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Economists at War

Monday, August 1, 2011

Jim Lacey. Keep From All Thoughtful Men: How U.S. Economists Won World War II. Naval Institute Press. 288 Pages. $34.95

To understand the story line of this unique piece of military history requires deciphering its elliptical title and suspending disbelief in its subtitle. The title is quoted from a memorandum written in October 1942 by the U.S. Army’s chief military supply officer, General Brehon Somervell, in which he urged President Roosevelt’s War Production Board to reject and suppress the findings of two U.S. economists, Robert Nathan and Simon Kuznets, pertaining to the establishment of targets for U.S. military production required to wage and win the war against the Axis Powers. In the event, the Somervell critique was rejected, the Nathan/Kuznets findings were accepted, and three years and nine months later the war was won! Hence, the subtitle’s hyperbole. (Incidentally, and largely unrelated to this story, Kuznets received the Nobel prize in economic science in 1971.)

Jim Lacey, a retired military officer with twelve years active-duty experience in the U.S. Army infantry, and a Ph.D. in history from the University of Leeds, is a professor of strategy, war, and policy at the Marine War College and an adjunct professor in the John Hopkins National Security Program. Keep From All Thoughtful Men is a morsel of revisionist military history whose focus is on top-level logistics: specifically, military requirements (for both U.S. and Allied military forces, plus Lend Lease for the U.K., and later the Soviet Union), the industrial production capabilities to meet these requirements, the anticipation of shortfalls and bottlenecks that might disrupt and prevent meeting the requirements, and whether and how to limit if not remedy the shortfalls and their consequences.

Underlying the logistics of war in general and of World War II in particular is the military strategy that generates the requirements, while the feasibility of meeting requirements depends on both existing production and financing capabilities, and on opportunities and realistic possibilities for expanding these capabilities within a specified time period.

One might expect that military history focusing on these matters would be dull and dreary, reflecting the “dismal science” that fills many of KFATM’s pages. Indeed, substantial parts of the book are devoted to discussing the size of the U.S. Gross National Product in 1942, its maximum potential growth in the following year, and the availability of critical raw materials, industrial facilities, machine tools, and skilled and unskilled labor to fuel this growth. The profusion of numbers in KFATM makes it a moderately heavy read, especially if compared to other recent revisionist histories of World War II which focus on such eye-catching and exciting subjects as Winston Churchill’s “ravishing of India” in an attempt to preserve the British empire, or the questionable morality of “carpet bombing” of Dresden and Frankfurt by the raf, let alone America’s atomic bombing of Hiroshima and Nagasaki.

But KFATM, though occasionally heavy reading, remains lively, because it connects the logistic issues to the bureaucratic politics in which they were immersed. Lacey recounts the issues through the key actors and organizations that represented conflicting positions on the main issues, interlarding his narrative with brief vignettes characterizing the principal players in the bureaucratic wrangling that ensued.

As they are tracked in KFATM, the key issues can be summarized in terms of the feasibility of matching requirements for military forces to the industrial production needed for equipping them, and doing so in a specified time period. In the event of a mismatch, the critical issue that emerged was the length of delay that would result.

The military services asserted early in 1942 that defeating Germany and the Axis Powers in Europe through a successful invasion of the continent would require U.S. forces of fourteen million. (At the war’s peak, mobilization actually reached twelve million.) Production targets were derived by linking the manpower total to the weapons and munitions required to equip the targeted ground, air, and naval forces and the sea and air transport needed to move and supply them. The debate focused on the feasibility of matching force requirements to production capabilities to achieve a successful invasion in 1943.

Lacey’s account of the ensuing feasibility debate is based on careful reading and analysis of key memoranda and minutes of meetings (which are included as appendices) among the principal military and civilian participants concerned with the issues. The debate pitted General Somervell, Admiral Robinson (chief of Naval Procurement), and Undersecretary of War Patterson (acting for Secretary Stimson) against the three economists, Robert Nathan, Kuznets, and Stacy May. (All of the latter were top staff members of the War Production Board.) In the middle, initially leaning either one way or the other, toward the military or toward the economists, were Donald Nelson (Chairman of wpb), Vice President Henry Wallace, General George Marshall (chairman of the Joint Chiefs of Staff), Harry Hopkins (special assistant to the president), Charles Wilson (vice chairman of wpb, formerly ceo of General Motors, and a subsequent secretary of defense), Ferdinand Eberstadt (also a vice chairman of wpb), Leon Henderson (administrator of the Office of Price Administration), and other luminaries of the time.

Several of these dramatis personae might well have been designated by Hollywood central casting. Somervell was described at the time as “out of the tradition of the Elizabethan Englishman, all lace and velvet and courtliness outside, fury and purposefulness within . . . working . . . conscientiously to water down his own triple-distilled portion of the grapes of wrath . . . His problem is not to work up a temper but to control one.”

The principal protagonist on the other side was Robert Nathan, described in KFATM as “a huge bulk of a man with a kettledrum voice. He is no dreamy brain-truster. Rather, he is more like a wrestler than a thinker and talks more like a barker than a savant.” (Some 30 years after the events recounted in the book, Bob Nathan became a close friend of mine. The quotation is accurate as concerns his voice and demeanor. It omits the facts that he was a sharp and well-trained economist with a lively if sometimes acerbic sense of humor.)

In contrast to Nathan, Kuznets was a scholarly archetype: low-key, thoughtful, deliberate, balanced, and soft-spoken. Among the three economists, Kuznets’s analytical care and clarity in parsing the issues, and addressing them with facts and opinions — the latter clearly labeled as such wherever they were expressed — provided much of the substantive material in the debate.

The crux of what Lacey refers to as “The Great Feasibility Debate” in the autumn of 1942 was the question of whether the materiel and related industrial output that the American economy could produce would be sufficient for the U.S. and the British to launch a decisive invasion of Europe in 1943. Strongly in favor of an affirmative answer to this question were General Marshall and Undersecretary of War Patterson, as well as General Somervell; also, initially leaning toward this position, which they later deserted, were Harry Hopkins on behalf of the president, as well as wpb Chairman Nelson. Later, and most reluctantly, Marshall also changed his mind.

In the autumn of 1942, the question was whether the materiel and related industrial output that the American economy could produce would be sufficient for the U.S. and the British to launch a decisive invasion of Europe in 1943.

Nathan tasked Simon Kuznets, as chief of the Analysis and Research Section of Nathan’s wpb Planning Committee, to study and answer this output question. In formulating it, Nathan distinguished three variants of the feasibility concept: production goals that were feasible “now” (that is, in October 1942), characterized as “minimum feasibility”; goals that would be feasible “with an all-out effort” (“realistic maximum feasibility”); and production goals feasible “under ideal conditions.” Kuznets’s study appeared six months later, in March 1942.

The sections of his report are a model of clarity, de-jargonized prose, careful marshalling of facts, and plain acknowledgment of uncertainties and opinions. The report’s first section concentrates on macroeconomics: the actual gnp in 1941, and expectations for 1942 and beyond. Kuznets’s estimates include allowance for nonmilitary civilian consumption and investment, especially for consumers’ durable goods, for producers’ goods, and for distribution costs.1 He acknowledges the assumptions made in each case, generally opting for assumptions that are optimistic from the standpoint of the maximum share of gnp that would be available for expanding investment and production for military uses.

The next three sections of Kuznets’s feasibility study contain analyses of raw materials supplies, industrial facilities including machine tools, and labor supply, respectively. These sections foreshadow what became the field of input-output analysis in the later development of economics.

The report’s second section concentrates on raw materials that are critical for meeting established requirements for aircraft, for additional army equipment besides aircraft (at the time, the Air Force was still part of the Army), for naval and maritime shipping, and for Army and Navy construction. Based on what he admits is an “incomplete picture of essential needs,” Kuznets concluded that he and others who have studied the problem expected there would be in 1942 “a definite shortage in rubber, nickel, tnt and smokeless powder,” and very likely also “critical shortages in aluminum, vanadium, wool, and toluol.” Looking forward to 1943, the report further anticipated that “the war munitions program . . . seems to be impossible” because of “supply shortages for copper, zinc, nickel, rubber, ammonium nitrate,” as well as “an acute shortage” of “such basic materials as steel and aluminum” when allowance is made for “essential civilian uses.”

Section three of Kuznets’s report, dealing with industrial facilities, is relatively more optimistic than is the section dealing with raw materials. Nevertheless, using several contemporary studies done outside wpb, and comparing “requirements and current shipment rates” for specific types of machine tools and special purpose instruments, the Kuznets report anticipated “a shortage . . . of specific types of tools so great . . . it would take over 2 years to provide the units required in 1942.”

The report concludes in its fourth section that “next to foreign raw materials that cannot be easily replaced, the supply of labor is the most fundamental factor in evaluating the feasibility of a huge production program.” This section then proceeds with conservative estimates (that is, ones deliberately chosen to be on the low side) of manpower requirements in 1942 for military production and construction, for civilian production and agriculture, and for the armed forces themselves. These estimates are expressed in terms both of numbers of workers and military personnel, and in dollar terms required for payments to those who would be employed in military and civilian production. The report concludes that the combined totals are “beyond the bounds of possible labor supply,” as well as beyond the available financing derived from Kuznets’s calculations of the size and attainable growth of national income in 1942.

Nathan followed the Kuznets feasibility study with his own distillation of it, as well as recommendations based on the study. As discussed in KFATM, Nathan’s action memorandum emphasized the serious disruptions that would result from the shortfalls and bottlenecks forecasted by Kuznets, and recommended scrupulous attention to improvements in “production control and scheduling.” In effect, the Nathan and Kuznets efforts led to a recommendation that goals for 1942 would have to be stretched out through 1943, and hence that the intended major invasion of Europe must be delayed at least until 1944. This was the economists’ bottom line in the “Great Feasibility Debate.”

Unsurprisingly, General Somervell responded with a vigorous and at times abrasive dissent from the Kuznets report, and from Nathan’s recommendations that were largely based on it. Expressing agreement that production control and scheduling should be improved, he went on to express “complete disagreement” with everything else in the economists’ findings and recommendations, explicitly dissenting from the report’s findings because “the data are unreliable” and the “variations between Mr. Kuznets’ ‘probabilities’ are not percentage-wise enough to justify a wholesale change in goals.” He went on to say that aspects of the report show “a complete lack of understanding of the [production] problem.” Furthermore, Somervell expressed his preference “to trust . . . proper decisions from the President, Mr. Nelson, and military personnel knowing something of production, than to this board of ‘economists and statisticians’ . . . without any responsibility or knowledge of production.” His concluding recommendation was that the report “be carefully hidden from the eyes of thoughtful men” — hence, the title of Lacey’s book.

Some of the details touched on in this review, and their elaboration in the book, resonate with policy debates we currently engage in. Both similarities with and differences between 1942 and the current debates warrant further reflection. The wrangling in 1942 was no less heated and intense in the midst or at least early stages of World War II than is our wrangling now in the midst of three smaller wars. Nor were the wranglers, or at least some of them, any less intense or vituperative than are the wranglers today. Partisanship was also intense then as now, although the parties in contention had less of a political slant than a professional one (for example, military vs. business vs. economic). Another difference between the wranglings was the nearly total absence of concern then about how the media would play one position or another, while now much if not all of the disputation seems to be governed by anticipating and influencing media play.

Reflecting on the issues then compared with those we currently argue about, it’s not at all clear that ours are any more complicated than the issues which KFATM addresses: For instance, analyzing and costing alternative policies for Medicare seems to me no more complicated or difficult now than was the analysis of feasibility in 1943 and its translation into something calculable and usable for policy purposes at that time.

A final as well as still more sobering thought prompted by reading Lacey’s book is this: It’s not at all clear whether the quality and depth of analysis of such current policy disputes as those concerning Medicare, or paring the federal deficit, or managing war endings in Iraq and Afghanistan reach let alone exceed the level accompanying the feasibility debate seven decades ago.

1 Kuznets’s report uses Gross National Product, rather than the more frequent current use of Gross Domestic Product. The difference between gnp and gdp is the amount of the product that accrues to foreign (i.e., non-national) recipients, e.g., earnings of U.S. companies owned by foreign nationals versus earnings accruing to U.S. nationals from their ownership of foreign companies. If earnings paid to U.S. owners of foreign companies exceed earnings paid to foreign owners of U.S. companies, gnp will exceed gdp; if earnings paid to foreign owners of U.S. companies exceed earnings paid to U.S. owners of foreign companies, gdp will exceed gnp.