during the Great War. As the record of World War II would show, taxes could have been higher. The Wilson administration might have been more hostile to business. Even Daniels, who was driven by an intense antipathy toward big business, was far from being an enemy of all forms of private enterprise. This distinguished him from the era’s true radicals, including the Bolsheviks who seized power in Russia in late 1917 and, closer to home, American communists, socialists, and members of groups such as the Industrial Workers of the World. Franklin Roosevelt—who, as assistant secretary of the Navy, was second-in-command to Daniels—was more circumspect than his boss about public capacities. In 1919, Roosevelt called for the quick liquidation of the government’s merchant marine; he opposed government ownership of the infant aircraft industry. Such views about the need to limit regulation and government enterprise were shared by Baruch, the WIB chief, among other leading Democrats.⁴⁶

Beyond this, many of the large new government-owned plants built during the Great War, including merchant shipyards and explosives factories, were constructed and operated not by the government but by private firms. Inside many of the wartime agencies, business conservatives took key leadership positions. Charles Schwab, the Bethlehem Steel executive who had previously fought bitterly with Daniels over armor plate, became head of the Emergency Fleet Corporation in 1918. Meanwhile, much of the day-to-day work of the Railroad Administration, nominally headed by McAdoo, was handled by his assistant, Walter D. Hines, chairman of the Santa Fe line.⁴⁷

But even if some of the wartime expansions of regulation and public enterprise looked more radical on paper than in practice, pro-business conservatives had good reason to take them seriously. Not long after the war ended (with an armistice that took effect on 11 November 1918), McAdoo suggested that the government control the railroads for at least another five years. Meanwhile, Burleson asked Congress to allow the post office to control telecommunications indefinitely. For a short while, at least, President Wilson seemed open to these schemes.⁴⁸ For many business leaders, these facts—along with the behavior of Daniels at the Navy Department, the seizures and compulsory orders, the high corporate taxes, and other troubling wartime developments—showed that modern war was a threat to their power and to the country’s prosperity. Although this danger diminished when the war ended, some legacies of war proved hard to erase.

From Reconversion to the TVA

By the time Warren G. Harding entered the White House, in early 1921, many of the Great War expansions of government regulation and control had been eliminated or greatly scaled back. President Wilson, who was focused on international issues in 1919, favored a quick dismantling of the WIB, among other wartime agencies.⁴⁹ Most of the wartime experiments in government enterprise now came to an end. The management of telecommunications by the post office, which brought rate increases but never diminished labor unrest, was widely seen as an abject failure; it ended in mid-1919. This reversal helped to erode congressional and popular support for continued government management of the railroads, which ended in 1920, over the objections of labor unions and other groups on the political left. McAdoo was dismayed by what he regarded as unfair partisan criticisms of government operation and inflated claims by the private roads for damages. Nonetheless, McAdoo—who had his eye on the White House—dropped his call for an extended period of control. He was well aware of the mood in Congress, where the midterm elections of 1918 (held just a few days before the end of the war) had created Republican majorities in both houses. In the railroad industry, Congress used the Transportation Act of 1920 to revive the prewar order: private railroads, subject to ICC regulation. The ICC’s new regulatory powers were robust enough to make the railroad industry remain one of the most tightly controlled of all sectors in the American economy. For instance, the new law required the agency to confiscate half of any profits that any company managed to earn in excess of 6 percent of its invested capital, so that the money could be loaned out to struggling lines. But in practice, very little money was ever turned over to the government.⁵⁰ More important, champions of private enterprise could at least take heart that the nationalization had been temporary.

Meanwhile, to the dismay of Daniels, the radio industry was privatized, with some of the Navy’s former assets taken over by a big new for-profit enterprise: the Radio Corporation of America (RCA).⁵¹ Daniels’s beloved GOGO armor-plate plant, whose completion had been delayed by the war effort, was abandoned not long after it started casting steel in 1921. To Daniels, the reason for all this reform was obvious. “Monopoly won,” he explained, “when it put Harding in the White House.”⁵² The new president put it differently: “We want a period in America with less government in business,” Harding reportedly said, “and more business in government.”⁵³

Most American business leaders welcomed the shift away from progressive governance, for many reasons. One key field was industrial relations. During the war, the Wilson administration’s policies had favored the AFL. But this changed in 1919, when the president spent many weeks abroad and was focused squarely on international concerns. During the major wave of labor strikes across North America in 1919, the Wilson administration did little to assist unions. As the Bolsheviks attempted to consolidate power in Russia, observers of international affairs wondered whether communism might become an important force in the postwar world. In the United States, a series of domestic bombings contributed to an antilabor, anti-immigrant “Red Scare,” which culminated, by the end of the year, in mass arrests and wholesale violations of civil liberties by the federal government and by many states. These developments worked in favor of business leaders, some of whom combined antiunion efforts within their own firms with broader, more coordinated public campaigns against domestic “Bolshevism.” By early 1921, as Harding entered the White House, organized labor was very much on the defensive. Calvin Coolidge, the new vice president, had risen to prominence thanks in part to his role in crushing a strike by Boston policemen in 1919. With men such as Coolidge in Washington, business leaders were reassured that federal labor policy would improve.⁵⁴

For most business leaders, organized labor was not the only political concern: they also hoped to rein in the recent excesses of government. In 1917–18, business groups and Republican politicians had complained about what they saw as incompetence and excessive bureaucracy in the Wilson administration’s management of the war economy.⁵⁵ During the last year of the war, the Chamber of Commerce had criticized the “growing tendency for government control of industries.” Immediately after the armistice, the Chamber called for an end of government operation of transport and telecommunications. In 1919 and throughout the interwar period, Chamber members passed resolutions calling for an end to government competition with private enterprise. The same was true of the National Association of Manufacturers (NAM), another leading business association. One NAM leader, Francis H. Sisson, echoed the Republican Party’s calls for “a business government for business people.” In 1920, NAM president James A. Emery warned against “the undue and improper influence of government” in the economy, which stifled innovation.⁵⁶

From the point of view of the NAM and the Chamber, the departure of the Wilson administration was a blessing. As Daniels recognized, it was Republican control in Washington, and not just the coming of peace, that guaranteed the death—or at least the downsizing—of many wartime experiments in state enterprise and heightened regulation. Working with a Republican-majority Congress, the Treasury secretary, Andrew W. Mellon, lowered taxes. Income taxes did continue to generate a large fraction of federal revenue. However, top rates dropped dramatically (eventually all the way down to 20 percent), and the excess profits tax was killed off.⁵⁷ Meanwhile, Congress and the Harding and Coolidge administrations liquidated the government’s considerable fleet of merchant ships, in which the government had invested $3.5 billion between 1917 and 1924. At the beginning of 1920, the U.S. Shipping Board owned and operated a fleet of 1,525 cargo ships and tankers. These vessels competed with privately owned ships, whose owners (along with the NAM) lobbied Washington to get rid of the government fleet. Republicans were happy to oblige. By the end of 1925, the government-owned merchant marine, which just a few years earlier had been world-class, consisted of only 276 aging vessels.⁵⁸

Such moves in the direction of deregulation and privatization were in keeping with the development of the Republican Party, which emphasized the need for economic liberty. When President Coolidge proclaimed in December 1923 that “the business of America is business,” he meant that the government’s role should be to assist private enterprise—and get out of its way. Nationally, there were now fewer Republicans who embraced progressivism and more who saw state regulation as an evil that needed to be minimized.⁵⁹ Progressivism was not quite dead in the 1920s, however. The Republican-majority Congress did pass bills providing subsidies for farmers, which were defeated only by Coolidge’s vetoes. And at the state and local levels, certainly, voters and politicians, as well as many business leaders, continued to support some new regulations and state enterprises.⁶⁰

Despite the ascendance of pro-business Republicanism in the 1920s, some progressive experiments of the 1910s did not fade away so easily. This was true for a small network of Navy-owned petroleum reserves, which included some lands in California that had been set aside in 1912, as well as some in Wyoming, created three years later, dubbed “Teapot Dome.” Josephus Daniels, naturally, had argued throughout his tenure as Navy secretary that the oil reserves must remain under public control. But not long after Daniels left office in 1921, President Harding transferred authority over the reserves from the Navy to the Interior Department. That agency was now headed by Albert B. Fall, a former U.S. senator from New Mexico who was known as a friend to mining and oil companies. In 1922, as Fall proceeded to negotiate leases with private interests, Daniels put critics of the plan in touch with sympathetic Navy officers; he also used his Raleigh, North Carolina, newspaper to call for congressional investigations.

To Daniels’s delight, Congress did discover some remarkable improprieties connected with the privatization of the Navy oil fields, which have gone down in history under the name of the “Teapot Dome” scandal. Perhaps the most sensational finding was that Edward L. Doheny, with whom Fall had negotiated a lease on one of the California reserves, had engaged his son to give Fall a small black bag containing $100,000 in cash. Fall received similar “loans” from his friend Harry Sinclair, who had received the Teapot Dome leases. One of the men hurt most by the investigation, ironically, was William McAdoo, whose law firm had assisted with some of Doheny’s business in Mexico. Although this connection had no direct relation to the Navy reserve leases, it may have helped prevent McAdoo from becoming the Democrats’ candidate for president in 1924. Instead, the party chose the more business-friendly John W. Davis. This decision encouraged Robert M. La Follette, Jr. to run as a third-party candidate, under the banner of the Progressive Party. Both were crushed in 1924 by Coolidge, who had managed to prevent Teapot Dome from damaging his campaign.⁶¹

Although the Teapot Dome scandal offered sensational evidence of corruption practiced by a single government official, it should be understood as part of the wider struggle over the economic legacies of the Great War. Even before Fall’s bribe-taking was revealed, Daniels and his progressive allies—including La Follette in the Senate and Gifford Pinchot, the conservationist governor of Pennsylvania—were attacking the leases as evidence of the excesses of postwar privatization under the new Republican administration. In most fields, the progressives in the early 1920s lacked the political power to prevent this reassertion of private authority in the American economy. But in this case, thanks in part to Fall’s crimes, they prevailed: the reserves were returned to the Navy.

There was another closely watched struggle over postwar privatization in which progressives managed to wield surprising influence during the 1920s, even without a dramatic corruption scandal. This was the Muscle Shoals controversy, which, after many twists and turns, ended with the establishment of one of the most important public enterprises in American history, the Tennessee Valley Authority (TVA).

The Muscle Shoals dispute originated with the War Department’s massive efforts in 1917–18 to ramp up the nation’s capacity to produce explosives. In December 1917, the War Department contracted with the American Cyanamid Company to build and run a large GOCO nitrates plant at Muscle Shoals, Alabama. This complex, built at a cost of $68 million, was slated to produce forty thousand tons of nitrates a year, which would help free the United States from its dependence on Chilean nitrates. To provide electricity for the plant, the War Department started to build a large new dam, which would take advantage of the natural waterfalls at Muscle Shoals. The nitrates plant was finished in October 1918, too late to make a contribution to the war effort. Construction on the dam, which, at the time, represented the biggest hydropower project ever undertaken in the United States, was still far from complete.⁶²

During the 1920s, the fate of the big GOCO explosives plant and hydroelectric power project at Muscle Shoals became the subject of intense public debate. At first, it seemed certain that the facility would be leased or sold to the private sector. The most prominent of the early bidders was Henry Ford, the auto industry titan, who suggested that he was interested in using Muscle Shoals as the foundation for a new Detroit—a major manufacturing center for the South. “The destiny of our country, agriculturally and industrially,” Ford proclaimed in early 1922 as he discussed terms with Secretary of War John W. Weeks, “lies at Muscle Shoals.”⁶³ Ford appeared to be the choice of President Coolidge, who recommended in a December 1923 speech that Muscle Shoals be sold.

Resistance to such a sale proved unexpectedly potent. The growing Teapot Dome scandal encouraged critics of the proposed deal with Ford. They were led in Congress by Senator Norris, a champion of public ownership of electric power. One of Norris’s allies, Congressman Fiorello H. La Guardia (D-NY), warned in March 1924 that privatization of the costly Muscle Shoals facilities could become an even bigger Teapot Dome. Such opposition helped delay any action before the 1924 elections. Frustrated, Ford withdrew his offer in October of that year. Although the progressives still had not won over a majority in Congress, they had succeeded, by the time Wilson Dam was finished in 1925, in keeping Muscle Shoals in government hands.⁶⁴

During the late 1920s, Norris and his allies gained even more ground, thanks to public concerns about the organization of the American electricutility industry, dominated by large holding companies. These entities, most of which were controlled by the J. P. Morgan financial empire and Chicago utility titan Samuel Insull, were criticized by progressives as a monopolistic “power trust” that harmed the public interest. In 1928, a Federal Trade Commission investigation of the industry noted that the holding companies had been lobbying against the creation of a public utility at Muscle Shoals. Senator Norris, backed by the League of Women Voters and a variety of other groups, had been working on a bill that would make Muscle Shoals the center of a large utility and waterways management system in the South. Norris managed to get Congress to pass one such bill in 1928, but President Coolidge vetoed it. In 1931, President Hoover vetoed a similar bill.⁶⁵

Hoover’s opposition to public power at Muscle Shoals suggests how much he differed from his former colleagues in Wilson’s cabinet and from the New Dealers who would soon set up shop in Washington. Hoover’s work to promote government-business cooperation, which he pursued especially during his tenure as secretary of commerce in the 1920s, is sometimes described as “progressive” and distinct from the approach of traditional free-market business conservatives.⁶⁶ And as president, Hoover continued to favor some policies that would make government bigger, not smaller.⁶⁷ But on the Muscle Shoals question, Hoover had no interest in compromising with progressives. During the 1928 campaign, he dismissed the Norris scheme as “state socialism.” In his 1931 veto message, Hoover explained that the Norris bill “raises one of the most important issues confronting our people.” For Hoover, there was only one acceptable position to take on this critical question. “I am firmly opposed,” he announced, “to the Government entering into any business the major purpose of which is competition with our citizens.”⁶⁸

Hoover’s opponent in 1932, Franklin Roosevelt, was well acquainted with the concept of public enterprise from his days in the Navy Department. In 1929, as governor of New York, Roosevelt called for public power projects at Muscle Shoals, Boulder Dam, and along the Saint Lawrence River. During the 1932 campaign, in a major speech in Portland, Oregon, he added a Columbia River project to this list. As Roosevelt explained it in 1932, among the benefits of these public power projects was their function as yardsticks with which the public could evaluate the claims of private utility companies about costs and proper rates to the public. They also served as “birch rods”—evidence that government could, in effect, punish the private sector if it failed to work in the public interest, by entering directly into the industrial field.⁶⁹

After Roosevelt won the election, Norris’s dreams were realized. The TVA was launched in early 1933, along with the rest of the early New Deal. According to Roosevelt, this was “the widest experiment ever conducted by a government.”⁷⁰ Using the dam at Muscle Shoals as its foundation, the TVA would create a major government-owned, government-operated electric power enterprise.

This experiment was not welcomed by the private utilities. Nor did it please the leading national business associations, which had spent the past fifteen years fighting to keep government out of industrial operations. The creation of the TVA, as one of its leading historians once put it, precipitated “a battle between government and business as intense as any in American history.”⁷¹

To the dismay of many businessmen, the TVA empowered a new generation of enthusiasts for public enterprise, including David Lilienthal, who would lead the agency. Lilienthal and his allies were most worrisome to private electric-utility executives in the South, where the TVA promised to compete directly with for-profit utilities. Many of those were controlled by the Commonwealth & Southern Corporation, led by Wendell Willkie. In the mid-1930s, Willkie became a prominent spokesman against what he and others regarded as the unfair use of federal authority to subsidize public power. After federal courts refused to find the TVA unconstitutional, Willkie was forced to compromise. In August 1939, he agreed to sell the Tennessee Electric & Power Company, one of the largest pieces of Commonwealth & Southern, to the TVA (along with a group of municipal governments) for about $80 million. This meant that at the end of the 1930s, just as World War II broke out in Europe, the TVA had established itself not only as a big hydropower producer but also as a major distributor of electricity.⁷² (During World War II, the TVA would provide about 10 percent of all the power consumed by the nation’s war effort. This included most of the electricity consumed by the uranium enrichment complex in Oak Ridge, Tennessee, which fed the atomic bomb program, as well as a large fraction of the power used to create the aluminum for tens of thousands of military aircraft.)⁷³

Although the TVA represented a significant threat, the bigger issue, for many American business leaders, was whether it might represent the beginning of an all-out nationalization of one of the country’s biggest industries. Although Roosevelt did not end up pursuing this extreme solution, his suggestion in November 1934 that the TVA model should be replicated in other regions was regarded by the private utilities as most unwelcome. So, too, was the Wheeler-Rayburn bill, which occupied Congress for much of 1935. Designed to break up the large holding companies, Wheeler-Rayburn included a “death sentence” provision, which required the dissolution within five years of any such entity that failed to prove that its large size was an economic necessity.⁷⁴ The private utilities responded to this bill with one of the most expensive and aggressive public-relations efforts in American history up to that time. “Government in business has been a failure for 100 years,” they declared in paid advertisements placed in newspapers across the country; if enacted, the bill would push the country “into the morasses of state Socialism and Communism.”⁷⁵ This effort failed to sway the Democrat-controlled Congress, which, after passing a modified version of the bill, allowed Senator Hugo Black (D-AL) to pursue a major investigation of the sometimes sordid details of the utilities’ lobbying campaign.⁷⁶

As the controversy over the Wheeler-Rayburn bill suggested, the Muscle Shoals fight had become part of a massive national political struggle over public enterprise. In the 1930s, a decade and a half after the end of Great War, progressive Democrats in Washington—now under the banner of the New Deal—were again making major intrusions into private industry. There were all sorts of public works and construction projects, built by several of the new “alphabet soup” of agencies. The largest of these, including the Civil Works Administration (CWA), the Public Works Administration (PWA), and the Works Progress Administration (WPA), each spent several billion dollars on construction. The PWA, which mostly paid private contractors to do the work, financed many big projects, including giant hydroelectric dams on the Columbia River in the Pacific Northwest. These operations were not entirely offensive, from the point of view of some businessmen, because they relied on private contractors. But the New Deal building agencies, like TVA, could also act as threatening rivals. The PWA actually worked hand in hand with the public power movement, by funding municipally owned electric utilities, some of which would buy electricity from the TVA or other public authorities.⁷⁷ Even worse, from the point of view of private construction firms, was the use of “force account” projects, in which the government served as contractor and employer. This was the method often used by the CWA, and later by its successor, the WPA, which directly employed more than two million people at once. Both agencies were the subject of complaints about government competition, especially from private firms in the construction industry.⁷⁸

The TVA, PWA, WPA, and other public enterprises were among the most powerful manifestations of the larger New Deal, which transformed the economic role of the national state. By the end of the 1930s, national government spending amounted to nearly 10 percent of GDP, almost triple what it had been in 1929. There were now one million civilian federal employees (leaving aside those employed temporarily by WPA), nearly double the number in 1930.⁷⁹ The crisis of the Great Depression had helped usher in a more powerful, and more entrepreneurial, national state.

For conservatives, the New Deal—and the rise of public enterprise, more specifically—qualified as an abomination. Among the first to recognize this were conservative Republican politicians. Congressman James M. Beck (R-PA), who had been criticizing the growth of federal “bureaucracy” even before Roosevelt entered the White House, was against the New Deal from the first. “We are marching toward Moscow,” Beck said in 1933.⁸⁰ Additional early warnings were provided by ex-president Hoover. Before the end of 1934, Hoover had published a book-length critique, The Challenge to Liberty, which devoted chapters and sections to the problems of “National Regimentation” and “Government in Competitive Business.” The early New Deal programs such as TVA, Hoover wrote, amounted to “blows pounding in the wedge of Socialism as part of regimenting the people into a bureaucracy.”⁸¹ In the community of conservative politicians, this rhetoric spread. Senator Arthur H. Vandenberg (R-MI), a leading figure in the Republican Party, complained in February 1934 that Americans were “living under political dictatorship”; two years later, he warned of “a vampire of bureaucracy in Washington.”⁸² Some conservative Democrats, including Albert C. Ritchie, governor of Maryland, agreed. In 1935, Ritchie claimed that American freedoms were being degraded “by a counter spirit of bureaucratic centralization and by a regimented and nationalized economy.”⁸³

Many American business leaders shared this reaction to the New Deal. Naturally, this generalization does not apply universally. A few executives, including Owen D. Young of General Electric and the department-store magnate Edward A. Filene, maintained positive relations with the New Dealers, as did some leaders of firms whose fortunes most benefited from the new regime, such as construction contractor Henry J. Kaiser. But these individuals were uncommon.⁸⁴ For the majority of business leaders, the honeymoon with Roosevelt, to the extent that there was any, lasted only about a year. In 1933–34, some executives had held out hope that the National Recovery Administration (NRA) might offer a business-friendly version of price and wage regulation, which might help the country out of its economic death spiral. Even some of the more politically conservative executives, such as Pierre du Pont, worked at least briefly on NRA committees. But by 1934–35, most of them had given up. They did so not just because the NRA was proving to be an unpopular mess but because of how the rest of the New Deal developed.

The business community’s rapid alienation from the New Deal was evident in the experiences of the Du Pont brothers. After the Great War, Pierre, Irénée, and Lammot du Pont, who led the long-standing family business that had become the nation’s leading chemical company, were all multimillionaires. They were also politically active men who gave generously to business associations and conservative political groups, as well as to charitable causes.⁸⁵ Pierre and his brothers became disturbed by the New Deal’s enthusiasm for public enterprise, which was already being practiced by agencies such as the PWA and TVA. In May 1934, Irénée complained to Pierre of the recent explosion of “governmental capitalism.”⁸⁶

Three months later, the Du Pont brothers helped to found the American Liberty League. This anti–New Deal group was financed by many of the nation’s most prominent business leaders. Among them were several executives from Du Pont and GM, including John J. Raskob, Alfred D. Sloan, Jr., and William S. Knudsen. Other leading Liberty Leaguers included J. Howard Pew (president of the Sun Oil Company), Raoul E. Desvernine (Crucible Steel Company), and Sewell L. Avery (American Gypsum and Montgomery Ward). A year after its founding in August 1934, the American Liberty League had ten thousand contributing members. In a little over two years, the organization distributed 51 million pamphlets, which pointed out the many dangers of New Deal policies. The league itself spent half a million dollars on the 1936 presidential campaign, in what would turn out to be a totally unsuccessful attempt to unseat Roosevelt. Individual members of the league made major contributions to the GOP that went well beyond this, including more than $1 million donated by the Du Pont and Pew families alone.⁸⁷

The Liberty League’s hostility toward the New Deal may have been especially pointed, but it was shared by many other organizations of American business leaders. By December 1934, when the NAM and the Chamber of Commerce of the United States held a joint meeting, most of their members had decided that they could not support Roosevelt and the New Deal. This alienation only deepened in 1935, when the Roosevelt administration worked with Congress to roll out a second wave of major reforms and programs. This “second New Deal” included the WPA, as well as the Wagner Act, which provided far more government support for unions. During the 1936 presidential race, the vast majority of business associations and executives supported the Republican candidate, Alf Landon. Even in industries that seemed to be benefiting most from the New Deal, such as construction, many business leaders worked hard to roll back state enterprise and regulation. As one White House staffer concluded in 1936, it was safe to say that “85% of business and industrial men today are against the Boss.”⁸⁸

The Boss, calculating that he could win reelection without much business support and concerned about containing potential challenges from his political left, launched a vigorous public-relations effort of his own. In June 1934, Roosevelt used a radio address to dismiss the “selfish minority” of men who opposed him. Their cries against “regimentation” (which had been voiced by Hoover, among others) amounted to a wild mischaracterization of the New Deal, Roosevelt complained.⁸⁹ Over the following months, as business opposition deepened, the president’s rhetoric became even more heated. In his State of the Union address in January 1936, Roosevelt boasted that “we have earned the hatred of entrenched greed.” During the 1936 campaign, the president regularly portrayed his detractors as “economic autocrats” and “economic royalists.” Because he was focused on improving the welfare of the vast majority of Americans, Roosevelt explained, he didn’t mind so much if a few of the country’s most fortunate citizens opposed him. On the contrary, he said, “I welcome their hatred.”⁹⁰

Such was the general state of national-level government-business relations on the eve of the 1936 elections, which Roosevelt would win in a landslide. The business community was concerned not only about the growth of regulation and government in general under the New Deal; many executives were also worried about the specific evil of government competition, which was starting to occur on a scale that had not been seen since the Great War (see Figure 1). One legacy of that conflict, the Muscle Shoals complex, was actually being used by the New Dealers as the basis for a major new public corporation. But this was not the only important connection between the mobilization of 1917–18 and the development of businessgovernment relations in the 1930s. In the military-industrial sphere, too, the 1930s saw a new push for heightened regulation and public control.

A New Deal for the Defense Sector

In early March 1936, the infant public-opinion polling firm led by George H. Gallup surveyed more than a hundred thousand Americans to ascertain their opinions about the arms trade. Gallup asked, “Should the manufacture and sale of war munitions for private profit be prohibited?” In response, 82 percent of those interviewed—one of the largest majorities Gallup had yet recorded—replied yes. Gallup found no subgroup opposed to the proposition. The idea appealed to 79 percent of Republicans and 85 percent of Democrats, compared with 91 percent of Socialists. (The group least enthusiastic were residents of Delaware, home to the Du Pont company, where only 63 percent approved of the idea.) As some of the widespread press coverage of the poll results pointed out, Americans seemed to be slightly less committed to eliminating private armaments companies than their British counterparts, 93 percent of whom had called for it in a comparable survey the previous year.⁹¹ Still, the result was remarkable. It suggested that an overwhelming majority of the American public favored the nationalization of the defense sector.

Figure 1. “Government Competition,” September 1939 cover of Nation’s Business magazine, a publication of the Chamber of Commerce of the United States. This cover suggests the business community’s concerns about the threat of direct competition from government enterprises on the eve of World War II. Courtesy of U.S. Chamber of Commerce and Hagley Museum and Library.

The results of the 1936 Gallup poll suggest the political significance of national (and international) debates over the interwar arms industry, which culminated in the well-publicized Nye Committee hearings in the Senate. Too often, these debates are remembered as little more than the product of a naïve isolationist approach to foreign policy, which would be discredited by the lessons of World War II.⁹² But this view is seriously deficient. First, it fails to recognize that American critics of the munitions business were participating in a transnational, popular political effort to come to confront systemic problems that might cause another terrible war. In the mid-1930s, Senator Gerald P. Nye (R-ND) and his allies were in many ways less “isolationist” than they were cosmopolitan and internationalist.⁹³

Second, the munitions debate of the 1930s should be understood as a central chapter in the history of economic policy during the New Deal years. Revolving around issues of the relative merits of government and private ownership in an industry that was, in fact, already seminationalized, it was closely related to the TVA fight and other interwar battles over public enterprise. As such, it was taken very seriously by the American business community. Indeed, the struggle over munitions was intertwined with the broader political offensive, launched by conservative business leaders in the mid-1930s, which was designed to combat President Roosevelt and the New Deal.

During and immediately after the Great War, hundreds of thousands of people all over the world voiced their concerns about the intermixture of capitalism and modern warfare. To many people, including soldiers, veterans, and their families, the sorts of profits that had been earned by companies like Du Pont and Bethlehem Steel seemed objectionable, if not obscene. Beyond this, some critics worried that the profitability of munitions manufacture created dangerous economic incentives. The admixture of capitalism and warfare appeared to give companies and individuals a vested interest in promoting military conflict. After the armistice, there was a global movement to solve these problems. In 1921, the new League of Nations resolved that “the manufacture by private enterprise of munitions and implements of war is open to grave objections.”⁹⁴

In the United States, which had not joined the league, there was a political consensus that in the event of a future conflict, the sacrifice must be shared more broadly. As President Harding put it, the next time around, there should be “no swollen fortunes.” The two leading veterans’ organizations, the American Legion and the Veterans of Foreign Wars (VFW), both called for increased control of profits in wartime, possibly via a coercive “draft” of capital that would match the conscription of soldiers. In 1924, the Republican and Democratic party platforms both promised that in the event of a future conflict, there would be something closer to a “universal mobilization.” All this sober activity did not prevent readers from chuckling at Harold Gray’s “Little Orphan Annie” comic, which in 1924 introduced a sympathetic character named Daddy Warbucks.⁹⁵ But to a large number of Americans, the record of the radically inegalitarian distribution of war bucks in the late 1910s was really no laughing matter.

After 1929, as the nation slid into the Great Depression, Congress and the White House began to consider more concrete proposals for profit control in a future war. During the tenure of the Hoover administration, the most important work in this field was done by a presidentially appointed War Policies Commission, which held hearings in 1931. In its final report, which was influenced by the continuing lobbying efforts of the American Legion, the commission recommended that profit control in a future war go well beyond what had been achieved during the Great War. It called for broad price controls, as well as a new EPT that would capture 95 percent of any profits above prewar averages. Although Congress did not act immediately to institute these recommendations, it was clear that there was a broad consensus that in the event of a future war, the nation should use stricter controls than the ones applied in 1917–18.⁹⁶

As the Depression worsened, there was an upsurge all around the world in calls for stricter regulation of the munitions business. The economic crisis, which naturally led to more questioning of the beneficence of largescale capitalist enterprises of all kinds, seems to have further heightened interest in the sins of arms suppliers, in particular.⁹⁷ In 1933–34, books and articles about the “merchants of death” abounded in Europe and the United States. The public attention led to new action by governments. In Britain, where the Labour Party was calling for more nationalization of arms production, a Royal Commission was appointed to investigate the issue. Its report, issued in 1936, came out against full nationalization, but it did call for more regulation of production and profits. In France, a partial nationalization did occur, following the electoral victories of the Popular Front, in 1936. Not surprisingly, this move led to clashes between the government and executives at French companies that had been serving as military suppliers, including Renault and Schneider.⁹⁸

In the United States, the largest and best-publicized of the efforts at defense-sector reform in the mid-1930s was the Senate’s munitions inquiry, chaired by Gerald Nye. A populist Republican from North Dakota, Senator Nye had done some work in the late 1920s in the later stages of the Teapot Dome investigations. His munitions investigation originated with the efforts of the Women’s International League for Peace and Freedom, which in 1919—when it was still led by the celebrated American progressive and pacifist Jane Addams—had pushed for a global ban on the private production of munitions. In 1932, a new president of the Women’s International League, Dorothy Detzer, pushed Congress to investigate the issue. At first, Detzer hoped that the investigation would be led by Senator George Norris, the patron of the TVA. In the end, Norris helped her to enlist Nye.⁹⁹

From the beginning, Nye made it clear that he wanted to use the hearings to persuade Congress to enact strict controls on the defense sector. In August 1934, just before the hearings started, Nye gave well-publicized speeches, one at the World’s Fair in Chicago, and one on the CBS radio network. In these talks, Nye called attention to the enormous profits that had been collected during the Great War by Du Pont, among other companies. He also suggested that Congress should consider imposing a “government monopoly” over munitions manufacture. Two months later, after the hearings had started, Nye went back on the radio with more specific proposals. In the event of war, he declared, any incomes over $10,000 should be taxed at a rate of 98 percent. In addition, Nye said, the United States should nationalize its peacetime defense sector, so that private contractors had no role in making munitions.¹⁰⁰ These proposals went beyond what the War Policies Commission had suggested three years earlier; they were also more radical than the reforms demanded by the American Legion, which was still calling for a 95 percent EPT.¹⁰¹

Although the Nye Committee criticized a wide range of arms traders and military contractors, it was especially hostile to Du Pont. Senator Nye’s speeches portrayed the Du Pont brothers as the greatest of the Great War profiteers. In the early hearings, which focused on collusion and bribery in the international arms trade, the committee criticized Du Pont for its cozy relationship with its British counterpart, Imperial Chemical Industries (ICI). Later, Nye used the investigation to publicize the Du Ponts’ generous political contributions to conservative groups, including the American Liberty League—which had been founded just as the Nye investigation got under way.¹⁰²

For their part, the Du Pont brothers regarded the Nye Committee as the creation of irresponsible radicals who knew nothing about the economics of defense.¹⁰³ But they realized that the attacks threatened the company’s reputation and its future. Certainly, Congress and the Justice Department might try to cancel Du Pont’s recent acquisition of Remington, an important American manufacturer of rifles and ammunition. More broadly, the Nye Committee’s assault seemed to require an energetic public-relations counteroffensive. Du Pont prepared one, with the help of Bruce Barton, a top consultant in the field. In August 1934, Barton assured Du Pont executives that “most of the reckless charges against munitions makers have originated not with the great body of unselfish peace-lovers but with muckraking journalists.”¹⁰⁴ But Barton and Du Pont still needed to prepare a careful rebuttal to educate Congress and the public. They prepared talking points for the executives called before the Nye Committee. These stressed that although some economic regulation in wartime was necessary, the country also needed to remember that “the profit motive,” as “one of the strongest incentives to endeavor,” should be understood as “a powerful weapon” in its own right, “which should not be tossed away.” And in an open letter to stockholders, the company stressed its great contributions to national security in the Great War, the overwhelmingly commercial character of its business since 1919, and its interest in promoting peace.¹⁰⁵

As Nye and the Du Ponts battled over public relations, the Nye Committee worked on formal recommendations. These did not depart much from the suggestions that Nye had made in his early speeches. Even before the majority of the committee issued its final report, in 1936, Nye and his colleagues had urged Congress to create steep wartime price and profit controls. Many of these details were written up by John T. Flynn, a journalist and sometime congressional staffer who became an important part of Nye’s team. Flynn’s plan went well beyond the recommendations of Bernard Baruch, the former WIB chief, who testified regularly in Washington about the need to impose heavy price controls in wartime. The Nye Committee also wanted strict price control but added to this the Flynn plan for ultrahigh wartime income taxes and EPT, which would impose rates of 98 percent or 100 percent. These proposals became part of several bills that circulated in Congress in 1935. Meanwhile, President Roosevelt, who angered veterans in May 1935 by vetoing a bill that would have paid them a cash bonus a few years ahead of schedule, promised in more vague terms that in any future conflict, there must be strict profit controls.¹⁰⁶

The other element of the Nye Committee’s call for radical reform in the defense sector was its recommendation that the national state monopolize peacetime—if not wartime—munitions production. A minority of the committee’s members, who issued their own final report, disagreed. According to the minority, there should be “rigid and conclusive munitions control” but not “complete nationalization.”¹⁰⁷

The majority, however, called for an end to the government’s peacetime use of private contractors to supply key military goods such as weapons, ammunition, explosives, and warships. In doing so, they combined emotionally charged rhetoric with colder economic calculations. Both were used by Senator Homer Bone (D-WA), a well-known champion of public utilities. When contractors testified that the private sector was always more efficient, Bone responded that the record of the power industry in the Pacific Northwest had taught him otherwise. But Bone also made more moralistic arguments. In 1917–18, he recalled, some American “boys were butchered in the war, and thousands of men made multimillionaires overnight.” Given this record of such reprehensible inequalities, Bone asked, “Why should we blink at socialization?”¹⁰⁸

Such suggestions were actually less radical than they might seem because peacetime munitions manufacture was already semi-nationalized. After 1918, the War Department’s own arsenals had returned to their traditional role, which was to supply the Army with most of its needs for small arms, artillery, and ammunition. Meanwhile, the Navy was sending a large fraction of its modest orders for new warships to its own yards, which Secretary Daniels had worked so hard to expand. These GOGO munitions facilities were examined carefully by the Nye Committee, which determined that they were competitive with private sources. The committee also asked the ICC to estimate what it would cost to expand the GOGO operations enough to supply all the peacetime needs of the Army and Navy. According to the ICC, it would take only about $24 million in additional investment in the Navy shipyards to fully nationalize peacetime warship construction. For an additional $23 million, the ICC estimated, the Army and Navy could expand their GOGO operations enough to create a peacetime government monopoly in the manufacture of finished small arms, smokeless powder, and aircraft.¹⁰⁹

As the results of the Gallup poll in March 1936 suggest, most Americans supported some kind of increased regulation of the arms industry, if not all the Nye Committee’s specific proposals. Surveys of college students and church groups in 1935, when the committee’s hearings were widely publicized in the national media, found that more than 80 percent of those surveyed favored heavier government controls over munitions. First Lady Eleanor Roosevelt supported the Nye Committee’s recommendations, including the call for nationalization.¹¹⁰

Veterans, who had been calling for major reforms since 1918, continued their efforts. At VFW-sponsored dinners across the country in 1935, officers demanded a policy of “profit for none” in any future war. Two years later, the American Legion was still pushing Congress to pass powerful wartime profit controls, so as to avoid any repetition of the Great War, when “some twenty-two thousand individuals at home stepped from the shadows of financial obscurity into the millionaire class.” Such language continued to prevail among veterans, well after the Nye Committee hearings came to an end. At a local VFW event in 1937, Louisiana state senator Ernest Clements roused the assembled veterans by recalling that twenty years earlier, the nation had suffered “a hundred thousand soldiers dead to make a bunch of skunks American millionaires.” In any future war, Clements demanded, the government must “take over munitions plants.” This call brought loud applause from the assembled VFW men.¹¹¹

The real question in the mid-1930s was not whether the government should strictly regulate war profits and build weapons in its own facilities, but exactly how far this should go. Some government officials, including NRA chief Hugh S. Johnson, indicated that they could support a full nationalization of peacetime munitions production with the understanding that in wartime, the government would need to contract with the private sector.¹¹² This idea was supported by Ernest Angell, a New York lawyer and Great War veteran who published a lengthy magazine piece on the issue in 1935. Angell did not oppose some kind of extension of peacetime nationalization, but he pointed out that any such move would have to grapple with the technical question of “at what point in the stream of production a proposed government monopoly shall take over.”¹¹³ The Navy might not have much trouble taking over all the production of finished warships and guns, which it already knew how to make. But such a scheme would still presumably require lots of private suppliers, who would sell the Navy most of the elements it needed, such as steel products, turbines, boilers, valves, and cable.

In the end, most of the Nye Committee’s recommendations were not enacted by Congress. The committee’s investigations did contribute to the passage of the 1935 Neutrality Act, which banned munitions exports to nations at war. But Nye’s efforts to ramp up domestic regulation of the defense sector failed, in the shorter run. The government would not impose comprehensive price and profit controls until after a new world war had begun. Nye’s nationalization scheme was resisted by civilian leaders and military officers in the War and Navy Departments, who preferred to maintain their more flexible systems of mixed public and private production. The military was backed by President Roosevelt, who had close ties to the Navy and opted to distance himself from Nye’s more populist approach to the issue.

Although Nye was thwarted in 1936, it would be a mistake to understand the defense sector of the 1930s as an area that was immune to the progressive push for more regulation and public enterprise. This was obvious in warship construction, which, as the Nye Committee noted, was already semi-nationalized.¹¹⁴ Here there was already a difference from the years before the Great War, when about 80 percent of new warships had been built by private contractors. After the 1922 Washington Naval Treaty, which limited warship construction, it was unclear how much of the Navy’s modest orders would go to its in-house shipyards and how much to the struggling private yards. The private shipbuilders lobbied for more work, but their efforts were countered by those members of Congress who had one of the eight Navy yards in their districts. In the late 1920s, Congress settled on a fifty-fifty policy, which called for half the ships to be built by contractors and half by the Navy yards.¹¹⁵

The policy of building half the warships in the Navy’s in-house yards was solidified in March 1934, when Congress passed the Vinson-Trammell Act. One of the most important pieces of legislation passed during the interwar period, Vinson-Trammell authorized the Navy to begin a major new building effort that would provide it 1.2 million displacement tons of warships, the maximum allowed under the 1930 London Naval Treaty. Its passage represented a victory for the proponents of a big Navy, including President Roosevelt and Congressman Carl Vinson (D-GA). It was also a victory for public enterprise. According to the law, every other warship needed to be built in a U.S. Navy yard, “unless … inconsistent with the public interest.” (The same level of public production was not required for aircraft, even though the Naval Aircraft Factory had been a major producer during the early 1920s. According to the new law, only 10 percent of Navy planes should come from in-house sources.) Vinson-Trammell also regulated profits, by capping contractors’ earnings on Navy shipbuilding work at 10 percent of production costs.¹¹⁶

Thanks to the generous appropriations provided by Vinson-Trammell, along with tens of millions of dollars from New Deal agencies, the private shipyards became much healthier. At companies like the Bath Iron Works, in Maine, and Newport News Ship, in Virginia, this was a welcome end to what had been more than a decade of inactivity and financial struggles.¹¹⁷ However, the private yards were none too pleased by the statute’s requirement that production be semi-nationalized. This clause was protested by the National Council of American Shipbuilders, which soon found itself trying to contain an even bigger threat—the Nye Committee’s call for allout nationalization.¹¹⁸

Having dodged that bullet, the National Council of American Shipbuilders rededicated itself to lobbying against the semi-nationalization required under Vinson-Trammell. Some of the council’s arguments, which stressed that the costs of the GOGO facilities appeared to be competitive only because they were never fully accounted for, were very similar to the ones used by the private electrical utilities in their battle with the TVA. “If navy yards are to be used as yardsticks,” the private shipbuilders complained to Congress in 1937, “then the yardstick should be exactly 36 inches long.” The council also pointed to the private yards’ modest profits, which, since the mid-1910s, had averaged only 5.5 percent of sales, barely half the 10 percent limit imposed by Vinson-Trammell. According to the shipbuilders, they had the added burden of facing tough Navy officers who appeared to enjoy their ability to squeeze the private contractors by subjecting them to the competition of public yards. The council pointed to the example of Admiral Emory Scott (“Jerry”) Land, who had claimed that the art of submarine construction had been improved by the competition between the Electric Boat Company and the Navy’s own yard in Portsmouth. The council quoted Admiral Land as having referred to the private shipyards as “my arch enemy, so far as doing business is concerned, all the time.”¹¹⁹

Like other business leaders, the executives who led the private shipyards were disturbed by the Roosevelt administration’s willingness to use the “birch rod” of government competition. Tensions over this issue mounted in 1936–37, after Congress passed the Walsh-Healey Act, which required government contractors to pay their workers overtime rates after forty hours a week. Some shipbuilding and steel companies, which were already engaged in a major struggle to prevent the unionization of their plants, began to suggest that they might avoid Navy contracts in the future. President Roosevelt, coming off his landslide victory in November, was willing to play hardball. If the steel companies did not want to fill contracts for armor plate, the president suggested, the government could always reopen its GOGO facility in West Virginia. Then, in a January 1937 press conference, Roosevelt said that although he preferred to continue the fifty-fifty distribution of orders outlined in Vinson-Trammell, he could, if necessary, give an even larger fraction of the work to the Navy yards. Roosevelt then announced that both of the first two North Carolina–class battleships would be built by the Navy’s own yards, in Brooklyn and Philadelphia. Roosevelt’s decision outraged executives at the New York Shipbuilding Corporation, who had expected that the usual fifty-fifty policy would allow them to build one of the massive vessels. This dispute would ebb over the following months, when the private yards would once again receive about half the Navy’s new orders. But for the contractors, the episode demonstrated again the power of government competition.¹²⁰

On the War Department side, the situation was somewhat different because the political struggles over Army procurement were more concerned with a future war mobilization. In peacetime, the U.S. Army’s own arsenals were supplying many of the finished weapons demanded by its small force. But as War Department officers knew from the record of the Great War, they would need to equip several million men, instead of a couple hundred thousand, in the event of another major conflict. To accomplish this, they would carry out another “industrial mobilization,” as they called it, comparable with what had occurred in 1917–18. As European observers recognized, the United States was a leader in planning for industrial mobilization. One reason for this was the nation’s unique strategic situation: protected from leading military powers by vast oceans, the United States still seemed to enjoy the luxury of maintaining a small army, until an emergency developed. The U.S. also boasted the world’s biggest national industrial capacity, which American officers expected to tap in the event of war.¹²¹

According to the National Defense Act of 1920, industrial mobilization planning was overseen by the Office of the Assistant Secretary of War (OASW). During the 1920s, the OASW created the new Army Industrial College (AIC) where some mid-career military officers could spend a year or two studying the problems associated with economic mobilization. Between 1924 and 1940, nearly nine hundred officers graduated from the AIC. Of these, more than a hundred also received MBAs from Harvard Business School, under a new program created by Harvard and the War Department. Meanwhile, the Ordnance Department, operating through the regional procurement districts that it had set up during the Great War, continued to work with companies and business associations. During the 1920s, the Ordnance Districts conducted surveys of thousands of manufacturing plants that might be tapped for munitions production in a future war.¹²²

Army officers attached to the OASW, including Major Dwight D. Eisenhower, also helped compose the official Industrial Mobilization Plan (IMP). First released in 1930, and revised several times before World War II, the IMP was shaped by the ideas of former WIB chief Bernard Baruch, who frequently advised the military. The plan called for WIB-style civilian coordinating agencies, which would allocate critical materials and impose price controls. According to Baruch, a future coordinating agency could combine strong “administrative control” with a voluntaristic approach to mobilization, in which industry could mostly organize itself. At least in its public statements, the War Department promised to rely heavily on voluntarism. According to the Army’s chief of staff, General Douglas MacArthur, any future industrial mobilization would depend on “spontaneous cooperation,” not coercion. “The least possible disturbance must be caused in the normal economic life of the country,” MacArthur promised Congress in 1931. This attitude was written into the IMP, which stated that future mobilizers must avoid imposing “arbitrary and unnecessary regulations” on businesses and consumers. “No radical changes in normal economic relationships between individuals and between an individual and Government should be instituted,” the IMP declared.¹²³

The War Department, like the Navy Department, rejected the Nye Committee’s calls for a full nationalization. This was not because Army officers had no interest in manufacturing weapons: by the mid-1930s, they were using their own arsenals to supply almost all the peacetime Army’s needs for rifles, ammunition, artillery, projectiles, and gunpowder. But because they expected these GOGO facilities to supply only about 10 percent of their needs in a future all-out war, Ordnance Department officers wanted to cultivate relationships with private companies. Their counterparts in the Army Air Corps, who procured planes by ordering from a highly competitive private industry, also opposed nationalization. Just as their predecessors had done during the Great War, these interwar officers believed that it would be much cheaper and easier, economically and politically, to rely heavily on private capacity in a major emergency.¹²⁴

On the eve of World War II, the War Department’s civilian leaders and regular officers emphasized their friendliness to the private sector. As conditions in Europe deteriorated, Assistant Secretary of War Louis A. Johnson promised executives that the military officers who would participate in any future industrial mobilization “have no designs to take over your business.” Rather, Johnson promised business leaders, “[w]e have predicated our whole industrial mobilization program on the maintenance of the established American way of getting things done.”¹²⁵ Among the military officers charged with planning procurement, including those attached to the AIC, there was a similar doctrine. “We are attempting to solve our industrial mobilization problems not by regimentation,” one AIC pamphlet of 1938 stated, “but in accordance with democratic American methods.” In May 1940, as France fell, the college’s commandant, Colonel F. H. Miles, promised the Buffalo Chamber of Commerce that the military’s intention was “to disrupt industry as little as possible.”¹²⁶

Given the record of the War Department in the 1920s and the 1930s, it may be hard not to conclude that the U.S. Army, if not the Navy, was overwhelmingly deferential to the private sector. Yet the attitude of War Department officers was actually not quite as reassuring to pro-business conservatives as it might appear at first glance.¹²⁷

For one thing, military officers maintained pride in their own competence. With good reason, many of them resented Baruch’s self-promoting accounts of the Great War mobilization, which exaggerated the influence of the WIB while downplaying the major contributions of the War and Navy Departments and their supply bureaus. The AIC was not intended to simply put the military in a position to tap private expertise but also to develop in-house competencies in wartime economic management. Assistant Secretary of War Dwight F. Davis made this point in 1924, as the AIC opened. “The theory so often advanced … that we can quickly settle our supply problems by calling in from the industrial world men of high standing, in my judgment, is not sound,” Davis said. Instead, the military needed to “know more about its work than any body else.” This attitude endured, despite the War Department’s many public promises to defer to industry. As Lieutenant Colonel A. B. Quinton, Jr., an AIC instructor, put it in 1937, “we should not have any inferiority complex in dealing with” business leaders.¹²⁸ Such language was significant because it shaped the attitudes of men who would wield great economic power on the World War II home front. Quinton, for example, would serve as one of the nation’s top managers of the American war economy, as chief of the Ordnance Department’s biggest contracting office, in Detroit.

Quinton and his fellow officers believed that the contractors should be subject to special forms of economic regulation, which might include price and profit controls, as well as compulsory orders. As one AIC study group concluded in 1937, even if the War Department did not favor increased nationalization, it did agree with the widespread public calls for “rigid control of the private munitions industry.” Top military procurement officers, like many other Americans, wanted to limit war profits but without completely abandoning the profit system. As Colonel Charles Harris told Congress, more than a little awkwardly, in 1937, “it is the idea to disturb the normal process as little as possible…. On the other hand, the War Department is strongly opposed to profiteering…. On the other hand, the War Department believes in a fair profit.” Two years later, Colonel James H. Burns promised the Chamber of Commerce that the military wanted to minimize any economic “regimentation” in wartime. Echoing the rhetoric of Herbert Hoover and other conservatives, this was music to the ears of most business leaders. Somewhat less reassuring, perhaps, was Burns’s added qualification: “if we permit unreasonable prices and profits we … ruin the morale of the country.”¹²⁹

Business leaders also had reason to be concerned about the military’s reliance on Baruch’s vision of industrial mobilization, which was less voluntaristic than it seemed. As Baruch reminded the cadets at the U.S. Military Academy at West Point in 1929, the wartime state would have the power to allocate critical materials. This was “the iron fist in the velvet glove” that the government could wield to encourage private firms to do its bidding.¹³⁰ This attitude worried business leaders, as did Baruch’s notion that as a last resort, the government could always just commandeer private property. As Baruch reported to a friend in 1924, executives such as Elbert Gary of U.S. Steel had insisted that “the taking over of industries was a communistic scheme” that should not be allowed even in wartime.¹³¹ On this question, military officers sided not with Gary but with Baruch. During the 1930s, top War Department officers often noted that the IMP and other emergency schemes would provide ample coercive powers. Some of them echoed Baruch’s “iron hand in the velvet glove” rhetoric; others described a “big stick available for use on the recalcitrant if necessary.” For the officers, the wartime state’s coercive powers were “like a policeman’s club—always in sight but little used.”¹³² From the point of view of many business leaders, this was disturbing. It remained unclear who might be using the club, for what purposes it might be used, and who might be on the receiving end.

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In the late 1930s, as international skies darkened, many Americans grew pessimistic about the future of domestic politics. Progressives worried that war mobilization might lead to American fascism. In 1939, Interior Secretary Harold L. Ickes warned that conservatives might use the war emergency to “destroy both American democracy and the social reforms of the New Deal.”¹³³ Such fears reflected the political defeats suffered by New Dealers over the previous two years. Despite an overwhelming victory in the 1936 elections, President Roosevelt had struggled to expand the New Deal.¹³⁴ His early 1937 effort to add justices to the Supreme Court bolstered conservative criticisms that he was an autocrat. Then, government spending cuts had caused an economic downturn. After the 1938 elections, the House contained eighty-five more Republicans, who thwarted Roosevelt’s plans. Moreover, the business community’s ongoing public-relations campaign bore fruit. By the eve of World War II, Americans polled by Gallup blamed the Roosevelt administration for the recent recession; they also favored a “more conservative” government, more friendly to the private sector.¹³⁵

Business leaders, while encouraged by these favorable developments on the domestic political front, feared that American entry into World War II might revitalize the Left. Most U.S. companies in the mid-1930s were content with neutrality from a financial point of view because they were not producing arms for export. Even Du Pont, which had made military explosives for decades, had become much more interested in civilian markets. In 1937, the Du Pont corporate board, which worried about the company’s “evil reputation” as an armaments maker, only barely turned down a motion that would have had the company stop munitions work entirely.¹³⁶ Even in 1938, as the Munich crisis took Europe to the brink of war, American companies feared the political costs of taking military work. Furthermore, they anticipated that such work might not be especially profitable, given that the defense sector was often the target of intense regulation.

Business leaders remembered the Wilson administration’s war policies, the Nye Committee, and the origins of the TVA. Their memories made them especially wary of war. Charles R. Hook, the NAM chairman and president of the American Rolling Mill Company, explained it in mid-1939: “Business men are normal human beings,” no less horrified by the prospect of mass killing than any of their peers. Beyond this, they stood against war because it would bring tax increases, along with a “government invasion of private rights.” This had occurred on many occasions during World War I, Hook recalled, most obviously during the government takeover of the railroads. What the business community really wanted, Hook explained, was “to continue the democratic system which includes the system of private enterprise under which the nation has flourished during the last century.”¹³⁷ War would make this more difficult.

Yet Hook and his fellow business leaders could not avoid war. Well before the Pearl Harbor attacks of December 1941, they began participating in a massive industrial mobilization. To the consternation of business leaders, the World War II mobilization would feature many of the same government policies that had occurred during World War I and the interwar period. Indeed, in many respects, Roosevelt went beyond Wilson. One critical area in which this was true concerned the way that the United States went about expanding its capacities to manufacture munitions. More than anyone had anticipated, this process relied on direct government ownership of industry.