Problems of Plenty

BUSINESS IN 1943

>Aircraft plant equipment had increased 40 times.

>Aluminum capacity had increased sevenfold.

>Steel capacity had increased 15%--in an industry that had operated for six out of ten prewar years at half capacity or less.

>Machine tools had been produced in three times the volume of all ten prewar yean; put together.

>Shipyards had been expanded to produce at 80 times the prewar rate.

But these were only items. The great overmastering economic fact of 1943 was that the U.S. had boosted its 1939 production by a thundering 100%.

In 1929 this industrial machine gave the world a brief vision of the abundance that modern technological organization holds in store. In 1943 the machine, many times more powerful, gave the world an exciting--but frightening--vision of the possibilities in the postwar peace. The achievement which Stalin saluted at Teheran was all the more impressive, Americans realized uneasily, because it seemed unheroic in almost everything except its scale.

Under far greater pressures England had increased her production only some 20%. And there, where the standard of living had been lower than in the U.S., war took 15% from the civilian economy. In Russia and in Germany the civilian economy almost ceased to exist. But in the U.S. the fabulous war-production job had been so fabulously well done that economists claimed that the American standard was one-sixth higher than in 1939.

Crowds in the stores sent retail sales to an alltime dollar peak of $63 billion. In civilian politics there was room to swing many a cat. Strikes, political revolts, administrative squabbles, and all the luxurious bickerings of individuals testified to the lack of war pressure. In fact, war tensions seemed only to have increased the devil-take-the-hindmost attitude. Advertising space was so spangled with waving "E" pennants that it looked like a crowd coming away from a football game.

U.S. business had not only produced $84 billions of war goods in 1943, it had also gone on to produce $90 billion of consumer goods and services as well--an all-time high even after allowing for higher prices (see chart). The people had provided themselves with guns and butter too --the most guns in history, and, if not butter for every meal, with plenty of fur coats to wear between meals.

Unemployment? By the end of 1943 most of the big munitions programs, with the big exception of naval vessels, radar and aircraft, were tapering off at least in their rate of climb. An overall peak was forecast for June. Huge reserves of strategic metals had been piled up. In the plants overtime work was dwindling. In a number of places men had been laid off.

For perhaps the most significant development in late 1943 had been the easing of the manpower shortage (TIME, Dec. 6). Actual surpluses appeared here & there.

Packers called for a pork-rationing holiday as cold-storage space got overcrowded.

Mayor LaGuardia and Leon Henderson, veteran prophets of civilian destitution, were dumbstruck. Manpower Czar McNutt, who had privately argued for a National Service Act early in the year, dropped his dead issue.

In brief, the lesson hastily learned, that in war there is never enough of anything, was now hastily revised. One U.S. Big Businessman, wearily clearing his desk on Dec. 31, muttered: "Next month un employment begins." Thus in 1943 the Gargantuan power of the U.S. industrial machine gave the world a preview of what men really fight for: peace and plenty -- the strength to make a peace binding, and the abundance to make peace worthwhile.

But this was still a distant prospect. The Promised Land was in sight -- but only through telescopic sights. To bring that view to hand, the fabulous machine, long carbureted for an economy of scarcity and now supercharged by war, demanded a complete readjustment. For the production machine had changed not just in size, but in character.

The New Machine. The industrial machine with which the U.S. prepared for war was a mixed producer of capital goods and consumer goods. It had just under gone seven years of determined Govern mental tinkering, mainly directed at making it produce more consumer goods (". . . one-third of a nation ill-housed, ill-clad, etc. . . ."). War calls for incredible quantities of metals, for forgings rather than stampings.

War had completely reversed the trend. The heavy, durable, capital goods section of the machine was vaster than ever. To the National Industrial Conference Board nondurable-goods manufacturers reported plant capacity increases up to 25%; durable goods manufacturers reported capacity increases up to 600%.

The new heavy-goods plants changed the industrial landscape. Of the mastodons, one behemoth exceeded the next -- the Chrysler Tank Arsenal had been dwarfed by Ford's Willow Run, which in turn was outdistanced by Chrysler's Dodge Division airplane engine plant. Huge plane factories had burgeoned at Wichita, Fort Wayne, Oklahoma City and elsewhere.

Basic material capacity had broken into once-rural scenery with aluminum plants on the Columbia and Tennessee, steel works in Utah and Southern California, magnesium plants scattered from the Connecticut week-end country to California's sagebrushed hills.

Pastures into $16 Billions. These plants, which had changed the U.S. land scape -- "four months ago this was a pasture" -- were only a fraction of the total change. The interiors of many existing plants were altered beyond recognition.

The flood of subcontracts reached into every industrial cranny, sprucing up dingy foundries with roller tables, sand reconditioning systems, overhead cranes, chemical and temperature controls, and fitting out belt-driven machine shops with everything from a Jones & Lamson Comparator to a truckload of light delta drills lugged in from the basement store of the local Sears.

Plants from which men used to retire at 45 because of hernia were now fit places for women to work. The huge undertaking of the big corporations -- 31 companies operated 50% of the total Government investment -- obscured but could not hide the enormous effect of the boom on the rank & file of the nation's thousands of workshops.

Counting everything from handsaws, screwdrivers and light machines to fractionating towers, railroad sidings, dams and shipyards, the new industrial investment from July 1940 to the end of 1943 came to something more than $20 billion.

Of this some $16 billion was in Government-controlled plant and equipment. Al lowing for some inflation in the cost of the new and for some excess in depreciation of the old, the prewar industrial machine, valued roughly at $50 billion, had been enlarged by perhaps one-third -- with most of the increase in the heavy producers' goods industries.

Reconversion. As the final outlines of this huge and greatly altered machine emerged, "reconversion" of it became a main U.S. anxiety, not only of business men. From General Motors' Alfred P. Sloan Jr. to C.I.O.'s R. J. Thomas, men came forward with suggestions, queries, plans. In Washington elder Statesman Bernard Baruch, adviser on reconversion, prepared to break his peace, averring only in advance that the Government agencies which had wound the machine up should preside at its unwinding.

The feverish demand for the reconversion rules perhaps masked a deeper anxiety -- could anyone run this machine, on any terms, in any peacetime economy? Would the goods from reconverted plants find a market? Who was going to use 95 million tons of steel a year, for instance, when the former peak production of over 5 million cars had required less than 15% of that? The simple fact was that every plant built for war couId be converted to some peacetime use, but many plants built for war could not be converted to making consumer goods. A tank factory can make bulldozers and locomotives. A shipyard can make pressure vessels for refineries and chemical plants. A gun-works can make machinery. A steel mill can make rails and girders. But a heavy duty press cannot be converted to making Wheaties; nor is a shipyard the place to assemble whiskbrooms. This was the problem as the economy went into 1944: What will be the industrial equivalent of war?

Some of the new war plants were wholly outside the consumer goods field. Most of the rest were suited only to produce for the heavy, durable goods section of the consumer market. Many an aircraft plant, for instance, can be converted to make household equipment. But vast though the appetite of the public undoubtedly is for refrigerators and washing machines, for stoves and air-conditioning units, the household equipment industry, whose peak volume in 1941 brought $2 billion at retail, obviously cannot take on the postwar surplus aircraft capacity, which may be in the neighborhood of $20 billion annually.

Obviously some of the new facilities must be plowed under. The only justification for many plants was speed. Since war is all waste, economically speaking, many a plant is just as expendable as its munitions. A high-cost blast furnace in time of peace may be sunk as deep as a cruiser at the bottom of the Coral Sea.

Yet plowing under could be only a small part of the answer to the problem of readjustment. The mere physical existence of these heavy, magnificently tooled plants was no longer the major problem.

There had been a social change as well, of which the plants were only the expression. U.S. industry had been frustrated for ten years in its natural aptitude for making large and complex products. But under the stimulus of war it resumed the basic growth from which, in the '30s, it had valiantly but vainly attempted to turn aside.

The enormous new effort was thus an organized development along an established but interrupted trend. As a consequence the nation had arrived at a whole new set of economic standards: a new higher level and a new wider distribution of purchasing power; and a new level of Governmental budgetary requirements--all part & parcel of the effort. Insofar as these new standards represented natural growth, they were probably not reversible without widespread social disruption. For 1943 had burned itself into the mind of the U.S. people as an unforgettable memory. If such prosperity came with war, why not such prosperity in peace? Or even greater?

New Standards. By year's end economic planners could look ahead through the duration of the war, and for a couple of years thereafter, and rest reasonably sure about inflation. That onetime horror was no longer the No. 1 bogey. The production miracle that had begun to create some consumer surpluses was also a promise that the unbalance between income and available goods would not become too acute.

The people seemed willing to wait for more goods to arrive. Because of high prices, because of the unsatisfactory range of goods available, because of patriotism, people were socking their money away in bonds, in bank accounts and bureau drawers (see chart). And new huge U.S. productive capacity stood as the best protection against inflation when this unspent money again begins to circulate.

In 1943 the Government, for its part, had succeeded in getting taxes up to the point where they paid for 50% of the current cost of the war. The rate of climb in the. debt had begun to slacken off. Counting the large new items of debt service, a permanently larger military establishment, and veterans' pensions, economists could look forward to a normal postwar budget of something in excess of $20 billion--nearly three times th prewar budget, but only about half of the yield of taxes in fiscal 1944.

Area of Delicacy. The wage level presented the most delicate problem. From January 1939 to September 1943, the "take home," or average weekly wage, had nearly doubled, from just over $23 to more than $44--before pay-as-you-go income-tax deductions. This fat increase was now being cut into somewhat by reduction of overtime. But in the same period the average straight time hourly rate in manufacturing had risen from 62-c- to 93-c- or 50%. This had come largely as a result of the shift of workers from the relatively low-wage nondurable-goods industries into relatively high-wage durable-goods plants. While many workers would undoubtedly shift back to the "soft goods" and light industry plants, it was not likely that they would willingly go all the way back to the old wage scales. Nor would the lowest economic quarter of the population. That section, according to one sample survey, had experienced a 100% rise in family income between November 1941 and July 1943. The next lowest economic quarter had experienced a rise of more than 50% in the same period.

But a higher wage level is significant only in relation to the general price level after the war. And a relatively higher wage level may be positively helpful in providing an effective demand for the great quantities of goods which the industrial machine will be able to produce. The chief danger will come in the period of transition, as wages and prices fluctuate, seeking their postwar levels. It is in this area that the U.S. will need the best and surest of economic statesmanship.

Delicate though this problem may be, it is subsidiary to the main problem: how to project 1943's activity into peacetime, how to convert 1943's volume of output into peacefully useful goods--in short, again, what are the economic substitutes for war? But that problem could not be stated through a contemplation of the war boom, or a hopeful smacking of lips over the first postwar buying surge. It will require a much longer look-ahead.

New Prospects. What indeed could anyone do in the long run with such an organization of plants and people as 1943 had brought to temporary completion? The problem was not one that made man despair, for as never before it was a problem not of poverty but of plenty--and not of prospective plenty, but of unbelievable plenty flowing through the people's hands. But how could the U.S. go on producing this $187 billion of goods and services, and then consume, not only $103 billion of it, but the other $84 billion as well--the amount that now was going down the drain to crush the enemy?

For some time, certainly, many business thinkers agreed, the backed-up purchasing power would soak up whatever was offered. Thus reconversion could be pulled through. This dormant purchasing power would release an unprecedented flood of consumer durable goods--houses and household equipment, television sets and autos and private planes.

But what would finally take the place of the economic stimulus of war? 'Surely the nation will not need to buy $84 billion a year of nonconsumers' goods to provide full employment. At that rate the economy is now overworked and dangerously overstimulated; and consumers are undersatisfied. Neither will as little as $10 billion suffice, for that was the rate of capital investment in 1939, when national income was only $71 billion and there were nine million unemployed.

The Problem of Plenty. Two general methods may be tried to stimulate the huge new U.S. economy to full production in peacetime.

One method: to take steps to increase the production of capital goods. This might take the form of productive investment overseas, to obtain economically the vast supplies of raw materials which continued full production requires. Such an investment would require machinery and much else from America. Or it might take the form of heavy capital investment by industry at home, thus providing the equipment for reconversion to a civilian-goods production far greater than before. Or it might take the form of capital investment by the Government, for social improvements and conservation.

The other method would concentrate on the problem of distributing more consumer goods--by taxing some people to give to others, by employing consumer subsidies of various kinds, by attempting to build up a large consumer economy and letting the production of capital goods seek its own level.

The size of the problem and its complexity suggests that no one method will suffice. Probably all will be tried, out of political if not economic necessity. The economic peace that follows an economic revolution of such magnitude as this war --a revolution which in 1943 set a standard for U.S. production at no less than twice the former level--does not present a problem with any easy solution.

But it is no problem to shrink from. The name of that problem is Plenty.

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