Carlos Hudson Archive   |   Trotskyist Writers Index  |   ETOL Main Page

Jack Ranger

Tapping the Wall St. Wire

The Impact of Truman’s New War Program ...

(12 April 1948)

From Labor Action, Vol. 12 No. 15, 12 April 1948, pp. 3 & 4.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The government’s new military program is of such scope that it becomes a decisive factor for the immediate future of the nation’s economy. It will more than compensate for other factors – such as a drop in foreign trade, a drop in do mestic tool orders, growing unemployment, lack of consumer purchasing power – which were taking the economy downhill. That is the consensus of the nation’s leading economists.

The Truman-Forrestal program to increase the already huge $11 billion armament program for the fiscal year 1948–49 by $3 billions, to $14 billions, has reversed the field. The program came hardly a day too soon to bolster the post-war boom .Prices will rise yet higher for many commodities. Labor will soon become scarce. Industry will begin to tool up for war. Government spending will again exceed government income. Profits o fwar industries will rise to new heights.

Together with the Marshall Plan, the military program will put off any economic collapse in the United States for many months. If the new war program is not just a diplomatic move calculated to influence the Italian election, if it is an action which will be carried through regardless of political events of the next few months, then it means that the beginning of the First Atomic War is not far off, if Wall Street’s will prevails.

Up until Forrestal placed his enlarged military program before Congress, the trend of the economy was unmistakably downward. Industrial employment was falling. Business failures in January and February of 1948 totaled 1,152, almost twice the 630 businesses whose doors closed in the same period last year, business expansion plans, while still substantial, were not “gaudy.” Inventory buying was slowing up, credit was getting tighter, department store sales were disappointing, there was a decline in order backlogs. Cancellation of furniture orders were climbing. Bakery goods and soft drinks were harder to sell. The output of radios and small motors had outstripped demand. Food prices had lowered slightly since the February 4 commodity break. Shoe prices were preparing to fall.

A fairly good business indicator is dine-and-dance patronage at the leading hotels. Such patronage dropped 27.5% in 34 of the nation’s leading hotels in January and February, compared to the same months last year. Nearly one-third of the cabarets not owned by hotels have had to discontinue operation in recent months. Incomplete returns for March indicated that the downward trend in dine-and-dance business is proceeding at an accelerated rate, according to a survey just completed by a group of leading Chicago hotel operators.

A prominent firm of investment counsellors warned that the crest of the inflation spiral had passed; that the movement of textiles and shoes through retail channels had been discouraging since the first of the year; that a further decline in employment in the coming months was indicated; that even a modest decline in building activity would lead to sharply depressed prices for building materials; that capital expenditures would be smaller this year than in 1947; that “unless an unexpected reversal in trend occurs,” cotton prices will decline sharply; and that sales of men’s clothing were running below expectations. This prognosis, made after the announcement of Truman’s military program, indicates that deflationary forces were so far advanced that they would continue to gain momentum in the near-term future, because the expanding influences as the result of increased military expenditures may not be generated in time.

As recently as March 14, a group of government economists queried by the N.Y. Journal of Commerce agreed “that a rapid deterioration in the international situation, accompanied by much higher military outlays, was the only force in the foreseeable future that might set the inflationary spiral on an upward course again.”

Truman and Forrestal must surely have been informed of this analysis. Possibly it was a factor in their decision.

Industrial capital goods manufacturers are jubilant about the war program. They were reporting a falling off in new orders for such equipment as hydraulic and mechanical presses and machine tools, and even smaller tools. New orders are not keeping up with delivery rates.

All that is to be shortly changed. The produce-for-war program outlined by Washington offers a radiant future to the tool manufacturers. Some executives, it is reported, believe that the new military program, combined with the European aid plan, will necessitate a return this year to priorities and materials allocations, such as were used during the early stages of the war program in 1940 and 1941.

Shape of Things to Come

No sooner had Truman delivered his military preparedness message than Washington economists agreed that the Presidential action could be expected to give another fillip to the inflationary spiral. Said one expert: “Only an improved international outlook can dim the business outlook.”

Expectations of larger military orders will more than offset the repercussions of the February 4 commodity price break, it is believed. Truman’s new tough military policy means not only large defense budgets for some years, but probably means larger budgets than had been anticipated. There is a report current in Washington that in addition to the $3 billion addition to the U.S. armament expenditures, proposals are secretly being prepared to help arm “friendly governments” through legislation akin to lend-lease, at an additional cost of $2 billion.

The financial pages are drooling as the war danger grows (the full import of a Third World War has not yet sunk in).

“Imminence of war would unloose a great wave of government buying, similar to that of the enlarged defense program following the fall of France,” says a writer in the New York Journal of Commerce. “Aircraft and other munitions manufacturers would get the lion’s share of the new orders, particularly since other manufacturers would require some time to convert again to war production. While earnings would tend to rise in industries directly or indirectly concerned with war, they would be adversely affected in others ... War should bring both an expansion of sales and higher prices for the economy as a whole, once the initial readjustments have occurred ... Government expenditures would soar, the budget surplus would disappear,and tax increases rather than reductions would be the fiscal issue of the day.

“The stock market declined immediately after the entry of the U.S. into World War II because the excess profits tax was expected to cut deeply into corporate profits. This expectation proved generally unfounded. It was shown that aggregate profits could increase despite imposition of an excess profits tax. It is doubtful, therefore, that a similar wave of liquidation due to fear of the excess profits tax would occur.”

Work-or-Else Program Coming

What about the effects of a return to the draft on workers? Its impact on the industrial economy “is hard to overestimate,” according to a recent story by Ray Moulden in the Chicago Journal of Commerce.

“This time there is no sizable backlog of unemployment and the removal of a relatively few workers from industry could have a severe effect immediately. Therefore, there is concentrated thinking under way in Washington on revival of manpower controls so as to have a program ready much earlier than it was before the last war. If there is any doubt in businessmen’s minds that we are preparing for this sort of thing, they need only talk to the Army and Navy reservists in their employ. The Navy has called in many officer reserves and asked them to accept active duty voluntarily, with the notice that they will be forced up ultimately. There is a sizable rush for commissions in all branches of the service.”

The Army-Navy Munitions Board is of the opinion that for the immediate future the new military program will have a moderate impact on the civilian economy “if the foreign situation does not get worse in the next few weeks” (a reference to the April 18 election in Italy – J.R.). What the program does mean, the board agrees, is no recession, assured high employment, sustained prices, “and a consequent effort by banks to seek higher earnings.”

The President’s Council of Economic Advisers describes the situation as “very sobering.”

“You can’t put the new arms program on top of a $6 billion foreign recovery program without a very strong inflationary push,” believes Dr. Edwin Nourse, head of the Council.

Factory Surveys Begin

The armed services are beginning the task of surveying 25,000 to 30,000 factories across the country, cataloguing production possibilities and capacities, lining up certain factories for specific branches of the armed services, offering “educational orders.” At the same time, war agencies are beginning to train business executives. According to accounts in the Wall Street Journal:

“Another M-Day – if it comes – would bring quicker, more complete governmental control of industry than anything seen in the last war ... Mobilization plan blueprints, as they’re made, will be passed around the country to leading industrialists for suggestion and criticism. One such preliminary plan is already circulating among a hundred or so key businessmen.”

M-Day plans! Do readers recall that book by Rose Stein entitled M-Day, issued before the1939–45 war, with dire warnings of Army plans to take over the day war was declared? That was not the way it worked out. Instead, parts of the old industrial mobilization plan were introduced piecemeal as the war progressed.

Just the other day Col. J.V. McDowell, of the industrial mobilization planning division of the quartermaster purchasing office, explained what happened to the old M-Day program. In outlining the Army’s current industrial mobilization plan for the underwear industry, to the Underwear Institute, Colonel McDowell said:

“There are several reasons why the overall Industrial Mobilization Plan that was formulated by the services prior to World War II was never put totally into effect. There was no sharply defined M-Day, and we progressed through the period of emergency and the initial stages of the war in a creeping type of mobilization. Furthermore, the plans developed had been too generalized and did not recognize the extent to which the country’s entire economy must contribute to modern warfare. This error is understandable, but is also one we cannot again afford to make. American industry was able to support their armed forces to the extent necessary for victory in the recent conflict ,largely because we had powerful allies who provided our country the time in which to mobilize our resources and economy. Allies and time are not assets that we are likely to enjoy in the event of another war. Victory or defeat may well be determined by our effectiveness during the first year – perhaps even during the first six months.”

There in brief is the consensus of some leading economists and military men on the recent war developments in Washington.

Carlos Hudson Archive   |   Trotskyist Writers’ Index  |   ETOL Main Page

Last updated: 3 March 2018