*** World War II -- arsenal of democracy and William Knudsen









World War II: The Arsenal of Demoracy--Harnessing Free Market Capitalism


Figure 1.--The role of American free market capitalism is often not discussed in World War II histories. Unlike the Soviet Union and Axis countries, American industrialists played a key role in designing the industrial mobilization plan. The United States had the largest industrial economy before the War which because of the Depression was operating at a fraction of capacity. Not only was that economy fully mobilized for war after Pearl Harbor, but American corporations built whole new plants and shipyards. The Ford Motor Corporation, an automobile company, created the Willow Run aircraft plant from a farm field. The production statistics are staggering. Here it is operating in 1943. At its peak in 1944 it produced 650 B-24s a month. In contrast, the Germans did not even build 300 Focke-Wulf FW-200 Condors, the Luftwaffe four engine heavy bomber, during the entire War. And Willow Run was just one American plant. The B-17 and B-24 were the principal bombers the United States used for the strategic bombing campaign in Europe, The B-24 was also used extensively in the Atlantic and Pacific because of its great range. Image courtesy of the Military History of the 20th Century.

Hitler launched the long-awaited Western offensive (May 10). President Roosevelt had hoped that the Allies would be able to stop the Germans with American material support. The Deutsche Wehrmacht proved him terribly wrong. Within only 5 days the Netherlands surrendered (May 15). And the Dutch Army at the time was about the same size as the U.S. Army. General Marshal told President Roosevelt that if the Germans landed five division in America, there would be nothing that the U.S. Army could do to stop them. Belgium surrendered 2 weeks later (May 28). The Belgians who had effectively resisted the German at the start of World War I, surrendered 2 weeks later (May 28). At the time the British and French were attempting to escape the German Panzers at Dunkirk. At first it looked like few of the men could be brought off the beach. In that environment, President Roosevelt picked up the phone and made certainly the most important telephone call of the War. And he made it to a very unlikely person--William Knudsen. Knudsen was an ardent Republican who had vocally opposed the President for 8 years and the very embodiment of the individuals who the President had called economic royalists. To the credit of both men, the put aside partisan differences and cooperated to save not only America, but the the Free World as well. The United States had the greatest industrial potential of any country. But potential had little practical meaning in the current crisis. American industry was not geared for war. The United State was not even manufacturing tanks despite what had transpired in Europe. And there was not realistic plan for converting American industry for war. Nor was there any expertise in Washington for beginning the effort. This is why Roosevelt called Knudsen. And the team of other Roosevelt-hating Republicans that Knudsen put together accomplished the most remarkable industrial transformation in history. By the times Japanese bombs fell on Pearl Harbor, American arms production had equaled that of NAZI Germany--and that was just the beginning of an American industrial tidal wave which would overwhelm the Axis.

Crisis in Europe (May 1940)

Hitler launched Case Yellow, the long-awaited German Western offensive (May 10). President Roosevelt had hoped that the Allies would be able to stop the Germans with only American material support. Many at the time saw the French Army which stopped the Germans in World War I as the strongest army in Europe. The Deutsche Wehrmacht proved President Roosevelt him and others terribly wrong. Within only 5 days the Netherlands surrendered (May 15). And the Dutch Army was about the same size as the U.S. Army at the time. General Marshal told President Roosevelt that if the Germans landed five division in America, there would be nothing that the U.S. Army could do to stop them. Belgium surrendered 2 weeks later (May 28). The Belgians who had effectively resisted the German at the start of World War I, surrendered 2 weeks later (May 28). At the time the British and French were attempting to escape the German Panzers at Dunkirk. At first it looked like few of the men could be brought off the beach and the British Expeditionary Force was doomed. The surrender of the Belgians almost ensured a German victory. It looked like America was about to lose its European allies, not only France, but Britain as well. Democracy was on the brink of being extinguished in Europe. This was certainly the most devastating foreign policy crisis in American history. The President clearly had to act, but with the American public adamantly opposed to entering another European War and without a sizeable army, his options were limited. The powerful isolationist movement was already criticizing him for the limited aid given to the Allies.

Economic Royalists

President Roosevelt may be the most vilified president of the 20th century despite his immense popularity with the American public. This began largely after the First Hundred Days. Like Presidents Bush and Obama, his first action was to save the banking system. The next step for President Roosevelt was taking America off the gold standard which was more controversial. It was after the First Hundred Days, however, that the vociferous criticism of the President began. Not well understood at the time was the extent to which misguided public policy by Republican President Hoover and the Democratic-controlled Congress turned an ordinary if sharp recession into the Great Depression. The causes of the Great Depression are now much better understood than at the time. Many Americans after the Stick Market Crash turned into the Depression began to believe that free enterprise market capitalism had failed or was deeply flawed. This was the feeling of many who had joined the New Deal. There is no doubt that welfare programs of some nature were needed to alleviate the great suffering of the unemployed or farmers thrown off the land. Conservative Republicans did not fully appreciate this. Few New Dealers on the other hand appreciated that their well-intentioned efforts might be affecting the ability of the free market to recover. Some saw the need for Government oversight and that Soviet- or Fascist-style government controls as a more modern approach than Adam's Smith 'invisible hand'. As a result, relations between industrialists and President Roosevelt and his New Dealers steadily deteriorated. The Liberty League accused the President of attempting to found a dictatorship. And the President's language also became more strident. One of the terms he began using was 'economic royalists'. This emerged at the 1936 Democratic Convention. The President said as part of his speech accepting renomination, "And so it was to win freedom from the tyranny of political autocracy that the American Revolution was fought. That victory gave the business of governing into the hands of the average man, who won the right with his neighbors to make and order his own destiny through his own government. Political tyranny was wiped out at Philadelphia on July 4, 1776. Since that struggle, however, man's inventive genius released new forces in our land which reordered the lives of our people. The age of machinery, of railroads; of steam and electricity; the telegraph and the radio; mass production, mass distribution - all of these combined to bring forward a new civilization and with it a new problem for those who sought to remain free. For out of this modern civilization economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, new machinery of industry and agriculture, of labor and capital - all undreamed of by the Fathers - the whole structure of modern life was impressed into this royal service. There was no place among this royalty for our many thousands of small-businessmen and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer. Even honest and progressive-minded men of wealth, aware of their obligation to their generation, could never know just where they fitted into this dynastic scheme of things. It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man." [Roosevelt] He went on to say that these economic royalists 'hide behind the flag and the Constitution'. No other president in American history up to that time had so sharply criticized big business in America, even Teddy Roosevelt who took on the trusts.

The New Deal and the Depression

The New Deal was the Roosevelt Administrations effort to end the Depression. It involved unprecedented Government intervention in the economy, including massive fiscal stimulus. It also included a wide range of social reforms. A litany of alphabet agencies were created to oversee the stimulus and social programs. The Supreme Court struck down many of the initial programs, but President Roosevelt replaced them with new programs and agencies. Economists and historians continue to debate the New Deal. Much can be said on both sides of the argument. Despite the intense scrutiny, the popular understanding is that the New Deal ended the Depression. Now a case can be made that the New Deal aided destitute Americans, that it brought electricity to rural America, employed CCC youth on worthwhile projects, and did many things. The New Deal enacted a badly needed old age pension fund (social Security). What can not be said about the New Deal is that it ended the Depression. Much of the debate over the New Deal is subjective involving different value systems. Ending the Depression is, however, something that can be measured objectively. Unemployment is one, but not the only, measure that can be used. Not only did unemployment spike up with the so-called Roosevelt Recession (1937-38), but that unemployment still totaled 17 percent in 1939, and this just assesses those still seeking work, not workers who has given up and dropped out of the labor market. These are undeniable hard facts. Despite the clear facts, it is astonishing the number of Americans who believe that the New Deal ended the Depression.

Presidential Shift in Tactics

As a result of the Roosevelt Recession (1937-38) and rising unemployment, the Democrats suffered severe losses in the 1938 mid-term elections. Conservative democrats kept their seats, but many New Dealers lost their reelection bids. They ere replaced by a substantial number of conservative Republicans. The Democrats maintained majorities in both houses, but the margins narrowed. And the President increasingly had to rely on the support of conservative Democrats. This is essentially ended the New Deal. While the President had campaigned for the New Dealers who lost their seats, the shift in Congress marked changes in the President's thinking forced on him by events in Europe. Just before the election, Hitler forced Britain and France to back down and abandon Czechoslovakia at the Munich Conference. It was increasingly clear that Europe was headed for another war. And the President found that many of the conservative democrats he had campaigned against were some of his strongest supporters in preparing America for that war. Here he faced growing opposition from the powerful Isolationist Movement. The President immediately after Munich and the 1938 elections began ratcheting down his rhetoric against industrialists. A good example of this shift and his famed charm was a speech delivered at the University of North Carolina (December 5, 1938) upon receiving an honorary degree. The President said, "You have heard for 6 years that I was about to plunge the nation into war; that I was driving the nation into bankruptcy; and that I breakfasted every morning on a dish of grilled millionaire. Actually I am an exceedingly mild-mannered person--a practitioner of peace both domestic and foreign, a believer in the capitalist system, and for by breakfast, a devotee of scrambled eggs." While some industrialists were confirmed isolationists, most were not. It was the beginning of a marriage of convenience that would play a critical role in World War II.

Telephone Call to Knudsen (May 28)

President Roosevelt who for nearly 8 years seemed unwilling to try supply side efforts and unleash free market capitalism to end the Depression, face with the crisis in Europe decided to do just that to stop Hitler and his Axis allies. He decided to ask big business to help gird America for war with the Axis. At the height of the crisis in Europe, the President picked up the phone and made certainly the most important telephone call of the War (May 28). Actually the President first called Bernard Baruch who he knew personally. Baruch had served during World War I to oversee industrial mobilization. Baruch demurred, largely because of his age. But the fact that industrial mobilization in World War I was not a resounding success may have been a factor. But in fairness to Baruch, he was only appointed at the end of the War and the War was over before American industry could retool for War. American trucks did play an important role, but the American Expeditionary Force (AEF) largely fought with British and French weapons equipment. The President then asked Baruch to recommend three other industrialists who were suited for the job. Baruch replied succinctly, "First, Bill Knudsen. Second, Bill Knudsen. Third, Bill Knudsen.� [Herman. Forge] Roosevelt then made the call to a very unlikely person--William Knudsen. The arch critic of big business in America was calling the president of General Motors, the largest and most important industrial corporation in America. Knudsen was an ardent Republican who had vocally opposed the President for 8 years and the very embodiment of the individuals who the President had called 'economic royalists'. Knudsen was not, however, like quite a number of Republicans an isolationist. Republicans in Congress were the center of the Isolationist Movement resisting the President's efforts to oppose Hitler in Europe. The import of what the President did is often overlooked. He did not create another New Deal Agency to direct industrial mobilization, but chose an industrialist who would create a voluntary, fee market approach to mobilization.

William Knudsen (1879-1948)

Knudsen was born in Copenhagen, Denmark (1879). His name was Signius Wilhelm Poul Knudsen. He obtained a technical education and worked as a bicycle repairman. He emigrated to America as a young man (1900). He arrived in New York virtually penny less. Knudsen got a job with the John R. Keim Company of Buffalo, New York. The Ford Motor Company bought the company (1911). Ford needed its steel-stamping experience and tooling. Knudsen worked for Ford (1911-21). This was the period in which the modern assembly line and true mass production began in America. Nothing comparable occurred in Europe. Knudsen moved to General Motors. In the process he became perhaps the world's greatest expert on mass production and developed as a very skilled industrial manager. While beginning on the shop floor, his expertise was noted and he rise to become president of the Chevrolet Division of General Motors (1924) and finally president of General Motors itself, replacing Alfred Sloan. (1937). Knudsen never lost his love of Denmark. He was appointed a Knight of the Order of the Dannebrog by his native country (1930). He was appaled by the German invasion (1940).

American Industrial Potential

The United States had the greatest industrial potential of any country. At the time of World War II, the United States had an industrial capacity greater than all of the Axis powers combined. The United States in fact was the only country capable of fighting a two front war. The American people were, however, adamant about not fighting in another European War. A decade of Depression had adversely affected industrial America. Most plants were running at only partial capacity. Many companies had gone bankrupt. Even so the American industrial capacity was vast and even more than World War I, World War II would be largely decided by industrial output. Potential had, however, little practical meaning in the current crisis. Reich Marshal Herman Göring phrased it succinctly, "The Americans cannot build aeroplanes. They are very good at refrigerators and razor blades." The Reich-marshal was not far from right at the time. (Even Göring knew, however, that this was bluster. He also said, "Whenever I hear the word culture, I reach for my Browning!") Hitler was in fact aware, although not fully aware of the danger. As a result, he attempted to avoid a class with the United States, U-boats in the North Atlantic were ordered to avoid encounters with American ships. He hoped to avoid war with America until he had first defeated the Soviet Union. Than he would deal with America. The United States was not manufacturing arms in any quantity at the time France fell. And the U.S. Army did not even have modern weapons like tanks. It was, however, building modern aircraft in small numbers. (The famed B-17 was one of the planes being built in small numbers.) American industry was not geared for war. The United State was not even manufacturing modern tanks at all despite what had transpired in Europe. Incredibly then Col. George Patton had to order spare parts from a Sears & Roebuck catalog for his tanks to conduct maneuvers (1939). [Herman. Forge] Not only was American industry not geared for war, but many industrialists were not particularly interested in government contracts. War in Europe was causing an economic revival in America. Many industries were experiencing prosperous conditions for the first time since the Stock Market crash (1929).

Existing Plan

Neither the U.S. Army or the U.S. Navy had any idea how to mobilize American industry for war. And in the middle of a national debate on isolationism, the Government did not have the authority to begin the process. There was a joint Army-Navy plan which consisted of 20 pages, an entirely inadequate, amateurish effort. Many in Washington, like President Roosevelt, knew how America entered World War I without a sizeable army and with no government planning beforehand about preparing for war and shifting the economy to a war footing. And to make matters worse, America's armaments industries were largely dismantled after World war I and were further affect by the Depression.

Knudsen Plan

President Roosevelt and Bill Knudsen, to the credit of both men, put aside partisan differences and cooperated to save not only America, but the the Free World as well. Bill Knuden immediate quit his job with GM and moved to Washington to become a dollar-a year man. He found that there was no realistic plan for converting American industry for war. Nor was there any expertise in Washington for beginning the effort. This of course is why Roosevelt called Knudsen. Knudsen asked for 18 months to persuade companies to voluntarily convert their plants to war production. That was not an easy proposition give that many companies were prospering making consumer goods after a decade of financial retrenchment. The time was needed to not only convince corporate America to convert, but also to prevent the conversion from disrupting the economy. Knudsen promised the President the most massive production of arms in history. This was not what those around the President wanted, including the First Lady. They wanted another massive New Deal, centrally controlled and directed plan under a single administrator. (In modern parlance, a Tsar.) His trusted aid, Harry Hopkins, composed a secret memo to the President, "Democracy must wage total war. It must exceed the Nazi in fury, ruthlessness, and efficiency." Knudsen advised a different approach. Knudsen believed, "If we get into war, the inning of it will be purely a question of material and production" and the best way was to harness the forces and energies of private industry. That was an idea that the President had not heard from his advisers or accepted for nearly 8 years. Knudsen's advise was to clear away restrictive anti-business tax laws and regulations that had held industry back during the New Deal. [Herman. Forge] His advise was for the military to give their orders to the most productive, efficient sectors of the economy (automotive, steel, chemical, and electronics industries). Knudsen envisioned Government spending would follow he 'trail of productivity and innovation' rather than the reverse. Key to Knudsen's vision was a voluntary, decentralized effort. One historian explains Knudsen's thought process. "... the companies would be free to decide on their own which war material they were best suited to bid on, and how to produce it. The point was to reduce Washington's interference in the production process to a minimum." [Herman, 'FDR Lesson', p. A15.] It is unclear just why the President decided to pursue Kudsen's vision. It flies in the face of both his ideological orientation and the New Deals approach in fighting the Depression for 8 years. Could it be that the President at this point understood or was reaching the conclusion that the New Deal had failed?. He never said. What he told the American people was that Dr. New Deal was giving way Dr. Win the War. Interestingly, what the President and Knudsen proceeded to do was what the NAZIs under Albert Speer's guidance did not do until 3 years into the War, forced in the NAZIs by terrible losses in the East. The two plans varied, but were effort to rationalize production. And American capitalism had already created an industrial giant far beyond what was available in Germany. Not only did the factories already exist in America, but also a vast labor force and a financial system which set about creating immense new factories to create the torrent of tanks, planes and ships that would not only destroy Axis armies, but obliterate the very ability of the Axis to wage war.

Other Industrialists

Several individuals played a key role in creating the Arsenal of Democracy. At the top of the list has to be President Franklin Roosevelt who had the foresight to understand the German and Japanese threat, especially the existential German, and began defense preparations early in his administration (1930s). Bill Knudsen was only one of the many industrialists who became dollar a year men and came to Washington to join the Roosevelt Administration and help America prepare for war. Many others like Frederick Jackson Higgins stayed with their companies and turned them into war production dynamos. These were the same people the President had called 'economic royalists'. Their role in preparing America for war is incalculable. Perhaps the best known is Henry Kaiser, another automobile industrialist. It was Kaiser who masterminded the critical Liberty Ship effort. Other important industrialists included: Edward Stettinius (U.S. Steel), Don Nelson (Sears & Roebuck), and many others. American corporations contributed both CEOs and engineers to the effort of preparing America industry for war.

Results: American War Production

Knudsen delivered on his promise in a way that not only amazed the Axis powers, but many Americans as well. The team of other Roosevelt-hating Republicans that Knudsen pulled together accomplished the most remarkable industrial transformation in history. By the times Japanese bombs fell on Pearl Harbor (December 1941), American arms production was approaching that Hitler amassed in NAZI Germany over 6 years. The Japanese estimated that America would not be prepared to launch an Pacific offensive until mid-1943, but thanks to Knudsen and his colleagues, the United States had the needed arms to launch its first offensive of the war only 8 months after Pearl Harbor at Guadalcanal and three months later striking at the Germans with the Torch landing in North Africa. And of course much of Montgomery's equipment at El Alamein was American. The Japanese had joined the Axis thinking the Germans would force the United States to direct its energies at Europe. Thanks to men like Bill Knuden, the United states would prove to be the only county that proved fully capable of conducting war on a global scale, supplying it own armies and those of its allies on multiple fronts. And this was just the beginning of the American industrial transformation. The United States became in a very real sense the arsenal of democracy--a term Knudsen invented. The numbers are staggering. By the end of the next year, American war production exceeded that of the entire Axis (December 1942). The following year found American factories out producing Germany, the Soviet Union, and Britain combined (December 1943). American industry not only equipped American armies, but those of our Allies and the Soviet union to boot. Just the output of Ford Motor Corporation alone would exceed that of the entire Italian nation.

Modern Ideology

Unfortunately because America's great universities have become left-leaning indoctrination camps. Capitalism and the industrial juggernaut it has created have become a dirty word on our campuses. One aspect of this is that the role of the United States has been minimized in the War. We are told now that the it was the Soviet Union that won the War. The War in the West is presented as a side show, with no recognition how Britain and America aided the Soviet Union or forced the Germans to direct most of their industrial power to the West, rather than supporting the Ostheer. A good examples of this is Ken Burn's documentary, 'The War' (2007). Like all the Burns' documentaries, it is beautifully done. But like most of the modern presentations on the war and all too many histories it ignores the capitalism that created an industrial capacity that made the United States a potential military giant. At the beginning of Burns' program, he lists the attributes that defeated the Axis. All were important, but most were attributes the Axis also had. And in some areas such as military professionalism and devotion to duty the Axis actually out-shown the democracies. What made America distinctive and dangerous was capitalism and the massive industrial capacity it had created. No country came close to America's raw industrial power, not to mention its agriculture--all the result of capitalism. America had the largest economy in the world, and during the War it would further out pace the Axis.

Sources

Burns, Ken. 'The War' (2007).

Herman, Arthur. Freedom's Forge: How American Business Produced Victory in World War II (Random House, 2012).

Herman, Arthur. "The FDR lesson Obama should follow," (May 10, 2012), p. A 15.

Roosevelt, Franklin. "A Rendezvous With Destiny". Speech before the 1936 Democratic National Convention, Philadelphia, Pennsylvania (June 27, 1936).








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Created: 9:28 PM 5/10/2012
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