Robert Sobel

The Rise And Fall Of The Conglomerate Kings

Economists observed that the GNP fell by almost a quarter in the aftermath of World War I. This time, they predicted, the falloff would be even more severe.

The unemployment rate in 1940 had been 14.6 percent; more than 8 million Americans were classified as being out of work. Not once in the 1930s had the United States experienced single digit unemployment. By 1944 the rate had come down to 1.2 percent, which meant that, allowing for those who were changing jobs or entering or leaving the work force, the nation really had no unemployment. Moreover, in this period millions of women entered the labor pool, and many considered remaining at their jobs after the wartime emergency ended. What would happen when the armed forces returned to their prewar level? In 1945 the various services had more than 12 million personnel, up sharply from less than half a million in 1940. The dumping of some 11 million servicemen onto an economy in which military procurement had come to an end would lead to tremendous dislocations.

The economists predicted disaster. Seymour Harris wrote and spoke of an unemployment rate exceeding 20 percent. Alvin Hansen wondered whether a combination of continued wartime controls and a massive public works program might keep the economy steady, and concluded it would not. Wesley Clair Mitchell observed that there had been slumps after all wars, and saw no reason why it should be different this time. As early as 1943, a young Paul Samuelson, in an essay entitled 'Full Employment After the War,' concluded this could not be. Assuming rapid demobilization and the liquidation of controls, 'there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced,' and along with the others he reiterated the thought in 1945. By then General Frank Hines of the Veterans' Administration was warning of the creation of a native fascism if these millions of discharged servicemen were unable to find work. Demoralized by an ailing economy and frustrated by broken promises, 'drifting aimlessly about the country,' they might easily become radicalized. Demagogue Gerald L. K. Smith embraced this notion. While conceding that his cause could expect little support in the 1944 election. Smith looked forward to the campaign of 1948, when he expected to support a disgruntled former serviceman for the presidency.

Some of the problems predicted during conversion to a peacetime economy did develop, but there was no significant slump. The gross national product declined slightly in 1946, and then surged ahead, crossing the $257 billion mark in 1948. Much of this strength came from the consumer sector. The economists had expected the public to enter the marketplace to make up for years of hardship during the depression and war, but not to this extent. After some hesitation businessmen geared up to meet the demands, which involved beefing up labor forces and competing for scarce resources. There was to be no important postwar depression; instead, the nation experienced a major inflationary spiral in 1946 and 1947. The strong economy was able to absorb all of the veterans, so that the unemployment rate was a low 3.8 percent in 1948, by which time inflation had declined to an uncomfortable but manageable 2.7 percent. Profits soared, as virtually every major industry (the most important exception being defense) posted new records. Total corporate profits, which prior to the imposition of new war taxes had reached a peak of $12.1 billion in 1943, rose to $16.3 billion in 1946 and then went to $22.5 billion in 1948.