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CHAPTER V

AMERICAN INDUSTRIAL EXPANSION IN THE WAKE OF WAR

Effect of the war on established industries of the United States Period from August, 1914, to April, 1917 - Period from our entrance into the war to the signing of the armisticeAmerican textile industries-Increase in financial strength

Growth of export trade-War orders-American steel industry-Export expansion-Increase in mill capacity Unprecedented growth of American shipbuilding-Its commercial and political significance.

The war conditions brought about some striking developments in the established manufacturing industries of the United States. In considering these developments it is necessary to distinguish between two periods, the first covering the time from the outbreak of the war in Europe to the declaration of war by the United States, and the second beginning with the entrance of this country into the war and lasting until the signing of the armistice. As very important among the American manufacturing industries, special attention will here be given to the textile and the iron and steel industries. The shipbuilding industry, which under stress of war conditions attained unprecedented prominence, will also receive consideration.

In the first period the disturbed world conditions brought to American industry in general almost unrestricted stimulation and prosperity. American producers were called upon to supply at least three new demands. In the first place, European industries which had shared the American market with American manufacturers were less and less able to keep up their export trade. Either they were, as in the case of Belgium,

Germany, and Austria, debarred entirely from foreign markets, or they were, as in the case of France and Great Britain, primarily occupied with supplying the military needs of the Allies. As European competitors withdrew from the American market, the American industries endeavored to supply the full demand. In the second place, there was an analogous development in other neutral markets. America, like Japan in the Far East,1 became an important factor in supplying markets whose needs before the war had been very largely met by European countries. The textile industries, for example, which had not been considered formidable competitors of England and Germany in most neutral markets, developed a considerable and promising export trade. In the third place, American industries, and especially the explosives, arms, and steel industries, received numerous war orders from the belligerents.

During the second period, beginning with the declaration of war by the United States, war orders of the United States Government at once became the overshadowing influence. The War Industries Board, the War Trade Board, and the Fuel Administration were created and set about deliberately to mobilize American industry for the winning of the war. Restrictions were established on non-essential production and use of fuel; import and transportation priorities were granted to war industries.2 Speaking of the extent to which war demands occupied the capacity of many of our important industries, Dr. F. W. Taussig says:8

1 See Chapter VI.

2 For a detailed account of the Government's regulation of distribution see, in this series, Louis E. Van Norman, War Time Control of Commerce.

3Price Fixing as Seen by a Price Fixer," Quarterly Journal of Economics, February, 1919.

Almost the entire supply of many important articles was wanted for government use - partly by the United States Government itself, partly by contractors working for the Government, partly by the Allies. The extent of the indirect demand (from contractors) was not always known; but it played a great part, and was of essentially the same character as that of the Government itself. When things were at their height, the total non-private demand for iron and steel absorbed 85 per cent to 90 per cent of the tonnage. This was the maximum; but at no time between the autumn of 1917 and the autumn of 1918 was the non-private demand for less than 60 per cent. For copper the proportions of maximum and minimum non-private demand for public use were no less. Ninetenths of the nickel was taken, during the war period as a whole, for Government and Allies' use and at least as much of the aluminum. For other commodities the requirements, though not such as to dominate the market completely were yet so great as to threaten to demoralize it. During the war period half of the zinc and half of the quicksilver were taken for government use. Of the coarser cotton fabrics, as much as 60 per cent was at one time taken by the Government; of the country's entire output of cotton manufactures, as much as 30 per cent. For southern pine lumber the Government's demand, through the entire period of war, was for more than a fifth of the cut, and during the summer of 1918, when the peak was reached, for more than a third. For spruce and fir (Washington and Oregon) the proportion of the whole was less; but certain sizes suitable for ship timbers, and certain kinds suitable for aircraft, were completely taken over, and the "sidecut" from these became an almost dominant factor in the commercial market. Of sulphuric acid nearly 40 per cent was taken when things were at their height; and of nitric acid as much as 65 per cent.

In this period an unprecedented change was brought about in the American shipbuilding industry. The work of transporting men and supplies to Europe, the withdrawal of Germany's large mercantile marine from international trade, and the destruction of vessels by submarines called for additional ships and led to the

inauguration of a huge programme of construction. Of all the industrial changes caused by the war, the growth of the shipbuilding industry will perhaps be the most significant, because a strong American mercnant marine seems likely to become a determining factor in both the commercial and the general international policy of this country.

The American textile, steel, and shipbuilding industries played a part in the war no less important than that played by the chemical industries. Vast quantities

of clothing, equipment, shells, ordnance, arms, armor plate, and ships were necessary. The measure of success attained in manufacturing these in quantities adequate to meet the needs first of the Allies and then of the rapidly expanding American Army manifested the adaptability and the potential capacity of American industry. Many of the war-time developments will prove of permanent value. New commodities were produced which can be adapted to peace needs. Financial organization has been improved and made more secure. uses for raw materials have been devised, new raw materials and new sources of raw materials have been developed. Foreign trade has been extended both in magnitude and in range of markets.

New

The outbreak of the war in 1914 found in the United States all the leading branches of the cotton, woolen, and silk industries in a strong position. They had been built up under a system of high protection by the initiative and business skill of American manufacturers. Factories were in operation which were marvels of equipment and organization. Machinery had been perfected. Combing and spinning machinery, Jacquard and automatic looms, printing machines - these and many others

were not excelled anywhere. A skilled body of workers had been trained.

These industries were affected by the war from the first. The shortage of dyestuffs, already considered,* was for a time serious. Substitutes were adopted, patterns changed, and all the corners of the earth searched for reserve supplies. Prices of dyes mounted unprecedentedly. But the rise of the American dye industry before long removed almost all these difficulties. Shortly after the outbreak of the war in Europe a great increase in the export demand for goods developed as a result of the war restrictions on European industry, and war prosperity led to a like increase in the home demand. The textile industries experienced the greatest prosperity in their history. Many mills, formerly in debt for equipment or for working capital, have become independent of the commission houses, which formerly dominated their output and their selling policy. This has been especially true of southern cotton mills, and their independence will increase their competitive strength. In the future these mills will not only save heavy interest and other special charges, but will be in a better position to engage in export trade.

The increase in their export trade will very likely be retained, in part at least, by the American textile mills. American manufacturers have become familiar with export procedure, and foreign buyers have learned the merits of American textiles. The United States has become the second largest exporter of manufactures of cotton. The exports of cotton goods increased from the pre-war record of $53,740,000 in the fiscal year 1913 to $112,050,000 in 1916, and increased further in 1918 to $169,398,000. Although there was a rise in prices which

4 Chapter III.

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