THIS is not the place nor am I the man to write the economic epic of these past five years. It is indeed too vast and overwhelming a story for any one man to undertake. But something of the story I can and must tell. For it was in the war years that we again found our strength and our confidence, and it is on the lessons of our wartime experience that we must draw if we are to solve the problems that lie ahead.
Never before in our history has America surged forward so powerfully or risen to such heights as it has since 1940. In 1940 our national output was 100 billion dollars. In 1944 it was 200 billion dollars. In four years we had doubled the dollar total of our national production. There was nothing partial about that expansion. It went all the way.
But such was our sorry state in 1940 that there was only a handful of people who could then even conceive of our reaching the levels that we did. In May of 1940, for example, when the German Blitzkrieg swept over France and the Low Countries, the President asked for 50,000 planes. There were plenty of people who said that that was absurd, that one couldn’t even conceive of 50,000 planes, let alone produce them.
But we did produce them. And when we got to 50,000 we didn’t stop. We went right on up to 75,000 and then to 100,000—and I mean 100,000 a year.
And in the spring of 1941, when the submarines were taking their huge toll of shipping and when the tonnage to keep the life line open to Britain was shrinking week after week, we set our sights at 4 million tons of new shipping a year.
When that goal was announced, some men gasped, and when that goal was doubled before many months were past, there were plenty more who said knowingly, We haven’t got the ways and we can’t build them fast enough. We haven’t got the skilled workers and we can’t train them. And if we could build the ways and train the workers, there wouldn’t be nearly enough foremen and supervisors to run the job. Those shipping goals are flatly impossible.”
But it must have been possible, because we did it. Not just 4 million tons of shipping—we doubled that. Not just 8 million—we doubled that, too. And then we added a final 4 million to hit our stride at 20 million tons a year. Twenty million tons—that’s production of ships in a single year nearly twice as great as the total of all the ships we had afloat in 1940. It’s more than 40 times our normal peacetime production.
And that was the story right across the board. It was the story of every part, it was the story of the whole. It is the story of steel, the story of aluminum and magnesium, it is the story of machine tools and of the conversion of our giant automobile industry.
Do you remember the bitter struggle it took to get expansion of our capacity to produce the necessary raw materials and the expansion of our plants and machinery to turn those materials into guns and planes and ships? Do you remember when the practical men were saying, “How can we ever use those new plants when the war is over? What will we ever do with all that steel and aluminum and magnesium and with all those machine tools?”
But America was on the move. Nothing could stop us, neither the physical difficulties nor the fears of the practical men. We increased our aluminum production sixfold and our output of magnesium over fifty-fold. Our national stock of machine tools was increased by 50 per cent by the end of 1944.
It wasn’t only the practical men who were without vision. The economists, the students of our economic history, for the most part did no better. Back in 1940, when the Federal Reserve Board’s index of industrial production—that’s the generally recognized yardstick of our factory and mining output—stood at 113, the economists told us that with hard work and good luck we could push it up as high as 136, but that was our ceiling. Before that year was out, the index had gone up to 138.
That was the end of 1940. By the end of 1943 our total industrial output—I don’t mean prices, I mean tons and yards and barrels of goods produced, war goods and peace goods combined—was more than double what it had been in the spring of 1940 when these timid predictions were made.
I think I’ve said enough to drive home the point that in 1940 this nation didn’t know—or better, had forgotten—its own strength. The depression took a deep toll from us, not only in the goods we didn’t produce, but in the brakes it put on our imagination, our courage, our confidence in ourselves. There was a time when all of us knew that this was a big country and took it for granted that we always did things in a big way. We forgot that between 1929 and 1933, and it took us a long time to learn it again. But learn it we did, as our war record bears witness.
In 1940 and 1941 when we broke a production record, it made the headlines. We were pleased, but surprised. But as we hit our stride and the records began to fall faster and faster, they didn’t rate headlines any more. Turning out a ship in ten days’ time was no longer news—that was just the way Americans did things.
Today we’re a big country once more. Again we do things in a big way. Everybody takes that for granted. We’re back in the groove. That’s the first lesson of the war. If ours is a “mature economy,” we can take any amount of it!
There is another and equally important lesson of the war. Back in 1940, when we were just beginning our defense program, we were using 3 per cent of our total output to prepare against the threat of war, and we were using 97 per cent for peacetime purposes. As the threat of war steadily increased, we stepped up the proportion that we put into ships and planes and guns, but it was only after Pearl Harbor that we squared off and the production of war materials really began to roll. On V-E Day we were devoting almost a full half of our total output to war purposes.
Back in the early days of the defense and war programs, it was said that the more we sent to war the less there would be for those of us who stayed at home. And it was said that if we were to do our full duty and discharge our full responsibility to our allies, we here at home would have to tighten our belts. It was a question, they told us, of guns vs. butter. We couldn’t have both. Now, that looked like a sensible proposition. But it didn’t work out that way.
The more we produced for war, the more there was left for the rest of us. That wasn’t true of everything, of course. We, at home, had to go without new cars and refrigerators and lots of other things. And the gasoline rations were pretty thin and fuel oil was barely sufficient to squeak by on.
On these things we tightened our belts, all right. But the sum total of all the goods and services that were available to us here at home was actually bigger at the peak of the war effort in 1944 than it was in 1940, and above what we had in the years before that. In other words, the standard of living of the average American family actually increased, at the same time that we were putting nearly half of all our production into winning the war.
How can we explain that kind of arithmetic? The answer is very simple. Great as were the needs of war, our ability to increase our production was far greater still. Therein lies the second lesson we must learn from the war. When we are all working at our full capacity, there is almost no need among us that must go unsatisfied.
During the war, by producing up to our capacity, we had enough to win a crushing victory over our enemies and to raise our standard of living, too. It follows that if in peacetime we all continue to produce at our capacity we can rebuild this country—our cities, our factories, our highways, our homes—and at the same time raise our standards of living, expressed in food, clothing, automobiles, modern household equipment, and recreation, far beyond anything we have ever known before.
Clearly we must learn how to make our economy function for the benefit of all of us and not simply to feed the endlessly destructive appetite of war. And learn we shall, for our wartime record of production will stand forever as a barrier against ever going back to the scarcity condition of 1940. On that I am myself utterly convinced. Our people will simply not permit that to happen, for now they know it does not have to happen.
Now we come to the question of how we got this tremendous expansion. What magic was it that raised our national production from 100 billion dollars to 200 billion dollars? (Allowing for changes in the price levels, that’s an increase in actual production of roughly 75 per cent.) Part of i t, of course, was the fact that in the time of national crisis everyone put his shoulder to the wheel. That was important. Part of it was the expansion of our plants and facilities that broke the bottlenecks holding back production. Some of these plants were built by private capital. Others, most of them, in fact, were built with government funds.
But when you add it all up it was government contracts that increased our prewar national output so sharply. It was the government’s spending of billions of dollars, made necessary by war, that put men to work in the shipyards, the engine factories, the aircraft plants. It was government wartime spending that put dollars into the payrolls of American industry, dollars that in turn got spent by millions of individuals on food and clothing and haircuts and everything it takes for daily living; dollars that were spent and spent again and again, each time putting more men to work to produce more goods.
So great was the expansion of private spending, fed by the billions which the government was spending, that the money we all had available to buy goods began to outstrip the available supplies. The result was a bidding up of prices that pushed the cost of living steadily and dangerously upward. That was when the government stepped in with a vigorous program to keep down rents and prices.
This was in sharp contrast to the government programs of the middle thirties. In those days the need was to raise wages and restore profitable prices, to pump out purchasing power to put millions of men to work and to get the wheels of industry spinning. During the period of war we found it necessary to put ceilings on wages and on prices because, with all of us working, our total purchasing power was more than enough to take off the market all the civilian goods we could produce in addition to our military production.
The Lessons of a War Economy
As a last resort unlimited government spending can be used to produce jobs in peacetime, just as in war. But government spending beyond a certain point is not, as we shall see, the solution to our economic future. During the war, government spent 300 billion dollars on guns, planes, and ships. It left us with a national debt of about 265 billion dollars, calling for annual interest payments of over 5 billion dollars. We spent that money, we incurred that debt, not because we liked it, but because we had no choice.
There is a lot of government spending that is necessary in peacetime in order to get the educational and health services, the dams and power developments, the highways, schools, hospitals, and recreation facilities, that our government alone can provide. And there will be times when government spending will have to be increased above normal levels to keep our economy running at full blast. But as I shall point out in later chapters, government investment is only one, and not even the most important, of the tools which are available to us in our program to free our economy of depression and unemployment, and to enable us to move ahead to new heights of prosperity.
Before we get down to methods, however, there is another lesson of the war that I want to point out. In some ways, it is the most important of them all. The surging expansion we achieved during the war didn’t just happen. It was no accident. It was planned that way, even though on some of the plans we held our breath.
I have had some experience in the war program myself, and I do not deny that there was a lot of fumbling, a lot of mistakes, a lot of working at crosspurposes, a lot of unnecessary irritation. But I think no one can question that in spite of all the errors this was the most brilliantly fought war in our history—on the battle fronts and on the home front, too. Everything we have learned about how the Germans and the Japs operated confirms this conclusion. Our enemies didn’t even approach the imagination, the boldness, and the hard, cold drive and determination that went into the war program here.
And the contrast between what we did and what our enemies did is no greater than what we did this time and what we did in World War I. Those who are old enough remember the mess that was made of transportation in the other war when freight trains feeding Atlantic shipping were backed up clear to Pittsburgh for weeks at a time. The government was forced to step in, completely take over the railroads, unsnarl the traffic, and run them as one gigantic national system until the end of the war.
Contrast that with the record this time, when the railroads, operating from the outset under government guidance but private management, successfully overcame every difficulty and carried a load of freight and passengers nearly twice as great as ever before. To be sure, the service for civilians left something to be desired, but the job got done and it got done without anyone’s even suggesting that the government really would have to take over.
What was true of transportation was true up and down the line. It was true of production, it was true of shipping. In World War I, we struggled to get our shipping production up to 4 million tons a year. We finally made it—in 1920, two years after the war was over. Match that up against the record this time! We struggled just as hard in the last war to step up our production of Liberty motors for airplanes. And we produced lots of them, but only three got into action over France. Again what a difference this time! All this wasn’t by chance. We got the production we needed when we needed it because the War Production Board, and the War Manpower Commission, and the Office of Defense Transportation, and all the others were in there to see to it that men and the materials got to the factories when they were needed to get the output that was scheduled. The right things in the right place at the right time, that’s what made the record in World War II.
Our record this time resulted from teamwork—the co-operative effort of all of us working together with our government. Farmers, factory workers, clerks, stenographers, and businessmen—each was determined to outdo the others in making our wartime economy hum. And we learned that our united strength was overpowering.
In the past, as we viewed our meager output, we assumed that the path to individual prosperity lay in getting a bigger share for the economic group to which we belonged. The war taught us that by working together on a basis of mutual give-and-take we could produce far more, not only for our war machine but for ourselves. That’s one lesson we must never forget.
I’ve already pointed out some of the things it took to get the tremendous output this time, but still another, I am sure, was the economic stabilization program.
This is an awfully complicated economy we live and work in. It operates through the play and interplay of literally millions of prices on millions of individual items and services. When a heavy load is suddenly put on it, those prices, and therefore our whole economy, can get out of whack in a hurry. That’s what happened in the First World War, with serious consequences.
Not many people know that in that war we hit our peak industrial production in the months immediately following the declaration of war in 1917 and that thereafter, in spite of all we could do, production went gradually downhill. Nor do they know that from 1914 to the 1917 peak year, the increase of industrial production amounted only to a meager 26 per cent.
In the last war, failure to stabilize prices and rents threw our whole system out of kilter. No businessman could tell from one day to the next what his costs would be. Few producers could tell whether, when their operation was finished, they would come out with a profit or a loss. That’s one reason why, while prices more than doubled, industrial production increased by only one quarter. In 1919, as a matter of fact, with prices rushing steadily upward, production dropped 6 per cent.
This time we kept a firm grip on the price and rent level. In spite of almost unbelievable pressures, the increase in industrial prices was held to about 25 per cent, with only one tenth of the increase coming in the last two and one half years of the war. In this war it was industrial production instead of prices that more than doubled. We not only had the right things in the right place at the right time—we had them by and large at the right costs and the right prices.
Let me say once more that whatever the fumbling and the mistakes, whatever the bureaucratic red tape, and the irritations, this will go down as the best-run war in our history. Never before has our government, representing all of us, better understood what its own responsibility was.
And as government saw its responsibility for overall planning and leadership, so too did every major group in the country, our farmers, our workers, our businessmen. Each saw what it must contribute and each measured up. More than that, each recognized the responsibilities of all the others. And so a mighty nation, pulling in harness, rose from triumph to triumph.
The lesson, it seems to me, is this. When we are united we are unbeatable. When each group among us—farmers, and workers, and businessmen, and government—recognizes its own responsibilities and the responsibilities of the others, we have the basis for unbeatable teamwork.
That’s something we didn’t know in the thirties. That’s something we mustn’t forget in the years that lie ahead.