MINISTRY OF.) The Path to General Control.—By requisitioning practi cally the whole output of the engineering industry and making use of nearly all the iron and steel obtainable for making munitions, the Ministry of Munitions virtually suppressed private trade and ignored civilian needs. The Army Contracts Department of the War Office on the other hand, which continued to purchase food, textiles, leather goods and other miscellaneous articles for the Army, only needed a proportion, though a growing proportion, of the national supplies. Civilian requirements had to be met, and this introduced a competing demand which had somehow to be reconciled with military necessities. It was this that led eventually to the extension of State control to cover the supply and distri bution of many of the necessaries of life for the whole population.
During the first period, which may roughly be defined as the first twelve months of the war, the problem was primarily that of obtaining supplies for the forces regardless of price. This in itself was by no means a simple problem. It soon became evident that supplies were lacking, first, because only those familiar with Army requirements were invited to tender, or if invited were able or willing to do so ; secondly, because manufacturers were either full up with private orders, or, with large private orders on their books, were unable to offer their whole output; and thirdly, because in certain items the requirements outran the productive capacity of the industry to meet them. In nearly every case delays inherent in the purchasing machinery of the War Office aggravated the difficulties; and the confusion and dislocation caused by specu lation, by competitive buying on the part of local commands and Allied delegates and by uncertainties about supplies of raw material, the need of the Army for men and the probable re quirements of the War Office, rendered some more systematic form of organisation essential, if the Government was to count on being able to obtain what it wanted. This stage was marked by negotiations with representative associations or committees able to speak on behalf of a whole industry, and the substitution of collective agreements covering a long period and a wide area of production for the previous system of piece-meal demands. indi vidual tenders, and frenzied speculation.
The next stage in the problem was marked by the growing im portance attached to the question of price. Hitherto with minor exceptions the prices paid by the Government had been those that any large buyer would have had to pay; they were determined by market forces and on the whole were neither more nor less than private individuals had to pay for similar goods. As a result, however, of Parliamentary criticism of Government extravagance, but without any express sanction from Parliament (which at that time was even more opposed to measures of State interference than the Government itself), attempts were made by voluntary agreement to base prices on cost of production and a reasonable profit. Later this principle, known as the "costings system," was embodied in regulations 7 and 2b of the Defence of the Realm Regulations, and it became the accepted doctrine that Government Departments had not merely the right, but the duty, to purchase supplies at prices bearing no necessary relation to market prices. The culminating point came when the right to fix maximum prices was laid down first by an administrative extension of the right to licence dealings, and finally by explicit mention in regulations 2b and 2f. Thus the price problem was solved in theory and in law (at least for the duration of the war) by giving the Government the power to fix its own prices. Before the end of the second year of the war this right had been successfully established, having been applied by the Ministry of Munitions to certain metals as early as Sept. 1915 and by the War Office to the whole of the domestic wool clip in June 1916.
During the second year the twin problem of supplies and prices began to develop more general implications and to cover an ever widening range of commodities and processes. The corollary of limited State interference with market forces was more State interference ; control and centralized purchase had to be extended from the finished article to the raw material. This introduced further problems. The Government had to devise the best methods, varying greatly in different trades, for buying raw materials in foreign markets or for controlling their purchase by traders. The control of purchase, import and shipment of raw materials was adopted by the War Office in March 1916, for Russian flax, in May 1916 for kips, and in August 1916 for jute. In the meantime the decision to requisition the domestic wool clip in June 1916 raised a new set of problems relating to the treat ment of the farmer and the purchase of agricultural produce at fixed prices from hundreds of thousands of individual growers. The State had now to become wholesale collecting merchant as well as wholesale distributing merchant.
Control of Materials, Industry and Man-power, 1917.—In the third year of the war a change of Government occurred, which reflected and emphasized the growing changes that were taking place in the economic situation. The shortage first of finance, and then of tonnage, became increasingly stringent towards the end of 1916 and the beginning of 1917, and signs of actual shortage were becoming pronounced in certain essential raw materials. All three reasons added weight to the general considerations which by that time were beginning to favour control of raw materials. The War Office accordingly carried through negotiations for the pur chase of the whole of the Australian and New Zealand wool clips. The vast scale of the Government's operations in the woollen and worsted industry now brought to the fore two problems which had not hitherto needed any special attention: the maintenance of the export trade and the provision of necessary supplies for the civil ian population. The first was of importance owing to the diffi culties of the financial situation and the need of obtaining foreign currency to pay for essential imports. But after the United States had joined the Allies foreign exchange difficulties ceased to be so pressing a problem, and the shortage of tonnage and the need for conserving raw materials for military and essential civilian needs, rendered the maintenance of the export trade of secondary im portance in the system of war economy. The provision of supplies for the civilian population, however, rapidly became from Jan., 1917, onwards one of the most difficult and complex problems of the whole war organization, and it was in the establishment of the Ministry of Food and the introduction of standard clothing and boot schemes, with the object of supplying the necessaries of life for civilians and ensuring their fair distribution at controlled prices, that Government control during the war approached nearest to the programme of State Socialism. (See FooD, MINIS TRY OF.) The year 1917 also marked the most critical point in the man-power problem. A director-general of national service was appointed to facilitate the release of men for the Army, to restrict employment in non-essential trades and industries, and to secure the transfer of labour where it was most required. Finally, towards the end of 1917, the necessity of rendering greater assist ance to the Allies both in tonnage and supplies led to the imposi tion of further restrictions on civilian consumption, to the estab lishment of a common programme of imports for all the Allies, and to the gradual recognition of the principle of equality of sacrifice and the pooling of resources. (See ALLIED MARITIME TRANSPORT COUNCIL.) Control by 1918.—By the middle of 1918 the national organ ization of war control had reached approximately its final stage. There was virtually no trade or industry which was not subject to control in some form or other. The Ministry of Munitions and the Ministry of Food between them controlled 7o per cent. of the country's imported supplies and followed up control of import by control of price, distribution and manufacture. The Ministry of Munitions covered the iron and steel industry, the non-ferrous metals industry, explosives and chemicals, machinery, mineral oils, glass manufacture and mechanical transport. The Ministry of Food through the Wheat commission, the Sugar commission and its supply departments was responsible for importing and dis tributing cereals, sugar, meat, dairy produce, vegetable oils, fish, fruit, tea and coffee and controlled the price and distribution of most home-produced foodstuffs. The Raw Materials department of the War Office controlled the woollen and worsted industry, the leather industry, boot and shoe manufacture, and the flax, hemp and jute industries. Under the Board of Trade were ranged the Coal Controller, the Railway Executive, the Port and Transit Executive Committee, the Canal Control Committee, the Cotton Control Board and the import of paper and pulp. The Ministry of Shipping controlled shipbuilding, the shipping industry and the allocation of tonnage, and through its programme committees and the Allied Maritime Transport Council acted as a co-ordinating body for all importing departments. The War Trade Department issued import and export licenses on the advice of the appropriate Departments for such foreign trade as still remained in private hands. The Liquor Traffic Control Board, the Food Production Department and the Director General of National Service dealt with the remaining field of home production—the last-named by restricting employment in non-essential industries. Even such industries as piano-making came under war control and found themselves precluded from obtaining the labour and material they required. One of the last conferences on control held at the Board of Trade in Oct. 1918, was to decide whether the responsibility for controlling the manufacture, price and distribution of candles should be entrusted to the Tobacco and Matches Control Board or to the Oils and Fats Department of the Ministry of Food, which was already controlling soap.
A glance at the accompanying chart illustrates the immense field over which control was exercised and the large number of depart ments concerned in its administration. The principle of piece meal growth rather than logical planning favoured initiative and elasticity, but raised problems of overlapping and lack of co ordination which had to be met by inter-departmental conferences and in the last resort by the intervention of the Cabinet. To deal with questions of priority in supply of labour and materials the Cabinet appointed in 1917 a War Priorities Committee, which in 1918 had as many as seventeen sub-committees.
The system of national organization thus built up rested in the last resort on the quite simple consideration that to the extent to which labour and capital were not engaged in essential war services, the nation's war effort was being weakened. In other words the political economy of war consists in the economical direction of the nation's resources towards the greatest possible efficiency in war. This involves ( ) economy of man-power, to release men for the army and supply labour for essential services; (2) economy of finance, to prevent wasteful private expenditure and enable the nation to purchase supplies from abroad; (3) economy of trans port, or the avoidance of all unessential movement of goods and the reduction of land and sea transport to the minimum necessary; (4) economy of production, or the centralized planning of pro ductive activity in the right order of priority to meet essential requirements and with the minimum of waste and duplication of effort; and (5) economy of consumption, or the rationing and limitation of current consumption of food and necessaries, with the prohibition of the manufacture and sale of luxury articles.
The above principles were never of course completely realized in practice, but they all nevertheless influenced the policy in some sphere or other in varying degrees and with varying success. Their literal application on a universal scale would have been politically and psychologically impossible. War control appears to violate human instincts and human traditions even more than the insti tution of war itself ; and the military effort of a nation at war is seen to depend not merely on the strength of its armed forces but on the extent to which the civilian population will submit to irksome restrictions and interference in the normal ,routine of everyday life. (E. M. H. L.) The Future of Control.—The essence of war control of trade and industry is the replacement of private enterprise by collective organization. Control is clearly necessary in war time; but inas much as the conditions of war are wholly unlike those of peace, it is said that the experience of State control during the war gives us no guidance on the vexed question of the degree of State inter vention which may be desirable in peace. This statement has a large measure of truth, but the question merits some further examination.
In the first place it is evident that if the League of Nations breaks down and the Great Powers were to engage in another world war, State control on a drastic and comprehensive scale would be introduced in each country. The organization would probably start about where it left off in the last war; and if the world's economic resources proved able to stand the strain of a prolonged struggle, the final stage would be a sort of military communism compared with which the existing system in Russia would appear a very paradise of liberty. Private property would cease to exist ; freedom of speech, freedom of thought and free dom of movement would be abolished ; the whole population would be conscripted and not only their food but their incomes would be rationed down to the minimum necessary to support life. The•pub lic and private resources of the community would be wholly de voted to the prosecution of the war and the privileges and amenities now enjoyed by the few would be wiped out in the interests of social harmony. Personal freedom and private prop erty are condemned by the exigencies of modern war. This is an aspect of the matter which has received too little attention and provides, perhaps, an additional reason for taking risks, and even making sacrifices, in the cause of peace, disarmament and the abolition of war.
But setting aside the possibility of another war, the experience of war control is held by some to have other lessons that may be applied in peace. Short of rationing, it is said, and the more extreme forms of arbitrary interference with personal freedom and private enterprise, there are still left many features of war organ ization which the State might well adopt in times of peace. Among these, for instance, might be the principle of State importation of primary foodstuffs and raw materials; the control of power and transport on national lines; the guarantee of fixed prices for certain staple agricultural products ; and the compulsory amalga mation of competing firms into publicly supervised Cartels or Trusts. Such proposals would be included in the programme of some Socialist thinkers. At the other end of the scale would be the view of extreme individualists, who would not only oppose any extension of State control in peace but would maintain that the experience of State control during the war had demonstrated once more that State organization is necessarily inefficient and wasteful and in all circumstances inferior to private enterprise.
To those who preserve an open mind in this controversy and regard the question of the precise degree of State intervention or collective organization which is desirable in economic affairs as among the most important and difficult problems for the future to solve, two conclusions may suggest themselves: I. that adminis tration by public or semi-public bodies is not always and neces sarily inefficient and inferior to private enterprise ; 2. that collective organization of trade and industry is at its best where consumption or demand is fairly regular or can be foreseen with considerable accuracy. The field over which accurate measurement of future demand could be made during the war was enormously widened owing to the formulation of precise requirements by the military authorities and the limitations of tonnage. Nothing com parable to this stabilization of demand is conceivable in peace, except in a comparatively narrow field. In war "production for use" was possible because the "use" for which each product was required could be laid down with some confidence and the relative order of priority of different "uses" could be to some extent gauged. In peace, short of rationing or communism, production must be for a market, the essence of which is that it provides an automatic measure of the "usefulness" of products.
Even in the absence, however, of effective control over demand, it is still possible to regulate supply and thus indirectly influence consumption and prices. It is in this direction that post-war developments show a parallel to war control. Control of supply at source was the key which enabled the State in the interests of consumers to prevent prices rising. A similar technique can be applied to stabilize prices in the general interests of producers. In both cases the underlying principle is that within limits the play of economic forces can be modified and controlled by collective action. "Rationalization" of industry, "orderly" marketing, and "management" of credit can be regarded as lineal descendents of ideas which had their origin or at any rate received a large stimulus from war control.
The underlying issue on which the study of war control may throw light, is not so much the question whether the State, con ceived of as public Departments, should actually conduct this or that trade or industry; but how far the State, conceived of as the guardian and trustee of the general welfare, should permit or encourage, or itself initiate the sort of large-scale co-operation and collective planning which is now being tried out as an alter native to the unrestricted play of economic forces. Laissez faire and unregulated competition may be even more wasteful of wealth and welfare than the operation of trusts and monopolies. It is perhaps the task of State control to minimise the evils and preserve what is best in both systems.
The first systematic action toward industrial control was taken by Germany. Upon the declaration of war by England it became at once evident that overseas supplies of raw materials, on which German industry had become largely dependent, would be cut off. The conservation of supplies on hand and their appropriation to essential uses was imperative. Within a fortnight, at the in stance of Walter Rathenau, the Government, in co-operation with the cartels, had completed a rapid survey of the material resources of the nation and had worked out a policy, based partly on the requisition of materials and plant, but mainly on voluntary agree ments, which offered a reasonable assurance of the continuous supply of military necessities on the scale then contemplated as adequate—erroneously, as the development of the war proved. Through the Reichsbank and the system of financial institutions dependent on it the necessary credit was supplied without stint to all industrial enterprises regarded as essential for war. The mobilization plans provided from the outset for the exemption of "key-men," technical and administrative, and the suppression of unessential industries provided labourers to take the place of those who had been called to the colours. On Dec. 2, 1916, the control of industrial resources was strengthened by a law institut ing an industrial conscription of labour, applying to all males between 16 and 6o. Auxiliary measures stiffened Government control over industrial enterprises. But to the end of the war the essential basis of industrial control was the quasi-voluntary agreement between the Government and the independent business man or group of business men, with a reserve power of compulsion in the Government's hands resting on the control of materials, credit and labour. This power of compulsion served to secure supplies, but did not restrict prices so strictly as to preclude large war profits, with attendant manifestations of popular discontent that grew more serious as the war dragged on.
In France the outbreak of the war was followed by a mobiliza tion of men for military service which took the experts and "key men" out of industry along with those who could be easily re placed. In consequence economic life was seriously dislocated. Unemployment reached extraordinary proportions. After the mobilization in Aug. 1914, the principal industries employed on the average only 6o% of their normal personnel, and as late as Jan. 1915, 20% of the industrial working population was un employed.
French industry, being highly individualistic in spirit, was far slower than that of Germany to adjust itself to war needs and war control. Gradually, however, a machinery of control was set up, of which the most effective part was the disposition of man power. Committees of economic action composed of business men and engineers were organised in the several departments, to co-operate with the military and administrative authorities in supplying labour to agriculture and the essential industries.
Price control, so far as the munitions and supplies for the army were concerned, was effected through contracts, with sufficient reserve power over labour, raw materials, transportation and credit on the side of the Government to ensure reasonable terms. The prices of products for the use of the civil population were subject to an informal and inadequate control through the depart mental committee of laymen co-operating with the administrative authorities. In neither case was the control rigid enough to check a rise in prices, which produced much discontent among the workers, whose wages did not rise in equal proportion.
The situation in America, upon that country's entry into the War, was in many respects peculiar. The Allies had already at tained to a practical maximum of their industrial war effort, and the demands of war were still rapidly expanding. In this effort American industry had already come to play a conspicuous part. Allied war industry was drawing heavily on America for steel, copper, cotton and a large class of wholly or partly finished war materials. A powerful chain of war industries had been built up in America; labour and materials were rapidly advancing in price, and profits rose on a huge scale.
The American Government had to meet the problem of supply ing the American armies with the materials of war without cutting off the supplies needed by the Allies. Control was essential not only to national but to international ends. Whereas in the early part of the War each belligerent had aimed primarily at effecting the most practicable distributions of resources between its own military and essential civil uses, the United States from the out set was confronted with the problem of making the best practic able distribution among the military, Allied and essential civil uses. American control was bound to envisage the entire system of needs of the Allied and Associated Powers.
The difficulties to be overcome in instituting control were, how ever, all but insurmountable. No close relation between govern ment and industry had been developed, as in Germany; neither was the American administrative system adapted to prompt co ordination. At the outbreak of the War the army and navy, each enjoying the power of commandeering, were in a position to enter the market for supplies, in competition with the Allied purchasing agencies, and there was no authority anywhere competent to al locate limited supplies in the order of importance of needs or to keep prices within bounds. A council of national defence, con sisting of the secretaries of War, the Navy, the Interior, Agricul ture, Commerce and Labour, with an advisory council and a widely ramifying organisation of committees, of executives and experts, had been created prior to the declaration of war. Out of this grew a multiplicity of organs of control, a War Industries Board, a rail way control, a control of ocean tonnage, a food administration, a fuel administration and a War Trade Board. But there was no central co-ordinating principle except the war powers of the Presi dent, which in the nature of the case could be exercised only sporadically.
Co-ordinated control of industry came into existence on March 4, 1918, when the President, by a letter, reorganised the War Industries Board and specified its duties, constituting it in effect the administrative organ with power to apply the President's war powers over industry. Mr. Bernard M. Baruch was named by the President chairman of the board, with direct responsibility for its functioning, the other members of the board to act in an advisory capacity.
As finally reorganised the board controlled the exercise of the power of requisitioning. The army and navy, the railroad admin istration, the food and the fuel administrations, the War Trade Board, the Shipping Board, the War Finance Corporation, the Allied Purchasing Commission and other agencies dealing with industry, were required under the President's orders to co-operate with the War Industries Board. Thus it became possible to secure effective co-ordination in the whole field of industry. The board was in a position to control exports and imports, the movement of traffic over the railways and coastwise shipping; it was able to ration out materials, fuel, power, credit facilities to every business establishment in the country, to place a check upon every con struction enterprise, public or private, except on proof of absolute necessity, to standardise production in the interest of economy, and in short to do everything necessary to ensure that the re sources of the nation at war should be applied most effectively to the national needs, both of the people as a whole and of the military forces.
In America direct authority to fix prices was never granted by law nor established by executive order. The War Industries had sufficient power to control prices in effect and in case of need, prices were fixed by a Price Fixing Committee which reported directly to the President.
War control of industry in its highest phase of development amounted in effect to nationalisation of economic resources, la bour, capital, material things. Men could not work at what they liked best or put their capital to the most lucrative uses or sell their materials and goods to the highest bidder. They were called on to subordinate their private interests to the national needs. The conception of public service became generalised, as it were, and although with the end of hostilities private motives were again given free play, the conception of service retained a large measure of its vitality, exerting a considerable influence upon action.
Labour, conceived of as "man-power," won recognition early in the history of war control as the most vital of the national re sources. The proper provisioning of labour, care for the health of the labourer and his family, maintenance of proper housing standards and the like, assumed the rank of military necessities. Here too the influences set in motion in war carried over into times of peace.
One of the most striking results of war-time control was the revelation of the extent of economic waste in the conventional scheme of production. By co-ordination, by concentration of effort upon essentials and by curbing of excessive variety in forms through standardisation, it became possible for the United States, while maintaining 4,000,000 men under arms, to supply the civil needs of its population with no appreciable lowering of peace time standards. While recognising that such extreme application to practical needs would in the long run be deadening to industry, most leaders of industry came out of the War convinced of the necessity of eliminating much waste that had gone unnoticed in the pre-War period.
War control of industry promptly fixed in the minds of those who participated in its decisions a conception of international economic interdependence. Control of the resources within a na tion led straight to the necessity of controlling exports and im ports, and this in turn led to an understanding of the need of permanent economic relations under which all nations might have equal access to the raw materials of the world. This remains a problem, the solution of which will tend to lessen war.
Another result of the war-time control was the more systematic survey of the potential resources, and their development where at all practicable. As a consequence, many resources are being developed in peace that formerly had been neglected. War con trol, with its compulsion to the use of substitutes, gave a greater freedom and elasticity to production, making a higher degree of efficiency possible in peace time. Incidentally to the control of industry, financial institutions, money and credit were every where subjected to control, with the result that new and more efficient methods of handling specie reserves and managing the flow of credit were devised and added to the peace times equipment.
Some countries, finding themselves cut off because of the War from their usual sources of manufactured articles, soon learned to make these things for themselves, with the result that when peace returned the old manufacturing countries found that a part of their former markets for manufactured articles had been permanently lost. And so with raw materials; new sources of supply and substitutes were found.
For the most part the achievements of war control were made possible only by the solidarity of feeling and concentration upon national purposes engendered by extreme national necessity. No conclusions as to national control in peace time can be deduced from them. But we have learned that government can co-operate with business to the advantage of both. What may be deduced from the experience of the World War is that war under modern conditions demands drastic control of industry. War cannot now be conducted with business or profit as usual. (B. M. B.) (See also SHIPPING, MINISTRY OF; FOOD, MINISTRY OF; MUNI TIONS, MINISTRY OF; ALLIED MARITIME TRANSPORT COUNCIL; SHIPPING CONTROL COMMITTEE; WAR CONTROL OF FOOD; WAR CONTROL OF SHIPPING, etc.) BIBLIOGRAPHY.--There is no book adequately covering the whole Bibliography.--There is no book adequately covering the whole field of War Control of Trade and Industry. Brief contemporary surveys are contained in the Reports of the War Cabinet for 1917 and 1918 (Cd. 9,005 and Cmd. 325). Different aspects of war control are dealt with in the volumes contained in the Economic and Social History of the World War (British Series), e.g., J. A. Salter, Allied Shipping Control; E. M. H. Lloyd, Experiments in State Control; H. D. Henderson, Cotton Control Board. The unpublished and official History of the Ministry of Munitions may be consulted at the London School of Economics and some other libraries. The following contain accounts of control based on first-hand information:-Sir Leo Chiozza Money, The Triumph of Nationalisation; Rt. Hon. C. Addi son, Politics from Within, 1911-1918 and Practical Socialism, vol. I.; F. H. Coller, A State Trading Adventure; and F. H. Hatch, The Iron and Steel Industry, 1914-1918; J. L. Garvin, Economic Foundations of Peace and A. C. Pigou, Political Economy of War. See also Bernard M. Baruch, American Industry in the War (Report of War Industries Board, 1921) ; Paul Willard Garrett, Government Control over Prices, 192o; Grosvenor B. Clarkson, Industrial Am. in the World War, 1924.