The Wall Street Journal

March 16, 2005




Broad Coalition Sought
To Take the Profit Out
Of War Following WWI
March 16, 2005; Page B1

About halfway between World War I and World War II, an unlikely coalition of American Legionnaires, pacifists, farmers and religious groups thought they might have figured out a way to end war forever: Take the profit out of it.

These were the Depression years, and economic deprivation was widespread. The gap between the haves and have-nots was vast and galling to many. Working-class families who had lost a loved one (and in some cases a breadwinner) on the battlefields of Europe resented the lavish compensation paid to executives of companies that sold war materiel to the government.

In 1917, for example, Eugene Grace, president of Bethlehem Steel, whose prewar salary was $12,000, received a bonus of more than $1.5 million. Goodyear Tire & Rubber's president earned $12,000 in 1914; three years later, his salary had jumped more than 600%, to $75,000.

By the early 1930s, a growing chorus of voices had begun accusing America's munitions makers of being "merchants of death," and in 1934 a book by that title became a Book-of-the-Month Club selection. The feeling, writes Matthew Ware Coulter in "The Senate Munitions Inquiry of the 1930s," was that "the arms makers and bankers had grown rich while the fighting men suffered."

The most extreme critics even claimed that World War I was caused, at least in part, by arms dealers fomenting paranoia among hostile nations. Wars, said Gerald Nye, a Republican senator from North Dakota, "are caused by fear and jealousy coupled with the purpose of men and interests who expect to profit by them."

In 1934, in response to political pressure to nationalize or regulate the arms industry, Congress created a committee to investigate whether U.S. companies had acted illegally or unethically during and after World War I. Led by Mr. Nye, the committee held 93 days of hearings and questioned more than 200 witnesses.

The committee didn't uncover any evidence of illegal activities, but many embarrassing details of the arms makers' operations were revealed. During the war, for example, the War Department negotiated "cost-plus" contracts with many of its 100,000 suppliers. But "cost" was broadly defined by some companies -- including, for example, a yacht, a trap-shooting tournament, Christmas gifts, tobacco, alcohol and executive raises.

DuPont, the nation's biggest munitions maker, "gained great wealth from the war," writes Stuart D. Brandes in "Warhogs," a history of war profits in America. "It seemed reasonable to some ... that the firm must have yearned for war in order to fatten its earnings."

The year before America entered the war, the company charged Britain $1 a pound for gunpowder, double the prewar price. After America joined the war, the War Department asked DuPont to build a new powder-making plant, offering the company a guaranteed profit of $1 million. Instead, DuPont sought a guaranteed profit of 15%, to a possible maximum of $13.5 million, though the government refused to pay that much. "We cannot assent to allowing our own patriotism to interfere with our duties as trustees," wrote Pierre DuPont in a 1915 letter.

In 1935, the NYE committee proposed war-profits legislation. The idea was that no company should make huge profits while the country was at war. So companies would have to pay a 50% tax on profits up to 6% of capital value, and 100% on anything more. Meanwhile, during time of war, individuals would pay a 100% tax on any income over $10,000. "You ought not be accused of unreasonableness when you ask a man to run a factory for the same sum that you pay a general commanding in the field," argued John T. Flynn, a member of the committee's advisory council.

But executives of munitions-making companies responded that war was actually bad for business. Wars are short, said Mr. DuPont, and they require expensive retrofitting of factories, as well as intensive training of new and usually unskilled workers. Then, when the war ends, manufacturers are frequently stuck with surplus. Furthermore, the executives argued, to discourage companies from manufacturing and selling weapons, both in the U.S. and abroad, could mean that America would be ill prepared for another war.

In any case, antiaircraft guns made by Driggs Ordnance & Engineering were defensive weapons, the company's president, Louis Driggs, told the Nye committee.

Couldn't such guns just as easily be used by an offensive army against defensive aircraft, asked Bennett Clark, a Democratic senator from Missouri.

Mr. Driggs responded by wondering aloud how one could distinguish between a weapon that might help your country win a war and one that would be used as an instrument of mass murder.

"That depends entirely on what you term an adequate national defense," said the isolationist Mr. Nye. "Does national defense mean that people should go to all corners of the earth to wage war?"

No matter. The proposed legislation went nowhere. World War II was approaching, and the Nye committee was at odds with President Roosevelt. His chief concern: ensuring that corporations would cooperate with the war effort.

 E-mail comments to cynthia.crossen@wsj.com1.
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