Destructive Creation. Mark R. Wilson

companies to sell it goods at a “reasonable profit” to be determined later. The assistant secretary of the Navy, Franklin D. Roosevelt, apparently considered the commandeering option but decided against it, before awarding a large torpedo contract in December 1917. But earlier that year, Roosevelt carried through on a threat to have the Navy seize two battleships built by Bethlehem Steel’s Fore River Shipyard, after the company refused to release them to Argentina until payment was guaranteed. The coerced procurement of finished goods was also carried out by the War Department, which issued roughly a thousand compulsory orders of its own.¹⁰

      Among the most remarkable instances of government coercion in the Great War industrial mobilization, which set important precedents for World War II, were the outright takeovers of privately owned enterprises. One of the most prominent of these involved the Smith & Wesson Company, which was filling large military contracts for revolvers. Like many other private employers on the home front, Smith & Wesson had been affected by a wartime surge in labor-union membership and activism, boosted by the Wilson administration’s friendly relations with the American Federation of Labor (AFL).¹¹ In July 1918, Smith & Wesson fired eight workers at its Springfield, Massachusetts, plant for joining a union. These workers, like their counterparts across the country, were calling for measures such as a 25 percent raise to offset wartime inflation, a standard forty-eight-hour week with time and a half for overtime, and collective bargaining rights. On July 12, about five hundred of the 1,400 employees at the Springfield plant went out on strike. The company’s president, Joseph H. Wesson, threatened to replace them. When the dispute dragged on, it was referred to the National War Labor Board (NWLB), the wartime agency charged with mediating such disputes.¹²

      On August 22, the NWLB ruled that Smith & Wesson had to reinstate the fired workers and stop forcing its employees to sign “yellow-dog” contracts forbidding them to join unions. Wesson responded by saying that he would rather have the government seize the plant than obey the order, although he did agree to move to an eight-hour day. On September 13, the War Department seized the plant, which ended up being run by Ordnance Department officers through early 1919.¹³ Meanwhile, President Wilson threatened to seize several war plants in Bridgeport, Connecticut. In this case, it was striking workers, not company leaders, who were failing to observe an NWLB decision. If the government did take over the Bridgeport plants, Wilson warned the workers, they would lose their draft exemptions. After this announcement, production resumed, without any seizures.¹⁴

      Even more dramatic takeovers occurred on a national scale. Before the conflict ended in November 1918, various agencies of the United States government had taken formal control over the railroads; the telegraph and telephone industries; and the nascent radio industry. The national state was also in the midst of constructing its own massive fleet of merchant ships; and it owned hundreds of millions of dollars’ worth of industrial facilities, including shipyards and explosives plants. For anyone interested in the present and future role of government in the American economy, these were significant developments. And they were not attributable simply to some kind of natural logic or necessity of modern war but also to political choices—most notably, those of the members of President Wilson’s cabinet, who together demonstrated a great enthusiasm for expanding public enterprise.

      At least four prominent members of Wilson’s cabinet—Secretary of State William Jennings Bryan, Postmaster General Albert S. Burleson, Treasury Secretary William Gibbs McAdoo, and Navy Secretary Josephus Daniels—qualified as champions of public enterprise. Bryan, one of the era’s best-known political figures, favored government ownership of the railroads and was friendly to organized labor.¹⁵ Burleson, as chief of the postal system, ran a well-established enormous government enterprise; but he wanted more. After taking office, encouraged by a sympathetic President Wilson, he called for public ownership of telecommunications—a measure that, during this era, had considerable public support. Burleson’s goal was realized in the summer of 1918, when telegraph workers threatened to strike if the companies would not recognize their union. When Western Union executives refused (and fired several hundred union members), Wilson sided with the AFL and nationalized the telephone and telegraph. Burleson ended up having formal control over telecommunications for one year, during which he managed to alienate workers and consumers, as well as corporate executives. Although this experiment in public operation failed, it was part of a larger pattern of government intrusion into business, which alarmed the private sector.¹⁶

      McAdoo, the energetic secretary of the Treasury (and Wilson’s son-in-law), led two major wartime initiatives in what would soon be called “state capitalism.” During Wilson’s first term, McAdoo called for the creation of a large new American merchant fleet, managed by a government-controlled corporation. McAdoo, a former urban railroad executive, did not normally prefer government enterprise over private action, but he advocated for it in this case because of market failure. Merchant shipping, he contended, was one of those fields “where the intervention of the government is urgently demanded in the interest of the public welfare.” At first, McAdoo’s dream was thwarted by conservatives. The powerful banker J. P. Morgan, who controlled a private shipping company, paid him a visit to express his disapproval of the scheme. The Chamber of Commerce of the United States, the leading business association at the national level, called it “un-American.” Elihu Root, a former secretary of war and secretary of state who was then serving as a Republican senator from New York, compared the plan to “state socialism.”¹⁷

      McAdoo was frustrated by this opposition, which he regarded as more ideological than rational. But after the country went to war in April 1917, McAdoo got his public enterprise. This was the Emergency Fleet Corporation, established under the auspices of the U.S. Shipping Board. These entities oversaw the construction of some 1,400 merchant ships, most of which were constructed in giant new government-owned, contractor-operated (GOCO) shipyards. The government spent a total of $270 million on dozens of new shipyards. The biggest of them all was “Hog Island,” near Philadelphia. Hog Island, owned by the government but run by the American International Corporation, cost the government about $65 million to build. The world’s largest shipbuilding complex, Hog Island was home to a workforce of thirty-four thousand people.¹⁸

      After his merchant-shipping scheme was well under way, McAdoo became concerned with the railroads. Regulated by the Interstate Commerce Commission (ICC), which had the power to set freight rates, the American railroad industry was still composed of independent private companies. Their executives had been dismayed by the Adamson Act of 1916, in which Congress, backed by Wilson, had provided railroad workers with the eight-hour day. Indeed, this issue, along with the activities of McAdoo and other progressives in the cabinet, had persuaded much of the American business community to oppose Wilson in 1916.¹⁹

      By late 1917, the strain of increased wartime demand for transport, combined with the lack of coordination among the various companies, had brought the railroad network to a breaking point. McAdoo urged Wilson to have the government take over the railroads. In December, Wilson gave the order; McAdoo, despite his other commitments, became chief of a new Railroad Administration. For the next two years, the federal government served as the nominal operator of the nation’s railroads. Although the private railroad companies continued to manage most day-to-day operations, this nationalization was more than just a formality. McAdoo relieved four hundred managers working for the private lines, replacing them with U.S. government officials, who oversaw seven regional districts. In May 1918, he ordered a significant increase in workers’ wages, paid for by a hike in shipping rates. The workers were now U.S. employees, whose paychecks bore McAdoo’s signature.²⁰

      Whereas McAdoo claimed to support state enterprise only in cases of market failure, Navy Secretary Josephus Daniels often seemed to prefer it as the default option. Indeed, despite stiff competition, it was Daniels who emerged as the most energetic public entrepreneur of all the members of Wilson’s cabinet. Like many of his fellow Southern Democrats, Daniels was both a booster of white supremacy and an advocate of progressive economic policies. A newspaperman from North Carolina, Daniels had long been a thorn in the side of the tobacco “monopoly.”²¹ At the Navy Department, his reflexive hostility to big business quickly embroiled him in clashes with some of the nation’s biggest industrial concerns. This conflict in the mid-1910s revived older struggles. Since