America's Deep Dive into Regulation
The end of the nineteenth century coincided with a whirlwind of change. The America at the end of the Civil War would not recognize the industrialized behemoth that the United States had become. Gone was the Jeffersonian ideal – later adopted by President Lincoln – which imagined America as a society of self-sufficient farmers. In its place was an industrial explosion, filled with factories, machines, and ever-growing cities. This explosion introduced a new world order, which included urban, working-class immigrant laborers, often working these new factories, and titans of industry, directing transnational corporations producing steel, oil, and machines.
Even though the American economy and production power had already grown tremendously in the latter half of the nineteenth century, the potential for American involvement in World War I demonstrated that American industry needed to grow further still (Kester 1940, 655). In order to meet the industrial demands of total war, President Wilson and industrial leaders knew they must take extraordinary measures in readying the American economy for war. This led to an unprecedented level of government intervention in the American economy, chiefly with the establishment of the War Industries Board. Since the end of the Civil War, the government had largely avoided implementing economic regulations, in favor of the laissez-faire policies of the Gilded Age. The War Industries Board upended that tradition by creating a federal administrative body to which the President delineated the responsibility and power of planning the American economy around the war effort (Hitchcock 1918, 545).
The War Industries Board instituted a hierarchical and structured organization over the American economy. The War Industries Board served as the overarching implementer of government policy; it supervised the interactions between various industries and oversaw the American economy as a whole. Underneath the War Industries Board were several subcommittees that were industry-specific and by the end of the war 57 of these subcommittees existed. The 57 subcommittees fell in either one of two divisions: the Raw Materials Division or the Finished Products Division (Kester 1940, 658). This level of organization, centralization, and structural clarity helped the War Industries Board successfully organize American industry to a much greater extent than anything that had preceded it (Hitchcock 1918, 557).
While the success of the War Industries Board is undoubtedly linked to its unprecedented structural organization, its powers also defied American political and economic tradition. The demand that World War I placed on the American economy – even before formal American involvement – threatened its stability. The Allied demand for war materials led to skyrocketing prices, supply shortages, and swamped domestic demand (Kester 1940, 661). The normal constraints of economy, such as high prices, which had somewhat maintained economic stability for the previous five decades was suddenly gone (Kester 1940, 661-662). In response to the collapse of the regulating market forces, the War Industries Board served as the regulator in the form of four different roles. These were the coordination of demand, the administration of the priorities system, the organization of supply, and price fixing. These roles served as a way of stabilizing and growing the economy in the face of such unprecedented demand.
The power to coordinate demand involved the War Industries Board’s subcommittees. The subcommittees processed demand requests from various potential buyers and determine which resources they could be allowed to buy, ranging from anywhere from the market, down to specific source (Kester 1940, 664-665). The administration of priorities system in both supply and demand. The system required all consumers – buyers – and producers – industry – to prioritize their needs be it product, energy, labor, transportation or fuel. The War Industries Board approved these lists and matched supply to demand. This proved to be the strongest power of the War Industries Board because they could deprioritize actors that did adhere to the rules set forth by the War Industries Board. Thus, if an actor decided to ignore the War Industries Board, they would be punished by never receiving a high enough priority, reducing economic transactions (Kester 1940, 667-668). The organization of supply demonstrated the level of governmental intervention in the economy. The previous two powers involve the regulation of economic transactions, this power directly affected producers. Through this power, the War Industries Board could directly control the practices of producers. The War Industries Board changed production practices, waste disposal procedures, and delivery practices in order to create a more efficient national mass production system. The War Industries Board also rationed raw materials and as such determined exactly how much production could occur at specific factories (Kester 1940, 669-670). The last power was the power to fix prices. The collapse of normal market forces in the face of unprecedented demand threatened skyrocketing inflation. Traditional anti-inflation measures would have failed to stem the rising prices. As such the War Industries Board dictated the price at which companies could sell war materials. As the war progressed, these fixed prices expanded to all products (Kester 1940, 671-672).
Taken as a sum, these powers allowed the government, under the War Industries Board, to set prices, control production, determine where products could be sold and in what quantity. Before World War I, the federal government had never exercised such control over the United States’ economy. However, the unprecedented demands of World War I called for such practices. Through the actions of the War Industries Board, the United States’ economy grew by large margins in a short period of time. Nevertheless, this level of intervention was politically unsustainable in the early twentieth century. After the fighting stopped, President Wilson, by executive order, decommissioned the War Industries Board, ending the high level of governmental involvement in the economy.
Hitchcock, Curtice N. 1918. "The War Industries Board: Its Development, Organization, and Functions." Journal of Political Economy 545-566.
Kester, Randall B. 1940. "The War Industries Board, 1917-1918; A Study in Industrial Mobilization." The American Political Science Review 655-684.