How American Business Saved Civilization

How entrepreneurialism and innovation inspired business leaders across the country to mobilize the “arsenal of democracy” that allowed the Allies to triumph
in World War II.

March 12 2013 by JP Donlon


Freedom’s Forge centers on Knudsen and Henry J. Kaiser, and one is tempted to compare business leaders of that era to business leaders of today.

Sometimes people say, “If only we had people like Bill Knudsen again.” Actually, there are a lot of people like this today running major corporations but also smaller ones. I’m thinking about [others in the 1940s besides] Bill Knudsen, such as Henry Kaiser and K.T. Teller at Chrysler, who is the one that Knudsen called when he said, “I need tanks. Can you build tanks for me?” And Teller said, “I don’t know. I’ve never seen a tank. Tell me what it is and I’ll tell you if I can.”

There are many characteristics that stand out, but there is one that is eternal and pertinent to today. All these executives never forgot that they were entrepreneurs first and managers and CEOs second. General Motors was, at that point, the biggest corporation in the world; but it had at its head in 1940, Bill Knudsen, someone who had worked his way up from the shop floor and had helped to set up the very first mass-production assembly lines.

Roy Grumman of Grumman Aircraft used to test-fly his own planes. He couldn’t do it officially. Maybe the board would have swooned if they found out. When Grumman built the Wildcat or the F6F Hellcat, he took it out for a spin to see what its performance was like. That kind of hands-on experience is a common theme all the way through to the current generation of business executives. They know that profit follows value. This is precisely what Steve Jobs used to do.

In your concluding chapter, you mention that the advisors of the Office of War Mobilization warned President Truman that the end of war production would mean the end of prosperity. In fact, Paul Samuelson, the author of the classic economics textbook, warned Truman that there would be a huge increase in unemployment caused by industrial dislocation, which would be greater than the Great Depression. None of this happened. In fact, as you note, in 1946 there was a tax cut imposed on the reluctant President led by a coalition of Republicans and conservative Democrats, which revived the economy. These events are completely at odds with the standard, received notion of how the economy revived after World War II. What is the lesson for today?

The elites were tethered to the mistaken notion that the war production effort was the visible hand of God and that once you pulled that visible hand away—and don’t forget, too, 10 million returning veterans would be looking for jobs—this would swamp the American economy. Taxes had been very high during the war, but it was the mechanism of the tax cut that allowed the shift of private capital back into the economy. A lot of these businesses made a lot of money in the course of the war, but they had nothing on which to spend it.

The tax cut helped, and equally important was capital mobility. Money could now flow back into the areas that were going to be the most productive parts of the American economy, as a result of lifting wartime restrictions, rationing and so on. In addition, there was labor mobility. People had gotten used to the idea of going where the jobs were. The attitude of returning veterans was to go where the opportunities were.

These two big changes set up the post-war recovery because [they] put the productive resources back where they really counted, which was the private sector. Although the private sector had gotten the war effort underway and had sustained it by drawing on its skills and experience, it was the private sector that got back to doing what it did best by 1946. Washington’s key role, as it usually is when it comes to getting prosperity going, was to get out of the way and let those who know best do what they do best.

I would be very suspicious when people cite Washington’s role in World War II as an example of what governments do either to revive the economy or to get America going on a big national effort. Remember who really made the war production miracle possible. It was American business.