The Beginning of the Military Industrial Complex

Supplying the military with the tools of war and providing armies with food and other items necessary to support a force in the field has always been a profitable endeavor and as the armies and navies got larger and the equipment more complex and expensive the business opportunities expanded.  The American Civil War (War Between the States) provided vast business opportunities and produced the beginnings of the Rockefeller financial dynasty when John D Rockefeller and two business associates were logistics contractors for the Union Army.  The profits from this venture were parlayed into the beginnings of Standard Oil. In his short anti-war classic Marine Corp General Smedley Butler claimed that WWI produced 21,000 millionaires writing "In the World War a mere handful garnered the profits of the conflict. At least 21,000 new millionaires and billionaires were made in the United States during the World War. That many admitted their huge blood gains in their income tax returns. How many other war millionaires falsified their tax returns no one knows."  War profits through WWI were broadly distributed amongst a large number of smaller contractors or suppliers with individual suppliers not having a great deal of political influence but that was to change.

WWII brought about fundamental changes in military contracting that changed the military and the government from that time forward. The Roosevelt administration integrated app. Ten thousand business executives into staff positions throughout the federal agencies with these positions being created by executive fiat (1 p. 16). In 1942 the War Production Board was created that had broad power to direct the economy for the rest of the war including the power to prohibit production that wasn’t deemed essential to the war effort. The board controlled the allocation and management of war related contracts and the assignment of contracts aligning closely with the companies that the board members had relationships with. The scale of the contracts in comparison to previous eras was huge and 74% were awarded as the result of negotiations without competitive bidding (1 p. 17). Board Member and President of General Electric stated, “This defense program is big business…. we might just as well make up our minds to that. It is big business and it isn’t going to be handled by thousands of small businesses alone. Small plants can’t make tanks, airplanes, or other large complex armaments.” (2 pp. 80-1)

The systems and platforms weren’t simply complex manufacturing efforts but also involved cutting edge engineering and large technical staffs. Much of the infrastructure required didn’t already exist as the aerospace manufacturers in particular during this time tended to be smaller operations. The federal government frequently acquired the land and built the factories then gave them to the suppliers after the war. Of twenty-six billion spent on defense plants during the war, seventeen billion was financed by the government (1 p. 18).  The defense industry was built by American taxpayers and from that, many dual use products were spun off. By 1941 75% of defense spending went to only 56 companies with a third of those contracts going to six companies which were led by Bethlehem Steel, General Motors, and Du Pont. As time passed the contractor base would grow numerically smaller and economically larger (1 p. 19). Many contracts were cost plus, which was justified based on uncertainties of new development, but the effect of this was a form of corporate socialism where the capital was provided by the government, the risk was borne by the taxpayer, and the profits accrued to the supplier.

In all previous wars the military demobilized after the war but as WWII entered its final months, the American defense industry determined that they did not want the nation to demobilize, for obvious reasons, and lobbied for the nation to be set on a permanent war economy.  This would need a way to pay for it, which would require reallocation from consumer products or endless deficits, and justification that the public would accept and both these things were taking shape at the time. Charles Wilson (head of General Electric) argued that the country’s security now required the ability to go to full war at a moment’s notice. “What is more natural and logical … than that we should henceforth mount our national policy upon the solid fact of an industrial capacity for war, and a research capacity for war that is also ‘in being’? It seems to me anything less is foolhardy.” Wilson was the need for the industry to band together to fend off “political witch hunts” or to be accused of being “merchants of death.” (1 pp. 23-4).

It should be emphasized here that, as with any other perceived problem that is addressed by a permanent government of government/industry institution, the problem itself which may have been temporary or intermittent tends to become permanent.  If those given the charter and the funding to address the problem were to ever resolve it their protective and redemptive services would no longer be required.  The economic motivation therefore, is to ensure that the problem being addressed is perceived as consistently getting worse and requiring more money to address.  If questions arise as to why previous funding increases apparently weren’t effective the public is to believe that the problem without government action would have been that much worse.  This had been seen with social programs that were created during the progressive era (largely in the Wilson administration) and now the same pattern was to apply to the military.  The economic motivation for what was to become the “military industrial complex” would not be to avoid wars and, when forced to fight, resolve the matter quickly, but would rather be to ensure there are always an expanding number of active threats which require ever increasing budgets to manage. In 1948 historian Charles Beard addressing the dangers to constitutional government that the flow of power into the executive branch and the government agencies pose wrote:

“The further away from its base on the American continent the government of the United States seeks to exert power over the affairs and relations of other countries the weaker its efficiency becomes,” he wrote, “and the further it oversteps the limits of its strength the more likely it is to lead the nation into disaster—‌a terrible defeat in a war in Europe or Asia beyond the conquering power of its soldiers, sailors, and airmen. If wrecks of overextended empires scattered through the centuries offer any instruction to the living present, it is that a quest for absolute power not only corrupts, but in time destroys.”  Charles Beard (3 pp. 592-3)

Works Cited

1. Swanson, Michael. The War State: The Cold War Origins of the Military Industrial Complex and the Power Elite. South Carolina : Create Space, 2011.

2. Higgs, Robert. Depression, War, and Cold War . Oakland : The Independent Institute, 2006.

3. Beard, Charles. President Roosevelt and the Coming of War. New Jersey : Transaction Publishers, 2003.