Chapter III
Laying Administrative Foundations

In the presidential campaign of 1940 there was no issue between the nominees of the two major parties on the question of material aid to nations resisting aggression. Within booth parties, however, there remained opposition from people who insisted that events abroad need have no consequences for the United States. Against this belief leaders of the Administration directed a vigorous attack. The Secretary of State, in a radio address on October 26, insisted that we were "in the presence not of local or regional wars, but of an organized and determined movement for steadily expanding conquest." No nation, he asserted could secure itself against the threat of attack except through formidable defense. Any contention that the United States should not furnish supplies to those defending themselves against barbaric attack, constituted, he averred, a denial "of the inalienable right of self-defense." By aiding such nations we reduced the danger to ourselves.

The Secretary's diagnosis of the nature of the world conflict was quickly confirmed. In the last months of 1940 the contagion of aggression continued to spread. Late in October, Italy invaded Greece. In November, Romania joined the Axis powers. Bulgaria was threatened. The Axis drive into the Balkans menaced Britain's Mediterranean life line. On the Eastern front Germany had strong forces drawn up ato reenforce her hope that the U.S.S.R. would accept the primacy of the Nazis in Europe.

The British were holding out alone. The diagnosis of Axis strategy was that Britain might be conquered; and, after that, Germany and japan would be free to attack us from the East and the West. The situation in the Far East gave basis for the fear that Japan might take advantage of such an opportunity. If this estimate of Axis intentions


was correct, it was crucial that Britain should be kept in being. our policy of aid to those resisting aggression, however, was limited by the "cash-and-carry" principle which had been adopted as part of a program to keep us out of war. We would aid Britain to the extent that she was able to pay for our help. As the end of 1940 approached, the uncommitted dollar balances of the British had almost disappeared. if the defense of Britain was vital to the defense of the United States, some way had to be found to aid her without requiring that she should pay spot cash for our assistance. The answer was found in the lend-lease idea.

Debate over lend-lease in the early months of 1940 overshadowed the administrative evolution occurring in the Government. Yet during 1941 almost the entire administrative structure essential for war, should it come, emerged. The Advisory Commission to the Council on National Defense gave way to agencies more suited to the changing tasks of administration. Men had been tested. Some had been found wanting and others proved themselves and could be advanced to positions of greater responsibility as the administrative machine was altered. The wisdom of maintaining a fluid administrative structure demonstrated itself as changes became necessary to meet new conditions. The first 7 months of 1941 saws the birth of the Office of Production Management, Office of Price Administration and Civilian Supply, the Coordinator of Information, the National Defense Mediation Board, the Petroleum Coordinator, the Office of Scientific Research and Development, the Office of Civilian Defense, and the Economic Defense Board. Most of these agencies came into existence as units of the Office for Emergency Management. New conditions required that new administrative arrangements be made quickly and thus showed the soundness of the broad administrative strategy of maintaining presidential initiative in matters of emergency governmental organization. The legal basis for this initiative had been provided with considerable prevision in 1939 in actions laying the basis for an office for emergency management should necessity arise. Thus, in addition to serving as a means for assisting the President in general management, the Office for Emergency Management became something of a holding company for emergency agencies and a legal device for permitting flexibility in emergency organization.

Lend-Lease Enacted

In his press conference of December 17, 1940, the President stated that methods were being devised to continue aid to Britain in spite of her disappearing dollar balances. He noted that British was orders resulted in the construction of new manufacturing facilities which


increased our capacity to produce munitions and improved our defensive position. From a purely selfish point of view, British orders thus were a tremendous asset to the United States. The traditional ways of continuing these orders included private or public loans and gifts. But these were not the only ways. The President discussed with the representatives of the press types of arrangements which might be made that fitted neither of these categories and foreshadowed proposals which he was to make to Congress later.

In a radio broadcast on December 29, the President reviewed the position of the United States in the current crisis. He asserted that it was the purpose of the Axis powers "to dominate the rest of the world." He pointed ot Great Britain's role in keeping the Axis powers out of the Western Hemisphere. He pointed to the fact that in Asia, the Japanese were being "engaged by the Chinese nation in another great defense." If Britain should fall, he said, the Axis would "be in a position to bring enormous military and naval resources against this hemisphere." He denied that the Nazis could be appeased. "The American appeasers," he said, "ignore the warning to be found in the fate of Austria, Czechoslovakia, Poland, Norway, Belgium, the Netherlands, Denmark, and France." He urged the utmost effort to meet the needs of the people of Europe who were defending themselves against the Axis. "Emphatically we must get these weapons to them in sufficient volume and quickly enough, so that we and our children will be saved the agony and suffering of war which others had had to endure. . . . We must be the great arsenal of democracy," the President said. "For us this is an emergency as serious as war itself." In his annual message on the State of the Union, delivered January 6, 1941, the President requested Congress to enact the lend-lease principle. He found it, "unhappily, necessary to report that the future and safety of our country and of our democracy" were "overwhelmingly involved in events far beyond our borders."

A bill to carry out the presidential recommendation was introduced on January 10, 1941, in the Senate by Senator Alben W. Barkley and in the House by Representative John W. McCormack. Consideration of the bill precipitated a debate which centered first in hearings before the House Committee on Foreign Affairs. The Secretary of State, the Secretary of War, the Secretary of the Navy, the Secretary of the Treasury, and the Director-General of the Office of Production Management testified in favor of the bill. The proposal was opposed, as it was supported, by all kinds of people. William R. Castle, former Under Secretary of State, thought the "real purpose" of the bill was "to create a dictatorship."1 Gerald L.K. Smith, National


Chairman of the Committee of One Million, asserted that the bill would give the President powers which had "been granted only to the dictators of the world," and that it would be "the first step in sending from 1 to 5 million American boys across oceans to die on the battlefields of five continents."2 William J. Grace, Chairman of The Citizens Keep America Out of War Committee, demanded that we use our resources to build an impregnable defense and that we "keep free from taking sides and inviting war through encouraging the continuance of fighting or through inflammatory denunciations of belligerents."3 The two organizations with most influence in the controversy--The Committee to Defend American by Aiding the Allies and the America First Committee-expressed their views before the committees and in public debate. Wendell Wilkie, the 1940 Republican presidential candidate, urged adoption of the principles of the bill.

Discussion of the bill revealed again not only the deep national hatred of war but also the deep sympathy of this country with the people of Britain and other nations resisting aggression. Unity prevailed on the necessity for promoting our own national defense. That aid to the victims of aggression would promote our defense, however, was a proposition challenged by at least a considerable minority. A demand for immediate intervention came from significant sectors of the people, but, on the whole, the Nation was united in aversion to war. Choice of a course of action was complicated further by memories of war debts and by a widespread belief that munitions makers were "merchants of death." Cross currents in the hopes and aspirations of the American people made the task of political leadership one of unprecedented difficulty. To a majority of the people and to a majority in Congress the bill offered a way by which we could aid the decent people of the world and have at least a chance of keeping out of war ourselves. On February 8,k the House passed the bill by a vote of 260 to 165. On March 8, the Senate passed an amended version of the measure by a vote of 60 to 31. On March 11, the House concurred in the Senate amendments by a vote of 317 to 71. On the same day, the President approved the legislation.

Action on the lend-lease question, like action on other major issues, followed changes in public opinion. The public probably kept ahead of its government. The data recorded in chart 5 indicate the growth in 1940 of opinion favorable to aiding Britain even at the risk of war and the rise in the degree of expectation that we might become involved in war.

The Lend-Lease Law, an "Act further to promote the defense of the United States, and for other purposes"4 placed heavy responsibilities


upon the President. When he deemed it "in the interest of national defense," he was empowered to authorize the Secretary of War, the Secretary of the Navy, or the head of any other agency to manufacture or procure any "defense article" for "any country whose defense" the President deemed "vital to the defense of the United States." Likewise, he might authorize the transfer by Government departments of defense articles already on hand up to a value of $1,300,000,000. "Defense article" was defined broadly to include weapons, munitions, aircraft, vessels, machinery, tools, materials, supplies, or any agricultural, industrial or other commodity or article for defense. In addition, the President was empowered to direct Government departments to repair or recondition defense articles for governments whose defense he considered vital to our defense and to communicate "defense information," i.e., plans, specifications, designs, and other data, to any such government.

The terms and conditions under which any foreign government might receive aid were to be those which the President deemed "satisfactory." Reciprocal advantages to the United States might be "payment or repayment in kind or property, or any other direct

Chart 5. Public Opinion on U.S. Entry into the War.
The questions asked were:
"Do you think the U.S. will go into the war in Europe sometime before it is over, or do you think we will stay out of the war?"
"Which of these two things is more important for the U.S. to try to do--to keep out of the war ourselves or to help England even at the risk of getting into the war?"
Source: American Institute of Public Opinion.


or indirect benefit which the President deemed "satisfactory." The President was required to report to Congress at 90-day intervals on operations under the act but he was not bound to include information which he deemed "incompatible with the public interest to disclose."

Additional responsibility was placed on the President by an act of March 27, which appropriated $7 billion for lend-lease purposes. This act recognized that procurement of articles for direct use by the United States would have to be merged with purchases for lend-lease purposes and that allocations to the United States and to other countries would have to be made when the goods were completed and ready for delivery. The appropriation act specified that defense articles purchased with lend-lease funds might be retained "in lieu of being disposed fo to a foreign government, whenever in the judgment of the President the defense of the United States" would "be best served thereby."5 The President thus had to divide our production between ourselves and countries whose defense was vital to our defense.

The gravity of the responsibilities placed upon the President by the Lend-Lease Act made the provision of machinery for its administration of special importance. Matters of National policy of first rate magnitude had to be decided and in the execution of the program through production, procurement and delivery of goods the collaboration of several major departments of Government had to be assured. Even before adoption of the act, in contemplation of its passage several plans of administration were developed within the Government. One proposal was to establish a Foreign Supply Policy Committee consisting of the Secretary of War, the Secretary of the Navy, the Secretary of the Treasury, and the Director-General of the Office of Production Management. This Committee would have advised the President on policies and would have supervised an Office of Foreign Supply which would have been responsible for handling the details. Another suggestion was to create an all-inclusive Defense Policy Board with a similar composition and mission. A third idea was to establish a Cabinet Committee on Defense Aid to the Democracies, which would have consisted of the Secretaries of State, Treasury, War, and the Navy, and would have advised and assisted the President in formulating policies and plans. This scheme would have established an Office of Defense Aid to serve as the agent of the President in seeing that the policies were executed by the various agencies of the Government.

All these plans apparently drew their inspiration in part from the liaison committee established by the President in December 1939, to coordinate foreign military purchases with the United States program.


That committee had consisted of the Secretaries of the Treasury, War, and the Navy. The outcome of the discussions of these plans was the rejection of proposals for cabinet committees and other like bodies and the centering of responsibility squarely upon the President. By this means the President averted the almost inevitable embarrassment of being confronted with the recommendations of a cabinet committee influenced by the desires of Government departments for an immediate strengthening of our own defenses at the expense of a longer-term global strategy of keeping other nations in being as fighting entities. On March 27, 1941, the President designated Harry Hopkins "to advise and assist" him in carrying out the lend-lease program and on May 2 established by Executive order in the Office of Emergency Management a Division of Defense Aid Reports headed by an executive officer appointed by the President. The President retained the authority to make policy decisions, but he directed the Division of Defense Aid Reports to--
  1. Provide a central channel for the clearance of transactions and reports, and coordinate the processing of requests for aid under the act.

  2. Maintain such system of records and summary accounts to be approved by the Bureau of the Budget, as may be necessary for adequate administrative and financial control over operations under the act and as will currently reflect the status of all such operations.

  3. Prepare such reports as may be necessary to keep the President informed of progress under the act; assist in the preparation of reports pursuant ot section 5B of the act; and serve generally as a clearinghouse of information for agencies participating in the program.

  4. Perform such other duties relating to defense aid activities as the President may from time to time prescribe.6

On May 6 the President signed a military order designating Maj. Gen. James H. Burns as Executive Officer of the Division of Defense Aid Reports.

The general system for administration of the Lend-Lease Act thus provided for retention by the President of control over lend-lease policy. Although the President was roundly criticized for keeping control in his hand,s this arrangement was demanded by the kinds of policy decisions which had to be made. What countries should receive lend-lease aid? On what terms should they receive it? In what quantities should goods be transferred to particular countries? Shat wight should be given to the immediate necessities of our own military services in comparison with the advantages to be gained by aiding other countries? Only the President could decide these kinds of questions; they were not delegatable. Operating authority, however, was freely delegated. Procurement was conducted by the departments


and agencies best fitted to buy particular articles or to arrange for their production. The Division of Defense Aid Reports coordinated requests for aid, kept records and accounts, and maintained liaison among the departments concerned with the execution of the program. Gradually as policies and lines of action were established, it became possible to identify and delegate subordinate issues of policy which could be decided within limits already fixed by the President. By regulation of June 20, 1941, the President authorized the executive officer of the Division of Defense Aid Reports to determine the value of defense articles, services, and information transferred or received by the United States.7 By letter of July 26, the Executive Officer was empowered by the President to transfer defense articles in value of not over $15 million to any country whose defense the President previously had determined to be vital to the defense of the United States.

On August 29, the President issued a much broader authorization to the executive officer of the Division of Defense Aid Reports. Within the over-all allocation of funds made by the President, the executive officer was authorized to transfer, or to revoke transfers of, "defense articles and defense information other than aircraft, aircraft engines, antiaircraft guns, tanks, and vessels and defense information pertaining to such articles." The letter also authorized the executive officer to make adjustments within the aggregate amounts allocated by the president to the several procurement agencies by increasing or decreasing the quantities of articles to be purchased by such agencies or by substituting other articles.

Agencies Evolving from the Advisory Commission

Concurrently with germination of the lend-lease idea, the adequacy of governmental machinery for direction of the defense program was under review. The National Defense Advisory Commission, established in May 1940 had been only a first step; the individual advisors were instructed to develop plans for action which might be required in their respective spheres. in the areas of interest of the individual advisors--industrial materials, industrial production, employment, farm products, transportation, price stabilization, and consumer protection--small staffs had been built up and extensive studies made of what might be required. in some fields, especially purchasing, production, and materials, considerable progress had been made--the critics were later proved right in claiming that it had not been enough. As work got under way the initial theories on which the Commission had been founded ceased to fit the facts. The Commission had been


designed to be advisory; it soon acquired operating functions in such areas as the approval of military contracts and the review of applications for accelerated tax amortization on defense production facilities. It had not been created as a Commission; a convenient statute had been used as the basis for the appointment of a series of individual advisors. Yet the Commission acquired a corporate personality and attempted to work as a group.

The enlargement of the national effort implicit in the lend-lease program made it advisable to provide more elaborate governmental machinery to handle the defense effort. Some of the questions regarded as only in the planning phase at the time of the creation of the Commission, such as price stabilization, were beginning to move into the action stage. Also on purely political grounds change seemed expedient. The Advisory Commission had been subjected to steady criticism on the ground that authority was divided and that the defense effort should be headed by s ingle individual other than the President. The factors which made inadvisable the designation of a single individual in May 1940 still existed at the end of the year. In American public life, even in time of national emergency, the supply or recognized leaders of national stature who are regarded as persons with views transcending their class or group interests seems to be extremely limited. Appointed officials new to politics are frequently regarded as representatives of particular social groups or classes. Persons known to be attached to the national interest and regarded by all groups as earnest defenders of the general interest are few. The make-up of the Advisory Commission was adapted to coping with these general considerations. Individually its members might be spokesmen for class, group or interest, but the impression collectively was that no single group enjoyed special advantages.

The reorganization of machinery for defense, plainly necessary by the end of 1940, presented problems of statesmanship far more complex than those concerning the administrative structure of the Government. The issue in large measure was who was going to run the defense program. Given the strength of special interests in American society and the shortage of leaders generally regarded as attached to the national interest, the issue of who was to control was posed sharply by the demand for the appointment of a single defense czar. This suggestion clothed a variety of motives. Some people believed that such an arrangement was absolutely essential but other advocated it in the hope that the President would abdicate a large part of his responsibility to some person more to their liking. As it became clear that there would be a reorganization--and that there was at least a chance for a defense "czar"--a desperate struggle for position got under way. Industrial and financial groups sought to gain control


of the defense program. The War and Navy Departments in the main were allied with them. Other groups, with equal zeal, fought to retain their gains of the preceding years and to prevent domination of the Government by industrial and financial interests. Mr. Knudsen, Defense Commission advisor on industrial production, and Mr. Hillman, Defense Commission advisor on employment, came to be regarded as spearheads of the industrial and labor groups respectively. Personally they were quite willing to accept whatever role the President assigned to them., but others energetically promoted their candidacy for a dominant role.

The broad issues were pointed up in a plan which Mr. Knudsen proposed to the President at his request late in November 1940. Under this proposal a Director of Industrial Mobilization would have been placed in charge of administrative units dealing with planning, procurement, export and import control, raw materials, production, transportation, labor, price control, domestic requirements, and statistics. The plan was built on the idea that the Advisor on Industrial production should become a DIrector of Industrial Mobilization, vested with power to supervise and direct almost the entire home front effort. In its essentials it restated the Army-Navy Industrial Mobilization Plan, a scheme already rejected by the President. It would have placed in the hands of the proposed Director of Industrial Mobilization the functions which eventually came to be performed by the War Production Board, the Office of Price Administration, the War Manpower Commission, the Foreign Economic Administration, and other agencies as well.

Apart from the administrative difficulties inherent in the management of an agency with such broad responsibilities, the designation of its chief would have presented a problem of acute difficulty in view of the belief prevailing generally that whoever managed the defense program would represent some class, group or interest. It is not astonishing that the controversy over administrative structure became surcharged with overtones of social conflict. A bitter political campaign had just been fought, and tempers and feelings were still high. A domestic political equilibrium had to be maintained to deal with lend-lease and other divisive issues which would arise in the months ahead. In Congress and out, there were disputes and fears about profits on defense contracts, and charges of a "strike of capital" against participation in the defense program except on its own terms had been made not without some color of truth. Under these circumstances, a decision on administrative organization tended to become a decision on which group should control the production program. In the calculus of the politics of democracy, a move too far in the direction of the interests of any one group might seriously


weaken support of the Government in its efforts to deal with current and forthcoming crises.

The outcome was a decision which appeared to be a clear-cut victory for no single group. The President decided that the new agency--the Office of Production Management, a unit of the Office for Emergency Management-- should concern itself only with production. It would assume the work of the Advisory Commission on industrial production, raw materials, and priorities and the activities of the Commission's Coordinator of National Defense Purchases. To it were shortly transferred the work of the Advisor on Employment and the Commission's Bureau of Research and Statistics, although these shifts were not included in the plan as first announced. Exports and imports, price control, consumer protection, agriculture, transportation, and other subjects would continue to be dealt with by existing agencies and officials. Again the concept of the Army-Navy Industrial Mobilization Plan of a home-front "czar" with extremely broad powers was rejected. At a press conference on December 20, 1940, the President outlined in general terms the structure of the new Office of production Management, details of which were to be spelled out in an Executive order. In his discussion with the press, the President ridiculed the notion that there could be found one "Czar." "Poobah" or "Akhoond of Swat" who would embody all the characteristics necessary for handling defense mobilization. In the President's analysis the problem had three elements, that of the buyer and user combined and those of management and labor. The Office of Production Management was to consist of these "three elements, divided among four people--the Director, Mr. Knudsen, and the Associate Director, Mr. Hillman" and the Secretary of War and the Secretary of the Navy. Production, purchasing and priorities were to be under the policy supervision of these four persons.8

It was unusually difficult to phrase the presidential solution of the problem in an Executive order. The Bureau of the Budget, which was responsible for drafting the order, prepared at least a dozen drafts for discussion and clearance with the interested persons. in the process of negotiation it became plain that not all of these persons had understood the President's determinations in exactly the same way. Some person, whose identity not even the Secret Service could determine with certainty, gave the content of one confidential draft to a newspaper reporter in an apparent attempt to gain publicity that would force the hand of the President in the negotiations. The crux of the problem was the definition of the relationship between the Director-General and the Associate Director-General. It was clear that the


Secretary of War, the Secretary of the Navy and Messrs. Knudsen and Hillman were equal in their capacity as members of the policy council of the OPM. THe relative status of Messrs. Knudsen and Hillman in managing the OPM organization was a different matter. FOrmulation of this relation defied the skills of the drafting experts, and the President pencilled into their version the following language:

The Director-General, in association with the Associate Director-General, and serving under the direction and supervision of the President, shall discharge and perform the administrative responsibilities and duties . . . vested in the Office of Production Management.

The President's exposition of the positions of the Director-General and the Associate Director-General at his press conference of January 7, 1941, gave no satisfaction to those who demanded a single-headed administration of the defense effort.

I suppose the easiest way to put it is that these four people--the Office of Production Management, Knudsen, Hillman, and the two Secretaries--fix the policy and then Knudsen and Hillman carry it out, just like a law firm that has a case; say there are two partners, and they carry it out as a law firm. Anybody that knows anything about management will realize that that is the practical way to handle that kind of a matter, just like a law firm with two main partners.

Q. Are they equal?

THE PRESIDENT. That's not the point; they're a firm. Is a firm equals? I don't know. See what I mean? Roosevelt and O'Connor was a law firm in New York; there were just partners. I don't know whether we were qual or not. Probably we might have disagreed in regard to a catch question of that kind; but we never had a dispute or an argument.

* * * * * * * * * *
Q. Why is it you don't want a single, responsible head?

THE PRESIDENT. I have a single, responsible head; his name is Knudsen and Hillman.

Q. Two heads.

THE PRESIDENT. No, that's one head. In other words, aren't you looking for trouble? Would you rather come to one law firm, or two?

Q. I don't think that's comparable.

THE PRESIDENT. Just the same thing, exactly. Wait until you run into trouble.

Q. I would rather avoid trouble.

THE PRESIDENT. I think they will. They think they will--that's an interesting thing.

Oddly enough they did avoid trouble. The partnership of a Danish immigrant turned assembly-line genius and a Lithuanian immigrant who had achieved eminence in the labor movement worked much better than the critics foresaw. It worked well enough so that each could contribute his special talents at a time when they were most needed, that is, when mass production techniques had to be planned into an expanding munitions industry accustomed to small-scale operation and when government policy had to take special account of the problems incident to the fitting of masses of people into new


jobs. At the same time the partnership symbolized a domestic political coalition in the national interest.

The major functions placed in the Office of Production Management by the Executive order were to--

  1. Formulate and execute in the public interest all measures needful and appropriate in order (1) to increase, accelerate, and regulate the production and supply of materials, articles, and equipment and the provision of emergency plant facilities and services required for the national defense, and (2) to insure effective coordination of those activities of the several departments, corporations, and other agencies of the Government which are directly concerned therewith.

  2. Survey, analyze, and summarize for purposes of coordination the stated requirements of the War and Navy and other departments and agencies of the Government, and of foreign governments for materials, articles, and equipment needed for defense.

  3. Advise with respect to the plans and schedules of the various department and agencies for the purchase of materials, articles, and equipment required for defense, to coordinate the placement of major defense orders and contracts and to keep informed of the progress of the various programs of production and supply.

  4. Plan and take all lawful steps necessary to assure the provision of an adequate supply of raw materials essential to the production of finished products needed for defense.

  5. Formulate plans for the mobilization for defense of the production facilities of the Nation, and to take all lawful action necessary to carry out such plans.

  6. Determine the adequacy of existing production facilities and to assure their maximum use; and, when necessary, to stimulate and plan the creation of such additional facilities and sources of production and supply as may be essential to increase and expedite defense production.

  7. Determine when, to what extent, and in what manner priorities shall be accorded to deliveries of material as provided in Section 2 (a) of the act entitled "An Act ot Expedite National Defense and for other Purposes," approved June 28, 1940. Deliveries of material shall take priority, as provided in said act, in accordance with such determinations and the orders issued in pursuance thereof by the Office of Production Management.9

The functions of the Office of Production Management, as contemplated by the Executive order, were limited in various respects. The Office was concerned primarily with direct defense requirements; responsibility for civilian production was a gap in the administrative machinery to be filled later. The chief operating authority of the Office was the priorities power, a power which did not have to be used extensively until late in 1941. On other matters the Office stimulated, advised, planned, coordinated. With respect to the level of military production, the Office could only "survey, analyze, and summarize" the "stated" requirements of the War and Navy Departments. It could not raise the number of tanks or guns stated as required by the War Department, but it could criticize and did. The Office could "coordinate" the work of Government agencies which had to carry on their operations in the light of total military needs. It


could, for example, stimulate and plan the construction of additional factories, smelters, and other productive facilities. It could advise on purchasing methods and policies. Legal power to place contracts for defense facilities and articles remained in the War and Navy Departments, the Maritime Commission, and the defense subsidiaries of the Reconstruction Finance Corporation. The OPM could view the program as a whole, attempt to anticipate future needs especially in raw materials, and try to see that the work of all government agencies contributed to meet these future needs. Its creation constituted a step in the necessarily slow development of a huge and complex governmental organization. This administrative machine was constituted necessarily of many parts but ways had to be found to tie them together into a working whole.

In some respects, the internal organization of the Office of Production Management presented more significant issues of an administrative character than did the much discussed dual leadership. The Office began with three operating divisions--Production; Purchases; and Priorities--which were inherited, more or less intact, from the Advisory Commission. For convenience in dealing with industry, it was recognized immediately that it would be better to organize along commodity lines, i.e., concentrate at one administrative point production, purchase, and priority functions relating to a particular commodity. It required, however, several months to reorganize a going administrative structure made immalleable both by normal rigidity of organizations and the attachment of the interests of strong personalities of the Office to the initial divisional system. The three operating divisions soon were supplemented by a Labor Division and a Bureau of Research and Statistics, both of which were created out of services transferred from the Advisory Commission.

Another element was added to the machinery for economic control by the creation of the Office of Price Administration and Civilian Supply by Executive order on April 11, 1941. This Office, which inherited the functions and staff of the advisor on price stabilization of the National Defense Advisory Commission, filled one of the gaps left by the establishment of the Office of Production Management which was to be concerned chiefly with military production. The following paragraph of the Executive order sets for the main functions of OPACS, which was to--

Take all lawful steps necessary or appropriate in order (1) to prevent price spiraling, rising costs of living, profiteering, and inflation resulting from market conditions caused by the diversion of large segments of the Nation's resources to the defense program, by interruptions to normal sources of supply, or by other influences growing out of the emergency; (2) to prevent speculative accumulation, withholding, and hoarding of materials and commodities; (3) to stimulate provision of the necessary supply of materials and commodities required for civilian


use, in such manner as not to conflict with the requirements of the War, Navy and other departments and agencies of the Government, and of foreign governments, for materials, articles and equipment needed for defense (such requirements are hereinafter referred to as "military defense needs"); and (4) after the satisfaction of military defense needs to provide, through the determination of policies and the formulation of plans, and programs, for the equitable distribution of the residual supply of such materials and commodities among competing civilian demands.10

The linking of price control and civilian supply in the Office arose from the fact that scarcities brought pressure on prices; control of the distribution of scarce supplies of OPACS would enable it to sterilize nonessential demand as well as to guide the flow of scarce supplies to the most essential civilian uses. The Office, however, depended upon OPM which possessed the priority power, for the execution of its programs for the "equitable distribution of the residual supply" of scarce materials and commodities among "competing civilian demands". The price stabilization functions of OPACS had to be improvised in contrast with the state of affairs contemplated by the Industrial Mobilization Plan. That plan had envisaged a state of war in which legislation could readily be obtained for any purpose. OPACS had no power to control prices. It had to do what it could in a period of defense preparation during a state of peace. On the whole, it was limited to persuasion in the control of prices and to administrative preparation and policy planning for the future. Its price edicts were, as the quip went, perfectly constitutional being solidly grounded on the right of freedom of speech. "Jaw-bone" price control, as it came to be known, excelled inaction, but the effects were not all that might be desired.

The Office of Production Management and the Office of Price Administration and Civilian Supply were the two largest agencies to grow out of the Advisory Commission to the Council on National Defense. During the first half of 1941, however, other administrative entities which had originated under the sponsorship of the Commission also gained a new status as the evolution of the administrative structure for defense proceeded. On January 11, the NDAC Defense Housing Coordinator was converted into the Division of Defense Housing Coordination in the Executive Office of the President. In the absence of authority to regroup the Government's housing agencies into a single department, a temporary administrative solution was found in the establishment of the Division to exercise supervision over them on behalf of the President. It was the duty of the Division to anticipate the need for housing in areas congested because of defense activities and to develop programs to meet these needs for execution by the appropriate housing agency.11


The Advisor on Agriculture of the Defense Commission felt, as the different parts of the Commission were sloughed off and transmuted into more elaborate organizations, that an office of food supply should be established as a division of the Department of Agriculture or as a part of the Office of Emergency Management. The President felt it "unadvisable . . . to risk creating the alarm that might arise from a broad survey of agricultural supplies." For the same reason he did not think we needed "to establish an office of food supply or a food administration" at the time. Instead the President abolished the Agricultural Division of NDAC in May 1941 and transferred its functions to an Office of Agricultural Defense Relations which was created in the Department of Agriculture at his request. This Office was to aid the Secretary in directing the work of the Department in accordance with defense needs.

In June the Office of Scientific Research and Development (another OEM agency) was established to carry on the work initiated by the National Defense Research Committee created earlier by order of the Council of National Defense. A National Defense Research Committee was continued in an advisory capacity. The Office was given a broader charter to mobilize the scientific personnel and resources of the nation in the conduct of scientific and medical research relating to national defense. Among the responsibilities assigned to the Office was the duty to--

Coordinate, aid, and, were desirable, supplement the experimental and other scientific and medical research activities relating to national defense carried on by the Departments of War and Navy and other departments and agencies of the Federal Government.

Develop broad and coordinated plans for the conduct of scientific research in the defense program, in collaboration with representatives of the War and Navy Departments; review existing scientific research programs formulated by the Departments of War and Navy and other agencies of the Government, and advise them with respect to the relationship of their proposed activities to the total research program.

Initiate and support scientific research on the mechanisms and devices of warfare with the objective of creating, developing, and improving instrumentalities, methods, and materials required for national defense.

Initiate and support scientific research on medical problems affecting the national defense.

The Director of the Office was aided by several advisory committees whose personnel was designed to bring into the closest collaboration governmental and private scientists. He was authorized to enter into contracts with commercial and university laboratories for investigations in order that the energies of the scientists of the Nation might be concentrated on questions whose solution would promote the national defense.12


At the time that consideration was begin given to the disposition of the Division of State and Local Cooperation of the Defense Commission, several other questions requiring cooperation with State and local governments were coming to a head. Some consideration was given to the transfer of the Division to OPM on the assumption that the Division and the State and local defense councils which it had fostered had a close connection with production problems. The problem of organizing civilian protection also was receiving a great deal of attention as the consequences of the bombing of English cities became apparent. In local areas in which defense production was bringing population congestion, the problem of developing adequate community facilities was becoming acute. A variety of objectives finally found expression in an Executive order of May 20 which replaced the Division of State and Local Cooperation by the Office of Civilian Defense. The Office was to--

Serve as the center for the coordination of Federal civilian defense activities which involve relationships between the Federal Government and State and local governments. . . .

Keep informed of problems which arise from the impact of the industrial and military defense effort upon local communities, and take necessary steps to secure the cooperation of appropriate Federal departments and agencies in dealing with such problems and in meeting the emergency needs of such communities.

Assist State and local governments in the establishment of State and local defense councils or other agencies designed to coordinate civilian defense activities.

With the assistance of the Board for Civilian Protection (which was established within the OCD by the Executive order), study and plan measures designed to afford adequate protection of life and property in the event of emergency. . . .

With the assistance of the Volunteer Participation Committee (also established by the Executive order) consider proposals, suggest plans, and promote activities designed to sustain the national morale and to provide opportunities for constructive civilian participation in the defense program. . . .13

On May 28, the day after he declared the existence of an unlimited national emergency, the President moved to round out another element of the organization for defense by designating the Secretary of the Interior as Petroleum Coordinator for National Defense. In his letter of designation the President noted that Government functions relating to petroleum were "divided among numerous officers and agencies of the Federal Government and the principal oil-producing States." To provide the necessary coordination among these officers, the Secretary was designated as Coordinator and instructed as a representative of the President, to obtain information about military and civilian needs for petroleum and its products and to make recommendations to the appropriate government agencies and to the industry to assure the maintenance of an adequate supply.14


Growing Pains of the Production Program

Reorganization of administrative machinery for the guidance of production cleared the way for more vigorous efforts to increase the output of munitions and to speed the construction of factories and shipyards to increase our capacity to produce. On January 3, 1941, the President submitted to Congress the Annual Budget for the fiscal year 1942. Sixty-two percent of the estimated expenditures were to be for defense purposes. Supplemental authorizations and appropriations, however, increased these estimates rapidly. On January 16, the President called to the attention of Congress the necessity for an emergency ship construction program. He requested #350 million for shipbuilding facilities and cargo vessels. A series of additional authorizations and appropriations followed, including the $7 billion fund made available in March for lend-lease purposes Events abroad made speed more and more urgent. in January the German air force ended British control of the Mediterranean. Early in February the Japanese obtained military concessions in Indo-China. In March Bulgaria joined the Axis. In April Germany invaded Yugoslavia and overwhelmed an heroic but weak resistance.

Although a larger and larger proportion of American resources was diverted to defense production, the acceleration of defense output seemed discouragingly slow. In the press and within the Administration a warm debate was waged over the rate of progress. Industrialists of the Office of Production Management were accused of being insufficiently bold in converting industry to military production and of fearing to enlarge facilities for the production of materials and other components of munitions lest industry be handicapped subsequently buy overcapacity. Other groups within the Administration persistently demanded greater speed in the increase of munitions output. Industry was beginning to feel the prosperity flowing from defense spending and was somewhat reluctant to turn to production of war goods. The Administrator of the Office of Price Administration and Civilian Supply demanded heavy cuts in the production of automobiles and other consumer durable goods, and added fuel to the flames of intraadministration debate. The Director-General of the Office of production Management prodded the War and Navy Departments to raise their sights and to request larger appropriations in order that more adequate production might be initiated. As early as May he also obtained agreement of the automobile industry that a cut of 20 percent would be made in automobile production for the year beginning in August. The Office of Production Management urged the Reconstruction Finance Corporation to expand its program for the construction


of synthetic rubber plants and to expedite and enlarge its program for the stockpiling of strategic and critical materials. The president, from time to time, urged greater speed and indicated the direction which the defense production program should take. In May he asked an expansion in the output of critical tools. In July, soon after the German invasion of the U.S.S.R. he sought a prompt and substantial increase in tank output. At the same time, he requested diversion to munitions production of a "substantial part of large durable goods factories in American that are now manufacturing items to meet consumer needs".

In the midst of this discussion, munitions production steadily increased, and the dislocations attendant on diversion of resources to defense purposes began to be felt. Defense production was superimposed upon civilian production, which itself was stimulated by defense expenditures. The slack in the economy was taken up as idle men and industrial capacity were put to work on the defense program. Shortages began to occur as demands for materials increased, and during the first half of 1941 the Office of Production Management put into effect a comparatively mild priorities system. The OPM orders in the first two-thirds of 1941 were designed chiefly to assure that producers of materials gave preference to defense orders.

OPM Order M-1 which became effective March 22, 1941, required that producers of aluminum should give preference to defense orders and specified the sequence in which nondefense orders should be filled. In the following months copper, iron, steel, cork, certain chemicals, nickel, rayon, rubber, silk and other materials were brought under similar control. Exercise of the priority power had the incidental effect of enabling producers of the materials affected to give preference to defense orders without incurring liability for failures to fulfill pre-existing civilian contracts. In addition to requiring that preference be given to defense orders, the OPM in some instances prohibited use of the affected materials for less essential purposes.

Through various orders, the Office of Production Management also developed a ranking of products according to their essentiality. The Army-Navy Munitions Board was empowered by directive to assign specified ratings to military products, while the OPM itself assigned ratings to indirect defense and essential civilian products. Thus, producers of metal-working equipment were entitled to a higher rating than were manufacturers of farm machinery. The priority system developed by the autumn of 1941 was comparatively simple. It did not cover the entire industrial system and its chief effect was to control the sequence in which orders were filled.

Although by the end of the summer no general program for the conversion


of entire industries to military production had been effectuated, the diversion of materials to military production through the priorities system made it increasingly difficult for many producers of nonmilitary goods to obtain materials. Small business concerns were affected most seriously. In May the Office of Production Management agreed that the contracting agencies should compel contractors to subcontract parts of their orders to as to utilize existing facilities of industry and to avert "priorities unemployment." In July, following criticism by the Senate Committee Investigating the National Defense Program, the OPM elevated its Defense Contract Service to the status of a Bureau and increased its efforts to bring about the participation of small business in defense production.

Expansion of defense production was accompanied by complex problems in industrial relations. The movement of workers to new industries which were clamoring for additional employees increased the bargaining power of labor and stimulated strikes. Competition of employers for workers placed pressures on wage scales. Long-term measures had to be devised to increase the labor force by training and by bringing additional people into the labor market.

In March the President established the National Mediation Board to settle controversies between employers and employees. The Board consisted of three public members, four representatives of employees, and four representatives of employers. It was instructed to act when the Secretary of Labor certified that a dispute threatening the production of transportation of equipment or materials essential to national defense could not be adjusted by conciliation commissioners of the Department of Labor.15 In June, the President for the first time used his powers to assume control of a plant to prevent disruption of defense production by authorizing the Army to take over the North American aviation plant.

In the summer of 1941, the Office of Production Management inaugurated a program to coordinate and direct the work of Government agencies engaged in training workers for defense employment. New industrial techniques, particularly in the aircraft and shipbuilding industries, required that literally hundreds of thousands of workers should be trained in new skills. Both to make additional workers available and to quell unrest, efforts were inaugurated to prevent discrimination against minority groups by employers in defense industries. "No nation combating the increasing threat of totalitarianism," the President said, "can afford arbitrarily to exclude large segments of its population from its defense industries." This admonition was reenforced in June by creation of the Committee on Fair


Employment Practice which was to investigate and redress grievances growing out of departures from the policy against discrimination in employment on grounds of race, creed, color, or national origin.16 To increase the working force further the Office of Production Management in August urged the employment of more women in industry.

Increasing demands for defense goods created greater demand for raw materials. The prospect of further increases in requirements encouraged speculative operations. The defense boom stimulated increases in wages which, in turn, tended to raised prices. The Office of Price Administration and Civilian Supply cajoled, persuaded and threatened in an effort to maintain a stable price level, but it was fighting a losing battle and, indeed was not equipped to do much more. In the months since its establishment, however, it had been preparing for more effective price control measures and conducting negotiations within the government to achieve consensus on the general outlines of an economic stabilization policy. On July 30 the President requested Congress to act. He recalled the consequences of failure to control prices in the first World War, traced the alarming increases in prices during 1941, and suggested lines of action. Legislation was needed to control prices, rents, and installment credit. For the maintenance of over-all economic stability, he declared that relatively stable wages also would be necessary and indicated the need for an adequate tax program as part of a general attack on inflation.17

Broadening of Economic Defense

Late in 1940 and early in 1941 Administration officials had under consideration the problem of better organization, and the adoption of sterner policies, for economic defense. At the beginning of 1941 the principal existing agency was the Office of Export Control. It could prevent shipments to unfriendly countries and a steadily increasing number of commodities had been embargoed. The embargo against shipment of iron and steel scrap, put into effect on October 16, 1940, had been preceded by a Japanese warning that it would be regarded as an "unfriendly act."18 As supplies gradually were pinched off from Japan--the rate of curtailment being weighed against the state of our preparedness and judgments of Nipponese bellicosity--Japanese imports from South American rose sharply. In the last 6 months of 1940, the Japanese purchased almost a normal year's consumption of copper from South America. Heavy purchases of mercury were being


Chart 6. United States Exports by Country

Source: Department of Commerce


made in Mexico, apparently on German account for shipment through the U.S.S.R. As the British restricted the export of shellac from India, Japanese purchases in the United States increased. Something more than export control was required for our economic defense.

The economic defense of the United States required measures more positive than the negative device of export control. However, the formulation of lines of action and the timing of that action were conditioned by diplomatic and military factors as well as by the problem of making suitable administrative arrangements. Moreover, action was delayed by the necessity of giving priority to other matters, such as the settlement of the lend-lease question. From the administrative standpoint the problem of equipping the Government for economic defense involved issues of determining what agencies of the Government should participate in the program and how and by whom their endeavors should be coordinated into a consistent program. Early in January 1941 the Treasury Department prepared a proposal which would have made that Department the economic defense agency of the Government although it would have been advised by an "Economic Defense Board" consisting of the Secretaries of State, Treasury, War, Navy, and Commerce, and the Director-General of the Office of Production Management. Under this plan, the Secretary of the Treasury would have directed the administration of financial controls for freezing foreign funds, the coordination of foreign buying and shipping, and the licensing of exports. The proposal grew out of the Department's work in coordinating foreign purchases for the President's Liaison Committee, whose staff was alert to the possibilities of broadening the Committee's usefulness.

As was customary in such matters, the draft order submitted by the Treasury was discussed by the Director of the Budget on behalf of the President with other agencies of the Government concerned. In these negotiations various objections were made to the proposal. In some quarters the Treasury approach was viewed as too narrow because it did not encompass such matters as preclusive buying. In others, its reliance on financial techniques--as in the licensing of financial transactions--was regarded as too indirect an approach to economic defense. It was asserted that, since the task, in considerable measure, was one of coordinating the work of Government agencies concerned with economic defense, it was doubtful that one of these agencies could bring the others into agreement on any comprehensive plan of action. That the cabinet committee proposed to guide the policies of the Treasury could be effective was doubted. It was felt also that the matter could not be dealt with very well before arrangements were made to carry out the lend-lease program. In military circles a


sentiment existed that the entire economic defense program should be developed by the Office of Export Control, a view to which the chief officials of this agency were not averse, since they were military men themselves. Some officials thought that something like the War Trade Board of World War I should be created. In short, while it stimulated consideration of the problem, the Treasury proposal was not acceptable to other officials who would have to collaborate in any program of economic defense.

The Administrator of Export Control proposed that a program of economic defense should be organized around his office. He gained some support within the Government but the general reaction of civilian officials was negative. In April the Administrator presented a budget which contemplated the development of a broad program of economic defense including import control, shipping control, preclusive purchasing and related international trade programs. In passing on the financial request, the President limited the Office to its existing functions.

The proposal of the Administrator of Export Control was countered on May 5 by a plan submitted by the Secretary of State, the Secretary of the Treasury and the Attorney General to create an Economic Defense Committee consisting of these three officials. The Committee would have supervised the control o foreign funds by the Treasury, the approval of exports by the State Department, and the work of the Administrator of Export Control. The plan clearly was not broad enough to cover the entire economic defense front. However, on the basis of this and other proposals the Director of the Bureau of the Budget developed another plan, and by the end of the month he had received from the President instructions to consult with interested officials in the development of an arrangement for economic defense.

As study of the problem of economic defense organization proceeded, the tempo of events in foreign affairs accelerated. On May 27, the President declared a state of unlimited emergency. On the same day, in an address to the governing board of the Pan American Union, he asserted that the war was "approaching the brink of the Western Hemisphere . . ." In June, Axis funds were frozen and this Government requested the closing of German and Italian consulates. The freezing of funds was an action of prime importance in economic defense for it aided greatly to prevent the financing of propaganda and the operations of secrete agents of unfriendly powers. On June 22, 1941, Germany invaded the U.S.S.R.

During June several schemes were prepared. The dispute between military and civilians for control of economic defense continued. The Administrator of Export Control proposed an Executive order toward


the end of June to establish an Office of Foreign Trade Control with the Vice President as Director and himself as executive officer. Early in July the President decided that the Vice President was to be in charge of a new economic defense agency. After this decision the final terms of the order to establish the Economic Defense Board were quickly agreed upon, and the order was issued on July 30. The debate about what an economic defense agency should do and who should control it resulted in an interagency board with authority to establish policies to guide agencies with economic defense functions. This was to become a familiar pattern of operation. In the complex situation many departments of government were inevitably concerned with almost every significant problem of defense. Yet their work had to be directed toward common objectives and a board consisting of the chiefs of the interested departments furnished a convenient means for consultation about proposed lines of action. The Economic Defense Board, built on these principles, consisted of the Vice President as Chairman, the Secretary of State, the Secretary of the Treasury,k the Secretary of War, the Attorney General, the Secretary of the Navy, the Secretary of Agriculture, and the Secretary of Commerce. The order defined "economic defense" as--

the conduct, in the interest of national defense, of international economic activities including those relating to exports, imports, the acquisition and disposition of materials and commodities from foreign countries including preclusive buying, transactions in foreign exchange and foreign-owned or foreign-controlled property, international investments and extensions of credit, shipping and transportation of goods among countries, the international aspects of patents, international communications pertaining to commerce, and other foreign economic matters.

The chief responsibilities of the Board were to:

  1. Advise the President as to economic defense measures to be taken or functions to be performed which are essential to the effective defense of the nation.

  2. Coordinate the policies and actions of the several departments and agencies carrying on activities relating to economic defense in order to assure unity and balance in the application of such measures.

  3. Develop integrated economic defense plans and programs for coordinated action by the departments and agencies concerned and use all appropriate means to assure that such plans and programs are carried into effect by such departments and agencies.

  4. Make investigations and advise the President on the relationship of economic defense . . . measures to post-war economic reconstruction and on the steps to be taken to protect the trade position of the United States and to expedite the establishment of sound, peacetime international economic relationships.

  5. Review proposed or existing legislation relating to or affecting economic defense and, with the approval of the President, recommend such additional legislation as may be necessary or desirable.19


As arrangements were being completed for better organization for economic defense, another aspect of governmental machinery relating to foreign affairs--our intelligence system--was receiving attention. The Government had no real intelligence system, although several agencies of Government had been long concerned with the collection of information affecting the national security. Yet no agency had responsibility for collecting and analyzing all such information and putting it into meaningful form for the President and other high officials of the government. The existing arrangements left the information that was collected scattered among secretive governmental units and provided no means for piecing the puzzle together to assure the most complete data on which to base governmental decision. On July 11, by military order, the President established a Coordinator of Information "with authority to collect and analyze all information and data, which may bear upon national security; to correlate such information and data, and to make such information and data available to the President and to such departments and officials of the Government as the President may determine . . ." Old-line Government agencies did not especially relish the rise of a rival to coordinate intelligence operations; the creation of the Coordinator, however, was illustrative of the problem faced by a Chief Executive in managing the huge Federal administrative machine to serve th ends of national policy. The organization erected by the Coordinator later grew into the Office of Strategic Services while the functions developed by the Coordinator in short-wave broadcasting to foreign countries eventually became a part of the Office of War Information.

During the first 7 months of 1941 there was a diminution of dissension and a corresponding sharpening of national purpose. The Lend-Lease Act embodied the most important new national policy adopted during this period; to make it effective some reorganization of the governmental structure was necessary. As the international situation deteriorated through the summer it became possible to take more vigorous steps in our defense through foreign trade measures. In the pulling and hauling within the Administration that accompanied these organizational adjustments, problems unforeseen by industrial mobilization planners were encountered. These were fundamentally the political problems of maintaining a working balance among the many groups represented in any national administration. Industrial and labor groups competed for dominance and the services attempted to gain control of important nonmilitary activities. The administrative arrangements which were developed reflected attempts to strike a balance among these groups and interests. The necessity of organizing for defense during a period of peace made it inevitable


that disputes and controversies over the correctness of national policy would color and delay administrative action. When the year was half over there was much unfinished business. A rudimentary system for production control had been established; machinery for price control had been erected but it had no powers; the mechanisms for the coordination of economic defense activities existed on paper but they required development and elaboration. As these steps were being taken the international situation grew in tenseness while in domestic politics a crisis approached as the year's service of men in military training neared completion. Further important administrative adjustments were indicated but they had to await determination of whether the military force already built up would be dissipated.


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1. U.S. Congress. House. Committee on Foreign Affairs. Hearings on H.R. 1776, 77th Congress, 1st Session, p. 483.

2. Ibid., pp. 538-539.

3. Ibid., p. 558.

4. 55 Stat. 31.

5. 55 Stat. 53.

6. Executive Order No. 8751, May 2, 1941, 6 Federal Register 2301.

7. 6 Federal Register 3266.

8. Roosevelt, Franklin D. The Public Papers and Addresses of . . . New York: Macmillan Company, 1941. 1940 Vol., pp. 622-631.

9. Executive Order No. 8629, January 7, 1941, 6 Federal Register 101.

10. Executive Order No. 8734, April 11, 1941, 6 Federal Register 1917.

11. Executive Order No. 8632, Jan. 11, 1941, 6 Federal Register 295.

12. Executive Order No. 8907, June 28, 1941, 6 Federal Register 3207.

13. Executive Order No. 8757, May 20, 1941, 6 Federal Register 2517.

14. 6 Federal Register 2760.

15. Executive Order No. 8716, Mar. 19, 1941, 6 Federal Register 1532.

16. Executive Order No. 8802, June 25, 1941, 6 Federal Register 3109.

17. Congressional Record, vol. 87, pt. 6, p. 6427.

18. U.S. Department of State, Peace and War, Washington, D.C.: Government Printing Office, p. 97.

19. Executive Order No, 8839, July 30, 1941, Federal Register 3823.

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