War Potential of Nations 9781400879489

Table of contents :
Contents
Foreword
Preface
INTRODUCTION
1. War Potential in the Nuclear Age
PART I. MILITARY POWER AND WAR POTENTIAL
2. The Nature of Military Power
3. War Potential: Meaning and Significance
PART II. THE WILL TO FIGHT
4. Motivation for War
5. Government and War Effort
PART III. ADMINISTRATIVE CAPACITY FOR WAR
6. Wartime Administration
7. The Allocation of Resources
8. Administrative Instruments and EfiBciency
PART IV. ECONOMIC CAPACITY FOR WAR
9. The Structure of Population and Industries
10. Foreign Trade and War Potential
11. National Product and War Potential
12. Wartime Changes in the National Product
13. The Flexibility of the Economy
CONCLUSION
14. The Present State of War Potential
Index

Citation preview

THE WAR POTENTIAL OF NATIONS

OTHER BOOKS FROM THE CENTER OF INTERNATIONAL STUDIES PRINCETON UNIVERSITY GABRIEL A. ALMOND

The Appeals of Communism W. W. KAUFMANN ( ED. )

Military Policy and National Security LUCIAN W. PYE

Guerrilla Communism in Malaya CHARLES DE VISSCHER

Theory and Reality in Public International Law translated by P. E. Corbett

THE

WAR POTENTIAL OF NATIONS BY KLAUS KNORR

PRINCETON, NEW JERSEY PRINCETON UNIVERSITY PRESS

1956

Copyright © 1956 by Princeton University Press London: GeofiFrey Cumberlege, Oxford University Press All Rights Reserved L.C. CARD: 56-10824

KLAUS KNOKR is Professor of Public and International Affairs in

the Woodrow Wilson School of Public and International Affairs at Princeton University. In addition to teaching and writing in the field of economics, he has served as a consultant to the National War College, the President's Materials Policy Commission, the Foreign Operations Administration, the European Economic Commission, and the United Nations. He has lectured at the Air War College and the Naval War College, and recently held a fellowship at the Center for Advanced Study in the Behavioral Sciences in Stan­ ford, California. He is now engaged in a study of American policy toward the development of atomic energy in Western Europe.

Printed in the United States of America by Princeton University Press, Princeton, New Jersey

FOREWORD

WAB potential, as conceived in this volume, is the stuff from which

military strength can be mobilized in time of war or international tension. Its principal components are not only industrial capacity but the administrative skill with which it is managed and the morale or motivation for war which in large part determines the share of the national economy that is to be available for producing military power. With the rapid mechanization of warfare and the increasing costs of military preparations, the concept of war potential has taken on greatly increased importance and utility. Yet, so far as we know, this book is the first systematic effort that has been made to pull together the diverse elements that form the bases of mili­ tary power, and to analyze their nature and relationships. The concept of war potential as thus worked out provides the student of international politics and of military policy with a valuable tool for understanding the role of power in the present age. It has predictive uses, and should reduce the need for resort to intuitive conclusions in questions of potential capacity. Professor Knorr shows quite clearly that even though the mili­ tary strength of a country is kept in good order, this does not make the development of war potential any less necessary. He describes how it can be adapted to situations such as nuclear war, in which ready strength is so important. While full-fledged nuclear war may be highly unlikely under present circumstances, the Great Powers cannot afford to slight preparations for it, since what makes it now seem unlikely is precisely the expectation that it will bring mutual destruction. Neither can they ignore the fact that other types of hostilities, including wars of attrition, are still within the range of possibility. This study is part of a continuing program on problems of security and national defense undertaken by the Center of In­ ternational Studies. The Center was established at Princeton ν

FOREWORD

University in 1951 for the purpose of promoting research and training in the field of international relations. Its studies, although concerned with all aspects of international affairs, are devoted primarily to analyzing contemporary problems in the foreign policy of the United States. Individual projects are undertaken by members of the Center on their own initiative. Center of International Studies Princeton University January 25,1956 FREDEMCK S. DUNN DIRECTOR

VL

PREFACE

Tms book is meant to contribute to a theory of war potential. The term "war potential" is used frequently in literature, press, lec­ tures, and classroom discussion, yet its meaning is usually hazy and the literature to which the student might turn for consulta­ tion is inadequate. Instead of confining itself to "economic" or "industrial" war potential, this study is equally concerned with the administrative and the "morale" components of war potential and attempts to throw some light on their interrelations. This approach required the author to range for pertinent knowl­ edge and speculation far outside the area of his immediate profes­ sional competence, drawing, to the best of his ability, on the methods and researches of political scientists, sociologists, psy­ chologists, historians, and economists. For one person rather than a group of collaborating specialists to make such a cross-disciplinary approach to the subject has obvious weaknesses as well as advantages. This approach also involved unusual difficulties of presentation. Presentation has been governed throughout by the necessity of communicating to the non-technical and non-specialist reader—a requirement which possesses its own advantages and shortcom­ ings. A particular reader may be technically equipped for one part of the book, but not for its other parts. For example, Part IV, on economic capacity, is written on a level and with a fullness that is intended to facilitate an understanding by the non-economist, al­ though perhaps not without difficulty. As a result, the economist may find a great deal in this portion of the book that is familiar and, for himself, unnecessary. The economist, however, may ap­ preciate this manner of presentation when he comes to Part II, on "The Will to Fight," which, in turn, has sections rather familiar to political scientists or social psychologists. For criticism and suggestions, I am indebted to the following persons, who are of course in no way responsible for the book:

PREFACE

Charles Ε. Lindblom and Stephen B. Jones (both of Yale) and Bernard C. Cohen, Roger Hilsman, and William W. Kaufmann (all of Princeton at the time the book was written), who read the entire manuscript; Robert A. Dahl (Yale) and Harold Stein (Princeton), who read Parts I-III; Gabriel A. Almond (Prince­ ton), who read Part II; and Ansley Coale (Princeton) and Alex­ ander Eckstein (Harvard), who read Part IV. Jean MacLachlan has been invaluable as an editor. KLAUS KNOBR

Princeton, N. J. December, 1955

CONTENTS

Foreword

ν

Preface

vii INTRODUCTION

1. War Potential in the Nuclear Age

3

PART I. MILITARY POWER AND WAR POTENTIAL

2. The Nature of Military Power 3. War Potential: Meaning and Significance

19 40

PART II. THE WILL TO FIGHT

4. Motivation for War 5. Government and War Effort

63 81

PART III. ADMINISTRATIVE CAPACITY FOR WAR

6. Wartime Administration 7. The Allocation of Resources 8. Administrative Instruments and EfiBciency

99 119 142

PART IV. ECONOMIC CAPACITY FOR WAR

9. 10. 11. 12. 13.

The Structure of Population and Industries Foreign Trade and War Potential National Product and War Potential Wartime Changes in the National Product The Flexibility of the Economy

163 199 220 240 271

CONCLUSION

14. The Present State of War Potential

297

Index

307

INTRODUCTION

CHAPTER 1 WAR POTENTIAL IN THE NUCLEAR AGE

THE concept of war potential is a tool designed for ordering our

insights into what makes some nations militarily strong and others militarily weak. As a significant ordering device, it has only a short history reaching back less than half a century. And now the emergence of atomic weapons has raised the question of whether or not this short history has come to a sudden end. This introductory chapter sets forth the objective of the book, the reasons why the author believes that the concept of war po­ tential remains useful in the present, and his reasons for exploiting the record of the recent past as a means of gaining insights into the sources of military strength. Purpose and Scope of the Study

As a contribution to a theory of war potential, this book intends to explore and clarify the underlying bases of military power, to facilitate estimates of the comparative war potential of nations, and to identify some of the conditions which nations can manipu­ late in order to bolster their war potential. The study is not restricted to economic or industrial war poten­ tial. The determinants of potential military power are divided into three broad categories: The Will to Fight, usually called "morale"; Administrative Capacity; and Economic Capacity. These concepts are defined, and their significance clarified, in Chapter 3. Parts II, III, and IV apply the three concepts in order. Throughout the study, an attempt is made to show how these determinants of

INTRODUCTION

war potential interact. Indeed, this represents the first general at­ tempt to trace such interdependence. Despite its breadth of scope, the purpose of the book is limited in a number of ways. Since it is theoretical, it is not concerned with estimating and comparing the war potential of particular countries in the past, present, or future. Particular nations and war situations are referred to frequently, but only for illustration. Even theoretically, this study does not deal with all determi­ nants of military power, although the significance of nearly all of them is discussed in Chapter 2. Consideration is limited to the capacity of nations to provide quantities of military manpower and supplies in the event of war, or immediately preceding the outbreak of war, and the term "potential military power" has this limited meaning. According to die analysis presented in Chapter 2, this is, under most circumstances, the chief determinant of mili­ tary strength. A general theory of war potential would have to accommodate different kinds of wars; short and long wars, wars requiring a minor effort and wars calling for an all-out effort in terms of re­ sources, wars of coalition and wars fought by a country without allies. However, very short wars and wars demanding only a minor effort are usually not of a kind in which war potential is important. The focus, therefore, is chiefly on prolonged wars which require a major effort, that is, wars in which nations have the opportunity and incentive to mobilize potential strength. Wars of attrition, such as the last two world wars, are eminently of this kind. Pro­ longed and intensive preparation for war in time of peace is also subject to the inroads of attrition. For reasons of space, the focus is, in general, on the war effort of single countries, but it should not be difficult to extend the analysis to wars of coalition. Relevance in the Atomic Age1

The First World War—a long drawn-out contest of attrition in­ volving the industrially most advanced nations—for the first time drew serious attention to the concept of war potential. But it was only the Second World War which demonstrated the importance 1 This section is a revised version of some parts of the chapter by Klaus Knorr, "Military Potential in the Nuclear Age," in William W. Kaxifmann (ed.), Military Policy and National Security, Princeton, N.J., Princeton University Press, 1956.

THE NUCLEAR AGE

of the concept so strikingly that it passed generally into the stock of official thinking on defense. In the United States, for example, this development found expression in the Office of Defense Mo­ bilization and in such policies as the large-scale stockpiling of raw materials and the use of tax concessions to stimulate the ex­ pansion of defense industries. Even newspaper charts comparing the military capability of the NATO countries and the Soviet bloc often came to depict little steel bars and coal wagons along with symbols of divisions, air wings, and fleet units. Yet the advent of nuclear weapons and of the "nuclear stalemate" between the United States and the USSR have raised the question whether war potential—aside from military forces extant at the outbreak of war—is of any future consequence whatever; whether or not any action to maintain or enlarge war potential is based on an obsolete concept—another instance of preparing to fight the last war over again. It will be argued in this and in the final chapter that, properly constructed and employed, the concept of war potential merits not only retention but further development. Arguments for dis­ carding it are informed by doubtful assumptions about the future complexion of warfare. More importantly, they are based on a truncated version of the concept and on too narrow a perspective of its applicability. Actually, the concept can be adapted to the conditions of the nuclear age, especially if it is made to encompass more than industrial or economic capacity; and in this form it possesses considerable utility as a means of predicting and manip­ ulating national capability. War potential appeared to play a decisive part in the two world wars, as in the American Civil War, because these were essentially wars of attrition. In neither contest did one side have enough mobilized strength to force a quick decision at the outset, and in neither were the war aims of the opponents moderate enough to make a war of attrition appear unnecessarily burdensome and permit an early settlement of the military stalemate. In both world wars, moreover, Great Britain and the United States were pro­ tected by the sea and by their naval power. They were immune to defeat in the opening phases of war and had time to mobilize their potential capacity. At this juncture in history, it is widely believed that wars of

INTRODUCTION

attrition are a thing of the past and that war potential has there­ fore become an irrelevant factor in military capability. It is ex­ pected that only forces in being at the outbreak of hostilities will count. This reorientation has occurred as the full implications of nuclear weapons, developed in the United States and Soviet Rus­ sia, have become clear. The usual argument runs as follows: 1. Once both belligerents command nuclear missiles and ca­ pacity for their delivery on chosen targets sufficient to saturate defenses and obliterate each other's population and production centers, unlimited war becomes essentially a war of immediate annihilation, not of attrition. The crucial military blows will fall during the first hours, days, or at most weeks of hostilities. Initial devastation will be so gigantic that the will to fight will have evaporated—and even if it has not, there will be little to fight with, with the possible exception of military forces that were on hand at the beginning of the war and have escaped destruction. No matter how large the peacetime industrial capacity of nations, it will be ruined in one stroke. Whatever is left of manufacturing and transport facilities will be hopelessly fragmented, and their remnants will be incapable of being organized for any coordinated effort for a very long time at best. 2. Nuclear stalemate—the ability of nations to render unprec­ edented destruction instantaneous and mutual—is likely to deter all-out war altogether. In Sir Winston Churchill's phrase, the new "balance of terror" may make large-scale war an obsolete in­ stitution. What remains possible is small and local engagements in peripheral areas of conflict—in what Mr. Finletter has called the "gray areas" in the Middle and Far East.2 As in the Korean War, these military actions will be Hmited in theater of operations, in objectives, and possibly also in use of weapons. Clearly, these small conflicts will not call for large-scale mobilization on the part of the Great Powers. They will be engagements fought with military forces and stocks in being or in current production. They will not tax the war potential of large industrial countries, or will do so only very marginally. 3. A long and large-scale war of attrition limited to the use of other than nuclear weapons is unlikely to occur. The costs of such 2 Thomas K. Finletter, Power and Policy, New York, Harcourt, Brace, 1954, pp. 84ff.

THE NUCLEAR AGE

a war in lives and material means are so heavy that nations would be ready to incur them only for war aims of commensurate gravity; and, given such high-priority objectives, it would be difiBcult to keep the war limited in the choice of weapons once one of the parties was in danger of losing the contest. It is improbable, furthermore, that a war of attrition would in fact be fought with­ out recourse to atomic weapons at least against military targets. This prediction follows from the contention that adequate prepa­ ration for all kinds of wars would confront even the wealthiest nations with an intolerable economic burden. No major power would dare to neglect its strategic nuclear arm—explosives and delivery systems—for fear that the "nuclear stalemate" might cease to be a stalemate. This is the first liability on any resources avail­ able for defense. Home defenses against nuclear attack are a further claimant on resources. As nuclear weapons are being de­ veloped for tactical use by air and surface forces, no major power can afford to omit heavy investments of this kind. To maintain large conventional forces in addition would become an unbearable strain. It is almost certain, therefore, that—with the possible ex­ ception of highly localized engagements in "gray areas"—even a war that was started without resort to strategic air forces would see the tactical use of atomic weapons and, perhaps, H-bombs. Yet once these are in use, it would be most difiBcult to draw and honor the Hne between tactical and strategic application, and the risk would be great that limited war would degenerate into un­ limited war. This risk would be all the greater if each belligerent feared that the opponent might avail himself of the advantage of striking the first nuclear blow. That is to say, the acute danger of mutual destruction in anything but local engagements would be likely to deter any conventional or near-conventional war of at­ trition. According to these arguments, then, the kinds of war in which war potential would play an important role appear to be extremely unlikely. It is held, for example, that the ultimate military strength of the United States rests on the Strategic Air Command, not on Pittsburgh and Detroit. Provided this reasoning is correct, any lingering attachment to the war-potential theory of military defense is fraught with serious danger. As Mr. Finletter puts it: "The nostalgic idea that

INTRODUCTION

our industrial potential is our greatest military asset could ruin our military planning. There may not be any long war to give our industrial potential the time to bring its weight to bear. . . . We must build our military force on the exact opposite of the industrial potential notion."3 In fact, major reliance on potential as against ready military power is a dangerous practice even if the concept of war potential does not deserve to be tossed on the scrap heap of obsolete ideas. Obviously, war potential is of no avail in all-out nuclear war or in local actions in the "gray areas," and such wars may indeed occur. However, this case against war potential as an important ele­ ment in military capability is no stronger than its premises. These premises are two predictions. According to the main prediction, the universal fear of great mutual destruction by hydrogen bombs, and the equally universal fear that major and prolonged hostilities cannot be safely limited to less lethal weapons, will make the occurrence of anything but small and local wars extremely im­ probable. According to the supporting prediction, this expecta­ tion, and the appalling burden of preparing for more than local­ ized engagements and all-out nuclear conflict, will leave nations unprepared to fight large wars of attrition. This orientation tends to reinforce the major prediction. Predictions cannot, of course, claim more than plausibility; and there is a good measure of plausibility in these forecasts. But are they plausible enough to dispel the view that military strength is more than mobilized strength on hand at the opening of hostilities (if any), that potential power is still part of military power? It does not need much speculation to support a reply in the negative so far as the major prediction is concerned. It is conceivable that unrestricted nuclear war might be pre­ cipitated by a power which, owing to a striking scientific advance, had temporarily gained relative invulnerability. But so long as all-out nuclear conflict means mutual destruction of anywhere near one-third or more of each belligerent's population, and of anywhere near one-half or more of each belligerent's capital assets —and this is the expectation for the foreseeable future—it is not reasonable to assume that such a war will be precipitated by either the United States or the Soviet Union except as an act of utter 8

Ibid., p. 256.

THE NUCLEAR AGE

despair. While it is certainly plausible that this inhibition will make both powers reluctant to unleash any major war for fear that it will sooner or later degenerate into one of mutual and certain disaster, is it not also plausible that this powerful inhibi­ tion will render the effective limitation of near-conventional war4 dependable? To be effective, such limitation would have to be twofold. First, the belligerents would have to deny themselves the use of atomic weapons for anything but tactical purposes against military tar­ gets. Secondly, they would have to deny themselves any war aims requiring the invasion of each other's territory. The second of these self-denying ordinances is the most important, and it is also the easiest to implement. Furthermore, it is possible that a major war between Great Powers will be waged primarily in third areas. It is conceivable, for instance, that the USSR and the United States might fight without direct attacks on one another's home­ land. If the fear of suffering, the consequences of unrestricted nuclear conflict is profound enough to make the belligerents eager to honor such limitations even when winning or losing in nearconventional warfare, then it would be unsafe to assume that such warfare is unlikely to take place in the Far East, in the Middle East, or even in Europe. At present, many experts question the feasibility of the first limitation—that of limiting the use of nuclear weapons to military targets. The experience of recent maneuvers suggests that even tactical application of atomic devices results in devastation on an immense scale. Yet this experience does not indicate that employ­ ment of the new weapons cannot be roughly limited and grad­ uated in terms of destructiveness and target selection, even though anywhere near complete protection of civilian life is out of the question. There is still a difference between bombing a military air base and bombing the heart of a metropolitan area. And once the desirability of limited and graduated application is estab4 "Near-conventional war" is one in which combat between ground and naval forces, and between supporting air forces, plays an important part. It is to be dis­ tinguished from the "Big Bang"—a war which is pursued entirely, or primarily, by unlimited nuclear attack on the homeland of the belligerents. Of course, near-conventional war will wear a technological face very different from that of World War II. The development of old military devices and the adoption of new ones are now forcing a reorganization and re-equipment of surface as well as air forces.

INTRODUCTION

lished, human ingenuity in weapons design, training, and general­ ship can render limitation more practicable than it now appears. The theory which foresees only little wars or the "Big Bang," and which rests essentially on the assumption that the "Big Bang" is extremely unlikely to occur, rules out, for all practical purposes, a war pitting the NATO powers against the USSR in Europe. Such a war could scarcely be a small and highly localized engagement. If true, this is a comforting prospect. But, to put it bluntly, are we ready to risk the consequences and demobilize the NATO ground forces except for small complements? Suppose we did, and suppose the Soviet army suddenly advanced across West Germany, employing only "conventional" weapons, and replying with the use of atomic weapons against tactical targets only as the Western powers applied them. How might the United States re­ act? Would the United States unleash SAC even though this meant the devastation of the large metropolitan areas of the United States and probably death tp tens of millions of Americans? If the United States were unwilling to accept its own destruction as the price of stopping a westward eruption of Soviet divisions, might not the Eremlin proceed on this very assumption? If these speculations are not entirely unrealistic, is it then impossible that "conventional" defense forces will be maintained in Western Europe, and that a war of attrition in Europe cannot be ruled out as a major contingency? Furthermore, is it so certain that hostilities elsewhere will be small, brief, and highly localized? The Korean War was a limited war—deliberately limited in its theater of operations, in the em­ ployment of weapons, and in the war aims of the opponents. It also grew into a war of attrition, although on a scale which did not test the industrial war potential of the United States. Yet is it improbable that local wars in the Far East or in southern Asia might involve larger theaters of operation and larger forces and decidedly become wars of attrition, and that they might do so precisely because of the universal inhibition against employing weapons of mass obliteration? Regarding the major prediction of the extreme improbability of large wars of attrition, it seems reasonable to conclude that the situation is far more opaque, far less determinate, than the thesis implies. The emergence of nuclear bombs and of the nuclear stale-

THE NUCLEAR AGE

mate is indeed apt to render any resort to war infinitely riskier than it was in the past, and hence generally less likely. As the economist would say, the opportunity costs of conducting war have soared to a level unknown in previous history. However, it would be over-sanguine to hope that war in any form has become entirely obsolete. And if it has not, its possible forms are unpre­ dictable and may well include the war of attrition. It is, however, the behavior implied in the supporting prediction which, if the prediction is correct, tends to diminish the prob­ ability of large-scale wars of attrition. What would be the pros­ pects if all Great Powers were to desist from preparing for such wars, if they prepared only for all-out nuclear warfare and for small localized actions, because they believed in the major pre­ diction or because they were loath to carry the economic burden of preparing for other forms of hostilities? The main prospects are three: (a) small and Hmited eruptions of hostility that will reach a quick termination because one side accepts defeat or both sides accept a stalemate; (b) the threat of massive retaliation in the form of nuclear war by the defeated side; (c) in the event of a stalemate, the gradual transformation of the conflict into one of attrition. However, if one Great Power remains prepared to fight a major "near-conventional" war, and attacks another prepared only for nuclear conflict and small engagements, the main pros­ pects are two: (a) acceptance of defeat by the attacked power; (b) the threat of "massive reprisal" by the defeated side. The supporting prediction—should it inspire the military policy of all or some Great Powers—is, therefore, a self-reinforcing pre­ diction. It tends to increase the probability that future wars will be confined to small and highly limited operations or to all-out nuclear blows, and it diminishes the probability of major wars of attrition. Thus far, however, the supporting prediction is of doubtful validity. Neither the members of NATO nor the USSR and its allies are acting as if the days of conventional surface forces were gone. Both predictions taken together do not at present command sufficient plausibility to justify the abandonment of war potential, or industrial potential, in the calculation of military power. Poten­ tial may well remain an important factor in power relationships. Even the Korean War was not waged by the United States only

INTRODUCTION

with forces and supplies on hand at the moment of its outbreak. And the future may bring wars larger and more prolonged than the Korean one, with or without the limited use of nuclear devices for tactical purposes. Moreover, once a Great Power is engaged in relatively localized hostilities, it may fear that they will spread to other theaters of operation and degenerate into a contest less limited in weapons employment. As a result, a conflict of the Korean type may de­ mand large-scale mobilization of potential strength, including mo­ bilization for defense against all-out nuclear blows. Finally, even a full-fledged atomic war is not certain to be over within a matter of hours or days. As yet, this question also must be considered an open one. It may remain open, for technological change will not necessarily continue to add chiefly to the power of the offensive; and if nations should succeed in reducing their vul­ nerability to nuclear assault through active or passive defense, to that extent will the factor of attrition grow even in the waging of unrestricted war. The argument throughout this section has been speculative. It cannot be otherwise. It is impossible to conclude with any degree of confidence that war potential has or has not become irrelevant. The safer inferences are two. First, the advent of nuclear weapons has rendered the occurrence of war between Great Powers less likely than it has been in the past. Second, the mere fact that no Great Power can now afford not to maintain a strategic air force equipped with nuclear devices, and appropriate air defenses as well, capable of going into immediate action at any time, i.e. fully mobilized forces, has shifted the relative weight of ready as against potential military strength in favor of the former. Neither infer­ ence means that military power has ceased to be important or that war potential has ceased to be a part of military power. However, about the nature of future war, should it take place, we can be far less sure. Opinion on the future importance of war potential will also vary with the definition of the concept. Opinion tends to be more nega­ tive if war potential is identified only with industrial capacity and access to raw materials. It will tend to be more positive if war potential is meant to include, as it does in this book, the further dimensions of administrative skill and morale. Likewise, opinion

THE NUCLEAR

AGE

on the future importance of war potential varies with the time period to which the mobilization of potential refers. Both con­ siderations bear some explanation. If near-conventional war should occur on any large scale—and this contingency can neither be ruled out nor held improbablewar potential, including economic capacity, will have obvious im­ pact. Resort to nuclear weapons against military targets, and the consequent risk of annihilation on the battlefield, will prohibit the gigantic massing of troops that took place during the last two world wars. However, if this prospect implies a lesser mobilization of manpower for use on the battlefield, it does not at all imply a lesser utilization of manpower and other resources for making, transporting, and servicing the means to fight. It is clear that future war of this kind will be more capital-intensive than ever. The value of equipment per fighting man will be exceedingly high. On the other hand, unmobilized war potential will be irrelevant once unlimited nuclear war breaks out, and begins and ends with one mortal blow or one swift exchange of mortal blows. However, if hostilities continue after mutual atomic attack—and this must be considered an open question—war potential in its wider sense re­ mains a matter of moment. About this consequence more will be said in the final chapter. At this point it should suffice to note that, even if a nation's industrial plants were in large part de­ stroyed, war potential in the form of finished goods, administrative competence, and the will to fight—their absence or presence in various degrees—might decide the outcome of war. Regarding the time period during which war potential is a vital part of military strength, it is only a convention which views the mobilization of potential exclusively as an event to happen after large-scale hostilities have been precipitated. It is, of course, possible that all-out atomic conflict will be launched without warning, and will come as a complete surprise. It is equally pos­ sible, however, that its launching will be preceded by a noticeable crisis. Indeed, it is possible that this crisis will move through the phase of limited war in one of the "gray areas." In that event, there will be time for mobilizing at least part of the national war poten­ tial even for unrestrained nuclear war. On all these speculative issues one can, admittedly, argue either of these opposite conclusions. But the inherent problems are so

INTRODUCTION

complex and the future, in this matter, so unpredictable that no line of argument is logically, as distinct from wishfully, compelling except the one that points up our ignorance. Relevance of Historical Perspective

In order to elucidate what is meant by war potential, to identify its main constituents, and to follow up their complex interconnec­ tion, study of the past is indispensable. The record of the past offers us the advantage of test by hindsight. At least for certain combinations of factors we know roughly what weight they brought to bear in battle when transformed into combat power. The following analysis, therefore, draws extensively on the data available for the Second World War and, to a much lesser extent, on those available for the First. Adoption of this procedure poses the question of whether the results must not be expected, of necessity, to be dated and hence of slight relevance to the understanding of war potential in the present. This would seem a rash and thoughtless conclusion. To be sure, some of the factors which make up or affect war potential have been subject to rapid change ever since the industrial revo­ lution gathered momentum. Technological change has been es­ pecially important in this respect. From the beginning of the nineteenth century to the Second World War, there was probably no twenty-year period at the end of which the balance of factors constituting the war potential of nations was exactly or approxi­ mately the same as at the beginning of the period. But such changes do not render a realistic theory of war potential useless. They only require that the theory and its application take cog­ nizance of these changes. Certainly, a thorough analysis of war potential based on the experience of the First World War would have proved extremely useful in the late 1930's and during World War II. With the invention of atomic devices, technological advance in weapons has made a jump which for its swiftness is unexampled in the annals of warfare. The consequent changes in the character of war must obviously affect the balance of factors that constitute war potential, and analysis and prediction must be encumbered with difficulties commensurate with the size of the jump. The precise effects will never be known before the event, for the

THE NUCLEAR AGE

physiognomy of future war is as yet too obscure. But the direction of the changes can be predicted with some confidence. Such pre­ diction is a task that cannot be shirked, and the effort of imagina­ tion involved will profit from being guided by a knowledge of the past and by a theoretical framework that can accommodate these changes. The bulk of this book presents an inventory of such knowledge as well as a framework for bringing this knowledge to bear on problems of prediction and manipulation. The final chap­ ter offers some broad conclusions about the nature of war potential in the nuclear age.

PART I MILITARY POWER AND WAR POTENTIAL

CHAPTER 2 THE NATURE OF MILITARY POWER

MILITARY means is one of the instruments through which nations

attempt to settle international conflicts of interest. Since the in­ strument is used to influence the behavior of other nations, mili­ tary power is necessarily relative to that of other nations. If it were possible to measure the power of each nation in terms of identical quantitative units—which of course it is not—we could call a particular nation's power large or small only in relation to the quantitative power of other nations. Military power is subject to change for two reasons. A nation's power may rise or fall be­ cause there are changes in the power constituents of other nations or because there is a change in its own means of waging war. At any given time, a nation's military power consists of its mobi­ lized armed forces and its war potential. Mobilized manpower, mu­ nitions supplies, and such establishments as army camps, airfields, and naval bases make up the ready military strength of a nation. So do all facilities—such as defense ministries, training camps, and munitions factories—which are designed for the purpose of sus­ taining combat power. Mobilized strength is ready for immediate action. A nation's capacity for increasing its armed force, its production of combat power, in the event of need, is its war potential in the narrower sense of the term. In a wider sense, the war potential of nations comprises more than military potential. Neither in peace nor in war will nations ordinarily employ any one specific instrument of power in isolation. Although it is useful to distinguish between the

MILITARY POWER AND WAR POTENTIAL

various elements of power at the disposal of governments, they are usually employed in varying combinations, and skill in com­ bining them to best advantage is itself an important capacity in international politics. This holds true also for warring nations. While war represents predominant reliance on military power, capacities for persuasion and negotiation and for use of economic pressure and blandishment may continue to be exercised vis-a-vis allies, neutrals, and enemies. Indeed, the skillful use of diplomacy, propaganda, and economic means can be of crucial importance to the outcome of armed conflict. Of obvious importance are the ability to gain and hold allies and make alliances effective, and the ability to keep neutrals from joining the enemy, to break up the enemy's alliances and diminish their effectiveness. The present study, however, is concerned with military power alone and, in the following, the term "war potential" is applied in its narrower sense. It is meant to signify only potential military power. Mobilized versus Potential Military Strength

The ratio between the mobilized force and the war potential of nations will differ greatly from nation to nation and, for the same nation, will vary over time. When peace seems dependable, a nation's mobilized force may be extremely small compared with its war potential. In the early 1930s, Great Britain and the United States were in this position. When intent on aggressive war or fearing involvement in a major conflict, nations will transform an increasing proportion of their potential into ready strength. This happened in Germany in 1938 and in the United States in 1940. But even on the eve of recent wars, this conversion has been far from complete. At the beginning of the last two world wars, all major belligerents had mobilized only a small part of their poten­ tial. In 1939, for example, when Germany set out on her aggressive enterprise, she produced only 20 per cent of the volume of com­ bat munitions which she was to turn out in 1944. In 1940, this percentage was only 35. In that year Great Britain manufactured a supply of materiel equivalent to 34 per cent of what she was to manufacture in 1944. As late as 1942, the United States and Japan each produced a quantity of combat equipment somewhat less than half of what they produced in 1944.1 1 All these figures are taken from R. W. Goldsmith, "The Power of Victory: Mtmitions Output in World War II," Military Affairs, χ (1946), p. 72.

NATURE OF MILITARY POWER

How much military strength a nation can inobilize in wartime, or shortly before war breaks out, is the main subject of this study. How much mobilized strength a nation chooses to set up in peacetime depends on the politically effective expectations of its members about how their various interests will be best served in the aggregate. These expectations result from a cost-gain calcula­ tion or, in other words, from a balance of advantages and disad­ vantages foreseen from the maintenance of military power at different levels. The desirability of ready combat strength de­ pends, first, on the importance of the prevailing goals for the achievement of which military power is a means and, secondly, on the prevailing assumptions about the amount of military resources necessary to achieve these goals. Thus, security against aggression or benefits anticipated from aggression are typical goals which military power can serve. The higher such goals are ranked in the structure of goals that are politically effective in the nation, the larger will be the amounts of mobilized strength that are pre­ ferred. Instrumental considerations are concerned with the functions which mobilized combat strength is expeqted to perform in spe­ cific international situations. For nations not intent on aggression, mobilized forces chiefly serve to deter the aggression of others by ready strength or by facilitating the conversion of war poten­ tial into fighting power, and affording time for this conversion. The speed of conversion in the face of need depends, first, on the ease with which manpower and productive resources can be re­ leased from previous employment and, secondly, on the ease with which the existing armed forces can absorb this influx of men and materiel and weld them into an efficient fighting organization. This latter facility varies with the size and structure of the existing military establishment. Expansion of a very small force is a formid­ able task, requiring many years for building up cadres of officers and other personnel, creating efficient organization, planning and acquiring equipment, providing facilities for housing and training, etc. On the other hand, to increase a very large army, air force, or navy by a mere fraction of its strength is a far easier undertaking. Clearly, the larger the existing force, the greater is its capacity for quick expansion. Much, however, also depends on the nature of the initial establishment, i.e., on whether it is a replica in

MILITARY POWER AND WAR POTENTIAL

miniature of a large force or whether it is specifically designed as a framework for an army to be swiftly expanded. By protecting a country against attack when war is imminent or when it has broken out, mobilized power affords time for con­ verting potential into ready strength. The mobilized power of the enemy, the speed with which he can launch dangerous attacks, and the ease with which a threatened country can mobilize its war potential will determine what constitutes an adequate military establishment for this purpose. Thus, if a nation feels menaced by the military build-up and the behavior of other powers, it may want to add to its own ready strength in order to prepare for defense against sudden attack against itself or other countries, as well as to demonstrate its intention not to yield to military threats and thus to counter the use of such threats by aggressive nations and perhaps reduce the chances that war will break out. For nations planning to precipitate or threaten war, mobilized force has an aggressive function which replaces or is superimposed on the protective function. This aggressive function is met wht. ι the ready strength of the aggressor can force a decision before the enemy has had time to mobilize his war potential, or when it can at least cripple his war potential at the outset of war. Given this capacity, the aggressive country may be able to gain foreign policy objectives by the overt or implied threat to resort to violence. However, any preference for a large military establishment in peacetime which is motivated by attachment to important foreign policy objectives and by considerations of instrumental efficiency is more or less checked by unwillingness to bear the costs. This largely explains why mobilized military power in peacetime has usually been kept at a small proportion of potential strength. These costs consist of the frustration of other effective goals and preferences which must be de-emphasized or suspended for the sake of providing military strength. Important moral, cultural, and political values may be involved on the debit side. For example, a society which attaches a high value to personal freedom will be reluctant to conscript its youth in the event that voluntary enlist­ ment proves insufficient. Or, there may be a deep-seated fear that a large peacetime army is dangerous to the political system. In other societies, to be sure, such costs may be small or entirely

NATURE OF MILITARY POWER

absent. Thus, some societies may place a high value on military virtues and military life. There are also economic costs, and—with a strong attachment to high material standards of living prevailing nearly everywhere —these costs are registered sharply. Increases in military expendi­ tures reflect real material sacrifices. The additional manpower and other economic resources that are allocated to furnish more men and supplies to the military establishment obviously are no longer available to produce goods and services for civilian consumption or economic development. Depending on the magnitude of this resource diversion and on whether the nation's manpower and other resources are currently fixed, declining, or growing, con­ sumption and investment levels either must fall or will not rise as much as they might have otherwise. Such sacrifice will not be required to the extent that the man­ power and other productive resources needed for increasing mobi­ lized strength in peacetime were previously idle. In times of general economic depression, the sum of public and private ex­ penditures in goods and services is not large enough to keep all existing resources employed. If new military outlays increase the level of aggregate expenditures, unemployed resources are set to work directly or indirectly, and the real economic costs of additional military power may be small or nil. In fact, eventually there may be a net gain in national income and consumption levels if the increase in military expenditures stimulates substantial ad­ ditions to private expenditures on consumption and investment, for—under favorable conditions—the induced rise in total expendi­ tures may grow to be a multiple of the original increase in armament expenditures. As Nazi Germany started to rearm during the middle 1930s, when unemployment was still on a large scale, she greatly profited from such gratuitous effects and, in the begin­ ning at least, rearmament did not exact cuts in general consump­ tion. Again, British employment was not seriously disturbed by the American business depression of 1937-1938 because increasing defense outlays offset the decline of foreign expenditures on British exports. On the other hand, the real burden of larger military outlays will be especially heavy when a nation's economy suffers from

MILITARY POWER AND WAR POTENTIAL

overemployment rather than unemployment, that is, when com­ bined public and private expenditures are already larger than necessary to employ available resources at existing wage rates and other prices. In that event, increased military expenditures will add to inflationary pressures already in being, unless—through larger taxation or saving—other expenditures are cut. In 1950, the rearmament effort of the United States, Great Britain, and other coimtries produced such results. Except at times of general unemployment, indeed, expanded military outlays will unleash inflationary forces if not matched by increased taxation or savings, or by gifts or loans from abroad. Through their dislocating repercussions, these forces of disruption will in turn exact their own price for the achievement of greater military power. Thus, by increasing the demand for foreign goods and for exportable domestic goods, inflation may upset the nation's balance of payments unless it can borrow abroad or can Hquidate reserves of foreign purchasing power. More important: since some prices and money incomes remain stationary or rise less rapidly than others, inflation tends to redistribute the national income and this may lead to a wasteful use of resources and to social unrest and political discontent. This familiar situation is a prime example of conflict between incompatible goals and preferences which has not been resolved in a rational manner. It simply means that a nation wants larger military forces but does not want to pay for their expansion—it wants to have its cake and eat it too. There are still other costs or disadvantages in creating and maintaining large mobilized forces. These costs are incurred more gradually and are less noticeable. They derive a particular signifi­ cance from the fact that they tend to reduce a nation's military power in the longer rim. Provided a nation is not suffering from general unemployment, it may take more than a lowering of consumption to sustain a large military establishment. Part of the necessary manpower and other resources may be released only at the expense of investment in new productive resources. Investment in additional capital equipment—plants, tools, highways, power dams, inventories of raw materials—may be retarded and reduced. In such an event, the nation's war potential might grow more slowly than it would have otherwise. In extreme circumstances, this growth might be

NATURE OF MILITARY POWER

stopped altogether, or there might be a positive decline if existing capital resources were not maintained. Similarly, human resources, especially various skills, might be developed and maintained to a lesser extent. Although some technical skills may in fact be built up in military training, there may be a net loss because public expenditures on education and health are cut and because the induction of younger men into the armed forces interferes with their advanced education and training. Also, unless war is imminent, nations are often unable to pre­ pare for precisely the war which they may have to fight in the future. In order to prepare for a specific war, they would have to make correct assumptions about the identity and strength of enemies and allies, about theaters of war, weapons, and the dura­ tion of the possible conflict. Such assumptions would have to be based on predictions which are necessarily hazardous and hence require frequent checking and revision. In 1939 the United States did not foresee—and hardly could have foreseen—the proportion of its forces which would be committed to fighting in the tropics or in desert country or in western Europe or in Italy; or the most effective balance of army, air force, and navy in the war to come; or the weapons and types of equipment that would be of greatest importance. However, the resources which go into fashioning military strength-in-being are the more effectively employed—that is, a nation is militarily the more powerful—the more closely that force is adapted for the specific conditions of the war actually to be fought, if war breaks out at all. Preparation for just any war is far from perfect preparation for any particular war. As a safety de­ vice, nations find it expedient to build up "balanced forces" which are likely to be neither particularly well-adapted nor particularly ill-adapted to waging a specific war. However, since a realistic rebalancing of these forces cannot be undertaken, in many in­ stances, before war is imminent or has actually broken out, it is less wasteful to keep the balanced force relatively small until the need for expansion is urgent and what is needed can be more clearly foreseen. It will be more economical of resources to readapt ready strength through expansion in the right direction and proportions than through the partial retraining and re-equipment of large existing forces. Retraining and re-equipment imply that

MILITARY POWER AND WAR POTENTIAL

part of the preceding training and old materiel has been wasted. No doubt it is often far easier for some nations than for others to arrive at fairly reliable predictions about a future war. It is ob­ viously easier for aggressor countries than for those on the defen­ sive. In general, it has also been easier for land-locked countries than for those whose military power has been seaborne. But some element of uncertainty there will always be. Finally, modern technological change is so speedy and contin­ uous, and now so readily applied to munitions, that old weapons are almost constantly being improved and new ones invented. The tanks and planes built in one year may be markedly inferior to those produced two or three years later. Indeed, when new weap­ ons are delivered to the armed services, they may be already more or less obsolete when compared with those on the drawing board or those being tested in laboratories and on proving grounds. On the other hand, the equipment of modern armed forces represents a huge investment of resources for any nation, even for the largest industrial countries. They will find it exceedingly onerous, if not prohibitive, to undertake a continuous substitution of new for old materiel. This dilemma, too, argues against the maintenance of large ready strength before its use is imminent, provided sufficient allowance is made for the difficulty of recognizing "imminence" and excepting supplies whose output can be quickly expanded only with great delay. The problem of obsolescence is, of course, of lesser importance to a country which intends to engage in war in the foreseeable future and win it speedily by a knock-out blow made possible by a preponderance of mobilized power. The Nazi leaders nursed such expectations in 1939. These three problems indicate the limited usefulness, from the viewpoint even of instrumental efficiency, of mobilized strength as it is increased, in time of peace, beyond a certain point. At this optimum point, it would be a disadvantage to a nation's power position to convert either more or less of its potential into mobi­ lized strength. The optimum point sets that ratio between mo­ bilized and potential strength which maximizes military power, comprised of both mobilized and potential strength, at that time. To locate this point—even approximately, to be sure—is not easy, especially in view of the difficulty of appraising, at any one time, the precariousness of peace. To cover this risk, governments

NATURE OF MILITARY POWER

often feel induced to expand their military resources when other countries increase theirs. The magnitude of the risk also depends on the relative capacity of nations for quickly converting poten­ tial into ready force. The greater this capacity, the greater will be the mobilized fighting strength that can be readily obtained from a given war potential, and the smaller will be the risk of keeping mobilized power relatively small in time of peace. It is clear that the atomic age has brought a marked increase in the risks of deficient preparedness in time of peace. As military equipment has become more complicated—airplanes, for instance —the expansion of output tends to require more time than before. The training of additional personnel has likewise become more time-consuming. More important, the offensive, and perhaps also the defensive, means for fighting all-out atomic war (but not for fighting any war in the atomic age) must be in full readiness at all times if they are to serve their purpose of deterrence and protec­ tion. By the middle 1950s, this increased emphasis on mobilized strength was further reinforced by the dangerous tensions be­ tween the Soviet bloc and the NATO nations and, from the view­ point of either camp, by the high degree of military readiness which the other maintained in time of formal peace. However, this pronounced shift toward maintaining peacetime military establishments at a level that is unusually high in relation to war potential has made these nations sharply aware of the costs in­ volved. Moreover, the rapid technological pace maintained in the development of weapons has also increased the burden of ob­ solescence. These developments have by no means mitigated the problem of ascertaining the proper size of ready military power in time of peace. It is with reference to these technical considerations and the costs of military preparations, on the one hand, and to foreign policy goals, on the other, that government leaders—and through them, the influential members of the community, be they few or many—must choose the size of their military establishments in time of peace. The cost-gain calculations on which the choice rests must obviously deal with a very complex situation. Since the object of foreign policy is to influence the behavior of other gov­ ernments, foreign policies, to be successful, must be related to the means of influence on hand. To the extent that military power is

MILITARY POWER AND WAR POTENTIAL

vital to the exercise of influence, the more ambitious the foreign policy objectives are—whether of an essentially aggressive or of a defensive nature—the more mobilized strength will be required. How much will be needed in absolute terms depends mainly upon the ready strength and presumed intentions of prospective allies and opponents, and on the expected speed with which all pro­ tagonists can convert further potential into ready combat power. Potential strength counts only if hostilities last long enough for war potential to be converted into armed force. How much mobi­ lized strength can be afforded depends on the sensitivity of na­ tions to the costs of providing for it. If there is a gap between what is needed and what will and can be provided, foreign policy objectives must be retrenched in order to bring them into a proper relation with the means available for their implementation, or the conduct of foreign policy may suffer from the lack of effective power. The Constituents of Military Power Since the present study, as was explained in Chapter 1, is not concerned with all sources of combat power, but is focused on the supply of military manpower and materiel, it seems useful to relate these particular ingredients of military capacity to the others. Short of battle, there is no precise test or measurement of mobi­ lized military power. To be sure, quantitative comparisons of divisions, naval vessels, air units, and supporting personnel are readily made—both as to men and as to major items of equipment —if information is complete. However, the introduction of quali­ tative factors robs such comparisons of conclusiveness. Allowance must be made for differences in the balance of the quantitative components. How much, for instance, will superiority in the air compensate for inferiority on land and on the sea? How, especially, do atomic bombs and long-range bombers compare in military worth with surface forces? How much will superiority in men be offset by a larger number of tanks and cannon? Then there are likely to be differences in the performance of generals, men, and weapons. How much weight in the total equation should be at­ tributed to good or bad generalship, good or bad organization of supply; how much to the physical endurance, training, and morale of troops; how much to differences in the performance of planes

NATURE OF MILITARY POWER

and guns? Finally, these qualitative differences cannot be evalu­ ated simply in the abstract if even the roughest comparison of armed forces is to be meaningful, for their bearing will obviously depend on where and against whom a war may have to be fought. If realistic assumptions can be made in these respects, then it be­ comes somewhat less hazardous to compare mobilized forces. The problem of weighing superiority on land against superiority on the sea or in the air, and of allowing for differences in the firepower, armor, and mobility of tanks, and in the physical stamina, train­ ing, and morale of troops becomes less intractable. But if depend­ able assumptions of this kind cannot be made, and often they cannot, ignorance of many of the factors that render battles and wars unique—location of the theater of war, duration of hostilities, identity of allies and enemies, etc.—seems to permit comparison of the quantifiable factors—numbers of divisions, air wings, sub­ marines, nuclear missiles, etc.—to yield little information on rela­ tive combat strength. However, the problem of comparison is somewhat less forbid­ ding than it appears to be at first sight. Past experience suggests certain hypotheses which are plausible under many circumstances and which, if contrary circumstances do not prevail, permit a narrowing of the margin of error inevitably involved in net com­ parisons of military forces. First, unless there is knowledge or presumptive evidence to the contrary, it can be assumed not only that some errors in evaluating particular qualitative factors may cancel each other, but also that not all differences in the qualita­ tive determinants of ready strength will favor one nation or group of nations over another. Regarding major military powers, it is unlikely that with respect to weapons, generals, military morale, troop training and stamina, and military organization, one power will be superior in every category to another. Secondly, as the industrial revolution has progressed and war itself has become more and more industrialized, sheer quantity of equipment, ir­ respective of all but major differences in quality, has become more important than before in determining military strength compared with such qualitative elements as generalship, physical stamina, and valor, or even compared with mere numbers of men in the armed forces.2 More than ever before, war has become a matter 2 This

argument is afBrmed by B. H. Liddell Hart, The Revolution in Warfare,

MILITARY POWER AND WAR POTENTIAL

of machines rather than of men. Thirdly, unless there is specific knowledge or presumptive evidence to the contrary, certain quali­ tative factors can be expected to vary directly with a nation's capacity for making large quantities of heavy and complicated equipment. A nation capable of producing huge amounts of materiel is also likely to produce munitions of good quality and to supply manpower for the officer corps and ranks which is skilled in the use, maintenance, and transport of intricate equipment and has received formal education facilitating the acquisition of new skills. These three considerations tend to reduce the weight to be accorded to the total of qualitative factors in estimating the mobi­ lized strength of nations. They suggest a lesser margin of error if comparisons of armed forces deal largely with quantities of military manpower and supplies. This is not to say that qualitative factors are unimportant in modern warfare. History abounds with examples of forces inferior in numbers, and sometimes in equipment, snatching victory from what appeared to be prospects of certain defeat. Even in recent wars, particular campaigns were often won by superiority in quality rather than quantity. For instance, the explosive penetra­ tions of the German armies in 1940 and 1941 were not achieved by the weight of superior numbers and equipment. The German High Command launched its lightning offensive in the west with 136 divisions pitted against 156 French, British, Belgian, and Dutch divisions. It had only 2,800 tanks against more than 4,000 at the disposal of its opponents. Moreover, the German tanks, though slightly superior in speed, were, on the average, inferior in armor and firepower. Aside from the fact that Germany was stronger in airpower—an important factor—her superiority rested on what have been called qualitative factors: on strategic surprise, for the German forces broke through in the center, in an area held un­ suitable for quick invasion, rather than through Belgium as they had done in 1914 and as had been anticipated by the French command; on superior military organization, which permitted decisions to be made and information and orders transmitted with New Haven, Conn., Yale University Press, 1947, pp. 1-2; J. F. C. Fuller, The Sec­ ond World War, 1939-1945: A Strategical and Tactical History, London, Eyre & Spottiswoode, 1948, pp. 24-25, 77-78; Cyril Falls, A Hundred Years of War, Lon­ don, George Duckworth, 1953, pp. 16-18.

NATURE OF MILITARY POWER

far greater speed than was possible through the Allied chain of command; on superior tactics, using massed formations of tanks as spearheads, rather than dispersing armor, as the AUies did, in small groups for infantry support, and giving the armored columns concentrated air support; and on superiority of morale—the French troops often became paralyzed by the unexpected tempo and technique of the German thrusts.3 It is revealing that during the entire campaign of six weeks, Rommel's 7th Panzer Division suffered casualties of 682 men killed, 1,646 wounded, and 296 missing, and saw 42 of its tanks destroyed. But, in addition to the enemy soldiers whom this division killed, and the enemy arma­ ment it destroyed, it captured 97,648 prisoners, 277 field guns, 64 anti-tank guns, and 458 tanks and armored cars.4 This feat of arms shows that striking superiority in the qualita­ tive constituents of military power can produce victory when two contending forces are roughly similar in numbers of men and equipment. At a time such as the present, when immense advances are being made in the technology of weapons, a decisive su­ periority in weapons and in their tactical employment may well offset, and perhaps more than offset, any inferiority in the size of the armed forces or in the other qualitative ingredients of combat power such as troop morale or military leadership. In the atomic era, it may happen that, for a time at least, one nation develops missiles, planes, or ships greatly superior to those at the disposal of other nations. The margin of combat superiority which accounts for victory may be provided by any, or any combination, of the constituents of military strength, qualitative or quantitative. Yet, these pos­ sibilities do not necessarily contradict the experience of the big and prolonged wars since the beginning of the nineteenth century which suggests that no net superiority in qualitative attributes can in the longer run make up for a substantial inferiority in the quantity of military manpower and equipment, provided the theater of war permits these to be put to efficient use. It seems plausible that the industrial progress made during the last century 8 Cf. L. F. Ellis, The War in France and Flanders, 1939-1940 (History of the Second World War, United Kingdom Military Series), London, HMSO, 1953, passim; B. H. Liddell Hart (ed.), The Rommel Papers, New York, Harcourt, Brace, 1953, pp. 3-4, 27, 204, 517. iLiddell Hart (ed.), The Rommel Papers, p. 84.

MILITARY POWER AND WAR POTENTIAL

and a half has given the quantitative factors a larger weight in the balance of the constituents of which combat power is the joint result. This effect was not immediately realized because the wars occurring between 1815 and 1914, except for the American Civil War, were colonial wars or localized campaigns of short duration. In the American Civil War, superiority in manpower and supplies finally proved decisive over the Confederate superiority in gen­ eralship, trained officers, and morale. The IndMstrialization of Warfare

The course of the last two world wars lends support to the thesis that superiority in armed manpower and materiel is hard to beat in a prolonged war—and this effect is likely to prevail even in the atomic age to the extent that its wars will be prolonged rather than extremely brief. There were particular battles and campaigns in which qualitative differences decided the outcome. The German successes in 1940 and 1941 have been cited as ex­ amples. Hitler's military decisions alone may have won and lost the Germans many a battle. But sheer military valor was of Httle avail to the Poles in 1939 or to the Japanese in 1944 and 1945; and not even the most brilliant strategy and tactics could have saved Germany after 1943. Field Marshal Rommel, who was keenly alive to the advantages of good military strategy, tactics, organization, and morale, came to feel in North Africa the sheer weight of overwhelming quanti­ ties of men and supplies, and concluded that Germany's modern conception of warfare, her greatest advantage in the earlier cam­ paigns, "was of no avail once the material conditions for it no longer existed."5 He affirmed that "the bravest men can do nothing without guns, the guns nothing without plenty of ammuni­ tion . . . ," and that "the battle is fought and decided by the quar­ termasters before the shooting begins."8 Looking at the war as a whole when it was still in progress, he concluded that, once the Battle of the Atlantic was lost by the German submarines, and the stream of American men and supplies could reach Europe in large volume, Germany "was doomed to inevitable defeat at any place B 8

Ibid., pp. 366-67. Ibid., p. 328.

NATURE OF MILITARY POWER

which was accessible to the Anglo-American transport fleets."7 Taking the war as a whole, the turn in military fortunes came after the Axis powers had fallen far behind their enemies in the availability of heavily equipped military manpower. The broad course of the last war is reflected in Table 1, which shows very roughly the comparative production of combat equipment by the main belligerent countries. Evidently the European Axis powers enjoyed a vast superiority in the output of combat materiel at the beginning of the war. Over the years from 1935 up to and includ­ ing 1939, the volumes of combat munitions that had been pro­ duced by some of the countries which were to take part in World War II compared as follows (measured in US dollars at 1944 munitions prices) :8 Germany $12.0 billion Britain 2.5 United States 1.5 USSR 8.0 2.0 Japan These figures reveal clearly that, prior to 1940, Germany and the Soviet Union were the only large-scale producers of combat equipment. They illuminate one of Germany's advantages in 1939 and 1940, for it is not only current production but also accumu­ lated stocks of munitions which can be thrown into battle. In 1939, the United States, the United Kingdom, and Canada accounted for less than one-sixth of the combined output of com­ bat materiel of Germany, Italy, Japan, and the USSR—an approxi­ mate index of the stupendous shift in mobilized military power which had occurred since the 1920's. In 1940, Germany and Italy together still produced a supply of new combat equipment twoand-a-half times larger than Britain's. Although in 1941—with the entry into the war of the USSR and the United States—the United Nations produced a somewhat larger supply than the Axis powers, in view of differences in accumulated stocks it was hardly before some time in 1942 that the two coahtions had equality in combat munitions. In 1943, the balance of combat supplies and the turn of battle swung decidedly in favor of the United Nations. In 1944, 7

Ibid., p. 507. "The Power of Victory," Military Affairs, p. 71.

8 Goldsmith,

MILITARY POWER AND WAR POTENTIAL

TABLE 1 Combat Munitions® Output of the Main Belligerents, 1938-19439 (percentage of total) 1942

1943

14 1 19 24

30 2 15 17

40 2 13 15

48

58

64

70

43 4 8

40 5 7

31 4 7

27 3 6

22 1 7

61

55

52

42

36

30

100

100

100

100

100

100

Country

1938

1939

United States Canada Britain USSR

6 O 6 27

4 0 10 31

7 0 18 23

39

45

46 6 9

TOTAL, United Nations Germanyb Italy Japan TOTAL, Axis Countries GRAND TOTAL

1940 1941

a

includes aircraft, army ground ordnance and signal equipment, naval vessels, and related equipment. b includes occupied territories.

their aggregate supply of combat arms exceeded that of their enemies by a ratio of three to one.10 The quantitative data presented also explain in large part the military strength of the Soviet Union5 generally unsuspected in 9 Adapted from US War Production Board, Bureau of Planning and Statistics, World Munitions Production, 1938-1944, Document No. 21 (mimeographed), Washington, D.C., July 15, 1944, p. 33. (Hereafter cited as WFB, World Munitions Production.) This tabulation presents only a very rough comparison of magnitudes. In the absence of adequate quantitative data on various munitions produced, the table contains estimates based on domestic military expenditures, approximately adjusted for non-munitions expenditures and for differences in the price levels of munitions, and checked, so far as possible, against available figures on the physical volume of output. These adjusted data for total expenditures on combat munitions were all expressed in US dollars at current or prewar rates of exchange. Since these ex­ change rates overvalued or undervalued, to varying extents, one currency in terms of others, the obtained computations are subject to error. It can be assumed, how­ ever, that the errors made are marginal and that the presented data do not grossly falsify the assessment of actual output trends and magnitudes. 10 WPB, World Munitions Production, p. 7. The ratio of total munitions produc­ tion, including non-combat supplies used by the armed forces, was even more favorable to the United Nations.

NATURE OF MILITARY POWER

the West, in relation to the German army and air force. From 1941 to 1943, Germany's superiority in quantities of materiel must have been relatively small and declining. Her initial advan­ tages in the Russian war resulted from the qualitative factors that had brought swift victory in the West. Although Russia suf­ fered heavy losses of stocks and output capacity as she was partly occupied by her enemy, Germany's supply position suffered because she was compelled to assign a considerable and increas­ ing proportion of her supplies to the war fronts in the west, the Balkans, and North Africa. By 1944, Soviet munitions production, plus Lend-Lease supplies, may have exceeded by more than half what Germany could assign from current output to the eastern front.11 In view of the munitions stocks which Japan had been able to accumulate while United States output was extremely low, the Japanese forces at the time of Pearl Harbor must have had a marked edge over their enemies in the Pacific and in Southeast Asia. By 1942, however, the American production of combat equipment was five times as large as Japan's. It is estimated that, in the same year, the proportion of new supplies which the United States could divert to the Pacific War was about twice as large as what Japan could make available to her forces.12 If Japan had continued to fight in 1945, the Allied forces would have enjoyed a four-to-one advantage over their enemy in the supply of combat materiel, even if Russia had remained neutral in the Far East and the United States and the British Commonwealth of Nations had cut their output of combat supplies by one-half.13 What emerges from these estimates is an impression of the overwhelming weight of massive manpower and equipment on the battlefield. No doubt, qualitative factors were not unimpor­ tant. Appraised as a whole, however, the outcome of the war was not decided by differences in combat morale, in the art of general­ ship, and in the performance of new and old weapons. The pre­ ponderance of munitions supply on the side of the United Nations appears to have been decisive.14 It is plausible to assume that this overwhelming importance of 11 Goldsmith,

op.cit., p. 75. Ibid., p. 76. 13 WPB, World Munitions Production, p. iv. 14 Goldsmith, op.cit., p. 80. 12

.

MILITARY POWER AND WAR POTENTIAL

quantity of manpower and materiel in determining mobilized power is a result of the industrialization of production and the growth of machine technology. Over a period of time, these con­ ditions raised immensely the productive capacity of economically progressive nations, thus making it possible for them, if they wanted to do so, to free an ever larger proportion of their total resources from producing the necessities of subsistence and to al­ locate the "surplus" to the production of armies and arms. Military and civilian leaders alike did not fully recognize the implications of this development until the First World War had run half its course. This is perhaps surprising, for the traditional views of the West did not fail to pay attention to the significance of materiel supplies in war. Mercantilist writers were fully aware of the importance of economic resources, including manufacturing capacity, in the war potential of nations; and this emphasis was not lost on subsequent political economists and statesmen. Adam Smith wrote: "In modern war the great expense of fire-arms gives an evident advantage to the nation which can best afford that expense; and consequently, to an opulent and civilized, over a poor and barbarous nation. In ancient times the opulent and civilized found it difficult to defend themselves against the poor and barbarous nations. In modern times the poor and barbarous find it difficult to defend themselves against the opulent and civilized."15 Throughout the nineteenth century, however, there remained a lingering disposition to emphasize generalship and combat morale and, by neglecting industrial capacity, to overemphasize these qualitative elements of military strength. The emphasis on strategy, tactics, and military leadership is perhaps not surprising, since the large majority of writers on military power were them­ selves professional officers. And if they laid great stress on troop morale, they were probably impressed by the sudden emergence, after the French Revolution and the Napoleonic wars, of "nationsin-arms" and hence of armies which, imbued with nationalistic fervor, presented a sharp contrast to the relatively low morale of impressed or hired soldiers and sailors. It was only after the initial phase of World War I that the increasing significance of 15 The Wealth of Nations, Modern Library ed., New York, Random House, 1939, p. 669.

NATURE OF MILITARY POWER

industrial power was appreciated. It has been estimated that at the peak of battles during that war, the daily use of ammunition was greater than the total quantity consumed during the entire war of 1870-1871;18 and, similarly, that the weight of metal fired in a single American offensive in 1918 exceeded the total metal thus consumed by the North during the entire four years of the American Civil War.17 At the beginning of World War I, although the main belligerent countries had made unprecedented military preparations and were able to mobilize gigantic armies in 1914, they were incredibly unprepared for the sustained production of munitions. During the first weeks of war, hundreds of thousands of industrial workers and miners were drafted into the armed forces, only to be released later on. In part, to be sure, this failure of planning stemmed from the general belief that the war would be of very brief duration. Indeed, this belief was partly based on the assumption that, be­ cause of the enormous materiel requirements of battle, wars were bound to be short.18 The true requirements of modem warfare were grasped only in 1916 and after; then it was understood that warfare had become industrialized, that the power to produce had become the main basis of striking power. These implications were more keenly appreciated before the Second World War, and that war reinforced the lesson of the first. The comparative ability of the different belligerents, expressed in the estimates presented above, to supply combat materiel to the fighting fronts appears, on the one hand, to have been a decisive determinant of the outcome of battle and, on the other hand, to have reflected the relative industrial capacity of the nations in­ volved.19 If, at its peak, Japanese armament production was a mere tenth of American peak production, this discrepancy was foreshadowed in the fact that, at the beginning of the war, United 16 Otto Goebel, Deutsche Rohstoffwirtschaft im Weltkrieg, Stuttgart, Deutsche Verlagsanstalt, 1930, p. 19. 17 C. W. Wright, "Economic Lessons from Previous Wars," in Chester W. Wright (ed.), Economic Problems of War and Its Aftermath, Chicago, University of Chicago Press, 1942, p. 56. 18 Cf. Gustav Gratz and Richard Schiiller, Der WirtschapUche Zusammenbruch Osterreich-Ungarns, Vienna, Holder-Pichler-Tempsky, 1930, p. 111. 19 Comparative munitions output was roughly proportioned to the size of the prewar industrial labor force, if allowance is made for differences in prewar levels of labor productivity (Goldsmith, op.cit., p. 79).

MILITARY POWER AND WAR POTENTIAL

States production capacity was about ten times larger than that of Japan.20 And if Soviet Russia was, during the last war, much stronger militarily relative to Germany than Czarist Russia had been in 1914-1917, the explanation lies in large part in the fact that Russian coal production had expanded about fivefold and Russian steel production about fourfold, whereas the expansion of German output was only a fraction of its volume in 1914.21 In conclusion, combat strength rests, as it always did, on a num­ ber of constituents. Deficiency in one or some of these may be compensated for by superiority in others. Net superiority may arise from any one or several of these components. It is plausible to assume, however, that—as a result of the rapid growth of in­ dustrial power—military supplies have become more important relative to the other constituents than they were in the pre-industrial era. So long as munitions of opposing armed forces do not differ greatly in quality—and among the industrialized powers they have not differed greatly in recent wars—it is indeed to the sheer volume of equipment and supplies that this larger weight in the equation must be attributed. It is perfectly compatible with this hypothesis to expect that relatively small differences in the volume of materiel may be readily offset, and more than offset, by surprise attack, superior numbers of fighting men, morale, military organization, strategy, and tactics, provided they favor, on bal­ ance, the underequipped side sufficiently. Indeed, it is also con­ ceivable, now as before, that enormous differences in qualitative factors—morale, military leadership, weapons quality, etc.—may engender victory despite substantial inferiority in the quantity of military supplies. It is even possible that certain qualitative dif­ ferences may rise in importance again in the age of nuclear war­ fare. Because of the feverish pace at which the technology of weapons is being developed now, one nation may gain a decisive lead over another, at least temporarily. The United States held such an advantage over all other countries so long as it had a striking lead in the development of nuclear missiles and of the means for their delivery. It is noteworthy, however, that American 20US Strategic Bombing Survey, Summary Report (Pacific War), Washington, D.C., July 1, 1946, pp. 2, 14. (Hereafter cited as SBS, Summary Report [Pacific War].) 21 The Russian figures were derived from Augustin Guillaume, Soviet Arms and Soviet Power, Washington, D.C., Infantry Press, 1949, p. 74.

NATURE OF MILITARY POWER

leaders were sharply disappointed by the unexpected speed with which, by 1955, the Soviet Union was drawing even with, and in some respects even forging ahead of, the United States. Given the possible use of nuclear explosives, and their unprece­ dented destructiveness, it is also conceivable that differences in the morale of troops and of entire populations may gain weight in the equation of military strength. Much, however, depends on the nature of war in this atomic age. If war is unrestricted and ends quickly after the opening blows of mutual destruction, mo­ rale—Uke all factors of war potential—is of little significance once hostilities are precipitated. As argued in Chapter 1, however, wars may be of a more limited character, and all-out nuclear attack may in fact prove the least Ukely form. In that event, predictions are very hazardous. The significance of morale might not rise over its importance in the last two world wars. Yet some increase in its import is very probable, if for no other reason than that morale will be affected by the constant risk that restricted war will de­ generate into unrestricted war.

CHAPTER 3 WAR POTENTIAL: MEANING AND SIGNIFICANCE

ALTHOUGH the concept of war potential gained greatly in currency during the last decades, the Hterature shows little agreement on the meaning and significance attributed to it. This chapter attempts to clarify the meaning and significance of war potential.

Military War Potential

Victory in modern war is a highly complex result to which a multitude of factors contribute directly or indirectly. It is these elements of strength, brought to bear on the enemy at appropriate times and places, which decide the issue. The armed forces en­ gaged in battle are only the "cutting edge" of the nation's military power. A major war may test all the strengths and weaknesses of nations. There may literally be "no quality, no strength or weak­ ness, no mistake or advantage without influence on the outcome of the struggle."1 In this sense, "war potential" is simply a collective term for all the relevant elements of military strength other than the armed forces themselves. Unhappily, agreement and clarity of statement end when it comes to identifying, classifying, and weighing these numerous components. Indeed, no suitable frame­ work has been presented thus far for ordering these components in a significant manner. For example, the following lists of components have been drawn up by five different authors: (1) Size of territory; nature of frontiers; size of population; absence or presence of raw materials; 1 S. Rudolf Steinmetz, Soziohgie des Krieges, 2nd ed., Leipzig, J. A. Barth, 1929, p. 227.

MEANING OF WAR POTENTIAL

economic and technological development; financial strength; ethnic homogeneity; effective social integration; political stability; and national spirit.2 (2) Geography; natural resources; industrial capacity; military preparedness; population; national character; national morale; quality of diplomacy.8 (3) Manpower; raw ma­ terials; capital investments; science, technology, and research; organizations and institutions (including government and eco­ nomic and social institutions).4 (4) Population (size and struc­ ture); size of territory; wealth; political institutions; leadership; national unity and cohesion; respect and friends abroad; moral qualities.5 (5) Political factors: geopolitical position; size of state and number and density of population; organizational skill and cultural level; kinds of frontiers and attitudes of neighboring countries. Psychological factors: economic flexibility and inventive skill; perseverance and adaptability of the population. Economic factors: fertility of soil and mineral wealth; industrial organization and stage of technology; development of commerce and transpor­ tation; and financial strength.® This bewildering list of factors is obviously too disorganized, and couched in terms too vague, to afford a clear conception of what constitutes the war potential of nations. The present book is intended to clarify the problem. As specified in Chapter 1, it is also intended as a limited contribution, for it deliberately disre­ gards some elements of potential strength and weakness. This study will deal with the capacity of nations to provide quantities of military manpower and supplies in the event of war. The determinants of potential military power in this sense are classified into three broad categories: economic capacity, ad­ ministrative competence, and motivation for war. Potential to mobilize military forces and supplies is determined by a nation's existing manpower, land, factories, and other eco­ nomic resources which can be diverted from other employment 2 Nicholas J. Spykman, America's Strategy in World Politics, New York, Harcourt, Brace, 1942, p. 19. 8 Hans Morgenthau, In Defense of the National Interest, New York, Knopf, 1951, p. 175. 4 Luther Gulick, Administrative Reflections from World War II, University, Ala., University of Alabama Press, 1948, pp. 18-20. 5 Steinmetz, oip.cit., pp. 238-47. 6 Guido Fischer, "Der Wehrwirtschaftliche Bedarf," Zeitschrift fiir die Gesamte Staatswissenschaft, xcix (1939), p. 519.

MILITARY POWER AND WAR POTENTIAL

or from idleness to the production of military power. Since the nation must subsist and carry on most of its peacetime activities even in time of war, albeit on a reduced scale, not all of this eco­ nomic capacity will be available for military purposes. But what­ ever military power is mobilized, it must be derived from these resources, and their kind and quantity will therefore be a prime determinant of a nation's military war potential. Economic ca­ pacity in this sense reflects the size and structure of the popula­ tion; the size of the nation's territory, with its land, water, and mineral resources; the economic productivity of its labor and, through it, the stage of its economic and technological develop­ ment. How large a supply of goods and services a nation can produce in peacetime from its employed resources depends not only on their quantity and composition but also on the efficiency with which they are employed. This limitation holds true in wartime as well; military war potential is determined by the nation's or­ ganizational ability to use its economic capacity efficiently. Such efficiency is in part the efficiency of workers and the ability of entrepreneurs to combine labor, capital goods, and land in the most economical way and, if possible, to employ resources more economically by technological innovation. This sort of efficiency is the same in time of war as it is in peacetime and, in the following discussion, is considered part of the nation's economic capacity. In wartime, however, the government must determine the size and composition of a large proportion of the goods and services pro­ duced. Total efficiency of resource use depends heavily on ad­ ministrative competence, i.e., on the skill with which the govern­ ment attempts to increase the employment of manpower and other resources and to derive from them the maximum output. The military output which is to be maximized is not simply numbers of soldiers, guns, and planes, but that combination of different kinds of military manpower and equipment which will maximize military power under given conditions of military leadership, mo­ rale, and training; military technology; specific theaters of war; and enemy action and capability. Similarly, the production of civilian goods and services is a matter not only of numbers but of efficient composition, so that the satisfaction of civilian require-

MEANING OF WAR POTENTIAL

ments is maximized from whatever productive resources are spared for this purpose. Motivation for war in part determines the proportion of the nation's economic capacity which, in the event of war, will be available for producing military power and the efficiency with which resources will be employed. The more economic resources are drawn from idleness into production, and the more efficiently all employed resources are put to work, the larger will be the output of military power. The allocation of resources to the mili­ tary sector can be brought about in some measure through the operation of customary peacetime incentives and habits, i.e., ap­ peals to personal self-interest in the form of changing prices, wages, profits, and interest rates. Such incentives, together with habits of work and enterprise, may also serve to maintain produc­ tive efficiency. However, the requirements of large-scale war are so great that they cannot be satisfied on the basis of the peacetime motivations of individuals. In large part, the generation of military power must therefore depend on the willingness of individuals to work harder, consume less, save more, accept inconveniences and danger, and put up with greater government direction of their lives. Whether it comes about voluntarily or by compulsion, a change in individual motivations is therefore crucial to the amount of military power which a nation will be able to mobilize when involved in large-scale war. These motivations may or may not be associated with personal enthusiasm for such a war. And this change will come about in different ways and degrees in different countries because of differences in social structure, culture, goals, and preferences. The war potential of a country will be larger than it would be otherwise if, in the event of a major war, individuals are motivated, for whatever reason, to forego the satisfaction of personal interests that conflict with a large commitment of resources to waging war. The stronger the motivation, the greater the production of military power from the economic resources and administrative capacity at the disposal of the nation. Motivation for war is strong or high, in contrast to weak or low, depending on whether the configura­ tion of various critical motivations is more or less appropriate to an intense war effort.

MILITARY POWER AND WAR POTENTIAL

The concept of motivation for war as part of a nation s war potential bristles with difficulties; some of these are so crucial that they must be considered at the outset. If motivation for war determines the extent to which economic and administrative ca­ pacity will be exerted in wartime, a nation could have zero war potential in the complete absence of such motivation, even though it was endowed with abundant economic resources and adminis­ trative skills. It could simply refuse to fight. Strictly speaking, it makes little sense to refer to economic war potential in isolation since, without considering motivation for war, we cannot know what proportion or kind of economic resources, if any, will actually be devoted to military purposes. Of course, it is possible to as­ sume that a sufficient motivation will in fact exist, and then to consider economic war potential. Yet, such an assumption is not easily susceptible to operational definition. Is motivation for war expected to be high or low, and what precisely does high or low signify? It does not follow, for example, that two nations with equal motivations for war will achieve an equal percentage in­ crease in total labor input or an equal percentage cutback in civilian consumption. Such a result would follow only if there were also equality of other factors, for instance, those determining the size of the labor force or the length of the work week or the volume of civilian demand for goods and services. In one country, a particular war motivation may drive civilian consumption down to the level of bare subsistence. In another country, with high levels of peacetime consumption and an economy designed to meet them, an equal motivation would have a different effect. To be sure, such assumptions and inquiries are not worthless, es­ pecially as related to countries of similar economic structure and productivity, if these issues are faced. But, in terms of approaching relevant conclusions, they raise awkward problems of their own. If the concept of motivation for war is an all-inclusive one, embracing all facets of motivation, then the estimate of war potential becomes a prediction of the military war effort which a country will undertake under circumstances that will differ more or less from one conceivable war situation to another. More­ over, since small wars may require only small war efforts from great powers, a nation's potential motivation for war must be appraised relative to the scale of war effort which its government

MEANING OF WAR POTENTIAL

deems necessary as a means of achieving its military objectives. For example, the governments of the United States, Britain, Canada, and other countries did not conceive of the Korean War as one calling for a high level of military mobilization. Even if the war effort required is modest in terms of a nation s resources, and assuming that the estimate of requirements is realistic, a general theory of war potential must cover these cases of involvement in minor warfare. In the application of the theory, it becomes useful to inquire whether, in terms of motivation for war, a country has a relatively high or low war potential for fighting minor wars. In this sense, it was important to inquire in 1950 whether the United States or China had a high or low war potential for waging war in the Korean peninsula, or whether France had a high war poten­ tial for fighting the Vietminh forces in Indo-China. When a nation stands on the brink of, or becomes involved in, a war which calls for the utmost degree of mobilization, it may choose not to fight at all—as Czechoslovakia did in 1938 and Den­ mark in 1940—or fight only half-heartedly—as France did in 19391940 or Italy in 1942-1943. In the all-inclusive sense, the war potentials of Czechoslovakia and Denmark were zero for the situation they faced in 1938 and 1940, respectively. In contrast to Poland and Finland in 1939, their dominant motivation was to refuse to fight against overwhelming odds. For this kind of war, but not necessarily for different war situations, their war potentials were nil, regardless of the economic and administrative resources at their command. Moreover, motivation for war may rise and fall, once war has broken out and the war situation changes or is perceived in a different light. Indeed, the purpose of waging war is to reduce the opponent's motivation to fight. This comprehensive concept of war potential is far from useless, for governments must often try to forecast the war potential of other nations, or their own, under particular circumstances. They are interested in the general war potential of particular nations only as a first step toward making predictions for more specific conditions; and, from this point of view, they are interested in a general theory of war potential only insofar as it appears as a use­ ful tool for prediction. The present study is concerned with the general war potential of countries rather than with the potential of particular countries

MILITARY POWER AND WAR POTENTIAL

under particular circumstances. Yet the variability of motivation to conduct war from occasion to occasion does not preclude its consideration from a general theory of war potential, for this variability is not random. It results from conditions which will find their place in a general and comprehensive theoretical frame­ work. Moreover, it is possible to distinguish several types of con­ ditions: those which, although capable of variation in the longer run, may be fairly stable for considerable periods of time, and which will affect the response to any war situation; and those which are responses to the specific circumstances of particular war situations and may therefore vary markedly from one situa­ tion to another. As elaborated in Chapter 4, the underlying conditions shaping motivation for war determine orientation to war in general. They consist of a mode of readiness governed by values that are firmly anchored in the political, social, and cultural system of the nation and are brought to every war situation the nation comes to face. Motivation for war, however, is also a specific response to a par­ ticular situation—a reaction to the expected effects of war on the goals and preferences of individuals. The precise response, there­ fore, will be defined in terms of specific circumstances. If it is useful to draw this distinction between predisposition and response to the specific circumstances of the particular case, then it may also be useful to regard this underlying mode of readiness to respond to challenge in a warlike manner as a motiva­ tional potential which can be incorporated into a general theory of war potential and to introduce the probable response to specific war situations in the application of the theory to particular cases. The initial decisions to fight or not to fight, or to engage in a more rather than a less determined war effort, are, of course, only the beginning of a response to international conflict. The war effort of which a nation is capable may undergo marked changes in the course of hostilities. There may be changes in the applica­ tion of administrative skill, especially if governments change in response to political pressure or if war policies are revised in response to the varying fortunes of war. There may be striking changes in the availability of economic resources as damage is inflicted on the homeland, as territory is gained or lost, and as access to foreign markets and sources of supply contracts or

MEANING OF WAR POTENTIAL

expands. There may also be substantial changes in motivation, less so in underlying predispositions than in the response to the specific conditions of the war at hand. These changes, brought about by the particular course of particular wars, remain—as previously stated—outside the limited scope of this study. But even if the focus is on the elements determining the under­ lying war potential of countries—economic capacity, administra­ tive competence, and motivational dispositions—which prevail when war is precipitated, it must be realized that these basic elements may be so constituted as to equip a nation better or less well for different kinds of war: short or long; a war bringing heavy damage to the homeland or one leaving the home base untouched by enemy action; a war which involves initial military reverses as compared with one permitting military success at the outset. To observe the interrelationship among motivation for war, ad­ ministrative competence, and economic capacity is central to an understanding of war potential. For example, the utilization of economic capacity and the exercise of administrative skill are greatly affected by the prevailing motivation for war. The inter­ dependence may be extremely complex as well as reciprocal. Thus, the motivation for war may depend partly on the citizenry's appraisal of the prospects of winning and this expectation, in turn, depends on economic capacity, administrative competence, and relevant motivations for war. Important instances of this interaction are identified throughout the book. Measuring the War Potential

If it is hard to measure and compare the ready striking power of nations, it is still harder to measure and compare their war potential and hence their total military power, of which potential is a major, and at most times the predominant, part. Measurement is resisted by numerous factors of a heterogeneous and complex character. How can we measure administrative competence, mo­ tivation for war, and economic capacity? How can the various components of these aggregates be measured? Even if we could measure the three broad constituents of potential, how can we measure and compare the total war potential so long as our units of measurement are incommensurable? And even if these obstacles could be overcome so far as the past is concerned, how can we

MILITARY POWER AND WAR POTENTIAL

make such comparisons for the present, for which our information is always imperfect? And how safely can we project these com­ parisons into the future for which policy must, in fact, be made? Beyond doubt, precise measurement and comparison are impos­ sible at our present state of knowledge and, in all likelihood, will never be possible. However, the problem is capable of some sim­ plification. Even now we use certain indices of war potential and more or less informed hunches in order to arrive at rough-andready comparisons of the military power of nations which some­ times turn out to have been not far off the mark. 1. In many instances, the area of uncertainty and the margin of error in estimating can be narrowed down in various ways. Since the purpose of measurement is comparison, some determinants of war potential can be given prominence while others can be neg­ lected. The number of variables to be considered can be reduced. For example, experience has taught us that if there is great difference in population between two countries, nothing but great differences in other respects can compensate for this one difference in war potential. For this reason alone, Canada is not militarily as powerful as the United States, or Burma as powerful as India. Similarly, we know that, unless there are gross and com­ pensating differences in other respects, a nation in the grip of civil war or a politically unstable country is not as powerful as a politically stable and united nation. Thus, China in the 1930s was not militarily as strong as Japan in those parts of China which were readily accessible to Japanese forces. Similarly, we know that a highly industrialized country is more powerful than an eco­ nomically underdeveloped one unless there are extreme and off­ setting differences in other respects. For this reason alone, Czarist Russia was militarily no match for Imperial Germany in those Russian regions which were effectively accessible to the German armies of World War I. Comparison becomes more difficult when differences are not extreme, but when they are very small, national differences in certain important determinants of war potential can be neglected. If it were discovered, for example, that several nations are likely to have roughly the same motivation for war and roughly the same administrative competence, then measurement and com­ parison could be restricted to economic strength alone. Thus,

MEANING OF WAR POTENTIAL

during World War II, there were relatively small differences between the motivation for war in Germany, the United Kingdom, and the United States, for all three nations were about equally determined to fight the war to a victorious finish. The predicament, of course, lies in ascertaining the relevant facts in advance and knowing which facts are relevant. It may seem plausible to assume, unless there is specific evidence to the contrary, that, in response to similar challenges, nations roughly comparable in their political, social, economic, and cultural sys­ tems are capable of roughly the same motivation for war; and that nations, if they have roughly the same economic system, will also tend to enjoy a similar administrative competence in wartime. Yet these generalizations are far too abstract to catch much that is relevant for our purpose in political and economic life. For instance, mere reliance on form of government or economy might be seriously misleading. In 1939-1940, the motivation for war in France was decidedly inferior to that prevailing in Britain, al­ though both were democratic societies, and that of Nazi Germany far exceeded that of Fascist Italy, although both had Fascist regimes. Of course, there were notable differences between the British and French, and the Italian and German, forms of govern­ ment. Yet, more important, mere form of government is not a strategic determinant of war potential; and mere form of economic organization tells us little about administrative competence in wartime. Finally, evaluating differences in war potential is likely to be still more difficult when it comes to comparing nations as different as Japan and Britain, Germany and Russia, Communist China and the United States. Assessments of these kinds cannot be realistic unless all the chief constituents of political and ad­ ministrative war potential are carefully canvassed. 2. On the other hand, there are fairly accurate indices of some determinants of military potential. The size and structure of popu­ lation, or the capacity for producing fuel and steel, or the depend­ ence of nations on foreign food supplies and industrial materials are examples of this kind. Some of these factors exert a heavy weight on the economic war potential of nations. Furthermore, while there are at present only crude indices of other determinants —such as public opinion polls, election statistics, the voting record of parliamentary parties—these are not useless when skillfully

MILITARY POWER AND WAR POTENTIAL

applied. Finally, it should be possible to improve such measuring techniques and thereby discipline the element of guesswork on which any over-all estimate must in part, and often in large part, rest. Even for elements which defy reflection in quantitative in­ dices—such as administrative adaptability—it may be possible to discover and define qualitative criteria which will help in evalua­ tion. Despite formidable obstacles to measurement and comparison, the leaders of nations must in fact include some assessment of war potential in their calculus of power. They may or may not consult the expert to obtain material for their hunches; and the expert, or scholar, may well give up in despair when the total war potential is in question. But he can make a valuable, and probably increasing, contribution by bringing out sharply elements which tend to make war potential larger or smaller. The question of "a little less" or "a little more" often yields to the inquiring and informed mind. But in our present state of knowledge and with our present ability to predict, forecasts of military capability cannot avoid being faulty in many, if not most, instances. Who, in 1956, knows the comparative war potentials of, say, the United States and the Soviet Union, and can have confidence in his forecast? Who, in 1939, knew the comparative war potentials of Germany, France, Britain, the USSR, Japan, and the United States, and was proved right by subsequent events? Who, in 1913, made a correct fore­ cast of the war potentials of Germany, Russia, France, and the Austro-Himgarian monarchy? And yet, statesmen and military planners cannot discharge their responsibilities without making such comparisons and revising them continuously with the passage of time. These estimates are being made because they must be made. Any advance in analytical method and fact-finding which reduces the area of hunch should therefore be a worthwhile con­ tribution. War Potential and Geographic Position

Since all elements of power are affected by location, there is none which, in sheer logic, does not have geographic aspects and, hence, is not a matter of geography. Morale and political stability or instability are not necessarily phenomena evenly dis-

MEANING OF WAR POTENTIAL

tributed over the territory of nations. Neither are economic de­ velopment, means of transportation, urban agglomerations, or the skill of the labor force. No doubt, the geographic distribution of many of these factors is of consequence to war potential and, therefore, is vital to military strategy. The fact that the winter climate is extremely harsh over most of the Soviet Union or that Soviet Russia has territory twenty times as large as France is of obvious military significance in any war involving Russia. So is the fact, so far as war potential is concerned, that the Soviet Union must expend a great deal of extra effort in operating its economy in a huge land area with scanty opportunities for water transpor­ tation and with a distribution of many mineral resources which increases this cost effect of mere space.7 Such factors of space and geographic distribution would also be essential to the assessment of war potential if we wished to allow for the possibility that, in the course of war, a nation might occupy enemy territory or find part of its own territory occupied by the enemy. From this point of view, the concentration of heavy French industry not far from Germany's western boundary was a significant factor in the past. If available, furthermore, space can be traded for the time required by a country to convert poten­ tial into actual military force. Yet, these are factors which are peculiar to individual countries and do not lend themselves to generalization. Actually, many, if not most, geographic factors are in any case reflected in the different parts of the war potential. If the spatial distribution of certain phenomena impinges more than negligibly on the expected motivation for war and administrative resource­ fulness in wartime—such as the effect of distances and natural barriers on communication, or the geographic distribution of minority groups—it must enter into any appraisal of the war poten­ tial of a particular country. Yet, in nearly all great and industrial­ ized powers, such data can be neglected unless there is specific evidence bespeaking their significance. Beyond question, climate, natural resources, and population are important factors in the economic capacity of nations. It is ex­ tremely significant, for example, that the large industrial nuclei 7Chauncy D. Harris, "Industrial Resources," in Abram Bergson (ed.), Soviet Economic Growth, Evanston, 111., Row, Peterson, 1953, pp. 16411., 184.

MILITARY POWER AND WAR POTENTIAL

of the world are based on ample supplies of energy, especially coal fields, available in relatively few areas, such as the Appa­ lachian fields of the United States, a few localities in Britain, the Ruhr valley of Western Germany, and the Donets and Kuznetsk basins of the USSR. Such factors cannot be ignored. But it is in assessing the economic productivity and resource structure that these geographic data are fully reflected and automatically taken into account. There is one geographic factor, however, which remains out­ side the estimate of war potential as a general problem, although this factor greatly affects the military power of nations. This is the location of nations over the globe. This location influences military strategy and foreign policies that might involve nations in war because it impinges heavily on the amount of fighting power which a nation can put into the field of battle. Most estimates of total military power, including war potential, envisage such power as located in the territory or along the fron­ tiers of the nation concerned. This is considering it, so to speak, military power f.o.b. But nations frequently wage war far from their boundaries. In World War II, this was true of most bel­ ligerents during all or at least some phases of the struggle. Clearly, the transmission of combat power through space is extremely costly of resources, both economic and administrative. It is not only that the transmission of modem military forces requires a great deal of manpower, transport equipment, and fuel, and a large bureaucracy for planning and organizing the transport task. It also requires the maintenance of a more or less constant stream of replacements—of fighting and supporting personnel and of munitions—as well as depots of reserve supplies. Although the particular men and supplies moving through the "pipelines" may eventually serve in combat, at any point in time such materiel and personnel, while they have been produced, are available neither on the battlefield nor for necessary wartime production at home. Given a definite war potential, the surface fighting power which the United States can deploy in battle is certainly far larger along the Atlantic seaboard of North America than, say, in western Europe or in eastern Asia. One important reason why, in 1905, Russia, then a nation of 142 million, was defeated by Japan, then a nation of 45 million, was the tremendous distance of the theater

MEANING OF WAR POTENTIAL

of operations from the bases of Russian military power. To give a further example: when World War II began in September 1939, the American merchant marine was composed of about 1,150 ocean-going vessels totaling about 10.5 million deadweight tons. By the time Germany surrendered in May 1945, the United States had built about 5,200 large ocean-going ships totaling nearly 53.0 million deadweight tons.8 This does not include smaller vessels, naval ships, and landing craft. Clearly, if the steel, manpower, and other resources which went into constructing the shipyards and into building, manning, and fueling these ships could have been saved, the United States could have appreciably increased its combat power in terms of men and materiel. And these resources were only part of the resource cost necessitated by transmission of American fighting power to overseas theaters of war. There are two ways of accounting for this potential loss of re­ sources, and hence of power, in power estimates and comparisons. If war potential is defined as the aggregate capacity which can be transformed into combat power, then it follows logically that the war potential of nations declines with distance from the theaters of military operations. The distance involved is not sheer geographic distance, but cost distance represented by the quantity of re­ sources required for transporting each combat unit over a unit of space. On the other hand, if military transport resources are considered combat resources—i.e., a part of total mobilized strength—then this locational factor can be ignored in calculations of war potential. But if it is so ignored, the war potential of dif­ ferent nations would cease to be strictly comparable so far as specific war situations and theaters of operation are concerned. The emergence of nuclear weapons has in one respect substan­ tially reduced the costs of transporting combat power over space. The destructive power of a single nuclear bomb is tremendous if compared with the bombs or the firepower of divisions and battleships in the Second World War. Therefore, despite the large costs of manufacturing one nuclear bomb or one modern bombing plane, and of maintaining bases from which effective attacks can be launched, the cost of transmitting military strength in this form has greatly diminished. Yet this consequence is significant only if 8 Donald M. Nelson, Arsenal of Democracy, New York, Harcourt, Brace, 1946, p. 243.

MILITARY POWER AND WAR POTENTIAL

future wars are to be fought by the bombing of the opponent's centers of industry and population. This consequence does not obtain if future wars demand the use of surface forces and tactical air forces far from the homeland. There is one more way in which the invention of nuclear mis­ siles impinges upon geographic factors as conditions of war poten­ tial. The distance between belligerents affects the warning time they receive of air attacks and, at the present time at least, also affects vulnerability to bombardment by guided missiles. These are important conditions provided future war turns out to be unrestricted atomic war. Understandably, this problem is receiv­ ing serious attention in Great Britain whenever the possibility of war with the Soviet Union comes under discussion. Further­ more—and again to the extent that future hostilities will take the form of all-out nuclear conflict—the size of countries, and the distribution of populations and industrial assets are bound to affect their vulnerability to enemy attack.9 War Potential for Different Wars

Wars differ greatly in the specific demands which they make on belligerent nations, and the ability to satisfy these demands must therefore depend on their varying nature. Wars which in terms of the war goals and military capability of a nation require only moderate exertion differ obviously from wars which, in these terms, call for the utmost mobilization of resources. The demands of war also depend upon whether the conflict is short or long; on the locality and setting of the theater or theaters of war; on the specific make-up of the enemy's fighting power in terms of man­ power, equipment, morale, etc.; upon whether the home base is subject to occupation or damage through enemy action; upon the interference of hostilities with the normal channels of trade; etc. A further question, already discussed in Chapter 1, is whether the demands of warfare in the atomic age do not differ entirely from those experienced even in the recent past. If different wars make different demands upon the military capability of countries, then their economic capacity, administra­ tive competence, and motivation for war cannot be assumed to 9 Cf. Klaus Knorr, "Passive Air Defense for die United States," in Kaufmann (ed.), Military Policy and National Security.

MEANING OF WAR POTENTIAL

be equally adequate or inadequate for different wars that might occur. And there are wars in which war potential is of no, or of little, account. Strictly speaking, there is no such thing as one war potential which a country has at any one time; rather, it has different war potentials for different conceivable wars. The pres­ ent study focuses chiefly on one model of war only. It assumes a situation in which the reciprocal intentions and capabilities of the belligerents require a prolonged and intensive war effort of the kind which the main belligerents undertook during the First and the Second World War. It is not, therefore, claimed that the present study presents a general theory of war potential. To accommodate all war situa­ tions that may confront modern nations, such a theory would have to consist of rather sterile generalities. On the other hand, to deal adequately with several models of typical war situations would call for a far larger study than the one presented here. It is not to be assumed, however, that the number of models need be very large. The purpose of a model is to analyze some important prop­ erties of a typical situation and not to deal with all the unique properties of all conceivable situations. To be helpful in the un­ derstanding of actual situations, types of situations and properties must be properly selected. At the present time, for example, it should suffice for nearly all practical purposes to distinguish be­ tween short and prolonged wars, wars demanding major or minor exertions in terms of resources, and wars with or without the unlimited use of nuclear weapons. All other specifics that make particular wars unique, including the factor of geographic loca­ tion, can and should be introduced when the theoretical scheme is applied to concrete sets of circumstances. The type of war situation with which the present study is concerned is that of the ultimate showdown between great powers. This requires an inten­ sive and prolonged mobilization. It is a situation with which statesmen and military planners must often reckon as a dangerous contingency. Potoer Potential in International Affairs In peacetime, when nations refer to their military power in order to influence the expectations of other nations, or when the very power attributed to one nation affects the behavior of others,

MILITARY POWER AND WAR POTENTIAL

the military potential plays its proper, though uncertain, part. To some extent, nations can draw attention to and demonstrate their war potential as well as their mobilized strength if this helps to make their foreign policies more effective. They can do so by demonstrating the ease with which potential strength can be con­ verted into additional strength-in-being by increasing munitions production, by making administrative preparations for mobiliza­ tion, and by otherwise exhibiting their willingness to use force under certain circumstances. In general, however, military potential has two properties which obstruct its full effectiveness in time of peace. These peculiarities are inherent, first, in the very fact of potentiality and, secondly, in the difficulty of assessing and comparing potential military power. Not only do they detract from the weight of military potential in peacetime international relations, but they may actually serve to multiply the chances that wars, the real test of military strength, will be precipitated. Although a nation may refer to its war potential in support of its foreign policies, the usefulness of doing so is, of course, limited by the fact that, by itself, potential strength is unable to win battles. It can win battles only after it is mobilized. Indeed, superiority of mere potential may be a source of weakness if it lulls a nation's leaders into a complacent sense of security. Mobili­ zation takes time, and whether, and under what circumstances, it will be undertaken is often a matter of doubt. For all-out nuclear war, should it occur, war potential is irrelevant, especially if the war should be over almost as soon as it is started. It will be shown subsequently that, for wars short of the debacle of unlimited atomic bombardment, capacity for manufacturing production is now the most important factor in the economic basis of war poten­ tial. In the late 1920s, the United States alone produced an output of manufactures larger than that of the other six great powers taken together: Great Britain, Germany, France, the USSR, Italy, and Japan.10 But American influence in world politics was far from commensurate. That there are other forms of influence than military power is, of course, one reason for this discrepancy. But 10 H. C. Hillmann, "Comparative Strength of the Great Powers," in Arnold Toynbee and Frank T. Ashton-Gwatkin (eds.), The World in March 1939, London, Oxford University Press, 1952, pp. 421-22.

MEANING OF WAR

POTENTIAL

it is also plausible to say that American influence was relatively small because the huge economic strength of the United States was not at all matched in the immediate situation by a willingness to put it in any appreciable degree to military use. American leaders made it abundantly clear to other nations that they were averse to becoming involved in foreign wars or in any policies risking such entanglement. The 1930s witnessed an unusually rapid shift in the world bal­ ance of military power. Within a few years, roughly from 1934 to 1938, Germany became the largest military power in Europe, al­ though she had been militarily prostrate in the 1920's and as late as 1932. At the same time, Japan, Italy, and Soviet Russia had gained, and Britain, France, and the United States lost, in relative military strength. Although Japan had greatly expanded her eco­ nomic capacity to produce, the Axis countries taken together made no such gains. Their sudden rise in strength largely reflected a rapid expansion of mobilized power. In 1938, the three Axis powers together made military expenditures totaling £1,905 mil­ lion compared with £.829 million for Britain, France, and the United States and £924 for the USSR alone.11 Such figures are, however, imperfect indices of military preparation. It is perhaps more significant to recall that, in 1938, Germany accounted for no less than 46 per cent of the combined output of combat munitions of the following countries: United States, United King­ dom, Canada, the USSR, Germany, Italy, and Japan. Italy and Japan produced another 15 per cent, Russia 27 per cent, and the three democratic nations together the remaining 12 per cent.12 In the following year, the latter countries increased their combined share to only 14 per cent. However, this stupendous shift in the distribution of military strength-in-being was not the only condition responsible for the sudden change in the international balance of military power. The Axis powers, in contrast to the Western democracies, also dis­ played unmistakable readiness to use military force for the at­ tainment of their goals. They paraded a motivation for war which was then far stronger than that of the Western nations. In the light of their aggressive purposes and intentions, the 111bid., 12

WFB,

p. 454. World Munitions Production, p. 34.

MILITARY POWER AND WAR POTENTIAL

emerging situation contained strong temptations for the highly armed Axis nations to precipitate war or risk its precipitation. The temptation resulted from two considerations: the one-sided bal­ ance of ready military strength favoring the Axis partners, and the uncertainty as to how formidable the military potential of their possible opponents actually was. The records now available confirm that the German and Japa­ nese leaders hoped to win by a Blitzkrieg which would force a favorable decision before their enemies had been able to trans­ form potential power into combat forces. The war preparations of Germany and Japan favored "armament in width" over "arma­ ment in depth." They stressed the maximum supply of fighting men and equipment in the immediate present and the near future as against a time-consuming policy of investing resources toward a growth of their basic economic strength which would support a larger war effort over the longer run. They emphasized finished munitions for quick campaigns and speedy knockout blows. Given their obvious inferiority in economic war potential, this was by no means a stupid or irrational decision. The Japanese leaders must have been aware of the fact that the economic resources of their country amounted to not much more than onetenth of the economic potential of the United States alone. Dis­ regarding the benefit of hindsight, we must admit that, in 1940 or even in 1941, there could be no certainty whatever that the European Axis countries would lose. They came close to winning, and they were perhaps bound to be beaten only if the war became unduly prolonged. Even in retrospect, it cannot be demonstrated that Germany would not have won, or at least have forced a stalemate, if she had mobilized her war potential as heavily in 1940-1941 as she did in 1943-1944.13 The possible prolongation of the war was the risk which the Axis leaders assumed. As it hap­ pened, their enemies, in their entirety, had sufficient space to trade for time and thus could eventually throw a much greater weight into the fight. Uncertainty about the actual war potential of the Western na­ tions, and also perhaps about the ability of Britain and France to acquire allies, no doubt helped to bring war about. Hitler and his entourage held a low opinion of the motivation for war and, 18

Goldsmith, "The Power of Victory," Military Affairs, p. 80.

MEANING OF WAR POTENTIAL

perhaps, of the administrative potential of what they called "the degenerate democracies of the West." The Japanese leaders enter­ tained similar expectations regarding the United States. In these assumptions they erred so far as the British Commonwealth of Nations, the United States, and Soviet Russia were concerned. But we must remember that even the dispassionate expert will en­ counter embarrassing difficulties when it comes to predicting the potential motivation for war of nations. The conclusions which can be drawn from this analysis are these: wars would probably occur more rarely than they do if, first, the international balance of ready military strength were never permitted to become too lopsided; and, secondly, if states­ men were able to gain a more realistic picture than they have in the past of the total war potential of nations. The first point is too obvious to call for elaboration. In the very short run, war potential comes close to being irrelevant. It is ready strength which then counts, and the non-aggressive countries must have enough of it to gain time to mobilize their potential. In times of grave political crisis, this may necessitate an unwelcome allocation of resources to a purpose which is unproductive in the ordinary sense. It is surprising, however, how small a proportion of her resources Germany allocated to gaining, with great rapidity, a preponderance of military strength-in-being. From 1933 to 1939, Germany spent an average of only 10 per cent of her gross national product on military preparedness.14 To employ a more significant index, Germany's output of combat munitions in 1938 was only 16 per cent of the amount she produced in 1944. Even in 1939 the percentage was no larger than 20.15 In the atomic era, moreover, sufficient ready military power, in the specific form of the ability to obliterate an enemy country almost instantaneously by means of nuclear missiles, is generally recognized to act as an extremely potent deterrent against certain types of aggression. Indeed, it may be powerful enough to prevent all-out nuclear war from oc­ curring at all. The second point—the difficulty of assessing as complex a thing as military war potential—is not much less significant in tempting 14 Burton Klein, "Germany's Preparation for War," American Economic Review, xxxvin (March 1948), pp. 68ff. 15 Goldsmith, op.cit., p. 72.

MILITARY POWER AND WAR POTENTIAL

other would-be aggressors or their opponents to resort to force. Obviously, if statesmen had to reckon with a long war and if they were able to gauge the military potential of nations with some precision, the test of battle would be rarely sought and needed. Unfortunately, such predictions are precarious. If assessing eco­ nomic strength is relatively easy, appraising the potential motiva­ tion for war and administrative competence in war is difficult indeed. There is the further stumbling block that allowance must be made for the composition and strength of alliances, for the probable duration of the war, for the factors of location and dis­ tance—in short, for all the specific conditions which must be introduced in applying the theoretical model of war potential to a particular situation. It is one purpose of the present study to demonstrate how com­ plex a realistic theory of war potential must be. It is also hoped that this analysis will make some contribution toward clarifying the problem and developing the theory and, thus, toward making the appraisal of war potential somewhat less hazardous.

P A R T II THE W I L L TO FIGHT

CHAPTER 4 MOTIVATION FOR WAR

THE war potential of nations consists not only of resources such

as manpower, economic resources, and administrative skills, but also of the will to utilize these resources for waging war. Mobiliza­ tion is action, and war potential obviously is action potential as well as resource potential. Action results from motivation, which determines the choice of behavior in specific circumstances. The complex set of motivations operating in a nation at war determines the level, speed, and manner of mobilization. It determines, for example, which economic resources will be used for conducting war, and how these resources will be employed. The object of this chapter is to identify the motivational proc­ ess, and key variables in it, as they bear on mobilization for a large-scale war effort, and to show how individual motivations are aggregated in any society. Most, although not all, of the discussion is oriented toward more or less democratic societies. However, the same analysis is basically applicable to non-democratic systems as well. The Will to Fight

In a manner of speaking, economic resources and processes and administrative competence measure a nation's ability to fight. Motivation determines the will to fight. Mihtary strategists have long honored this distinction. They know that victory can be won by shattering the one or by breaking the other—by incapacitating the enemy or by demoralizing him. Ability and will to fight are not entirely independent factors. Up to a point, they support each other; and up to a point, the one can be substituted for the other. Just as a superior will to fight may offset a marginal inferiority in battalions, so morale may be sapped by an increasing or persistent

THE WILL TO FIGHT

inferiority in manpower and munitions. Nevertheless, the distinc­ tion between ability and will to fight is useful for the student of war potential as well as for the military strategist. It is through the political process that this motivation expresses itself in government policies, in the decision to fight, and in count­ less other decisions governing the application of the nation's strength. But the effect of the relevant motivation goes far beyond the shaping of official policies, for these can only in part regulate the behavior of individuals and groups that impinges on the war effort. How hard a soldier fights or a laborer works, how little families consume and how much they save, how labor unions and other organizations adjust their activities, how much anxiety in­ dividuals put up with—these and numerous other decisions can be affected by but are not fully determined by government policy. They depend on the large complex of motivations that prompt individuals to behave in one way rather than in another. Modern large-scale war affects people over a wide range of their personal goals and preferences. These effects consist not only of the obvious costs: the dead and crippled, the related anxieties, the discomforts of military personnel and civilians, and the destruction of property by enemy action. In war, the state1 substitutes its own schedule of needs and priorities for that of private persons to a vastly greater extent than is normal in peace­ time in most societies. The break-up of family life and the shift from a civilian to a military existence resulting from induction into military service are perhaps the most dramatic changes wrought by war. But the increased demands of the state become reflected throughout the life of the community. As manpower is drawn into the armed services and into new employments, and as housing becomes limited, neighborhoods, church communities, labor union locals, clerical staffs, student bodies, and many other groups change in size and composition. Economic life is affected in all its manifesta1 Although there are frequent references in this study to such collective nouns as the "nation," "country," "state," and "government," it is to be clearly understood throughout that these terms are used merely for the sake of convenient exposition. Only individuals have motives, expectations, and interests, and only they act or behave. Strictly speaking, it is not the "state," in the above reference, which sub­ stitutes its schedule for that of private persons, but certain ofiBcials who, with the acquiescence of other persons, shift resources to new goals and away from others valued highly in peacetime.

MOTIVATION FOR WAR

tions as the economy becomes geared to the war effort. Large-scale conversion of productive facilities entails profound changes in existing patterns of employment, production, distribution, and consumption. Consumer purchases decline and shopping becomes inconvenient. As the structure of demand for specific labor, land, and capital goods is modified, there is a corresponding change in the scarcity value of these resources and hence in the distribution of risks and remuneration. While the owners of some resources will benefit, other producers, workers, and traders will find their positions weakened. Business and organized labor may discover that mobilization cuts sharply across their interests as normally perceived. In capitalistic societies particularly, the very values which normally guide economic behavior—such as the drive and respect for private profit and the measuring of personal success on the basis of money income and level of consumption—are deemphasized or frowned upon. Indeed, large-scale war tends to reduce the scope of self-direc­ tion and to engender broad shifts in the distribution of rewards: income, security, safety, prestige, power, self-respect, and others. Thereby it tends to alter the relative position of different classes, occupations, groups, and localities in the society. Some skill groups, such as the military profession and the bureaucratic managers of the war effort, become more influential. The rate of social and political change may be speeded up as determined groups, with enhanced bargaining power, exploit the opportunities of crisis and secure important reforms. Government is subjected to striking changes. Not only must the executive in all but totali­ tarian countries perform different and vastly larger tasks, greatly restricting the freedom and privacy of individuals, but elections may be suspended and party strife and parliamentary activity sub­ dued. In a major war, democratic societies will not be able to afford the easygoing and hesitating ways of arriving at important political decisions, the procrastination and bickering of prolonged discussion, or, where it exists, the tolerance of corruption. Thus, the entire political, social, and economic fabric of society is involved in the strains and stresses of modern war. The custom­ ary functioning of society is interrupted in numerous respects. All institutions—family, local communities, economic interest groups, political parties, government—must cope with unaccustomed situa-

THE WILL TO FIGHT

tions. It is indeed of the essence of mobilization that war calls for quick and non-habitual responses. Mobilization takes effect through a vast and accelerated learning process—learning not only in the narrow sense of acquiring new information, but also, and more profoundly, in the sense that individuals must acquire new patterns of orientation and behavior. War does not, of course, demand equal adjustments in all so­ cieties, or for all groups and individuals within a nation. The scale of the demands depends on whether a society's, or a group's, or an individual's peacetime values and behavior patterns are close to or remote from the orientation needed for mobilization. Thus, a warlike society, imbued with values conducive to warfare, will obviously require lesser adjustments in the event of war than a society to which war, and life under conditions of war, are rela­ tively repugnant. In a nation organized under and content with authoritarian leadership, most individuals will be less subjected to a war-induced reduction of self-direction than citizens in a democratic nation which accords individuals a variety of freedoms. In all societies, furthermore, mobilization can be achieved in part by an appeal to specific peacetime goals and preferences, and by the operation of ordinary incentives. For instance, additional persons may be recruited to the labor force, or overtime work may be increased, either because individuals feel it their duty to work more or because of the pull of higher wages. Depending on the nature of their goals and preferences, some persons and groups may find greater opportunities in wartime than during peace for satisfying their private interests. How well- or ill-adapted and how adjustable society is to the exigencies of modern war is the central question in any attempt to examine a nation's capacity to fight. Thus, there may be marked differences between societies in the nature and priorities of goals and preferences that make war a choice more or less readily undertaken, and that impede or facilitate the effective mobilization of the nation's strength. How­ ever, whether success in war becomes—"for the duration"—the supreme objective of the nation, and whether this priority can be made effective as war continues, depend in general on whether conflicting goals and preferences, to the extent that they exist, can be assigned a lower rank than before. Given equal resources, the war potential of nations falls and rises with the capacity of

MOTIVATION FOR WAR

their members to forego the satisfaction of wants and preferences —be they concerned with safety, income, consumption, leisure, respect, self-direction, ethics, or other values—which detract from maximizing the production of combat power from given resources. In other words, there is a direct correlation between the magni­ tude of the war potential of nations and the degree to which their members make the purpose of military victory or survival their own. In theory, the limiting cases of extremely low and high motiva­ tion for war are readily identified. War offers to individuals gains (including the gains of victory) and losses (including the con­ sequences of military defeat). How these losses and gains are appraised depends on the value standards that govern people's expectations. The greater the net losses in terms of goal achieve­ ment which individuals expect, on balance, to sustain, the lower will be their motivation for war. Zero war potential will obtain when the members of the nation are intensely dedicated to goals and preferences which, in every way, prevent a war effort from being made, and which they are completely unwilling to neglect even temporarily. On the other hand, the greater the net gain which individuals expect to derive from fighting, the higher will be their motivation for war. A nation will have maximum war potential, in relation to its resources, if the peacetime goals and preferences of its mem­ bers facilitate mobilization in every way, or if, in the event of war, they are willing to suspend completely and speedily all the goals and preferences which tend to obstruct mobilization and, instead, substitute the goals and preferences that tend to maximize it. What this implies was well expressed by Lord (then Sir William) Beveridge: "In the factories engaged in making munitions the one thing that matters now is immediate output, both in quality and quantity. If the manager in charge of a factory thinks of anything than that, if he thinks, for instance, of dividends for his share­ holders now or later, or of what his factory may be used for after the war ... then he is not total in the war—he's half out of the war, half neutral. If a workman in a factory or on a farm or in a mine does less or worse than his best, if he is less regular in attendance than he could be, either because he thinks he is not getting paid

THE WILL TO FIGHT

enough or because he is getting paid so well that he does not want to earn more, or because he thinks that he ought not to pay In­ come Tax on earnings .. . then he is half neutral.. . . In peace it is reasonable to stop working when one thinks one has had enough. For managers and workmen alike that's an essential part of free­ dom: to be able to choose leisure, seeing more of one's family. . .. But many things right in peace are utterly wrong in war. More­ over, being total in war is not simply a question of how one behaves at work; one can wage total war or fail to wage it in one's home, by being a saver or a waster, a cheerer or a grouser. . . . Many people in peace devote themselves to a cause—they serve a movement like trade unionism or cooperation, they work for a political party, they seek to remedy a social injustice. Some go on doing so in war, even though this may mean reducing the war effort, by disagreements or by occupying the time and thought of ministers and managers on matters irrelevant to the war. That is failing to be total in war for an unselfish motive, but it's a failure none the less."2 In actual cases, of course, motivation for war will rarely, if ever, be at the two extremes, but will occupy a position on the continuum somewhere in between. If this change in the orientation of individuals involves at the least temporary neglect or sacrifice of some personal interests, it does not mean that individuals no longer seek, as before, the maximum achievement of their goals and preferences. It is only the hierarchical structure of these wants which is temporarily re­ vised. Even when people are effectively forced by a ruthless government to work more, expose themselves to physical danger, or accept other hardships, they will feel that obedience serves their total interests better than resistance. Nor is it likely, in practice, that certain goals and preferences will be dropped en­ tirely in deference to others. For most persons, readjustment occurs at the margin, with the result that some wants come to be em­ phasized and others de-emphasized. It is normal that the achieve­ ment of some goals and preferences will conflict with the attain­ ment of others. Rational behavior then registers a point at which the additional satisfaction of one striving is preferred to the addi2 Sir William H. Beveridge, The PtUars of Security, London, George Allen & Unwin, 1943, pp. 28-29.

MOTIVATION FOR WAR

tional or lesser satisfaction of another.3 What takes place in wartime, for most people, is a more or less substantive rebalancing of goal-striving. The re-ranking of personal goals is not, for the most part, an articulate process. It is not chiefly a matter of coldly reasoned calculations but, as explained in more detail below, one of attitudes which are built into the personality of individuals and which come into play as persons orient themselves in the face of changing events. Success in war is clearly an instrumental, not an ultimate, goal. It need not be an ideal to which persons aspire. In the long run, individuals expect to maximize the satisfaction of other wants, in­ cluding those that must be demoted while war is being waged. In this sense, the conduct of war is analogous to a nation's investment in capital goods. Capital formation requires that some satisfaction of immediate consumption wants be foregone in the present in order that their satisfaction may be increased in the future. Much depends, therefore, on the time preference of individuals—on how far they are disposed to discount future in comparison with cur­ rent gratification and suffering. The question of sacrifice or "un­ selfish" behavior arises only in respect to specific commitments, not in regard to the total expectations of individuals. War is a collective enterprise. The motivation propelling such collective action is the motivation of individuals, for the "nation" has no independent source of motivation. But, being a collective enterprise, the conduct of war, and mobilization for it, must be highly organized in any society operating a complex division of labor, with all parts of the system interdependent. There must be planning and a system of controls; and, with the newness of the tasks to be performed, the peacetime system of planning and control is likely to require revision unless a nation has developed a high level of mobilization in peacetime. This revision may be relatively slight where peacetime planning and control are of a kind facilitating mobilization, as in Communist countries. The revision will have to be drastic where private enterprise and the market system are employed for satisfying the peacetime objec­ tives of a society, and where citizens retain a great deal of freedom from government interference. The details of planning and control 8 Robert A. Dahl and Charles E. Lindblom, Politics, Economics and Warfare, New York, Harper, 1953, pp. 38-39, 48.

THE WILL TO FIGHT

in wartime are of an administrative order, and are discussed in Chapters 6-8. Yet the room for maneuver accorded to government as an administrator represents a major political decision which must rest, more or less, on the motivation for war at large in the nation. As already stated, the motivation of individuals for war is brought to bear through their behavior. While much relevant behavior is beyond the control, or beyond the full control, of gov­ ernment, it is chiefly through government decision that the mem­ bers of the nation relate themselves to a war situation. The nation's policy-makers decide on war and on the degree, manner, and speed of mobilization. These decisions are based on the way they appraise the war situation which confronts them, and on the motivations which they bring to their appraisal, and which this appraisal inspires in them. Government leaders must decide on the balance of interests that is worth securing at the costs involved. On the one hand, the decision requires a calculation of the military efforts which will be required in order to achieve various possible military objectives. This is a calculation of means and ends, of instrumental costs and benefits. On the other hand, government leaders must choose one of several alternative courses of action and proceed to implement it, it being understood, of course, that a chosen course of action may provide for several contingencies and may be subject to revision as events unfold. In their choice of policy, government leaders are motivated, apart from their appraisal of the situation, by their own goals and preferences. To the extent that they differ in this respect, they will accept compromises in accordance with the relative bargain­ ing power of individual leaders. Their goals and preferences, and hence their specific objectives, will no doubt be concerned with their personal goal-striving, even though this may differ more or less from the goal-striving of others, and possibly from that of the majority of citizens. Personal ambitions, jockeying to maintain or improve positions of influence, partiality to the interests of a par­ ticular group, class, or locality, the hierarchical objectives of gov­ ernment departments—these and a multitude of similar considera­ tions may affect official choice. But, whatever the form of government, the goal calculations and motivations of other persons and groups will also impinge, though to a varying degree in

MOTIVATION FOR WAR

different societies, on the process of making decisions. This in­ fluence will be expressed in policy either because leaders are controlled—more or less, and formally or informally—by other individuals, whether members of small cliques and groups, or of the majority of the population; or because leaders identify them­ selves with other individuals and groups, even though this identi­ fication differs from situation to situation and varies with different government objectives. Exactly how responsive government policy will be to the mo­ tivation of elite groups and the public at large clearly depends on the form of government, the nature of the political process in each society, and the structure of values of which political institutions are an expression. It must be recognized, however, that even the most autocratic ruler need not be indifferent to the wishes of his people and that he cannot be indifferent to the wishes of those groups on which he relies for ruling his country. Not even under the most totalitarian regime, furthermore, can the leaders hope to regulate the behavior of the masses in all the respects that affect the war effort. Even there, control is reciprocal to a degree, how­ ever small the actual influence of the masses over their govern­ ment. On the other hand, government leaders in democratic countries cannot be expected to be perfectly responsive to the goals and preferences of the majority. The political process does not provide channels through which the wishes of the majority can be trans­ mitted faithfully or without a time lag. Leaders do not always find it easy to gauge public opinion or to foresee the measure of sup­ port which a particular policy, once implemented, will receive. Moreover, control between leaders and the electorate is reciprocal in democratic countries. By the way they represent the war situa­ tion to the nation and by bargaining, government leaders can, though not without interference from competing elite groups, influence the rebalancing of goals which individuals may undertake. How much the different motivations of different persons and groups are taken into account in the shaping of policy depends not only on the relative political power which they are able to exert, but also on the extent to which the behavior of individuals will affect the war effort. Provided their behavior is important in

THE WILL TO FIGHT

mobilization, their motivation for war will count, even though these individuals and groups do not choose, or are not permitted, to exert active political influence. The war potential of nations will, of course, rise and fall with the degree to which members share a high motivation for war. What is at issue is an aggregate motivation. There will be inevi­ table divergencies between the goals and preferences of different classes, groups, and individuals, for the structure of their interests will not be identical. However, as acknowledged above, not every group or individual counts as much as every other in the aggregate motivation that establishes itself, or in the effect which different degrees and kinds of motivation have on the war effort. The greater the individual's influence on government policy and on other people's motivation for war, and the more indispensable his services to the war effort, the more heavily will his motivation weigh in the balance of consensus. Moreover, the play of ordinary incentives, Hke those of the market, may extract a significant con­ tribution to the war effort even from persons whose motivation for war, in the sense defined, is low and who do not share the deter­ mination of others to wage war with dedication. With these qualifications, a nation's strength can be said to vary with the degree of consensus with which it applies itself to waging war. That strength will be the greater, the more completely the people share in the disposition to assign to military success a higher value than to competing personal aspirations. Yet such community of interest cannot, and need not, extend to the entire complex of interests which different groups and persons pursue. What matters is only that they give a high priority to the military effort. Motivation for war is tested, and may undergo marked changes, throughout the duration of hostilities. As battles and campaigns are lost or won, and as the hardships and, to some groups, the benefits of life under conditions of war are experienced over time, there may be a change, in either direction, in the net gains or losses which are expected from military effort. In the past, many wars came to an end before one of the belligerents had decisively defeated the other and rendered him hors de combat. Peace was restored because one or both of the opponents had come to the conclusion that victory was improbable or more ex­ pensive than had been anticipated. As Clausewitz observed, the

MOTIVATION FOR WAR

motivation of belligerents for peace rises and falls with these two expectations. A belligerent may be ready to terminate hostilities (1) because he has been reduced to military impotence; (2) be­ cause military success has become less likely than before; or (3) because, to win, he must pay a higher price than had been as­ sumed originally.4 Often, military defeat is the consequence rather than the cause of a declining motivation for war. The Ranking of Goals and Preferences

Having provided a general framework within which motivation for war can be related to the war effort of nations, we shall explore in more detail the balancing of goals and preferences on which this motivation is based, and then suggest the general problems of a wartime government which attempts to influence this motivation and translate it into organized action. As mentioned repeatedly, and as must always be recognized in considering the mobilization problem, the war effort of nations is based in part on individual and group behavior which is to some extent, and with some persons wholly, directed by a motivation that is no different in wartime than in time of peace. To that extent, individuals preserve accustomed private goals and prefer­ ences, and no rebalancing of goals is involved. Such persons—and to a varying extent most, if not all, persons—remain in part moti­ vated by the pursuit of ordinary private interests: they seek income, security, prestige, power, and other private advantages and yet may serve the war effort insofar as the resultant activities contribute to the mobilization of the nation's strength. Thus, if farmers grow more food in response to rising profits, this adds to the war effort; so does the dedication to war of such a ruling group as the Nazi and Fascist leaders in the Second World War, who must have expected that military defeat would deprive them of political power and perhaps even threaten their freedom and lives. Moreover, there are abiding goals and preferences which indi­ viduals find easier to satisfy in wartime than in time of peace. For some individuals and groups, mobilization and war open unusual opportunities for business or career, for social and political ad­ vancement. Depending on culture and personality, furthermore, iKarl von Clausewitz, On War (ed., O. J. Matthijs Jolles), Washington, D.C., Infantry Journal Press, 1950, ch. n.

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individuals may derive considerable psychological income from war. Participation may serve as an escape from the dull routine of peacetime life into one of adventure and excitement, making more exacting calls upon one's physical, moral, and intellectual capacity. As psychoanalysts note, some persons welcome the risks, dangers, and deprivations which war is apt to entail, for uncon­ sciously they want punishment to assuage feelings of guilt. The relaxation of super-ego control, or conscience, which follows ex­ posure to hard work, anxieties, and personal peril may lend added zest to whatever enjoyments are within the reach of individuals even in wartime. Where aggressive behavior is fostered in a so­ ciety, and especially where aggressiveness toward foreigners is not only legitimate but socially approved, war presents ample opportunities for expression; and where aggressiveness in peace­ time is frowned upon and repressed, war may hold a powerful appeal because it presents an approved outlet and hence a relaxa­ tion of inner tension. To the extent that individuals derive such satisfaction in war­ time, they may have a high motivation for war even though they may be indifferent to the military objective of the nation. It is the fighting itself, or some activities connected with it, rather than its official purpose, that offers them a satisfactory measure of goal achievement. Thus, in the case of some individuals, supporting action does not necessarily require that a high priority be given to the nation's war aims, and there need then be no re-ranking of personal goals and preferences. For other reasons, however, and to some extent for most if not all persons, a rebalancing of goals and preferences is a prerequisite of high motivation for war. Modern war is so exacting a claimant on participants and their resources, and hence so frustrating of achievement of valued goals, that only a modest and, in most cases, insufficient war effort is possible so long as a widespread and substantial shift in the structure of goals and preferences fails to take place. This shift comes about as individuals and groups identify them­ selves, more or less, with the nation's military objective and with those government leaders and groups who are representative of this cause. In that event, and to that extent, individuals want the consequences of fighting more than the consequences of not

MOTIVATION FOR WAR

fighting and are induced to discipline their accustomed goalstriving in some measure. At all times and in all societies, individuals recognize to varying degrees that certain kinds of private goal-striving are permitted while others are not.5 The distinctions may be enforced by law, terror, social disapproval, or the individual's conscience. The standards of behavior inculcated in individuals prepare them to see the areas of permissive behavior contract and the areas of prohibited behavior expand in war emergencies; leaders and other exponents of high war motivation will remind individuals of this stiffening of discipline and will redefine the areas of permissive behavior. The resultant change in actual behavior may come about spon­ taneously, as a ready response to values internalized in the personality structure, and to cues which activate the attachment to these values. Or, it may come about because the required change in behavior, the temporary readjustment of private goalstriving, is imposed by the dictates of conscience, by government action, or by the informal pressure of fellow-citizens. In neither case is it necessary to depart from the assumption that now, as before, individuals are attempting—though without conscious de­ liberation—to maximize the achievement of their goals or to exert their preferences as a whole, even though some goals and prefer­ ences have been temporarily de-emphasized or suppressed. The question is not one of selfish versus unselfish action. To the extent that individuals spontaneously stifle or curtail habitual activities which conflict with military mobilization, they are following and stressing goals and preferences latent in society which have become reactivated, with war as the precipitating factor, and to which a relatively high priority is assigned. On the other hand, to the extent that habitual activities are retrenched for fear of punishment, social disapproval, or the shame and anx­ iety expected from a slighted conscience, individuals are still, by minimizing such deprivations, seeking to maximize goal achieve­ ment as a whole. As has been implied, particular individuals or groups will not fall clearly into the different categories of motivational response, 6Talcott Parsons and Edward A. Shils (eds.), Toward a General Theory of Action, Cambridge, Mass., Harvard University Press, 1951, pp. 144, 219.

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although some persons may represent predominantly one rather than another. The assumption is that these responses are usually mixed, in varying combinations in particular persons. If one looks at the aggregate picture, one may find it possible, however, to identify roughly particular groups, classes, nations, and cultures with distinctive combinations. Although motivation is the motivation of individuals, it is clear that they do not act or adjust the balance of their goals and preferences merely as solitary individuals and as members of the nation. The individual acts and chooses as a member of his family and of numerous other groups with which he is associated.® Al­ though some of these groups are small and informal—such as family, neighborhood, friends, and fellow-workers—he may iden­ tify himself with them so strongly that they become important sources of information, demands, and pressures which will in­ tensify or weaken his solidarity with the nation and his contribu­ tion to the war effort. Indeed, emergency conditions may activate the individual's identification with other groups as well as with the nation, and he may find himself under strong cross-pressures. His role as father or husband, for instance, may conflict with his role as citizen, and to resolve this conflict may be far from easy. In addition to these more intimate groupings, it is especially the large political and economic interest organizations—political parties, labor unions, business and farmers' associations—which together exert substantial influence in the Western world. Their powerful position reflects the importance which members of these societies attach to political and economic problems. Elsewhere other organizations—religious, racial, or caste—may be equally or more influential. Organized groups help the individual to satisfy his interests. Political parties and organizations of economic interest mediate between him and other groups and the government. The degree of identification with these groups which this mediating function requires puts such organizations in a position to influence the individual's choices of action in wartime mobilization. Interest groups are often more given to the pursuit of a few particular β For an excellent study of these relationships, see Bernard R. Berelson, Paul F. Lazarsfeld, and William N. McPhee, Voting: A Study of Opinion Formation in a Presidential Campaign, Berkeley, Calif., University of California Press, 1954, part

II.

MOTIVATION FOR WAR

goals than are the individual members who compose it; and their leadership and bureaucratic personnel may have an abiding stake in the successful attainment of these specific interests. Where in­ dividuals identify strongly with organizations pursuing interests conflicting with a high level of mobilization, the achievement of national consensus will be impeded. The cross-pressures to which the government is then subject, and the need for government to bargain and compromise, must interfere with the efficient prosecu­ tion of war. The extent to which interest groups can obstruct a high level of mobilization is, of course, limited. First, while the leaders of these organizations always pretend that the policies they advocate are for the "common good," there may in fact be at least a partial coincidence between the special interests they serve and a deter­ mined war effort. Secondly, many of the big interest groups are, in fact, not homogeneous but rather loose conglomerates of sub­ groups pursuing somewhat conflicting objectives. Or, the repre­ sentation of broad, though sectional, economic and political interests may be divided among several competing organizations. The tactics of the situation may then be such that they curb each others' extreme demands. Thirdly, if the interest group influences the individual, the individual also influences the interest group. The activities of the interest organization are often held in check by the fact that its members also identify themselves with the nation and are affiliated with other groups representing other in­ terests and values. If individuals identify themselves more strongly with the nation in wartime than in ordinary times, this will serve to restrain the pursuit of narrow interests by pressure groups. Finally, the behavior of interest groups may be curbed by means of the formal and informal controls to which individuals are sub­ ject in wartime. The activity of political parties and other groups has another aspect of immense importance in wartime mobilization. They provide means by which the goal ranking of individuals is ag­ gregated so that, on the level of government, it can be translated into national policy. Group life is not the only means through which such aggregation takes place. Some choices in the purchase and sale of goods and services continue to be aggregated through the market mechanism. Especially in war, however, it is through

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interest groups that personal decisions are chiefly reconciled and transmitted to national authorities. The place of political parties in this process is obvious. Although elections may be suspended in wartime, the prospect of postwar elections will usually continue to make representatives somewhat responsive to the wishes of their constituencies. Parties and poli­ ticians therefore remain an important conduit through which government leaders are apprised of the goal structure of individ­ uals and through which government, in turn, transmits a picture of the war effort and the individual's function in it. The nature of the electoral and party system has an obvious bearing on how the decisions and attitudes of private individuals are linked with the decisions of government. A system of proportional representa­ tion, for example, tends in some situations to foster a multiplicity of independent and rigid parties apt to overstress their differences when competing for votes, and thus to accentuate disagreement within the nation. On the other hand, a system of simple majority balloting tends to crystallize political life in two parties which, competing for independent voters, are likely to favor middle-ofthe-road policies and thus to diminish the gulf between political opinions, assuming that predominant opinion is middle-of-theroad. If opinion gravitates toward extremes, the two-party system tends to foster extreme party positions. Yet the effect of these matters of organization on the political process in time of war must not be exaggerated. They may facilitate or obstruct the emergence and expression of consensus. But consensus itself, or its absence, is a product of the basic factors discussed. In wartime, indeed, excesses of political partisanship are usually frowned upon. Whatever the specific mechanisms through which a nation s members primarily readjust their goals in war emergencies, they explain why nations may, prior to war, present a spectacle of intense controversy on the political questions of the day, of the most competitive pursuit of private interests by large groups pro­ fessing to oppose war and to favor peaceful solution of interna­ tional problems, and yet, as war is precipitated, undergo a sudden transformation of behavior, closing ranks with amazing swiftness and doggedly supporting a high scale of commitment to the war effort. In Great Britain, for instance, official forecasts of public

MOTIVATION FOR WAR

reaction to bombardment from the air were completely contra­ dicted by actual behavior when the LuftwafiFe took action. Offi­ cials had mistakenly based their predictions and policies on inferences from apparently relevant behavior prior to the event. They did not foresee how this behavior might suddenly change. An historian of the British war effort observed that, during the war years, "when the life of the nation was in danger, values changed rapidly, yet the process was so imperceptible that many people were unaware of the effect it had on their attitude to other people and to questions of behavior in a society at war. . . . What was regarded in one year as merely bad behavior was censured more severely in the war."7 The propositions offered above for explaining the rebalancing of goals and preferences which is central to a high motivation for war also indicate the chief areas which those interested in predict­ ing the war behavior of nations must explore. Motivation for war, to be sure, is always a response to the circumstances of a specific war situation; hence, it is a response difficult to predict. But the attitudes underlying this reaction, and even affecting the way in which a particular war situation is perceived, are more predict­ able and thus make it possible to narrow the margin of error in forecasting the response to specific circumstances. Individuals and groups have an underlying mode of readiness to react in a particular manner to extreme threats or opportunities for external aggrandizement facing the nation. This mode of readiness to respond to war situations in a certain way will endow these with affect, e.g., will invest these situations with emotion. And, since this mode of readiness is based on a more or less ar­ ticulate and consistent system of beliefs, it will predispose the individual to attribute particular value implications to these sit­ uations and influence the choice of action by which his goals and preferences can be best promoted. Since these attitudes are not shared, or are not shared in equal strength, by all members of a nation, and since individuals and groups will in any case differ in the structure of the other goals and preferences that enter into the choice of reaction, there is no reason to suppose that individuals will exhibit equal motivation for war in any particular war situation. 7

Richard M. Titmuss, Problems of Social Policy, London, HMSO, 1950, p. 339.

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Nevertheless, these attitudes and values are impressed on the individual as he grows up and constitute his personality, so that he cannot easily divest himself of them. A tendency toward the sharing of predispositions can therefore be assumed. Similarly, great as the differences are in the aggregates of goals and prefer­ ences to which persons are wedded, these are likewise affected by values implanted in them in the process of socialization; and so are the informal controls that, in emergencies, tend to compel solidarity of behavior. Without some measure of shared stand­ ards, no society can maintain itself as a viable unit. It is reason­ able, therefore, to expect a clustering of personal responses to a war situation which may differ not only from nation to nation, but also between groups within each nation. It is a moot question whether such clustering permits us to speak of a "national character" or of something akin to the "base personality" which anthropologists have observed in small and stable primitive communities. No doubt, a rich variety of per­ sonality types, of value and behavior patterns, prevail in all modern and, especially, in all industrial societies. Indeed, some cultures encourage such diversity within certain limits and areas of behavior. At the same time, there are notable differences in the frequency with which distinct personality and behavior pat­ terns are encountered in particular societies, and these frequen­ cies are related to the way children are reared. In regard to values and activities to which a society is sensitive, the upbring­ ing of the young will attempt to produce, by repression and en­ couragement, the minimum sharing of predispositions which a society needs to function satisfactorily. It is in this general area also that the student of motivation for war must look for indices that will facilitate prediction.

CHAPTER 5 GOVERNMENT AND WAR EFFORT

ONCE the decision to fight has been made, government leaders

must organize the war effort needed for attaining the tentative military objective. Toward this end, they must define the instru­ ments and intermediate objectives and thereby translate the pre­ vailing motivation for war into the detailed and specific activities by which individuals will honor their commitments. The main task is that of reconciling the need for military power with the resources which the nation is willing to provide, and of effecting this reconciliation continuously, since both these factors may change over time. If the amount of military power which govern­ ment leaders deem necessary for achieving the military objective exceeds the resources which the nation is willing to spare, then they must either lift the prevailing motivation for war to a higher level or retrench the military objective. They must also choose policies, in these circumstances, which will extract a maximum military effort from the resources which the nation is prepared to make available for waging war. In bolstering the prevailing motivation for war, government leaders can attempt to influence the goal striving of individuals and groups in three ways: by information, by persuasion, and by bargaining.1 Government leaders need not be passive agents, merely ac­ cepting the goals of individuals and groups. They are usually in a position to influence choices. By means of an adroit policy of information, the government can assist citizens in gaining a pic­ ture of reality which is conducive to a high personal commitment 1 Motivation for war cannot be improved by force even where its use is tolerated. By force, or the threat of force, leaders can hope to extract an increment in warsupporting behavior from whatever relevant motivation prevails.

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to wage war. Although the members of the nation may pay heed to other sources of information, modern government is usually able to affect, if not largely determine, the manner in which the war situation is perceived. The way government leaders repre­ sent the war effort will, in effect, Hmit the individual's choice and guide his response. In accordance with their assessment of the war situation, the leaders of government must propose what level, manner, and speed of mobilization are needed. To exact the necessary effort, they must explain and justify, and perhaps even "oversee," the instrumental requirements of victory. Through skillful information, government may be able to prevent a relaxa­ tion of effort in the face of military reverses or, for that matter, military success. Especially at the outset of war, great efforts may be required in order to make the nation face unpleasant facts, if it is addicted to a wishful underestimate of the war effort ahead. In addition to merely imparting information about the facts of war, governments can boost the individual's identification with the nation and its leaders. Before the First World War, for ex­ ample, Kaiser Wilhelm II of Germany had publicly referred to the Social Democrats as "those fellows without a fatherland who are not worthy of being called Germans." On the first day of war in 1914, he declared: "I no longer know any parties, I know only Germans." Thus, government can stress unifying, and play down divisive, symbols and issues. During the Second World War, Propaganda Minister Goebbels noted in his diary that "the Ger­ man people must remain convinced—as indeed the facts war­ rant—that this war strikes at their very lives and their national possibilities of development. . . ."2 Governments, in other words, may persuade the nation that the interests of all are in basic agree­ ment with each other and with a resolute war effort. Government is also in a position to clarify the community obligations of the individual in a wartime emergency, for these obligations may be only vaguely defined by prevalent values and dispositions. These functions of leadership are of obvious importance, for failure in this area may be fatal. To take Germany again as an example, after the first flush of martial enthusiasm, it became increasingly clear that the masses of the population did not think 2Louis P. Lochner (ed.), The Goebbels Diaries, New York, Doubleday, 1948, p. 147.

GOVERNMENT AND WAR EFFORT

the war aims of Imperial Germany worthy of the sacrifices which the First World War exacted. During the Second World War, Hitler became increasingly preoccupied with the military prob­ lem and failed to give persistent leadership on the home front. Though deeply devoted to Hitler, Goebbels refers repeatedly to this curious lack of leadership in the Fuhrerstaat. "Our problem today is not the people but the leadership." "We are living in a leadership crisis." "We are without a governing hand at home."3 During the Second World War, the Italian war effort no doubt suffered because a great many Italian people refused to embrace the values cherished by the Fascist elite. The government can also affect the selected goal of individuals by bargaining with interest groups. It may secure their consent to certain deprivations placed on their members in exchange for agreed limits to such sacrifices, or for an assurance to tolerate, or even to promote, other interests of the groups concerned. The opportunity for such bargaining depends on the par­ ticular situation, i.e., on the relative strength of different organi­ zations, the importance of their members to the war effort, and on the degree of their identification with government leaders and their war policy. Where the main pressure groups have approxi­ mately equal bargaining power, the government may be obliged to barter roughly equal sacrifices for roughly equal concessions. In these circumstances—which prevailed in the United States during the Second World War—the government can increase the war effort by leaving unimpaired the long-run power of the large interest groups, such as "big business" and 'labor," by not favor­ ing one over the others, and by opposing the attempt by any one of them to seek long-term advantages. In the United States, this issue became acute with the estab­ lishment of the War Resources Board in August 1939. Its com­ position was heavily weighted in favor of representatives from 'Taig business," and it approved a report recommending that the President entrust the management of war production to patriotic businessmen and intimated that certain New Deal reforms should be repealed. The Board was immediately attacked by spokesmen from agricultural interests and labor unions, and branded by Sec­ retary of the Interior Ickes as the plan of an "oligarchy" composed 3

Ibid., pp. 269, 326, 396.

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of men "holding no mandate from the people."4 Indeed, the period preceding Pearl Harbor was marked by a continuous and bitter struggle for a proper share in the control of the national defense program between labor and industry, labor and agricul­ ture, dollar-a-year men and New Deal administrators, military and civilian leaders, Democrats and Republicans. President Roose­ velt's sensitivity to this problem explains both the rapid succes­ sion of war agencies, permitting the balance of forces to be re­ shuffled, and his reluctance to hand over control to one top war administrator.5 On the other hand, the bargaining situation may be such that the war effort can be boosted by giving substantial concessions to a particular class or group which feels keenly that its particu­ lar interests have been slighted in the past and which will agree to full cooperation in exchange for long-run improvements in its position. Thus, during both world wars, the British working class received important concessions to its interests. In general, the sacrifices inherent in modern war are on such a scale that an equitable distribution of the burden is incumbent on any government bent on maximizing the war effort. If any special group refuses to shoulder its share, the deprivations in­ flicted on all others obviously increase, no matter whether the level of mobilization is high or low. In the United States and Britain, public sensitivity to profiteering and pressure for sharp excess profit taxes (in Britain raised to 100 per cent in 1940) were indicative of this concern.® It manifests itself acutely in the matter of the rationing of consumers' goods, harshness being far more bearable than unfairness. Solidarity is in part predicated on a fair distribution of hardships, and morale begins to soften when people realize that others are carrying a lighter burden than they are themselves.7 4 Robert H. Connery, The Navy and the Industrial Mobilization in World War II, Princeton, N.J., Princeton University Press, 1951, pp. 48-50. 6 Blair Moody, "The Politics of Domestic Strategy," in Ray F. Harvey, et al., The Politics of This War, New York, Harper, 1943, pp. 43-48; US Bureau of the Budget, The United States at War, Washington, D.C., 1946, p. 51. eConnery, op.cit., p. 291; W. K. Hancock and Μ. M. Gowing, British War Economy, London, HMSO, 1949, p. 163. 7 US Strategic Bombing Survey, The Effects of Strategic Bombing on German Morale, Washington, D.C., May 1947, i, p. 17; US Strategic Bombing Survey, The Effects of Strategic Bombing on Japanese Morale, Washington, D.C., June 1947, p. 27.

GOVERNMENT AND WAR EFFORT

How much a government will want to strengthen the war effort by means of information, persuasion, and bargaining will depend on the goals of its leaders and, of course, on their conception of the prevailing attitudes |in the nation, which may be more or less favorable to the desired level, manner, and speed of mobilization. How well a governmenj: uses these devices depends on the skill and power of its leaders. Sometimes, a leader is able to create intensive dedication to a united effort by the mere fact of charismatic authority, springing from unquestioned emotional response rather than hard-headed consensus. Some element of charismatic leadership is often pres­ ent, especially in wartime, even where government is ordinarily based on the democratic consent of the governed. The personal genius of Lloyd George and Winston Churchill during the last two world wars functioned in part through this ability to com­ mand devotion. In geneJral, however, the power of leadership is founded on the degree to which the nation—among its parts and with the government—is agreed on its most cherished interests. Where such basic consensus is strong in peacetime, and where government leaders have a reputation for pursuing these interests with efficiency, they are able to exercise a substantial power of appeal. Because the need to cdpe with a crisis demands vigorous lead­ ership, it is usual for the power of government to be increased in time of war. The reins of government can then be tightened pre­ cisely because war activates value patterns which reinforce indi­ vidual and group identification with the nation, and because individuals and groups realize that a rarely occurring exigency like war creates situations and requires actions which ordinary citizens are not as well prepared to define and organize as they are the ever-recurring andl familiar problems and tasks of peace. No matter how powerful the leaders of a government, their control over society is al|ways in some measure reciprocal and hence restricted. No mattpr how skillful and respected they are, their ability to manipulate the level, speed, and manner of mo­ bilization is limited. The basic goal striving of individuals and groups is the raw material, as it were, which the power, skill, and prestige of leaders can transform into more military power than would be forthcoming spontaneously. If government leaders ask

THE WILL TO FIGHT

for too much, if they assign to personal security, comfort, and safety too low a value, identification with the nation's leaders and war issues is weakened, and the demands of government may be rejected by active or, where this is not feasible, by passive re­ sistance. At best, obedience will then be no more than formal and grudging; at worst, there will be apathy. In adapting military means to military ends, government lead­ ers must continuously face the problem that, whatever the moti­ vation for war which individuals and groups display at the outset —when the basic decision to fight or not to fight is made—those in­ dividuals and groups must still come to terms with the many spe­ cific deprivations to which they will be subjected at a later date. Initially, individuals may favor an exacting level of mobiliza­ tion. The enthusiasm with which an initial general commitment may be undertaken is shown by the readiness with which legis­ lators appropriate huge funds for the prosecution of a war. In one instance, the United States House of Representatives passed in 1943 a naval appropriation bill for $32 billion, without debate and without a single question from the floor, in twenty minutes.8 It is clear, however, that people may make rash choices based on untested preferences. The bill is presented to them later, in the form of personal deprivation, piecemeal and over a long period of time. The individual will find his desire for self-direction im­ paired in numerous and sometimes unexpected ways. He may be drafted into the armed services, his peacetime job may disappear, his right to strike be suspended, his consumption seriously cur­ tailed, and his leisure time reduced. Although he supports a high scale of commitment for the nation as a whole, he may balk at the specific ways in which he himself is asked to honor the com­ mitment. Furthermore, the individual may agree on the basic end and yet disagree on the means, especially when he finds his private deci­ sions subjected to unaccustomed and onerous control. Through the government, the nation has a choice when it comes to fixing the many intermediate or instrumental objectives by means of which the war effort must take shape. Should labor be drafted for particular jobs, or should indirect incentives be used? Should 8

Connery, op.cit., p. 293.

GOVERNMENT AND WAR EFFORT

farmers be told exactly what to grow, or should they be left to respond to price incentives? How much should taxes be raised? Which standards should regulate induction into the armed forces or the rationing of consumers' goods? To what extent, and in which way, should recreational activities be curtailed? Concern­ ing all these questions, the individual may have personal prefer­ ences, which may be in opposition to the decisions of govern­ ment leaders. Indeed, the government's and the public's knowledge of the present, and their ability to forecast, are so limited that the ra­ tional adaptation of means to ends is far from a simple matter. Even if all citizens were agreed to do everything to ensure vic­ tory, there would still remain the problem of stating the require­ ments of victory in terms of so and so many divisions, airplanes, and ships, such and such a percentage of the gross national prod­ uct, or just so many casualties. Few particular figures and policies are demonstrably right or necessary. The government's plans are not "facts" but contingent predictions of the future course of events. They contain a great deal of guesswork, thus making it easy for the individual to disagree and to resent specific depriva­ tions which he is asked to undergo, but which he does not think essential to win the war.9 To make matters more difficult, a lengthy time lag usually in­ tervenes before a decision to mobilize resources comes to fruition in the form of ready combat power. Throughout the war, there­ fore, planning decisions must be made ahead, often far ahead, of the actual allocations of resources; they call for forecasts of what is militarily necessary and politically feasible in the more or less remote future. Confronted, on the one hand, with precarious estimates of minimum military needs, government leaders may want an additional margin of mobilization to hedge against the risk of miscalculation. Faced, on the other hand, with public re­ luctance to accept more than is absolutely indispensable, they may wish to minimize the risk of earning public disfavor by err­ ing on the side of undermobilization. Thus, it may be one thing for individuals and groups to accept the over-all goal and quite 9 Samuel A. StoufFer et al., The American Soldier: Adjustment During Army 1 Life, Princeton, N.J., Princeton University Press, 1949, i, pp. 430, 452.

THE WILL TO FIGHT

another for them to accept instrumental policies. Disagreement on means may in fact lessen the attractiveness of the over-all objective and the solidarity required to achieve it. Next to boosting the prevailing motivation for war, the sensitivity and skill with which government leaders gauge the public readiness to bear sacrifices in relation to specific hardships figure as impor­ tant elements in a nation's capacity for conducting war. Equally important is the skill with which government leaders settle on mobilization policies that will obtain the utmost war effort from individuals whose motivation for war is limited and who go on pursuing private goals that are at odds with a high level of mobilization. Evidence of such limited commitments to the war effort can be found in the history of all wars. During the Second World War, for instance, the large majority of American workers, businessmen, farmers, politicians, civil servants, and soldiers were obviously eager for their country to win the war. Yet none of these groups was ready to make more than a limited personal commitment to the war effort. With a sellers' market for labor, workers were reluctant to stay in unpleasant jobs, such as foundry work and lumbering, and acute labor shortages devel­ oped in these industries. Any thought of industrial conscription was deeply repugnant to labor and industry. At the beginning of mobilization, businessmen were reluctant to shift to defense pro­ duction, for they did not want to leave normal markets to their competitors. The government faced widespread resistance when it came to the problem of containing inflation. Congress was re­ luctant to raise taxes as much as the administration demanded. Various people and pressure groups favored higher taxes, but only for others, not for themselves. Farmers opposed ceilings on farm prices, and workers ceilings on wages. But the farm bloc approved of wage controls, and labor unions of price ceilings on farm products. Many Congressmen exerted influence to divert a satisfactory share of war contracts to their constituencies. While "big business" wanted to win the war, some of its representatives also continued to fight "big government" and "big labor." The War Production Board was subject to numerous clashes between the viewpoints of industry and labor representatives. In Wash­ ington, the "in-fighting" for personal and group power continued

GOVERNMENT AND WAR EFFORT

among the big bureaucrats.10 In most cases, such pursuit of special interests was rationalized as necessary to winning the war. American soldiers, too, exhibited a limited personal commit­ ment. Before long, a great many of them began to talk of "having done their share," a phrase connoting not only that there should be limits to personal sacrifice but also that these limits had been reached. It implied that "the desire to be safe, or to be home, or to be free to pursue civilian concerns, was stronger than any motivation to make a further personal contribution to winning the war."11 The very weighing and measuring of their contribu­ tion by individuals testify to the grudging of further sacrifice. High as the desire to win the war ranked as a motivation for social action, the war revealed a large and irregular gap between that desire and what Americans were willing to accept as necessi­ ties justifying personal sacrifices. There was a sharp conflict in dominant motivations "between (1) the general desire to win the war, to hasten its conclusion, and to minimize the attendant toll in human suffering . . . and (2) the persistent effort of each sec­ tion of the population to maximize its own wartime prosperity, comfort, and independence and to safeguard itself against post­ war threats to its continued well-being."12 These references to United States experience, made for pur­ poses of illustration, do not imply, of course, that Americans are incapable of a stronger motivation for war than they displayed during the Second World War, provided they recognize the ne­ cessity for larger efforts. The point is rather that, in varying de10 Bruce Catton, The War Lords of Washington, New York, Harcourt, Brace, 1948, pp. 180-85; Lester V. Chandler, Inflation in the United States, 1940-1948, New York, Harper, 1951, pp. 117-18; Ralph Hendershot, "The Politics of Big Business," in Harvey, et al., The Politics of This War, pp. 117-18; Eliot Janeway, The Struggle for Survival, New Haven, Conn., Yale University Press, 1951, pp. 234, 246-47; Bureau of the Budget, The United States at War, pp. 76, 241-73; US Civilian Production Administration, Industrial Mobilization for War: History of the War Production Board and Predecessor Agencies, 1940-1945, i, Washington, D.C., 1947, pp. 152-54, 161, 234, 255. (Since Professor James W. Fesler was the chief editor of the last-named book, it will henceforth be cited as Fesler, ed., Industrial Mobilization for War.) 11 StoufiFer, et al., op.cit., i, pp. 449-51. Of soldiers interviewed in 1945, when they were fairly well agreed that there was a long, hard struggle ahead, 46 per cent felt Aat they had done their share and should be discharged; another 36 per cent felt that they had done their share but were ready to do more. Ibid., p. 158. 12 Bela Gold, Wartime Economic Planning in Agriculture, New York, Columbia University Press, 1949, pp. 488-89, 493.

THE WILL TO FIGHT

grees, individuals may be prepared to make personal sacrifices while continuing to seek private advantages which can be secured only at the cost of diminishing mobilization. This problem, inci­ dentally, also presented itself in Britain, Germany, and Japan during the Second World War.13 Given the fact of limited personal commitment to the war ef­ fort, government leaders must adapt mobilization policies to this situation. By making concessions regarding hardships which some groups are reluctant to bear, government leaders may be able to maintain the motivation for war of such groups at a generally higher level than could be sustained in the face of excessive de­ mands. Neither in Britain nor in the United States was there ever, during the last world war, a technically efficient direction of man­ power, even when labor shortages were the main drag on an ex­ pansion of war production. But it is probable that the indirect, inconsistent, haphazard methods used for distributing manpower yielded a larger war effort than could have been accomplished by measures which, though technically superior, were unacceptable to labor. Paradoxical as it sounds, the quantity of resources avail­ able to the war effort may be boosted by a judicious yielding to consumers' demands. The administration of the war effort may be made more efficient by tolerating an inefficient use of resources at points where public preferences are highly sensitive. Instead of fighting the continued insistence of interest groups on demands in conflict with mobilization objectives, a skillful government will harness such goal-seeking and, by manipulating wage and price incentives and other indirect controls, turn it in a direction favoring the war effort. If workers cannot be ordered to take jobs they do not want, or farmers to grow less of one crop and more of another, and if mere appeal to their patriotism will not effect the proper changes, government may be able to strengthen the special wartime inclination of workers and farm­ ers, who also want the war won, by setting up a structure of in­ centives of the kind to which they are sensitive in peacetime. Thus, although most government activity in directing the na­ tion's war effort is of a technical and administrative type, and 18 Cf. Bureau of the Budget, The United States at War, p. 518; US Strategic Bombing Survey, The Effects of Strategic Bombing on the German War Economy, Washington, D.C., October 31, 1945, p. 24.

GOVERNMENT AND WAR EFFORT

although these activities receive primary, and often exclusive, attention when the war effort of nations comes under study, the vital essence of governmental performance is in political leader­ ship. Helping the nation to orient itself to the war, clarifying the involvement and obligations of citizens, bargaining with individ­ uals and interest groups, calculating the course of action most likely to maximize the war effort—these are essentially political tasks. To be sure, mobilization in all its myriad details must be planned and administered by experts, technicians, and adminis­ trators, and the administrative capacity of the nation is a major determinant of its military prowess. Yet the plans which the technicians draw up and the complex of policies which they ad­ minister are apt to frustrate the goal striving of individuals and groups insistently and at numerous points. Direct responsibility for the actions of administrators and technicians must devolve, therefore, on the politician who ultimately makes the top admin­ istrative decisions. He makes them not by formulating plans but by backing the plans formulated by technicians. This was, for example, one of the points at issue in the con­ troversy between Bernard Baruch, who was always concerned with the administrative issues of mobilization, and President Roosevelt, who was preoccupied with its political problems.14 When the President made James Byrnes Director of War Mobili­ zation and established him in his own office, he finally entrusted an experienced politician with the top job of coordinating the war effort of the United States. At this high level, ". . . policy de­ cisions and coordination are the very essence of politics."15 Only the political leader can commit the nation to the policies which the administrators and technicians need in order to do their part of the job. War Potential and Form of Government The foregoing analysis is applicable to all modern political communities, no matter whether their form of government is of the democratic, authoritarian, or totalitarian type. Since the chap14 Janeway,

op.cit., pp. 185-87. Herman M. Somers, Presidential Agency: The Office of War Mobilization and Reconversion, Cambridge, Mass., Harvard University Press, 1950, p. 231. 15

THE WILL TO FIGHT

ter has so far focused on the problem as it presents itself in demo­ cratic states, we shall next discuss special applications to the authoritarian and totalitarian types. In an authoritarian country—unlike the totalitarian—tradition, customs, and possibly law limit the hierarchical authority wielded by monarch, dictator, ruling clique, or aristocracy. Compared with democratic societies, the masses of the population have less influence over government policy and are expected to obey the decisions made by their autocratic ruler or rulers. Whether this difference tends to increase or lower motivation for war will de­ pend, aside from the degree of unity among the elite, on the goals and preferences of the people. If obedience is firmly rooted in their personal goal estimates or if individuals are persuaded that the purpose of any particular war is as important to their own goal achievement as to that of their government leaders, then there is clearly no reason why such a society should be incapable of a high level of mobilization. On the other hand, should large sections of the population be discontented with their status and find competent leaders behind whom to rally, loyalty and obedi­ ence will become shaky and very slowly or quickly fade under the strains and stresses of war, especially when the disaffected groups or masses recognize no stake in the war aims of their over­ lords. During the First World War, such conditions prevailed in the Austro-Hungarian monarchy and the Russian empire. But where, as in Japan, during the Second World War, the masses remain loyal and obedient to their rulers, wartime morale and obedience may be of the highest. In totalitarian countries also, level, manner, and speed of mo­ bilization and the stamina of the people to outface the depriva­ tions and hazards of war are determined ultimately by the moti­ vation of individuals—at the top, in the middle ranks, and at the bottom of the hierarchical structure. As in authoritarian states, influence on the making of decisions is less evenly shared than in democratic communities. But there are notable differences in the circumstances under which the goal striving of individuals and groups affects the war effort. To begin with, in modem totalitarian countries, mobilization does not conflict, or conflicts less, with the pursuit of various spe­ cific private interests than in democratic societies, for the pursuit

GOVERNMENT AND WAR EFFORT

of such private interests is in totalitarian countries prohibited or sharply restricted even in time of peace. The area of permissive­ ness granted to many kinds of private goal achievements is normally smaller than in democratic communities. Instead of granting considerable freedom for self-direction, rulers in the totalitarian state reach searchingly into the life of individuals and subject it to severe discipline. In the USSR, freedom in per­ sonal goal-seeking is considered "petty bourgeois."16 Even to the extent that war brings further encroachment on personal free­ doms, citizens in totalitarian countries are accustomed to see the areas of private permissiveness expand or contract with capricious suddenness.17 Furthermore, in the Soviet Union and Nazi Ger­ many, the proportion of the national income devoted to defense and investment together was far higher in the late 1930's than in the democratic countries, and was in fact so high that consump­ tion could not be lowered a great deal when war came. War nevertheless exacted new sacrifices of personal values. It did so in the form of threats and destruction to life and prop­ erty, and increased military service and family separation. In many other respects, the life of the German and Russian civilians in 1943 and 1944 was a far cry from what it had been in 1938. Although consumption levels in the USSR had been low before the war, they were cut further during the war; the work week, long before, was lengthened; and the freedom to choose employ­ ment, normally very limited, became even more restricted. There are differences also in the conditions governing the indi­ vidual's identification with the nation's leaders and with their war policy. If totalitarian propaganda were highly successful in terms of its objectives, it would engender an intense spontaneous identification of the individual with his official leaders and their war effort, for it is the purpose of this propaganda to make this identity absolute, and to inculcate the unquestioned conviction that the interests of the individual coincide fully and at all times with those of his leaders. Monopolizing all channels of mass com­ munication, totalitarian propaganda does not so much help the individual to relate himself to government and war effort as im16 Cf. Barrington Moore, Terror and Progress: USSR, Cambridge, Mass., Harvard University Press, 1954, p. 206. " Ibid., p. 157.

THE WILL TO FIGHT

plant in his mind the one and only picture of the war situation which the rulers think suitable. Its purpose is not so much to persuade people to exercise choice in a suggested manner as to foreclose all choice; to organize the motivation of individuals in a rigid and mechanical pattern; or—as one writer has put it—to destroy individuality itself.18 In Nazi Germany and Soviet Russia, official indoctrination has no doubt been an effective instrument of power in the hands of the leaders and, to that extent, an intense motivation for war rested on the conviction of most individuals that they were fight­ ing ultimately for their own interests. Both systems rested in large part—and the Soviet system still does—on the loyalty of their subjects; for no regime could display as much wartime strength as these did on the basis of terror and repression alone. There were elements in their official ideologies attractive to large sections of the population. To some extent, however, wartime loyalty was rooted in traditional values of patriotism and in hatred and fear inspired by the enemy. Even if disaffected citizens de­ spised the regime, they often took pride in its military achieve­ ments, and patriotic attachment to the homeland caused them to support the government.19 It is clear, however, that totalitarian propaganda has so far failed everywhere to achieve complete success. It has not suc­ ceeded in crushing the unique identity of the individual, nor has it instilled in the masses a sense of identification with the leaders so solid that it can withstand all tests. Its method is the wide­ spread use of terror, to which democratic societies do not resort. Totalitarian rulers thus rely to a far greater extent than demo­ cratic leaders on enforced solidarity. Moreover, compulsory con­ formity rests less on the informal controls operating in demo­ cratic communities than on legal and police power. Repressive control is inherent even in official information, for it tolerates no sources but its own. Yet terror and repression need not be ineffective in compelling wartime sacrifices from disaffected individuals. Totalitarian rule 18Hannah Arendt, The Origins of Totalitarianism, New York, Harcourt, Brace, 1951, p. 426. 19 Cf. Merle Fainsod, How Russia Is Ruled, Cambridge, Mass., Harvard Univer­ sity Press, 1953, pp. 452, 497.

GOVERNMENT AND WAR EFFORT

may have considerable tensions and weaknesses of its own,20 but the desire to escape punishment may provide a powerful motive to accept deprivation in time of war or of peace. So long as terror cannot be escaped, the performance of the masses may remain substantially unaffected despite smouldering resentments, cyni­ cism, and personal insecurity. The totalitarian system is designed, after all, to function with a measure of efficiency in the face of widespread discontent.21 Finally, it remains to be acknowledged that the political ma­ chinery of the totalitarian state is formally an effective instru­ ment through which the decisions of a small ruling group may be translated into the coordinated activities of the masses.22 It is a system of government which, as regards the complex and inte­ grated interference of government in the life of citizens, and the relative centralization of decision-making, democratic communi­ ties emulate to some extent in time of large-scale war. Here is again a problem of conversion, and its costs, which looms larger in liberal and democratic than in totalitarian countries. Yet totalitarian countries tend to have weaknesses of their own which may be a Hability in time of war. In the Soviet Union, for example, totalitarian rule instills a fear of taking the initiative in many tasks and an escape from assuming personal responsibility on the part of many bureaucrats as well as soldiers, workers, and farmers. The suppression of open political rivalry, and hence of public criticism, may be costly in terms of official errors, and the more prone a government is to policy errors, the more must mili­ tary, political, and economic strength suffer. The mere existence of a highly centralized administration does not guarantee efficient government. German wartime government, for instance, showed greater deficiencies than administration in Britain or the United States. To the extent that terror is exercised for enforcing de­ sirable behavior, mere obedience may shade off into apathy, and apathy may diminish the productivity of workers and officials. Popular dissatisfaction may suddenly reveal itself in the wake of military reverses, as was evident in the Ukraine when the Ger­ man armies occupied the region in 1941 and 1942. 20

Cf. ibid., chs. 15-17; Moore, op.cit., pp. 175-77. W. Rostow, The Dynamics of Soviet Society, New York, W. W. Norton, 1953, p. 174. 22 Cf. Moore, op.cit., p. 185. 21 W.

THE WILL TO FIGHT

There is no valid reason for supposing that democratic com­ munities are unable to muster the intense devotion to military enterprise which national survival in total war may require, or that totalitarian countries will always be able to do so. During the Second World War, a high motivation for war prevailed in Nazi Germany, Japan, and, after 1942, in Soviet Russia, but not in Fascist Italy or in the Soviet Union at the beginning of the war. Similarly, a high motivation for war was generated in the United Kingdom and the United States, but not in France. The mere form of government and the type of the social structure upon which these forms rest are far from decisive in determining war potential. The motivation of individuals in the mass and in government, and the influence and skill of leaders, weigh far more heavily in the balance than differences in the form of authority. Wartime virtues—such as courage and skill in battle, high eco­ nomic productivity, endurance in putting up with the severe and petty hardships of war, consensus and solidarity—are not peculiar to any particular kind of political regime. This is not to say that the type of government is a matter of indifference when it comes to estimating a nation's war potential. But the motivation of indi­ viduals is a much more important factor, and a high or low moti­ vation for war is, as history reminds us and the above analysis suggests, possible under any form of political regime. Nor can a case be made for expecting that a relatively low or high motiva­ tion for war is more likely to prevail under one kind of govern­ ment than under another.

PART III ADMINISTRATIVE CAPACITY FOR W A R

CHAPTER 6 WARTIME ADMINISTRATION

No MATTER how large the resources which a belligerent nation is able and willing to devote to war, the amount of military power produced depends also on the administrative skill with which these resources are marshaled. The administrative proficiency which a nation can command in wartime is, therefore, part of its war potential; and the greater this proficiency—motivation for war and economic capacity being equal—the larger will be the war potential of the country. This chapter defines in a general way the five main administra­ tive tasks for which wartime governments are responsible, indi­ cates the conditions under which these tasks must be discharged in different economic systems, and clarifies the kinds of decisions involved. Chapter 7, following, presents a more detailed analysis of the circumstances and problems which wartime governments encounter in allocating productive resources among different uses. Following the identification of the administrative problem, Chap­ ter 8 discusses the kinds of skills required for the efficient admin­ istration of a major war effort. The presentation in Part III by stages becomes increasingly complex. The repetition involved in this technique may bother the specialist, but it is hoped that it will be useful for the non-specialist in view of the intrinsic diffi­ culty of the subject matter. The conduct of modern war demands a prodigious administra­ tive effort, embracing the life of the nation to an extent un­ suspected before the First World War, although logistics has always played a part whenever large communities have resorted to armed contest. Up to the present century, even the econom­ ically most advanced countries were unable to mobilize more than a small fraction of their resources. Only the cumulative effects of

ADMINISTRATIVE CAPACITY FOR WAR

economic and technological progress permitted a larger propor­ tion of productive capacity to be converted into military power. Moreover, the huge quantities of munitions and military man­ power which can now be turned out are produced by economic systems so specialized and interdependent in their parts that the mobilization of economic resources in wartime is a task of im­ mense complexity. The Tasks of Administration

In the present context, "administrative capacity" means the skill with which five main tasks are performed in a country at war. First, to alleviate the scarcity of manpower and of other pro­ ductive resources caused by increased demands, it is important that the employment of resources be raised beyond the peacetime level as much as possible and as much as will add to total output; or, if this proves impossible, that any decline of employment be kept as small as feasible. This especially concerns the supply of labor, of which a large proportion will be claimed for service in the armed forces, but it holds true for capital goods and natural resources as well. While this task is mostly one of employing more domestic factors of production, it is to be noted that the total re­ sources available to the nation in wartime can also be augmented through international trade, foreign loans and gifts, and conquest. Second, the composition of the total output must be settled. Given the volume of productive resources, and hence the rate of output, it must be decided what goods and services are to be produced and in what quantities. Since, with a given quantity of resources, producing more of one commodity or service means producing less of others, this decision must be made in such a way that the aggregate goal-striving of the nation at war is satisfied to the maximum extent possible. This task concerns, for example, the allocation of productive factors between output for military use and output for civilian use. The efficiency of this decision does not depend on satisfying the maximum demands of the military sector, for this might violate the prevailing motivation for war. Rather, the allocation is perfectly efficient when no marginal shift of re­ sources from one sector to the other would increase the goal achievement of the nation. Allocation must serve the effective structure of goals in the nation.

WARTIME ADMINISTRATION

The same allocative function must be performed within the military and civilian sectors. How many planes and ships, how much munition and military manpower should be made available to the military establishment, and how much food, shelter, and transportation of various kinds to the civilian population? Further­ more, this allocation to a great variety of production purposes must be undertaken in response to continuous shifts in the pat­ terns of military and civilian demand and in the supply of re­ sources. Third, and closely interrelated with the second task, specific productive factors must be used in the most efficient combination in the production of particular goods and services. Usually, dif­ ferent production processes offer a choice of combining various kinds of labor, plant and equipment, or land in varying propor­ tions; and, in order to maximize total output—i.e., minimize real costs—it is important to settle on those processes of production that require the least input of resources per unit of output. Fourth, since waging modern war calls for a vast shifting of productive factors from serving the civilian to serving the military sector, and for marked and constant reshuffling within these sec­ tors, it is urgent that the flexibility of resource use be increased or preserved as much as feasible. The greater the fluidity of re­ source flow from one production purpose to another, the smaller will be the delay and waste of conversion, and the more will out­ put satisfy the prevailing structure of public and private demand. Fifth, as it emerges, the output of goods and services must be distributed to military and civilian consumers in a way designed to maximize satisfaction of the aggregate goals and preferences prevailing in the nation. How much of the military output should be assigned to the air force, army, or navy, and how much to different theaters of war and to various campaigns? How much food, fuel, and shelter should be diverted to different consumers? Two observations must immediately be made regarding this list of tasks. As stated, the objectives are set ultimately by the aggregate goals and preferences effective in the nation and by the skill with which political leaders manipulate them; and their scope is limited by the resources available to the nation and by the effi­ ciency of political leaders in adapting general mobilization policy to the commitments which individuals and groups are prepared

ADMINISTRATIVE CAPACITY FOR WAR

to honor. This chapter, however, is concerned less with the moti­ vation of individuals than with the major policies by which the motivation for war is translated into effective action. We are con­ cerned with the rational provision of means to given ends. The other observation is that the five tasks enumerated are ex­ actly the tasks which every national economy must discharge in time of peace as well as in war. What is to be made and how much of each product, how each product is to be made, and how the output is to be distributed are the perennial choices facing all societies. All these tasks are economic, in the sense that their pur­ pose is to maximize output from given resources. To make these choices and make them effective requires, like all rational activity, planning and control. There must be provision for reaching and executing decisions. Institutions for doing so—for making and enforcing choices—comprise an economic system. The reaching of these decisions and the exercise of control may be highly de­ centralized and their coordination left primarily to the equilibrat­ ing forces of the market, operating through powerful incentives and disincentives; they may be largely centralized in a govern­ ment bureaucracy; or an economic system may employ both types of institutions in varying blends. Ultimately, the choice of system depends on the effective goals and preferences of individuals. Actual economic systems are, of course, always more or less historically conditioned, still reflecting the choices of the past as well as those of the present. Reasons for Wartime Planning

Since each nation maintains an economic system to which its members are habituated and which usually corresponds to their basic goals and preferences (or reflects their ignorance about the choice of means appropriate to various ends), and since this sys­ tem discharges the kinds of tasks that must be performed in war and peace alike, it is logical to ask why the established modes of planning and control need to be revised in the event of war.1 The 1 An established economic system may, of course, discharge its peacetime func­ tion with scant success. In terms of maximizing goal achievement, the capitalist system, for instance, may operate efficiently in one country but not in another. The performance of the French economy compared with that of the United States during the 1930's and 1950's is a case in point. Nor can a centrally administered system be expected to work equally well in different societies. Yet, an economic

WARTIME ADMINISTRATION

sudden change from one mode to another can hardly proceed without experimentation, delay, and waste. Why, it may be asked, should a nation not rely in wartime primarily on a system of free enterprise if it operates such a system satisfactorily in time of peace? This was, indeed, the usual choice before and even during the first years of the First World War. Finance was then regarded as the chief administrative problem when war broke out, and gov­ ernments left the private-enterprise economy free to operate sub­ stantially as it had in peacetime. Decisions on production, invest­ ment, and technology remained decentralized. They continued to be made by the entrepreneur on the basis of his profit expecta­ tions. As the government needed munitions, it entered the market as a buyer, albeit a large buyer, and bid for the use of the neces­ sary resources. The imperative problem for government was to ac­ quire enough finance and perhaps acquire it in a way—i.e., through taxing and borrowing from the public—which minimized inflation. In the course of the First World War, however, it came to be recognized that modern war was more than a military and finan­ cial problem. Yet even then the full implications were realized only gradually.2 At the beginning of the Second World War, sev­ eral governments were still blind to the true dimensions of their role and acted on the assumption that "with a few controls here and there run by the industrialists, traders and trade-unionists whose interests were affected, the war could be run and won by the voluntary methods of peacetime."3 But the Second World War soon drove the lesson home. It was then acknowledged that the conversion of a national economy from one primarily serving the competing private claims of individuals and groups to one serving predominantly a supreme public purpose must be largely organ­ ized by government leaders and public servants. This acknowledgment stemmed from the discovery that the five tasks of the economic system must be performed in wartime under system that works poorly in peacetime indicates a need for reform, and this is a question beyond the concern of this study. 2 In contrast to government practice during the Second World War, for example, few governments saw any need for employing economists during the First World War. The German war department hired four economists toward the end of 1915, but their assignment was merely that of preparing the historical record of the German war economy. (Goebel, Deutsche Rohstoffwirtschaft im Weltkrieg, p. 5.) 8 "Manpower Policy," The Economist (March 7, 1942), p. 313.

ADMINISTRATIVE CAPACITY FOR WAR

circumstances very different from peacetime conditions. The war­ time demands on resources are so urgent that the increase of labor, and the concomitant diminution of leisure, cannot be left entirely to income incentives, especially when income must be taxed more severely in order to reduce claims on consumers' goods. Selection of the cheapest combination of productive factors and of the most efficient technology in individual production processes may be left largely to the managers of producing units, for it is impractica­ ble for outside agencies to make the detailed production decisions. Yet the relative shortages of many productive factors—certain types of labor and materials, for example—are Hkely to be so ex­ treme, subject to such rapid change, and so different in character from peacetime shortages that this managerial freedom must be restrained in other ways than by relative prices. At a time when the output of consumption goods will fall greatly short of peace­ time levels and equity considerations are important as a mainstay of the motivation for war, the distribution of civilian goods can hardly be left entirely to market forces and differentials in money income and wealth; and the distribution of military goods is, in any case, a responsibility of government leaders. The greatest change in conditions arises from the enormous scale and speed with which the composition of output is changed as mobilization proceeds. Alterations in the pattern of resource use take place in peacetime economies and, over time, they may be substantial, especially where rapid economic growth occurs. Com­ pared, however, with the massive and speedy conversion of an entire economy to war, these changes are very gradual; and peace­ time economic systems—while designed to accommodate these small shifts in resource allocation—are not geared to the extreme changes necessary in wartime. Aside from newly mobilized resources, all labor, materials, and capital facilities that are to be committed to the conduct of war must first be released from employment for private consumption and investment, and, to a lesser degree, from serving the civilian purposes of government. As much as half or more, and frequently all or nearly all, of certain specific resources may eventually be employed for the war purposes of the government. Simply by competing with private bids, government authorities are unlikely to get such releases on an adequate scale, with sufficient prompt-

WARTIME ADMINISTRATION

ness and of the right composition. Since there is usually a time lag between increases in income and the collection of taxes, private money demand tends to rise as government spending increases. In any event, governments cannot tax severely enough for fear of arousing public resentment or impairing productive incentives; and tax payments, in addition to savings, are unlikely to cut pri­ vate expenditures to the rate desired. Nor can the curtailment of private expenditures as a whole control private outlays on par­ ticular goods and services. It cannot compel, or compel fast enough, the surrender of extremely scarce specific resources which are indispensable to effective mobilization, particularly when the demand of private buyers is so insistent that the volume of con­ sumption falls very Httle even in response to rising prices. Sellers, furthermore, may be reluctant to lose private customers, even when government bids are higher. Once released from making private goods, productive factors must be set to work turning out public goods. Mere unemployment of factors will exert pressure in this direction. Yet, in emergency situations, the government cannot leave always or entirely to choice of the private owners of resources—whether entrepreneurs, farmers, or workers—and to the rule of market incentives when and where new employment is sought. Thus, the market mechanism may reallocate productive fac­ tors satisfactorily enough when the required adjustments are marginal and speed is not of the essence. So long as relatively few resources need to be shunted from one job to another—either be­ cause the scale of armament is small, or because plenty of un­ employed resources can be drawn upon, or both—market forces will engender the necessary shifts with great economy of effort, provided the market is abetted by proper fiscal and monetary policy and, perhaps, by direct government controls over a few extremely scarce resources. But when speed is imperative and the scale of conversion very broad, the ordinary incentives through which the market operates are unlikely to measure up to the task. In a major war effort, government authorities must regulate as best they can the size, composition, and distribution of the na­ tional product. In the war economy which then emerges, direct controls by government over prices, employment, investment, consumption, and the use of land and capital goods must assume

ADMINISTRATIVE CAPACITY FOR WAR

some of the allocative functions previously performed by marketoriented producers and consumers. Costs of Shifting from One Economic System to Another

However, where a free-enterprise system predominates in regu­ lating the working of the economy, the peacetime institutions will not be replaced entirely by public bureaucratic control. Despite its well-known defects, the market is a sensitive and, under many conditions, an efficient machinery for rationing and allocating re­ sources; and a centrally administered economy has grave defects of its own—although probably smaller than continued reliance on the market—which will be discussed below. The main drawback is indeed inherent in the very interference with freely moving prices. In a war economy dominated by government controls and repressed inflation, price and wage differences cease to express the relative scarcity of goods and services, and it becomes increas­ ingly difficult to calculate real costs and allocate resources effi­ ciently. But there is another reason, perhaps more important, why the transfer from one system to the other involves disadvantages. In a nation relying primarily on the market to render economic decisions, the social and political structure and the motivations and preferences of the population are adapted to the operation of such a system; and a sudden change to the decisions of govern­ ment bureaucrats cannot help but be confusing and wasteful. The bureaucrats are not skillful enough, and producers and consumers are not responsive enough to government controls, to permit a smooth transfer. This prospect means the possibility that the shift from market to government control will blunt the incentives that favor hard work and efficiency of effort. Indeed, before the last world war, economists in the United States were inclined to doubt that a system of comprehensive government controls, and particularly price controls, would be workable in a private-enterprise economy when converted to war.4 Their skepticism proved mistaken, although the conclusions drawn from the war experience will vary with how one defines the word "workable." 4 John K. Galbraith, A Theory of Frice Control, Cambridge, Mass., Harvard University Press, 1952, pp. 3-4.

WARTIME ADMINISTRATION

Types of Wartime Economic Systems Actually, the problem is not one of preferring either the one or the other system, but of resorting to both techniques in integrated mixtures and of varying the blend according to specific purposes and circumstances. It is possible to persuade workers, farmers, and employers by means of income incentives to do certain things and yet make their reactions fall within limits fixed by government controls. Thus, industrial entrepreneurs may be tightly controlled in the use of materials and in the nature of the product, and yet the profit motive may be exploited to encourage efficiency of pro­ duction to the extent that it remains within the area of entrepre­ neurial decisions. In other instances, one technique may be used to support the other, as when price control maintains higher prof­ its for war-important industries than for industries whose output it is desirable to contract. Depending always on the nature of the prevailing wartime goals and preferences, an economy designed to function largely in response to market signals may in wartime be more efficiently managed in some respects by market forces than by direct government regulation. Direct controls, for ex­ ample, may be more effective in rationing consumers' goods than in pulling employable people into the labor force. In the latter case, income incentives may be more successful than compulsion, because compulsion in this respect is resented as an intolerable infringement on the individual's right to self-direction; and, fur­ thermore, the government can limit its administrative burdens by relying on the inducements of the market. During the Second World War, all belligerent nations adopted a system of mixed planning and control, although the mixture differed considerably from country to country. Nowhere was the entire economy centrally administered. Even in the Soviet Union, the government connived at a spontaneous spread of private en­ terprise when, with steeply rising food prices in the "free" mar­ ket, collective farmers shifted some of their efforts from the col­ lective farms to private plots and exchanged their surpluses for the possessions of townspeople.5 Outside the USSR, the technical management of production remained largely in the hands of pri­ vate businessmen; and workers continued to be hired rather than B

Fainsod, How Russia Is Ruled, p. 453.

ADMINISTRATIVE CAPACITY FOR WAR

conscripted, although their right to choose employment was vari­ ously restricted. In short, while a tight network of government controls was flung over all war economies, a great many economic decisions were left to the discretion of individuals, even though their choices were more limited than in peacetime. And even though the price mechanism of the private market was virtually suspended, a price system existed and continued to influence the phoices of producers and consumers. Controlling prices is not the same as freezing prices. Indeed, price controls handled flexibly, with selected in­ creases of prices and wages, can become an effective instrument of economic mobilization. And so can general fiscal and monetary policy. For example, strong and persistent inflation—brought about by increases in civilian money incomes while civilians have fewer goods on which to spend money—has obvious drawbacks in wartime. It makes hoarding and civilian markets attractive and thus tends to withhold scarce supplies from the military sector of the economy. By distorting the structure of prices, it further im­ pairs the ability of planners in government or industry to use prices for measuring relative scarcities; and it engenders inequities of civilian consumption and saving by bearing down hard on those whose money incomes rise less rapidly than those of others. Fiscal policy, therefore, is a useful tool for influencing the motiva­ tion for war among individuals and groups and for limiting the economic decisions which are left to private consumers and pro­ ducers. Thus, normal incentives were permitted to operate toward increasing productive effort during the last world war. Even when compulsion was used, it was normally not substituted for, but superimposed on, positive inducement. Three conclusions can be drawn from this view of the problem. The real issue facing the leaders of wartime government is not one of suspending the market and adopting a closed system of economic decision-making and control by government authority. The very fact that an economy run by government fiat has serious weaknesses indicates that the shift in planning and control should not be pushed beyond the point at which the total war effort ceases to be facilitated and begins to suffer. Where price incen­ tives can be made to work reasonably well in a war economy, it would be foolish to forego their advantages of producing desirable

WARTIME ADMINISTRATION

responses and, by decentralizing the making of economic deci­ sions, of lightening the burden of central administration. In practice, it is difficult to discover the point at which the shift from one technique to the other should stop, or to decide on the most appropriate combination of techniques if the war effort is to be maximized through administrative competence. The problem is not one of fixing the point or of finding a combination of basic techniques for all purposes, but of approaching these choices with reference to numerous specific tasks and ever-changing circumstances. The accomplishment of this objective is ulti­ mately a matter of judgment, and it is clear that the capacity for such judgment is crucial to that administrative capacity on which the wartime strength of nations partly rests. This capacity is, of course, the capacity of individuals, and that political leaders should recruit such individuals and back their official activities is a first requisite of bringing administrative skill to bear on the war effort. The supply of such talent and the recognition and re­ spect paid to it will be greater in a nation which favors an experi­ mental approach to solving specific economic problems in peace­ time than in one which, handicapped by rigid doctrines of one kind or another, closes the door to inventiveness and imagination. Furthermore, a society which, in peacetime, applies a variety of techniques and has considerable experience with the advantages and shortcomings of government participation in the making of economic decisions is more likely to have such talent than a nation which adheres strictly to the principle of laissez-faire. Since all economically advanced countries have, in recent decades, made great strides in this direction, they are better prepared for mobiliz­ ing their economies than they were before. This is one reason why the administrative record of the Second World War was in general much better than that of the First. It should not be inferred, however, that authoritarian or so­ cialist countries enjoy in wartime a great administrative advantage over free-enterprise societies. The central administration of eco­ nomic decisions as a peacetime practice does not necessarily mean that this administration is competent in peace or war. Mobiliza­ tion in such countries will also call for substantial and rapid changes in administrative tasks. These countries have the ad­ vantage of a less abrupt transition from normal planning to war-

ADMINISTRATIVE CAPACITY FOR WAR

time mobilization than the capitalist countries must undergo. But how well the new tasks are met depends there, too, on a flexible, imaginative, and experimental approach or, to put it negatively, on the absence of bureaucratic inertia and doctrinaire rigidity. The authoritarian country may benefit from the existence of an administrative apparatus with great experience in the regulation of economic affairs, provided its administrators are flexible and capable of learning from experience. But countries which normally leave many or most economic decisions to private individuals, and which, in wartime, must greatly expand or build anew facilities for the governmental regulation of economic life, will at least not be saddled with the inertia and rigid routines of established bu­ reaucracies. The second conclusion is that there can be no such thing as the ideal war economy to which all countries should aspire in time of war. Disregarding the specific requirements of particular wars, there is, however, an ideal war economy unique for each country at each particular point in time. What are the best institutional arrangements will depend on the prevailing goals and preferences of the population and, interrelated with these, on the kind of eco­ nomic system in operation before war is precipitated. Finally, it is to be concluded that, in any event, modern na­ tions achieve mobilization for war through a vast administrative effort. The ability to plan and carry out an effective scheme of mobilization must therefore condition the amount of combat power which a nation can summon. Administrative Problems In order to gain further insight into this administrative task, and the competence required for its performance, it is necessary to clarify the kinds of administrative decisions involved and the con­ ditions under which they must be made. This will be done with reference to the five major and interrelated tasks to be discharged in any economy.® ALLEVIATION OF SCARCITY

As war brings vast, new, and insistent demands on available 6 The remainder of this chapter may well be skipped by economists or other persons familiar with the over-all problems of the government administration of a war economy.

WARTIME ADMINISTRATION

resources, it becomes of prime importance to expand the output of goods and services, or at least to arrest any contraction as much as possible. The size of the national product is the result of two factors: the quantity of productive resources employed, and their productivity. A state of war generates changes that tend to di­ minish the employment of resources as well as their productivity, although there may be some counter-tendencies, such as con­ centration on fewer manufacturing products made in large volume. Even if the manpower flowing into the armed forces and into gov­ ernment administration is treated as part of the total labor force which produces a vital service—the military effort proper—the available quantity of productive factors may shrink. Workers and other resources may be unemployed temporarily as production is converted from peacetime to wartime goods or, subsequently, as supply bottlenecks condemn resources to temporary idleness be­ cause there is a lack of complementary resources. Casualties may decimate the labor force; plant and equipment will become worn out and may not be repaired or replaced; and inventories of raw materials and reserves of foreign exchange may be depleted. Other capital resources may be destroyed by enemy action. The productivity of employed resources may likewise fall for a variety of reasons. Too many workers, and especially too much skilled personnel, may be drafted into the armed forces. Declining sup­ plies of fertilizer may reduce land fertility and the progressive de­ terioration of equipment may cause the productivity of farm and industrial labor to drop. Impoverished diets, insufficient amenities in housing, shopping, and transportation facilities, and worries about relatives may reduce labor output. Higher taxes and dimin­ ishing supplies of consumers' goods may impair the incentive of labor and management to work hard and long hours. A decreased volume of international trade will lower the efficiency of resource use. Factor productivity will also tend to fall as war-induced scarcities and clumsy government regulations interfere with the smoothly synchronized flow of materials, fuel, labor, tools, and parts that is characteristic of peacetime production; and unfamiliarity with new products and the changing specifications of munitions will interfere as well. It is these tendencies which government will strive to check and counteract. In the field of manpower, for instance, the gov-

ADMINISTRATIVE CAPACITY FOR WAR

ernment must time the conversion of the economy, and particu­ larly of individual industries and plants, with a view to minimiz­ ing "conversion unemployment." Some temporary idleness is unavoidable as enterprises are retooled and change products. But to halt the production of civilian goods prematurely is wasteful unless extremely scarce factors are involved in their manufacture. On the other hand, in capitalist countries there may be occasions when the speedy conversion of private enterprises can be en­ forced only after their normal business has been diminished or eliminated by control measures. By the regulation of the flow of materials, equipment, intermediate products, and labor as intel­ ligently as possible—and this means foreseeing and mitigating bottlenecks in the supply of resources—any decline in productivity can be kept small. Proper draft policy involves decisions on where different skills will serve the war effort best, although these de­ cisions will be limited by considerations of public attitudes con­ cerning "fairness." Unused labor reserves may be drawn into the labor force, and the working week lengthened, by compulsion or the play of incentives. Special efforts can be made to train work­ ers in scarce skills. Strikes or lockouts can be kept to a minimum and excessive labor turnover checked. Selected income incentives may be brought to bear to stimulate entrepreneurial efficiency and to induce farmers to increase food production and modify the composition of their output. Unless the nation faces a massive but short war effort, capital maintenance and new investment in waressential branches of production will maintain productivity. As these examples suggest, compulsory orders and the manipu­ lation of incentives are the principal means by which the govern­ ment can serve all these purposes. But to serve them well is obvi­ ously difficult, even though the maximization of production in wartime is facilitated by the overwhelming urgency of demand. In the first place, it requires exceedingly good information and judgment to decide whether compulsion or incentives, or a par­ ticular combination of these, will serve best in undertaking par­ ticular administrative jobs. The choices must depend on the prevailing motivation of groups and individuals and on the admin­ istrative instruments available. Secondly, although these decisions must be made with respect to each kind of problem, and even then will require modification as conditions change, or qualifica-

WARTIME ADMINISTRATION

tion in view of differences between industries and between locali­ ties, they must not, in their consequences, conflict with each other but must rather form a coordinated pattern. Controls, however, are interdependent—there is a fabric of controls—and to remove one may play havoc with the planned effect of others. Despite the diversity of circumstances, moreover, governments cannot adapt their decisions to every special case. They must keep differentia­ tion of policy from going beyond the point at which the admin­ istrative burden becomes intolerable. Administrative resources also need to be conserved. Finally, the over-all objective is not maximum production as such, but maximum production of a kind that best satisfies the goals and preferences prevailing in the nation. Output may com­ prise faulty goods, or goods produced in excess of what is de­ manded, or goods which, though not made in excess, are needed less than essential military or civilian items. Aggregative data on production are for this reason a deceptive index of output achieve­ ment in time of war. What is wanted is maximum production of a kind which is patterned in accordance with the varying and variable urgencies of civilian and military demands. Resources must not merely be used; they must be put to best use. In other words, the task of maintaining a maximum output of goods and services is interdependent with that of making this output efficient and with allocating productive factors accordingly. EFFICIENT FACTOR COMBINATION

This impression of the inescapable complexity of wartime ad­ ministration is reinforced by a brief look at some of the other eco­ nomic tasks. One of these is the efficient combination of different kinds of labor, equipment, raw materials, and techniques in the production process. Contrary to some popular conceptions, to hold costs down is as important in wartime as in time of peace. Al­ though purchase funds can be vastly expanded, every inefficient use of resources detracts from the size of output at a time when most resources are extremely short. While the myriad decisions on specific factor combinations cannot be made by government—be­ cause of their number and because of the unique elements of factor supply found in farm and factory—the government can hardly be indifferent to these decisions. This presents a problem

ADMINISTRATIVE CAPACITY FOR WAR

in socialist economies, where the effective supervision of plant management by government has encountered persistent obstacles.7 It presents a problem also in capitalist societies, although not nec­ essarily a more serious one. To be sure, machinery for such con­ trol will not exist at all, or will exist only in the most rudimentary form. On the other hand, however, the competitive market—be it nearly perfect or monopolistic competition—may have taught en­ trepreneurs the ways of efficiency and may have implanted a habit of efficiency, an alertness to efficiency considerations, which will persist even when the pressures of the market have subsided tem­ porarily. We do not know whether either form of economy has, in this respect, an a priori advantage over the other. In actual cases, it all depends primarily on how well efficiency in factor combination has been impressed, prior to war, on managers under either regime. In capitalist countries, the lessening of profit incentives may be the chief impediment to sustained efficiency. One reason for this may arise if comfortable profits can be earned without com­ mensurate effort. This may happen when military and other goods are bought under negotiated contracts rather than through com­ petitive bidding. The large financial resources at the disposal of the government give its procurement officers less incentive to press for low prices. In wartime Germany, for instance, until 1940, prices were fixed for each individual firm on the basis of its costs and, since profits were a percentage of costs, profits were greater when costs were relatively high than when they were relatively low.8 A fully competitive purchase system, however, runs counter to wartime requirements, for considerations other than priceespecially rapid delivery and quality of product—make other criteria perfectly legitimate.9 Administration therefore faces the need of applying these criteria in correct correspondence to their relative importance—which will vary from case to case—and yet of leaving entrepreneurs with as much incentive to minimize costs 7 Cf. Hans Ronimois, Social Planning and Economic Theory, Vancouver, B.C., University of British Columbia, 1950, passim; David Granick, Management of the Industrial Firm in the USSR, New York, Columbia University Press, 1954, passim. 8 Walter Eucken, "On the Theory of the Centrally Administered Economy: An Analysis of the German Experiment," Economica, N.S., xv (May 1948), p. 80. 9 John Perry Miller, Pricing of Military Procurements, New Haven, Conn., Yale University Press, 1949, pp. 83, 90-91.

WARTIME ADMINISTRATION

as possible. In the United States, the government largely ignored this problem at first and learned only gradually how to avoid put­ ting a premium on inefficiency. By 1943, price was given more emphasis in contract negotiation than before, although its place remained below the requirements of speedy delivery and the avoidance of areas of extreme labor stringency.10 In Germany after 1940, a uniform price was paid for munitions, computed in accordance with the costs of the average enterprise, and a stimulus was thus given to the improvement of production methods.11 In Great Britain, an interesting arrangement was made for the rail­ roads in 1940. They were guaranteed a minimum annual revenue of £, 40 million, which was the average net receipt for 1935-1938, and were permitted to keep any additional revenue up to £ 43.5 million, and half of any further excess up to £, 56 million.12 Incentives for efficiency are also affected by taxation, especially since popular clamor leads to high excess-profit levies in war­ time. Considerations of equity conflict with the consideration that, among several producers, greater profit is the reward for produc­ ing the same output with a lesser expenditure of productive re­ sources. There are other problems of proper factor combination. In any economy beset with factor shortages, entrepreneurs are often in­ clined to hoard scarce materials and labor, and governments must attempt to prevent this waste by persuasion or compulsion. Dur­ ing the last world war, for example, the United States govern­ ment found it difficult to enforce effective sanctions against em­ ployers who retained excess labor.13 On the other hand, the busi­ ness community was then more open to persuasion—its motivation for war was higher—than it had been during the First World War.14 FLEXIBILITY OF RESOURCE USE

The task of keeping the national economy as flexible as possible requires in general the same kind of action which is needed to maximize total output. Whether a wartime economy is responsive 10

Ibid., pp. 91-93. op.cit., p. 90. 12 Hancock and Gowing, British War Economy, p. 162. 13 Cf. Fesler (ed.), Industrial Mobilization for War, pp. 850-53. 14 Cf. Galbraith, A Theory of Trice Control, p. 13.

11 Eucken,

ADMINISTRATIVE CAPACITY FOR WAR

to changing patterns of demand and resource supply, and re­ sponsive also to government regulations, depends, on the one hand, on the structure of resources and, on the other, on the responsiveness of the people who own or control productive fac­ tors.15 Since any particular degree and kind of resilience are in large part anchored in personal attitudes, and since these attitudes do not change abruptly, adaptability in wartime rests primarily on the responsiveness of the peacetime economy. The more adapt­ able an economy is in time of peace, the more adaptable it is likely to be under the emergency conditions of war. Some national economies are more rigid in adjusting to changing conditions than are others, and it must again be assumed that this may be true of capitalist, socialist, and mixed economies, with no one type having an a priori advantage over any other.1® Yet, whatever the under­ lying resilience of the national economy, the motivation for war prevailing in a nation will no doubt affect it. Adaptation to chang­ ing conditions is often painful when it runs counter to important goals and preferences. A high motivation for war is likely to in­ crease, and a low motivation for war is likely to diminish, the un­ derlying mobility of resources. It is also clear that the administra­ tive performance of wartime governments will have a bearing on the degree of flexibility that can be sustained. DISTRIBtJTION OF OUTPUT

The task of distributing the national product comprises the dis­ tribution of products intended for both military and civilian use. The distribution of products in the military sector is largely left to the armed services, and some remarks on this subject will be made in the following chapter. When it comes to distributing the civilian products as they are produced, the concern of wartime administrators will be largely twofold, aside from considering the wish of private firms to continue to serve their peacetime cus­ tomers. The distribution of civilian goods and services influences 15

See Chapter 13. is not to deny that the form of the economic system may as such tend to affect the degree and kind of responsiveness to change. But, for want of a sufficient number of comparable cases, we do not know the differences in the performance of various general systems. Viewing the historical record, it seems plausible to assume that such differences in expected performance, if they do exist, will be small beside the differences in performance between national economies belonging to the same general category. 16 This

WARTIME ADMINISTRATION

the motivation for war and, interrelated with this, the productivity of the labor force. As civilian supplies become scarcer, the motiva­ tion for war among all but the highest-income groups can be kept from erosion in part by fairness of distribution, so that the mini­ mum wants of all can be satisfied irrespective of size of income. The need to protect the ability to work hard and long hours among the lower-income groups leads to the same considerations. A measure of monetary stability, an appropriate tax structure, se­ lective subsidies, rationing, and price controls are the chief means by which these objectives can be accomplished. Yet the implementation of such policies is not without costs and hence must take notice of, and adjust to, countervailing considera­ tions. One obvious drawback is that price control and rationing for numerous consumers' goods require large administrative re­ sources. However, the main disadvantage is that the need for stimulating individual effort by the offer of higher rewards con­ flicts with equalitarian measures. Within limits, this shortcoming will hardly offset, or come anywhere near offsetting, the benefits accruing from a fair distribution of consumers' sacrifices. Numer­ ous other rewards stimulate high productive efforts and, as pointed out above, the exercise of their potential productivity is for most individuals, and in large part, a consequence of rather stable attitudes and habits, and not entirely dependent on im­ mediate stimulus. But whatever the facts of the actual situation— and it is likely to vary between societies and between different groups within societies—a policy favoring equality of sacrifice and reward will at some point conflict with the need to sustain pro­ ductive incentive. Official awareness of this is part of an efficient distribution scheme. Conclusions

The various administrative tasks discussed in this chapter re­ quire more than anything else the exercise of judgment. To what extent should the government rely on the operation of peacetime incentives, and to what extent on wartime compulsion, for aug­ menting the nation's labor force and directing it to the most vital fields of production? Where is the point at which a progressively equalitarian distribution of essential consumers' goods will cause motivation for war to rise less than it will cause output to drop

ADMINISTRATIVE CAPACITY FOR WAR

because incentives for production and productivity are blunted? How much should cost considerations be reflected in the negotia­ tion of procurement contracts? How much will a particular ad­ ministrative technique benefit production in one way while im­ peding it in another? In making these and countless similar decisions, administrators will in most instances lack adequate in­ formation. They must feel their way and learn from experience. They must compare pros and cons which are usually incom­ mensurable. They must do some justice to the unique particulars of each problem and yet, to make administration feasible at all, devise schemes by which decisions can be made for kinds of prob­ lems. In view of continuous and often abrupt changes in the situa­ tions they face, they must be ever ready to revise their decisions. In short, there is a premium on administrators who are capable of learning quickly, communicating their experience effectively, and adapting their actions to changing events. To sharpen these tentative conclusions, it is proposed to analyze in more detail the task of allocating productive resources as it determines the composition of the national product in time of war. This task, which is closely interrelated with the others, is the one with which wartime administrators are predominantly concerned, and its performance is crucial to the success of wartime admin­ istration.

CHAPTER 7 THE ALLOCATION OF RESOURCES

To decide what is to be produced of essential military and civilian goods, and how much of each item, is the foremost task of war­ time administration, although price, wage, and materials controls amount to a large part of the job, in terms of the administrative man-hours they require. To determine the composition of the na­ tional output, not only the final commodities but also materials, fuels, and other intermediate products must be taken into con­ sideration. The bulk of administrative resources is committed to defining the purposes for which the nation's manpower and other productive resources are to be used and, by exerting various de­ grees of control over the flow of resources, to making these de­ cisions effective. In capitalist countries, these decisions are, in time of peace, left predominantly to private producers and the profit expectations they nurse in view of the available supply of resources and the pattern of effective demand. In wartime, it is primarily the government which determines the effective pattern of demand and which controls the supply of resources. To be sure, within the limits—usually very narrow—of its production and con­ trol plans, the government may leave the market free to settle the details of what consumers' goods are to be produced; and the government's control over the flow of resources is never perfect, especially in agriculture and many services. Some production and trade will escape government regulation. But in modern war, the detail left to private initiative amounts merely to filling in some of the small spaces which have been delineated by administrative fiat.

ADMINISTRATIVE CAPACITY FOR WAR

Objectives of Allocation

The allocation of productive resources or "inputs" involves choices of various outputs; and the object of choosing is to max­ imize the satisfaction of the goals and preferences effective in the nation. It is obviously untrue, despite assertions to the contrary, that allocation in wartime is designed solely to serve the nation's military end, and that satisfaction of civilian demands is necessary only to the extent that it serves the war effort. This may be an ideal to which some people believe the nation ought to aspire, but it is not a realistic statement of the allocation problem. However dominant the military objective may be in a nation at war, it is never exclusive, and is in fact usually far from exclusive. Groups and individuals will not entirely suspend their striving to satisfy all of their goals and preferences that conflict with the war aims of government leaders, although the degree of priority given to waging war will vary. Government leaders are no exception to this rule. Even when chiefly devoted to winning the war, they may let their allocation choices be influenced by other considerations, such as their prospective postwar position or the postwar capacity of the economy. They may hesitate, for example, to spend all gold and foreign exchange reserves or convert export industries to war production even when doing so would strengthen the war effort. The critical problem of allocation is to harmonize needs and resources and to proportion the national output in such a way that no other apportioning of inputs would better satisfy prevailing goals and preferences. This is the perennial economic problem of minimizing real costs. Since the total demand for output will ex­ ceed output capacity, since every use of a productive factor will be at the expense of using it for something else, since more of one product will mean less of others, the most efficient combina­ tion of products will reconcile demands on the basis of their rela­ tive urgency. Yet if optimum allocations are to be attained, rela­ tive urgencies must, as the economist puts it, be measured at the margin. In the main, the problem is not one of measuring prefer­ ences for different individual goods but of ranking alternative combinations of outputs. Decisions will have been most nearly rational when the transfer of inputs from making the last unit of

ALLOCATION OF RESOURCES

one product to making the last unit of another, or others, would not increase the aggregate satisfaction of goals and preferences. What does the economic principle imply? First, it implies an allocation of inputs that makes for proper balance in total output. Since resources are scarce in relation to demand, too much of one thing means too little of another. Once the risks of unforeseen shortages are covered, surpluses are as bad as deficits. If more military trucks are produced than can, at the time, be transported to the places of military use, resources have been employed wastefully. Something else in more urgent demand should have been produced instead. The requirement of balance means that output must be complementary. The quantity of munitions produced must be in balance with the number of men trained to use them, and the quantity of ammunition with the number of cannon and rifles. Regarding the vast flow of final and intermediate products, the allocation of productive factors must be so concerted, and so synchronized, that different outputs are appropriate to each other in all instances of dependence and joint use. Second, the allocation of inputs in their entirety must add up to no more productive resources than are actually available. If total allocation is excessive, if too large a total output is decided upon, some production goals must inevitably be frustrated. Yet the re­ sultant shortfall of output will not automatically eliminate goods which are marginally in least urgent demand. What happens then is that decisions are left to the lower echelons of the procurement services. Third, and inherent in the propositions already made, the allo­ cations of inputs must be comprehensive, no matter whether pro­ duction planning and control are left to market forces, to govern­ ment decisions, or to a mixture of both techniques. Since all out­ put decisions are interdependent, nothing should be decided in isolation. The problem of allocation is indivisible. In the follow­ ing discussion, a fair number of examples is presented in order to illustrate the intricacies of the allocation problem. Complexity of Allocative Choices

Wartime as well as peacetime production is for consumption, investment, export, and government use. For present purposes, however, it is more convenient to focus on the division of pro-

ADMINISTRATIVE CAPACITY

FOR WAR

duction between the military and civilian sectors respectively, with the large bulk of investment and of government services re­ garded as supporting the generation of military power. The crucial allocation, then, is the over-all division of aggre­ gate output and its components between the two sectors. This is not to say that the division of aggregate output is uppermost in the minds of government leaders and administrators and that al­ locations of specific goods and services are derived from an over­ all division of aggregate production. Although there may be cal­ culations on the percentage shares of the expected national output to be assigned to civilian and military purposes, the over-all di­ vision will often result from numerous decisions on specific output components. So much food, textiles, steel, and building materials will be allotted to the military, the remainder being available for civilian consumption and export. For producers' goods, in fact, the division is often difficult to trace. Some leather and gasoline supplies, for instance, may be allocated directly to military and civilian use, but part of the supply will be assigned to manufactur­ ing industry, transportation, and agriculture; and a further di­ vision of gasoline and leather supplies is implied in the manner in which the products of these and other industries are shared between the civilian and military sectors. Nevertheless, the broad allocation of output as a whole for civil­ ian and military use and the allocation of the numerous output components represent the central allocative decision, however it may come about. Primarily, this decision will result not from a singleminded regard for what the nation's war objectives require instrumentally, but from the willingness of individuals to tolerate the transfer of resources to the military sector. This willingness may spring from the play of ordinary incentives to the extent that these incentives elicit war-supporting action; or from a prevail­ ing motivation for war which induces individuals to assign lower priorities to interests that can be pursued only at the expense of the war effort, and a correspondingly higher priority to the na­ tion's military objectives. The administrative task of government is to exploit this willingness with utmost efficiency. Since waging war imposes specific sacrifices on the civilian population, it is obviously inefficient for the government to secure more resources for military use than are needed to realize the war objectives,

ALLOCATION OF RESOURCES

beyond a reasonable margin to cover risks. It is also inefficient for the government to impose sacrifices to a degree that will cause the motivation for war to decline. Both efficiency considerations arise not only in arriving at the over-all breakdown of military and civilian supplies, but also when it comes to dividing the numerous specific goods and services of which the national output is com­ prised. After productive factors have been allocated between civilian and military purposes, they must be further allocated to specific uses within the two sectors. A major problem presenting itself in the military sector is the size of the armed forces. Assuming that the total manpower available for the military sector—for manning the armed services, for producing military supplies, and for ex­ panding facilities for making military goods—is fixed at any one time, government leaders have a choice between relatively larger numbers of men under arms with a lesser quantity and quality of equipment, on the one hand, and comparatively smaller numerical forces with more and better equipment, on the other hand. A further implication of this choice is that any decision on the sec­ ond alternative will also reduce the ratio of combat personnel to total troop strength, for larger and better materiel will call for more military personnel for storage, transportation, maintenance and repair, fueling, training, etc. This is a very important issue. Were the leaders of Czarist Russia correct in putting, by 1917, 37 per cent of the male working population into the army, a number so grossly disproportionate to the size of the industrial labor force that the soldiers were condemned to fighting without adequate clothing and footwear, let alone weapons?1 In principle, it is clear that there must be an optimum point of division at which further personnel induction into the armed forces will add less to military effectiveness than the military goods which these same individuals could have produced. The point will certainly vary with the na­ ture of campaigns and theaters of war, and with the numbers and equipment of the enemy. It will also vary with the relative scarcity of manpower and industrial facilities. To stress equipment and supplies rather than sheer numbers of fighting men will be efficient where a country is, relative to its enemy, inferior in man­ power but superior in industrial skill and plant. In 1917, for ex1 Hancock

and Gowing, British War Economy, p. 25.

ADMINISTRATIVE CAPACITY FOR WAR

ample, it made obvious sense for the Germans to produce more fighting gear per soldier than did the Russians. The difficulty is in approximating the point at which efficiency of resource use is at the maximum. The annals of history show little evidence that the economic nature of the problem has been considered appro­ priately in the past. Military leaders are apt to press for the largest possible number of fighting personnel and are in an especially strong position to do so when the frontiers of their country are vulnerable to invasion or have been crossed by the enemy. More­ over, the problem is complicated by considerations of military morale. Clearly, it would have been difficult for American infantry in Korea to sustain high morale without equipment and suppliesincluding food, shelter, clothing, and recreational facilities—many times what their Chinese enemies were given. Yet, in this respect also, there must be a point at which more equipment and "standard-of-living" supplies will add less to combat power than would more soldiers. The rate of expanding the armed forces at the beginning of war presents governments with a similar problem. It is wasteful to in­ crease the number of divisions beyond the rate at which enough weapons can be provided for arming and training them or enough transport for taking them to the front. Such waste is easily en­ gendered where laws enforce the automatic general mobilization of armed manpower when war breaks out. In March 1940, for example, the labor force of French munitions industries had fal­ len by one-half from 1,235,000.2 During the First World War, the index of employment in the French textile industry fell from 100 in Jtily 1914 to 34 in August. This dearth required that skilled op­ erators be gradually pulled out of the armed forces, with the re­ sult that the index recovered substantially as the war progressed.3 Similarly, in December 1942, the War Production Board calcu­ lated that army manpower goals for the end of 1943 were, in view of the shipping shortage, about 2 million men in excess of what the army could deploy. The problem was clearly one of keeping the production of ships in line with the build-up of divisions.4 2 International

Labour Office, Labour Supply and National Defense, Montreal,

1941, p. 18. 3 Arthur Fontaine, L'Industrie frangaise pendant la guerre, Paris, Les Presses universitaires de France, 1924, pp. 301, 392. 4Fesler (ed.), Industrial Mobilization for War, p. 552.

ALLOCATION OF RESOURCES

Efficiency requires that the induction of military personnel be synchronized with the production of their equipment and facili­ ties. Another allocative problem arising in the military sector con­ cerns the division of inputs between the immediate production of military goods and investment, i.e., the production of additional output facilities which will permit larger supplies in the future. German planners discussed this problem in terms of "armament in width" versus "armament in depth."5 "Armament in width" im­ plied that a maximum of finished munitions would be produced from existing capacity; and this precluded all long-range planning and investment for increased capacity in the future. In line with his policy of Blitzkrieg, Hitler favored "armament in width." Some members of the German General Staff, fearing a prolonged war of attrition, had favored "armament in depth," that is, a broadening of the industrial base, although this would have diverted pro­ ductive resources from current munitions production. They wanted more steel and synthetic oil capacity. But to build these new facilities would have preempted steel and coal, as well as lumber and cement required to open up new coal mines, from the immediate output of finished materiel. Japan also failed to expand its industrial facilities at the beginning of the war, although its coal and steel production never exceeded one-thirteenth of the American output. After the battle of Guadalcanal in 1942, the Japanese government realized that Japan would need more out­ put, but it was too late by that time to lift industrial capacity appreciably.® On the other hand, the United States chose the opposite course. As early as June 1940, the government decided to broaden the in­ dustrial base, to expand steel-making capacity, the inventory of machine tools, shipyards, and other facilities; and it was this pro­ gram which boosted the total output of materiel to the unprece­ dented levels of 1942-43.7 During the first three years of rearma­ ment after mid-1940, the United States spent as much on the con5 SBS,

The Effects of Strategic Bombing on the German War Economy, pp. 20-21. B. Cohen, Japans Economy in War and Reconstruction, Minneapolis, University of Minnesota Press, 1949, pp. 51-56. 7Fesler (ed.), op.cit., pp. 56, 75-78. eJerome

ADMINISTRATIVE CAPACITY FOR WAR

struction of new facilities as on munitions production proper.8 Ad­ mittedly, this policy was facilitated by the slow pace at which, because of political considerations, this country could rearm be­ fore Pearl Harbor. Yet even then, there was a conflict between immediate requirements for military supplies and the desire to invest in additional output capacity. Although this kind of de­ cision confronts governments most conspicuously at the begin­ ning of mobilization, it is a problem that persists for the duration of war. The choice between better quality and larger quantity of mil­ itary goods presents another problem of the first magnitude. When productive capacity is strained to the utmost, the government should obviously compare the marginal costs of quality and its benefits with the marginal costs and benefits of increasing the quantity of troops or various types of materiel. According to ac­ cessible evidence, this consideration of economic, rather than tech­ nical, efficiency has been ignored or belittled by belligerent coun­ tries.9 Choice of models is part of this problem. For military leaders, planners, and procurement officers, it is natural to specify the best in every respect, the airplane with greatest speed, of heaviest armament, of greatest rate of dlimb, of greatest comfort and safety; the richest, tastiest, and most nutritious food; the truck of most advanced design, etc. Nor are these requests necessarily illegitimate. Safety, durability, and general excellence are desir­ able without question. Coca-cola vending machines near the front lines may boost morale, and elaborate safety gadgets will reduce accidents. A nation with abundant industrial capacity in relation to its numbers of population will rightly emphasize better equip­ ment more than one with abundant manpower but relatively scarce industrial capacity. Yet the economic problem remains one of using scarce resources to best effect; and for resources switched to the military sector, this means to best military effect. An infantry division with 160 typewriters may function more efficiently than one with only 25; but does it function appreciably 8 George A. Lincoln, et al., Economics of National Security, New York, PrenticeHall, 1950, p. 219. 9 G. Charles Hitch, "Planning Defense Production," American Economic Review (Papers and Proceedings of the American Economic Association), XL (1950), pp. 196-97.

ALLOCATION OF RESOURCES

better than one with 120? And would it not be more efficient to shift the resources absorbed in making the additional 40 type­ writers to making more radar equipment or building more ships or increasing the number of men in uniform? It is at the margins that these questions of efficiency require answers. As the German war economy was subjected to heavy bombardment during the Second World War, and various productive facilities were at least temporarily knocked out, German engineers and military person­ nel found that much of their equipment was overdesigned. When ball-bearing production slumped, they found that an excessive number of ball bearings were incorporated in many kinds of ve­ hicles and that greater economy in the use of ball bearings did not affect the performance of equipment. The Germans also found that they could produce guns without all the alloy ingredients previously specified and yet maintain their serviceability. Another part of this problem relates to the number of models. Here again, the Germans discovered that, by reducing the types of locomotives, they could produce larger numbers with, on the whole, only slightly lesser performance. They could profit from the economies of large-scale production of standardized types. Very frequent improvements in the design of weapons and other materiel pose a similar problem. Many of these improvements are indispensable, inspired as they are by experiences in combat, the performance of enemy equipment, and the advantage of having superior materiel. But frequent changes in design are also very costly. They claim scientific and engineering talent; they do not permit the full economies of war production to be exploited; they lead to production losses as plants are retooled and as managers, foremen, and workers slowly acquire familiarity with novel prod­ ucts and techniques; and they greatly increase the administrative burden, since productive forecasts, programs, and controls must be adapted to new products. Efficiency again demands that those design improvements be foregone which will raise military power less than would a larger output of military goods and services. Other decisions must be made on the kinds and quantities of military goods which should be allocated to allies. There may be no question but that the first 10,000 planes produced should go to the nation's own services. But would the war effort be increased more by adding all of the next 1,000 planes to the nation's serv-

ADMINISTRATIVE CAPACITY FOR WAR

ices than by diverting 300 or 400 or 500 to allies who are more poorly equipped with aircraft? These are only a few of the numerous allocative decisions which must be resolved in the military sector. All the many different kinds of military goods, as well as military manpower, must be allocated between the different armed services, between different theaters of war, and between training and combat purposes. The output flow of all these items must be so coordinated that none are produced in numbers appreciably in excess of what can be used upon completion. Airplanes without gasoline or pilots or airfields do not add to combat power. All components of finished items, more­ over, require the same attention to synchronizing allocation. To build 3,000 more airplanes than can be supplied with engines is likely to be wasteful once reasonable provision for stocks has been made. And the same kind of allocation problems emerge in the civilian sector of the war economy. With the bewildering variety and the sheer multiplicity of al­ locative decisions to be made by wartime government officials, the opportunity to waste precious resources is overwhelming; and any waste is necessarily at the expense of the war effort or of civilian consumption, or both. Concentrating again on the use of productive resources assigned to the military sector, although similar illustrations could be cited from the civilian sector, we note that it is obviously wasteful if the military are allowed to over-order supplies and to pile up stocks which, with due allow­ ance for insurance against risk and the expense of shipping items from one locahty to another,10 are far in excess of needs. Yet there seems to be a strong temptation for supply officers to overstate their requirements of scarce supplies and to hoard them. In 1943, for example, British supply officers pressed for large new supplies of 3.7 ct. anti-aircraft ammunition at a time when German air attacks had dwindled and existing stocks were, even at the peak 10 During World War II, when US Navy officers were questioned about large inventories of supplies on by-passed Pacific islands, while new inventories were accumulated elsewhere through shipments from the United States, they averred that this practice was more economical of transport resources than the redistribu­ tion of redundant stocks to new bases. It appears, however, that this efficiency consideration, if correct, was limited to the use of shipping space only. These officers did not take into account either the resources used in the production of new supplies at home or the personnel needed for maintaining stocks at useless locations. Connery, The Navy and the Industrial MobUization in World War II, pp. 428-29.

ALLOCATION OF RESOURCES

rate of use in the 1940 air Blitz, equivalent to fifty months' sup­ ply.11 When Mr. Struve Hensel, then General Counsel of the US Navy Department, noticed large stores of goods in the San Fran­ cisco area and in various Pacific bases in 1945, he was told by the navy's logistics officers that most of the surplus was caused by lack of coordination between the strategic planners in the Office of the Commander-in-Chief of the United States Fleet and the lo­ gistics planners in the Office of the Vice-Chief of Naval Opera­ tions. To be on the safe side, the latter inflated requirements and, since liaison between these logistics planners and the materiel bureaus was poor, the procurement officers again had to provide "adequately" for plans of which they had scant knowledge. Bulg­ ing warehouses and unbalanced stores were the inevitable result. Nor did the Navy have an adequate system of inventory control. It was not until after the war that the Navy undertook a catalogu­ ing program which is the prerequisite to such control. Indeed, the Navy did not standardize its specifications but required from manufacturers simply that a particular item do such and such a job. By the close of the war, the Navy had stocked about 3 million items, compared with 250,000 before the war, and only a part of the increase was caused by the inclusion of new equipment. Many of these items were the same motors, bolts, radio parts, etc., stocked under different trade names. This practice greatly in­ creased the size of the Navy's procurement effort, its stocks, and the space and personnel needed for storage.12 At a time when the military pressed hard for more ship production, the Office of Mobilization and Reconversion discovered that "large numbers of ships, fully loaded, waited around ports, sometimes for weeks, because of neglect or inability to unload."13 This malpractice sug­ gests a demand for new ships in excess of what theater ports could actually receive and also a demand for supplies in excess of land­ ing facilities, which were the real bottleneck in the situation. There was similar lack of coordination between, and over-ordering by, the other services. The WPB was not permitted access to detailed military data and hence could not analyze service re­ quirements with any precision. But the picture of excessive pro11 Hancock

and Gowing, British War Economy, p. 446, n. op.cit., pp. 428-29. 18 Quoted in Somers, Presidential Agency, p. 135.

12 Connery,

ADMINISTRATIVE CAPACITY FOR WAR

curement in the aggregate was clear enough. In May 1945, Mr. J. A. Krug, chairman of the WPB, wrote to Mr. Fred M. Vinson, Director of War Mobilization and Reconversion, about procure­ ment for the final assault on Japan: "We suspect also that con­ siderable duplication exists among the procurement plans of the several services. It appears that the Air, Naval and Army Groimd Forces are each developing production plans for winning the war practically single-handed. The Navy ammunition program at its present magnitude seems to contemplate providing the artillery support for all future operations as they have done in the amphibi­ ous assaults made thus far. At the same time, the Army artillery ammunition programs seem to contemplate the same thing. The bomb programs in relation to the artillery ammunition programs seem extremely large and, in fact, bomb production as at present scheduled seems entirely out of reason with all past records of tonnage dropped. The Navy and Army aircraft programs when taken together seem extremely large for the Japanese war con­ sidering the air power used in liquidating the Germans."14 And in its official history, the U.S. Bureau of the Budget summed up, as follows, its findings on the results of excessive and unbalanced ordering by the military: "At the very beginning there were failures to plan for enough, but from February 1942 on, the errors were all the other way, the tendency to overorder, to overcompute in translating from tanks to tons of steel, for example, to overestimate the need for spares and the use of ammunition, ex­ cept for foreign orders, and above all, to set completion dates ahead of real needs based on other complementary parts of the total program was almost universal. Many supply officers were caught trying to complete in 1942 end products which would have been stored for two years before they were scheduled for shipment, while the steel, textiles and valves going into them were holding up articles which turned out to be critically needed in 1943 for the African landings. In certain shipyards, steel was found which could not be put in place for 18 months, at the very time that escort vessels for combating the submarines were in immedi­ ate demand."15 Such misdirection of productive factors can be discovered in 14Quoted 15

in Fesler (ed.), Industrial Mobilization for War, p. 902. Bureau of the Budget, The United States at War, pp. 301-2.

ALLOCATION OF RESOURCES

all nations for which pertinent information is available. In Ger­ many, for example, aircraft production was continued on a large scale in 1944 even though no fuel was in sight for putting more than a small fraction to operational use.16 Despite maritime supply lines, vastly lengthened by early conquests, and progressive losses of ships, the Japanese government let the wartime construction of merchant vessels fall to the lowest level since the middle 1930's, a failure of allocation which resulted in a decisive weakness in the Japanese war effort.17 Faulty balancing in the planning of out­ put can take many forms and occur at all stages of production. A large tank program launched in Germany in 1943 failed because the flow of components was synchronized imperfectly.18 During the First World War, American materiel was manufactured in excess of shipping facilities. Freight accumulated at some ports in such quantities that the railroads were unable to penetrate to the docks and had to unload cargo in empty fields ten or twenty miles inland.19 In 1942, American locomotive plants were con­ verted to tank manufacture when locomotives were in even shorter supply than tanks, and truck factories were made to produce air­ planes to such an extent that a serious shortage of trucks de­ veloped.20 Other misallocations of resources result from the failure to halt the production of obsolete models21 or from excessive investment in the construction of new facilities. Such over-investment oc­ curred in the United States in 1942 and 1943, and endangered the accomplishment of urgent munitions objectives.22 Moreover, the program for facility expansion was itself unbalanced, since the building of new plants was often undertaken without assurance that upon completion they could be stocked with enough tools and materials.23 As illustrated above, the specific allocation of manpower within the military sector is open to similar waste. In the United States, the induction of men into the armed forces was 16

Ibid., p. 513. US Strategic Bombing Survey, The Effects of Strategic Bombing on Japan's War Economy, Washington, D.C., December 1946, p. 21. 18 Bureau of the Budget, op.cit., pp. 512-13. 19 Bernard M. Baruch, American Industry in the War, New York, Prentice-Hall, 1941, p. 465. 20 Bureau of the Budget, op.cit., pp. 113-14. 21 Fesler (ed.), Industrial Mobilization for War, p. 636. 22 Cf. ibid., p. 388. 23 pp. 386, 388, 392, 399. 17

ADMINISTRATIVE CAPACITY FOR WAR

never determined by a comprehensive manpower program, and whatever directives were eventually elaborated to meet acute shortages of skill were hampered in their operation by a highly decentralized and fairly autonomous administration through some 6,500 local draft boards, although this decentralization had some advantages of its own. Effective use of manpower would, under such circumstances, be more of a coincidence than the outcome of the deliberate weighing of choices. In some instances, the mis­ direction of resources became manifest as persons with very scarce skills had to be discharged. Thus, in 1942, the United States army furloughed several thousand miners in order to alleviate a produc­ tion crisis in the non-ferrous metal mines.24 German practice was far more inefficient. Albert Speer, the Minister of War Production, admitted after the war: "I might say that the question of labor input was the only completely unsolved problem of administration in the house which I built."25 To leave productive resources underemployed, i.e., to fail to exploit their full productive capability, is a major source of waste. Over a wide variety of military items, both Germany and Japan reached output peaks only in 1944, at rates three times and more the 1941 rate of production, and they did so, unlike the United States, without large-scale investment in new output facilities. Nor is there evidence of a marked increase in the motivation for war during those years. In Germany, for instance, the production of tanks, assault guns, and self-propelled guns rose from 1,120 in the first quarter of 1942 to 5,236 in the last quarter of 1944. The manufacture of aircraft accepted by the German air force rose from 8,295 in 1939 to 39,807 in 1944.28 The low output figures dur­ ing the early part of the war were in part the consequence of an inadequate analysis of military needs, itself an administrative failure. But the main reason for the change was that the admin­ istration of production for the military sector was completely re­ organized early in 1943 when Speer became Minister of Arma­ ments. Before then, this administration had been extraordinarily uncoordinated, haphazard, and greatly weakened by the corrupt practices of many business firms. Thereafter, procurement was 24

Ibid,., pp. 424-25. in Lincoln, et al., Economics of National Security, p. 108. 26US Strategic Bombing Survey, Over-all Report (European War), Washing­ ton, D.C., September 30, 1945, pp. 11, 66. 25 Quoted

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more coordinated, synchronized production planning was im­ proved, a system of comparative input and output analysis was introduced, corruption was diminished, and engineering teams were sent to firms of low productivity in order to raise their pro­ duction rate.27 There is no more instructive example in the annals of warfare of the importance of administrative competence in af­ fecting the military output that can be derived from given eco­ nomic resources and a given motivation for war. Finally, administration itself can be efficient or inefficient not only in terms of the skill with which mobilization is planned and controlled but also in terms of the resources, particularly person­ nel, absorbed in producing this performance. There is no reason to assume that administrative efficiency rises or falls in proportion to the number of personnel or reams of paper employed. It is often said that war and waste go together. Nowhere, either in time of peace or war, are economic decisions ever made with ut­ most efficiency. Indeed, it is probably inevitable that inefficiency and waste should increase above the peacetime performance because of the drastic changes in the circumstances under which these decisions must be made and because of unfamiliarity with the many products and many planning and control techniques that must be adopted. Wasteful allocation is unavoidable, espe­ cially at the beginning of wartime mobilization, unless mobiliza­ tion has taken place gradually prior to war. An industrial economy is a complex and delicate mechanism, and the shift from one con­ trol arrangement to another can hardly proceed without confusion and faulty decisions. This is especially true when new admin­ istrative procedures and the recruitment of suitable personnel re­ quire time for planning and implementation, and when the data essential to intelligent planning must first be collected. It is often asserted that allocating inputs in wartime is easier than in time of peace because the possible product combinations chosen by a large multiplicity of consumers is infinitely greater than the number of choices open in military strategy. This may be true when military equipment is simple and if a few strategies, or only one, can be taken as given—which is a practice of doubtful 27 For the comments of Willi Schlieker, who was put in charge of the steel in­ dustry, see Theodore H. White, Fire in the Ashes: Europe in Mid-century, New York, William Sloane Associates, 1953, pp. 176-78.

ADMINISTRATIVE CAPACITY FOR WAR

efficiency—for then all allocations should follow logically from the chosen strategy. Even on this assumption, however, it cannot be said that specific allocative decisions are simple or easy to make. Obviously, the decisions are interlocking and interdependent in their consequences. Given the immense multiplicity of allocative choices, the process is one of extreme complexity. It may be an exaggeration to say that, in any national economy, everything de­ pends on everything else if small and indirect interactions can be ignored. Yet there are always numerous decisions that must fit into an intricate and well-ordered pattern. If steel is scarce and more steel is diverted to making guns, tanks, and other fighting equipment, less is available for building ships, expanding steel mills, and producing agricultural machin­ ery, railroads, and numerous other goods and services which are also in short supply. If exports are cut in order to convert more export capacity to producing directly for the military sector, the volume of essential imports may suffer in the long run. If the production of truck tires is expanded, there may not be enough carbon black or rayon cord for their manufacture. If more butylenes are diverted to manufacturing high-octane gasoline, it may be impossible to maintain the production of synthetic rubber. If the supply of civilian garments is increased, there may not be enough materials for military tenting and tarpaulins. Clearly, the flow, over a period of time, of materials, labor, and tools must be so synchronized that bottlenecks are avoided, and this means that all related allocations must dovetail with each other. It could be argued that such waste does not change the relative military effectiveness of belligerent nations if their administrative competence is equally low. But it is not likely to be equally low, and the difference in this competence can therefore increase or reduce whatever inferiority or superiority a nation possesses on the basis of its economic capacity and its motivation for war. The factors which govern the administrative performance are therefore of serious consequence. Before these factors can be identified with reasonable precision, it is necessary to indicate the difficult conditions under which allocation choices are made in time of war. Disregarding political obstacles, which were dis­ cussed previously, we note that four conditions merit emphasis: the interdependence of a vast multitude of decisions, the need for

ALLOCATION OF RESOURCES

speed in exercising choices, the sudden changes in demand and supply conditions, and the inadequacy of forecasting. Interdependence of Decisions

The comprehensiveness of the allocative problem and the inter­ dependence of allocative decisions include the use of military means. Military strategy is itself an allocative problem. Military resources must be allocated efficiently to military purposes, i.e., military leaders must strive to obtain maximum military effective­ ness from given military inputs.28 They must always be intent on diverting military resources from points of lower to points of higher military and political return. These questions fall outside the scope of this study. However, it is necessary to consider the larger problem of the relation of military strategy to production capabilities. The mobilization of industry and of the armed services are one problem. Obviously, the size of military manpower is central to the size of wartime production. The basic military and economic decisions are closely interdependent. Production must be in line with strategy, and strategy must be in line with production possi­ bilities. Otherwise, strategy will fail for lack of military resources or war production will be starved from lack of productive factors. The nation's military and economic efforts must be appreciated and organized simultaneously. Neither can be given precedence over the other. Naturally, such interdependent and efficient plan­ ning is difficult to achieve, since military and production plans must be calculated inevitably by different sets of personnel. For practical reasons, the joint organization of military and economic efforts must begin with a tentative strategic plan, or with alterna­ tive strategic plans, designed to achieve the nation's military ob­ jectives. A military plan defines the use of specific military instru­ ments in terms of time and place. Once the military end products, implied in the plan, are set forth, it is necessary to determine the requirements of labor and other productive resources in order to produce these supplies within the strategic time schedule. As these requirements are compared with the resources available, it be­ comes possible to appraise the feasibility of the military plan. 28 Cf. E. Ronald Walker, "War Economy: The Nature of the Problem," Eco­ nomic Record, xvi (1940), pp. 3-4.

ADMINISTRATIVE CAPACITY FOR WAR

In order to join strategic planning and feasibility analysis at the earliest possible moment, it is clearly necessary that the initial military planning be speedy, tentative, and rough, for the elabora­ tion of strategic decisions, their supply requirements and eco­ nomic feasibility are operations taking a great deal of skill and time. To be sure, certain minimum requirements of military man­ power and materiel will be common to all conceivable military plans, and the planning and production of these can proceed while over-all military and economic plans are being selected, inte­ grated, and refined. It is imperative that full-blown strategic plans become settled as soon as possible, for any delay in maturing mili­ tary plans will also delay efficient economic mobilization. The United States, for example, did not translate its grand strategy for invading northern Europe into firm commitments before May 1943, and the war sector of the American economy was thus forced, for a long time, to produce in large part "for the shelf" rather than for scheduled operations.29 But it is equally wasteful for military supply schedules to be planned in great detail, only to be proved economically unfeasible. Thus, at the beginning of the Second World War, the Land Forces Committee of the British War Cabinet decided that 50 divisions, including Dominion and Indian units, should be assumed as a basis for production planning by the Ministry of Supply. Equipment for 20 divisions was fixed as a minimum for the first year and, allowing some supplies for allies, supplies for 55 divisions were to be produced within two years. Yet, when the labor requirements of this program were calculated for the metal and engineering industries, and some al­ lowance made for the needs of the other services, civilian needs, and export markets, it was discovered that the supply plan re­ quired in two years an output expansion that was three times what had been achieved in the four years of 1914-1918. Inevitably, these goals had to be cut substantially.30 Similarly, the first supply pro­ gram of the United States army after Pearl Harbor required ex­ penditures of over $62 billion in 1942 and through 1943. Major General Brehon Somervell admitted that this program was simply a "projection of existing military plans of the United States and of the United Nations translated into supply objectives without 29 Bureau 80

of the Budget, The United. States at War, p. 131. Hancock and Gowing, British War Economy, pp. 140-41.

ALLOCATION OF RESOURCES

any considerations for the practical limitations of available raw material and other industrial resources."31 The supply needs of all armed services for 1942 were estimated to require a total labor force of 70 million when only a maximum force of 60 million could be counted upon.32 There are grave disadvantages if military requirements are set above feasible levels. If there are not enough resources to produce all required supplies, then some supplies cannot and will not be produced and it may not be the least essential items, in kind or delivery date, that will make up the shortfall. Over-allocation of productive resources is inefficient allocation. It is, of course, far from easy to estimate the instrumental re­ quirements of military plans. This is particularly true at the be­ ginning of war, when there is as yet little experience with rates of attrition under battle conditions. The volume of supplies needed will also depend on the efficiency with which the armed forces distribute stocks and control inventories. Allowance must be made for supplies to fill the pipelines from factories to the battlefront, to meet emergency requirements, and to give military leaders flexibility in adapting their operational plans to changing circum­ stances. Thus, there is plenty of room for controversy over the exact setting of supply needs. Efficiency demands, however, that these allowances be realistic and that they do not overinflate re­ quirements. It is natural for military leaders to prefer erring on the side of abundance, and this makes them prone to overstate their needs and, logically enough, to minimize civilian needs. Fol­ lowing Pearl Harbor, the United States military services clearly set production goals far too high. The British Ministry of Produc­ tion computed in the fall of 1942 that the United States and the United Kingdom together were then committed to make in 1943 enough tanks to equip 200 armored divisions, plus a 100 per cent reserve of tanks for each division; and that they were also plan­ ning to produce in 1943 no fewer than 22,000 million rounds of ball ammunition, although the British armies in North Africa had expended only 200 million rounds from 1940 to 1942. Of this total, the United States was to account for 20,000 million and Britain for 2,000 million rounds.38 81Fesler 82

(ed.), Industrial Mobilization for War, p. 274. 88 Hancock and Gowing, op.cit., pp. 398-99. Ibid., p. 412.

ADMINISTRATIVE CAPACITY FOR WAR

The proclivity of military planners to propose excessive require­ ments is also illustrated by the following example. In 1945, Sec­ retary of the Navy Forrestal had considerable difficulty in con­ vincing Vice-Admiral Cooke of the United States Navy that output goals for submarines should be determined neither by the capacity of American industry to build submarines nor by the capacity of the navy to train submarine crews. Mr. Forrestal argued that both capacities could be expanded at the expense of other navy pro­ grams if additional submarines were needed, but that "require­ ments should be estimates of what could be more efficiently used in terms of the over-all strategic situation."34 Premium on Speed In addition to the complex interdependence of mobilization de­ cisions, there are other conditions which impede the efficient allo­ cation of resources. Speed in the disposition of the nation's re­ sources is obviously imperative. The faster resources are organized for war, and reorganized in adaption to changing circumstances, the better are the chances of warding off enemy threats or of seiz­ ing on military opportunities for victory. As will be shown in Chapter 13, the capacity for quick allocation and reallocation will rest in part on the mobility of productive factors. But since government officials must make most important allocative deci­ sions, speed of mobilization for war will also depend on the promptness with which these decisions are rendered and executed. Sudden Changes in Supply and Demand The problem of speed is interconnected with the problem of change in the disposition of inputs and outputs. Change means two things: a continuous stream of decisions reversing previous decisions, and the futility of much advance planning. The pre­ mium is on quick adaptation to change. Numerous and sudden changes occur incessantly in the pattern of needs for resources and in the patterns of resource supply. Needs may change in the civilian sector. They may fall in toto if the motivation for war rises, and they may rise in toto if the motivation for war declines. They may also change in structure as prolonged shortages deplete civilian inventories of semi-durable and durable consumers' goods. 84

Connery, The Navy and the Industrial Mobilization in World War II, p. 427.

ALLOCATION OF RESOURCES

But the most dramatic changes in needs originate from military considerations. Estimates of military requirements will frequently turn out to have been faulty and be in need of rapid revision. Changes in the military situation will call for frequent readjust­ ments in output and hence in the allocation of inputs. Following the fall of France in 1940, for instance, Great Britain faced a war entirely different from what it had been before. British leaders, no longer counting on extensive land warfare, foresaw a long-drawnout struggle of attrition and decided to rely mainly on the blockad­ ing and bombing of Germany. This readjustment required a huge increase in heavy and medium bombers. Single battles may have far-reaching effects on production progress. Thus, following the German break-through in the Ar­ dennes in December 1944, the American army raised its smallarms ammunition program, calling for a doubling of the current rate of output.35 The fortunes of war will always confront produc­ tion planners with fluctuating needs of numerous supply items. Commenting on the problems of the American war economy in 1944, an advanced stage in the war against Germany and Japan, the historian of the War Production Board states: "By 1944, supply lines for most military items were filled. The production job therefore became one of maintaining the flow of the great variety of munitions so that the fluctuating needs of the several developing battle fronts could be promptly and fully met. That this was no easy task is revealed by the necessity at the be­ ginning of the year of sharply accelerating production of such spe­ cific munitions items as landing craft, troop transports and combat loaded (attack cargo) ships, airborne radar, heavy trucks and tractors, construction equipment, and certain types of aircraft, especially the new long-range bombers. More important than these initial tasks was the need throughout the year to absorb sudden and very substantial shifts in military requirements, which had immediate repercussions both on production lines in war plants and on WPB's production planning and expediting. These changes in specific requirements meant adjustments all along the chain of industrial production, and necessitated swift redirecting of the Government's controls over the allocation of materials, 35

Fesler (ed.), Industrial Mobilization for War, p. 761.

ADMINISTRATIVE CAPACITY FOR WAR

scheduling of critical component deliveries, recruitment of labor, and conversion of facilities."36 Finally, as weapons are tested in battle, technological progress in design demands a high fluidity in production plans; and so do changes in the tactical concepts of warfare. On the other side, there are equally frequent and sudden changes in the supply of various resources. While most productive factors will be scarce, the degree of shortage will fluctuate over a period of time. Students of mobilization have noted that the char­ acter of input shortages tends to adhere to distinct and successive phases. Factory space and tools will tend to be particularly scarce at the beginning of a war, gradually giving way to an increasing shortage of raw materials, and ending in a general scarcity of labor. Yet, while it is very plausible that manpower will be the ultimate scarcity in industrial countries, such stages in the de­ velopment of broad categories of resources will differ for different economies; and it will be shortages of specific types of labor, ma­ terials, and equipment, changing rapidly, with one supply bottle­ neck following upon another, which will preoccupy production planners. These frequent and abrupt changes in requirements and resources, and the need to adjust to them quickly, make wartime economic planning appear, in retrospect, as a succession of epi­ sodes rather than a sequence of clearly defined phases. The ca­ pacity to master this problem is of prime importance. As an Eng­ lish observer remarked, "The power to make rapid changes in the disposition of the nation's resources was the greatest war-winning weapon of all."37 The Problem of Prediction

The operational difficulties presented by the very limited pre­ dictability of the many and incessant changes that must be ex­ pected in the future put a premium on insurance against miscalcu­ lation. It is rational for military and production planners to specify more than the minimum of supplies required for doing certain jobs. To do so does not conflict with considerations of efficiency but, on the contrary, is part of prudent conduct. There may be no se

Ibid., p. 717. E. A. G. Robinson, "The Overall Allocation of Resources," in D. N. Chester (ed.), Lessons of the British War Economy, Cambridge, Eng., Cambridge Univer­ sity Press, 1951, p. 36. 37

ALLOCATION OF RESOURCES

waste in producing airplanes and ships that will never see action or in equipping and training soldiers who will never fire a single shot if this is reasonable insurance against uncertain contingen­ cies and the failure of operation plans. However, at a time when resources are extremely scarce, such additional output is very costly, and efficiency demands that the costs of insurance be fully considered, these costs being the supplies that would have been produced instead. In conclusion, to achieve eflBcient allocation in wartime is an administrative task of infinite complexity and one beset with numerous handicaps. It is necessary to examine next the admin­ istrative resources available for its discharge.

CHAPTER 8 ADMINISTRATIVE INSTRUMENTS AND EFFICIENCY

PLANNING and programing are the means by which government

ofiBcials decide on the composition of the national output in time of war, and by which they control the flow of productive factors toward this end. However rough and fragmentary, a balance sheet of output requirements and input supplies is a prerequisite to establishing efficient plans and programs. Only in this way is it possible to check the economic feasibility of military and civil­ ian requirements. Inputs and outputs must be planned simultane­ ously for individual products, for separate industries, and for the economy as a whole. Presumably, the priorities inherent in these plans express the preference scale of government leaders, their conception of what it is most important to produce in view of military and civilian demands and in view of the available ca­ pacity to produce. Production plans must be spelled out in great detail, envisaging a synchronized flow of inputs and outputs. This is program development, by which production plans are translated into the numerous actions through which the plans are carried out. In order to control the execution of plans, government officials must allocate productive factors to specific industries and enter­ prises, and to specific uses within the production units. These spe­ cific allocations are the concrete expressions of production plans, and the synchronizing force which imparts shape to economic war effort. The Conditions of Perfect Planning The actual conditions of planning and programing can be best

ADMINISTRATIVE INSTRUMENTS

appraised when they are compared with the requirements of per­ fect planning and programing. If the planning and programing of wartime production are to approach perfection, they must yield the largest possible and the most satisfactory combination of military and civilian end-products. Chapter 7 discussed the impediments encountered in identifying and choosing the most urgent de­ mands. But any approach to perfection also clearly requires that planning and programing be a continuous operation and that it remain at all times within the limits of feasibility. Continuous long-range planning is essential if mobilization is not to drift from one crisis to another, continually calling for piece­ meal adjustments. To enjoy a maximum of command over chang­ ing events rather than to be pulled and pressed by them, policy­ makers must anticipate and meet problems before they arise. This prerequisite of efficiency is set by the length of production processes. For many manufactured articles it will be months, and for complicated products it may be well over a year or years, be­ fore planned output is actually achieved. Agricultural production is subject to the rigid periods set by nature; and investment de­ cisions on new output facilities will affect the structure of output far ahead in the future. Continuous planning, then, should satisfy the need for shaping output policy through time, and do so in continuous adaptation to changing patterns of supply and demand. Efficient mobilization also demands that the output program, in the aggregate and in its constituent parts, be feasible in terms of available resources. The tests of feasibility are four: physical, economic, administrative, and political.1 Production programs must be feasible physically in the sense that physical limitations, as in farming or lumbering, or limitations with regard to the geo­ graphic mobility of labor, or to the adaptability of industrial plants to new uses, do not foredoom a particular program. Production programs must be feasible economically in the sense of offering benefits commensurate with the costs of the productive resources committed. Production programs must be feasible administratively in that their execution does not overtax administrative capabilities. Finally, production programs must be feasible politically in that they are not at odds with the specific sacrifices which the popula­ tion is willing to take on. 1 Gold,

Wartime Economic Planning in Agriculture, p. 494.

ADMINISTRATIVE CAPACITY FOR WAR

The question of whether or not the planning and programing of wartime production should fix goals at the precise limits of feasibility is a controversial one. To set output plans at the limit of feasibility has been called "realistic planning," in contrast to "target planning," which lifts goals above these foreseen limits in order to stimulate maximum productive effort. For example, Lord Beaverbrook, the Minister of Aircraft Production in the United Kingdom, proclaimed in 1940 that aircraft programs were "goals to strive for" and should therefore be set above the assessed possibilities of production.2 However, there are grave disad­ vantages to fixing production targets above assessed feasibility, especially when this practice extends to the entire military sector of production or to the economy as a whole. What happens when military procurement of tanks, rifles, shoes, landing barges, beef, and thousands of other items place an excessive load on produc­ tive capacity was described by the US Bureau of the Budget as follows: "The producer then starts to hire workmen, get more ma­ chinery to increase his output, and to place orders for steel, wool, lumber, ball bearings, leather, oil, valves, and everything else. As these orders accumulate, they exceed the possible capacity of the suppliers of raw materials, and these start to expand, hiring more men and ordering more machinery. The machine-tool manu­ facturers and the mines in turn are in the same fix; they cannot fill their orders without expanding. And so it goes, everybody getting in the way of everybody else, until, instead of increased production, there is the threat of industrial self-strangulation in the effort to do more than is possible. In the end nobody can operate efficiently because everybody is out of something—coal, or steel, or manpower, or machinery, or cotton, or paint, or soda, or any one of the other thousand things which must be available at the right time, the right place, and in the right quantity to keep the wheels turning and goods flowing."3 In other words, the implementation of excessive production programs is likely to create a lack of balance in components, fin­ ished goods, and complementary items; it engenders excess manu­ facturing capacity here and deficit capacity there; it obstructs rational control of total production; it ends up with an output 2 8

Hancock and Gowing, British War Economy, p. 291. Bureau of the Budget, The United States at War, p. 299.

ADMINISTRATIVE INSTRUMENTS

which is unlikely to reflect the most efficient use of resources; and, by overstraining the nation's capacity to produce, it lessens the flexibility needed for adapting swiftly to changes in military de­ mands. While target planning would be useful as a spur to achievement if only one military item had to be produced in maxi­ mum quantity, it tends to be wasteful when input and output processes are extremely complex. Since actual output capacity, however, is never fully known in advance, and since target plan­ ning per se may act as an inducement to productive effort, a slight overstatement of goals may have a legitimate place in the arsenal of administrative expedients, provided the existing system of pro­ duction scheduling and controls has been perfected to the point at which lack of output balance and loss of control over the flow of resources can be avoided.4 However, this condition has not prevailed in past war efforts. Feasibility analysis may start with the availability of resources in general before proceeding to investigate the practicability of specific programs. In the United States, for instance, production planners began by appraising the munitions program for 19421943 in terms of the expected gross national product.5 By analyz­ ing the constituent elements of the gross national product and projecting annual rates of increase during the war years, it was hoped to calculate the maximum share that could be allotted to the military effort. Thus, starting with a GNP of $101.5 billion in 1941, forecasting a rise to about $120 billion in 1942, and as­ suming that 40 per cent could be diverted to the military sector, the War Production Board computed that a war production pro­ gram of about $48 billion was feasible in 1942. Helpftd as such estimates may be, planning in terms of monetary expenditures has severe limitations. Real resources must be considered if real pro­ duction possibilities are to be assessed. Only if the availability of various raw materials, of specific industrial facilities, and of the supply of labor is determined is feasibility analysis carried to a realistic level. It is useful in this respect to begin with an explora­ tion of feasibility in terms of the productive factor generally in 4

Cf. Fesler (ed.), Industrial Mobilization for War, pp. 285-86. Cf. John E. Brigante, The FeasibUity Dispute: Determination of War Produc­ tion Objectives for 1942 and 1943, Washington, D.C., Committee on Public Ad­ ministration Cases, 1950, pp. 36-39. 6

ADMINISTRATIVE CAPACITY FOR WAR

shortest supply. In 1942 and 1943, this meant, in the United States, raw materials, particularly steel, copper, and aluminum. As labor became scarcer in the United Kingdom, British planners focused increasingly on the mechanism of the manpower budget in formulating output plans. But, useful as "bottleneck planning" may be as an initial ex­ ercise, and however much it may seem to simplify the administra­ tive job, without the most careful cross-checking it also has severe limitations. Even if a general resource, such as manpower or steel, is scarcer than other resources, it will not be the only factor limit­ ing the output of numerous goods and services, for some in­ dustries use far less labor or steel than others. They may be more dependent on other factors and beset by other bottlenecks. Be­ sides, bottlenecks are apt to be interlocking; they may beget each other. A general shortage of labor may lead to a shortage of ma­ terials as workers are squeezed from mining and smelting enter­ prises; or a shortage of plants may generate a shortage of labor if new factories are to be built. Indeed, efficiency requires that the planning of production bring about an equal scarcity of all re­ sources in all employments, for it is only then that each produc­ tive factor is used with full economy. The equilibrium has been reached when, at any moment, there are no specific bottlenecks.6 Nor is a production plan necessarily feasible if the over-all supply of specific resources is sufficient to cover requirements, for this supply cannot be expected to be perfectly mobile. Even if the over-all supply of manpower were adequate, there might be shortages in specific localities; and even if the general supply of zinc were ample, hoarding by some manufacturers, or an ex­ treme scarcity of transport, might produce serious shortages in some industrial units. Bottlenecks, and their wasteful efforts, can be avoided only when supplies of all productive factors are avail­ able at the right places and times. To approach perfection, feasi­ bility analysis must be concerned with highly specific feasibilities. Obviously, adequate information is a precondition of admin­ istrative excellence. Once information can be expressed in sta­ tistical form, it becomes possible to bring large masses of informa­ tion to bear readily and conveniently on specific issues of policy. 6 Ely Devons, Planning in Practice: Essays in Aircraft Planning in War-time, Cambridge, Eng., Cambridge University Press, 1950, p. 24.

ADMINISTRATIVE INSTRUMENTS

There must be adequate information on end-item requirements, and the feasibility of requirements can be established only on the basis of statistical data on the requirements of raw materials, plant facilities, and labor for making various products, and on the supply of these productive factors in the economy as a whole and in particular industries and areas. The control of production likewise depends on adequate data. It is only on the basis of such information that production bottlenecks can be foreseen and averted, or diminished in their impact. The planning and pro­ graming of production must rest largely on the extrapolation of past trends into the future. Planning is indeed impossible without statistics, the chief language in which administrators must state their problems, choices, and decisions; and if information is in­ adequate, the shortage of statistics may represent a major bottle­ neck in wartime administration. It is also implied in the foregoing that the multifarious activi­ ties of wartime administrators must be subjected to a high degree of coordination if efficient mobilization is to be achieved. Since the waging of war must be broken into innumerable specific ac­ tions to be undertaken simultaneously or in succession, these actions can serve their purpose effectively only if they adhere to a rational pattern. This holds true of the administrative job itself. The more it is decentralized, the more the separate activities stand in need of coordination. To be sure, no nation can fight war effectively unless there is a top authority in which the power to plan and decide major issues is concentrated; and for wartime production to be organized efficiently, there must be one plan, not only a great deal of planning. Moreover, there must be top authorities and over-all plans in the different government agen­ cies that address themselves to specific problems. But highly centralized decisions and over-all plans are inevitably general. They cannot be concerned with the minutiae through which gen­ eral choices acquire specific form. No single executive is able to appreciate all the consequences that follow from a particular decision, to visualize all the actions necessary for implementing a production plan, or to weigh all the pros and cons of one choice over another. Even if all relevant information were on hand, he could not appraise simultaneously all the variables that bear on his problems. He would be bound

ADMINISTRATIVE CAPACITY FOR WAR

to delegate some of his authority to compare alternatives and make decisions. This need to delegate and decentralize is felt not only at the summit of the governmental apparatus, but also at the top of all the hierarchical structures involved in the admin­ istrative process. For example, in order to serve its purpose, the British Ministry of Aircraft Production during the Second World War found it necessary to spawn a large number of different di­ visions and subdivisions: "The main divisions in M.A.P. were research and development, production, and finance and secretarial. Each of these was further subdivided; the division in production, and research and de­ velopment, was mainly on a product basis. Thus the production section of M.A.P. was divided into six main directorates—gen­ eral, dealing with aircraft; engine and engine accessories; equip­ ment and armament; raw materials; repair; and planning, pro­ grammes, and statistics. In each of these there was a further sub­ division, again usually by product. The directorate-general of air­ craft production, for example, was divided into three director­ ates dealing with bombers, fighters and naval aircraft; each di­ rectorate being further subdivided into deputy-directorates and then assistant directorates. It was usually at the assistant-director level that the breakdown into final aircraft types—Lancaster, Mosquito, Spitfire—took place. Similarly, the 'engine and engine accessory' directorate-general was subdivided into two director­ ates, one responsible for complete engines and the other for ac­ cessories; the engine' directorate being further subdivided into deputy-directorates concerned with Bristol, Rolls Royce or Napier type engines, and so on. In general terms, the admin­ istrative organization on the research and development side was on the same lines as in production. The secretariat and finance branches were organized on different lines. The main principle of subdivision here was functional; there were separate branches for contracts, capital finance, establishment, factory construction, labour supply, etc."7 In a modern war economy, the division of responsibility be­ comes highly complex among as well as within separate admin­ istrative structures. In the United States, for instance, imports were controlled, in 1943, by the War Shipping Administration. 7

Ibid., p. 13.

ADMINISTRATIVE INSTRUMENTS

However, in administering this task, the WSA was expected to be guided by the Emergency Shipping Priorities List of the War Production Board. But the Department of State, the Board of Economic Warfare, and the War Food Administration were also involved in making import decisions; and an Interdepartmental Shipping Priorities Advisory Committee was established as a means of securing cooperation among these administrative units.8 The central dilemma of any administration, then, is inherent in the requirements that decision-making must be decentralized and that the decisions which emerge must fit into a central scheme. Delegation of responsibility means dispersal of power over de­ cision-making, and to prevent this power from being abused or used inefficiently, collaborators and subordinates must be re­ sponsive to the top authority and to over-all plans. Such control is the heart of coordination. The ways of establishing it are mani­ fold.9 One way is by direct command. Yet, it is in the nature of the problem that orders and directives can be of only limited specificity, and there are obvious limits to controlling subordinates through orders from above. Persuasion of collaborators on the same hierarchical level is subject to the same deficiency. For co­ ordination to approach perfection, it is a prerequisite that all administrative personnel share the same general understanding of objectives and conditions, and that they also share a common devotion to production goals and planning methods. Common understanding is fostered by communicating to administrators on all levels all the information which will permit them to see the larger scheme within which their own activities must be related. Consistent administration is furthered if personnel is accustomed to interpret correctly the various signals and cues which are sent out from all levels of the administrative hierarchy. Finally, co­ ordination is facilitated by the extent to which personnel is ha­ bituated to discipline its striving for personal and group interests wherever they conflict with the proper pursuit of administrative tasks. Conditions of Actual Planning These conditions of perfect wartime administration seem clear 8 Fesler

(ed.), Industrial Mobilization for War, pp. 650-51. Dahl and Lindblom, Politics, Economics and Welfare, pp. 112-17; Somers, Presidential Agency, pp. 42-45. 9 Cf.

ADMINISTRATIVE CAPACITY FOR WAR

enough in principle. However, in reality, such administration has fallen far short of perfection everywhere, largely for inescapable reasons. Information is always inadequate. The most efficient composition of output is far from easy to discover. There are for­ bidding barriers to continuous long-range planning. The feasi­ bility of production programs is difficult to determine and to en­ force, both in the aggregate and in its components. The coordina­ tion of far-flung administrative activities is always imperfect. The efficient planning of production requires a precise knowl­ edge of end-product requirements and of available resources. Yet, wartime governmental officials are grievously handicapped be­ cause their data on the economy and its parts are fragmentary and usually of poor quality. Nor are they furnished with a reliable bill of requirements, especially military requirements. It is a vital administrative task in wartime to set up an effective system for assembling pertinent information and communicating data to the points at which they are needed. Indeed, initial programing will often yield invaluable information. Yet, whatever information system emerges from this attempt, it is unavoidably deficient. Neither procurement officers nor production enterprises are equipped to supply statistics of the kind and accuracy required. Frequently, the gathering of data is treated as an inferior chore and left to personnel that is relatively inferior in rank and com­ petence. Since the assembly and processing of information take time, it is unavoidable that the output of information services limps behind events. Under these circumstances, the admin­ istrator is induced to supplement information by guesses and to make reasonable allowances for the precarious nature of both guesses and information. This adds greatly to the complication of administrative tasks. Given this complexity and the unrelenting pressure to make quick decisions, officials are strongly tempted, despite the warnings of the statisticians, to treat inaccurate fig­ ures as if they were accurate, and thus to ignore the wide mar­ gins of error in the data.10 In the selection of the most efficient allocation of productive resources—i.e., in formulating the most efficient composition of output—insuperable obstacles bar the way to applying the rule of marginalism, according to which a marginal shift of resources 10

Devons, op.cit., pp. 157-58.

ADMINISTRATIVE INSTRUMENTS

will not produce an output of greater value. The information sys­ tem simply does not produce the necessary data for doing so. With prices no longer acting as an index of relative urgencies of demand and relative scarcities of supply, the problem of rational action is not one of relating given means most efficiently to given ends, but of allocating when both ends and means are imperfectly known.11 Productive factors reserved for the military sector should no doubt be allocated with a view to maximizing military power. But who knows the precise output of goods and services which will do so? The information is so fragmentary and unre­ liable and choices are so complex that anything but the crudest maximization is clearly impracticable as a goal. No doubt the at­ tempt can and will be made to weigh alternatives in some roughand-ready, rule-of-thumb fashion. Yet, when it is impossible to quantify the costs of producing one set of things in terms of the set of things whose production was foregone, this method of choosing can be based only on rough aggregates rather than on calculations of small additions to, or subtractions from, the out­ put of each product at the margin. Moreover, the method simply cannot be applied to output as a whole.12 Steel, for example, may be needed by a great variety of producers: builders, textile mills, railways, engineering firms, repair services, shipyards, etc. De­ cisions must be made on how many tons of steel to allot to each branch of industry and to each firm. But how? Should the textile industry get 100 tons or 60 or 150? While the administrator will consider the comparative contribution which each industry can make to the war effort or civilian consumption, he will find it im­ possible to consider the value of a single ton allocated for one purpose rather than for others. Evaluation can be only in large aggregates. No concrete scheme of allocation is demonstrably compelling, for it is impossible to compare quantitatively the value of 15,000 uniforms, 5 locomotives, or 15 cannon even when only one factor of production—steel—is considered. Under these circumstances, allocations are bound to be haphazard, although the degree to which they are so is governed by the fact that new allocations are usually limited revisions of past allocations. 11 Cf. G. B. Richardson, "Imperfect Knowledge and Economic Efficiency," Oxford, Economic Papers, New Series, ν (1953), p. 136. 12 Eucken, "On the Theory of the Centrally Administered Economy," Economica, pp. 86-89.

ADMINISTRATIVE CAPACITY FOR WAR

Given the difficulty of imparting operational meaning to con­ siderations of efficiency, and hence the impossibility of demon­ strating the merits of one allocative scheme over another, allocative decisions will be influenced by the political pull of various interests—of one military service against another, of the military against the representatives of civilian interests, of one industry against another, etc. This is inevitable in the absence of sufficient information and clear criteria for judging the relative essentiality of different outputs. In formulating the British import programs in 1941, for instance, the decisions on the ratio of food and raw materials imports were not based on a critical scrutiny of require­ ments, but were "a tribute to the persuasive ability of the Min­ istry of Food compared with the Raw Materials departments."13 Political power and bargaining skill will affect the outcome and it cannot, of course, be assumed that the political equilibrium of the moment will produce economic equilibrium. Since wartime allocation decisions will be more or less hap­ hazard, the scheduling of production quarter by quarter, and week by week, must be made to suffer in proper balance. The system of priorities embedded in those schedules will not fit the supply of resources on hand. Bottlenecks will upset orderly pro­ duction and threaten the completion of complementary programs. Information is too scanty to permit the discovery of realistic out­ put scheduling except by trial and error. Moreover, the very delay in the formulation of plans must tend to make them out of date by the time they are applied.14 Beset by the inevitable paucity of data and the absence of oper­ ational criteria for allocating efficiently, and under pressure to act with dispatch, administrators will resort to bottleneck plan­ ning even though this focus on the scarcest productive factor im­ plies a de-emphasis on the complex interdependence of all factors in allocation choices and production processes. Given these con­ ditions, the planning and programing of output will be far from an exact science. Although the administrator may be assisted by more or less dependable estimates and analyses, and by a growing sense of realism gained through experience, ultimately he must rely on judgment. 13 Hancock 14 Devons,

and Gowing, British War Economy, p. 267. op.cit., pp. 106-8.

ADMINISTRATIVE INSTRUMENTS

While long-range planning is desirable for the purpose of fore­ seeing production bottlenecks and creating new productive ca­ pacity to meet increasing demands, lack of reliable data, the pres­ sure of immediate tasks, and the difficulty, if not impossibility, of forecasting all the events that must affect production requirements place severe and often crippling limitations on such planning. How could British administrators have foreseen in 1939 the fu­ ture shape of the war that had then started? In 1939 and early in 1940, when American legislation prescribed "cash and carry" for British imports from the United States, it seemed wise for Britain to husband gold and dollar reserves and maintain exports. Yet, in retrospect, these decisions were in error. Or how could the British planners have foreseen, in 1939, that France would be knocked out of the war and that, in 1940 and 1941, Britain's safety would depend primarily on the Royal Air Force?15 But the most efficient export and import policy and the best distribution of manpower and supplies among the three armed services depended on such foreknowledge. With the wartime demand for output be­ ing less continuous and less predictable than peacetime demand, administrative choices are bound to suffer from rapid obsolescence. A high premium on speedy action likewise militates against careful planning and, with the need to adjust to frequent changes, encourages improvisation. But with most production decisions bearing an ad hoc character, there is clearly a danger that the emerging policy will be more one of drift than of control over events. The very fact that output decisions will be based on inadequate information and on vague criteria of efficiency places a heavy bur­ den on administrative coordination, for unimpeachable data and precise criteria are themselves powerful coordinators. Similarly, the need to rely on precarious forecasts makes it difficult to co­ ordinate ctirrent policies that apply to a situation six months or a year hence. Differences of opinion and of special interest are then given plenty of scope for development. There are many other impediments to the smooth coordination of wartime administration. Even the most efficiently organized ad­ ministration would be strained by the need to make quick adjust15Robinson, "The Overall Allocation of Resources," in Chester (ed.), Lessons of the British War Economy, pp. 39-41.

ADMINISTRATIVE CAPACITY FOR WAR

ments to frequent and sudden changes in military demand. Also, the newness of the administrative tasks to be performed in war­ time is such that highly efficient administration is seldom achieved. The problem is aggravated by the fact that regular peacetime de­ partments cannot be expected to shift to new tasks with imagina­ tion and speed. They are often given to routines which, even if efficient in peacetime, are unsuitable in time of war and will prove a handicap unless quickly discarded. Similarly, the assignment of personnel to particular positions may call for adaptation to new tasks, and such adaptation may be difficult to undertake in longestablished bureaucracies. Moreover, peacetime departments are often set up to serve a particular clientele—such as organized labor or farmers—and may therefore be reluctant to impose on their clients special burdens, even when to do so is in the interest of mobilization. Even wartime agencies do not escape these pres­ sures. Unless the apparatus required in wartime has been in the mak­ ing, not as a blueprint but as an operating concern, for an appre­ ciable time prior to the outbreak of hostilities, suitable organiza­ tions must be set up in the utmost hurry, and such haste will almost certainly entail mistaken choices of organizational struc­ ture and personnel. New administrative bodies, moreover, cannot be fully efficient, since they will not have had time to implant in their personnel an awareness of how the parts of an organization are supposed to function; since many officials must learn how to do their specific jobs; since the system of coordinated behavior takes time to develop; and since it also takes time to set up routines that permit similar situations to be quickly identified as such and "routine" choices made with relative dispatch and economy of effort. War is, for most societies, not a frequent enough experience to result in a ready stock of relevant skills, and the coordination of policy-making by governmental agencies and of policy-execution by productive enterprise will be a new experience to operators on either side, where productive enterprise is normally under private control. When wars occur infrequently, or when the technological conditions of warfare change rapidly, the experience of past war efforts may be largely forgotten or may not be relevant. Even when administrative plans are prepared in advance, they may prove de-

ADMINISTRATIVE INSTRUMENTS

fective because the requirements of future wars can be only dimly foreseen or because the domestic political forces—especially the motivation for war—are ignored, although this factor must have a bearing on the proper organization of wartime administration. Nor can administrative positions and functions be blueprinted without foreknowledge of the kind of personnel, particularly top person­ nel, that must bring the machinery to life. While personnel can be selected, to some extent, in keeping with an efficient scheme of decision-making positions, it is also true that the choice of person­ nel is limited, if only for political reasons; and the scheme of po­ sitions must be adapted to the limitations of personnel.16 As a result of these difficulties, it is not surprising that wartime admin­ istration is inevitably a matter of speedy improvisation and that, during the initial phases at least, wars are marked by a high mor­ tality rate of war agencies.17 Urgent as the need for reforms may be, administrative reorganization is costly in itself. It disrupts the administration of current tasks and is likely to disrupt established lines of authority and communication, time-saving routines, and, in general, that 'Tiabituation of administration"18 which facilitates proper functioning. The very dispersal of information and responsibility demanded by efficiency is an inherent obstacle to smooth coordination. For example, any solution to the dilemma of how to increase agri­ cultural production in the United States by offering farmers better prices and yet stabilizing the cost of living had to be worked out jointly by the Department of Agriculture and the Office of Price Administration. However, the internal organization of the two agencies made inter-agency agreement difficult to achieve, be­ cause the individuals conversant with price problems in the two bureaucracies were dispersed through several distinct sub-organi­ zations. On the other hand, the Office of Economic Stabilization, to which deadlocked issues were referred for decision, although equipped for the role of referee, was not equipped for proposing a proper food program.19 16 Cf. Chester Barnard, Organization and Management, New York, Philosophical Library, 1951, p. 42. 17Cf. Fesler (ed.), Industrial Mobilization for War, passim; Bureau of the Budget, The United States at War, passim; Hancock and Gowing, British War Economy, passim. 18 Cf. Barnard, op.cit., p. 43. 19 Cf. Bureau of the Budget, op.cit., pp. 353-54.

ADMINISTRATIVE CAPACITY FOR WAR

The basic dilemma is the familiar one, already expounded, that efficient administration requires both decentralization, in order to permit energy and knowledge to be brought to bear on numer­ ous important problems, and centralization, in order to ensure that decisions are consistent. If the first requirement is overemphasized, the burden on coordinating techniques is inevitably increased, for operating sub-agencies tend to develop a powerful urge toward maximum autonomy in making their decisions. If the second re­ quirement is overemphasized, policy-making may be relatively uninformed and, for sheer lack of sufficient time and energy, the top officials may become a major bottleneck. The Indispensability of Judgment To put the problem in another way, administrative competence in wartime consists of three capacities: the ability to marshal re­ sources efficiently with a view to maximizing military power in particular and wartime goal achievement in general; the ability to act with speed in making and implementing these choices; and the ability to modify plans and programs promptly as the supply of, and the demand on, manpower and other productive resources change over time. The necessity for acting with speed in the face of inadequate information and for adjusting the nation promptly to changes difficult, if not impossible, to foresee, puts a premium on improvisation, on finding quick ad hoc solutions for problems as they emerge. Speed and improvisation must inevitably lead to wasteful and mistaken decisions. The problem is one of minimiz­ ing waste and error and of putting resources to use as efficiently as is compatible with rapid results. The lack of sufficient data to give substance to efficiency calculations is the other main impediment to the most effective employment of resources. Throughout, the quality of the choices made rests largely on initiative, imagination, and judgment. Administrative performance will no doubt depend on the ma­ chinery through which it takes shape. Since flexibility and dis­ patch are central to success, machinery is most effective if it per­ mits speedy communication between the various layers in the hierarchy and if the continuous adaptation of routines itself be­ comes routine. Obviously, war is no time for sedate government. But there is no model organizational chart by which to measure

ADMINISTRATIVE INSTRUMENTS

the adequacy of apparatus for different nations, wars, and even different phases of the same war. Administrative structure must be adapted to the varying needs of warfare; to the basic structure of government, politics, and the economy; to the prevailing motiva­ tion for war; and to the special competence of top administrators. Since administrative performance depends largely on judgment, the availability of personnel, and especially the skills and person­ ality of top administrators, are of first importance. In addition to the qualities usually demanded of the successful executive, key officials must possess two others. They must be open to innovation, able to judge not only the intrinsic value of new ideas but also their practical value in the total context within which problems must be solved; and they must understand the interdependence of efficiency considerations, of costs and utility, within the war econ­ omy as a whole. To the extent that administrative war potential can be gauged at all, its assessment will focus on the supply of such individuals and on the readiness with which they are recruited and rewarded in peacetime for the solution of national and sectional problems. Some such talent is bound to be developed in any modern in­ dustrial society with an intricate division of labor. However, there are notable differences between individual societies in this respect. The proper index lies in the rate of constructive change—con­ structive in the sense that change is accompanied by political sta­ bility—to which a society is given in solving its economic and mil­ itary problems. It seems reasonable to assume that a nation ex­ periencing rapid technological innovation and economic growth, and eager to experiment with new organizational forms and tech­ niques inside and outside government, is developing more of such talent than a nation of meager economic and technological growth, and of a highly conservative bent in adjusting institutions to new problems. Thus, Lord Beveridge did not, in retrospect, think the British civil service as well equipped for the Second as for the First World War; and he gives as his reason the observation that, for eight years before 1914, Britain had been governed "by the most progressive administration of modern times, calling for and encouraging constructive imagination among civil servants." On the other hand, the governments from 1919 to 1939, whether La­ bor or Conservative, had been conservative. Men of the type "who

ADMINISTRATIVE CAPACITY FOR WAR

received encouragement and promotion between 1906 and 1914," Beveridge holds, "would have had far less chance between 1931 and 1939."20 This selective resilience to and capacity to master change seem to this writer more important in determining administrative war potential than the formal organization of government and econ­ omy. Neither the historical record nor speculation permits us to rank—so far as administrative war potential is concerned—capital­ ist over socialist countries, and democratic over totalitarian coun­ tries, or the other way around. Either type of country may exhibit rapid or slow technological innovation and economic growth. Either may prove resilient or rigid, efficient or inefficient, when confronting the administrative tasks of war. As pointed out in Chapter 6, a socialist system possesses the possible advantage over a capitalist country of having in operation administrative institu­ tions for managing the national economy. Yet, whether these in­ stitutions and their personnel are in fact efficient in terms of the effective goals and preferences of the nation concerned, and whether they are suited to the peculiar challenges of administering a war effort, are questions to which no answer can be given in the abstract. It may prove easier to establish new administrative bodies designed for the purposes of war than to adapt peacetime bureaucracies. This indeterminancy, in the abstract, also holds true concerning the question of whether a capitalist system—with its diffusion of decision-making in numerous business, labor, and other organizations—provides a larger reservoir of personnel dis­ posed to make and remake decisions on their own initiative than is available in socialist countries. To have a supply of personnel habituated to taking the initiative in solving problems may be an advantage. But it may also be a disadvantage, because the ability to make efficient decisions is not easily transferred from narrower to wider problem areas, and because the activities of a multi­ plicity of personnel accustomed to make their own decisions may impede the coordination of administrative actions in time of war. Another index of administrative war potential is the availability and appreciation of techniques in a society for gathering and veri­ fying information essential to efficient administration. Since ad20 Lord Beveridge, Power and Influence, London, Hodder and Stoughton, 1953, p. 400.

ADMINISTRATIVE INSTRUMENTS

ministrative performance in wartime must depend largely on the quality of judgment with which officials are endowed, since even the best hunches are a poor substitute for a knowledge of the facts, and since reliance on guesses and intuition makes the choice of administrative leaders risky, a government can obviously be expected to do better, the more useful information it has at its command and the more it is in the habit of applying such knowl­ edge in the making of policy. This knowledge permits a narrowing-down of the area where it is necessary to resort merely to judgment. Thus, good data on the national income and its com­ ponents will serve as a rough guide to what the economy can accomplish in the aggregate, and hence as a check on production plans which, taken together, are either too large or too small in terms of available resources. Although at the start of the Second World War, national-income analysis was only at its beginning in Great Britain, the recording of the national income was developed quickly because it was an indispensable tool in the kit of the eco­ nomic high command. Germany, on the other hand, never im­ proved this technique sufficiently during the war and remained handicapped thereby in its wartime planning. In the United States, where the aggregate approach to national-income analysis had been elaborated to a greater extent than in these countries, its use was still limited by the lack of understanding among high administrative officials.21 In the meantime, this technique and its application have become greatly refined, and it has become in­ valuable in economic planning. It is not, of course, only aggregate data on the national income which, if adequately assembled and employed with prudence, have become useful in economic planning. The collection and use of detailed data on all parts of the economy and all resources are equally important. In this respect, the current development of input-output analysis—of tracing the streams of resources and products into and from different sections of the national economy —may turn out to be a significant addition to the planner's tools. In addition to increasing the quantitative knowledge of the na­ tional economy, progress is also being made in refining techniques for using these data in the rational allocation of resources. Even though it is impossible to subject most high-level decisions on 21 Brigante,

The Feasibility Dispute, pp. 109-15.

ADMINISTRATIVE CAPACITY FOR WAR

resource allocation to quantitative analysis and prediction, and thereby reduce the area where intuitive judgment must be relied upon, a wide and growing range of lower-level decisions are com­ ing within the reach of such techniques. The evolution of opera­ tional research and of game theory is making impressive steps in the direction of employing scientific methods whenever feasible to assist executives in making decisions.22 The development of com­ puting methods and computing machines is another example of this quest for quantification in the analysis of management prob­ lems. These improvements have not as yet matured to a point where they can be applied without extreme caution and, still less, where they can be substituted for executive decisions. These must still largely be based on conjecture and judgment. What is perhaps more significant than the stage of development reached by these techniques is the motivation behind this quest for harnessing sci­ entific techniques to the tasks of management. This motivation in a society reflects a high priority on efficiency and the use of quanti­ tative data in giving substance to considerations of efficiency. The attitude itself may therefore be regarded as an index of high ad­ ministrative war potential. The greater the efforts that are bred by this attitude in a society, the greater—ceteris paribus—is its administrative war potential. 22 Cf. Hitch, "Planning Defense Production," American Economic Review, pp. 191-96; Tjalling C. Koopmans, "Activity Analysis and Its Applications," American Economic Review (Papers and Proceedings of the American Economic Association) XLm (1953), pp. 406-14; I. S. Lloyd, "Operation Research—A New Tool for Man­ agement," Journal of Industrial Economics, ι (1953), pp. 175-86.

P A R T IV ECONOMIC CAPACITY FOR W A R

CHAPTER 9 THE STRUCTURE OF POPULATION AND INDUSTRIES

IN PEACE or war, the economic strength of nations, i.e., their ca­ pacity to produce, depends on the magnitude, composition, and quality of their economic resources.1 However, since the goods and services required in wartime are not, as a whole, the same as those needed in time of peace, and since productive resources are not homogeneous but often more or less suited to specific pro­ duction purposes only, any particular composition of resources cannot be assumed to serve these purposes equally well. The ef­ fective demand for some resources is greater or smaller in wartime than in peacetime. Some distinction, therefore, must be made be­ tween resources which are more useful for waging war and others which are less useful. It is the function of the present chapter to define the nature of economic resources, to focus on groups of productive factors of special importance in wartime, and to show how the endowment of countries differs in this respect, with a view to gauging their relative war potential. For most purposes of comparison, data for the immediate prewar period have been selected. These are espe­ cially useful because they indicate international differences that were of influence in a war whose course and outcome are histori­ cal fact. Chapter 10 deals with the effect of foreign trade on war po1 Throughout these chapters, the terms "economic resources," "productive re­ sources," "economic factors," "productive factors," and "factors of production" have identical meanings and are used interchangeably, as is customary in eco­ nomics.

ECONOMIC CAPACITY FOR WAR

tential. Chapters 11 and 12 show what can be learned from the analysis of national income data in a study of war potential. Chap­ ter 13 explores the factors which lend flexibility to national econ­ omies. Throughout these chapters, the findings of Parts II and III are brought to bear on the analysis by indicating how the motiva­ tion for war and administrative competence impinge on economic strength in time of war. The Nature of Productive Resources

Count Montecuccoli, an Austrian general of the seventeenth century, is supposed to have said that there are three things abso­ lutely essential to the successful conduct of war: first, money; second, money; and third, money. Even at the beginning of the present century, war finance was regarded as the primary subject of war economics. But the course of World War I shattered this assumption. Since then, it has been generally understood that fi­ nancial problems are of secondary significance in modern war, and that it is the availability of real resources which sets limits to a nation's war effort. To be sure, the problems of war finance and monetary policy are by no means negligible, if for no other reason than that money is a claim to real resources—and this of course is what Montecuccoli had in mind. But in modern times no gov­ ernment, when engaged in a major war, has lacked the pecuniary means for claiming the productive resources necessary to the con­ duct of war. The important question has been whether the needed resources were there to hire or buy. Except for monetary claims on foreigners, a nation s economic capacity consists of real resources and, as will be discussed in Chapter 13, of the more or less efficient way in which these re­ sources are used. There are natural resources such as land, vege­ tation, water, and mineral deposits. There is capital in the form of such tangible things as tools, factories, railroads, highways, public utilities, stores and warehouses, and inventories of raw materials, semi-finished goods, and finished articles not yet sold to consumers. Claims on foreigners, in the form of currency and various instruments of indebtedness, are equivalent to physical capital if, as is common, they can be used to obtain goods and services from abroad. Finally, there is labor or manpower, which, like physical capital and natural resources, is a matter of quality

POPULATION AND INDUSTRIES

as well as of quantity, i.e., of productive abilities and skills, in­ cluding technical, scientific, managerial, and organizational knowhow. Obviously, each category and sub-category of productive factors is heterogeneous, comprising a wide variety of resources of a more or less specific productivity. When speaking of resources needed in wartime, people often overemphasize the availability of natural resources. Actually, the presumption is that—for any nation with wartime requirements of fairly rigid proportions of labor, capital equipment, and natural re­ sources—that type of factor will be scarcest of which it has relatively least. For Czarist Russia, during the First World War, richly en­ dowed with natural resources and manpower, capital equipment and industrial skill were no doubt the scarcest resources. India, after her achievement of independence, felt primarily the need for capi­ tal goods, industrial skills, and natural resources. The industrialized countries involved in the last two world wars found that the shortage of manpower ultimately set limits to what could be produced.2 To some extent, of course, one kind of resource can be substituted for another. Labor can be substituted for machinery or it can be used in constructing more capital; and labor and capital can both be employed to increase food production from given land re­ sources, or to exploit low-grade mineral deposits, or to make sub­ stitute materials, etc. Labor, being on the whole the most adapt­ able resource, can often compensate for a deficiency in other resources more easily than capital goods and natural resources can make up for a lack of labor. But, because of the specificity of many resources, there are obvious limits to substituting more abundant for scarcer factors of production. Only up to a point can superior skill be substituted for sheer numbers of workers, or masses of manpower for superior skills. It is precisely for this reason that the proportions in the supply of different kinds of productive re­ sources are of the utmost importance. Since the economic capacity of nations is unlikely to be equally suited to the demands of peace and war, it is informative to dis­ tinguish between resources on the basis of their greater or lesser usefulness for purposes of military mobilization. It will then be 2 Cf., for Britain and the United States in the Second World War, Hancock and Gowing, British War Economy, p. 438; Fesler (ed.), Industrial Mobilization for War, p. 968.

ECONOMIC CAPACITY FOR WAR

possible to lump together the war-useful resources and consider them the economic war potential which, in wartime, would be mobilized to the extent that the war situation demanded and the prevailing motivation for war permitted. It must be understood, however, that such distinctions can be made only in a general and tentative manner. The output of some industries—agriculture, mining, energy, transportation, machine tools, etc.—is immediately useful when called upon to produce for the war sector of the economy, although how much of it will be useful depends upon the ratio of capacity to wartime demand. Other industries—such as shipbuilding, the production of motor vehicles and heavy machinery, and many branches of the chemi­ cal industry—can be converted relatively easily to munitions pro­ duction. Except for making subsistence goods for the armed forces (uniforms, canned goods, etc.), industries making non-durable consumers' goods are on the whole less adaptable. Some indus­ tries, such as producers of household appliances, fall in between these poles. Ease of conversion is obviously a critical factor when a national economy is mobilized for war. To recombine specific factors of production and more or less change the nature of pro­ duction will take time and will, at least temporarily, cause pro­ ductivity to decline as factories are re-equipped, workers and management acquire new skills, or labor is transferred from one lo­ cation to another. Lower efficiency and time lost in the shift mean lost output. The more easily resources are converted to new em­ ployment, the smaller will be this loss of production. Yet, even though many industries—taken as clusters of produc­ tive factors—can be ranked in terms of ease of conversion, where should one draw the line separating resources that are especially useful in wartime from those that are less so? Any particular indus­ try will have some factors of production—some labor, engineering skill, factory buildings, tools, locations, etc.—which are more, and others which are less, readily put to wartime use. The production of some industries with the kind of output of immediate use in war­ time—such as farming or some mining industries—may be in ex­ cess of what is needed in a mobilized economy. And once the out­ put of industries making non-durable consumers' goods has been cut as much as considerations of efficiency and the prevailing mo­ tivation for war tolerate, the remaining resources in such indus-

POPULATION AND INDUSTRIES

tries are just as war-useful as those in the steel or airplane in­ dustries. Moreover, we do not know in advance the precise de­ mand which a future war will make on the economic capacity of nations. Finally, the speed and cost of conversion depend not only on the combination of specific resources with which nations are endowed, but also on three other conditions: (1) the under­ lying attitude toward, and experience with, employment shifts built up in the owners of resources; (2) the administrative skill of the government in planning and facilitating conversion, e.g., by holding out rewards for rapid transfer; and (3) the motiva­ tion for war prevailing in the nation, e.g., the readiness with which labor and other owners of productive factors accept the inconvenience of shifting from one employment to another. Nevertheless, even with these qualifications and the impossi­ bility of drawing fine and definite distinctions, it remains in­ structive to distinguish in approximate fashion between the warusefulness of resources and industries and to compare the endow­ ment of nations in this respect. Population Structure

Population is one determinant of the size of the fighting and labor forces which a nation can muster in time of war. Under peacetime conditions, there are of course other factors besides raw population that affect the supply of labor. Two countries with the same population and equal sex and age structure might show considerable differences in labor supply because of differences in remuneration, technology, cultural standards, the appreciation of leisure as against work, etc. The supply of manpower for the labor and military forces may rise in wartime, depending on the pre­ vailing motivation for war and on the skill with which govern­ ment leaders manipulate incentives and disincentives. But some of the differences in basic conditions may persist even in time of war. Sheer size of population aside, that population structure will tend to maximize a nation's potential, for a war of several years, which has the following characteristics: (1) A relatively small proportion of the population in the highest-age bracket (say, of 55 years and older). Although this group will include many highly productive members, in view of their skills and experience, the special wartime need for large numbers of young males for the

ECONOMIC CAPACITY FOR WAR

military services must inevitably put a greater premium than in peacetime on the younger age groups. (2) A relatively small pro­ portion of the population in the youngest age group (up to 12 or 14 years of age). Not only do members of this section require various consumption goods for their maintenance, but the fact that they must be reared impedes the transfer of mothers into the wartime labor force, and in most wars even the group's oldest members will not reach an age at which they can enter the labor force and add appreciably to output. (3) A relatively high pro­ portion of males as against females in the age group from about 15 to 34 years of age. Even in modern war, sex difference is im­ portant, especially in this age bracket, because of the preference for males not only in the military forces but in many types of production. In conclusion, war potential benefits from a relatively large proportion of males in the group from about 20 to 34 years of age, since it is from this section that military personnel will be largely recruited. How nations may differ in this respect is il­ lustrated in Table 1, which shows the number of males in the most preferred population group for several nations in 1939. TABLE 1 Males, Age 20 to 34, in Selected Countries3 Country

USSR United States Greater Germany Japan United Kingdom Italy France

Millions

Percentage of T otal Population

21.6 16.2 9.4 8.3 5.7 5.2 4.3

12.7 12.3 11.8 11.4 12.1 11.8 10.2

If France is left out of account, in this age bracket the Axis powers were decidedly inferior to their enemies. Russia, the United States, and Britain together possessed nearly twice as many males in the preferred group as Germany, Japan, and Italy. 3 Adapted from Hillmann, "Comparative Strength of the Great Powers," in Toynbee and Ashton-Gwatkin (eds.), The World in March 1939, p. 373.

POPULATION AND INDUSTRIES

This superiority was greater than a mere ratio of total population would indicate, for the three Axis countries had a smaller propor­ tion of their total populations in the preferred group than did their enemies. Although the differences in the percentages may seem small, even slight percentage differences are significant when applied to large numbers. A difference of 2 per cent applied to a total population of only 40 million means a difference of 800,000 males in the preferred group; when applied to a popula­ tion of 100 million, the difference amounts to 2 million men. These are large numbers when related to the size of the armed forces which modern nations put into the field. Food Production

In war, as in peace, nations must be fed. In an emergency, to be sure, probably all countries can reduce per capita food con­ sumption somewhat below that of normal years. The factors de­ termining this range are discussed in Chapter 12. Requirements of food, as of all material goods, can be met by home production, by imports, and by drawing upon stocks. Food stocks, including livestock, are of obvious importance to warring nations. So are im­ ports, to the extent that they are feasible in wartime. The entire problem of dependence on foreign food supplies is discussed separately in Chapter 10. Excepting Britain, all great powers have in recent decades met the bulk of their food requirements from domestic output. In the middle 1930's, the United States had an import gap of 7 per cent in terms of current consumption, but American crops suffered then from unusually bad climatic conditions. The comparable percentage was 16 for Germany, 17 for France, and 7 for Japan, while the Soviet Union had an ex­ port surplus of 3 per cent.4 Britain's import deficit was about 66 per cent, although it has since fallen to about a third of current needs. These figures become more revealing when the nature of net food imports is taken into account. Thus, United States im­ ports consisted largely of sugar, coffee, cocoa, and tropical fruits, which are not indispensable nutritionally and which are received mostly from areas with which communication is easily maintained in wartime. On the other hand, Britain and Japan depended upon imports for meeting essential nutritional requirements. Britain's 4

Ibid., p. 375, n. 1.

ECONOMIC CAPACITY FOR WAR

dependence upon overseas imports ranged from 3 per cent for potatoes to 92 per cent for fats.5 Japan depended on imports of rice, soybeans, and other foodstuffs amounting to about 19 per cent of caloric consumption.6 Depending on its specific war situation, a nation may with­ draw productive factors from food production or allot further resources to it. If it drains resources from agriculture, domestic food supplies may not decline materially for a time, since farm capital—equipment, livestock herds, draft animals, soil fertility, etc.—can be undermaintained or in part consumed. Yet, as re­ vealed by the experience of Germany and Austria-Hungary dur­ ing the First World War, reckless depletion of agricultural re­ sources may result within a few years in disastrously falling pro­ duction.7 Japan and the USSR suffered from such consequences during the last war as farm labor and fertilizers became increas­ ingly scarce.8 On the other hand, a nation at war may add to productive re­ sources in agriculture, boost domestic production and/or change its composition, and thus offset import losses or expand wartime exports. During the Second World War, the United States with­ drew about a million workers from farming and yet increased output by about one-third between the late 1930's and 1944,9 by means of new capital investments and the application of improved technology. In order to compensate for lower imports, Britain made prodigious efforts during the Second World War, plowing up over 6 million acres of grass land, increasing tillage by over half, raising labor productivity and acreage yields by mechan­ izing farming, and improving farming methods. By sharply re­ ducing pig, poultry, and sheep stocks, feed imports could be cut and yet the output of dairy products increased. In terms of cal5

Gold, Wartime Economic Planning in Agriculture, p. 34.

6

SBS, Summary Report (Pacific War), p. 20.

7 Friedrich Aereboe, Der Einfiuss des Krieges auf die Landwirtschaftliche Produktion in Deutschland, Stuttgart, Deutsche Verlagsanstalt, 1927, p. 2; Gratz and Schuller, Der wirtschaftliche Zusammenbruch Osterreich-Ungams, ch. n. 8 US Strategic Bombing Survey, The Japanese Wartime Standard of Living and Utilization of Manpower, Washington, D.C., January 1947, pp. 2-9; Gold, op.cit., p. 37. 9 Cf. Theodore W. Schultz, Agriculture in an Unstable Economy, New York, McGraw-Hill, 1945, pp. 1, 12.

POPULATION AND INDUSTRIES

ories, British agriculture had, in 1943, expanded its output by 70 per cent over the prewar level.10 Whatever the food situation confronting a nation in wartime, its own agricultural resources form an important part of its eco­ nomic war potential. Table 2 presents some data on the land re­ sources available to various countries and areas before the Sec­ ond World War. Although mere acreage figures are very crude TABLE 2 Agricultural Land Resources of Selected Countries11 (estimates for last few years before 1939) Arable and Other Cultivated Land (acres per capita)

Pasture (acres per capita)

United Kingdom Germany France Italy

0.28 0.70 1.62 0.83

0.40 0.29 0.67 0.34

Western Europe® Eastern Europeb British Dominions0

0.94 1.34 3.44

0.46 0.51 10.62

United States and Cuba USSR India China Japan

2.69 2.35 1.29 0.56 0.23

4.44 5.71 0.51 1.80 0.11

Country

a In addition to the four countries mentioned, includes Belgium, Luxembourg, Netherlands, Norway, Sweden, Denmark, Switzerland, Italy, Spain. b Includes Poland, Czechoslovakia, Austria, Hungary, Yugoslavia, Roumania, Bulgaria, Greece. c Includes Canada, Newfoundland, Australia, New Zealand, South Africa.

indicators of agricultural resources, the inferences from these data roughly correspond to what is confirmed by other information. The position of the United States, the USSR, and the British Dominions is in sharp contrast to the niggardly land endowment 10 Cf. Jack Stafford, "Agriculture in War-time," The Manchester School, xn, No. 1 (April 1941), pp. 2-9; Karl Brandt, The Reconstruction of World Agriculture, New York, W. W. Norton, 1945, pp. 156-57; Gold, op.cit., pp. 34-35. 11Adapted from A. J. Brown, Industrialization and Trade, London, Royal In­ stitute of International Affairs, 1943, pp. 18-19.

ECONOMIC CAPACITY FOR WAR

of Britain and Japan. There were, and are, of course, striking discrepancies not only in natural fertility, but also in land utiliza­ tion. Differences in resources of capital and skill accounted for gross variations in food output per worker and per acre. Thus, output per acre is at present extremely high in Japan, the United Kingdom, and northwestern Europe; and output per worker is very large in the United States and the old British Dominions. In India, however, about 306 million acres were recently culti­ vated by 73 million agricultural workers (and probably more), compared with 360 million acres and about 8 million farm work­ ers in the United States. Despite far more intensive applications of manpower in India, acreage yields are much lower than in the United States. The yield of wheat is about 600 pounds in India compared with over 1,000 pounds in the United States; that of cotton, 66 pounds in India as against 313 in the United States. This wide disparity results primarily from tremendous differ­ ences in capital resources and labor skills. Thus, the United States employs about 2.4 million tractors compared with around 10,000 in India, and the United States uses over 13 million tons of fertilizer as against some 200,000 in India.12 Such differences in food output imply that the economically less developed countries are relatively more dependent on land per unit of food output than the capital-rich and technically ad­ vanced nations. The importance in farming of capital and skill resources is shown by the great production rise during the last war in North America, Britain and, to a lesser extent, Germany. It is because of the extreme dearth of such resources that the less developed countries are unable to effect changes of equal pro­ portion in the size and composition of farm output. This is not to say, of course, that a scarcity of arable land per capita does not impede self-sufficiency in food production. It is evident, how­ ever, that the marginal economic importance of land declines as skill and capital become more abundant.18 12 All figures in the above comparisons are postwar; The Colombo Plan for Co­ operative Economic Development in South and South-East Asia (Cmd. 8080), London, 1950, p. 10. 18 Cf. T. W. Schultz, "The Declining Economic Importance of Agriculhnral Land," Economic Journal, LXI (1951), pp. 725-40.

POPULATION AND INDUSTRIES

Energy Production Productivity comparisons between countries in terms of amounts of horsepower used per worker grossly oversimplify what de­ termines productivity. But since energy consumption per head varies by and large with several other determinants of produc­ tivity—such as industrial skill and capital—it can be accepted as one of several crude indicators of comparative war potential. A high level of energy use is a prerequisite to a large industrial out­ put of the kind which, as will be argued below, is particularly vital to modern warfare. If we disregard atomic energy, which is at present still at the very beginning of development, coal, petroleum, natural gas, and waterpower are the important sources of mechanical power, with one source of energy capable of being substituted for another over a wide, though always limited, range of uses. In recent decades, the expansion of highway and air transportation, the mechanization of agriculture, and the growth of the electro-chem­ ical and the electro-metallurgical industries, among others, have caused a relative shift in the importance of different sources of energy as well as a great increase in over-all demand. Although coal is still the major source of energy—in the world as a whole, and in all continents except North and South America—it con­ tributed only 58 per cent in 1950, compared with 76 per cent in 1929, to the world's energy supply. On the other hand, the con­ tribution of oil rose from 14 to 25 per cent and that of natural gas from 4 to 10 per cent in the same period, during which total energy consumption expanded by one-half. With about 6 per cent, the contribution of waterpower has remained about the same.14 Energy output and consumption show conspicuous differences from continent to continent and from country to country. Table 3 indicates how large a share was contributed by North America. In 1950, in fact, the United States alone produced 42 per cent of the total, Europe 26 per cent, and the USSR 12 per cent. The change over the two decades is also significant. In 1929, the United States produced 45 per cent, Europe 39 per cent, and the Soviet Union only 3 per cent. Although the latter country ex­ panded its output by 445 per cent, the largest increase in abso­ lute terms occurred in North America. 14United

Nations, MontMy Bulletin of Statistics (February 1952), pp. vii-vfii.

ECONOMIC CAPACITY FOR WAR

TABLE 3 Production of Mechanical Energy15 (million metric tons coal equivalent)

North America Latin America Europe® Africa Oceania Asia USSR a In

1929

1950

871 50 729 15 14 123 60

1,220 175 735 34 24 277 327

1950, Europe still suffered from wartime dislocation.

International discrepancies in power consumption stand out more sharply when related to the size of population. In Table 4, selected countries are arranged in terms of energy use per capita in 1950. TABLE 4 Per Capita Energy Consumption1® (coal equivalent, metric tons per capita) 0.00

0.25

0.50

1.00

2.50

China India Indonesia Philippines Iran Egypt Greece Brazil

Yugoslavia Roumania Bulgaria Portugal Turkey British Malaya Colombia

Japan Spain Italy Hungary Mexico Venezuela Argentina Chile

USSR France Netherlands Switzerland Austria Poland NewZealand Union of South Africa

United States Canada UnitedKingdom Sweden Western Germany Belgium Czechoslovakia Australia

The great difference in the use of mechanical energy between the economically underdeveloped and advanced countries is brought out in Table 5. Owing to the increasing importance of petroleum as a source of fuel, and the extremely uneven distribution of oil deposits, there have been marked shifts in the dependence of continents and countries on international trade in mechanical energy. As Table 6 15

Ibid., p. viii.

18 Ibid.,

pp. x-xi.

POPULATION AND INDUSTRIES

TABLE 5 Annual Energy Use per 1,000 Inhabitants, 1948-194917 Coal Electricity Production Consumption (thousand KWH) (tons)

Country

United States United Kingdom India Pakistan Ceylon British Malaya

Petroleum Consumption (tons)

2,296 1,033

3,473 3,884

1,638 327

13 2 10 117

80 18 28 85

8 11 23 99

reveals, the several continents were, in 1929, partly self-sufficient in terms of their demand for mechanical power. By 1950, how­ ever, Europe and North America had become large deficit areas, almost entirely on account of petroleum. A few areas in Latin America (especially Venezuela) and in Asia (especially Iran, Saudi Arabia, and Kuwait) provided the surplus supplies. PendTABLE 6 Net Imports of Fuel and Power by Continents, 1929-195018 (million tons coal equivalent) Africa North America Latin America Asia Europe Oceania USSR

1929

1950

7.4 -3.7 -19.3 -3.2 -0.4 3.0 -5.4

13.0 58.8 -76.4 -88.8 61.3 11.2 N.A.

ing the development of gasoline from other mineral deposits and the hydrogenation of coal, all nations with a claim to great-power status (except Soviet Russia) are now dependent on foreign sources of supply for oil. This partial dependence is at present 17 18

The Colombo Plan (Cmd. 8080), p. 10. United Nations, Monthly Bulletin of Statistics (February 1952), p. xii.

ECONOMIC CAPACITY FOR WAR

least risky for the United States, which can probably maintain or increase domestic output and retain access to foreign produc­ ing areas in Latin America and perhaps elsewhere. On the other hand, the dependence of Western Europe on overseas supplies is virtually complete. Despite its declining contribution to the world's supply of en­ ergy, coal has so far remained the major fuel for all continents except the Americas. As low-cost sources of petroleum and nat­ ural gas become depleted, it is not impossible that coal will again meet a larger share of the increasing demand for energy.19 Be­ cause of the value of coal to industry, though at present on the wane, the world's heavy industries are mainly clustered around important coal deposits. As a result of the fixed capital equip­ ment and the human resources accumulated in these areas, they will remain important industrial complexes in the foreseeable future, even though other centers are expanding elsewhere. Coal also accounted for nearly 62 per cent of the global output of electric power in 1950. Furthermore, since it is important to iron and steel-making, metallurgical coke has not shared in the de­ cline of coal in general. From 1929 to 1950, coke production rose by 27 per cent. Table 7 shows coal and electricity production for selected coun­ tries before and after the last war. The superior endowment of the United States, Soviet Russia, and Britain is self-evident. Together, the listed Western European countries mined 38.7 mil­ lion tons, in 1953, which slightly surpasses the United States out­ put (all other Western European countries produce only very small quantities). Again, the Soviet Union generated, in 1953, the largest supply of electricity next to the United States. West­ ern Europe as a whole, however, produced 23.5 million KWH per month.20 If we disregard oil, the United States, Western Europe, and the USSR are the largest producers of mechanical energy. It is clear, however, that other areas have only begun to tap their 19 Resources for Freedom., Report to the President of the President's Materials Policy Commission, i: Foundations for Growth and Security, Washington, D.C., June 1952, p. 129. 20General Statistics, OEEC Statistical Bulletin, No. 4 (July 1954), p. 14.

POPULATION AND INDUSTRIES

TABLE 7 Coal Production21 (monthly average) COAL COUNTRY

United States USSR United Kingdom Western Germany Poland France British Dominions Japan Lowlandsa India China Manchuria

CMILLION METRIC TONS)

ELECTRICITY (BILLIONS OF KWHJ)

1937

1953

1937

1953

37.6 13.3 20.4 11.4b 3.0 4.8C 3.5d 3.8 3.7 2.1 1.7 1.2

36.6 26.7f 19.0® 10.4 7.4 5.8C 5.0a 3.9 3.5 3.0 N.A. N.A.

9.9 4.0 1.9h 2.31-! .3 1.51 3.2k 2.51 .71 .2 N.A. N.A.

36.9" 11.1 5.5" 5.01-1 1.1 3.21 7.9k 4.61 1.71'1 .6" N.A. N.A.

e

h

a

Netherlands and Belgium. figure. c Including Saar. d Including Canada, Australia, New Zealand, and Union of South Africa. e Including lignite. f Provisional, including lignite. β Excluding Northern Ireland. h Production by enterprises generating primarily for public use. 1 Total generation of electricity, including generation by industrial establishments generating primarily for own use. J Excluding electricity generated by Federal Railways. k Canada,11 Australia,1 New Zealand,11 Union of South Africa.1 1 Including Luxembourg. Coal, General Note: The figures relate to anthracite and bituminous coal (in­ cluding semi-bituminous), but exclude lignite and brown coal, except where other­ wise stated. This does not apply necessarily to figures for USSR, China, and Man­ churia. b 1938

potential natural resources. As Table 8 reveals, this is certainly true of China and India, whose coal reserves and waterpower potential are considerable. No nation can enjoy a large economic potential for modern 21 Coal production figures for China and Manchuria for 1937 from United Na­ tions, Statistical Office, Statistical Yearbook, 1948, New York, 1949, p. 129; coal production for the USSR from United Nations, Economic Bulletin for Europe, vi, No. 1 (1953), p. 64; electricity production for the USSR and Poland from ibid., vi, No. 2 (1954), p. 79. All other figures from United Nations, Monthly Bulletin of Statistics (November 1954), pp. 25-26, 59-61.

ECONOMIC CAPACITY FOR WAR

warfare unless it has a large supply of mechanical energy. The importance of coal is self-evident. Electric power is vital because modern war production tends to increase the demand for elec­ tricity—especially for the production of light metals, nitrogen, other chemicals, and atomic energy; because electricity cannot TABLE 8 Coal Reserves and Water Power Potential22 (prewar estimates) Coal and Lignite Re­ serves (coal equiva­ lent, million tons)

United Kingdom Western Europe Eastern Europe USSR British Dominions United Statesa Japan India China a

175,000 496,970 112,600 1,070,000 666,800 2,300,000 16,400 20,600 246,000

Potential Waterpower (million HP)

0.7 43.6 11.5 78.0 33.9 33.5 7.2 39.0 23.0

Including Cuba.

be stored; and because the possibilities of imports are severely Hmited for almost all countries. Obviously, the mechanization and mobilization of warfare have put a premium on oil and gaso­ line. Nations may adapt military mechanization and motorization to their pretroleum supplies, yet, as the last war demonstrated, the possibilities for such adaptation are limited. Inadequate sup­ plies of oil were a major weakness in the economic capacity to wage war of both Germany and Japan. Industrial Materials

A modern war economy, like peacetime production, depends upon a large flow of materials provided by extractive and process­ ing industries at home or abroad. Indeed, the needs for all ma­ terials as a group are likely to rise above the rate of peacetime consumption. This holds true particularly of the build-up period, 22 Brown,

Industrialization and Trade, pp. 18-19.

POPULATION AND INDUSTRIES

if manufacturing facilities are expanded at the start of hostilities.23 The tendency for requirements to rise will be sustained because of a proportionate shift of manufacturing activity from the in­ dustries making non-durable to those making durable goods.24 In the United States, where the output of domestic materials rose by 60 per cent and imports by 40 per cent from 1939 to 1944,25 much of this increase reflected the disappearance of un­ employment rather than swollen wartime requirements. The rate of increase varies, of course, for different materials. In the United States, supplies of bituminous coal, petroleum, and lumber ex­ panded by only 55, 32, and 18 per cent, respectively, whereas supplies of copper, steel, aluminum, and magnesium were in­ creased by 70, 82, 429, and 3,358 per cent, respectively.26 WTiile total commodity production rose in the United States by 35 per cent from 1939 to 1942, the production of durable goods mounted by 56 per cent. The output of materials of agricultural, forest, and mineral origin expanded by 24, 28, and 42 per cent, respec­ tively. Among metals, the output of ferrous metals rose by 63 per cent and of non-ferrous metals by 74 per cent.27 Needs of materials in wartime are, of course, affected by avail­ abilities of supply. For many materials there is a range within which requirements can be adjusted to scarce or ample supplies. Table 9 shows how Germany increased the consumption of rela­ tively abundant materials and cut the consumption of those that were relatively scarce. Since heavy industry is crucial to modern war production, and since iron and steel are the foundations of heavy industry, com­ parative output facilities for iron and steel go to the heart of any assessment of wartime economic strength. At the outbreak of the Second World War, the German capacity for making crude steel was 23 million tons per annum, Britain's was 13.2 million (1938), 23 Edward S. Mason, "Raw Materials, Rearmament, and Economic Develop­ ment," Quarterly Review of Economics, LXVI (August 1952), p. 327. 24 This happened in the United States, where over-all materials supplies were relatively abundant. Cf. US War Production Board, Report of the Chairman, War­ time Production Achievements and the Reconversion Outlook, Washington, D.C., October 9, 1945, p. 7. (Hereafter cited as WPB, War Production Achievements.) 25 Cf. Fesler (ed.), Industrial Mobilization for War, p. 966. 28 WPB, Wartime Production Achievements, p. 8. 27 Cf. Geoffrey H. Moore, Production of Industrial Materials in World Wars I and II, New York, National Bureau of Economic Research, Occasional Paper No. 18, 1944, p. 17.

ECONOMIC CAPACITY FOR WAR

Russia's 18.5 million (1938), and United States capacity was 82 million tons. Through conquest, Germany gained control over TABLE 9 Materials Consumption in Germany28 (thousands of metric tons)

a

Material

1938

Aluminum Magnesium Zinc Chrome Manganese Copper Lead Tin Nickel Rubber (new)

179 14» 292 27 136 448 283 20 12 102

Peak Year (if not 1944) — —

449 48 179 372 277 11 12 —

1944

480 44 330 42 N.A. 219 196 8 10 96

1939

additional capacity of 17 million tons,29 and its steel output rose from an annual rate of 20 million tons in the first quarter of 1940 to one of 36 million in the first quarter of 1943, including about 3.6 million tons from occupied territories.30 Between 1937 and 1944, Japan expanded its capacity from 6.7 to 13.6 million tons, although its output never exceeded a wartime peak of 7.8 million tons in 1943 and by 1944 had fallen to 5.9 million tons.31 In 1943, Axis Europe accounted for about 23 per cent and Japan for a little over 8 per cent of the aggregate steel output of the major bellig­ erent powers. To the remainder, the United States contributed about 48 per cent, Britain nearly 10 per cent, and Canada 2.5 per cent.82 During the same year, the USSR devoted 76 per cent of its steel supply to munitions production, compared with 70 per cent in Britain, 66 per cent in the United States, 44 per cent in Japan, and a mere 43 per cent in Germany.33 28 SBS The Effects of Strategic Bombing on the German War Economy, pp. t 263-64. 29 SBS, Over-all Report (European War), pp. 75-76. 80 Ibid., p. 77. 31 Cohen, Japan's Economy in War and Reconstruction, pp. 127-28. 82 WPB World Munitions Production, p. 53. 1 83 Ibid., p. 49.

POPULATION AND INDUSTRIES

Table 10 compares the postwar production of iron ore, pig iron, steel, and some other basic materials for a number of selected countries. The Soviet Union and the Eastern European countries have sharply increased their steel-making capacity. However, the output of Western Europe as a whole greatly exceeds that of the Soviet bloc. TABLE 10 Production of Major Materials, 1953s4 (monthly averages, thousands of metric tons)

Country

Iron Ore

10,094 United States USSR N.A. United Kingdom 1,339 896 West Germany France 3,531 81.0 Italy West Europea 8,301.4 East Europe" 397.2C British Dominions 752d 128.4 Japan India 309

Pig Iron and Ferro Alloys

5,733 2,311.2 946 976 929e 109.1 3,855.2 484.2' 683.9« 388 150

Crude Steel

8,438 3,166.7 1,491 1,285 l,057e 292 5,144.4 900 571h 639 128

Aluminum Cement

121.61 N.A. 9.41 12.51 11.41 4.6 50.3s 2.6k 41.11 4.71 .3

3,700 1,333.3 950 1,282 769 627 4,705.4 65.8 632.7' 731 320

»Includes Austria, Benelux, Denmark, Finland, France, West Germany, Italy, Norway, Saar, Sweden, Turkey, United Kingdom, Yugoslavia. b Statistics for 1952. Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Roumania. c Not included: Bulgaria, Hungary. a Canada, 488; Union of South Africa, 164. e Including Saar. ' Not included: Bulgaria. β Australia, 143; Canada, 239; Union of South Africa, 101.9. h Australia, 152; Canada, 311; Union of South Africa, 108. 1 Totals include production of both primary and secondary aluminum. 1 Includes Switzerland. k Total for Hungary only. 1 Canada, 41.1. m Australia, 133.4; Canada, 299; New Zealand, 23.4; Union of South Africa, 176.9. 34 Data for East European production from United Nations, Economic Survey of Europe in 1953, pp. 271-76 (iron ore, pig iron, and aluminum); p. 61 (crude steel and cement). USSR crude steel and cement production statistics from ibid., p. 46. USSR pig iron production statistics from United Nations, Economic Bulletin -for Europe, vi, No. 1 (1953), p. 87. All other figures from United Nations, Monthly Bulletin of Statistics (November 1954), pp. 32-33 (iron ore); pp. 45-46 (cement); pp. 48-49 (pig iron); pp. 50-51 (crude steel); p. 57 (aluminum).

ECONOMIC CAPACITY FOR WAR

Nearly all countries capable of producing sizable agglomerates of combat power are more or less dependent on foreign supplies for meeting war or peacetime requirements of a large number of foodstuffs, fuels, and raw materials. This holds least true, how­ ever, of the most basic resources: energy in general, iron, steel, and aluminum. No nation could have developed a substantial economic war potential without large supplies of these basic re­ sources. Dependence on foreign sources of crude petroleum is at present an exception, and rubber is another, if this material is added to the list of the most basic materials. Technological de­ velopment toward their synthetic production is likely to lessen this dependence in both instances. Nevertheless, over a wide va­ riety of other materials, and for vital foodstuffs, dependence on external supplies presents serious problems and prospects in terms of wartime needs. These problems are considered in Chapter 10. Transportation

Transportation is not only a prime essential in war but also an industry upon which war makes demands in excess of peacetime requirements and which, because it is highly capitalized, cannot be readily expanded during major wars. Some countries are never­ theless forced to expand. During the last war, the Soviet Union apparently built extensive new railway lines in order to expand materials and industrial production in the east.35 Advanced in­ dustrial nations, however, can usually meet increased wartime de­ mands through rationing and through intensifying the utilization of existing facilities by speeding up loading operations, restricting the use of freight cars for storage purposes, etc. Thus, United States railroads increased their annual freight hauling from about 490 billion ton-Km in 1939 to 1,081 billion in 1944, and British railways theirs from 27 billion in 1938 to 40 billion in 1944, with­ out adding appreciably to their capital equipment.38 In all important nations railways are the mainstay of inland 85 Cf. Nflcolai A. Voznesensky, The Economy of the USSR During World War II, Washington, D.C., Public AfiFairs Press, 1948, pp. 20, 61. Heavy destruction of existing facilities through air bombardment, and the desire to disperse industrial production, forced Germany to construct new yards, sidings, branch lines, and industrial track. 36 United Nations, Statistical Yearbook, 1948, pp. 264-72.

POPULATION AND INDUSTRIES

transport, although their contribution to the total haul is compar­ atively low in the United States (about one-half of total tonsKms). Since requirements are affected by singular factors—such as sheer territorial expanse, distribution of population, opportuni­ ties for coastwise and inland water transport, the distances of industrial centers from raw materials and fuel supplies—interna­ tional comparisons of railway traffic and capacity are not very re­ vealing. Merchant shipping, of vital importance to nations which depend on overseas trade and are likely to fight overseas wars, is discussed in Chapter 10. Manufacturing Industries

The author of one of the best books on the Second World War remarks that America's military prowess was "a logical conse­ quence of her industrial power." The Germans, he continues, learned by experience that this power had given the American forces boundless equipment, but they did not realize that it had also provided a vast reservoir of manpower skilled in the use of machines.37 Indeed, the industrialization of warfare has greatly increased the importance of manufacturing industries in war po­ tential and this development explains in part the major shifts in the military power of nations that have taken place during the last century and a half. Industrialization contributed to the military decline of Italy, Spain, Austro-Hungary, Turkey, and Imperial Russia, and to the ascendancy of Germany, Britain, the United States and, latterly, Soviet Russia. No doubt, it also assisted in the relative decline in the military might of France, which re­ mained comparatively underindustrialized, retaining a large peas­ ant-type agriculture in its economy. The crucial importance of manufacturing in wartime is also re­ flected in the growth stimulated by war in belligerent countries where conditions for expansion are favorable and which are shel­ tered enough to afford such development. This happened in Can­ ada during the First and Second World Wars, and during the last war in Australia and India. Although the demands in Canada in the First World War were still predominantly for food and raw materials, there was a rising production and export of manufac37

Chester Wilmot, The Struggle for Europe, New York, Haiper, 1952, p. 427.

ECONOMIC CAPACITY FOR WAR

tures; and in the last war the most urgent demands were in fact for artillery, tanks, airplanes, and high explosives.88 Table 11 shows the relative manufacturing position of major powers before the last war and broad changes, in this respect, be­ tween the two great wars. In the comparison of these data, care must be taken to make allowances for short-term fluctuations in business activity. The depression of the early 1930's reduced manufacturing output in all countries but Japan and the USSR, which were in a phase of rapid growth, and the United Kingdom, which had suffered from large-scale unemployment in the late 1920's. Prewar recovery lagged behind in the United States, which, furthermore, experienced a sharp recession in 1937-1938. United States figures after 1929, therefore, understate its ca­ pacity. This was demonstrated emphatically by American produc­ tion records of the war. What is immediately apparent is the prewar industrial preTABLE 11 Relative Manufacturing Strength of Great Powers39 Year

United States

Japan

Italy

France

INDUSTRIAL OUTPUTA

1913 1929

37 110

1932 1938

96 171

63 107

63 111

USSR

79 109

MANUFACTURING OUTPUT

51 79

69 108

Germany Britain

( 1928 = 100 )

74 80

WORLD

70 89 118 101 (1929 = 100) 162 60 417 127

107 106

73 106

82 117

71 119 SEVEN

RELATIVE MANUFACTURING OtTTPUT

1929 1932 1937 1938

2.5 3.5 3.5 3.8

43.3 31.8 35.1 28.7

3.3 3.1 2.7 2.9

6.6 6.9 4.5 4.5

(WORLD OUTPUT = 100)

5.0 11.5 14.1 17.6

11.1 10.6 11.4 13.2

9.4 10.9 9.4 9.2

POWERS

81.2 78.3 80.7 79.9

COMPARATIVE MANUFACTURING OUTPUT PER CAPITAb

1937 1938

48 52

268 219

63 67

108 108

83 104

165 180

198 194

—

a Industrial

output includes mining, electricity generation, and building con­ struction, in addition to manufacturing production. b Obtained by dividing the data on relative manufacturing output by numbers of population. 88 J.

J. Deutsch, "War Finance and the Canadian Economy, 1914-20," Canadian

Journal of Economics and Political Science, vi (1940), pp. 535-37. 39 Adapted from Hillmann, "Comparative Strength of the Great Powers," in Toynbee and Ashton-Gwatkin (eds.), The World in March 1939, pp. 339, 432, 439, 440.

POPULATION AND INDUSTRIES

eminence of the United States, Germany, the United Kingdom, and Soviet Russia, although per capita comparisons relegate the USSR to a distinctly lesser rank. It is also noteworthy that the seven great powers accounted for about four-fifths of world pro­ duction. As a portent of subsequent events in diplomacy and war, the differential growth of industrial prowess is enlightening. Be­ tween 1913 and 1929, the rate of growth was faster in the United States, Italy, Russia, and Japan than in the "older" industrial powers, Britain and Germany. After 1929, it is the industrial ex­ pansion of the USSR and Japan which is truly stupendous. In 1938, the United States, Britain, and France—the three demo­ cratic powers—contributed only 43 per cent to world manufac­ turing output, in comparison with 59 per cent only ten years earlier. Since the bulk of materiel and essential civilian goods are in­ dustrial products, the size of the industrial sector of the economy is, of course, highly significant in war potential. Obviously, not all manufacturing industries are of equal importance. Tables 12 and 13 show that the metal-working and chemical industries tend to expand most in wartime.40 Employment in basic industries, such as mining, transportation, and public utilities, tends to remain fairly stable or to rise only slightly, whereas such consumers' goods industries as "food, drink, tobacco" and "textiles, clothing, and shoes" tend to lose workers. This holds true also of construc­ tion and the service trades. The redeployment of industrial labor during the last war was similar to what occurred in the First World War. Thus, at the period of greatest industrial output in France, in July 1917, employment had risen over prewar levels by 67 per cent in the metal-working industries and by 20 per cent in the chemical industries. On the other hand, employment had fallen by 15 per cent in the leather goods and the food and bev­ erage industries and by 45 per cent in the building materials industries.41 40 Again, the reader must be warned that the presented data are only roughly comparable. Regarding the 1939 figures, particularly, it should be noted that at that time the United States still suffered from large-scale unemployment, accom­ panied by conspicuous depression in the capital-goods industries, and that Germany had already allocated more resources to armaments than, for example, Great Britain. 41 Arthur Fontaine, French Industry During the War, New Haven, Conn., Yale University Press, 1926, p. 61.

ECONOMIC CAPACITY FOR WAR

TABLE 12 Wartime Changes in Employment, Selected Countries, 1939-194442 (thousands) BMTAIN

Sector

1939 June

1944 June

UNITED STATES

CANADA

1939 1941 1944 Aver. Aver. June

1939 1944 Oct.a June

AUSTRALIA

GERMANY

1939 1944 1939 1943 Junei June0 May 31 May 31

Transport, communications, 265 336 242 270 1,855 2,005 utilities 1,667 1,637 3,237 3,573 4,128 691 195 151 Construction 1,207 713 1,753 2,236 180 78 2,534 1,256 Mining and logging 873 155 182 74 813 1,156 1,290 1,061 63 766e 903e Distribution, 790 1,010 742 693 7,191 5,557 services 3,833 2,711 10,778 11,816 11,519 Government (excl. armed 100 175 forces) 80 112 2,894 3,879 1,135 1,559 3,633 4,001 5,245 6,569 7,320 9,797 12,751 16,202 658 1,240 540 736 12,702 11,946 Manufacturing 2,759 4,466 2,673 4,445 7,529 165 530 184 328 I 5,778 Metal goods3 6,863 23 81 284 346 488 664 24 54 Chemicals 506 2,163 3,094 1,858 1,952 15,284 14,753 30,353 35,668 38,846 27,942 25,546 TOTAL a For

sub-groups under Manufachrring 1939 average. For sub-groups under Manufacturing 1939/40 average. c For sub-groups under Manufacturing 1942/43 average. 4 Includes engineering, aircraft, ships, other vehicles. e Mining only. b

This does not mean, of course, that industries of fairly station­ ary or declining employment are unessential or less essential to the war effort than those with expanding manpower. It simply means that the structure of aggregate demand is different in war­ time from what it is in peacetime, and that this shift in demand leads, at the margin, to a corresponding shift in the distribution of productive resources over the various industries. As the process of adjustment proceeds, the relative essentiality of the marginal worker in the textile and clothing industries, for instance, tends to rise, and that of the marginal worker in the engineering industries to decline, as labor is progressively transferred from the former to the latter. In principle, the shift should continue until marginal productivity is equal in all industries. Still, the mobilization of manufacturing capacity for war de42 Adapted from C. T. Saunders, "Man-power Distribution 1939-1945: Some International Comparisons," The Manchester School, xiv, No. 2 (May 1946), pp. 33-35; Nicholas Kaldor, "The German War Economy," ibid., xiv, No. 3 (Septem­ ber 1946), p. 34.

POPULATION AND INDUSTRIES

TABLE 13 Distribution of Japanese Labor Force, 1940-194443 (thousands) Sector

Total manufacturing and construction Metals Machinery, tools, vehicles, ordnance Chemicals Utilities Lumber, wood products Food products Ceramics, stone Textiles, apparel Printing, publishing Engineering and construction Miscellaneous

October 1940

February 1944

Percentage Change

6,981 594

5,936 695

12 17

1,800 475 82 431 368 256 1,497 116

3,681 471 94 294 284 188 717 85

105 -1 15 -32 —33 -27 -52 -27

825 537

885 420

7 -22

mands first of all output expansion in those industries—especially the durable-goods and chemical industries—that are most closely related to the production of munitions. The importance of these industries is far greater for munitions output than for total, in­ cluding civilian, production in wartime. By 1943, 80 per cent of durable-goods production in the United States was munitions production, compared with 66 per cent for all manufacturing in­ dustries and 43 per cent for industries turning out non-durable goods.44 In Germany, 72.1 per cent of all labor in the metal-work­ ing industries produced equipment for the armed services, com­ pared with 61 per cent for all industrial production and 37 per cent for all industrial production excluding metal-working, basic materials, and building materials.45 Other things being equal, a nation's economic war potential will be greater, therefore, the more the durable-goods and chemical industries contribute to the national product in peacetime. This 43 SBS,

44

The Effects of Strategic Bombing on Japan's War Economy, p. 32. US Department of Commerce, Survey of Current Business, Washington, D.C.,

1944, p. 6, 46 SBS,

The Effects of Strategic Bombing on the German War Economy, p. 213.

ECONOMIC CAPACITY FOR WAR

is not to say that a country producing only or mostly nondurable manufactures has no economic war potential, for it may be able to convert such industries to some extent to heavy production or to acquire heavy equipment through trade with other countries. Nor is it to say that the heavy industries as a whole can immedi­ ately or without much delay turn out combat munitions on a large scale. They must be converted to such production, a process usually involving a great deal of re-equipment and effort. But, by and large, durable-goods industries are more easily converted to munitions production than are others; in fact, some of these in­ dustries are essential to the rapid conversion of others. It is for these reasons that there are no longer military powers of the first rank without large metallurgical, engineering, and chemical in­ dustries. Since capital-goods industries depend on adequate supplies of heavy materials and fuel, especially coal and iron, they have de­ veloped primarily in locations where these materials can be cheaply provided. Table 10 (on page 181), which shows the dis­ tribution of steel production, roughly indicates the comparative capacity of important powers for producing durable goods and, particularly, capital goods. Because they are most easily convertible to armament produc­ tion, the capital-goods industries deserve singling out. If we ex­ amine the position of the major powers before the last war, we find the relatively strong endowment of Germany reflected in the high proportion of capital goods in total manufacturing output. If the metal-goods, optical, engineering, shipbuilding, vehicle, chemical, and part of the pig iron and crude steel industries are segregated as making up the capital-goods industries, we see that this proportion came, in 1937, to about 51 per cent in Germany, 48 per cent in the United States, 44 per cent in Britain, 40 per cent in Japan, 39 per cent in the Soviet Union, and 37 per cent in Italy and France.46 In terms of absolute output, of course, the United States was the leading country, since its total manufacturing out­ put was three times as large as Germany's. United States ca­ pacity also was larger than suggested by these figures because this country still suffered from considerable unemployment in 1937. 48 Hillmann, "Comparative Strength of the Great Powers," in Toynbee and Ashton-Gwatkin (eds.), The World in March 1939, p. 444.

POPULATION AND INDUSTRIES

On the other hand, it is noteworthy that, between the late 1920s and the late 1930s, the share of capital goods in total manufac­ turing production had almost doubled in the USSR and expanded by a fourth in Germany, while it had remained fairly stationary in the United States and Great Britain.47 This share had also in­ creased in Japan, where, between 1930 and 1940, the value of industrial output rose from 2.5 to 5.6 times the value of agricul­ tural production, and where the share of heavy industries in the value of industrial output increased from 38 to 73 per cent over the same period.48 The following tabulation reveals the share of the major powers in world production of capital goods in 1937 (percentages).49 Together, the seven major powers accounted for no less than nine-tenths of the world total. United States Germany USSR United Kingdom France Japan Italy

41.7 14.4 14.0 10.2

4.2 3.5 2.5

Comparisons of the production and production capacity of in­ dividual capital-goods industries can easily be made for such items as ships, planes, automobiles, tractors, rolling stock, turbines, and important chemicals. All these industries are vital to modern war­ time production, and annual data are readily available. In inter­ preting them, however, care must be taken to note short-term variations and to appraise the significance of specific industries in terms of the particular conditions of different countries. One capital-goods industry of outstanding significance in the war potential of modern nations is the machine-tool industry. It is crucial to the expansion and conversion of many heavy in­ dustries and, hence, to the large-scale production of guns, am­ munition, tanks, airplanes, ships, etc. The size of machine-tool 47

Jbid., p. 445. Cohen, Japan's Economy in War and Reconstruction, p. 1. These figures are not comparable to the data given for the other powers, but they indicate the rate of growth. Japan's "heavy industry" includes all metal, ordnance, and buildingmaterials production. Making adjustments for price changes, Mr. Cohen estimates that Japan's heavy industry expanded about fivefold during the period, while the output of light industries underwent little change (ibid., p. 2 ) . 49 Hillmann, op.cit., p. 446. 48

ECONOMIC CAPACITY FOR WAR

stocks and of current output largely determines the speed with which other industries can be retooled for munitions production. Moreover, this is an industry which is not easily expanded, for it requires highly skilled manpower. In this key industry, too, the great powers were pre-eminent before the last war, the United States and Germany having the largest capacity, and Japan and Soviet Russia making speedy progress during the 1930s. Table 14 shows machine-tool produc­ tion in the major belligerent countries during the last war. The prominence of Germany is extraordinary and must be attributed chiefly to that country's swift recovery from the great depression, its early start in large-scale armament production and, above all, TABLE 14 Machine Tool Production, 1939-194450 (thousands) UNITED KINGDOM STATES"

GERMANY

Output

Imports from US

307 266 136

199 199 198 166 140 110

37 62 81 96 76 60

8 33 32 24 21 9

UNITED YEAR

1939 1940 1941 1942 1943 1944

JAPAN

USSR

50

]155

a Shipments of machine tools. Data exclude rebuilt machine tools specifically de­ signed for home workshops, laboratories, model-makers, garages, and service shops. Data from 1942 to 1944 include only machine tools valued at $350 or over.

its position as a leading exporter of machine tools. In 1937 Ger­ many accounted for 45 per cent and the United States for 35 per cent of world exports. Great Britain, France, Italy, Japan, and, to a diminishing extent, the Soviet Union were more or less depend­ ent on imports from these two countries.51 Germany's position 50 Data from US Strategic Bombing Survey, Machine Tool Industry in Germany, 2nd ed., Washington, D.C., January 1947, p. 3; US Strategic Bombing Survey, The Japanese Machine Building Industry, Washington D.C., November 15, 1946, p. 2; M. M. Postan, British War Production, London, HMSO, 1952, p. 207; United Na­ tions, European Economic Commission, Economic Survey of Europe in 1951, p. 127; Machinery (Except Electric) Basic Industry Data, compiled by National Industrial Conference Board, New York, December 1953, Table 5. 61 Cf. ibid., p. 447.

POPULATION AND INDUSTRIES

was so favorable that she did not require any wartime expansion of this industry. Output was greatly increased in Britain and the United States, but even at its peak British production was less than two-thirds of Germany's; and the United States did not match the German output volume before 1941, when the Ameri­ can industry worked day and night while Germany's continued on a single-shift basis. In 1942, Germany's output was little dif­ ferent from that of 1939; the American increase was 562 per cent. Output cuts during the second half of the war followed the completion of the major retooling of war industries. In Germany, part of the industry was indeed converted to munitions production. Never throughout the war did that country experience a general shortage of machine tools, for although bombing raids were very destructive of factory buildings, machine tools usually suffered only small damage.52 The machine-tool supply of a belligerent country depends, of course, on stocks as well as on current production. In 1940, Ger­ many had an inventory of 1,780,000 machine tools compared with 940,000 in the United States and 650,000 in Japan. The British inventory was nearly half and the Soviet supply about one-third of the German. The United States inventory did not surpass Ger­ many's before 1944.68 The nature of the machine-tool supply is likewise of significance for a modern war economy. The problems are best brought out by comparing the prewar and wartime production of machine tools in the United States and Germany.54 American industry, designed along mass-production lines, favors machinery promising maximum output with minimum human effort and skill. It demands specialpurpose tools, i.e., automatic or semi-automatic machinery of spe­ cialized design and limited scope of function, thus substituting design and specificity of function for the skill of the operator. This type of production calls for a rapid turnover of equipment as product designs change and new types of tools are developed. As a result of the relative cheapness of German labor, the abundance 52SBS, Over-all Report (European War), pp. 26, 85-86; SBS, Machine Tool In­ dustry in Germany, p. 15. 53SBS, Over-all Report (European War), p. 85; SBS, The Effects of Strategic Bombing on Japans War Economy, p. 202; Hillmann, op.cit., p. 452. 64 Cf. SBS, Machine Tool Industry in Germany, p. 13; SBS, Over-all Report (European War), pp. 32, 85-86.

ECONOMIC CAPACITY FOR WAR

of skilled workers, and a smaller home and a large export market, the German machine-tool industry specialized in general-purpose tools with a wide range of applicability, usually requiring highly skilled operators and involving relatively low output per manhour. These machines are subject to a far lower rate of obsoles­ cence than specialized tools. This contrasting emphasis on different types of machine tools is relevant to war production. General-purpose tools are versatile and their use facilitates quick conversion from one kind of product to another. Machine-tool bottlenecks are far less likely to occur, and there is less need for large-scale, costly, and time-consuming retooling as products and product specifications are changed. In general, German leaders regarded this inherent flexibility in their industrial system as an insurance against any specific and chang­ ing demands which might occur in the course of a war. Specialpurpose tools, on the other hand, have the advantage of minimiz­ ing requirements for highly skilled labor and, above all, for labor in general, since their use enlarges labor productivity—a factor of great import in view of the manpower shortage with which war economies are eventually confronted. It follows from this analysis that emphasis on general-purpose tools tends to be beneficial in a relatively short war, whereas—unless the state of prewar mobili­ zation was high—the advantage of special-purpose machines comes to full fruition only in a prolonged struggle. Dviring the final stages of the Second World War, indeed, some German leaders became skeptical of the superiority of general-purpose tools in a war economy, and Speer began to adopt, in some in­ dustries, mass-production techniques with assembly-line produc­ tion. By 1944, nearly half of all German machine-tool workers had been shifted to the direct manufacture of munitions. Speer and some other officials deplored this trend on the grounds that an increasing output and employment of special-purpose tools, after completion of the initial tooling-up period, would have re­ sulted in larger munitions output per worker and, hence, in the release of more manpower to the armed forces. Since the end of the Second World War, the increasingly intri­ cate design of up-to-date combat equipment seems to have made armament production more dependent than ever on machine tools in large volume and of special-purpose design. Notably in aircraft

POPULATION AND INDUSTRIES

production, the tools preferred for metal-cutting and metal-shap­ ing have become more complex, thus generating a demand for tools of which a diminishing proportion is available in peacetime manufacturing enterprise. In the United States and Britain, this development accounted in large part for the slow rise of munitions production after the outbreak of the Korean War had induced a greatly expanded defense program. Although Britain's machinetool capacity in 1951 was 50 per cent larger than before the war, Mr. Strauss, the Minister of Supply, announced in May of that year that the new three-year arms program would require 35,000 additional machine tools.55 From the viewpoint of economic mobilization for war, a na­ tion's economic strength will tend to be great if the country maintains an extensive armament industry in peacetime or, next best, if it maintains large heavy industries. The latter are not only converted relatively easily to munitions production but are also more readily expanded once they exist in large size. The con­ struction and machine-tool industries are instrumental in facili­ tating industrial conversion and expansion and are, therefore, of critical importance, especially in the initial phase of the industrial war effort. Since a relatively large contribution of heavy industries to the national product is a distinct asset in time of war, due attention must be paid to the absolute size of these industries, not only to their proportionate strength, when international comparisons are made. There is, indeed, a tendency—when nations have attained very high levels of productivity—for employment in the manu­ facturing sector of the economy to decline as a proportion of total employment, and for employment in the service industries to rise correspondingly. Several service industries—such as transporta­ tion, public utilities, and medical care—are as essential in war as in peace, and labor cannot be withdrawn from them in an emer­ gency. However, the peacetime trend toward increasing produc­ tion of services reflects in large part a change in the structure of demand. As real income rises, many communities tend to spend a diminishing proportion on manufactured products and a rising proportion on various services such as travel, education, health, amusement, and convenient retailing. Activities in these service 58 New York Times, May 9, 1951, p. 10.

ECONOMIC CAPACITY FOR WAR

industries can be retrenched in wartime and the labor thus re­ leased can be shifted to employment in war-essential industries. A high proportion of the labor force engaged in non-essential service trades is not, however, an advantage in time of war, as is sometimes suggested.56 To be sure, rich nations dispose of a big reservoir of labor in the service industries and this reserve can be tapped for manning more war-essential production lines. Yet it would obviously enhance the economic war potential if in peace­ time a larger proportion of the labor force were already employed in the industries to which additional labor will be channeled in wartime. A large labor force in service industries may be sig­ nificant as an index of a high productivity and income. But even this correlation does not always obtain. The relative proportion of workers in primary, secondary, and service industries depends also on other factors, such as comparative international cost ad­ vantage and consumers' preferences. Thus, although the United States and New Zealand enjoy roughly equal levels of real income per capita, comparative cost advantages have encouraged New Zealand to employ a substantially larger proportion of its labor force in primary and service industries than is so employed in the United States. A comparison of French and United States con­ sumers of equal real income reveals that the average Frenchman has a stronger preference for miscellaneous services and a weaker preference for manufactured products than his American counter­ part. It has also been pointed out that some of the least-developed economies employ a very high proportion of their labor supply in certain service trades. The history of economic development testifies to the great ob­ stacles to rapid industrialization which confront an economically backward country. That history also discloses, however, that such progress can be swift, once the initial phases are passed and the structure of goals and preferences in the community are effective in generating a high and steady rate of saving and investment and in tolerating the variegated dislocations which attend rapid change. In recent decades, the industrial advances of Japan and the Soviet Union are telling examples of how quickly industrial B6E.g., Geofifrey Crowther, The Sinews of War (Pamphlet on World Affairs, No. 23), New York, Farrar and Rinehart, 1940, p. 15.

POPULATION AND INDUSTRIES

capacity and, to that extent, the economic war potential of na­ tions can grow. Following a period of relative economic stagnation in the 1920's, Japan produced, at the beginning of the 1930's, 27.9 million tons of coal per annum, 4.3 billion KWH of electricity, 1.8 million tons of ingot steel, 19,000 tons of ingot aluminum, 92,000 gross tons of merchant shipping, and about 500 motor vehicles and 400 planes. In 1941 (in the case of shipping, in 1937), she produced 55.6 mil­ lion tons of coal, 9.4 billion KWH of electricity, 6.8 million tons of ingot steel, 72,000 tons of aluminum, 405,000 tons of shipping, 48,000 motor vehicles, and over 5,000 planes." Tables 15 and 16 indicate the spectacular expansion of indus­ trial production in the USSR. Although these data are official figures, experts do not question their veracity and, in view of the past record, expect actual performance to conform closely to the targets of the current and fifth Five-Year Plan. The progress TABLE 15 Growth of Russian Production, Selected Items58 ACTUAL AND PLANNED GROWTH,

Year

Coal & Lignite (million tons)

1937 1953 1955

127 320a 375

Electric Power (billions KWH)

36.4 133.0 162.0

1937-1955

Pig Iron (million tons)

Crude Steel (million tons)

Petroleum (million tons)

14.5 27.5 34.0

17.7 38.0 40.0

28.5 52.0" 75.0

a Including b Crude

lignite. petroleum.

achieved is particularly impressive in view of the destruction wrought by four years of war. To the extent that information is available on specific engineering goods, the rise in their output seems in keeping with expansion in the output of basic materials and energy. To be sure, per capita production is still smaller than 67 Cohen,

Japans Economy in War and Reconstruction, pp. 2-3. from United Nations, Economic Bulletin for Europe, vi, No. 3 (1954), p. 46 (coal); p. 47 (electricity). Figures from United Nations, Economic Survey of Europe in 1953, p. 46 (crude steel and crude petroleum). Pig-iron statistics from The Economist (February 6, 1954), p. 376. 68 Figures

ECONOMIC CAPACITY FOR WAR

in the industrial countries of the West and, especially, than in the United States. But the difference is decreasing rapidly and should decrease still more if the 1955 and the more tentative 1960 targets are reached. For instance, in 1950 Premier Stalin announced TABLE 16 Per Capita Output of Major Countries, 195359 (kilograms per month)

US

Coal 225.9 Electric power® 227.8 Pig iron 35.4 Crude steel 52.1 Petroleum 164.1

UK

373.3 108.1 18.6 29.3

West Germany

France

USSR (planned USSR 1955)

210.1 101.0 19.7 25.9 3.7

135.2" 74.6 21.7" 24.6b .7

128.5 54.6 11.1 15.3 20.9

144 63 13 17 27

aKWH. b Including

Saar.

a goal of 60 million tons of steel per year for I960.80 A sharp ex­ pansion of industrial capacity seems to be taking place in other Soviet republics as well. It is clear from the foregoing that the composition of a nation's productive resources is highly relevant to its wartime strength. However, it is necessary to caution against deriving a comparison of war potentials too readily from such surveys. The steel mill is 59 Population statistics from United Nations, Monthly Bulletin of Statistics (No­ vember 1954), pp. 1-5. Coal, petroleum, electricity, pig iron, and crude steel production statistics for US, UK, West Germany, and France from ibid., pp. 25-26, 30-31, 59-61, 32-33, 50-51. Coal production figures for the USSR from United Nations, Economic Bulletin for Europe, vi, No. 1 (1953), p. 64. Electricity produc­ tion figures for the USSR from The Economist (February 6, 1954), p. 376. Petroleum and crude steel production figures for the USSR from United Nations, Economic Survey of Europe in 1953, p. 46. USSR per capita production figures planned for 1955 from The Economist (August 30, 1952), p. 505. 60 Several observers have noted that annual increments of output have been diminishing since 1949 and infer from this a slackening of growth. However, such growth was particularly rapid from 1948 to 1950, as it was in Western Europe, because it represented in large part recovery from wartime declines. There is no doubt that, even barring political and administrative disturbances, the expansion of the Soviet economy is bound to slow down as natural resources, and especially labor, become scarcer in relation to total demand. Yet as output continues to rise, even diminishing percentages of growth will add substantially, and for a time perhaps increasingly, to absolute increases in production.

POPULATION AND INDUSTRIES

a long way from the battlefield, and the differences in the quan­ tities of steel which nations are able to produce in peacetime may not correspond closely to the differences in the quantities of steel which they hurl against their enemies. And this does not hold true of steel alone. Despite her great industrial inferiority, Japan manufactured nearly 18,000 planes per year from 1942 to 1944, compared with 25,500 produced in Britain, 37,000 in Germany, and 76,700 in the United States.61 Perhaps more revealing is Table 17. Taking TABLE 17 United States and USSR Military Output62 AVERAGE NUMBER OF UNITS PER YEAB

United States (1942-1944)

Item

Tanks, armored cars, self-propelled guns Artillery Mortars Machine guns and sub-machine guns Aircraft a Average

OUTPUT PER 1,000 TONS OF STEEL PRODUCTION

USSRa

US (19421944)

USSR (19421944)

33,600 57,500 20,300

30,000 120,000 100,000

.4 .7 .2

2.3 9.0 7.7

1,659,000 76,000 (111,000)"

450,000 40,000

18.7 .9 (1.3)1-

34.6 3.1

of the "last three years of war." equivalent of airframe weight produced.

b Fighter-plane

into account that, during the years concerned, the United States produced 88.1 million tons of steel per annum, while 13 million tons (allowing for Lend-Lease shipments) were available to the Soviet Union, we find that the Russian output of these major items of material compares very favorably with United States pro­ duction. If these data are taken literally, the comparison is, of 61 Data from SBS, The Effects of Strategic Bombing on Japans War Economy, pp. 220ff.; SBS, The Effects of Strategic Bombing on the German War Economy, pp. 277fF.; Statistical Digest of the War, London, Central Statistical Office, 1951, p. 152. For the United States figure, see Table 17. 62 Statement by Edward Ames at the Sixty-third Meeting of the American Economic Association, American Economic Review (Papers and Proceedings), XLI (1951), pp. 490-91. Mr. Ames' figure for "Tanks, . . ." was replaced by a more comparable figure from WPB, Wartime Production Achievements.

ECONOMIC CAPACITY FOR WAR

course, misleading. No allowance is made for differences in the weight and design of units, and the United States, unlike the USSR, had to allocate large quantities of steel to the production of ships. Nevertheless, there can be no doubt that the Soviet Union was able to allocate a far greater proportion of steel output, and probably of other industrial products, to the manufacture of com­ bat equipment than did the United States, where a larger pro­ portion went to support a high standard of Hving in and outside the armed forces. This is not to say that, if pressed, the United States could not, in a future emergency, allot a larger proportion of output to the manufacture of combat munitions or that the Soviet government could repeat its feat of the early 1940's. But the orders of magnitude contained in the comparison do bring out the fact that output capacity alone is not a sufficient index of wartime economic strength. Administrative competence and the motivation for war impinge heavily on the allocation of resources. If analysis is content with comparing merely the capacity of na­ tions to produce energy, steel, motor vehicles, etc., it proceeds on the implicit assumption that the utilization of resources will show no wartime differences among countries. This assumption is grossly unrealistic.

CHAPTER 10 FOREIGN TRADE AND WAR POTENTIAL

INTERNATIONAL trade has a bearing on the economic war poten­

tial of nations, since it afiFects both the size of national products and the structure of productive resources. It affects productivity and it affects adaptability to the production of military goods. Advantages of Wartime Trade

International trade permits nations to emphasize those fields of production for which their productive resources are comparatively most suited and to acquire through exchange those goods and services which they themselves can produce only at relatively high cost or which they cannot produce at all. Through this specializa­ tion, nations will get a larger output from given productive re­ sources than they would otherwise obtain. They achieve a larger national product. This inducement to trade is powerful so long as the demand for the maximum supply of goods and services is ranked high among the effective goals of nations. To the extent that international trade tends to maximize pro­ duction and remains feasible in wartime, it is of as unquestion­ able benefit then as in peace time. To be sure, the plant, labor, and materials used in making export goods are not available for producing war supplies or civilian necessities; but war-essential supplies are enhanced by imports, and the presumption is that the total supply available will be larger than it would be in the ab­ sence of foreign trade. In terms of employing resources, needed goods are obtained more cheaply through trade than through do-

ECONOMIC CAPACITY FOR WAR

mestic production. Belligerent countries may send goods to allies or neutral nations, or receive goods without compensatory exports. But no trade is then involved, and these transactions are not, therefore, considered in this chapter. The extra gain in output derived through trading is available to increase the nation's war effort. The advantage of wartime trade, however, may extend beyond securing the greater pro­ ductivity and production which peacetime trade also engenders. Trade may facilitate the conversion of resources to the generation of combat power. To the extent that a nation's resources are not well adapted to the production of munitions—so that it will face either a lengthy and costly process of industrial conversion or a prospect which is hopeless during any relevant wartime period— and to the extent that it can exchange export products for mu­ nitions or indispensable supplies produced abroad, it is saved the burden of conversion. To that extent, its export industries become, in a manner of speaking, its armament industries, for—through trade—they produce war goods indirectly. Incidentally, to the de­ gree that wartime trade makes conversion of domestic resources unnecessary, conversion costs are saved twice, since the costs of postwar reconversion are also avoided. A nation capable of managing an import surplus in wartime with a large volume of trade is in an especially favorable position, for the surplus goods form a net addition to its ability to meet essential needs. Leaving consideration of postwar repercussions aside, an import surplus represents an efficient conversion, by means of trade, of resources for war purposes, if the surplus is financed by the liquidation of external assets in the form of gold, foreign-exchange reserves, or investments abroad. If the import surplus is financed by borrowing, the nation is mortgaging some of its productive resources. To that extent, good credit-standing abroad is a valuable asset. In either event, the nation is able to increase its immediate war effort. In this sense, an import surplus, financed through borrowing, that preceded the outbreak of war would also be beneficial if the import surplus went to augment the country's stock of materials, capital equipment, or consumers' goods which are essential in wartime. Once engaged in war, the country concerned can usually manage to postpone repayment or servicing of the contracted

FOREIGN TRADE

debt. Prior to the Second World War, Germany benefited from such an import surplus, which was largely made possible by the desire of many nations in the outside world to increase domestic employment and to promote exports. To run a prewar import surplus with future enemy countries would further enhance the accruing benefits, unless the import surplus served to build up the war-production facilities of the prospective enemy nations. Wartime dependence on imports is, therefore, not necessarily a source of weakness. On the contrary, it is a source of strength so long as wartime trade can be maintained and is not encumbered with the special costs discussed below. It is not surprising, there­ fore, that belligerent nations are apt to remove or reduce arti­ ficial barriers to trade which they deem necessary for protectionist reasons in peacetime. Tariff duties and other import restrictions may be lowered or suspended on war-essential imports—a move which is made politically feasible because a war economy pro­ vides for full employment of virtually all resources and the fear of foreign competition tends to be at a low ebb. This does not mean that belligerent nations will do away with import restric­ tions. Indeed, modern war—as the experience of the Second World War forcefully illustrates—compels governments to resort to the strictest control of imports as well as exports.1 But the ra­ tionale of control in wartime differs from its peacetime purposes. It is primarily the need to conserve foreign-exchange and shipping facilities, and hence to confine imports to the most essential goods and services, which governs policy in wartime; and it is the pre­ mium on shipping space and the need to manipulate export ca­ pacity for obtaining priority imports which, in addition to con­ siderations of economic warfare, lead to extremely tight control over exports. The Precarious Nature of Wartime Trade

Yet if wartime trade can add greatly to the economic effort of belligerent nations, it is for most, if not all, nations notoriously precarious as well. War disrupts trade with enemy countries and the areas they control; blockade and counter-blockade may ob1 See, for example, Hancock and Gowing, British War Economy, pp. 112ff.; Fesler (ed.), Industrial Mobilization for War, p. 651; R. Warren James, Wartime Economic Co-operation, Toronto, Ryerson Press, 1949, p. 190.

ECONOMIC CAPACITY FOR WAR

struct or cut off traffic with neutral areas; and a dearth of shipping may further limit wartime commerce. It has been estimated that the Second World War—which eventually involved as belligerents countries with no less than 90 per cent of the world's population—interrupted about 43 per cent of the volume of prewar trade. Not all countries were equally affected by this dislocation. The war broke off 42 per cent of United States trade, 46 per cent of the trade of continental Europe, 63 per cent of the commerce of Japan and Southeast Asia, and 80 per cent of the foreign trade of the USSR.2 This disruption of international commerce was particularly serious for nations which, in peacetime, were highly dependent on foreign supplies, although its dislocating effects also varied with the nature of imports, the geographic distribution of prewar trade, access to alternative markets, and other conditions. Great Britain, for example, imported about three-fourths of her food supply directly, while home food production depended largely on imported feed and fertilizers. She also received from overseas two-thirds of her supplies of iron ore, nearly all required nonferrous metals, oil, wool, timber, and rubber, and all of her cotton supply. Of her timber imports, for example, more than half had passed through the gates of the Baltic Sea and most of her dairy imports had come from Denmark and eastern European countries. In 1942, Britain imported only 42 per cent of the prewar average and throughout the first half of the war, even after the Lend-Lease Act was passed, her government was haunted by the fear that she might be unable to import the food and industrial materials with­ out which her capacity for waging war would be emasculated.8 Germany's dependence on imported foodstuffs and materials was perhaps her greatest weakness during the First World War. In the crop year of 1912-1913, she produced 206.9 billion calories of vegetable food and had net imports of 28.5 billion calories. But even her home output required imported fertilizer. By the crop year of 1917-1918, domestic production had fallen to 163.6 billion calories and net imports to a mere 1.3 billion.4 Before the Second 2

Bank for International Settlements, Fourteenth Annual Report, Basle, 1944, p.

46. 8

Cf. Hancock and Gowing, op.cit., pp. 281, 420-34. Wagemann, Wirtschaftspolitische Strategie, Hamburg, Hanseatische Verlagsanstalt, 1937, p. 139. 4 Ernst

FOREIGN TRADE

World War, Germany produced approximately 83 per cent of her food requirements (1937).5 But she imported 70 per cent of her iron ore, 83 per cent of her copper, 75 per cent of her rubber, 66 per cent of her oil, and all of her manganese, chrome, nickel, wolfram, tungsten, and a host of other materials.® With the ex­ ception of iron ore and bauxite, moreover, a large proportion of these materials imports came from outside Europe: manganese chiefly from South Africa and Brazil; copper from the British Do­ minions, Chile, and the United States; chrome from South Africa and Turkey; antimony and wolfram from China; and most of her nickel supplies from Canada. Germany's occupation of much of continental Europe reduced some of these shortages. But prewar continental Europe as a whole had been highly dependent on overseas sources of supply. Although, in terms of calories, this region produced about 90 per cent of its food (including food­ stuffs), it was seriously deficient in the production of fats, 70 per cent of which were normally imported. Furthermore, the conti­ nent had been importing about half of the extra-European ex­ ports of cotton, jute, and wool, a third of its oil, and one-fourth of its rubber.7 If the division of the globe into hostile camps will itself mutilate trade and force wartime commerce into narrower confines, in­ adequate shipping facilities will tend further to curb and distort trade within the artificial trading compartments brought about by war. The movement of goods overland may be handicapped by damage to and inadequate maintenance of transport resources and by the diversion of shipping resources to direct military use. Maritime shipping facilities may become strained for a number of reasons: the destruction of shipping and port facilities by enemy action; the resort to lengthier routes in order to minimize losses; the adoption of the convoy system which requires time for the assembly of ships, reduces the average speed of vessels, and tends to congest port facilities; and the difficulty of maintaining ship­ building and repair capacity. If shipping facilities are scarce, imports from distant sources are obstructed and concentration on short hauls is encouraged. Dur5 Bank

for International Settlements, Eleventh Annual Report, Basle, 1941, p. 21. Over-all Report (European War), pp. 35-36. 7 "The Control of Primary Products," The Economist (November 9, 1940), p. 582. e SBS,

ECONOMIC CAPACITY FOR WAR

ing the Second World War, for example, stocks of food were ac­ cumulated in the Antipodes and in South America because Great Britain was unable to spare enough bottoms for their transport. Shipments from Australia and New Zealand became especially costly, in terms of scarce shipping resources, when enemy action in the Mediterranean forced British vessels to use the southern route around the Cape. Britain was thus obliged to shift more and more to North America as a source of vital supplies. While 36 per cent of British imports had been drawn from North America dur­ ing the first nine months of the war, in 1941 this proportion rose to 54 per cent.8 Australia, on the other hand, was forced to con­ serve shipping by increasing her trade with nearby areas, espe­ cially India. Compared with 1938-1939, Australian imports from India had increased by 315 per cent in 1943-1944, and her ex­ ports to India by 410 per cent.® Wartime shortages of shipping also tend to entail changes in the composition of imports. As bulky and heavy cargo must be di­ minished, imports of processed and manufactured goods become preferable to crude foodstuffs and raw materials. Shipping is saved if flour and meat can be substituted for grain, shell steel, or shells for iron ore, and machinery and vehicles for raw ma­ terials. Such substitution is reinforced by the fact that it releases manpower in manufacturing industries. Wartime disruption of international trade may also result in the loss or reduced accessibility of favorable export markets and thus lower earnings of required foreign exchange. War does not respect the opportunities for multilateral settlements which pre­ sent themselves in peacetime. Furthermore, the redistribution of foreign trade and the substitution of fabricated for unmanufac­ tured goods, caused by the need to economize shipping re­ sources, may result in scarcities of foreign exchange. However, shortages of foreign exchange which belligerent nations often experience in times of war are in large part a consequence, not of such dislocation, but of the conversion of export industries to the direct production of munitions. If nations at war want to en8 Hancock and Gowing, op.cit., p. 241. In part, this shift was also induced by the inauguration of Lend-Lease. 9 E. Ronald Walker, The Australian Economy in War and Reconstruction, New York, Oxford University Press, 1947, pp. 323-27.

FOREIGN TRADE

joy the advantage of trade to the extent that is profitable and feasible, they will give their export industries sufficient priority claims on resources. Otherwise, they act inconsistently. Even when foreign markets remain physically and legally acces­ sible, and neither shipping nor foreign-exchange shortages hamper transactions, wartime trade is apt to involve the same disad­ vantages which attend reliance on the market mechanism for pro­ curing munitions at home. Once war has broken out, a great many goods, suddenly in larger demand, become increasingly short and, in the absence of special inducements, increases in supply may lag far behind the rise in requirements. The resultant rise in prices may well mean less favorable terms of trade for the importing country at war and thus require a greater commitment of re­ sources to the export industries for a given quantity of imports. Indeed, the belligerent nation may find foreign sources of supply drying up because foreign governments limit or prohibit exports in order to ensure satisfaction of domestic demand. The time ele­ ment becomes particularly critical when the belligerent country attempts to import military equipment from the outside world, since foreign manufacturing capacity may have to be established or expanded, and adapted to changing product specifications. This is likely to be a time-consuming process if only market meth­ ods are available to stimulate such adjustments. In 1939 and 1940, the United Kingdom and France met with this experience in the American market. Early in 1940, the greater part of British and French outlays of foreign exchange in the United States were made, not on military planes and other weapons, but on develop­ ing American capacity for their production. In this instance, pro­ duction came too late to be useful to France.10 Clearly, belligerent nations may find reliance on international trade both hazardous and costly. Foreign supplies of indispensa­ ble goods may be cut off entirely or may be extremely hard to get. At best, this will mean bottlenecks in the flow of supplies which will interfere with smooth production operations and throw complementary resources into temporary unemployment, amount­ ing to a waste of productive capacity which warring nations can ill afford. To overcome supply bottlenecks will require precious time and resources for developing substitute production or, if 10

Hancock and Gowing, op.cit., p. 118.

ECONOMIC CAPACITY FOR WAR

feasible, for doing with fewer supplies than customary or with no supplies at all. The uncertainty of supply prospects itself is harass­ ing to the planners of strategy and war production, and must reduce the efficiency of planning operations. Even to the extent that foreign supplies are forthcoming, they may be acquired at a cost far higher than in peacetime, not only because prices of scarce goods may rise precipitately, possibly involving a larger export volume in exchange for a given quantity of imports, but also because of the resources absorbed, again in larger amount than in peacetime, by wartime shipping and its military protec­ tion. Indeed, these drawbacks of wartime trade are likely to re­ quire belligerent countries to undertake numerous and marked changes in the allocation of productive resources, a burden which must be particularly onerous because it is added to the other strains of economic mobilization for war. That Britain, during the Second World War, was compelled to augment greatly domestic food production, and the United States to build a large-scale syn­ thetic-rubber industry, are telling examples of this predicament. The history of recent wars suggests that war obliges belligerent nations to become more self-sufficient than they are in peacetime —an experience which lends substance to the contention that relatively free international trade prospers best and is most bene­ ficial during periods of durable peace. Conditions were different in the heyday of the free-trade move­ ment. During the Crimean War, the British Board of Trade held that British merchants were legally free to import Russian goods purchased in neutral countries; orders-in-council allowed Russian vessels six weeks of grace in which to load at British ports and return to Russia; the British government permitted the flotation of a Russian loan in the London capital market; and the French government invited Russia to take part in the Paris Expo­ sition of Industry and the Arts.11 Neither during the Napoleonic era nor during recent wars have belligerent governments exhibited such deference to the operations of foreign trade. How serious the drawbacks of relying on wartime trade are and how vulnerable a country is to wartime dislocations of trade de­ pend, of course, on the circumstances of the particular nation and 11 Cf. Robert C. Binkley, Realism and Nationalism, 1852-1871, New York, Harper, 1935, p. 176.

FOREIGN TRADE

the particular war. Even when these circumstances can be taken into account, prediction will be extremely hazardous. The predic­ tions, made in 1939 and early 1940, of Germany's inability, for lack of essential materials, to wage prolonged war underline this difficulty. The variable conditions to be considered are numerous and often defy even the roughest forecasting. Obviously, much depends on whether a short or long war is in question, and on the expanse and economic riches of the coimtries and territories with which a nation at war can maintain effective communication overland or overseas. In this respect, the distribution of peace­ time trade is of consequence. In 1937, for example, Britain re­ ceived 68 per cent of her imports from outside Europe, and France 60 per cent, compared with Germany's 44 per cent.12 Al­ though Germany's relatively greater dependence on nearby mar­ kets was in part fostered deliberately in the middle and late 1930's, comparative transport costs and long-established commer­ cial relations tend to favor trade by relatively land-locked coun­ tries with neighboring inland areas, whereas maritime countries will naturally trade with more far-flung markets. Another factor of consequence is the extent to which different nations are dependent on imports. However, the aggregate de­ pendence of countries on imports is hard to evaluate. Mere value or quantity of imports is an unreliable index, since the mere size of the domestic market will be a major determinant of the trading volume. If imports are assessed as a proportion of national in­ come, Britain and France certainly depended far more on foreign trade before the Second World War than did Germany, the United States, and the Soviet Union. Yet, this criterion is largely meaningless for the purpose at hand. The latter three nations maintained higher artificial barriers to peacetime commerce than did the United Kingdom, and their remaining imports were likely, therefore, to have contained a larger proportion of essentials than did British imports. The only relevant criterion, after all, is how indispensable peacetime imports are in wartime, and about this any generalization is beset with pitfalls. It is possible to draw up lists of imports for each country which separate relatively es­ sential goods, such as basic materials, fuel, and food, from rela12 R. W. B. Clarke, The Economic Effort of War, London, George Allen & Unwin, 1940, p. 235.

ECONOMIC CAPACITY FOR WAR

tively dispensable ones, such as luxury consumption goods; and to relate the quantity of essential imports to average peacetime or, better, presumable wartime consumption, since wartime needs may differ from peacetime needs. But such an inquiry not only fails to settle the problem of import availability in wartime, but also begs the question of how essential different quantities of each "essential" supply will be in the specific war situation of a bel­ ligerent country. The degrees of essentiality will vary significantly, for instance, with the duration of the war, the peacetime prepara­ tions made by the country for wartime, the capacity of an econ­ omy to adjust to changes in supplies, and the prevailing motiva­ tion for war. It is beyond doubt that dependence on imports may be danger­ ous and possibly fatal to some countries in modern war. During the First World War, certainly, the Central Powers were gravely weakened by the Allied blockade. Although Germany's situation was more favorable in this respect during the Second World War, it is reliably reported that German military strategy in Russia was often, and at crucial moments, dictated not by strictly military considerations but by the need to gain or maintain access to sources of scarce raw materials, especially oil.18 In June 1942, Hitler is reputed to have told his senior officers: "If I do not get the oil of Maikop and Grozny, then I must end this war."14 And it is a matter of record that an increasing dearth of oil con­ tributed heavily to Germany's defeat. Japan's vulnerability to war-disrupted trade was perhaps her decisive weakness in the Second World War. Her dependence on overseas supplies was crucial for oil, iron ore, coking coal, bauxite, all non-ferrous metals (save zinc), and rubber, and to a lesser extent for food and certain kinds of machinery. Between 1940 and 1944, coal imports fell from 10.1 to 3.1 million tons and oil imports from 15.1 to 3.3 million barrels.15 Rice imports dropped from 2.5 million tons in 1941 to 875,000 tons in 1944, while do­ mestic food production had contracted by one-fourth.1® It was, however, during the last part of 1944 and in 1945 that the progreslsCf. Wilmot, The Struggle for Europe (British ed., London, Collins, 1952), pp. 81, 436-40. 14 Quoted in ibid., p. 95. 15 Cohen, Japan's Economy in War and, Reconstruction, pp. 134, 160. 18 SBS, Summary Report (Pacific War), p. 32.

FOREIGN TRADE

sive destruction of Japanese shipping cut imports to a mere trickle. Based largely on remaining stocks, munitions production reached its peak in the autumn of 1944, but thereafter it declined rapidly. Before the large-scale bombing of Japan began, the raw-material base of her industries was disintegrating and an accelerating col­ lapse of armament output was inevitable. Japan was largely de­ feated by blockade.17 Preparation for Wartime Self-Sufficiency

The disruption, risks, and costs of wartime trade are large enough to justify the conclusion that—all other conditions of eco­ nomic strength remaining the same—self-sufficiency, or any reason­ able approximation to it, is best for a nation at war; and from this it is often inferred that a nation will increase its wartime economic strength if it strives in peacetime to become less dependent on foreign trade. It can be demonstrated, however, that this infer­ ence is debatable, for peacetime self-sufficiency is not necessarily the best preparation for wartime self-sufficiency; and, above all, all other conditions of economic strength do not remain the same if the quest for self-sufficiency in peacetime is undertaken. The argument that, in order to be better prepared for war, a nation is well advised to reduce its dependence on foreign goods and services has found many proponents. It had advocates even after mercantilist ideas had been largely discarded. Adam Smith and John Stuart Mill, though free traders, conceded that con­ siderations of defense should override considerations of opulence. While these free traders limited the application of their argument chiefly to shipping services, it might well be contended that what the Navigation Acts were for Britain, the protection of essential domestic production was for nations which were landlocked or could not hope to maintain maritime commerce in wartime. It was Friedrich List, the German political economist, who devel­ oped a systematic theory of protection in the interest of prepara­ tion for war.18 List started with the observation that war is de­ struction of international trade; that it disrupts the exchange be­ tween agricultural and industrial countries; and that belligerent 17

Ibid., p. 2. Einund Silbemer, The Problem of War in Nineteenth Century Economic Thought, Princeton, N.J., Princeton University Press, 1946, Chs. vm-ix. 18 Cf.

ECONOMIC CAPACITY FOR WAR

nations are forced to fall back on their own resources for meeting essential needs. He insisted that, to wage war with success, a nation must be both an agricultural and an industrial producer, and that—if this does not come about by itself—nations should build up deficient industries behind protective barriers. He con­ cluded that "the protective and prohibitive systems of nations are . . . the natural and inevitable outcome of international strug­ gle and hostilities."18 There are, of course, few countries which can hope to become economically self-sufficient in peacetime, even if they are willing to take every conceivable action or to undergo sacrifice of income to achieve this result. The practical question is one of more or less self-sufficiency against more or less international specializa­ tion and trade in peacetime. Yet even though a high degree of self-sufficiency in wartime is considered essential to national se­ curity and becomes a supreme goal of policy in peacetime, it does not follow logically that peacetime self-sufficiency is the best preparation for becoming self-sufficient in time of war. A nation aspiring to self-sufficiency in wartime will obviously enjoy a larger war potential if, in peacetime, it is a large exporter of war-essential goods and an importer of goods which can be dispensed with in wartime.20 It is of the essence of economic mo­ bilization that the output of war supplies is expanded and, un­ less there was substantial unemployment prior to war, that of comparatively unessential goods reduced. A nation which, in peacetime, exports war-essential goods—such as armaments, basic materials, engineering and chemical products, in exchange for luxuries and other consumers' goods—will face a relatively easy task of conversion. Such international specialization and trade, therefore, stimulate the growth of an economy inherently adapted to wartime mobilization. This is an advantage enjoyed by all in­ dustrial nations which specialize in the export of engineering and chemical goods, provided they are not unduly dependent on im­ ports of basic materials and food. Certainly Germany's war po­ tential was the greater for her large peacetime exports of steel, 19 Quoted

in ibid., p. 147. Frank D. Graham and Lt. Col. J. J. Scanlon, Economic Preparation and Con­ duct of War Under the Nazi Regime, Washington, D.C., Historical Division, War Department Special Staff, April 10, 1946 (mimeographed), p. 15, n. 2. 20

FOREIGN TRADE

heavy machinery, chemicals, and especially machine tools. In any case, to the extent that wartime imports can be reduced or will decrease, or be obtained through borrowing or liquidating external financial assets, non-agricultural export industries constitute a re­ serve of productive power which is readily available for produc­ ing munitions. The main drawback of restrictive peacetime trade as a means of promoting economic self-sufficiency in wartime is that it means lowering economic wartime strength in one way while possibly in­ creasing it in another. Given the perennial danger of involvement in war, it may be granted that the precarious nature and possible costliness of wartime trade justify peacetime preparations for di­ minishing a nation's dependence on international commerce. It may be granted further that suitable trade controls will foster the growth of an economy less dependent on foreign markets and hence less vulnerable to the exigencies of war. It is equally true, however, that this method of making the structure of a nation's productive resources more adapted to waging war in isolation is likely to exact costs in terms of a lower over-all efficiency of pro­ duction which itself is an important determinant of war potential. The real cost of a policy bent on relative self-sufficiency is a smaller aggregate output from given resources. Agricultural pro­ tection in Germany made that country more independent of for­ eign food supplies than was Great Britain before the Second World War. But this also meant that, per 100 consumers, more workers were required in Germany to produce food at home than were required to produce it in Britain, largely through interna­ tional exchange.21 Similarly, production of synthetic rubber and oil and the exploitation of low-grade ores absorbed extra labor in Germany which in Britain remained free for other purposes of more efficient production. Taking fuller advantage of the inter­ national division of labor, Britain was no doubt able to compen­ sate in part for her numerical inferiority to Germany.22 In ex­ change for this advantage, to be sure, the United Kingdom ran a grave wartime risk of finding her supplies cut off, and Germany would have assumed a far greater risk had she adopted Britain's 21 Crowther, 22

Sinews of War, p. 11. Hancock and Gowing, British War Economy, pp. 101-2.

ECONOMIC CAPACITY FOR WAR

policy. Yet, this does not alter the loss of output and productivity which reduced efficiency of labor must entail. To compare the benefits or shortcomings of either course of action, or to attempt to discover the marginal point at which a compromise of policy would yield maximum economic strength in wartime, is impossible in the abstract and subject to serious error even when undertaken with reference to specific war situa­ tions. It should be noted, however, that the advantage of fore­ going the gains of international specialization is reaped with cer­ tainty only if protected industries, after a reasonable period of in­ fancy, achieve an efficiency which can withstand free foreign competition. The advantage of self-sufficiency in wartime, on the other hand, is speculative, for the trade-dependent nation may find that some trading channels remain open after war has broken out. Many nations are in a position to escape from this dilemma to a greater or lesser degree by seeking cheaper insurance against the risks of wartime commerce. The range of alternative remedies is wide and, although some are adapted only to specific goods, they offer a choice of minimizing both the risks of trade and the costs of non-trade. Instead of relying on a high degree of domestic self-sufficiency, a nation may find it cheaper, in terms of scarce resources, to re­ direct peacetime trade in part to areas with which continued com­ munication should be reasonably safe in time of war. In the 1930s, for example, Germany acted to increase her volume of trade with eastern and southeastern Europe. Japan developed production in and trade with Manchuria and North China. This purpose has also been served, in all probability, by the policy of the USSR, since the Second World War, of fostering trade with surrounding Com­ munist countries. To be sure, such a policy foregoes some of the benefits of less regulated trade, for the regional trade which must be sustained by special controls is not in Une with the opportuni­ ties presented by differences in comparative production costs. Nor, as Japan's experience warns, does such a policy entirely re­ move the risk of wartime interruption of such trade. But it does represent a possible compromise between safety and efficiency. For some products, it may be a feasible and sufficient precaution to set up emergency stand-by facilities or expansible cores of in-

FOREIGN TRADE

dustry. This may be a suitable method for mining where domestic deposits are low grade or for producing synthetic material which cannot be manufactured at a competitive price. But the two measures that are more important by far are substitution and stockpiling. In a technologically creative economy, amply endowed with scientific, engineering, and managerial skills, there are vast oppotunities for adjusting requirements to disturbances on the supply side. This has been demonstrated by the performance of German industry during the Second World War. Table 1 illustrates Ger­ many's adjustment to wartime shortages of important materials. TABLE 1 German Metal Consumption, 1938-194423 1938

1939

1940

1941

1942

1943

1944

448.3 20.4

324.0 6.8

292.0 8.5

392.0 10.9

238.0 8.3

221.0 9.5

219.0 7.7

Nickel 12.4 Molybdenum — Chrome 27.4 Manganese (ore) 135.9 Wolfram 4.3 Vanadium 0.7 Titanium 4.9

10.1 3.4 48.1

11.6 2.2 35.3

9.2 2.2 43.3

8.0 1.8 38.4

9.4 0.8 38.7

9.5 0.7 42.4

130.2 3.7 0.8 5.9

152.1 3.4 1.4 7.1

124.1 3.0 1.8 8.5

178.5 2.2 3.0 9.2

Copper Tin Ferro-alloys

—

4.2 — —

—

1.5 — —

In comparison, the United States consumed during these war years ten times as much copper as Germany, nearly twenty times as much tin, and a multiple quantity of ferro-alloys ranging from about ten times as much for manganese to over forty times for nickel.24 Nevertheless, Germany managed to fight rather effec­ tively for many years against a superior coalition. This was not made possible by prewar accumulations of stocks, which in gen­ eral were quite modest; nor did conquest and loot contribute de­ cisively to available supplies. The German performance was based 28 SBS,

The Effects of Strategic Bombing on the German War Economy, p. 263. S. Mason, "American Security and Access to Raw Materials," World Politics, i, No. 2 (January 1949), p. 152. In fact, German stocks of copper and tin were twice as large at the end of 1944 as they had been at the end of 1938 (ibid.). 24 Edward

ECONOMIC CAPACITY FOR WAR

primarily on conservation and reuse of materials, on drastic cur­ tailment of civilian consumption, and on substitution. Germany found that a highly industrialized country possesses a rich stock of materials in its scrap piles and, by means of syste­ matic collection and reclamation, can add appreciably to its sup­ plies. German engineers discovered numerous instances in which a lesser amount of a scarce material could be made to serve the same technical function for which larger quantities were normally specified. Established practices of using material were often found wasteful in every respect except that of satisfying customary con­ sumers' taste, which could be safely flaunted in an emergency. Germany was also able to pare civilian requirements of scarce material to a greater extent than was thought possible in the United States. Above all, German scientists and technicians initi­ ated a successful and large-scale drive toward substituting abund­ ant for scarce materials, although this often required change in manufacturing processes, development of synthetic materials, and redesign of finished goods. At the beginning of 1942, for example, the manufacture of a German locomotive required 2.3 metric tons of copper. Owing to short copper supplies, this requirement was cut to 237 kilograms by the middle of 1943. Similarly, copper consumption in the production of submarines was slashed from 56 to 26 tons, and iron radiators replaced copper radiators in all German motor vehicles.25 The Germans discovered that it is usually not the individual material which counts, but the function it serves, and that this function could be satisfied in other than established ways. German steel production was never handi­ capped by the lack of several alloy metals. Thus, German pro­ ducers were able to diminish the alloy content of armor plate and resort to surface hardening in order to keep the deterioration of product to a negligible amount.28 Under the stress of acute short­ ages, the Germans were often able to develop workable synthetic products. Thus, the scarcity of nitric acid and toluene was relieved by new synthetic processes. Technical improvements were also made in the exploitation of low-grade ore supplies. 25 Ibid., p. 153. An interesting American example of substituting a plentiful for a scarce material was the partial use of silver for copper in the equipment of new aluminum plants. Cf. Nelson, Arsenal of Democracy, p. 355. 26 SBS, The Effects of Strategic Bombing on the German War Economy, p. 112.

FOREIGN TRADE

A large fund of scientific and technical ingenuity, and hence a large number of first-rate scientists and engineers, is one condition for such resilience in adjusting to short wartime supplies. Another is unstinting support of such personnel by managers, business­ men, and government. The attitudes and ability of government officials are indeed of prime importance, not only because supply shortages are caused or aggravated frequently by poor foresight and planning,27 but also because it is part of their role, more than that of plant managers, to give the innovating scientist and en­ gineer top priority for the facilities they require, and because they must make the decision on the substitution of one material for another, on the adoption of new processes, and on the redesign of end products. Because of a failure in official and business foresight, Germany's capacity for invention and innovation was fully utilized only after 1942. In reply to Allied interrogators, Dr. Speer, the German armament czar during the latter part of the war, stated that Ger­ man production planners consistently overestimated, up to 1942, the quantities of specific materials required for armament pro­ duction and that, confronted with prospective scarcities, they simply reduced the volume of munitions output. This practice, according to Speer, kept German war production below capacity during the first years of the war.28 It seems that in many warring nations, adaptation to short sup­ plies fails to maximize munitions production because there are deep-seated predispositions to regard the demand for scarce ma­ terials as sacrosanct, so far as the demand for military production is concerned. A rational response to shortage obviously requires adjustment on the demand as well as on the supply side, and there is no compelling reason why the demand for munitions should be exempted from such adjustment when the alternative is one of either enlarging the output of munitions or modifying specifica­ tions for individual munitions items. Wartime Germany has dem­ onstrated that military requirements of scarce materials and com­ ponents can be curtailed substantially, often to a surprising ex27This was certainly the experience of the United States. Cf. Fesler (ed.), Industrialization for War, pp. 967-68. 28 David L. Gordon and Royden Dangerfield, The Hidden Weapon: The Story of Economic Warfare, New York, Harper, 1937, p. 208.

ECONOMIC CAPACITY FOR WAR

tent, without significantly affecting quality of performance; and that, furthermore, greater emphasis on the maintenance of mili­ tary equipment can result in additional savings of scarce ma­ terials.29 Admittedly, the German adjustment to wartime shortages was not made without cost. The quality of the end product suffered in some instances; and substitution and redesign, the recovery and use of scrap, the exploitation of low-grade minerals, and the production of synthetic materials no doubt swallowed up extra resources, especially increasing the drain on precious manpower. Likewise, innovation requires time for development and applica­ tion. As a whole, however, product deterioration and the extra loss of productive resources were not serious.80 The one scarcity which proved adamant and could not be overcome at the prevailing level of technology concerned oil, and this failure was a major weak­ ness in Germany's war effort. Despite this particular failure, how­ ever, it is difficult to resist the conclusion that the German adjust­ ment to wartime shortages of materials was impressive; and that any economy provided with similar resources of know-how, and any government with similar resourcefulness, could duplicate this record. It is true that Japan proved much less adaptive to dis­ rupted supplies than Germany. But it is plausible to assume that it was Japan's comparative lack in the sources of resilience speci­ fied above which accounted for her conspicuous helplessness. For a highly industrialized and resourceful nation, then, the capacity for substitution is itself a good insurance against interruptions in the flow of supplies which war may bring about. Moreover, the value of this insurance can be greatly increased by advance plan­ ning and experimentation, at a cost which is slight if compared with the losses which the peacetime restriction of foreign trade will settle on a nation, and which may be nil, since such support of scientific and engineering research may yield, as a by-product, contributions to technological progress which can be used in peacetime. Storage of vital supplies is the other important alternative to limiting peacetime trade for contriving a measure of self-suffi29

Cf. Resources for Freedom, i, pp. 153-56. Mason, "American Security and Access to Raw Materials," World Politics, p. 153. 80

FOREIGN TRADE

ciency in time of war. For many foods, materials, and semi-manu­ factures which are easily stored, and the supply of which from abroad is liable to be interrupted in wartime, stockpiling is likely to be a far cheaper way of safeguarding wartime supplies than their high-cost production at home. It is indeed the only sure safeguard for supplies which a country is unable to produce at home. In the form of keeping in-the-ground reserves, this tech­ nique is applicable also to petroleum and ores; and it can be ap­ plied to timber by limiting peacetime cutting below the volume which is commercially profitable. The selection of items in the stockpile can be adapted to the peculiar circumstances of each country. Additions to inventory may emphasize foreign supplies coming from distant sources and, if wartime transport shortages must be anticipated, bulky goods may be stressed. The range of storability can be broadened by providing for the regular turn­ over of stocks that suffer from deterioration in storage. Storage costs are low for most raw materials. The financial outlay on purchasing sizable stocks is of course great. Finance must be pro­ vided and, contrary to the invisible burden of restricting trade, more or less openly borne. To the extent, moreover, that stock­ pile supplies must be procured abroad, the stockpiling nation must increase its exports in order to earn the necessary foreign purchasing power. These are the reasons why governments are reluctant, and possibly unable, to choose stockpiling as a favorite method of preparing the economy for war. On the other hand, by buying and transporting supplies when prices are relatively cheap, supplies may be acquired at an ap­ preciably smaller outlay of resources than they can be gotten through wartime trade or through high-cost production at home. The stockpile, furthermore, represents an investment in real re­ sources which remains of value even if war does not occur. Most important of all, a strategic stockpile not only represents insurance against the wartime scarcity of the materials stored, but also stores general resources, inasmuch as these supplies will be available without requiring the investment of productive resources in war­ time in either domestic production or the export industries. In a real sense, stockpiles store the services of plant, of know-how, and of transport, and these services are an addition to the nations productive capacity available in wartime. This means—and it is

ECONOMIC CAPACITY FOR WAR

surprising that this advantage has not been recognized to any extent—that stockpiling is a method of increasing a nation's war potential regardless of whether or not the supplies accumulated will be scarce in wartime. To give an example, even though a country has the most efficient coal-mining industry or grain pro­ duction possible, it might find it worth-while to stockpile coal and grain in order to cut down coal and grain production in a war emergency and be able, therefore, to release coal miners and farmers for other employment. Nor need such reserve stocks be confined to crude materials. While the storage of airplanes, tanks, and other finished munitions may be undesirable in view of ob­ solescence and the waste involved should war not occur, these drawbacks are not associated with storing steel plate, aluminum ingots, and other semi-fabricated goods except in the very long run. It is apparent from the foregoing that the methods, other than peacetime trade restriction, of ensuring against wartime shortfalls of supply are available to non-industrial countries only to a lim­ ited degree, and fully available only to the highly industrialized nations. They alone have the wealth of know-how which substi­ tution demands and, when it comes to stockpiling, their defi­ ciencies are chiefly in the field of crude foodstuffs, feed, and in­ dustrial materials, all of which lend themselves to this technique. In brief, it follows from this analysis that free participation in the international division of labor may be a source of both weak­ ness and strength to nations involved in major wars. Insurance against the precarious nature of wartime trade by aspiring to economic self-sufficiency in time of peace is likely to lower the economic war potential in one way while enhancing it in another. Over a wide range of vital supplies, industrial countries at least can resort to cheaper alternatives by having recourse to storage and product substitution. Whichever policy a nation pursues, it must evidently be taken into account in gauging its war potential. To complete this part of the analysis, mention should be made of the possibility of securing foreign sources of vital supplies by means of military action. In principle at least, combat power can become a foundation of wartime economic strength, just as the latter is a foundation of combat power. To use military resources for this purpose would be profitable to the extent that the sup-

FOREIGN TRADE

plies secured could be expected to increase combat strength more, at critical times, than the extra fighting power absorbed by such ventures. But these opportunities depend upon circumstances that can hardly be foreseen and, in general, cannot be consid­ ered in estimating the war potential of countries.

CHAPTER 11 NATIONAL PRODUCT AND WAR POTENTIAL

ANALYSIS of the composition of a nation's resources, as under­

taken in Chapter 9, can throw a revealing light on potential economic strength in wartime precisely because it focuses on war-important industries. But this method of approach is inevi­ tably selective and, for this reason, does not encompass the over­ all economic capacity of national economies. In order to remedy this deficiency in some measure, it is useful to supplement this kind of analysis by studying the national product or income of countries as an index of their aggregate capacity to produce. This index, to be sure, also has its defects. However, if they are known and allowed for, a great deal can be learned from it about the economic strength of nations. Two exercises, in particular, are presented in this chapter. Fol­ lowing a definition of national product and income, the first is a discussion of what can be inferred about war potential from a comparison of national incomes as aggregates and also as values per head of the population. The second is an examination of the factors which allow various proportions of their national incomes to be diverted to the production of military power. This exam­ ination is continued, in more detail, in Chapter 12. National Income and Gross National Product

The value of the total stream of goods and services produced by a nation during a year is its gross national product (hence­ forth referred to as GNP). This sum total is expressed in mone-

NATIONAL PRODUCT

tary terms, e.g., in dollars for the United States or in francs for France, because this is the only way of adding together such diverse products as locomotives and ice cream, wheat and wash­ ing machines, medical care and operas. The GNP, therefore, is the aggregate national output at market prices. From the viewpoint of expenditures made on these products, the outlays of consumers, investors, and government add up to the value of the GNP. The national income equals the GNP minus depreciation charges and indirect business taxes. These taxes are deducted because they are included in the market prices, by which income is valued, but they do not represent compensation for the own­ ers of productive factors.1 Depreciation charges are subtracted because part of the total flow of goods and services produced goes toward maintaining the previous stock of capital resources. A nation would be consuming part of its producers' capital if it were to use more than its national income for private and public consumption. However, since nations may choose in wartime not to maintain all their capital resources, both concepts—the gross national product and the national income—are useful in the study of war potential. Because expenditures by one person are income to other persons, the national income—which is the sum of all these expenditures—equals the sum of money incomes received by the owners of productive resources in the form of wages and salaries, profit, interest, and rent. International trade and financial transactions complicate this set of simple relationships, for expenditures on exports of goods and services (which become incomes to the owners of our produc­ tive factors) are made by foreigners. Conversely, when our citi­ zens make expenditures on imported goods and services, they pay incomes to the owners of foreign resources. To the extent that the value of exports is offset by the value of imports, these rela­ tionships can be ignored. However, if a nation has an export surplus—i.e., if its payments to foreign producers are exceeded by the payments it receives from abroad—it has, during the year concerned, accumulated claims on foreigners in the form of foreign currency or foreign notes. These net claims are called "net foreign investment" and are treated as part of investment 1 Similarly, if government subsidies are given to business, an equivalent amount should be added to the value of the national output at market prices.

ECONOMIC CAPACITY FOR WAR

listed in the statement on the gross national product or the na­ tional income. If a nation has had an import surplus during the year, foreigners have accumulated claims against it. These claims are entered as a negative item under net foreign investment and are deducted from gross or net private investment. It should be noted, however, that a nation maintaining an import surplus en­ joys, during the year concerned, a greater supply of goods and services—available to meet the demands of consumers, govern­ ment, or private investors—than it would have otherwise. The Gross National Product as an Index of War Potential

Inasmuch as the GNP or national income measures the goods and services produced in a country during a year, it is an index of the productive resources which were employed in that coun­ try. Subject to qualifications noted shortly, it is only a rough in­ dex of a nation's capacity to produce. To the extent that the student of war potential is interested in making comparisons be­ tween countries—because military power is relative—a com­ parison of GNP's or national incomes is certainly of interest, espe­ cially if this information is weighed alongside other indices of economic strength. If country A has a GNP of $250 billion and country B one of $120 billion, the difference in production is an important datum. However, there are several limitations to the significance of such comparisons. First, the GNP values only the goods and services produced by productive factors actually employed during the year. To be sure, if a country suffered from more than normal unemployment, allowance could be made for this lapse. In war­ time, however, a nation can also draw upon productive reserves and thereby increase its GNP or counteract other changes, such as the induction of workers into the armed services, that will tend to make the GNP fall. As Chapter 12 brings out, these fac­ tors are difficult to estimate. Secondly, the fact that the GNP, or the national income, is valued at market prices means that it is valued, in most countries at least, on the basis of the peacetime preferences of consumers first of all, and then of private investors and the government. A productive factor is a resource because it has value. Yet since

NATIONAL PRODUCT

military demands will differ substantially from the peacetime de­ mands of private consumers and investors, the peacetime value of productive resources is not necessarily the same as their war­ time value. The wartime value even of coal mines and steel mills, whose products are immediately useful in wartime production, may be higher than their peacetime value if coal and steel should become scarcer in the event of military mobilization. Many other productive resources may be converted to wartime use because their specific character is geared to peacetime production. But the very cost of conversion tends to lower their potential value, al­ though this tendency may be more than offset if the converted factor is scarcer in relation to wartime demand than was the un­ converted factor in peacetime. This problem of valuation, then, makes the national income approach to ascertaining war potential yield only the roughest approximation. To diminish the conse­ quences of this defect, it is necessary to correct national product analysis by the kinds of investigations discussed in Chapters 9, 12, and 13. Thirdly, there are technical difficulties in comparing the GNP's of different countries. For one thing, to make such comparisons, their values must be expressed in one chosen currency. For this purpose, a conversion rate must be found which equates fixed amounts of two or more currencies in such a manner that the same quantity of goods and services can be purchased with these amounts of currency. Existing foreign exchange rates may not serve this purpose, or serve it only imperfectly. This is so because exchange rates may be pegged by government control, so that one currency may be overvalued or undervalued in terms of the other compared with the rate that would prevail in a free-ex­ change market, or because exchange rates, even when left free, may be affected by import tariffs, export subsidies, or other trade controls. The more serious trouble is that exchange rates are a good indicator of the relative purchasing power of currencies only for the goods and services that enter into international transac­ tions.2 For most industrial countries painstaking calculations will 2 Taken as a whole, the price structure of different countries is likely to reflect differences in the local supply of, demand for, and efficiency of, different factors of production. When the goods of one country are to be revalued in the currency and prices of another, there may therefore be marked variations in the comparison of national incomes between countries A and B, depending on whether the values of

ECONOMIC CAPACITY FOR WAR

yield GNP comparisons which, on the grounds discussed, have a tolerable margin of error. It is more difficult to obtain fairly re­ liable estimates for countries, such as those in the Communist bloc, which do not operate a market system of the Western type and in which private businessmen do not engage in foreign trade.8 These are not the only obstacles to comparing the national products or incomes of nations. The values reported are official estimates and many governments, especially in the economically less-advanced countries, do not have the skilled statisticians and the sources of information which permit these estimates to be complete and accurate. Moreover, official definitions of the gross national product and its parts vary considerably between coun­ tries. Thus, the French government does not follow the American practice of adding the compensation of government employees to government consumption of goods and services and, thus, to the gross national product. The French government also differs in its definition of gross investment. It was estimated that the French national product, reported at 7,561 billion francs for 1949, came to 7,771 billion francs when recomputed on the basis of United States definitions.4 Recalculations are required to make the data of different nations comparable. Again, this may not be too exacting an operation for the capitalist societies of the West. But the problem becomes extremely difficult when applied to the Commimist countries and the economically underdevel­ oped nations of the world. In the Western nations, furthermore, the national income measures primarily those goods and services sold in the market. Such production as occurs within the family is not, for this rea­ son, included in the computation. However, in societies where products are expressed in A's or B's currency. Wine, for example, becomes more valuable in the French national income when the latter is revalued at United States prices, because wine is more plentiful and cheaper in France than in the United States. Conversely, motor cars become more valuable in the United States national income when valued at the relatively high French prices for automobiles. Cf. Milton Gilbert and Irving B. Kravis, An International Comparison of National Products and the Purchasing Power of Currencies, OEEC Mission, Washington, D.C., 1954, passim. 8 Cf. Abram Bergson, "Soviet National Income and Product in 1937," Quarterly Journal of Economics, LXIV (1950), pp. 436fiF. 4 Richard Ruggles, "The French Investment Program and Its Relation to Re­ source Allocation," in Edward Mead Earle (ed.), Modem France, pp. 380-81.

NATIONAL PRODUCT

production is far less commercialized, a very large proportion of the goods and services produced are not directed to the market or are bartered in limited local exchanges for which data cannot be obtained. In the commercialized countries, on the other hand, more and more services previously produced in the family, such as baking, sewing, laundering, etc., are being secured increas­ ingly through the market, and these services are included in the calculation of the national product. The Soviet Union and the Eastern European countries restrict their figures to material out­ put and, in general, exclude the service component. As a result, national-product data, as officially assembled, tend to underesti­ mate production in the less-commercialized countries in relation to the highly commercialized nations.5 For this reason, nationalproduct comparisons are most easily made and most useful for countries with similar economic systems and with per capita in­ comes not too far apart. In conclusion, the comparison of national products offers at best a crude yardstick for measuring the economic strengths of nations in wartime. To make the data more nearly comparable than they appear in official statistics, careful calculations and estimates must be undertaken. Even then, the information will be useful only when differences in the national product, and hence in the presumable capacity to produce, are sizable and when it is reviewed in the light of other types of data. Despite these in­ herent defects, however, the comparison of GNP's or national incomes continues to be a very important, and indeed indispen­ sable, clue to the relative war potential of countries. By covering all factors of production which produce for the market, these data are inclusive and cannot be replaced by others. Moreover, mere comparisons of absolute product figures do not exhaust the usefulness of the information. It is equally revealing to compare GNP's or national incomes per head of the population. Labor Productwittf and Economic Strength in Wartime

The size of the GNP is largely determined by the numbers of the working population employed and by the productivity of its 5 Simon Kuznets, National Income: A Summary of Findings, New York, Na­ tional Bureau of Economic Research, 1946, pp. 124-25.

ECONOMIC CAPACITY FOR WAR

members. That is, the national product depends on a number of conditions—skill, health, and work habits of the labor force, capi­ tal resources, technology, the quality of natural resources—which will be studied in the second part of the present chapter and also in Chapter 12. The aggregate net value of the national product by itself tells us nothing about whether the national product is as large as it is due to a numerous working population or to a high productivity of labor. Yet, whether a national product of, say, 100 billion currency units was produced by 20 million or by 50 million persons in the active labor force has an important bear­ ing when we want to compare the war potential of nations. Prior to World War II, for example, India and China had larger na­ tional products than Japan or France, although the latter coun­ tries no doubt enjoyed a larger economic strength for wartime use than did the former. In part, this superiority resulted, of course, from conspicuous differences in the composition of par­ ticular resources, as discussed in Chapter 9. In large measure, however, it resulted also from a higher productivity of labor in France and Japan than in India and China. A very rough indication of average labor productivity can be obtained by studying the national income per head of the popu­ lation. Dividing the national product by the total number of em­ ployed persons or, still better, by the total number of man-hours worked, would, of course, yield a closer approximation to the average productivity of labor. As Table 1 reveals, there are striking differences between per capita incomes,® although the disparity is less extreme for the large industrial countries than for the entire group. These dif­ ferences should not be taken to indicate more than rough orders of magnitude. In addition to presenting the difficulties of com­ parison discussed below, the national incomes in any one year are subject to change as a result of temporary factors, such as varying employment levels and crop yields. In 1950, furthermore, the national income of some countries—such as Germany and Japan—was still relatively low as a result of the war and its aftermath. Similar differences are revealed for prewar years by the estiβ Data for national incomes, rather than GNP's, are used here because they are the only ones available in this usable form.

NATIONAL PRODUCT

TABLE 1 Per Capita National Income of Selected Countries in 19507 (US dollars per year) 0-100

100-150

150-300

China

Japan

Spain

India

Yugo­ slavia

Pakistan Turkey Indo­ nesia

Greece

Iran

Brazil

300-450

450-600

Western France Germany Belgium Italy USSR Nether­ Hungary lands Poland Austria Czecho­ slovakia Chile

600-1000

Over 1000

Britain

United States

Sweden Canada Norway Switzer­ land Australia

Argentina Philip­ pines

Mexico

New Zealand

Peru Bolivia

mates of the annual real income per working person given in Table 2. The discrepancies indicate that, in 1950, half of the world's population lived in countries where the average income per person was less than $100, whereas only about one-tenth of the world's population inhabited countries where this average exceeded $600. Since the economic war effort of nations is primarily derived from resources diverted from peacetime employment, economic strength in war is obviously conditioned by the extent to which such peacetime employment can be suspended in an emergency. That extent depends not only on the prevailing motivation for war and the administrative skill of government, but also on the average productivity of labor, since, in general, subsistence needs must be met. The higher the average productivity of labor, the less labor is required to produce the necessities of life and the 7

United Nations, Monthly Bulletin of Statistics (June 1952), pp. viii-ix.

ECONOMIC CAPACITY FOR WAR

more labor may be released to the fighting forces or to munitions production. The relevance of these differences to the evaluation of war potential was pointed out by David Hume in his "Essay on Commerce": "The more labour, therefore, is employed beyond mere necessities, the more powerful is any state; since the per­ sons engaged in that labour may be easily converted to the public TABLE 2 Annual National Income per Person in Work, Selected Countries8 (expressed in International Units") Country

Year

United States Britain Germany France Japan Italy British India China USSRb

1939 1939 1938 1937 1939 1938 1931-32 1933 1939

Total Product Product per Person (billion l.U.) in Work (l.U.)

96.5 29.2 35.2 12.4 14.8 6.4 21.8 N.A. 25.5

2,093 1,429 1,105 730 585 441 231 138 N.A.

a The International Unit expresses the average purchasing power of the US dol­ lar from 1925 to 1934. b There has been frequent criticism that the methods of calculation employed by Professor Clark led to an underestimation of the Soviet income.

service. In a state without manufacturers, there may be the same number of hands; but there is not the same quantity of labour, nor of the same kind. All the labour is there bestowed upon neces­ saries, which can admit of little or no abatement."9 Yet, for several reasons, economic strength in war is not, or need not be, closely related to such differences in per capita in­ come. First, in the economically less-developed countries, very low income levels may be associated with a high motivation for war, in the sense that large sections of the population identify themselves fervently with the war effort or that the ruling groups— 8 Colin Clark, The Conditions of Economic Progress, 2nd ed., London, Macmillan, 1951, Chs. m-iv. β Essays, Moral, Political and Literary, Τ. H. Green and Τ. H. Grose (eds.), Lon­ don, Longmans, Green, 1875, i, p. 294.

NATIONAL PRODUCT

which, whether Communist or of the traditional authoritarian type, usually constitute a very small fraction of the adult popula­ tion—are able and ruthless enough to impose heavier consump­ tion sacrifices on the civilian population and military personnel than can be imposed in the democratic and industrialized coun­ tries. Some of the fighting which has taken place in the Far East during recent decades, especially in China, Korea, and IndoChina, bears unmistakable evidence to this effect. Secondly, it cannot be taken for granted that subjectively equal sacrifices in high- and low-income societies permit a lowering of real consumption to anywhere near the same level. The ruling groups in the low-income countries are often willing and able to ignore minimum requirements of subsistence, whatever these may be, for parts of the population that they control. Moreover, "minimum requirements of subsistence" are not so much a matter of biology as of attitudes, and hence are highly variable for dif­ ferent societies. If these requirements were set by physiological needs alone, they would vary with climate, work, and similar con­ ditions, but the range of variation would be relatively narrow. Yet minimum requirements are patently and largely determined by what a society is accustomed to enjoy and expect. Minimum requirements for the large majority of the population in Man­ churia differ greatly, therefore, from the minimum requirements for the large majority of the populations in Sweden or the United States. Undoubtedly, the differences in customary expectation vary a great deal more than differences corresponding to bio­ logical necessity. If measured in terms of frustrated wants and expectations, sacrifices of different populations would be equal at greatly diverging levels of real consumption. Thirdly, countries with a lesser productivity of labor often suffer to varying degrees from what has been called "underem­ ployment." Owing to a lack of complementary resources—i.e., a relative scarcity of land, capital, technical skills—and owing to the seasonal character of farming, large numbers of the working population have a marginal productivity which is zero or small. Although some of these persons may go through the motions of productive work, they contribute little or nothing to output; and the majority of the agricultural population may indeed be con­ demned to seasonal idleness. It has been estimated, for instance,

ECONOMIC CAPACITY FOR WAR

that the prewar agricultural population of China worked only for 200 days per year and that one-fifth of this population could be removed without loss to the national output.10 Thus it may be possible for densely populated countries of low average pro­ ductivity to withdraw large numbers of men from farming and use them for fighting purposes without seriously reducing the national product. Fourthly, the ability of low-income countries to mobilize mili­ tary manpower per million of population, comparing more favor­ ably with high-income countries than differences in labor pro­ ductivity suggest, does not extend to the production of military equipment. It is here that low labor productivity and the defi­ ciency of industrial resources make themselves chiefly felt. Yet, because these nations are richly endowed with crude labor and niggardly with capital and technical skills, it is rational for their leaders to maximize the combat productivity of guns and other equipment rather than of men—just as, in the productive process, it is often economical for them to maximize the productivity of capital resources rather than of unskilled labor. There are, further­ more, limitations to the advantage which high-income nations can derive from their superior capacity to produce military sup­ plies when engaged in war with low-income countries. If nations of widely differing labor productivity wage war against each other in modern times, the fighting will usually take place in or near the low-income country. Not only does this mean that the richer nation must allocate part of its superior economic capacity to the business of transporting combat power over possibly long distances; ordinarily it also means that the theater of land opera­ tions has extremely poor transport facilities, and therefore does not permit the more ample equipment of the high-income nation, except for airborne strength, to be used to full advantage. Fur­ thermore, the armed manpower of high-income countries is ac­ customed to high material standards of living and requires far larger supplies per capita, if fighting efficiency is to be main­ tained, than do the armies from low-income countries. These qualifications do not imply that high labor productivity is not a very important determinant of economic war potential. The advantage of higher productivity is especially weighty when the economic strengths of the great powers are to be compared. 10 Clark,

op.cit., p. 206.

NATIONAL PRODUCT

These countries can make their military power felt over most parts of the globe, a capability which the very-low-income na­ tions do not possess, no matter how populous they may be. Al­ though differences in the average productivity of labor may be large among these great powers, they will not be extreme. Given equal political and administrative war potentials, and given an equal number of fighting men per one million of population, the high-productivity country can provide its combat personnel with more and better equipment than can the low-productivity coun­ try. Or, with equal political and administrative war potentials, and with equal equipment per unit of combat personnel, the high-productivity nation can mobilize more fighting men per one million of population than can the low-productivity nation. The Disposable Surplus The study of the GNP is relevant not only to appraising com­ parative output capacity. The usual breakdown of these data also lends itself to exploring the volume of output that nations may be able to set aside for direct military purposes, that is, the sur­ plus of output above what is necessary for meeting essential civilian wants. Customarily, the GNP is broken down into types of expendi­ tures which reveal the broad uses to which it is put. Thus, the GNP of the United States in 1939 can be stated as follows: Gross National Product Personal Consumption Expenditures Gross Private Domestic Investment Government Purchases of Goods and Services Net Foreign Investment

$91.3 $67.5 9.9 13.1 .9

billion billion billion billion billion

Beginning with this breakdown, the sources from which are drawn the economic resources available for a nation's war effort can be presented in the following scheme: plus minus minus minus minus/plus minus/plus equals

(1) (2) (3) (4) (5) (6) (7) (8)

Gross National Product in Peacetime Output of Productive Reserves Minimum Civilian Consumption Minimum Gross Private Domestic Investment Minimum Non-War Purchases of Government Change in Net Foreign Investment Change in Labor Productivity Disposable Surplus for War

ECONOMIC CAPACITY FOR WAR

The disposable surplus, i.e., the surplus available for the war effort proper, equals (1) plus (2) minus (3)-(7). This sche­ matic presentation does not imply that the economic war poten­ tial is a residual, in the sense that government determines the magnitudes under (2)-(7) and, by manipulating these items, arrives at the proportion of the nation's capacity which will be devoted to producing fighting power. For example, (3) is capable of varying enormously, though not necessarily by government edict. Nor can government leaders hope to fix the complex of resources to be used in the war sector and then proceed to dis­ tribute what remains among (3), (4), (5), and (6). The dis­ posable surplus is rather the resultant of a process which, condi­ tioned by the variable factors listed, is only in part subject to government policy. To be sure, government action will, directly and indirectly, affect all variables and it can come close to con­ trolling (3), (4), (5), and (6). But government control over (2), (3), and (7) is decidedly limited. Nevertheless, it is useful to observe what happened to the gross national product of na­ tions in the past, and to derive from such study some apprecia­ tion of the range of possible variations in the GNP and in the uses to which it can be put in wartime. Tables 3, 4, and 5 indicate roughly what happened to the GNP's of the United States, Britain, and Germany during World War II. In all three instances, the gross national product (meas­ ured in current prices) expanded sharply from 1939 to 1944. Since prices mounted dining the same period, the output in real terms, i.e., in real goods and services, rose far less. The tables for the United States and Germany also state the expansion of out­ put adjusted for changes in the general price level, that is, as measured in terms of prices prevalent in 1939. The rise of output seems to have amounted to over 72 per cent in the United States and to 28 per cent in Germany. It is clear, however, that these figures do not reflect accurately the change in real output. The composition of output was very different in 1944 from what it had been at the beginning of the war. Most notably, the production of munitions came to be a much larger share of the total product than it was before the war. Furthermore, the prices of munitions are in most instances not prices evolving in relatively free markets, but prices fixed more

91.3 115.5 156.9

1939 1941 1944

67.5 76.6 81.1

67.5 82.3 111.6

6.7 8.9 4.6

6.7 9.8 7.1

35.3 40.1 44.5

35.3 44.0 67.1 25.5 27.6 32.0

25.2 28.5 37.4

9.9 18.3 7.7 1939 9.9 17.1 6.6 2.0

6.1

4.9

DOLLARS»

4.9 7.7 5.6

CURRENT DOLLARS

4.6 7.2 5.1

4.6 6.7 2.8 .4 3.8 -.5

.4 3.9 -.8

.9 .7 -2.2

.9 1.1 -2.1

13.1 21.1 71.3

13.1 24.7 96.5

1.2 11.1 64.2

1.2 13.8 87.5

3.9 2.7 1.2

3.9 3.2 1.6

7.9 7.3 6.0

7.9 7.8 7.5

11 Computed

GNP and its components computed at 1939 prices. from the following sources: The Economic Report of the President, Washington, D.C., January 1952, pp. 167-71; US Department of Commerce, National Income Supplement to Survey of Current Business (July 1947), p. 19, Table 2.

a

91.3 126.4 213.7

1939 1941 1944

TABLE 3 United States Gross National Product, 1939, 1941, 194411 (billion dollars)

ECONOMIC CAPACITY FOR WAR

TABLE 4 German Gross National Product, 1939, 1941, 194412 (billions of RM)

Year

Total Gross National Product

1939 1941 1944

140 176 206

1939 1941 1944

140 169 180

Personal Consumption Expenditures

Gross Domestic · Private Investment

Foreign Contri­ butiona

Government Expendituresb

CUBBENT RM'S

81 77 68

14 7 4

RMS AT

1939

45 72 103

—

20 31

PBICES

81 73 59

14 7 3

45 70 97

—

19 21

a Includes net foreign investment, occupational charges, purchases from outside areas by means of invasion currency, and the net product of annexed areas after deduction of consumption and capital formation within these areas. Total does not include goods and services consumed by the German army without payment when stationed outside Germany, or legal war booty. b This is a residual, including interest on national debt.

TABLE 5 British National Income, 1938, 1941, 194413 (million pounds) PERSONAL

NET PRI­

NET

GOVERNMENT

CONSUMP­

VATE DOMES­

FOREIGN

PURCHASES OF

NATIONAL

TION EX­

TIC INVEST­

INVEST­

YEAB

INCOME

PENDITURES

MENT

MENT

War

1938 1941 1944

4,707 6,978 8,310

3,713 4,006 4,452

297 -352 -500

-70 -816 -659

327 3,643 4,481

GOODS AND SERVICES

Non-war

440 497 536

or less arbitrarily in the course of contract negotiation between government and business. Hence, the price indices used for meas­ uring the gross national product in constant prices over a series of years are less relevant in wartime than in peacetime for ascer­ taining the trend of prices for a complex and changing congeries 12 US Strategic Bombing Survey, Overall Economic EfiFects Division, Special Paper No. 1, "The Gross National Product of Germany, 1936-1944" (mimeo­ graphed), pp. 4, 6. 13 Adapted from Hancock and Gowing, British War Economy, p. 199.

NATIONAL PRODUCT

of goods and services. Even when deflated by means of a general price index, the dollar in 1944 is unlikely to have had the same command over productive resources for making war materiel that it did in 1939.14 The statistics presented may be assumed, therefore, to indi­ cate changes in real output, but only with a substantial margin of error. In all probability, the errors led to an overestimation of the size of the real national output in the United States, because the negotiated prices of munitions were more generous than the prices of civilian goods. This may have been less true in Britain.15 It is perfectly possible that the prices fixed for munitions may be so low that the margin of business profit will fall. This would result in a fall in the value of the goods produced compared with what was made previously by the same or equivalent factors of production. National output in money terms, as customarily com­ puted, will then decline, although there has been no change in real output. According to one estimate, the real GNP of Germany declined by 3 per cent between 1939 and 1943, while that of the United Kingdom rose by 10 per cent.16 That real output expanded in the United States is beyond question, but it is impossible to specify the magnitude of the increase. Whatever variations in real output occurred, they cannot be attributed simply to variations in the labor force, since changes in the average productivity of labor also affect the quantity of production. In the absence of reliable information, it is very difficult indeed to separate the effects of the two variable factors on the GNP. Only if the change in output could be measured with reasonable accuracy would it be possible to ascertain changes in average labor productivity. As it is, the US Department of Labor now assumes that there was "probably a decline in over-all pro­ ductivity" during the war.17 This means that the data assembled 14 A further difficulty in appreciating the gross national product in wartime arises from the fact that war costs are equated with the expenditures of government for war purposes. A soldier or sailor may cost the government only $35 per month for pay, but in the civilian labor force the same soldier might have received $50 per week. The real cost of maintaining the soldier is the loss of his contribution to the production of ordinary goods and services. 15 WPB, World Munitions Production, p. 22. 16 SBS, Overall Economic Effects Division, op.cit., p. 7. 17 Testimony of Secretary Tobin, Hearings Before the Preparedness Subcommit­ tee of the Committee on Armed Services, United States Senate, Eighty-second

ECONOMIC CAPACITY FOR WAR

in Tables 3, 4, and 5 are not good enough or complete enough to show what happened in the three countries regarding items (2) and (7) of our scheme. On the other hand, the tables reveal with fair accuracy war­ time changes in the use of the gross national product. Beyond question, civilian consumption declined in Germany, especially after 1941. By 1944, German consumption had contracted by onefourth since the beginning of the war. British consumption also fell in real terms. Measured at 1938 prices, private expenditures on consumers' goods and services declined from £4.3 billion in 1938 to £-3.7 billion in 1944, or by one-seventh.18 American civilian consumption expanded in real terms, but this advance was far smaller than the growth of the GNP. Whereas consump­ tion expenditures constituted 74 per cent of total expenditures in 1939, they fell to 65 per cent in 1941 and to 52 per cent in 1944. British consumption outlays declined from 79 per cent in 1938 to 50 per cent in 1941 and 47 per cent in 1944.19 German con­ sumers' expenditures dropped from 58 per cent in 1938 to 44 per cent in 1941 and 33 per cent in 1944. Consumption cuts were severe also in Japan, where consumers' expenditures fell, at 1940 prices, from 26.7 billion yen in 1940 to 18.8 billion yen in 1944.20 In the USSR, civilian consumption fell from an estimated 53.5 per cent in 1940 to an estimated 33.7 per cent in 1944.21 In all instances, civilian real consumption also diminished, because con­ sumers' choice was more and more restricted and quality deterio­ rated. Expenditures on durable consumers' goods suffered par­ ticularly. Since residential housing is customarily included in private domestic investment, the sharp wartime decline of such investment, and consequently the worsening supply of civilian Congress, First Session, on S. 1 (Universal Military Traimng and Service Act of 1951), Washington, D.C., 1951, p. 342. (Hereafter cited as Senate Hearings on UMT.) 18 Hancock and Gowing, British War Economy, p. 200. 19 In determining these percentages, it must be noted that the goods and services available in Great Britain (as also in the United States in 1944) had a value higher, by the amount of home and net foreign disinvestment, than the amount stated in the first columns of Table 5. Thus, the value of goods and services avail­ able for personal consumption and government purchases in 1944 was £9,469 million rather than £ 8,310 million. 20 Cohen, Japans Economy in War and Reconstruction, p. 54. 21 Abram Bergson and Hans Heymann, Jr., Soviet National Income and Product, 1940-1948, New York, Columbia University Press, 1954, pp. 69f.; see also p. 92.

NATIONAL PRODUCT

shelter, is not reflected in these data on consumers' expenditures. In order to shake loose resources for the war effort, gross private domestic investment is easily cut. Expansion of capital facilities for war production purposes is usually governmentfinanced and such expenditures are included in government purchases. Between 1939 and 1944, gross private domestic investment fell from 11 to 3 per cent of the gross national product in the United States, and from 10 to 2 per cent in Germany. In the United Kingdom, net private investment fell from 6.2 per cent of the national income to below zero, indicating that existing private capital was in part consumed during the war. The United States likewise did not fully maintain her "private" capital. In 1944, when gross private domestic investment had fallen to $7.7 billion, the capital consumption allowance was estimated to be $11.8 bil­ lion. This indicates a disinvestment of $4.1 billion. To the extent that capital resources are consumed, the sum of resources immedi­ ately available for civilian consumption and war production will exceed the national income. The depletion of previously accumu­ lated wealth, which takes place when capital is consumed, can take many forms. Buildings, durable equipment, and inventories of materials and finished goods can be allowed to run down. Thus by the end of the last war, there were few "civilian" industries in Britain with improved equipment. The one exception was agri­ culture, although the livestock herd, an important part of agri­ cultural capital, had been decimated.22 If a nation can reduce its net foreign investment or manage to incur net foreign indebtedness, it will correspondingly add to the stream of goods and services immediately available, for net for­ eign disinvestment implies an import surplus. Diminishing net foreign investment, therefore, is in the nature of reducing or con­ suming capital. Such disinvestment can take the form of liquidat­ ing holdings of foreign securities and investments, and of drawing down reserves of gold and foreign currencies. As shown in Table 3, the United States, in 1944, experienced net foreign disinvest­ ment to the amount of $2.1 billion, chiefly by means of exporting gold in exchange for imported commodities.23 British net foreign 22

Hancock and Gowing, op.ctt., p. 491. What is called "Foreign Contribution" in Table 4 includes a number of trans­ actions, listed in a footnote to the table, and this aggregate is not, therefore, com­ parable to "Net Foreign Investment" in Tables 3 and 5. 28

ECONOMIC CAPACITY FOR WAR

disinvestment was immense, as shown in Table 5. Total external disinvestment, from September 1939 to June 1945, amounted to £ 4.2 billion.24 This consumption of capital assets made a large contribution to the British war efiFort. It amounted to more than the entire national income of 1938. But this process changed Britain's status from that of a creditor to that of a debtor country. Non-war expenditures of government, national and local, were also reduced substantially, in real terms, in both Britain and the United States. No comparable data are available for Germany. In the United States, for example, such outlays declined from 13 per cent of the gross national product in 1939 to 4 per cent in 1944. It should be noted that such cuts may involve reduced gross in­ vestment in public capital equipment such as highways, port fa­ cilities, schoolhouses, and hospitals. According to the data in Tables 3, 4, and 5, American military expenditures amounted to about 11 per cent of the GNP in 1941, and to 45 per cent in 1944; British war expenditures took about 45 per cent of the GNP in 1941, and 47 per cent in 1944; and German war outlays claimed 41 per cent in 1941 and 54 per cent in 1944. These figures, which should not be taken as more than rough approximations, are surprisingly similar in range to those available for World War I. It has been estimated that, in fiscal year 1917-1918, military expenditures amounted to about 44 per cent of the GNP in Germany, and to 43 per cent in Great Britain.25 Unfortunately, comparable data are not available for Japan and the USSR. Table 6 indicates that it took Britain and the United States about two years to reach their peak effort. Surprisingly, it took Germany longer to do so, although she had attained a much higher degree of mobilization when war broke out. In 1941, Britain was taxing her strength more rigorously than Germany, and she con­ tinued to do so throughout the second half of the war. It should also be noted that Britain was unable to sustain in 1944 quite the high degree of mobilization which she had reached in the preceding year. As will be shown below, if the proportion of the national product allocated to war is very high, it may not only be 24 Hancock

and Gowing, op.cit., p. 352. J. B., "Finance and Man-power in the War," Bulletin of International News (Royal Institute of International Affairs), xvn (January 27, 1940), pp. 64-65. 25 A.

NATIONAL PRODUCT

TABLE 6 War Expenditures as a Percentage of the National Product28 Year

United States

Great Britain

Germany11

1938 1939 1940 1941 1942 1943 1944

N.A." 1 2 11 31 41 41

7 15 43 52 52 55 54

30 32 37 41 44 45 50

a In addition to net foreign disinvestment, the national product of Germany in­ cludes other foreign contributions, such as occupational charges and purchases abroad by means of invasion currency. b American defense expenditures in 1938 are not separated from total federal expenditures.

impossible for nations to maintain it in a long struggle, but may also bring about a fall in the GNP and, hence, a contraction of the economic war potential on this score. Thus, national-income analysis yields valuable insights into the range of changes which the GNP and its major uses may undergo in time of war. Following this historical survey of what happened in major countries during the last world war, Chapter 12 analyzes more closely the main conditions that determine the range of change. 26 Data from Economic Report of the President, January 1952, p. 167; Hancock and Gowing, op.cit., pp. 75, 199, 347; SBS, Overall Economic Effects Division, Special Paper No. 1, p. 4.

CHAPTER 12 WARTIME CHANGES IN THE NATIONAL PRODUCT

Tms chapter is concerned with the changes which the gross na­ tional product (GNP) may undergo in magnitude and disposition when industrial nations are engaged in major wars. Whether the GNP will rise above or fall below its peacetime level depends on changes in the supply of labor and in labor productivity, provided we ignore changes in wartime assets brought about by military conquest or damage through enemy action. The size of the output that can be put to direct military use equals the wartime GNP, minus reduced peacetime uses of the national income. As revealed in recent wars, modern industrial countries are capable of allo­ cating at least 50 per cent of their GNP to direct war purposes. The size of the GNP and the proportion disposable for generating combat power obviously depend on the motivation for war pre­ vailing in the population and on the administrative skill of war­ time government. Yet, the analysis of the peacetime GNP and its broad uses, combined with an analysis of population and labor force, can shed light on resource conditions of importance in this respect, and also on the points at which economic capacity, moti­ vation for war, and administrative competence interact. The fol­ lowing analysis is organized on the basis of the scheme presented in Chapter 11 (p. 231). The Output of Productive Reserves

Nations at war can utilize employed resources more intensively and put unemployed resources to work. The capacity of industrial

WARTIME CHANGES IN NATIONAL PRODUCT

plants can be stretched by the introduction of multiple shifts. In December 1942, plants in American war industries operated on an average of nearly 90 hours a week; and, by the spring of 1943, 39 per cent of the labor force in metal-working industries were em­ ployed on second and third shift operations.1 The capacity of rail­ way systems can be extended by spreading out traffic to level sea­ sonal peak loads and by other devices. It is well known that the German railroad system enjoyed an excess capacity of Hnes and yards which permitted it to absorb an expanded wartime traffic without much additional investment.2 Even at full-employment levels, national economies may have excess plant capacity which can be put to effective use in wartime. This is especially true in capitalist countries, where the full utilization of capacity may be withheld by monopolist practices on the part of employers and labor unions.3 There are also natural resources, such as low-grade land and mineral deposits, that have greater value in wartime than in peace, and the utilization of other natural resources can be intensified. The major reserve of productive capacity resides in unemployed manpower. The total labor force of a nation consists of persons in the mili­ tary establishments and of the civilian labor force. The civilian labor force is made up of all persons who are listed as employed or unemployed. With a given productivity of labor and a given diversion of manpower to the armed forces, a nation can maximize its GNP in wartime by reducing unemployment in the existing labor force, by increasing its labor force, and by lengthening the work week. UNEMPLOYMENT AND LABOR FORCE

If a nation suffers from economic depression, its GNP will have been produced by only part of its labor force. In 1939, for ex­ ample, the United States had about 9.5 million unemployed, equivalent to 17.2 per cent of its labor force. In 1941, there were still 5.6 million unemployed, or 9.9 per cent of a labor force which was larger by 1.8 million than two years earlier. In 1944, on the 1

Fesler (ed.), Industrial Mobilization for War, p. 965. Over-all Report (European War), p. 59. Hutt, "Economic Lessons of the Allied War Effort," South African Journal of Economics, vm (1940), pp. 207-18. 2 Cf. SBS, 3 W. H.

ECONOMIC CAPACITY FOR WAR

other hand, when the total labor force was larger by over 10 mil­ lion than in 1939, the number of unemployed had shrunk to a mere 670,000, or 1.2 per cent of the labor force.4 This was below the fraction which, in normal times, is regarded as the minimum. Similarly, those registered as unemployed in Britain fell from 1,710,000 in 1938 to 1,270,000 in 1939, and 54,000 in 1944.5 In Canada, too, 14.1 per cent and in Australia 9.7 per cent of the labor force were unemployed in 1939. On the other hand, in Japan, the percentage was only 3.0 in 1938, and in Germany it was 2.1 in 1939. By 1944, it had dropped to 1.2 in Australia and to 1.8 in Canada.® However, a large reservoir of unemployed workers and of idle factories is not, of course, an advantage to a country at the outset of war. It is a distinct disadvantage. Much depends, to be sure, on whether the preceding lapse from full employment has been long or short. If depression has been substantial and prolonged, there has been a widespread and cumulative deterioration of capital equipment and a contraction of working inventories of materials, semi-manufactured and finished goods. Since unemployment tends particularly to hit industries making capital goods and dura­ ble equipment in general, these capital resources will be depleted, especially in those industries which, as was shown in Chapter 9, are of prime significance in the wartime economic capacity of nations. In the United States, for instance, the proportion of metalworking machines over ten years old rose from 48 per cent in 1930 to 67 per cent in 1938.7 Such increasing obsolescence could be observed for most kinds of capital resources. Thus, while 28 per cent of non-farm housing units in the United States had been less than ten years old in 1938, only 8 per cent were in this category in 1940.8 Similarly, 20 per cent of the railroad locomotives and 34 per cent of the railway freight cars had been less than ten years old in 1930 compared with 6 and 14 per cent respectively in 1940.9 4

Economic Report of the President, January 1952, p. 177. Statistical Digest of the War, Table G. 6 All figures taken from United Nations, Statistical Yearbook, 1948, pp. 84-85. 7 David Weintraub "Effects of Current and Prospective Technological Develop­ 1 ments upon Capital Formation," American Economic Review (Papers and Pro· ceedings of the American Economic Association), xxxx (March 1939), p. 22. 8 George Terborgh, "Present Position of Durable Goods Inventory," Federal Re­ serve BiMetin (October 1940), p. 1042. 8 Ibid. 5

WARTIME CHANGES IH NATIONAL PRODUCT

Moreover, the number of serviceable freight cars owned by Ameri­ can railroad companies had fallen by 30 per cent from 1929 to 1939.10 A decline in rolling stocks and in merchant shipping took place in all countries where depression was similarly prolonged. From 1929 to 1939, the merchant shipping fleet of the United Kingdom receded from 20.0 to 17.9 million registered tons and the United States merchant fleet from 13.5 to 11.4 million. On the other hand, the fleets of Japan, Germany, and Italy were larger in 1939 than in 1929, although they had been smaller in the middle 1930s.11 The acute depression of the 1930's also resulted in the progres­ sive obsolescence and under-maintenance of farm machinery, buildings, and roads; in sharply reduced consumers' inventories of durable and semi-durable goods, such as automobiles, furni­ ture, washing equipment, and clothing; and along with the de­ terioration of capital went a declining inventory of labor and pro­ ductive skills in general. Prolonged unemployment thus leads to a pervasive impairment of productive capacity—not to mention the expansion of output capacity which full employment condi­ tions would have engendered. It was certainly ominous for a country such as France that, by 1939, it had gone through a dec­ ade of economic stagnation and was then producing a volume of industrial goods 40 per cent below that of 1929 and no larger than that of 1912.12 Prolonged economic depression, furthermore, is likely to diminish the prospective motivation for war. It saps po­ litical unity and stability even among those who do not fall vic­ tim to apathy and withdraw from the political life of the nation. To be sure, these grave drawbacks are not generated by the short-term unemployment which attends minor adjustments in the national economy. Indeed, when a nation is about to mobilize for war, it may reap some benefits even from long-term and massive unemployment. It has been claimed that the large-scale realloca­ tion of labor which must be undertaken in the process of convert­ ing a peacetime economy to war production is performed more easily and quickly by the absorption of unemployed workers than 10 Janeway,

The Struggle for Survival, p. 98. United Nations, Statistical Yearbook, 1948, pp. 275-76. 12Cf. Ruggles, "The French Investment Program," in EarIe (ed.), Modem France, p. 371. 11 Cf.

ECONOMIC CAPACITY FOR WAR

by the shifting of those already employed.13 This advantage is easily exaggerated, however, in view of the fact that, in modern large enterprise, entire factories with their existing labor force are switched from the production of peacetime to the production of war goods, and that the output of many industries, such as trans­ portation and materials production, remains unchanged in compo­ sition. It is also possible that the task of minimizing inflation may be eased if economic depression precedes the outbreak of war, because it is unlikely that consumers will save voluntarily as large a fraction of rising money-incomes after a long period of full em­ ployment as they would after a long bout of unemployment. Fur­ thermore, if a nation suffers from mass unemployment at the be­ ginning of war, it is able to produce a large volume of combat power without encroaching on prevailing levels of consumption and private investment. In fact, it may—as did the United States from 1939 to 1942—raise real consumption levels and yet produce an increasing volume of munitions. All that is then being given up at the initial stage of the war effort is leisure, and most of this is leisure of the involuntary kind. This position may facilitate con­ version, for consumers find it more onerous to accept consumption cuts than to renounce or, rather, defer hopes for higher consump­ tion levels. Yet, however much weight these considerations may claim, on balance the net impact of a large-scale and prolonged business slump on a nation's war potential is clearly harmful. INCREASING THE LABOR FORCE

A nation can augment its total labor force in three ways: by the immigration and impressment of foreign labor, by the natural growth of its population of working age (14 years and older), and by drawing upon those persons of working age who are not in the labor force when war breaks out. Although foreign labor may be less efficient in many instances than domestic workers, the use of colonial manpower, immigrants, impressed foreign laborers, and prisoners of war may contribute substantially to the total labor force of belligerent nations. Dur­ ing World War II, Great Britain enlisted almost 500,000 colonials 18 Cf. Seymour E. Harris, The Economics of America at War, New York, W. W. Norton, 1941, pp. 47f.

WARTIME CHANGES IN NATIONAL PRODUCT

in her military forces and thus increased greatly her labor force.14 In the same war, the United States imported about 56,000 farm laborers from Mexico, Jamaica, and the Bahamas and also em­ ployed a number of war prisoners on American farms.15 In addi­ tion to war prisoners, Germany impressed a large number of work­ ers from occupied countries. The total was 3.0 million on May 31, 1941; 6.3 million on May 31, 1943; and 7.5 million on September 30, 1944." Aside from additions of foreign workers, the size of a nation's total labor force is determined by the size of its population of working age (14 years and over) and by the propensity of persons in this group to enter the labor force. Increased mortality rates re­ sulting from war casualties and from lower levels of nutrition and health services will tend to diminish the size of this group. Its number^ may also rise or fall owing to the long-term population change. As pointed out in Chapter 9, it is from children aged 10 to 14 that, in a prolonged war, nations expect to replenish and possibly to increase the numbers of the population of working age. The proportion of children of this age in the total population amounted to 8.9 per cent for the United States (April 1, 1940), 7.1 per cent for Great Britain (June 30, 1939), and 6.2 per cent for Germany (May 17,1939).17 In the United States an average of about 900,000 persons per year reached this age from 1939 to 1944. Given the peacetime propensity to enter the labor force, about 650,000 of these persons would have been expected to seek employment per year. This was the equivalent of somewhat over 1 per cent of the total labor force. Such increase amounted to 300,000 persons in Canada for the entire period from 1939 to 1945, and 200,000 in Australia.18 On the other hand, the natural increase of the population of working age was negligible in New Zealand, 14 "The

British Colonial Army," The Economist (April 14, 1951), pp. 844-45. W. Wilcox, The Farmer in the Second World War, Ames, Iowa, Iowa State College Press, 1947, p. 95. 16 Kaldor, "The German War Economy," The Manchester School, p. 27. 17 Data from US Dept. of Commerce, Sixteenth Census of the United States: 1940, Population, n, Washington, D.C., 1943, p. 10; Statistical Digest of the War, Table 2; Statistisches Jahrbuch fiir das Deutsche Reich, 1941/42, Berlin, Statistisches Reichsamt, 1942, p. 25. 18 Saunders, "Man-power Distribution 1939-1945," The Manchester School, pp. 13-25. 15 Walter

ECONOMIC CAPACITY FOR WAR

and there was none in Britain, where, owing to war casualties and other wastage, the population of working age began to decline in 1943.18 It is important to note that growth in the youngest age groups —whose members will not grow old enough to enter the labor force before the war comes to an end—and in the oldest age group —whose members contribute nothing or little to the productive effort—increases minimum consumption claims on the national output without adding to it. Thus, although the population of the United States increased by around 20 million from 1940 to 1950, the population structure of this country was less favorable to the immediate war potential at the end than at the beginning of this decade. The largest relative increase occurred in the bracket of persons under ten years old. This group was 30.5 million in 1950 compared with 21.2 million in 1940. Furthermore, the oldest age group of persons 65 years old and over increased from 9.0 million in 1940 to 11.6 million in 1950. Hence, the number of those who had to be cared for and supported grew by about 12 million. On the other hand, the age group from 10 to 19 years of age de­ creased by over 2 million as a result of the slumping birth rate during the depressed 1930s.20 However, this same population structure will mean a great improvement in the United States potential by 1960. The high birth rate of such countries as prewar Italy, Russia, and most Oriental and Latin American countries is far less of an advantage than might be assumed. The attending drawback is particularly pronounced if mortality rates are high among ado­ lescent persons. Such countries are likely to have a smaller propor­ tion of their total population in the labor force than nations with distinctly lower birth rates. At the beginning of the Second World War, the group of children up to ten years of age represented 16 per cent of the total population in the United States, but 23 per cent in the Soviet Union.21 At the same time, the proportion of the population of working age (15 to 64 for males, 15 to 59 for fe­ males ) was 68 per cent in Britain, 66 per cent in the United States, MIbid., pp. 12, 17. Senate Hearings on UMT, p. 245. 21 Russian data from Frank Lorimer, The Population of the Somet Union: His­ tory and Prospects, Geneva, League of Nations, 1946, p. 143; the American data from Senate Hearings on UMT, p. 345. 20

WARTIME CHANGES IN NATIONAL PRODUCT

65 per cent in Germany, 64 per cent in France, 61 per cent in Italy, 59 per cent in Russia, and 58 per cent in Japan. These figures strongly suggest that the populations with the highest birth rates had, at this phase of their population growth, the small­ est proportion of persons of working age.22 On the other hand, countries with high birth rates frequently have high mortality rates, so that the group of oldest persons re­ mains relatively small. In 1939-1940, the oldest groups (over 64 for males and over 59 for females) represented 12.5 per cent of the total population in France, 10.8 per cent in Britain, 10.3 per cent in Germany, 9.2 per cent in Italy, 8.6 per cent in the United States, 6.1 per cent in Japan, and only 5.4 per cent in the USSR.23 France had by far the oldest population, although this was in part the result of large casualties and a very low birth rate during the First World War.24 It is in the longer run that high birth rates will tend to augment the war potential of nations, provided children have a life expect­ ancy which promises prolonged contributions to the national product once they reach working age, and provided capital re­ sources expand along with the population so that labor produc­ tivity does not decline as the number of workers increases. How much a nation at war can increase the population in its to­ tal labor force by drawing into it many of the adolescent, aged, partly disabled, and able-bodied adults who do not normally seek gainful employment depends upon the peacetime and wartime propensity of the population to enter and remain in the labor forfce. Obviously, these propensities vary between nations. The lower the peacetime propensity to seek such employment and the higher the propensity in wartime, the greater is the slack which can be taken up in an emergency. The peacetime propensity is a joint result of several variable factors.25 (1) The proportion of adolescents in the labor force de22Adapted from Hillmann, "Comparative Strength of the Great Powers," in Toynbee and Ashton-Gwatkin (eds.), The World in March 1939, p. 373. 23 Ibid. 24Cf. Dudley Kirk, "Population and Population Trends in Modern France," in Earle (ed.), Modern France, p. 326. 25 The following is largely based on Clarence D. Long, The Labor Force in Wartime America, New York, National Bureau of Economic Research, Occasional Paper No. 14, 1944, passim. Long discusses some marginal factors ignored below.

ECONOMIC CAPACITY FOR WAR

pends largely on differences between nations in the school at­ tendance of persons over 14 years of age. (2) The proportion of old and partly disabled persons in the labor force depends largely on the adequacy of social security benefits and job opportunities.26 In the United States, for instance, of 1,000 males 65 years old and over, 116 fewer were in the labor force in 1941 than in 1916. It is plausible that this change must at least in part be attributed to the gradual extension of old-age benefits and pensions. (3) The proportion of married women in the labor force depends in part on the proportion of children under ten years old. Thus, in the United States, the number of children in this age bracket per 1,000 married women declined from 1,077 in 1920 to 717 in 1940; over the same period, the number of married women in the labor force per 1,000 rose from 90 to 154. (4) The propensity of women to seek gainful employment and the opportunities for them to find employment also depend on cultural values. In Nazi Germany, for example, the employment of married women and mothers except in farming met with disapproval. In the Soviet Union, on the other hand, such women were admitted to types of heavy work in which women are not employed in the United States or Western Euro­ pean countries. (5) Certainly, the prevalent real wage rate, work­ ing conditions, and the relation between the geographic distribu­ tion of jobs and potential workers affect the propensity of all groups to enter the labor force. These conditions will determine in large part how much of a potential working force a nation can tap in a war emergency. Yet whatever the limits which the above factors set, any wartime change in labor propensity is further governed by a variety of incentives and disincentives, i.e., by the administrative compe­ tence of government and by the motivation for war prevailing in the relevant parts of the population. Regarding the first condition, government policy on wages, union practices, working conditions, facilities for shopping and child care, housing, local transporta­ tion, conscription, etc., will affect the wartime propensity to seek 26 Changes in the structure of industry and in the health and vigor of older persons are important in the longer run. Thus, as capitalization, technology, and scientific management improve and service industries expand, the importance of physical prowess declines and the importance of thoughtfulness and skill increases as determinants of productivity. These conditions also affect employment oppor­ tunities for women.

WARTIME CHANGES IN NATIONAL PRODUCT

employment. But how effectively these policies can be manipu­ lated is not only a matter of organizational skill but also of the readiness of the population to suspend, wholly or partly, the satis­ faction of goals and preferences upon which such policies en­ croach. For example, in Britain, unlike the United States, public opinion was ready to accept the conscription of single women aged 20 to 30. But it should also be clear from the foregoing that administrative skill and readiness to make sacrifices in an emer­ gency can be effective only within a relatively narrow scope. We have already observed that most males and, increasingly, most un­ married females of working age are already in the labor force in peacetime. And we have seen that if the labor force is increased by natural growth, its size will be substantially determined by the birth rate prevailing many years earlier. Similarly, recruitment of married women—by far the largest population group normally outside the labor force—depends largely on the population struc­ ture. Also, the curtailment of school attendance among persons over 14 years old can make a substantial contribution only where a sizable proportion of this age group normally remains in school. To afford further insight into the structural factors that limit wartime additions to the labor force, Table 1 presents the changes which took place in three belligerent powers during the Second World War. The United States was able to increase its total labor force by over 10 million from 1939 to 1944. About 3.5 million of these were contributed by a natural growth of the population of working age. Without this growth, the civilian labor force of the United States would have declined as it did in Great Britain, where the population of working age remained approximately sta­ tionary and where a large proportion was drafted into the armed services in the early years of the war. If this factor of population growth is eliminated for the present purpose, the total labor force expanded by 12 per cent in the United States and by about 13 per cent in Great Britain over the entire period. The British per­ formance was even better than is suggested by this comparison, for 54.9 per cent of the population of working age was already in the total labor force in 1939, whereas the comparable proportion in the United States was only 51.7 per cent. Aside from natural changes in the population of working age, women and students constitute the chief labor reserves of indus-

ECONOMIC CAPACITY FOR WAR

trial countries, once the unemployed have been put to work. In the United States, for example, 2.8 million more youngsters who were reaching working age were drawn into the labor force from 1940 to 1944 than could have been expected to join it on the basis TABLE 1 Labor Force in United States, Great Britain, Germany, 1939-194427 (thousands of persons, 14 years of age and over) UNITED STATES ( MONTHLY AVERAGE )

Year

1939 1940 1941 1942 1943 1944

Civilian Total Labor Armed Labor Force Forces Force*

55,600 370 56,030 390 57,380 1,470 60,230 3,820 64,410 8,870 65,890 11,260

55,230 55,640 56,910 56,410 55,540 54,630

GERMANY (MAY 31 )b

GREAT BRITAIN (MIDYEAR)

Total Civilian Labor Armed Labor Force Forces Force*

Total Civilian Labor Armed Labor Force Forces Force*

10,750 20,680 21,330 22,060 22,290 22,010

40,500 40,400 40,300 39,900 39,800 38,100

480 2,270 3,380 4,090 4,760 4,970

19,270 18,400 17,950 17,970 17,500 17,020

1,400 5,600 7,200 8,600 9,500 9,100

39,100 34,800 33,100 31,300 30,300 29,000

• Includes persons registered as unemployed; excludes foreign workers and war prisoners. b Includes Austria, Sudetenland, Memel.

of peacetime conditions.28 This extra influx made up over 40 per cent of the expansion of the total labor force exclusive of natural growth. In Canada also, students accounted for about one-third of the increase exclusive of natural growth. On the other hand, in Britain and Germany, this contribution was much smaller, since a lesser proportion of the population of working age customarily re­ mains in the schools. For example, of the males from 14 to 17 years of age, 78.9 per cent were in school in the United States (April 1940) compared with 11.4 per cent in Germany (May 1939); and of those from 18 to 24 years of age, 15.1 per cent re­ mained in school in the United States compared with 1.7 per cent in Germany.29 Women constitute the other large reserve of labor. In the United States, 1.9 million women, aged 20 and over, were added to the 27 Data from Economic Report of the President, January 1952, p. 177; Statistical Digest of the War, Table 9; Kaldor, "The German War Economy," The Man­ chester School, p. 27. 28 Saunders, "Man-power Distribution 1939-1945," The Manchester School, pp.

14-17. 29 Long, The Labor Force in Wartime America, p. 36.

WARTIME CHANGES IN NATIONAL PRODUCT

labor force from 1941 to 1944.30 Britain, which introduced con­ scription of single women aged 20 to 30, drew 2.2 million women into her total labor force between 1939 and 1943.31 The proportion of women of working age who entered the total labor force rose to 32 per cent in the United States and to 45 per cent in Great Britain.82 In the absence of a natural growth of the population of working age and with a relatively small proportion of this group in school, Britain relied primarily on women to enlarge her total labor force. In 1943, no less than 39 per cent of the civilian labor force were women.83 Since in Germany farmers' wives are automatically counted as part of the labor force, women constituted 37 per cent of the civilian labor force. Of these, 40 per cent were engaged in agriculture. It is remarkable that the number of women in the German labor force remained stationary throughout the war.34 It should be noted that the output of productive reserves made possible by such an extraordinary expansion of the labor force represents a net addition to the national product only in a sta­ tistical sense. Some of this additional output results, strictly speak­ ing, from a diversion to war use of resources devoted to serve pri­ vate consumption in peacetime. This holds true especially when married women and mothers are incorporated into the wartime labor force. This transfer implies a reduction of the domestic services, in household and family, which these women previously produced and which contributed to peacetime consumption levels. Because these peacetime services are not supplied and demanded through the market, their value is not, by definition, included in the computation of the gross national product. Actually, to the extent that these services are diminished by transferring women to the labor force, the output of these women does not increase the national product but represents the substitution of one kind of output for another, an output probably more useful in wartime. The wartime reduction of the number of youngsters who re80 Lincoln,

et al., Economics of National Security, p. 98. Statistical Digest of the War, Table 9. 82 Saunders, op.cit., p. 18; Sir Godfrey Ince, "The Mobilisation of Manpower in Great Britain for the Second Great War," The Manchester School, xrv, No. 1 (January 1946), p. 33. 83 Statistical Digest of the War, Table 9. 84 Kaldor, op.cit., pp. 27, 31. 81

ECONOMIC CAPACITY FOR WAR

main in school raises a similar problem.86 In reality—although not in national-income terms, as officially defined—education repre­ sents an investment in human resources which is expected to benefit society in the form of increased productivity and produc­ tion, not to speak of the adaptation of the young to the social, cultural, and political system which is expected to result from the educational process. In part, therefore, wartime reductions in the amount of schooling received by youngsters represent in a real sense a diversion of resources from investment, i.e., from the pro­ duction of further productive resources, to the production of other goods and services. Lengthening the Work Week

Increasing the supply of labor by lengthening the work week is often considered equivalent to adding new members to the labor force. If there is a prevailing motivation for war and if the government knows how to provide suitable incentives, is there actually an economic potential in longer hours? How much the ef­ fective labor supply can be enlarged in this way depends on the number of hours worked in peacetime and on the rate at which diminishing returns set in as the working day and the work week are increased. There can be no worthwhile generalization on the point at which an increase in the average hours of work per week fails to augment production. Obviously, this point will be different in different occupations; it will vary for men and women, since married women, at least, will continue to be engaged in house­ work; and it is likely to differ for different countries. Although there no doubt are physiological limits to extracting work from the labor force, customary expectations and a variety of incentives and disincentives will in many instances set effective limits before the physiological limit is reached. In any event, it may be sur­ mised that these kinds of limits are interdependent and that they cannot, at this time, be separated for practical purposes. Fatigue is the resultant of complex factors. When the United States introduced the 48-hour week in areas and industries of tight labor supply, a pronounced drop in work efficiency was observed. For work of a Ught character, it took usually three hours, and for heavy work four, to produce two ad88

Ibid., pp. 44-45.

WARTIME CHANGES

IN NATIONAL PRODUCT

ditional hours of output. The British government had similar experiences when, after the fall of France in June 1940, it set the work week at 70-75 hours in munitions plants. This schedule had to be retrenched.36 Absenteeism will multiply as the work week is lengthened; at least, this happened in the Western countries dur­ ing the Second World War. According to United States experience, a work week scheduled at 48 hours resulted, on the average, in an actual work week of only 45.5 hours.37 Before World War II, there were marked differences among countries in average hours worked per day and week. The average was much lower in the United States, Britain, and France than in Germany, Soviet Russia, and Japan. In 1951, the average in manufacturing industries was 40.7 hours in the United States, 41.8 in Canada, 45.6 in Great Britain, 47.5 in Western Germany, and about 48 in Japan.38 The standard work week was 48 hours in the USSR.39 In general, it is the normally short hours of work which constitute one of the great labor reserves of the wealthy nations, for it is with rising real income that workers choose to enjoy part of the fruits of increasing productivity in the form of additions to leisure rather than entirely in the form of more consumption goods and services. In the United States, for instance, the length of the work week in non-agricultural occupations fell from an esti­ mated average of 61 hours in 1870 to 53 hours in 1910, 42 hours in 1940, and 40 hours in 1950.40 To repeat, however, the effective lengthening of the work week depends on government policy on wage rates, taxation, rationing, housing, factory conditions, etc. Much also depends on the moti­ vation for war propelling the working force. This motivation will affect absenteeism and the rate at which hourly output declines as the hours of work are extended. The British workers, for in­ stance, experienced a boost in their working morale when France fell and invasion threatened. Two observations on the utilization of labor reserves in time of 86 Senate Hearings on UMT, p. 394. " Ibid., p. 314. 88United Nations, Monthly Bulletin of Statistics (November 1952), p. 13. 89 Harry Schwartz, Russia's Soviet Economy, New York, Prentice-Hall, 1950, p. 542. 40 Cf. A. J. Jaffe and Charles D. Stewart, Manpower Resources and Utilization, New York, John Wiley, 1951, p. 205.

ECONOMIC CAPACITY FOR WAR

war are relevant by way of conclusion. First, all belligerents dur­ ing the Second World War were able to increase the total labor supply by the various means discussed. Yet none was able to maintain its civilian labor force at the peak of the war effort. The ability to do so is, of course, largely determined by the proportion of manpower drafted into the armed forces and by the number of casualties suffered in and outside the military services. Secondly, the extent to which a nation can expand its total labor supply can be predicted with a high degree of reliability. This inference is suggested by the above analysis. The important information is data on population, labor force, population structure, school at­ tendance, and the average work week. This information is readily available for most countries. Admittedly, other factors—such as the prospective motivation for war and administrative compe­ tence—will affect the actual size of the labor reserve. But these factors have only a marginal impact, and some allowance can be made for them. Here is one area—a very important one for esti­ mating the war potential of nations—in which careful analysis can be expected to yield fairly reliable minimum estimates of the po­ tential expansion of the labor force in wartime. Reducing Civilian Consumption In addition to exhausting its effective reserve of labor and other productive factors, a belligerent country will channel productive resources to the military sector of the economy by shifting of factors from peacetime to wartime production. This requires that peacetime expenditures on civilian consumption, private invest­ ment, and non-war services of the government be cut. In peacetime, consumers claim the bulk of the GNP or gross national product, usually between 60 and 80 per cent. In the So­ viet Union, household consumption apparently claimed only 53.6 per cent of the GNP in 1937.41 It is primarily through curtailing consumers' outlays, therefore, that belligerent nations must release economic resources for the war effort. Indeed, it has been ob41 Bergson, "Soviet National Income and Product in 1937," Quarterly Journal of Economics, p. 426. It should be noted, however, that government expenditures for the direct benefit of civilian consumption may be larger in the USSR than in most non-Communist countries. Bergson estimated that "communal services" claimed another 10.6 per cent of Russia's gross national product (ibid).

WARTIME CHANGES IN NATIONAL PRODUCT

served that this is the point at which wars are won and lost.42 The urgency of cutting private consumption depends on many condi­ tions, such as the proportion of the national product which con­ sumers claimed before the war, the degree of unemployment pre­ vailing before the war, and population growth during the war. Thus, if real consumption in the United States rose after Pearl Harbor, one reason was large-scale unemployment as late as 1941; another reason was continued population growth. Of course, the extent to which civilian consumption can be di­ minished immediately depends on the motivation for war prevail­ ing in the population and on administrative skill. Some readiness to rank consumption wants lower in war than in peace can be ex­ pected to occur in all belligerent societies. But the acceptable de­ gree of temporary austerity will differ for the complex reasons discussed in Part II. In actual fact, the disposition to defer con­ sumers' demands will express itself, not in agreement with a sta­ tistical cut of aggregate consumption made by the government, but in willingness to forego or do with less of particular goods and services. Even in Great Britain, during the Second World War, this disposition, though strong in general, was unavailing when it came to tolerating some specific sacrifices, such as fuel rationing, and the government was forced to withdraw such pro­ posals.43 Government policies will affect in many ways, both directly and indirectly, the extent to which civilian consumption can be cut in wartime. Thus, the distribution of consumption sacrifices by means of price control, wage policy, rationing, subsidies, and tax­ ation impinge on the prevailing motivation for war, as it in turn impinges on the volume of civilian consumption. Especially in democratic societies, the willingness to make sacrifices is strongly influenced by the equity or inequity with which diminished con­ sumers' supplies are distributed, for without policies to this effect, war would impose the heaviest deprivations on low-income con­ sumers. The readiness to make sacrifices is affected by the choice of the specific consumers' goods and services on which the ax is allowed to fall, and this choice must be exercised by the govern­ ment. 42 Clarke, 48

The Economic Effort of War, p. 43. Cf. Hancock and Gowing, British War Economy, pp. 497-98.

ECONOMIC CAPACITY FOR WAR

Much will depend, then, on how government policy reconciles the requirements of war with the need to maintain civilian pro­ ductivity and morale. This calls for difficult choices, for a great deal of consumption is "productive consumption" in the sense that essential foods, medical care, and repairs of vehicles and house­ hold equipment affect the efficiency of labor. During the last war, the Japanese government, unlike the German, British, and Ameri­ can governments, apparently did not assess civilian consumption needs in terms of labor productivity and Japan's real output suf­ fered as a result, especially because of food shortages." To give another example, heavy cuts on laimdry and bus services, etc., may save negligible amounts of labor and materials while exact­ ing a disproportionate loss of time and energy from the civilian worker. Important though the prevailing motivation for war and admin­ istrative competence are in determining the extent to which con­ sumption can be curtailed, they do so within limits set by other factors, especially the difference between per capita real income and subsistence, and the size of consumers' stocks. As pointed out previously (p. 229), what is "subsistence" in this sense is not, in most instances, a question of physiological minima, but of mini­ mum expectations and these, no doubt, depend in part on peace­ time habits of consumption. Of particular importance in the ability of nations to reduce civilian consumption in wartime is the volume of stocks which consumers have accumulated in peacetime. Stocks are of little or no importance so far as services, food, and fuel are concerned, for these are usually consumed with their purchase, or shortly thereafter. But stocks of durable and semi-durable consumers' goods—such as vehicles, household appliances, furnishings, and clothing—act as a cushion which softens the impact of diminished production in wartime. Housing also belongs to this category, al­ though, in national-income statistics, housing is regarded as part of private domestic investment. Large stocks of these goods clearly diminish and delay the repercussion of a smaller flow of new supplies and hence greatly minimize the deprivation with which consumers would have to cope. During World War II, for example, per capita purchases (at prewar prices) of household 44SBS,

Summary Report (Pacific War), pp.

20-21.

WARTIME CHANGES IN NATIONAL PRODUCT

goods in general fell by 82 per cent in Britain from 1938 to 1944, by 51 per cent in the United States from 1941 to 1944, and by 24 per cent in Canada from 1941 to 1944.45 The production of passen­ ger automobiles declined from 3,780,000 to 139 in the United States (1941 to 1943), from 341,000 to 1,649 in Britain (1938 to 1943), from 55,533 to 4,014 in Italy (1939 to 1943), and from 3,000 to 116 in Japan (1939 to 1944).48 The construction of resi­ dential housing units fell from 706,000 to 142,000 in the United States (1941 to 1944), from 10.2 to 3.7 million cubic meters in France (1939 to 1940), and from 17,827 to 458 units in Austraha (1941 to 1943).47 As shown in Chapter 11 (Table 3), although total personal consumption expenditures rose somewhat (at 1939 prices) in the United States from 1941 to 1944, expenditures on durable consumers' goods were nearly halved. This ability of consumers to live on accumulated stocks is particularly important because the industries making durable consumers' goods are especially suited to manufacturing munitions. Stocks of consumers' goods form a great deal of the "fat" on which rich nations can live in a war emergency. Large consumers' inventories permit consumption levels to remain fairly high, at least for a time, because consumers' capital is for the most part not convertible to war use. The size of these stocks will vary not only with per capita real income and its distribution but also with the state of prewar business conditions. If the prewar period has been one of prolonged prosperity, consumers' stocks should be especially ample. In 1939, on the other hand, the stocks of Ameri­ can consumers were still relatively low as a result of persistent unemployment—a deficiency which was largely repaired, how­ ever, in 1940 and 1941. Reducing Private Investment Since nations devote part of their productive resources to do­ mestic gross capital investment—i.e., maintenance of existing capi­ tal as well as new capital formation—cutting down such invest­ ment is one way of releasing resources for the production of fight­ ing power. This does not mean that a great deal of capital main45 "War-time Consumption: Contrast Between British Experience and American," Board of Trade Journal, CLI (1945), p. 572. 46 United Nations, Statistical Yearbook, 1948, p. 251. 47 Ibid., pp. 253-56.

ECONOMIC CAPACITY FOR WAR

tenance and new investment may not be undertaken by belligerent powers. But, although the legal form may vary greatly, it is usu­ ally undertaken as public investment, directed specifically to the war efiFort and customarily included in the war expenditures of government. Tables 3, 4, and 5 in Chapter 11 indicate that Germany, Great Britain, and the United States sharply lowered gross private do­ mestic investment during the last war. In the United States, such expenditures slumped by $10.5 billion (in 1939 prices). The cut was the equivalent of about one-sixth of the war expenditures of the federal government. Over the entire war, such retrenchment released about one-fifth of the resources required for the British war efiFort. In the Soviet Union, the share of non-war investment in the national product fell from 19 per cent in 1940 to 4 per cent in 1942.48 The wartime reduction of private domestic capital expenditures takes several forms. Part of it, of course, is done by slashing new additions to capital resources, and part of it by capital consump­ tion, i.e., the non-maintenance of capital resources inherited from the past. In a sense, capital consumption means a borrowing of resources from the future, since this consumption must be offset later by an increased rate of investment unless the nation con­ cerned wants to see its productive capacity permanently dimin­ ished. Domestic disinvestment predominantly takes the form of reducing expenditures on residential construction and on business inventories. But expenditures on producers' durable equipment are also likely to decline. It is obviously possible to curtail or dis­ continue the construction of new dwellings and to allow existing houses to fall into disrepair. Business inventories of semi-finished and finished consumers' goods can also be depleted and so can stocks of materials, fuel, and food—for a time, at least, if they happen to be large at the outset of war. Thus food and feed sur­ pluses which the United States government had accumulated in the late 1930's were drawn down during the war. The industries most likely to be affected by net disinvestment are industries turning out non-essentials and not readily converti­ ble to war production, and industries which do not need conver­ sion in order to contribute to the war efiFort, such as agriculture, 48 Voznesensky,

The Economy of the USSR During World War II, p. 39.

WARTIME CHANGES IN NATIONAL PRODUCT

mining, electricity, transportation, and merchandising. Thus, maintenance of agricultural capital can be neglected by reducing the application of fertilizer, curtailing cover crops designed to preserve soil fertility, diminishing livestock, and letting farm buildings and roads run down. Wartime neglect of private domestic investment, and especially of capital maintenance, is risky if the war is prolonged, for even­ tually capital consumption will exact its toll in the form of re­ duced labor productivity and, possibly, reduced output in waressential industries. In Great Britain, for example, 185 fewer loco­ motives were available for railway lines at the end of 1941 than at the end of 1938. This reduction in new engine construction was tolerable for a short time, but its effects became dangerous as the war continued. Although new engine production was given a high priority in 1942, from the middle of November 1942 to the end of February 1943, between 1,000 and 1,500 trains a week had to be canceled largely because of lack of locomotives.49 In this particu­ lar case, however, total output did not decline, for net tons of freight carried and total wagon miles increased from year to year. It may be a serious disadvantage if production does contract. During the First World War, for example, agricultural output shrank in continental Europe not only because the labor supply of the farms declined but also because of sharp cuts in the availa­ bility of draft animals, implements, and fertilizer.50 In Germany, phosphate consumption fell from 630,000 tons in the crop year of 1913-1914 to 325,000 tons in 1917-1918, and nitrogen consumption from 210,000 to 92,000 tons.51 How much German food output suffered from such neglect has been stated in Chapter 10. For similar reasons, the Austro-Himgarian grain output slumped from 90.0 million quintals in 1914, a poor crop year, to 52.7 million in 1918, increasing the monarchy's deficit from 9.8 million to 47.3 million quintals.52 But even if output is maintained or expanded, under-maintenance may lessen labor productivity. In that event, more labor is required per unit of output, and this is a serious 49 Hancock

and Gowing, British War Economy, pp. 481-83. Brandt, The Reconstruction of World Agriculture, pp. 27-32. 61 Cf. Aereboe, Der Einjluss des Krieges auf die Landwirtschaftliche Produktion in Deutschland, pp. 40-44. 52 Gratz and Schuller, Der Wirtschaftliche Zusammenbruch Osterreich-Ungarns, p. 46. 80 Cf.

ECONOMIC CAPACITY FOR WAR

matter in wartime, when labor becomes a very scarce, and ulti­ mately the scarcest, resource. How much gross private domestic investment can be retrenched in wartime depends chiefly on the following conditions. It de­ pends upon the motivation for war at large in the nation, for this motivation will affect the readiness of private investors to fall in with government exhortation and control. It depends upon the administrative skill of government in choosing effective forms of regulation. It also depends heavily on the volume of prewar in­ vestment. The share of their GNP which nations devote to private investment fluctuates over a period of time and varies from coun­ try to country. In 1950, for instance, private investment claimed the following proportions of the GNP in selected countries: United Kingdom, 14.2 per cent; Italy, 14.3 per cent; France, 15.6 per cent; United States, 18.9 per cent; Canada, 23.2 per cent; and Western Germany, 27.3 per cent.68 The larger the proportion of total resources which a nation de­ votes to domestic investment in peacetime, the greater will tend to be the contribution to the war effort which a lowering of in­ vestment can make. There are two reasons why a high rate of prewar investment is an advantage in wartime. First, well-main­ tained and new capital resources reduce the need for new capital formation and can be under-maintained for a longer period of time before production and labor productivity commence to suf­ fer. Secondly, gross domestic capital investment is more easily reduced than private consumption. In the experience of virtually all nations, investment cuts are more readily acceptable than con­ sumption cuts. A nation with a large proportion of its peacetime resources devoted to making capital goods, relative to the propor­ tion engaged in producing consumption goods, is therefore able to shift more easily from peacetime to wartime production. Reducing Non-War Expenditures of Government

Tables 3, 4, and 5 in Chapter 11 reveal that some productive resources can be shifted from peacetime to wartime employment by reducing government expenditures for non-military purposes. From this point of view, expenditures of local and state or pro­ vincial government are just as relevant as those of the national ss

United Nations, World Economic Report, 1950-1951, p. 18.

WARTIME CHANGES IN NATIONAL PRODUCT

government. However, this contribution is bound to be relatively slight. Over the entire last war, it accounted for about 1.5 per cent of the resources which Great Britain committed to the war effort.54 In the United States, the contribution was about 2.3 per cent during the three years from 1942 to 1944.55 It is easy to see why this contribution cannot be large, even though governments are determined to diminish non-war spend­ ing. The amount that can be eliminated depends, of course, on the magnitude and purposes of such spending prior to the war. Although some peacetime outlays of government for non-defense purposes can be cut—such as expenditures on post offices, public parks, highways, and school buildings—the large bulk of these outlays represent investments which serve to increase productivity directly or indirectly. Even capitalist countries make large public investments in housing, transportation, communications, port fa­ cilities, forests, agricultural improvements, power dams and flood control, hospitals, etc. Moreover, expenditures on public health and education (other than expenditures on plant) can be consid­ ered to involve investment in human resources. Although the volume of new investments of all these types can certainly be re­ duced and existing capital be allowed to run down, there are lim­ its at which output and productivity will be adversely affected. The prevailing motivation for war will, of course, affect the degree to which accustomed public services can be curtailed. Aside from certain public expenditures that can be cut, mobilization will bring about a redistribution of public expenditures, by functions and geographic area, to the extent that they are expected to sup­ port the war economy. Changes in Net Foreign Investment If a nation (or its citizens) makes net foreign investments, dur­ ing any one year, by acquiring net claims against foreignersclaims which presumably can be exchanged for real goods and services—it does so by exporting a volume of goods and services valued in excess of imports. This means that fewer goods and services will be available for domestic use by consumers, investors, or the government than would be available if exports equaled or si The 66

Economist (April 13, 1946), p. 592. Economic Report of the President, January 1952, p. 167.

ECONOMIC CAPACITY FOR WAR

fell short of imports. An export surplus means that a nation has, in exchange for claims, made part of its resources available to the outside world. If the nation was a creditor nation before—that is, had in the past accumulated net claims on foreigners—new net foreign investment will augment its wealth in this form. If the nation was a net debtor country before, net foreign investment will lessen its indebtedness to the outside world. Conversely, if net foreign investment during any one year is a negative item, amounting to net foreign disinvestment, the nation will experience an import surplus and a net addition to the goods and services available for domestic use. At the same time, it will be increasing its indebtedness to the outside world, if it was a net debtor coun­ try before, or it will be diminishing its accumulated claims on foreigners, if it was previously a net creditor country. Hence, if a nation at war makes net foreign investments, it can itself dispose of fewer goods and services than it otherwise could and, everything else remaining the same, its economic mobiliza­ tion for war will suffer. This is not to say, of course, that it may not be wise policy for a warring nation to make net foreign in­ vestments. If the net exports made are for the benefit of allied countries, this may increase the war effort of the alliance. If a nation at war is able to make a net foreign disinvestment, i.e., to manage an import surplus, it will enjoy an immediate ac­ cession of resources that will benefit its economic mobilization. It does not matter whether such net disinvestment comes about by a reduction of exports or by an expansion of imports, or both. More resources are available for domestic use in either event. To the extent that a nation finances an import surplus by liqui­ dating claims on foreigners, it may do so by drawing down re­ serves of gold or foreign currencies, including bank balances, or by selling foreign notes, stocks, bonds, and properties. To the ex­ tent that a nation finances an import surplus by running into debt, it may do so by letting foreigners accumulate balances of its own currency or by selling its own notes, stocks, bonds, and proper­ ties to foreigners. During the Second World War, Britain's external disinvest­ ment came to £. 4.2 billion. Of this total, & 1,118 million repre­ sented sales of capital assets,