War-Without-Profit

One day last week in the book department of Hearn's, downtown Manhattan department store, newshawks rushed in to interview an author who was autographing his books, Williams of West Point, Williams on Service. Instead of asking him literary questions, they asked his opinion of NRA. Said General Hugh S. Johnson, author of juveniles: "It is dead as a dodo --and that is extinct." Then, by way of literary gossip, he dropped the fact that the day before he had had a three-hour talk with President Roosevelt. What that talk concerned the President revealed two days later when he announced: "The time has come to take the profit out of war." To take the profit out of war the President appointed a special committee headed by General Johnson and Bernard Mannes Baruch.

When Franklin Roosevelt took office the course of study for him and the U. S. was well defined: Recovery and Reform. For 21 months he and the U. S. stuck close to this curriculum. Last week's announcement on war and profits marked the President's first major digression into the field of extracurricular activity.

Even at that, he was only following U. S. public interest, not leading it. Within the last few months munitions and their manufacture have become the stuff of which headlines are made. Ever since the War the U. S. has teemed with anti-war feeling. The veterans had it. Public-spirited citizens had it. Women's clubs had it. Priests and preachers had it. Men might scratch their heads over the rights and wrongs of social or economic questions but it took no second thought to agree that War was Evil. Enthusiastically the U. S. plumped for limitation of naval armaments in 1922. Enthusiastically the U. S. plumped for Secretary of State Kellogg's multilateral treaty renouncing war as an instrument of national policy. Enthusiastically the U. S. plumped for embargoes on arms shipments to China, to Bolivia, to Paraguay.

As the years passed and one peace measure after another was adopted without apparently making the world any more peaceable, the cause of peace began to run short of good ammunition. Early this year the gunners against war found fresh shot; shell for their crusade in the munitions business itself. A few writers and editors, headed by Quincy Howe, took up the cry that armament makers incite war for their own economic advantage. Last March FORTUNE pointed up the issue in an article setting forth the primary facts of the world arms trade. Editors found the peace-hungry public liked it and the headlines grew. In Congress Senators Nye and Vandenberg proposed an investigation, got nowhere. Then with one eye cocked on the peace clubs about the land, Senator Nye offered an amendment to the 1934 Revenue Act placing a tax of 95-c- on all incomes in excess of $10.000, effective the day the U. S. next declares war.

Senator Pat Harrison as chairman of the Finance Committee did not want the Nye amendment tacked on to the Administration's tax bill. Last April he made a deal with Senator Nye: If the amendment was withdrawn the Administration would let the munitions investigation go through. The bargain was consummated, though the White House never really approved of the Nye inquiry.

Reason for the Administration's distrust of the Nye investigation was that the Government understood well enough the true facts about the U. S. munitions industry. Not only is it small fry compared to the European arms industries, but the men who run it are typical U. S. businessmen who abhor, in typical U. S. fashion, the idea of fomenting war for profit. The big arms makers of Europe may not be above such skullduggery, but up to last week Senator Nye's committee had produced no shred of evidence to prove that U. S. arms makers had stooped to such practices.

Undoubtedly the State, War, and Navy Departments foresaw some of the evidence that has been produced: that U. S. arms makers had greased the palms of foreign officials who bought their arms; that the U. S. Government was inclined to wink at such bribery as long as it was not too flagrant; that War and Navy officials had encouraged and, in some cases. may even have assisted the sale of U. S.-made arms to foreign countries. The Government's purpose in so doing was plainly to keep the life blood of profit flowing through U. S. arms factories in peacetime as a measure of good national defense in case of war.

These facts were just developing in last week's testimony when--Pop! President Roosevelt called in newshawks, announced that he had appointed Messrs. Baruch, Johnson, Secretaries Hull, Morgenthau, Dern, Wallace, Swanson, Perkins, General Douglas MacArthur, Chief of Staff, Assistant Secretary of the Navy Henry L. Roosevelt, Rail Coordinator Joseph B. Eastman and Foreign Trade Adviser George N. Peek to take the profit out of war. The announcement knocked the Senatorial inquisitors completely out of the spotlight.

Cried Senator Nye: "The Departments of our Government are really co-defendants with the munitions industry and the profiteers. Instead of letting those departments now write the remedial legislation let us first have the full knowledge of the part they have played in creating the need for remedy. ... It is amazing to me that efforts would now be made to seem to check and halt the work of our committee. . . ."

Cried Senator Vandenberg: "It would be exceedingly unfortunate . . . if any premature conclusions, no matter how nobly meditated, should result. . . . The White House conference ignores our first hand information. . . ."

President Roosevelt had several good motives for his action:

1) The State Department has been irate ever since the munitions inquiry began in September over the disclosures of graft paid to foreign officials: "Commissions" to the head of the Nicaraguan National Guard with the knowledge of President Sacasa; "presents" to General Padilla, Guatemalan Minister of War, to permit the importation of "sporting" guns; to a Mexican general "to make his life more pleasant" to a citizen of Honduras who "always gets permits because he advances money to public officials including the President himself" a 4% commission to Chinese officials on a Chinese powder purchase. This a du Pont official admitted was a bribe, adding "it is an old Chinese custom." The State Department, which knows that such customs in China, Latin America or anywhere else will not be changed by official indignation in Washington, sees nothing to be gained by arousing the wrath of the foreigners with whom it must deal daily.

2) The War and Navy Departments do not want U. S. arms makers, on whom their preparedness plans are based, to be tarred, feathered and crippled to make a publicity holiday for Senator Nye. They have sufficient difficulty in getting what they regard as adequate appropriations for themselves. From their standpoint, if foreign governments can be induced to buy U. S. arms, that is a cheap way of supporting the Army's and Navy's own arsenals: du Pont, Remington, Winchester, Colt, et al. In last week's Senate testimony it was brought out that Chief of Staff MacArthur in former years made speeches in the Near East to promote the sale of U. S. arms. A munitions scandal might tar the War and Navy Departments with the same brush used to tar their friends, the arms makers.

3) "Taking the profit out of war" is a popular cause and the President would be well justified as a political opportunist to take it away from the Republican Senators who are running the current investigation.

When President Roosevelt seized his new issue, he was flying off at no radical tangent. He had the conservative precedent of Presidents Harding, Coolidge and Hoover, all of whom piously urged that the profits be taken out of war. A War Policies Commission headed by Republican Secretary of War Hurley drafted such a plan (TIME, May 25, 1931). It called for freezing prices during war and establishing taxes that would take 95% of any man's or corporation's war profits in excess of his average for the previous three years. It also called for drafting all man power--which meant workers at home as well as fighters at the front. To this last provision Labor bitterly objected. When the plan went to Congress the House struck out the drafting of man power. With the bill thus emasculated it was allowed to die. Franklin Roosevelt was but resurrecting the dead.

Although Senator Vandenberg was a member of the original War Policies Commission he did not like to see a Demo- cratic President supporting his old plan at a time when it might interfere with new sensations from the investigating committee. Bitter against the President, he and Senator Nye got to work to regain the spotlight. Hastily they shifted from munitions to profits, made public a list of 181 people who had had incomes of $1,000,000 or more a year either just before, during or shortly after the U. S. entered the War. If the Press wanted to call the persons listed "war profiteers," Senators Nye and Vandenberg certainly would not stop them. Included were several du Ponts, steelmen like Andrew Carnegie, and oilmen like Ernest W. Marland. Also included were some 25 women, George Ehret who had a brewery in Manhattan, George Eastman who made Kodaks, Henry Ford, his old partner James Couzens and the Dodge Brothers, Cyrus Curtis who made the Saturday Evening Post, James B. Duke who made cigarets, James W. Cannon who made towels, Frank Woolworth who sold 10-c- things, Julius Rosenwald who sold other things by mail, William Wrigley Jr. who made chewing gum and many another "munitions" maker. Finding himself on the list Vincent Astor bitterly protested that he had owned stock in no company that made war materials, had his interests almost entirely in Manhattan real estate which was harmed rather than helped by the War. Similar protests came from Ogden L. Mills who declared that his own income was $138,000 a year, and that his father, the late Ogden Mills (who was meant) had owned no arms stocks.

Also the Committee dumped out an undigested mass of material which was supposed to show the huge war profits of a number of companies: Calumet ;; Hecla (copper) Mining Co. 800% ($9,500,000) in 1917; the Bethlehem Loading Co., 362% ($151,000) ;U. S. Steel 35% ($585,000,000) in 1917, the big four packers, 400% ($140,000,000) from 1915 to 1917. No mention was made of the fact that the packers, who make money rapidly when prices rise, lost their shirts when prices fell after the War.

But the Committee was out to regain its lost ground by making new sensations. Senator Nye decided to grab a sure-fire headline getter when he announced that he would investigate J. P. Morgan; Co. because "no exhaustive study of the munitions business is possible without a knowledge of its financial agents."

Eager also to make things hot for the Administration, the Committee pried out of a Marine Corps lieutenant who served as a White House aide last year an admission that he made tentative but fruitless efforts to set himself up in the business of selling arms to foreign countries.

In picking Mr. Baruch to head his own War-Without-Profit committee, the President was going to no such extremes as Mr. Nye would like. In most nations youthful hotheads demand war, but, according to the Nye theory, the rich are responsible. The Baruch theory does not aim to make the rich poorer because of war but to keep them--and everyone else including labor --from increasing their wealth as a result of war.

Said Mr. Baruch last week: "I would take the profits out of war by putting a ceiling over prices and profits, above which no prices and profits could go. Thereafter, a tax program should be enacted that would take away, in totality, the spread between the selling prices and the costs, plus a reasonable return. . . . "

In addition to the tax on profits, there would have to be parallel planning providing for control over all prices, goods, foods, rents, wages, services; in short, of all activities that yield profit."

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