Guns, butter and Bill Knudsen

As we awaken to the realization that our drunken consumption of cheap Chinese goods has painted us into a geopolitical corner, we find ourselves in a half-hearted catch-up mode. Our military leaders recognize that we have outsourced enough of our current industrial capabilities to jeopardize national security, but our consumers, and the politicians who are appropriately beholden to them, are either too short-sighted or economically addicted to change their consumption habits. The result, I am afraid, is that we are inching toward a confrontation in the pacific-rim and/or Eastern Europe without the benefit of industrial readiness, and time to correct our manufacturing deficit is running out.

Our current situation reminds me of an all-but-forgotten hero of the last century who was instrumental in converting our manufacturing capabilities into a defense production machine that pulled us out of a depression, won a world war, and set us up for the prosperous decades that followed. Although his name will never be as well known as Roosevelt, Churchill, or Eisenhower, Bill Knudsen’s role in World War II was every bit as important and given our current situation, deserves a second look.

As a naturalized Danish American, Knudsen’s view of world events was arguably more acute than most native-born Americans. Still, it was his industrial expertise and connections to the manufacturing sector that positioned him as a key player in World War II. As an executive with the Ford Motor Company, Knudsen had been instrumental in the production of Ford-manufactured armaments in the first World War, but he then went on to work for General Motors’ Chevrolet division and ultimately became the President of General Motors.

As the United States ramped up defense production in the runup to the second war, Knudsen had been called upon as an industrial advisor to President Franklin D. Roosevelt. FDR eventually appointed Knudsen to head the newly formed National Defense Advisory Commission, where he helped coordinate the country's industrial production in support of U.S. allies already consumed by European and Asian conflicts. After the attack at Pearl Harbor, Knudsen was named Director of the War Production Board and without any prior military experience, entered the Army as a Lieutenant General. There, he orchestrated the breathtakingly rapid expansion of America's war production capacity.

Knudsen coordinated the efforts of his former employers, Ford and General Motors, along with other notable industrial giants like Chrysler, Curtiss-Wright, Pullman-Standard, Grumman, Raytheon, Cadillac, North American, Lockheed, Grumman, Kaiser, Boeing, General Electric, and many, many others. Lesser-known players like the Mattatuck Manufacturing Company which had produced upholstery nails before the war, converted production to cartridge clips for Springfield rifles. Lionel, the maker of toy trains, retooled to make items for the interior of warships, including compasses. Manufacturers of all stripes, including soft items like food and clothing, all retooled and increased production to support the war effort.

Under his watch, American industry provided two-thirds of the armaments for all of the allied forces including an estimated two million military vehicles,193,000 artillery pieces, 86,000 tanks, and an amazing 297,000 aircraft. Wartime manufacturers employed a uniquely American combination of precision manufacturing and Henry Ford’s production lines for industrial practices, while necessity-driven innovation produced new products like synthetic rubber and duct tape. By the end of the war, the United States held a staggering 55% of the world’s Gross National Product.

How did he do it? Most governments–particularly those of the Axis powers–either nationalized or otherwise compelled manufacturers to produce wartime matériel. Knudsen, on the other hand, was an immigrant with a keen sense of American ingenuity and harnessed an energy greater than patriotism, and perhaps even greater than religion. Knudsen was able to show American manufacturers a pathway to profit.

Yes, there were compulsory elements and profiteering was strongly discouraged, yet wartime operations were robust and shareholders were amply rewarded. Knudsen leveraged capitalism to ensure that the United States and its allies had the necessary resources and equipment to fight and win the war. His contributions were instrumental in the Allied victory in World War II, as the United States was able to out-produce and out-supply its enemies on both the European and Pacific fronts.

Did Knudsen’s efforts result in cheap, plentiful consumer goods? No. They absolutely did not. If we take the time to listen, our parents and grandparents can tell us about the rationing and privations of the war economy, but those are the hard decisions and sacrifices that we, as a nation, are sometimes forced to make.

Economists love to pontificate about the tradeoffs between spending in the public and private sectors. The “Guns or Butter" model is one of the basic canons of economics used to explain why we can afford unlimited supplies of one or the other, but not both. Well, folks, in this case, our butter money has been going overseas for a couple of generations now, and we find ourselves ill-equipped to competitively manufacture simple consumer goods, and substantially less able to mass produce armaments. We have chosen, instead, to feather our nests with cheap imported goods that funnel money to adversaries who have their own guns vs. butter objectives, and they most certainly are not in our best interest. The question in my mind is whether a Bill Knudson would be able to make an impact today, or if we are going to have to wait until our situation gets worse–much, much worse.