The Merchants of Death

CHAPTER XIII THE WORLD WAR—ENTER OLD GLORY

As a result of the war, a million new springs of wealth will be developed.—Frank A. Vanderlip.

A corporation cannot live on patriotism. Our stockholders must have dividends.—George D. Baldwin.

At the outset, Europe was convinced that the war would not last long and that it would be able to supply its own ammunition for the duration of the conflict. For almost a year Europe did manage to fill most of its needs from its reserves. When it became evident, however, that a long war was probable, new sources of supply were eagerly sought.

The one great power which had remained neutral was the United States. Theoretically, according to international law and the Hague Convention of 1907, both sides in the conflict were permitted to buy from a neutral, and the neutral was privileged to sell. It was not a new situation. In many wars the neutrals had sold to both sides.

Now, however, a new factor entered the picture. Germany was blockaded, at least in theory, and the Allies would not permit neutral commerce to pass the blockade. The list of contraband articles was extended until an absolute blockade existed, and, despite the irritation of the United States, the Allies persisted in this policy. In reality, therefore, the United States was arming and supplying only the Allies.

Still, one could never tell. The Germans were making an astonishing stand and in many ways they had a decided military advantage. Suppose the war should end in a stalemate, suppose a “peace without victory” should be concluded? Thoughts like that made Wall Street shudder. American finance had placed its bet on the Allied horse, and if that should fail to reach the post first, the stakes were so enormous that none dared even think of what might happen.

The terrible years wore on. The seas were crowded with vessels rushing supplies of all kinds to the Allies. Then another nightmare began to trouble Wall Street. How were the Allies to pay for these goods? The credit of the Allies was virtually exhausted. The United States had grown from a debtor nation to one of the greatest creditors of the world. At the beginning of 1917 the Allies had little more to offer than their IOU’s. Some of the vast loans already made had virtually been unsecured and the announcement was actually made that henceforth Allied loans would have to be wholly unsecured. No wonder Wall Street was worrying. All the beautifully embossed notes which it held might turn out to be just so many “scraps of paper.” The year 1916 had taken American business and finance to the dizziest peaks. Would 1917 find them shattered and broken at the bottom of the abyss?

When war was actually in the offing, the war traffickers rejoiced. President Wilson had just made his war address to Congress and Wall Street replied. “It was exactly right,” said Judge Gary of the Steel Trust. “It was 100 per cent American,” said Frank Vanderlip of the National City Bank. “The speech breathes the true spirit of the American people,” said Martin Carey of the Standard Oil Company. “The President’s address was magnificent,” said James Wallace, head of the Guaranty Trust Company.

Wait a few days for the break in diplomatic relations. Hardly had the news reached Wall Street, when, according to the New York Times, “Wall Street was bright with the Stars and Stripes floating from banks and brokerage houses. Figuratively, the street gave a concerted sigh of relief.” On the Produce Exchange 300 brokers sang The Star-Spangled Banner. And stocks went up immediately.

The United States was in the war from April 7, 1917 to November 11, 1918. During this period it spent $22,625,252,843 and advanced another $9,455,014,125 to the Allies. Just as important for Wall Street was the absolute guarantee of Allied credit by the American government. All the reckless financing of the war years was now saved and, above all, the United States had now joined the Allies in placing war orders.

It is really impossible to get an adequate picture of what $22,000,000,000 means. It required two heavy volumes for the Director of Munitions merely to outline the colossal buying of the American government in 1917 and 1918. Spending like this cannot be paid for by a single generation. Nor were these government orders the only factors in the situation. To this $22,000,000,000 must be added the rise in prices of all goods and commodities. Wheat reached $3.25, most of which went to others than the farmer, who was paid only $1.30 a bushel for that crop. Cotton touched the highest point in forty-five years. It was the same story with everything that was sold throughout the country.

Exactly what the profits of the American arms merchants and their allies and financiers were in the war will never be accurately known. They realized very shortly that it would never do to let even the approximate amounts of their net gains be known. The Federal Trade Commission characterized the business methods of these groups as “inordinate greed and barefaced fraud.” It “exposed many tricks of bookkeeping by the great corporations . . . Costs were fictitiously enhanced by account juggling. Officers’ salaries were increased. The item of depreciation was padded. Interest on investment was included in cost. Fictitious valuations of raw materials were resorted to. Inventories were manipulated.”

Despite all this, the profits reported were simply colossal. Du Pont paid a dividend of 100 per cent on its common stock in 1916. The earnings of the United States Steel Corporation for 1917 exceeded by many millions the face value of its common stock, which was largely water. In 1916 this same company reported earnings greater by $70,000,000 than the combined earnings of 1911, 1912, and 1913. Bethlehem Steel paid a stock dividend of 200 per cent in 1917. U. S. Treasury figures show that during the war period 69,000 men made more than $3,000,000,000 over and above their normal income.

In spite of all, it would be possible to fill scores of pages with statistics showing the enormous profits of the arms merchants, the war contractors, and the bankers in the war years. The following table of net profits is suggestive.

Company	Average last four Peace Years	Average four War Years
(figures in dollars—add 000)
U. S. Steel	105,331	239,653
Du Pont	6,092	58,076
Bethlehem Steel	6,840	49,427
Anaconda Copper	10,649	34,549
Utah Copper	5,776	21,622
American Smelting and Refining Co.	11,566	18,602
Republic Iron and Steel Co.	4,177	17,548
International Mercantile Marine	6,690	14,229
Atlas Powder Co.	485	2,374
American and British Manufacturing	172	325
Canadian Car and Foundry	1,335	2,201
Crocker Wheeler Co.	206	666
Hercules Powder Co.	1,271	7,430
Niles-Bement Pond	656	6,146
Scovill Mfg. Co.	655	7,678
General Motors	6,954	21,700

“Not a single lot of Winchester products was rejected by the United States government during the World War. Including cartridges made for foreign governments before the United States entered the war, there was an uninterrupted flow of 700,000,000 cartridges produced without rejection of a lot.”

The company’s own estimate of its war work is then added:

“This bare summary of the war activity of the Winchester Repeating Arms Company is given here simply to show cause why we believe we have kept the faith in time of stress and as a merited acknowledgement of the patriotic services rendered to the country and to us by our nearly 22,000 employees during the war period.” There is no mention of war profits or of the rise of Winchester stock.

The poison gas industry also prospered in the United States during the war. Since poison gas had been introduced into the war, the Americans manufactured it also. Before the war ended, American chemists had evolved 63 different kinds of poison gas and eight more were ready to be put to use. The arsenal at Edgewood, Md., and its tributaries manufactured 810 tons of poison gas every week. This was a larger output than that of any other nation. France, for instance, showed a weekly production of only 385 tons, Great Britain produced 410 tons, while Germany lagged far behind with only 210 tons a week.

An exciting story with many ramifications, nationally and internationally, is that of the advertisement which the Cleveland Automatic Machine Company carried in the American Machinist of May 6, 1915. This company had a shrapnel-making machine which it was anxious to sell. The death-dealing qualities of the shrapnel manufactured by this machine apparently surpassed those of any other, for it was a poison gas shrapnel which would cause death within four hours “in terrible agony.” The ad which was published in the American Machinist read as follows:

“The material is high in tensile strength and VERY SPECIAL and has a tendency to fracture into small pieces upon the explosion of the shell. The timing of the fuse for this shell is similar to the shrapnel shell, but it differs in that two explosive acids are used to explode the shell in the large cavity. The combination of these two acids causes a terrific explosion, having more power than anything of its kind yet used. Fragments become coated with the acids in exploding and wounds caused by them mean death in terrible agony within four hours if not attended to immediately.

“From what we are able to learn of conditions in the trenches, it is not possible to get medical assistance to anyone in time to prevent fatal results. It is necessary to cauterize the wound immediately, if in the body or head, or to amputate if in the limbs, as there seems to be no antidote that will counteract the poison.

“It can be seen from this that this shell is more effective than the regular shrapnel, since the wounds caused by shrapnel balls and fragments in the muscle are not as dangerous, as they have no poisonous element making prompt attention necessary.”

This advertisement was promptly forwarded to Germany and became widely known there. A copy of it was placed on the desk of every member of the Reichstag and a bitter discussion ensued. The American ambassador in Berlin, Mr. Gerard, reported the incident to the State Department and added his own surmise that the ad was a clumsy forgery designed for anti-American propaganda. But the ad was authentic enough, even though it furnished excellent material to German agitators.

When all this stir was made about this ad, the Cleveland Automatic Machine Company finally got round to “explaining.” It was all a mistake, a misunderstanding. The company had sent to the journal, along with its copy for the ad, an article on shrapnel machines, a topic which then frequently appeared in the American Machinist. Part of the article had through some error been included in the advertisement and this unfortunate substitution had caused all the uproar. The New York Times and various other journals took up the case and valiantly defended the advertiser and the journal with a dozen evasive arguments. That all of these found little credence is readily understood, particularly since the responsible officials in Washington rebuked the journal for publishing the ad.

The belief that the government was being heavily overcharged grew to such proportions that Congress decided to build a government armor plant. It appointed a committee to investigate the costs and it proposed to spend $11,000,000 to circumvent the “armor plate ring.”

Consternation reigned among the armor plate makers. What could they do? If the government built its own plant, they would lose much of their business, and on top of that they would probably have to reduce their prices. They protested in Washington, but Congress persisted in its undertaking. Then Bethlehem Steel remembered the power of the press. It inserted paid ads in 3,257 newspapers setting forth the “folly” of the government’s plans. These ads were followed up by 26 bulletins spread in millions of copies throughout the country.

Bethlehem declared that the action contemplated by Congress interfered with business. It was pure waste, because armor plants already existed in the country. It was very expensive, because the government could never produce as well and as economically as private manufacturers. Finally, it was a threat to national security, because the government could never expect to keep informed on the latest developments in the field, and thus the American navy would be built of inferior materials.

In its press campaign Bethlehem Steel also undertook to answer the charge of gouging and profiteering. Since 1887 it had supplied to the government 95,072 tons of armor plate at an average price of $432.62 a ton; that is, its government business had amounted to about $42,000,000. During that same period it had sold 5,331 tons of armor plate to other countries, about two-thirds at higher prices than in the United States, and about one-third at lower prices. Now it was ready to furnish armor plate to the government at the lowest prices it had ever asked. Why should the Congress waste the people’s money and build a government armor plant?

A curious sidelight on the international activities of the American arms industry is shed by the story of the Enfield rifles. Remington Arms had received orders from the British for a huge consignment of Enfield rifles; it delivered 700,000 of these to the British during the war. Now the Enfield rifle was by no means the best rifle known in the war period. The American Springfield, which had been evolved after much experimentation, was considered a much better gun. The British Enfield was in fact a sort of transition gun; that is, the British themselves in 1914 were not satisfied with it and were seeking to displace it. They retained it only because their experimental work with a new gun had not yet been completed.

The great failures were particularly in artillery, in aircraft, and in shipping. This is readily understood. The American arms industry has always been outstanding for its small arms and ammunition. In these it excelled in the war. It was also efficient in producing small mobile artillery and it turned out successfully large orders for the French ’75’s. Heavy artillery had never been its forte and it could rely on the Allies for these materials, meanwhile using all available shipping for the transport of troops.

Many other similar matters were examined in detail by the Graham Committee on War Expenditures some years after the peace conference. These voluminous reports are a veritable mine of important information as to the conduct of the war. Of one thing there can be no doubt: it was profitable for the arms makers.