Profiteering

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PROFITEERING

How much profit is reasonable in time of war? This question lies at the heart of concerns about war profiteering between the period 1898 to 1945. Antiwar advocates believed that eliminating profit from war would prevent wars from beginning. Government officials were more concerned about limiting private profits to control the ultimate cost of warfare. The patriotic emphasis on unity and sacrifice during both World War I and World War II helped the government gain public support for regulating war profiteering. In both periods, however, the government only had mixed success holding down illicit wartime earnings, leading to postwar recriminations against American business. The Wilson and Roosevelt administrations were less concerned about how arms dealing led to war, and more interested in controlling prices once their respective wars were under way. During both world wars, the administration tried to ensure that it paid "reasonable" prices for war-related goods and limited corporations to "reasonable" profits.

The three-month Spanish-American War in 1898 was too short for much controversy to emerge over war profiteering. The biggest scandal involved large quantities of canned beef that spoiled quickly in the tropical heat. Critics accused the manufacturer of knowingly selling the military rotten meat. Complaints about shoddy uniforms, obsolete weapons, and costly lumber for army cantonments also surfaced. Lack of preparedness, rather than deliberate attempts by manufactures to bilk the government, was the more probable reason for high costs and supply shortages during the war.

world war i

Concerns about profiteering were the strongest before, during, and after the First World War. The "Merchants of Death" theory, accusing arms dealers of working behind the scenes to encourage war, was popularized by progressives and isolationists active in the antiwar movement prior to America's entry into the war. In the 1930s, evidence collected by the Senate committee headed by Senator Gerald Nye showed only that munitions dealers were quick to take advantage of the new markets that the outbreak of war in Europe created in 1914. Some American companies made truly staggering profits supplying the Allies. Du Pont, which manufactured smokeless gunpowder, doubled its price in 1915 and saw its annual profits skyrocket from $5 million to $82 million. The J. P. Morgan banking firm earned $30 million for its work as purchasing agent for the British. When the Allies ran short of cash in 1915, they began to borrow money from American banks to purchase American-manufactured goods. Postwar critics charged that the United States entered the war in 1917 to guarantee repayment of these loans.

In 1918 the War Industries Board relied on cost-plus contracting that allowed companies to earn a ten percent profit. Many companies found inventive ways to increase their profits by artificially elevating their costs with lavish executive salaries and bonuses. Controlling costs, therefore, required constant vigilance from government auditors. Taxes on excess profits and luxury taxes on goods used primarily by the rich were also intended to limit the accumulation and spending of war profits. Not all corporations used the war to increase their bottom line, however. The Ford Company, for instance, had a contract with the government to manufacture helmets for thirty-one cents each. When Ford discovered that it could make them for ten cents each, the company returned nearly $200,000 to the government.

world war ii

Profiteering remained a potent political issue in the interwar period. In the 1920s, the American Legion and both political parties proposed that the government use a universal draft (conscripting soldiers, workers, and capital) to limit profiteering in the next war. The Nye Committee hearings popularized the notion that trading with warring Europe had set the neutral United States on the path for war. To avoid a repeat of the past, Congress passed a series of Neutrality Laws from 1935 to 1939 that limited or barred loans and sales to warring nations.

When the United States entered World War II, the government tried once again to curb profiteering. The government enacted price controls and instituted an excess profits tax, but Congress was unwilling to authorize an executive salary cap. Rationing consumer goods opened up new profiteering opportunities by creating black markets for nearly all items. Businesses also found legal ways to bolster their war profits by taking advantage of lavish tax incentives designed to stimulate production. Overall, corporation earnings rose between forty-one and seventy-seven percent during the war.

War profiteering contradicted the democratic ethos of both world wars. Instead of sacrificing for the general good, many businesses and individuals used the war to accumulate vast fortunes. These immoral gains helped create a sense of disillusionment in American society after each war, and raised important ethical questions about how the United States waged war.

Jennifer D. Keene