Part III –U.S. Profit In The First World War

Capitalism, where profit is the spur! Capitalist growth can be appreciated by the movement of its blood, i.e. what makes its system tick -its means of income, profit. While the aggregate figures for profit are not immediately available for most countries, they are for the United States, and since that economy was (and remains) the world’s largest for a single country, the figures are highly relevant.

Graph 4

Source: Based on National Bureau for Economic Research data

These profit movements (net income in graph 4 above) also show a trend that appears to follow GDP movements fairly closely, although profits are much more volatile than GDP.

In 1935, General Smedley Butler¹³ provided some graphic examples of the way corporate profits were boosted by the First World War. The table below summarizes some of the information he referred to

Average yearly earnings (US million dollars)

Company	1910-14	1914-18
Du Pont (chemicals combine):	6	58
Bethlehem Steel	6	49
United States Steel	105	240
Anaconda (copper)	10	34
Utah Copper	5	21
The above 5 + 3 smaller cos	137.48	408.3
Central Leather Company	1.167	15*
General Chemical Company	800,000 *	12 †
International Nickel Company	4 ?	73
American Sugar Refining Company	2 *	6 **

• 1912-14; ? Years not specified; ** 1916; † During World War I, no year specified

Even though profits rose during World War I, it is worth noting that the war closed many stock exchanges in July 1914.

“The U.S. market opened up in December 1914, and the London market enjoyed a limited opening in January 1915, but the Berlin bourse didn’t reopen until December 1917. In short, there was virtually no way to make money in financial markets between 1910 and 1920, and if you had been in cash, inflation would have eaten away at your purchasing power. Real assets were the only alternative¹⁴.”

There is no doubt at all, however, that large profits were made, even though the above author reaches the following conclusion:

“If capitalists began World War I in order to reap profits from the war, then they certainly failed beyond their wildest dreams.” (ibid)

Wrong -the author refers solely to profits realized in the stock market and should make that clear, because the official figures leave no room for ambiguity (even when inflation is taken into account -the U.S. CPI grew by 51% from 1914 to 1918¹⁵) -corporate profits grew by 24.37% for the same period after being adjusted for inflation¹⁶ -unadjusted profits jumped by more than 112%. Nevertheless, if stock markets were closed (temporarily) and when opened proved unprofitable, then the realization of profits was limited to fewer channels than had been the case prior to the war, a fact which together with the enhanced power of the State over the economy¹⁷ points to great changes in the way the economy came to be operated, a legacy that has never been effectively reversed.

I have to pause here to make something clear. This is that although profit marked the immediate economic value of the First World War to the U.S. capitalist class, while men were dying with dysentery in rat-infested trenches, that war could not have been fought with the sole intention of short-term enrichment for the capitalist class. For one thing, the graphs for gross domestic product and profits, show that the while profits grew during the first half of the war, they fell during its second half -profits were made throughout, but they first rose and then fell (they did not move into negative territory). Looking at their profits and the overall economy in 1914 and during the years up to the end of 1917, American (and other) capitalists may well have had the illusion that the economy and their own prosperity had entered new territory, but then things turned down (indeed, the profit growth-rate had already been slowing prior to 1917). The War, therefore, created a short-term illusion of enhanced prosperity (very encouraging for capitalist suppliers, no doubt, and not just the armaments firms, or the largest concerns, as is clear from the details supplied by General Smedley Butler above), and does not appear to have altered the overall course of the economy, which was determined by the increasingly sophisticated combination of human labor and science. Nevertheless, some windfall fortunes were pocketed as young men fell dying in the fire and mud of Europe, and certain positions were shuffled. And, above all, America’s ambitions of imperial influence were extended against those of Britain, France, Germany, et al. The very State that had appeared to be neutral at the beginning was, indeed the overall winner.

The major clash between Germany and Britain had been a clash of imperial designs. America has been painted as a great “neutral” force which merely helped its British friends to defeat the Central Powers and “accidentally” came out on top, that the war arose solely due to differences between the European powers. But America had already demonstrated its own imperial designs in its movement against the Spanish Empire in Latin America (and elsewhere), and had clashed with its European rivals in Latin America, to such an extent in the mid-1890s it had been predicted that war would break out between Britain and the United States¹⁸.

America was no neutral force, but already a very active imperialist State, whose modus operandi was adapted specially to a time when people were standing up and fighting for change, and even establishing States of a quite different order (however short-lived) to those that had previously ruled the world. By appearing to support national liberation movements at the end of the 19th century, the United States wrested power for itself in Latin America, the Caribbean, Hawaii and the Philippines. It was such a country that was to benefit most from the 20th century’s two world wars.

Germany, one of the most highly developed industrial States of the time had been fenced in and forced to use its productive facilities for domestic purposes -oriented, in fact, for war. Its defeat continued this fencing -in process in peacetime. It was forced to produce by the other Great Powers to pay damages for the war “it alone” had caused.

A final point at this stage is that we have dealt so far with pre-tax profits. During World War I, taxes were increased greatly and these bit into profits. The same is true for World War II. For the first (as yet) I have not got the figures; for the second I have, and we shall consider the effect this had on net profits. The effect was fairly significant, and this points to a certain commitment by the capitalist class to war that goes beyond the immediate cash rewards.

N.B. This is a continuing project. We welcome comments, corrections, suggestions, criticisms from readers.

NOTES

¹³ General Smedley Butler: “Who Makes the War Profits?”, Chapter 2 of “War is a Racket!” (1935). In 1936, General Smedley Butler foiled a plot backed by the Mellon, Morgan and du Pont families to organize a coup d’état in the United States.

¹⁴ Bryan Taylor: “World Stock Market Returns, 1900-1995, Stock Market Performance by the Decade” (undated).

¹⁵ According to NASA’s inflation calculator, based on U.S. Department of Labor figures.

¹⁶ Using NBER data and the US Department of Labor’s CPI.

¹⁷ The war effort required a great centralization of resources, greater rates of taxation and government borrowing.

¹⁸ Specifically over the boundary between Venezuela and British Guiana in 1895. Scott Nearing notes that: “excitement ran so high in this country and in England that the two nations seemed to be on the point of war. However, before the American boundary commission concluded its investigation, Great Britain agreed to arbitrate the matter.” (See: “Dollar Diplomacy,” 1925)