Shall it be Again ?


To what extent was America’s war a war for business ?  Did Woodrow Wilson lead America into war in order to serve the selfish interests of the few ?

The answer is determined by looking into the essential facts.  In the first place, Wall Street wanted war.

Not a single recognized spokesman of our greatest financial and industrial interests, anywhere in public life, expressed opposition to war during the critical weeks of February and March, 1917.  On the contrary, our leading financiers themselves, who up to that period had seldom been quoted on political questions, personally endorsed the proposition of belligerency.

April 4, the New York Times said :  “Not since Woodrow Wilson became President has any utterance of his met with such instant and hearty approval by leaders in the financial district as his war address to Congress.”  This conclusion was backed by a column of quotations.  “It [the war message] was ... exactly right,” said Judge Gary, head of the U.S. Steel Corporation.  “It was 100 per cent. American,” said Frank Vanderlip, moving genius of the American International Corporation and head of the National City Bank.  “The President’s address was magnificent,” said James Wallace, head of the Guaranty Trust Company.  “It was well worth waiting for,” said A. Barton Hepburn, another of our leading bankers.  “The speech breathes the true spirit of the American people,” said Martin Carey, of the Standard Oil Company.  These opinions of the President’s address, said the Times, “were echoed in one form or another by bankers, brokers, and executives in large number.”

Nor can this attitude on the eve of war be taken as an eleventh-hour move to “get on the right side”;  for the spokesmen of our large business interests openly favored war at a time when to “stand behind the President,” was supposed to mean not belligerency, but pacifism.  During the “armed neutrality” period, the Wall Street correspondent of the Philadelphia Public Ledger diagnosed financial sentiment (Mar. 22) as follows :

Briefly stated, Wall Street believes that war is just one move ahead.  And Wall Street is glad that it is so.  The financial district here is unqualifiedly for war as soon as it can be declared.  'It is a good thing for the country,’ one trust president declared. ... This is the way Wall Street feels about the prospects of war.  Only a few of the men thus interviewed were willing to have their names mentioned;  their enthusiasm for war, however, was too real to be misunderstood.

Going back to the breaking of diplomatic relations, within five minutes after the news reached the financial district, according to the Times :  “Wall Street was bright with the Stars and Stripes floating from banks and brokerage offices.  Figuratively, the street gave a concerted sigh of relief.”  On the Produce Exchange, 300 brokers sang “The Star Spangled Banner.”

February 20, the New York Merchants’ Association held what the Herald declared was “the greatest demonstration in the history of that organization.”  The organization drank to the President.  During this period, the State and local Councils of Defense, upon which business leaders everywhere shone, were constituted.  Business organizations besieged the President and Congress with petitions for vigorous action.  The directors of the National Safety Council, claiming to represent 2,814 American corporations employing 3,000,000 workmen, adopted resolutions “pledging to the President of the United States the loyal support of this organization in whatever measures may be necessary to defend the national honor and to protect the lives and property of Americans.”

As early as December, Mr. Schwab had offered his vast plants to the government, in case of war, “at the government’s price.”  This example was followed in February and March by many great corporations.

March 26, at the solicitation of the Chamber of Commerce of the United States, J.P. Morgan & Co. loaned the government $1,000,000 without interest and without security, for the purchase of supplies immediately desired in anticipation of war.

During March, J.P. Morgan, Mrs. E.H. Harriman, George Baker, Jr., Vincent Astor, and others of their class offered their private yachts for service as submarine chasers in the event of war.  At the same time, Wall Street was giving the President the fullest assurances that it was ready to coöperate also in the matter of loans.  March 23, we find Thomas W. Lamont delivering a patriotic address entitled “America Financially Prepared,” in which he promised :  “If the Treasurer should decide to issue a government obligation to-morrow for a billion dollars, the whole sum would be waiting for it.”

One of the most effective things that big business did, in those critical weeks, in working its will for war, was to demand naval guns and crews for its ships and to tie up transportation and commerce until that demand was satisfied.

Immediately after the breaking of diplomatic relations, the International Mercantile Marine Company—a British-controlled corporation, in which, however, America’s most powerful financiers are interested—began holding its ships in port.  February 12, its president made formal application for naval guns and crews.  At the same time the railroads, which are under the control of the same American financiers who are interested in the International Mercantile Marine Company, began to refuse shipments because of alleged congestion due to the ships’ being held in port.  This tying up of American domestic commerce “by Germany” was played upon with great effect by the press.  When, on February 26, President Wilson appeared before Congress asking for authority to arm merchant ships, he was able to offer the argument that “our own commerce has suffered, is suffering ... rather because so many of our ships are timidly keeping to their home ports than because American ships have been sunk.”

Had there been any good reason to believe that the means of “protection,” which the International Mercantile Marine demanded, would in fact protect, its demand for such means might be taken as sincere.  But for many months, ships flying the British flag had been trying precisely the same means of “protection,” and it had been proven that these means did not protect.  Five weeks later, the President himself admitted that such protective measures were futile, although meanwhile no new incidents had happened to render that truth any clearer than before.  (See Chapter VI.)

We may well take the President’s word for this, especially as no one—much less the officials of the International Mercantile Marine—disputed it.  Since this truth was as clear on February 26 as on April 2, the tying up of American shipping by big business in February and March cannot be explained in any other way except as a conspiracy to promote war sentiment.

Not only was Wall Street enthusiastically for war between February 3 and the declaration, but big business was a most powerful influence within the country working toward war previously to that period.  The organs of publicity that were loudest in their calls to “stand behind the President” after February 3 were the same that previously had been most insistent on an unyielding policy toward Germany, and most tolerant of concessions to the Entente.  The National Security League, and the Navy League, which carried on the intensive preparedness agitation throughout 1916, enjoyed the financial support of our richest millionaires.  In that year, the United States Chamber of Commerce held a referendum of the 750 Chambers of Commerce throughout the country on the question of preparedness;  ninety-five per cent. of them voted in favor of preparedness.  The staging of the great preparedness parades, also in 1916, involved the expenditure of huge sums of money.  Aside from any consideration of mere expenses, however, those parades would have been impossible without the hearty coöperation of the largest employers of labor and the most outstanding business leaders.

In February, 1917, Representative Calloway, on the floor of Congress, charged the Morgan interests with having, in March, 1915, organized and financed a huge propaganda machine embracing twelve influential publishers and 179 selected newspapers, for the purpose of manufacturing sentiment favorable to American participation in the war.  These charges were renewed in May, 1921, by Representative Michelson of Illinois.  The latter called attention to the fact that, in his history of the war, Gabriel Hanotaux tells of a conference with the late Robert Bacon, then a member of the Morgan firm, in 1914, in which he and Bacon drew up plans and specifications for a great scare campaign in this country.  Hanotaux also suggests that France was ready to make peace in 1914, but was dissuaded by Bacon and other American politicians, who gave assurances that they could ultimately bring America into the war on the side of France.

These charges are worth recording, but they are important only when taken in connection with other evidence.  As a means to establishing the wish of our great financial interests for war, at least for some time before it was declared, they do not need to be proven.  For, aside from the circumstantial evidence here given, any one who has read the Pujo Committee report on the Money Trust, showing the concentration of credit in the hands of three great banks, and the control of small banks by the big ones—and any one who appreciates the dependence of the more powerful organs of the press upon the dominant business interests of the communities which they serve, and especially upon the banks—will understand that the propaganda storm of the months preceding our entrance into the war would have been impossible without the approval and instigation of Wall Street.

As Wall Street wanted war before it came, so, after it came, Wall Street promoted the war.

“The first vigorous and effectual response to the call to arms came precisely from Wall Street,” said the Saturday Evening Post editorially, July 7.  This journal then proceeded to prove the proposition in a series of articles.

It cannot be denied.  While the Conscription Bill was pending, great industrial corporations, milling firms, and banks, spent huge sums of their own money in the campaign for recruits.  Merchant princes offered their stores for recruiting depots, and their employees for any capacity in which the government might wish to use them.  Financiers went about the country making speeches on democracy.  In opposing the Conscription Bill in Congress, Representative Huddleston offered a formidable list of multimillionaires who favored conscription.  Among them was John D. Rockefeller, Jr., who came out for conscription as the one means of “substituting real democracy for existing class distinctions” in America.

Mr. Harding, governor of the Federal Reserve Board, predicted, in an address, May 7, that the European war would be won by American bankers.  By the middle of May, John D. Rockefeller, Jr. and Daniel Guggenheim had their feet under the table with Sam Gompers, arranging for brotherly coöperation between capital and labor for the period of the war.  No American corporations had been more violent or successful foes of organized labor than the corporations under the tutelage of these gentlemen.

Five days after war was declared, America’s great railroads voluntarily combined under one board for the purpose of coöperating with the government.  The first detachments of Americans to go to France included the best engineering talent of these roads, cheerfully loaned by the management to the government.  “Never in the history of the world,” said Carl Vrooman, Assistant Secretary of Agriculture, May 11, “have business men shown as much patriotism and unselfishness as have been manifested, since the war began, by the business men of America.”  Said Samuel G. Blythe in the Saturday Evening Post (Jan. 12, 1918) :

It is the mere truth to say that we could not fight this war a minute, if the men with money in the United States refused to loan that money to the government.  We never could have begun it, to say nothing of continuing it as far as we have continued it. ... No system of taxation that could be devised would have secured enough money for the war, or a tenth of enough money for the war.  No system of levy that could have been put in operation, save confiscation, could do this.

Very true.  Our men with money not only loaned that money in huge sums, but they procured the money of their customers, their employees, and the general public.  To this end they devoted their personal time and energy, without limit, loaned their clerks and salesmen, donated their office facilities, and expended millions of dollars of their own money in advertising.

A list of America’s most conspicuous boosters for the Liberty Loans would coincide with a list of America’s most prominent financiers.  Just to get the first loan well started, aside from the far larger subscriptions made by their corporations, about fifty of America’s richest men were reported as making personal subscriptions of from one to twenty million dollars each.

The war work of the Red Cross began with Henry P. Davison, of the Morgan firm, as its head, with the title of Chairman of the War Council.  Robert S. Lovett, one of the world’s greatest railroad directors, became Chairman of the Red Cross Coördinating Committee.  When the President reorganized the Red Cross on a military basis, he honored Davison with the title of Major General, while five other Red Cross officials from the banking world were commissioned Brigadier Generals.

In the early days of the war, several of our first families, led by the W.K. Vanderbilts, offered their country villas for use as Red Cross hospitals.  When New York, like other cities, was divided into districts for solicitation, the soliciting teams were led by members of America’s richest families.  Special dividends were declared by our largest corporations, to be paid, not to the stockholders, but on behalf of the stockholders to the Red Cross.  Contributions to the Red Cross, either direct or in the form of dividends, from such corporations or their heads, ranged from half a million to two million dollars, during 1917 alone.  In the first ten months of the war the personal contributions of John D. Rockefeller to all war activities were reported as totaling $70,000,000.

In September it was announced that Frank A. Vanderlip had turned over his great affairs to subordinates, to devote his entire time, as chairman of the War Savings Certificate Commission, to floating the two billion dollar War Savings Certificate Issue authorized by Congress.

Of inestimable importance in the promotion of the war were the many unofficial patriotic organizations, to which the leading business men of every community gave their support, and particularly the work of the great newspapers, news associations, and magazines.  From the declaration of war until the Germans quit, not one of the great vehicles of publicity breathed a suggestion that our war was a mistake, or that the official war propaganda was unsound, or that the government should attempt to arrange its differences with the enemy by agreement.  In the demand for victory and a dictated peace, there was not a dissenting voice.  Unlimited news space was devoted to the official propaganda.  Millions of dollars’ worth of advertising space was donated outright.  It is almost literally true to say that, as a whole, the American press gave as loyal service as if it had been founded for the sole purpose of war promotion and had been edited by Mr. Creel himself.  Anything like this would have been unthinkable, without an almost absolute unanimity for the war on the part of big business.

Not only did Wall Street promote the war, but Wall Street directed the war, in nearly all its phases outside the purely military and naval operations.

The President, of course, was supreme in every realm.  But the details were attended to by officials of America’s banks, railroads, manufacturing, mining, and shipping corporations, who, while acting for the government, were paid by these corporations.

Never in the history of America, probably never in the history of any country, had there been such open and direct control of governmental activities by the very rich.  Theoretically and legally, the ultimate control rested in Congress.  In practice, the power of a Senator or Representative was less than that of a doorkeeper in the office of any of the money kings whom the President appointed to direct the course of America, domestically, in the war “to make the world safe for democracy.”

Two of the most important organizations to function as special war bodies were provided for by law, and even constituted before war was declared;  indeed, at a time when the President was still promising to “keep us out of war.”  They were the Shipping Board and the Council of National Defense.

As originally constituted, the Shipping Board consisted of an attorney for large Pacific Coast lumber interests, a multimillionaire lumberman and exporter, a railroad manager, and two shipping magnates.

At the beginning of the war, the Council of National Defense, with its numerous subsidiary committees, emerged as the general clearing house of war activities, not only of those activities having to do with the “education” and repression of the public, but of those concerned with industry.  The Council of National Defense, proper, is composed of six members of the President’s cabinet.  The real working body of the Council turned out to be the Advisory Commission.  The Advisory Commission, as originally appointed by the President, consisted of seven members, four of them conspicuous business men.  The chairman was Daniel Willard, president of a great railroad.  The other three business members were Bernard M. Baruch, a noted Wall Street speculator;  Julius Rosenwald, president of America’s greatest mail-order house and closely identified with large industrial corporations;  and Howard E. Coffin, vice-president of the Hudson Motor Corporation.  The minority consisted of a labor leader, a president of a college, and a medical man.  It was these seven men who, secretly and illegally, according to Representative Graham, chairman of the Select Committee on Expenditures in the War Department (Report of July 7, 1919) worked out the details of the President’s war programme months before the declaration of war.

So far as matters of business were concerned, the function of the Advisory Commission was to advise the Council proper what to buy for the war, where to buy, how much to pay, how to “encourage production,” how, in a word, to deal with the business interests.  In practice this gave the decision, in nearly every instance, to the Advisory Commission.

In practice it gave the decision, not to the Advisory Commission as a whole, but because of the allotment of work within that body, to the four business members thereof.  They divided the field among them, and each in turn divided his special field into smaller fields to be handled by sub-committees under his control.  A month before the declaration of war, the functionless nature of the Council proper was made more clear by the appointment of a director, to whom was turned over the details of such work as the Council proper was supposed to do.  This director was another official of a great corporation, W.S. Gifford, of the American Telephone & Telegraph Company.  Mr. Gifford later became comptroller of the telephone monopoly when it was taken over by the government.

As the sub-committees of the four business members of the Advisory Commission were composed of men selected from corporations dominating the particular field in which it was appointed to function, we have the remarkable situation of the government’s handing over to the corporations of the country the decision as to what the government should pay them for their products and how in general it should deal with them.

The Steel and Steel Products Committee was headed by Elbert H. Gary, chairman of the U.S. Steel Corporation;  James A. Farrell, president of the same concern;  and Charles M. Schwab, president of the Bethlehem Steel Company.  The function of these gentlemen as government officials was to meet with the representatives of the steel industry—meaning their own immediate subordinates in their own private business—to make provision for “coöperation” in the procurement of supplies, and to arrange prices “by voluntary agreement” !

The Copper Committee was headed by John D. Ryan, president of the Anaconda Copper Company—the successor of the Amalgamated, of Thomas Lawson fame—and the presidents of the Calumet & Hecla and the Utah Copper companies.

The Locomotives Committee was headed by the vice-presidents of the Baldwin Locomotive Company and the American Locomotive Company.  The Express Committee was composed of the vice-presidents of the four great express companies.  A.C. Bedford, president of the Standard Oil Company, headed the Oil Committee.  P.A.S. Franklin, president of the International Mercantile Marine Company, headed the Shipping Committee.

The Brass Committee was headed by the president of the American Brass Company, the Nickel Committee by the president of the International Nickel Company, the Sulphur Committee by the president of the Union Sulphur Company, the Lumber Committee by the president of the National Lumbermen’s Association, etc., etc., etc.—all government officials.

The function of these gentlemen was to divide up the government’s business—among themselves;  to recommend, practically to fix, a price to be paid by the government—to themselves.

As the months went by, this scheme underwent various alterations, usually with a view to concentrating vast decisions into fewer hands.  On the whole, the alterations did not lessen the directing power of Wall Street, but only vested such power in the hands of fewer and more conspicuous personages.

The War Industries Board, at the beginning, was headed by a manufacturer of munitions, Frank A. Scott, who was also chairman of the General Munitions Board.  The Central Purchasing Commission consisted of four millionaire business men :  Mr. Baruch, of Wall Street;  Judge Lovett, the railroad magnate;  Robert S. Brookings, and Herbert Hoover.  Later Daniel Willard, the railroad president, served as chairman of the War Industries Board, to be succeeded a little later by Mr. Baruch.

Meanwhile, the Food Administration was in the hands of the great corporations most conspicuous in the manufacture and distribution of foods.  The headquarters of the Food Administration in New York were the offices of the American Sugar Refining Company, known as the Sugar Trust.

The president of the American Sugar Refining Company acted as chairman of the International Sugar Committee, while the manager of the California-Hawaii Sugar Refining Company acted as head of the sugar division of the Food Administration.  The sugar division, almost throughout, was officered by men taken directly from the offices of the Sugar Trust, which paid their salaries, following the system in general practice elsewhere.

We find a similar situation in the meat and livestock, and other divisions, of the Food Administration.  Joseph Cotton, an attorney for Wilson & Co., one of the Big Five packing firms, acted as head of the meat and livestock division.  Other important positions in this division were held by employees of Swift & Co. and the other packers.  Edward Chambers, vice-president of the Santa Fe Railroad, acted as head of the transportation division.  F.S. Brooks, of Swift & Co. acted as Chambers’ chief assistant.  A.C. Loring, head of the great Minneapolis milling firm, the Pillsbury Flour Mills Company, acted as northwestern representative of the Food Administration in regard to flour and feed prices.  To head the government’s Grain Corporation the President selected a well-known speculator from the Chicago wheat pit.

In the Fuel Administration we find the same scheme as elsewhere.  A coal operator in private life acted as the government’s director of bituminous coal distribution.  An oil operator in private life acted as the government’s oil administrator.  The subordinates of these and other Fuel Administration officials were selected from the large coal and oil corporations.

When the government formally took over the railroads, the details of administration were dictated and carried out by a group of railroad presidents headed by A.H. Smith, president of the New York Central, and Judge Lovett, head of the Harriman lines.  When Director General McAdoo resigned, he was succeeded by a railroad official, Walker D. Hines, chairman, general counsel, and director of the Santa Fe Company.

Eleven months after the declaration of war, the country was divided into ten munitions districts.  Over each district was placed a district chief of the production division of the Ordnance Department, a government official.  In every instance the district chief was a captain of industry.  Overseeing the district chiefs generally, as head of the procurement division of the Ordnance Department, was Samuel McRoberts, vice-president of the National City Bank.  Guy E. Tripp, president of the Westinghouse Electric Company, was chief of the production division of the same department.  Mr. McRoberts and Mr. Tripp, like numerous others holding similar positions, were given military titles by the President.

Charles M. Schwab, the greatest steel maker in the world—and incidentally, at the same time, the greatest shipbuilder—became director general of the Emergency Fleet Corporation.  The position of general manager of the Fleet Corporation was abolished in order to give Schwab “complete supervision and direction of the work of shipbuilding”—including that going on in his own yards.  Edward N. Hurley, a millionaire captain of industry, remained chairman of the Shipping Board and president of the Fleet Corporation.

P.A.S. Franklin, president of the International Mercantile Marine Company, was given direct control of the routing of all merchant and passenger vessels leaving American ports.  John D. Ryan, president of the Anaconda Copper Company, the world’s greatest copper producer, owner of other copper-producing corporations, became director of aircraft production, exercising powers analogous to those of Schwab in the field of ocean ships.

D.C. Jackling, another large copper producer, was placed in charge of the production of T.N.T., as well as of construction of government plants to increase the output of this explosive.

Edward R. Stettinius, one of the twelve Morgan partners, became director of purchases and supplies for the War Department, superseding the War Industries Board in the purchase of billions of dollars’ worth of merchandise.  Mr. Stettinius also became a member of the War Council, and when this body was abolished, he was named an Assistant Secretary of War, with the same functions as before.

Meanwhile, in Paris, Paul Cravath, chief counsel of Schwab’s private steel company, was sitting upon the Interallied War Council, representative of the American democracy.  A little later we find Thomas W. Lamont, one of the Morgan partners, acting as official representative of the Treasury Department in the peace conferences.

When the British Foreign Mission arrived in America in April, 1917, Mr. Balfour, its leader, received President Wilson, held a conference with J.P. Morgan, and dined with Mr. Stettinius, all in the same day.  The incident is symbolic of the merging of Wall Street and the government for war purposes.

If unanimity for war, both before and after, and active voluntary service, without direct compensation, be the measure of patriotism, then the enthusiastic declaration of a Liberty Loan orator, that Wall Street is not only the centre of American finance, but is also the fount of American patriotism, will have to go down in history as gospel truth.


WHY the patriotism of Wall Street ?

Can Wall Street, which had never before pretended to be the home of altruism, which had always acknowledged that its beginning and end was profit, be readily accepted in its war-time role of unselfish and resplendent champion of the common good ?

If it appears that Wall Street expected to profit by our war, did profit, and stands to profit still more, what becomes of its professions of patriotism ?

It is easy to understand how any one expecting to make money out of war, with all its horrors, would incline to caution in admitting the fact.  The opponents of war, a11 along, had been charging that Wall Street wanted war be cause there would be money in it for Wall Street.  Nevertheless, evidence of gleeful anticipation is not lacking.

An article by B.C. Forbes, printed in the May number of Hearst’s Magazine (1917), and evidently written in March, was based on the question put to business leaders :  “What will war do to America?”  There were no pessimistic answers.  C.A. Stone, of the firm of Stone & Webster, president of the American International Corporation, and head of the Water Power Trust, said that “on the whole, the new turn of events can be accepted with fortitude from the strictly business point of view.”  George M. Reynolds, president of the Continental and Commercial National Bank, pointed out that “it must be remembered that a rich nation at war, or preparing for war, spends enormous sums of money, and sets all forms of industry in motion.”

Reporting the receipt in Wall Street of the news of the breaking of diplomatic relations, the New York Times said, February 4 :

In many brokerage offices, the assembled customers stayed long after the half day’s work was done, discussing market and banking prospects in a more optimistic frame of mind than in many weeks.

The financial columns of the American, referring to the same incident (Feb. 19), said that it had “converted some of the most obstinate pessimists to the view that better times are coming in the stock market.”  Looking forward to war, the National City Bank said, in its statement of March 1, that “there is no reason to anticipate that a declaration of war would have any effect upon the immediate business situation other than that resulting from added stimulus.”  One month later, this bank was able to say that its prophecy was already beginning to be fulfilled :  “The whole industrial situation has tightened up, for besides the capacity taken up by government orders, the imminence of government orders has given a spur to other business.”

Once war had been safely declared, we find Frank A. Vanderlip, president of the same great financial institution, in a patriotic speech, May 17, enthusiastically prophesying that, as a result of the war, “a million new springs of wealth will be developed.”

In registering pleasant anticipation, as each new step was taken toward war, the voice of the Stock Exchange, which expresses the composite sentiment of the financial world, was less cautious than the voices of individual financiers.

Said the Times, February 4 :

Stocks rebounded sharply yesterday on receipt of definite news from Washington that the break with Germany had occurred. ... Bethlehem Steel rose 30 points, and the new Bethlehem B. shares gained 10¾ ... So eager were buyers for certain steel and copper stocks that 2 points or more frequently existed between a purchase price and the next bid price.

Said the Tribune, March 6 :

On Saturday it was generally believed that the bill providing for the arming of merchant ships would be passed, and stocks gained considerably as a result.

For the next period we quote the American, March 12:

Wall Street has accepted the arming of ships and the special session of Congress as the second step along the road that leads to war with Germany, and on that theory has bought stocks. ... Stocks have been purchased on the theory that war means a boom for a time ... Wall Street is proceeding on the assumption that war is inevitable.

Finally, the war message sent stocks soaring.  “United States Steel was up 21/8 points on first sales. ... Bethlehem jumped up to 142, up 1¼.  Marine preferred opened at 86, up 11/8,” etc.

Were these rosy anticipations fulfilled ?  They were.

To appreciate how much American intervention meant to the Wall Street pocketbook, one must first realize the unprecedented state of prosperity at the beginning of 1917, as well as the shaky conditions upon which it rested and the imminence of its decline.

The year 1916 had been by far the most prosperous in the history of American industry and finance.  This prosperity was directly due to the European war.  Between August, 1914, and February, 1917, more than 10,500,000,000 dollars’ worth of goods were shipped out of America, an excess over imports of five and one-half billion dollars.  In exchange for food, munitions, and other supplies, sold to the Entente countries, American capitalists had increased their stocks of gold by nearly a billion dollars, had bought back two billion dollars’ worth of securities in American railways and other corporations owned in Europe, and had loaned something like two billion dollars to the Entente governments besides.  They had also inherited a large share of the neutral trade of the belligerents, and out of the war gains had loaned several hundred millions to neutral countries in Latin America and elsewhere.

But the profits represented by such huge transactions were only a minor fraction of the immediate war profits.  The greatest harvest was gathered in at home.  The demand for supplies abroad made it possible to run up domestic prices to unprecedented levels.  With all the inflation of foreign trade, for every dollar’s worth of food and other supplies sold abroad, twenty-five dollars’ worth was sold at home.  The increase in domestic prices was only partially offset by increases in returns to the farmer and in wages.  The American public in peace was paying greater war profits to Wall Street than were the warring nations themselves.

The total winnings in that hectic period, of the few men who control the banking, the shipping, the manufacturing, the mining, and the transportation of the country will probably never be revealed.  It was frequently stated that the young J.P. Morgan made more money in two years than the senior Morgan had made in all the days of his life.  There is evidence a-plenty that, whatever the ultimate figures, the war profits were such as to drive their possessors quite mad with the reality, and even more with the possibility of future winnings.

But there were certain flaws in this happy situation.  In the first place, it could not go on indefinitely.  In the second place, a part of what had been gained was not yet wholly secure.

The war profits could not go on indefinitely, first, because the war could not go on indefinitely.  And by the beginning of 1917, it was evident that the war profits could not go on even if the war went on—in the same way in which the war was then going;  also that a great part of what had been gained might be lost.

When the war trade was in its first phases, Wall Street was afraid of nothing more terrible than the cessation of the conflict.  When the German government first began making peace overtures, before the end of 1915, American munitions shares fell from 5 to 40 per cent.  This was simply an expression of a fear that peace would put an end to the boom.  Later, the periodical German overtures depressed the stock market in each case in proportion to the probability that such overtures would bring results.  As late as December, 1916, the peace parleys sent American stocks down 15 to 20 per cent.  But by the beginning of 1917, Wall Street had come to fear, even more than the cessation of the conflict, the continuation of the war to an indecisive end.

Wall Street would have been still more afraid of a German victory, had a decisive German victory been at any time within the realm of probability.  But Wall Street was really never afraid of a German victory.[1] Nevertheless, the beginning of 1917 found Wall Street facing a crisis.

That crisis was due to the approaching exhaustion of Entente credit in America, coupled with the inability of the Entente to deliver the knockout blow.  The war trade was based on gold imports, security purchases, and credits.  As the supply of gold and securities was drawn upon, the trade came to depend more and more upon credit.  Some of the vast loans which Wall Street made to the Entente, to keep up the war trade, were secured, in part, by collateral which might not be greatly affected by the outcome of the war, such as American securities.  But a fraction of the collateral, such as British securities, depended for its value upon the future stability of the British Empire.  Some of the loans, indeed, were wholly unsecured, and the repayment rested solely upon the continued solvency of the Entente governments.  Of this class were the original loan of $500,000,000, known as the Anglo-French loan, and the loans to French municipalities.

When Henry P. Davison returned from abroad about the first of November, 1916, he had announced that the next Allied loan would have to be unsecured.  But American bankers were already so overloaded with Allied loans, unsecured or inadequately secured, that they were loth to take more.

In December, a marked decline in actual Entente purchases was reported.  In the same month, England announced its decision to manufacture all its own shells as soon as existing contracts in America should expire.  This would hit all the great steel and munitions companies.  The decision was declared to be due to enlargement of Entente manufacturing facilities, but it is probable that the ability of England and France to fill their own munitions needs was purposely exaggerated, as a maneuver to persuade America to go on accepting their depreciated credit.  In January, a British manufacturer spectacularly entered the American field and secured a contract to furnish shells for the American navy.  This was no doubt another maneuver.

That future war orders depended, not upon enlarged Entente facilities but upon further extensions of credit, indeed, was admitted by Mr. Davison in a published interview, November 3 :  “For a time Europe was forced to place their orders in America, but now, unless they make favorable terms, France and England will make their own munitions.”  “Favorable terms” meant nothing more nor less than inadequately secured credits, which Mr. Davison and Mr. Morgan were finding more and more trouble in placing among their associates in America.

So, at the beginning of 1917, Wall Street was faced with two contingencies :  first, the end of the war boom—due to the exhaustion of Allied credit;  second, the possible loss of a large part of $2,000,000,000 in loans, principal and interest—due to the inability of the Entente to score a decisive victory.

While a German victory was out of the question—at least so far as England was concerned—no one could foresee the internal political results of an indecisive war, especially if the struggle went on for years to economic as well as military exhaustion.  No one could guarantee that there would not be far-reaching social upheavals.  Repudiation of debts was always possible.  Repudiation aside, British and French bonds would be worth much less in the event of a compromise peace than in the event of victory.  Each changing aspect of the military situation already affected the price of these bonds.

In a word, not only future war profits stood in jeopardy, but past war profits also.  Wall Street had bet its money on the Entente horse.  Wall Street had backed its choice so heavily that the interests of the Entente governments had become the interests of Wall Street.  To the Wall Street pocketbook, a peace without victory was unthinkable.  And it was becoming more and more apparent that a decisive victory was possible only by means of American intervention on the side of the Entente.

At the beginning of 1917, war on the side of the Entente was the one thing that would solve all problems.  First, it would insure another long period of war orders.  Second, it would insure Allied credit.  Third, it might be so manipulated as to serve in the attainment of certain other advantages of a permanent nature, toward which Wall Street had been hungrily looking.  (See Chapter XXXI.)  Considering any of these three advantages, American participation in the war against Germany would constitute the most tremendous and profitable coup in the history of American finance.

So it came to pass.  The harvest upon American belligerency began to be gathered, even before the declaration of war, in what may be termed the profits of expectation.  The crisis found our “big men” loaded heavily with stocks and profiting by the rise.  Said the New York Sun’s financial column, April 9:

Sentiment among bankers is patriotic and it is bullish ... To many persons, long on stocks, war apparently merely spells another long period of abnormal profits for our corporations ... The big men hold stocks.

The declaration of war found the “big men” long on commodities, as well as stocks, and the profits of expectation include the returns from soaring prices of food and other articles.  In May, wheat reached $3.25 a bushel.  No farmer profited by this.  The American farmer had long since parted with the last of his crop at around $1.30.  In August, cotton touched its highest mark for 45 years.  It meant nothing to the grower;  the middleman had long since acquired his product.  The same is true of other staples.

The food profiteers of the spring of 1917 were denounced as “food hogs,” “sharks,” “traitors.”  An effort was made to create the impression that only a few irresponsible, low persons had brought about the situation.  We were told that representative American business men were too patriotic to boost prices in the face of war.  But such a general rise in prices could result only from the concerted action of the rich and powerful combinations which control the distribution and price of American commodities.  Although wholesalers and retailers took profits where they could, if the word “traitor” applies to the parties responsible for the food riots of 1917, it must fall first upon men who were so soon to become conspicuous government officials at one dollar a year, or who paid the salaries of employees who acted as government officials.

After the profits of expectation, followed the profits of realization.  Allied credit was not only insured;  it was guaranteed.  Allied trade, which, in the words of a financial circular, had come to be looked upon as a “pinchbeck,” again became “the genuine article.”  The boom was prolonged.  It became possible to advance wholesale prices in April on an average of two per cent. over March, making the total since the beginning of the European war 57 per cent.  This was only a beginning.  By the middle of May, the Times was able to say :  “Business is still feeling the momentum imparted by the vast buying demand opened up when the United States declared war.”  This momentum rose, instead of falling—rose steadily for eighteen months, until the German collapse.

Of the profits of realization, the statements of the great corporations themselves tell the least of the story.  In its efforts to dispel suspicion that Wall Street provoked the war for business reasons, the daily, weekly and monthly press sought to lead the public to believe that profits were less in 1917 than in 1916.  The approved method was to flash the figures of one or two corporations, and to make all deductions from them.  For reasons that have been made clear, even were all immediate profits of all American corporations less in 1917 than in 1916, that would not change the fact that Wall Street greatly profited from American belligerency.

But the profits of a very large number of the richest corporations show an increase, even by their own statements.  In other cases, where net gains are reported as less, it is often evident that the reported decrease is not real.  In its report on profiteering, and in other reports, the Federal Trade Commission exposed many tricks of bookkeeping resorted to by the great corporations to conceal the extent of their gains from war contracts.  Costs were fictitiously enhanced by account juggling.  Officers’ salaries were increased.  The item of depreciation was padded.  Interest on investment was included in cost.  Fictitious valuation of raw material was resorted to.  Inventories were manipulated.

Such practices are not flattering to the patriotism of our great financiers, but they were general.  Indeed, minimization of profits is often evident to the eye of the casual reader, in the abbreviated reports of corporation statements as printed in the newspapers.

The earnings of the U.S. Steel Corporation for 1917 exceeded, by many millions, the face value of its common stock, a greater part of which is water.  The figures were $528,757,615, as against $333,574,178 for 1916.  They exceeded by $70,000,000 the combined earnings of the three years 1911, 1912 and 1913.  After the deduction of income and excess profits taxes, depreciation, etc., the sum set aside for dividends was smaller than in 1916 by about twenty per cent.  But the capital outlay for new plants, etc., was more than double, while the total cash in bank, in demand loans, Liberty Bonds, Treasury certificates, etc., was $446,369,597, or more than twice as great as at the end of 1916.

The Bethlehem Steel Corporation likewise reported a smaller total, after income and excess profit taxes, interest charges, and greatly increased sums for depreciation were set aside.  But, as acknowledged, the final net income was equal to $44.20 per share on the liberally watered common stock, after providing for the preferred share dividends.  Net earnings in 1916 had been almost three times as great as in 1915, and at the beginning of 1917 the company had indulged in a “melon cutting,” in the form of a stock dividend of 200 per cent.

Midvale Steel and Ordnance Co., and Republic Iron and Steel both acknowledged net profits, after all tax and other deductions, as higher than in 1916.  In its report on profiteering, the Federal Trade Commission gave a list of ten other steel companies whose 1917 profits ranged from 52 to 109 per cent. on the investment.

Some of the big copper companies reported smaller net earnings in 1917 than in 1916.  But the U.S. Geological Survey reported that the 1917 production, although 38,000,000 less in pounds, sold for $35,000,000 more.  Profits of 1916 had greatly exceeded all previous records.  The Anaconda, Mr. Ryan’s company, made three times as much in 1916 as in any previous year.  In 1917, after all juggling was completed, the balance set aside for dividends by the American Smelting and Refining, Daniel Guggenheim’s company, amounted to twenty-two and one-half per cent. of the common stock.  After setting aside large sums for alterations, replacements, taxes, and other items, Utah Copper, Mr. Jackling’s company, reported a balance for dividends of $28,695,495.

The American Sugar Refining Company reported 1917 as the best year in its history.  The Big Five packing companies confessed to greater returns in 1917 than ever before.  In 1916 they netted $60,759,000, more than three times as much as in 1913.  But in 1917, after all tax deductions, they netted $95,639,000, or nearly 60 per cent. more than in 1916.  Morris & Co.’s net profits were 267.7 per cent. of capital stock.  Armour’s would have been 135.5 per cent., were it not for a 400 per cent. stock dividend declared that year.

The Federal Trade Commission found that 48 leading lumber companies in the southern states netted more than three times as much in 1917 as in 1916.

In six years ending May, 1917, Standard Oil firms distributed dividends in excess of six times the par value of their capital stock, or $629,000,000.  But Standard Oil profits continued to increase through 1917.

After war tax deductions, the Baldwin Locomotive Company reported net profits 500 per cent. greater than in 1916;  the American Locomotive Company, 30 per cent. greater;  the American Woolen Company 30 per cent. greater;  the Railway Steel Spring Company, 175 per cent. greater;  the American Can Company, 70 per cent. greater;  Lackawanna Steel, 30 per cent. greater;  U.S. Industrial Alcohol, 150 per cent. greater.  The Corn Products Refining Company, another Standard Oil subsidiary, which had been running along happily on about $3,400,000 a year net, gathered in $16,852,793 in 1917, about 250 per cent. more than the previous year.

Between May 1 and June 20, 1917, the resources of the fifty National Banks in New York City increased $98,341,499.  Between February 28 and June 20, of the same year, the resources of the trust companies of New York State increased more than three billion dollars.  The earnings of the National Banks of the country for the fiscal year were reported as $667,406,000, the greatest in their history, and 13½ per cent. greater than in the previous year.  Net earnings on capital stock figured out as 18 per cent.

In 1915, a new high record in foreign trade had been established.  In 1916 another high record had been established.  But the figures of 1917 exceeded those of 1916 by $1,225,000,000.

These few figures will hardly convey an adequate conception of the immediate advantages accruing to Wall Street from American participation in the European war.  They are set down only that there may be no doubt that there were great gains.  Either the reports of the Federal Trade Commission or of the corporations themselves are sufficient proof of this, though they tell only a part of the story.  Finally, the profits from financial transactions, as distinct from industrial, were greatest of all, and these were most successfully hidden.  Even the figures of the U.S. Treasury Department (given to the public Apr. 18, 1920) show, in spite of all concealments and evasions, that the war created 21,000 new American millionaires, and that, during the war period, 69,000 men made more than three billion dollars over and above their normal income.


1 We have the word of Alexander Dana Noyes, financial editor of the New York Times, in “Financial Chapters of the War,” that Wall Street picked the Entente Allies to win at the beginning, and never wavered from this judgment during those early years.


IT was universally assumed during the fighting, and countless times asserted, that it was the policy of the War Administration not merely that big business should not be permitted to make money out of the tragedy of war, but that it should be required to feel the burden equally with the common people.  This idea no doubt received its impetus from a pronouncement on the incompatibility of war profits and patriotism found in President Wilson’s “Appeal to the Business Interests,” July 11, 1917:

Patriotism leaves profits out of the question.  In these days ... when we are sending hundreds of thousands of our young men across the seas ... no true patriot will permit himself to take toll of their heroism in money or seek to grow rich by the shedding of their blood.

How, then, did it come about that Wall Street profits walked so pleasantly hand in hand with Wall Street patriotism ?

In the appeal of July 11, the President also set forth the actual course he intended to pursue, in the following words :

A just price must, of course, be paid for everything the government buys.  By a just price I mean a price which will sustain the industries concerned in a high state of efficiency, provide a living for those who conduct them, enable them to pay good wages, and make possible the expansion of their enterprises.

This statement of policy is, on its face, open to several interpretations.  It might be interpreted as licensing our financial patriots to indulge in a profit orgy unparalleled in the annals of civilization.  Whether or not it was so interpreted by our War Administration and our financiers must be determined by the actual application of the policy.  As has already been seen, the system of coöperation between government and business was one perfectly calculated to produce the highest possible profits consistent with safety and success.

Our great financiers, having advised, urged, and promoted the war, now advised as to its policies, directed, executed.  The government accepted their advice, commissioned them to act, backed them with its authority—and footed the bills.  Is it a coincidence that the result was extremely pleasing from a strictly financial point of view ?

On the first of April, 1917, nothing could have been more financially delightful to our international bankers than that America not only should declare war against Germany, and so greatly strengthen Allied credit, but that the government should absolutely guarantee that credit with its own treasure.

We find the President emphasizing this very proposal in the war message.

The Bond Issue Bill, rushed from the White House to the Capitol, authorized the Secretary of the Treasury to purchase from the Entente governments three billion dollars’ worth of paper promises to pay.  It was brought out in the Congressional debates that this alone meant an item of $60,000,000 in commissions to one banking firm—owing to a contract under which the Entente governments agreed to pay, as a commission, two per cent. of all loans floated in America, whether negotiated through that firm or not.

Second, a condition of the loan was that the government of the United States should purchase the Allied paper, not at its market value, but at par.  This was several per cent. more than Wall Street had ever paid for the best secured Allied paper.  It not only made Wall Street paper good, but it immediately gave that paper a higher value than it had ever had before.

The difference between what the United States government paid for Allied government bonds and the market rate previously prevailing, represented a clear gift, totaling many millions.  This gift went to the Allied governments, on future purchases only.  On all outstanding obligations, it was a direct gift to the holders of Allied credit paper—meaning our great banking and munitions firms.

The day following the war message, Anglo-French bonds, which had been rising in anticipation of war, jumped two points on the Stock Exchange, which meant a gain of $10,000,000 in a single day to the holders of these bonds.  All other Allied paper registered advances.  On the floor of Congress, April 13, 1917, it was brought out that the market value of one thousand ruble Russian bonds was $273, and that in paying $510, the par value, the government would make a donation of $237, giving almost two dollars for one.

Still another condition of the Allied loans was that the money should be expended in America, which simply meant that it should be used to liquidate the debts owed our international bankers and our captains of industry, and to transact future business with them.

As a result of the President’s proposal to guarantee Allied credit, the Bank of England was able immediately to reduce its discount rate, which had become an obstacle to business in this country.  The three billion dollar fund itself—like the billions later appropriated for the same purpose—was not shipped to Europe, any part of it, but was deposited in installments in the Federal Reserve Bank to the credit of the Allied governments, red-tape being cut to get the first installments there in a hurry.  Allied agents then drew checks upon it, and turned the checks directly over to the corporations of Mr. Schwab, Mr. Ryan, Judge Gary, Mr. Davison, Mr. Stettinius, Mr. Farrell, Mr. Vanderlip, Mr. Morgan, and other multimillionaires who were so soon to figure as shining patriots, all of whom were interested in Allied trade and involved in Allied credit operations.

In order to loan billions of dollars to the Entente governments, it was necessary to procure the money from the American public, and this was done through the so-called Liberty Loans, which were also the source of the major share of the money that the government itself spent with Morgan and his associates.

While acting as England’s financial and munitions representative in America, J.P. Morgan also sat upon the advisory council of our Federal Reserve banking system.  At the same time he was playing a third role of private business man, banker, munitions maker, railroad director, coal baron, etc. etc.  The reader may conjecture for himself in which of these capacities it was that America’s leading financier advised the Liberty Loan issues and the conditions thereof.

Three days after the declaration of war, following a conference with Secretary McAdoo in Washington, we were told that “Mr. Morgan expressed satisfaction with the plan to issue $5,000,000,000 in bonds, with the understanding that $3,000,000,000 of the amount thus raised should be employed to buy war bonds of the ally countries.”  (New York Times.)

As business men purely, our international bankers had cause for satisfaction not only in the features of the Bond Issue Law relating to Allied credit, but in many others.  They had cause for several kinds of purely financial satisfaction in every Liberty Loan dollar raised by the government.  This satisfaction was not always concealed.  Charles H. Sabin, president of the Guaranty Trust Company, the biggest institution of its class in America, exulted as follows :

The proceeds from the sale of Liberty Bonds will be expended in this country by our government and by the Allied governments. ... The money will remain in this country and will not involve any loss of gold or any loss of values.  It is obvious that the more money that is spent in this country, the greater will be our prosperity.  (New York Times, Sept. 25, 1917.)

Speaking the same kind of satisfaction for Wall Street in general, L.L. Winkleman & Co., specialists in Standard Oil, copper and steel stocks, and closely connected with some of the biggest mining and munitions firms, uttered the following shriek of ghoulish glee on the day war was declared :

The Secretary of the Treasury, at the instigation of the President, has asked for an appropriation for the army and navy alone of $3,400,000,000, while simultaneously, members of the National Council of Defense, the Federal Reserve Banks, and Treasury officials, give assurance that $2,000,000,000 at an interest rate not to exceed three and one-half per cent. will be almost immediately available.  This and many multiples more of wealth will find its way continuously and unsparingly into all the units of the country’s many-sided industries.  Any one viewing this formidable array of strength would be a pitiable pessimist indeed if he looked to the future with any feeling of trepidation or foreboding.

If the record of the country’s coming achievements carries a tinge of scarlet, the golden lustre will be undimmed.  (Financial Circular.)

The New York Times, a first class barometer of big business sentiment, remarked editorially :  “The loan is a means of making patriotism profitable.”  (May 4, 1917.)  And again :  “The Liberty Loan is not only a means of making democracy safe.  It is a means of benefiting the money market.”  (May 17)

In the early days of the first bond drive, Mr. McAdoo announced that “to avoid any disturbance of the money market,” the government would not take away from the banks the sums subscribed by them or obtained from their customers, but would place such sums on deposit in the respective banks to the credit of the United States.

Still another source of Wall Street satisfaction in the Bond Issue Law was the tax exemption feature.  Said the New York Times financial editor :

The war-financing bill to authorize a total issue of $5,000,000,000 of bonds and $2,000,000,000 of Treasury certificates met with instant approval throughout the financial district. ... Lawyers familiar with such matters were of the opinion that the conditions of issue and redemption were not such as to attract men of small means.  They were termed rich men’s bonds, because the bonds would be exempt from the income tax and the amount invested in them need not be reported.  (Apr. 12)

Our multimillionaires went about the country telling what a sound and profitable investment the bonds were for anyone.  The fact was not always hidden that the terms were especially calculated to please these particular patriots.  Daniel Guggenheim confessed :  “For millionaires they [Liberty Bonds] are an exceptional opportunity.”  (New York Times, Jan. 7, 1918.)

Comparing the advantages to rich and poor, the financial writer, Albert W. Atwood, explained :

The first Liberty Loan paid only three and one-half per cent. interest, but it was made free from all taxes, including the enormous super-toll on large incomes.  Thus it would come about that a very rich man ... would be receiving the equivalent of perhaps ten per cent. on an investment that pays the poor hardly more than one third as much.  (Saturday Evening Post, Oct. 13, 1917.)

The expenditure of the proceeds of the Liberty Loans gave cause for even deeper thrills of satisfaction to our business leaders.  We have already had a glimpse of the methods of disbursing these billions, and an inkling of the profit-taking that resulted.  A correct appreciation of both the generosity of the War Administration and the patriotism of Wall Street requires that we have another glimpse.

Glance again at steel.

It is unnecessary to recall the frenzied profit-taking of 1915 and 1916.  From pre-war values Bethlehem stock mounted more than twelve hundred per cent. in a little over a year.  Nevertheless, America’s appearance in the role of champion of world democracy was a signal for a higher boost in prices.  By June, iron prices were above those of Civil War times.  There was no expectation of placing large contracts at the highest figures reached on paper, but these paper prices served a wonderful purpose;  when reduced slightly, patriotism could be claimed as the motive.  Government and operators promptly and conveniently forgot the promises of the latter to forego war profits.  The prices, when fixed by the government, evoked numerous expressions of pleasure.  The Iron & Steel Institute met at Pittsburgh.  After expressing satisfaction with the price of steel, the assemblage sang “The Star Spangled Banner.”  Judge Gary, chairman, made a speech :

We have no reason to complain of the action and attitude of the government.  To win the war the government must have steel and more steel.  There is no room for disloyalty in America.  (New York Times, Oct. 27.)

Notwithstanding the satisfaction of the steel operators, the government raised the price of steel from time to time.  In due course we find judge Gary expressing further satisfaction.  Here is an excerpt from his report at the annual meeting of the U.S. Steel Corporation :

It is fortunate that the government has fixed prices which permit us to make fair profits and pay large dividends.  We feel that we are living up to the policy outlined by the President of the United States, when he said that prices should be large enough to pay living wages to the workers, fair salaries to officials, and provide for necessary plant additions for war work.  (Apr. 18, 1918.)

Two days after the armistice was signed, the War Industries Board met with the general committee of the Iron & Steel Institute.  Among those representing the latter, were Judge Gary, Mr. Farrell, and Mr. Grace, acting head of the Schwab corporations.  Among those representing the former, were associates and underlings of Gary, Farrell, and Grace in the steel industry.  Mr. Gary, Mr. Farrell, and Mr. Grace were so satisfied with the “governmental supervision” of their business that they urged its continuation “for the present” as “highly desirable.”  (Official Report of Mr. Baruch, Nov. 14.)

Glance again at copper.

In March, 1917, the big producers, represented by Mr. Ryan and Mr. Guggenheim, agreed to furnish 45,510,000 pounds of copper during the next twelve months to the government for 162/3 cents a pound.  This figure, they said, was the average selling price of their product during the previous ten years, although elsewhere it was asserted that the figure was nearer twelve cents.  But, however this may be, some of America’s largest fortunes were built upon copper.  In a report to its stockholders, quoted by Champ Clark (Congressional Record, May 24, 1917), the Utah Copper Company, of which Daniel C. Jackling was managing director, had recently declared that it could put copper free on board cars for 51/8 cents per pound.

But Mr. Baruch, on behalf of the government, chose to heap fulsome praise on the copper magnates for their patriotism.  Ryan, Jackling, Guggenheim, et al., also received unlimited press notices from the newspapers.  The fact was overlooked that the government could have fixed the price at 162/3 cents in spite of these gentlemen, and that if it had wished to follow a policy of taking the profit out of war, it would have seen that the price was far below that figure.

We were told that copper had “gone up” to thirty cents.  The truth is that the copper operators had not been selling copper at thirty cents.  They simply put the price up on paper, then to pose as shining patriots for “agreeing” to a reduction.

Furthermore, the copper magnates did not fulfill their contract to furnish the government at the “patriotic price”—nor did the government attempt to hold them to it.  Thirty thousand pounds, not forty-five million, were reported as having been actually delivered at 162/3 cents.  Then, “by agreement,” the price was fixed at 23½ cents.

On receipt of the news, copper stocks soared.  Mr. Ryan announced :

All the producers are satisfied.  The price is fair and should be good both for the producers and the country.  (New York Times, Sept. 25, 1917.)

How good it was for the producers was pointed out by the Times, in its review of the effects of the government policy upon business for the year 1917:

The past year was prosperous for the copper miners [producers].  They kept their mines operating to capacity and enjoyed the highest prices for the metal which have ruled for 50 years. ... The United States and Great Britain fixed the price of copper at 23½, cents a pound, in order to prevent a runaway market.  This measure has greatly benefited copper miners.  Had the price not been fixed, there would have been price fluctuations, which would have led to irregular demands for the metal.  The average production cost before the war was around eight cents a pound.  Some mines produced at around 5½ cents.  The cost now is about ten cents, with many of the larger mines producing at 7½ cents.  (Jan. 6, 1918.)

From which it appears that the government was giving to Mr. Ryan, Mr. Jackling, Mr. Guggenheim, Mr. Rockefeller, Mr. Morgan, Mr. Bedford, Mr. Dodge, and others interested in copper, three perfectly good Liberty Loan dollars for every dollar’s worth of goods passed over the counter.

Nevertheless, in the middle of 1918, the government price for copper was raised to 26 cents a pound.

Glance again at railroads.

When war was declared, the physical condition of the railroads was at its worst.  The service both in freight and passenger traffic had become a national scandal.  Unable decently to meet the requirements of peace, the great transportation systems practically collapsed in the face of the war emergency.  The coal famine, at the end of 1917, which caused the loss of so many millions in wages and returns to capital, as well as so much actual suffering, was due chiefly to the railroad breakdown.  High prices of stock feed, resulting in great losses to farmers, high living costs, and many other unfortunate circumstances, were attributed, in part, to the same cause.

For their delinquency the companies pleaded lack of money, and attempted to lay the blame upon the nation, for not having responded to their frantic appeals for higher rates.  As a matter of record, the rates had been several times raised under the Wilson regime, and, according to their own figures, in 1915 and 1916 the companies had collected higher earnings and netted greater profits than ever before.  From the income of 1916, the railroads had disbursed more in dividends than in any previous year, besides financing the most expensive campaign of “public education” ever undertaken by a business coalition in American history.  At the same time, their poverty was so terrible that they could afford hardly a dollar for repairs and improvements !

The explanation of the railroad spokesmen themselves was that dividends had to be paid, improvements or no improvements, that improvements could only be financed with new stock and bond issues, and that, owing to the gorgeous returns from munitions making, “investors” were unwilling to put their money in railroad issues, and would remain unwilling until such a time as railroading became as profitable as catering to the war monster.

So, in effect, the public was asked to pay a fine of a billion or more a year to the railroads because the munitions business was making money.  This wonderful scheme had already been put into operation in other lines in which it was not necessary to ask government permission before boosting prices.

The “problem” of the railroads could have been solved by a government policy that would have taken excessive profits out of the war trade.  But nobody thought of that.  In any event, the problem was not one that had to be solved by higher rates.  For the men who owned the controlling interest in the great transportation systems were the same men who owned the munitions business.  These men had been making more money than ever before in their lives.  They were at that very time conducting a vigorous campaign for preparedness, pressing upon the government for a more uncompromising attitude toward Germany.  They were aware that, with their approval and at their instigation, America was moving toward war.  They knew that their railroads would be a vital factor in the prompt and efficient prosecution of the war when it came.  But instead of putting their properties in a condition to meet the emergency, they brought them to the verge of collapse in a deliberate effort to coerce the country into consenting to a raise in rates.

Very well, the situation in 1917 had to be met by government control.  But, instead of conscripting a part of the bloated fortunes of the railroad magnates, or taking dividends to pay for improvements that had to be made, the War Administration gave to the corporations everything that they had ever had the temerity to ask for—and a great deal more.

The President’s announcement of policy in taking over the railroads is a reaffirmation and amplification of the original announcement of his war policy toward business.  After a few well chosen words expressing solicitude for railroad earnings, declaring that the roads should not be required to suffer from war conditions, even acknowledging that a primary object in taking over the roads was to provide them with more money, the President uttered the following definite assurances :

Investors in railway securities may rest assured that their rights and interests will be as scrupulously looked after by the government as they could be by the directors of the several railway systems.

Immediately upon the reassembling of Congress, I shall recommend that these definite guarantees be given :

First, of course, that the railway properties will be maintained during the period of Federal control in as good repair and as complete equipment as when taken over by the government, and

Second, that the roads shall receive a net operating income equal in each case to the average net income of the three years preceding June 30, 1917.

The President specified the three years ending June 30, instead of the three years ending December 31.  Earnings had declined since June 30.  The three years selected were the most prosperous thirty-six consecutive months in railroad history.

Ten days later the President pleaded the cause of the railroad kings to Congress, declaring :

One of the strong arguments for assuming control of the railroads at this time is the financial argument. ... It is an obligation of public conscience and of public honor, that the private interests we disturb should be kept safe from unjust injury.

The President’s recommendations, as more fully set forth in the Administration Railroad Bill, turned out to be even more generous than were the President’s promises.  The guaranteed net income figured out to be about $945,000,000.  The law even permitted larger compensation in “abnormal cases,” at the discretion of the President.  Another favor was the payment to the railroads concurrently of their own estimates of depreciation of equipment, the sums to be charged off to operating expenses.  The President was authorized to raise rates at his own discretion.  He was also authorized to permit the companies to issue securities, and then to purchase the same from them with the people’s money.  Half a billion dollars were immediately provided as a “revolving fund” out of which to make improvements.  Another provision obliged the government to return the roads to private hands within a definite period after the end of the war.

How did the railroad presidents take all this ?  They took it—patriotically.  The interviews which appeared in the newspapers the day following the President’s proclamation show that they took it as a Christmas present.  The present had, in fact, been solicited.

As to the little matter of financial satisfaction, the immediate effect upon the stock market was set forth as follows :

The net recovery [of railroad securities] after this momentous event [the taking over of the roads] ran from seven to more than twenty points among the major railroad stocks. ... The forward leap of many railroad bonds, along with the stocks, made manifest the relief which investors in railroad securities felt over the government’s action.  (New York Times financial review of 1917, Jan. 6, 1918.)

When the year was done the report was :

After an auspicious beginning, with the railroad issues reflecting the relief occasioned at the end of 1917 by the government’s assumption of transportation control, the price trend was consistently upward through the year, with the railroad shares providing a strength and a backbone of sufficient rigidity for the majority of the industrial issues to move higher on a restricted volume of business.  (New York Times, Jan. 5, 1919.)

Glance again at shipbuilding.

Space does not permit mention of the many scandals, of great and small degree, that marked the Administration shipbuilding programme.  For the financial compensations of shipbuilding for patriotic purposes, Hog Island alone furnishes sufficient illumination.

The Hog Island contract was obtained by the American International Corporation.  A majority of the stock of this concern is owned by stockholders of the National City Bank, who, by stock ownership or control, or affiliation with other banks, exert a dominating influence upon every great field of business enterprise in America.  Our richest and most conspicuous “super-patriots” are discovered to be the very same who divided the Hog Island proceeds among themselves.

The whole truth of the Hog Island steal will probably never be known.  The most astonishing stories have been told by apparently reputable persons.  A public inquiry, begun in February, 1918, by the Senate Committee on Commerce, was opposed and finally throttled by the President, who substituted a private investigation by the Attorney General.  The statements herein are based upon the abortive Senate hearing, and to a lesser degree, upon the brief “whitewashing” report of the Attorney-General to the President.

The Hog Island contract was let by the Emergency Fleet Corporation, September 13, 1917.  It required the government to furnish every dollar of expense, including salaries, office expenses, and every other outlay appertaining to the job—and every risk—except that required to purchase the land, which was to be used at an annual rental of six per cent. of the alleged cost, with the privilege of subsequent purchase by the government.  The company was to build shipyards and ships with the people’s money.  Estimates of costs, figured by Stone & Webster, America’s greatest engineering firm, and interlocked with the American International Corporation, were made and entered in the contracts, but no limit to costs was set.  Compensation nominated in the bond was not patriotism, but a percentage of the money expended.  Compensation was fixed at five per cent. of cost.

Stone & Webster’s original estimate of the cost of the yard was $19.000,000.  This was soon raised to $21,000,000.  A little later it was $27,000,000.  By March, 1918, it was between $35,000,000 and $40,000,000.  In December, the yard was not yet completed.  Fifty-eight million dollars of the people’s money had been spent on it, and (Dec. 18) general-manager Piez of the Fleet Corporation estimated that the cost would reach $63,500,000.  It went far higher than that.

Contracts were let for 180 ships.  The original estimate of the cost of these ships was $256,000,000.  In December, 1918, Mr. Piez admitted that the cost would be as much as $225 a ton.  By the time the armistice was signed, the contractors had contrived to involve the government in expenses on the Hog Island job to an amount exceeding the cost of the Panama Canal.

“Lieutenant-Colonel” Charles N. Black, one of the rich gentlemen whom the President honored with military titles, described as “a volunteer worker in the Ordnance Department,” had been part owner of the 846 acres which the American International Terminal Corporation, a subsidiary, had “bought” for $2,000 an acre, and was renting to the government for $102,360 a year.  Black appeared before the Senate committee in defense of the corporation.

“I sold the land because it was represented to me as a duty,” testified “Colonel” Black.

But it was proven that the land had been a stretch of inaccessible swamp, assessed by the State at $100 an acre, and that the highest price ever paid anywhere for land in the vicinity was $500 an acre.

Dwight P. Robinson, president of the American International Shipbuilding Corporation, the subsidiary in direct charge of the work, testified :  “We have undertaken the work as a patriotic duty.”

But it was shown that the salary of Mr. Robinson’s general manager of construction was more than doubled as soon as he went from the corporation payroll to the government payroll, and that salaries of the corporation experts and officials generally were more than doubled;  even that more than one salary, has bloated, was paid to one person, in some instances.  The government not only paid these bloated salaries, but the corporation collected five per cent. of the amounts from the government as profit—in accordance with the contract.

George D. Baldwin, chairman of the American International Corporation, and a member of the firm of Stone & Webster, assured the committee :

We are loyal American citizens, who cannot afford to have our loyalty questioned. ... We have the incentive of patriotism.  We are not in this for money.

But when Baldwin was asked why, then, he and his associates were accepting such large sums of money, he replied :

A corporation cannot live on patriotism. ... Our stockholders must have their dividends.

The “normal fee” for ship construction alone, based on the original estimates of cost, was $11,675,000.  The chief official excuse for that item was the participation of the firm of Stone & Webster, which “knew how” to do the thing that was wanted.  But it was brought out that, while the American International Corporation was being paid “know how” profits, Stone & Webster were being paid “sub-know how” profits—as were other corporations affiliated or subsidiary to the American International Corporation.

In other words, a group of patriotic financiers contracted to collect eleven million simply for passing contracts along to themselves—dividing them among themselves.  The same men then collected a second fee based on costs.  This pyramiding of contracts—and fees—was carried even farther.

The “sub-know how” fee was also five per cent.—on paper.  Profits in hard cash were higher.  It was shown that Stone & Webster cleared one-third of a million on one subcontract of less than a million.

H.D. Connick, vice-president of the corporation, was another who swore to the patriotic nature of the venture.  “You didn’t propose to invest one penny of your own money, though,” taunted a Senator.

“We were going to invest our reputations,” answered Connick.

It developed that the precious reputations, once “invested,” were handsomely defended with the people’s money.  One press agent was paid a salary of $20,000 a year.  Press agents’ salaries and other publicity costs—outlays to convince the public that Hog Island was what it was not—were charged to the government, which also paid an added charge of five per cent., as profit to the American International Corporation.

Throughout the Senate hearing, officials of the Fleet Corporation, and other government officials, shielded the grafters.  Both government officials and officers of the American International Corporation were forced to admit extravagance, waste, and exorbitant costs.  These things were defended on the ground of speed.  But the only speed visible at Hog Island was the speed with which the contractors made away with the people’s money.  America had been at war sixteen months before the first ship was launched, and no Hog Island ship got into commission in time to be of service against Germany.

The Corporation’s general defense, when investigated by the Department of Justice, was that officials of the Fleet Corporation knew and approved everything it did.  It happens that the officials of the Fleet Corporation, in private life, were associates or employees of the men who were profiting by the job.  These officials did not satisfactorily explain why they permitted the contractors to adopt a system of bookkeeping perfectly calculated to conceal thievery;  nor how it was that bills for material to the extent of over ten million dollars in value had been prepaid and no effort made to discover (in the words of the Department of justice report) “whether the prepaid bills were in fact followed by the actual receipt of the material paid for.”

On a number of occasions after the fighting was over, Mr. Schwab publicly declared that “at least two billion of the three billion dollar cost” of government shipbuilding “ought to be charged off as war cost.”  In other words, the two billion, or most of it, was stolen or wasted under cover of the war emergency.  Albert D. Lasker, who became chairman of the Shipping Board under President Harding, went even farther.  July 16, 1921, Lasker declared that the government’s “loss” on the building, operation, and leasing of ships would total $4,000,000,000.

After a peep at Hog Island patriotism, one may perhaps appreciate, slightly, Mr. Vanderlip’s enthusiastic prediction, made in an address to business men :  “A million new springs of wealth will be developed.”

Hog Island patriotism is not different from any other Wall Street patriotism, so soon as the latter is subject to scrutiny.  Nor is the War Administration elsewhere less generous with its profits, less willing to satisfy, to the full, financial appetites already gorged with money.  Everywhere we find captains of industry pleased with large returns—avidly seeking them.  Everywhere we find the government seeking to satisfy them—satisfying them.

The average price for bituminous coal at the mine, for the entire United States, in 1915, was $1.13 a ton.  Large deliveries were made in 1916 at $1.25 a ton.  The American Federation of Labor reported that labor costs had in creased but 13 cents a ton in three years.  Yet in August, 1917, the President fixed prices from $2 upward at the mine.  Under this arrangement, according to the Federal Trade Commission, margins of profit were much higher than in previous years.  Nevertheless, before the end of 1917 the President granted the coal corporations another increase of 45 cents a ton.  Under this arrangement, coal profits ran as high as 7,856 per cent.  (Senate Document, No. 259.)

Numerous official investigations established the fact that the unprecedented profits of the Big Five packers were due to the special care and protection of Hoover—that it was the policy of the Food Administration that such corporations should profit enormously at the expense of both the farmer and the public.  The public was officially informed that packer profits were limited to five per cent.  But Hoover gave his approval to an additional four per cent. profit, which was kept secret.  On borrowed money—money “borrowed” from their own banks—the packers were allowed to collect an income not only to cover interest, but a profit also.  When the Federal Trade Commission recommended to the President that this additional profit be abolished, Hoover opposed the plan, and through his influence the report of the Federal Trade Commission was withheld for nearly a year after the armistice.

The segregation of nearly a billion dollars’ worth of stocks and bonds, industrial plants, and other business holdings, owned by Germans, might be defended as a war measure.  But the sale of such properties, privately, as a rule, and at prices far below their real value, is difficult to understand except as a means of bearing gifts to Wall Street.

The government put an excess profits tax in the revenue bill at the beginning.  This is not an evidence that Wall Street did not make money out of the war, but only official acknowledgement that it did.  Private profits from the blood of our young men and the privation of our people were an integral part of the war policy, acknowledged and defined in the war revenue bills.

In preparing the schedules, the government estimate of visible war profits to be harvested by American corporations in 1917—collectable net gains over and above estimated gains of peace times—was four billion.

In subjecting these billions to taxation, the Administration pretended that it was compelling big business to assume its proportionate share of the war burdens.  But while the war taxes weighed heavily upon the middle classes, the tax laws were so framed, and their application so manipulated, that our money kings and our captains of industry went scot free.

Their influence caused the striking out of the retroactive tax, intended to take a part of the 1916 profits.  In 1916 there had been a special tax on the manufacture of munitions;  it was removed.  Tariff schedules were revised upward, throwing a great weight upon the poor.  Evasion was made easy by the Administration’s policy of keeping tax statements secret, and its policy of combining profits taxes and income taxes in a single item.  Corporations were permitted to make arbitrary deductions for war taxes to be subsequently paid, a procedure not contemplated by the law.  They were even permitted to deduct stock dividends from statements of profit, and by this maneuver to wipe the item of war taxes completely from their books.

The Administration even adopted the policy of paying the war taxes of favored corporations, either by taking the taxes into consideration in figuring prices on government contracts, or by engaging to pay such taxes itself, whatever they might come to.  The government agreed, in writing, to pay all increases of taxation appertaining to the Hog Island job.  The nine hundred million odd a year “rental” paid by the government to the Transportation Trust, was not subject to a dollar of war tax.

The upshot of the Administration’s war policy toward business was that every dollar of taxes that seemed to be laid upon steel, copper, coal, and the other great industries of Morgan, Schwab, Vanderlip, Ryan, Lovett, et al., was passed along finally to the general public.

In his appeal to business interests (July 11, 1917), the President spoke of the contribution of our business men to the winning of the war as “a contribution that costs you neither a drop of blood nor a tear.”  He might have added :  “Nor a dollar.”  For if the great corporations were given greater net profits, after all war tax payments, than they could have realized had the country remained at peace, it is obvious that they were permitted to escape absolutely any share whatever of the war burden.

When it was over, the Administration was not above boasting that big business had been protected, aided, and strengthened by the war policies.  (1918 reports of Secretary of the Treasury and the Controller of the Currency.)  The picture is well drawn in Latrobe’s Weekly Market Review, May 16, 1918 :

The most remarkable situation that has ever existed in the United States since the prosperous days of President McKinley has developed as a result of the war. ... The leaders of industry and finance are working hand in hand with the government, the steel companies are becoming partners of the government, and the railroads are obtaining favors of which they never dreamed, with guaranteed earnings and very high rates for transportation.  The War Finance Corporation is attending to finance requirements. ... There is every indication that the shipbuilding plans of the government will be expanded and rushed at a great pace under Mr. Charles M. Schwab of Bethlehem Steel, and one of the first moves he made was to cancel the original Submarine Boat contract and arrange for a new one for 160 ships on terms which admit of much larger profits.

Finally, the Administration served as protector and press agent for the super-patriots while they got away with the people’s money.

It was the policy of the President to prevent public investigations of profits, profiteering, and graft, by Congress, and, when the pressure for investigation was especially strong, to substitute therefor secret inquiries by the executive departments.  Such inquiries never passed beyond the control of the President.  The evidence was never published;  reports could be framed to suit the policy of the President, and publication even of reports was delayed at the will of the President.  The President opposed all investigations of the sort begun by either House, declared that “nothing helpful” was likely to come out of them, charged them with causing “delay and confusion,” and in the end succeeded in suppressing all of them.

Yet had it not been for these abortive hearings, the public might never have heard of the Hog Island steal, the shoe and clothing grafts, or sugar profiteering.  It would have heard less of packer thievery, still less of the aircraft scandal, and perhaps nothing at all of a hundred other things reflecting upon the patriotism and the common honesty not only of business patriots, but of army and navy officers, and even of members of the President’s cabinet.

The policy of hush illustrates one of the uses of autocracy in war.  The policy could not have been carried out successfully without far-reaching usurpations on the part of the Executive.  The looting of the Treasury mentioned herein is only a hint of what actually occurred.  Unless the government should continue as completely under the control of high finance as during the war, we may expect to be regaled with scandals for years to come.[2]

As a part of the policy of hush, criminal prosecution of our financial leaders was taboo.  The entire system of handling government contracts was in gross violation of the common law and of the statutes.  Honest enforcement of the law would probably have required wholesale prosecutions not only of dollar-a-year men, but also of government officials who gave the system their sanction.  When the criminal nature of these transactions was mentioned to the Attorney-General, he placed his stamp of approval upon them, declaring them “matters of national policy rather than a legal question.”  (Report of Chairman Graham, of the House Committee on War Department Expenditures, July 7, 1919.)

Federal police protection of captains of industry was carried so far as to require the postponement of prosecutions pending when war was declared.  Newspapers of January 3, 1918, carried a dispatch from Washington reading, in part :

Attorney-General Gregory to-day asked the Supreme Court to defer argument on the seven large anti-trust suits pending.  This action, Solicitor-General Davis explained, was taken because the government wants coöperation from the business interests of the country.  The suits postponed are those against the United Shoe Machinery Company, the American Can Company, the International Harvester Company, the U.S. Steel Corporation, the Eastman Kodak Company, the Quaker Oats Company, and the Corn Products Refining Company.

To this dispatch the Times appended a local news note saying that, upon the information’s reaching Wall Street, U.S. Steel Common shot upward, closing the day with a net advance of five points, while industrial stocks generally were in increased demand.

Meanwhile, to the government press agency, embellishing the fame of the “super-patriots” as model citizens, were frequently added the voices of members of the President’s official family, and at times the voice of the President.  But this was not enough.  Hand in hand with the policy of praise went the policy of repression.  Mr. Burleson laid down, as a condition for the enjoyment of second-class mailing privileges, that “Papers must not say that the government is controlled by Wall Street.”  (Oct. 9, 1917.)  At the same time, the Attorney-General was pleading for more repressive legislation, hinting that it was not sufficiently easy to imprison persons for calling attention to the peculiar relations between big business and the government.

It was the President’s policy that it should be illegal to impugn the motives of the men among whom the government was distributing our billions.  It was the President’s policy that it should be illegal to say that ours was a business man’s war, provided you were against the war.  At the same time it was the President’s policy that it should be perfectly legal to make exactly the same statement, provided you favored the war.  “The business plea to business men” was an approved and respectable part of the patriotic propaganda.  It was voiced, at times, even by the President himself :  “And every man in every business must know by this time that his whole future fortune lies in the balance.”  (Urbana, Jan. 31, 1918.)



2 Although the Harding Administration attempted no general expose of war-time thievery, the veil was lifted slightly, now and then, in response to political expediency.  For example, in a letter boasting of the accomplishments of Republican rule, August 29, 1921, President Harding said in part :  “Our government ... expended between five and six billion dollars for the manufacture of aircraft, artillery and artillery ammunition.  To show for this expenditure, it has been officially testified that less than 200 American-made airplanes or 200 American-made cannon ever went into action on the fighting front of the war, while not more than one per cent. of the ammunition expended by American artillery was, according to the same testimony, of American manufacture.  Approximately $3,500,000,000 has been poured out under the direction of the Shipping Board, yet I have from the War Department the curious bit of information that only one vessel built by the Shipping Board ever carried any American troops to fight in Europe.  This was a cargo boat, the ‘Liberty,’ which, according to War Department records, in October, 1917, carried approximately fifty soldiers to Europe.  These were the only soldiers, according to the record, that were transported to Europe before the armistice in a vessel built by the Shipping Board.  According to the most conservative estimate which has come to me, the Railroad Administration has cost the government between one and a quarter and one and a half billion dollars, and the end is not yet.”