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The Paradox of War for Profits

William T. Stone

Foreign Policy Association Bureau, Washington, DC

March 1935


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SIXTEEN years after the "war to end war," newspaper headlines trumpet the weird story of a world at peace: "War Budgets of Great Powers Top 1914 Level" . . . "Naval Limitation Doomed in 1936" . . . "Japan Warned US Ready for Naval Race" . . . "Germany Building Air Fleet" . . . "British Frontier Is on the Rhine" . . . "France Speeds Defense Plans"..."Italy To Build Dreadnaught"...

Since that solemn occasion six years ago when Briand and Kellogg scratched their signatures to the Pact renouncing war "as an instrument of national policy," the nations of this topsy-turvy world have spent some $30 billion for armies and navies maintained in the sacred name of "national defense." America—meaning of course the United States—sheltered by its two great oceans, has poured out nearly $5 billion and is stepping-up its war and navy budgets close to a billion a year—likewise in the name of "national defense." Japan is trebling her pre-war military outlays; Britain is casting aside "disarmament by example"; Hitler is driving his Third Reich toward arms "equality" by striving to build up to the level of his neighbors, while France and Italy and the Little Entente counter with bigger and better armaments„all in the name of "national defense."


SEATED around a horseshoe dais in a high-ceilinged room of the Senate Office Building in Washington seven senators are searching for an answer to this tragic riddle of a world "at peace" yet arming to the teeth. They are members of the special Committee of the United States Senate, under the chairmanship of Senator Gerald P. Nye of North Dakota, investigating the munitions industry. For weeks on end they have been breaking through on the front pages with "sensations" ranging from the super-salesmanship of Sir Basil Zaharoff, Europe's erstwhile man of mystery, to 800 percent wartime profits of our own munitlons makers. Surrounded by avid newspaper correspondents, their disclosures have been flashed to Europe, the Far East and South America. During these weeks they have discovered, as a League of Nations Commission discovered years ago, that private manufacture of arms and ammunition is subject to "grave abuses." But they have also discovered that when nations are preparing for war there are grave objections to abolishing private manufacture and serious obstacles in the path of effective control.


THE first disclosures of this unique investigation may have seemed to point an accusing finger at the arms merchant as the chief culprit responsible for spreading discord in a peaceful world. But as the probers dig beneath the surface the accusing finger begins to point to a host of others outside the inner circle of the trade. It points to responsible governments which lend their aid to the munitions maker. It points to army and navy bureaus preparing their vast plans for mobilizing industry and labor and manpower to meet the enormous procurement needs of the next war.

Army and navy bureaus always think in terms of future war—that is what they are for! The finger points to boards of trade and departments of commerce which are promoting foreign trade in bombing planes as well as sewing-machines and noiseless typewriters. It points to big and little industrialists who are marshalled in patriotic array to play their part—for profits—in that same next war. And it points to premiers and presidents and dictators who set the course, and to Parliaments and Congresses which vote the funds for battleships and guns and powder to support national policies which inevitably come into conflict with the national policies of other powers. All these, with the arms merchant, have their stake in the munitions business and their measure of responsibility for the conditions that have been revealed.

The arms merchant in the flesh bears slight resemblance to the villain who is pictured in the cartoons in the act of plotting wholesale slaughter that he may fatten on the profits. As he testifies in the crowded committee room in Washington he assumes a dual role. First, he is a business man. And, like any other business man, he is concerned with making a profit. His first responsibility is to his shareholders who have shown their confidence in his business acumen by investing in his firm. He regards this obligation as a sacred trust. His shareholders expect dividends which he can pay only by selling his goods and services in the market-place. His goods happen to be instruments of death but he conceives of his operations as dictated by commercial considerations and the ethics of big business. Incidentally, he may be able to point out, and truthfully, that in ordinary times most of his business is concerned with the arts and processes of peaceful industry.


IN his second role, the munitions maker assumes the mantle of the patriot. He proclaims his unswerving loyalty to the nation, and his desire to serve its interests in peace or war. He welcomes the lavish attentions bestowed upon him by his government, which regards him as an adjunct of the Army and Navy, an indispensable part of the national defense system. He receives government aid and encouragement that he may keep his plants and workshops in efficient condition and operation, against the emergency of that "next war."

Patriotism or profits? The characterization, as I draw it, is of course a composite one. There are variants, up and down the scale, but this is the type as unfolded by one witness after another. During the critical days of the World War when the Allied armies were hard pressed on the western front, the United States War Department sought the aid of the great E. I. du Pont de Nemours Company to build a powder factory for the government. The need was urgent. Du Pont was ready to build, but it could not, in the words of one of its directors allow "our own patriotism to interfere with our duties as trustees" to the stockholders. The Old Hickory controversy was long and involved, but the fact remains that for three months, in the very midst of the war, work on the powder plant was held up while du Pont and the government bickered over the terms.

Pursuit of profits leads to curious results. When hostilities break out between Bolivia and Paraguay in the jungles of the Gran Chaco the arms merchant sends his agents to both sides as a matter of course. When civil conflict flares in China, Brazil or Cuba he is on the spot with a full line of his best merchandise. When peace prevails and trade is dull he drums up business by every device calculated to create a demand for his wares. In the interest of better business he signs agreements with foreign arms firms for exchange of patents and secret processes, division of sales territory, and splitting of profits. He seeks to prevent the enactment of legislation detrimental to his commercial interests and when faced by cut-throat competition the usual practise seems to be to fall in with the customs of the trade, even when they take the form of bribery, "commissions," or whatnot else may constitute the "usual thing in these parts." He apparently does these things without question for the simple reason that under our capitalist economy without profits the wheels of industry stop. And as he recounts his intricate business deals he seems more or less blissfully unaware of the political and social consequences which flow from his operations.

What happens when the arms merchant, in the role of business man, sets out to sell his product in the marketplace may be seen in the case history, for example, of the submarine. Some thirty-five years ago, a small but enterprising American firm developed certain basic designs and patents which enabled it to manufacture a superior type of submarine. Presumably, had these designs been the property of the United States government they would have been reserved exclusively for the United States Navy. But these designs belonged in fact to a private corporation whose officials felt their first responsibility was to their own shareholders and that they would have been dull business men had they ignored the promise for sales held forth by the impending competition in naval armaments. It is hardly surprising, therefore, to find this American firm, the Electric Boat Company, about 1902 negotiating the sale of its patents and processes to the great British armament firm of Vickers, Ltd., under an agreement which promised handsome royalties on all submarines built by Vickers or Vickers subsidiaries in Holland, Japan and Australia. Nor is it strange to find license agreements with shipyards in Spain, Belgium, Italy and other countries scattered around the world.

The consequences are sometimes fantastic. In the course of the last thirty-five years the promoters of Electric Boat products, operating on sound business principles, have succeeded in arming the leading navies of the world with this American submarine. True, more than 115 Electric Boat submarines have flown the American flag. But 275 Electric Boat submarines fly the British Union Jack or the flags of Japan, Spain, Russia, Italy, Norway, Peru and other maritime powers whose fleets sail the high seas and may someday encounter ours. Out of the total of 391 boats built by this one American company (which enjoys the support of the United States Navy as a national defense asset,) 167 were built in American shipyards, and 224 were built under license in foreign shipyards. In 1913 one of these foreign yards licensed to build American designed submarines was located in Fiume, then a part of Austria-Hungary. After the World War the Electric Boat Company sought to recover damages placed at $17 billion from the German government on the ground that American designs and patents had been used in the German U-boats which took their toll of American life and property on the high seas.

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