War Profiteering

That many businessmen profit unduly during wartime, charging exorbitant prices for scarce goods or services, or that they benefit from close connections to politicians or the military, are charges that go back to before the origins of the republic and have continued through every war the country has ever fought. Some historians believe such charges have been warranted, while others argue that what seems to be price gouging is an unavoidable effect of supply and demand. The question of whether individuals or [Page 917]businesses should profit from war is a key moral quandary that highlights an uncomfortable reality: war can sometimes be economically beneficial for certain segments of the American population.

During the wars against the Pequots in the 1630s, gunsmiths charged what to many settlers seemed to be unconscionably high prices. During the American Revolution, Thomas Paine claimed that rich patriots hoarded grain and only sold this basic necessity when the price had skyrocketed—a charge that some historians dispute. However, popular anger against rising prices was real. In Philadelphia, speculation in grain so near the country's breadbasket led crowds to warn that “hunger will break through stone walls”—that is, into the storehouses of the wealthy.

Probably the most egregious example of speculation during the Revolutionary War was in currency. During the course of the war, the gold value of the Continental government's paper money plummeted and inflation ensued. Towards the end of the war, speculators traveled the country, purchasing seemingly worthless currency or certificates that the government issued to soldiers in lieu of paper money—sometimes exchanging Spanish silver coins for the promissory notes at a rate of ten cents on the dollar. By 1781, the new American government turned to hard currency and redeemed the notes with gold or silver. This provided a windfall to the speculators, who were accused by many of having inside information about the coming change in monetary policy. Public discontent with the hard-money policy contributed to Shays's rebellion in 1786.

During the Civil War, the practice of war profiteering arose again, allowing many businessmen to amass enormous fortunes. As before, a cooperative government helped facilitate the practice. The young J. P. Morgan purchased defective rifles from one federal armory and sold them to another for a profit of more than $100,000. The fact that carbines sometimes blew off the thumbs of the Union soldiers firing them was seemingly a small matter. Another famous millionaire, Cornelius Vanderbilt, added to his fortune by selling the government boats that were completely rotten. Fortunes were made by selling the Army boots made of defective leather, rotten meat, and the like—and not just during the Civil War. Later, during the Spanish—American War of 1898, some historians calculate that many more American soldiers were killed by rancid canned foods than by the Spanish.

During World War I, American manufacturers made enormous sums selling shells, armor, and ships to the Allies. Given the severity of the conflict and the high costs of building new factories, prices soared. In the case of naval armor, the price rose 700 percent in just three years. At the beginning, the Allies paid cash, but soon turned to massive loans, organized through Morgan's bank with the approval of the federal government. When the Russians pulled out of the war in 1917, those loans became riskier. In 1917, the United States intervened on the side of the Allies. After the war, critics charged that munitions companies on both sides of the Atlantic, such as DuPont and Krupps—the so-called Merchants of Death—had manipulated or even caused the conflict for their mutual enrichment.

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