spitting them out and making a lot of money in between so they turned into just this housing crisis which had been going up astronomically every year and began to crash. really began to crash. so, suddenly wamu is left withholding all of these risky mortgages, and all of the homeowners that could have just refinanced of the mortgages couldn't anymore because the housing prices were not there to support it so suddenly wamu which had been profitable for how many years at that point? they had always delivered amazing returns. they literally were eating away at their capital and they needed more money. up next arthur herman recounts franklin delano

roosevelt's call to general motors president and shipbuilder henry kaiser to lead the private sector positions and lead the u.s. war protection effort during world war ii. dubbed the dollar a year men, they transformed the u.s. military's aircraft ammunitions productions. this is one hour and ten minutes. >> good evening and with the american enterprise institute and a director of the national research initiative which is a foundation or organization used within the aei entity, that is what i was looking for come entity within a e.r.a. that supports the domestic policy related research which are believed to the current speaker arthur herman and the author of the book that is the subject of today's discussion "freedom's forge" clearly is one of. the 2012 election is in many ways a debate over the 1932

election. should we continue or extend the legacy of franklin delano roosevelt in establishing the federal government as one of the preeminent directors if not the preeminent director of american economic life, or should we embrace the creative animal spirit of free enterprise capitalism and trust more to ourselves and more to the great men and women who fuel the nation's economy and whose ideas and innovations changed our lives when we look to the future of american public policy. economists and historians have debated whether or not roosevelt's move in his signature domestic accomplishment the new deal actually helped or hurt whether or not it prolonged the great depression or helped bring us out of it. but whenever side you take on that debate there is unanimous common wisdom agreement that the stimulus provided by world war ii rearmament and continued to purchase of munitions and

vehicles and other things to fight the nazis and the japanese all deftly poll america out of the recession. and of course when we do that, by the the cut a focus on the collective. they focus on the government, the focus on rationing, shared sacrifice, government propaganda films that were cut production. and the implication of that sometimes voiced by many people today who argue that president obama should move more strongly in embracing this legacy is that this is a time when the government finally got the private sector out of the way. they got to steer the ship of state. they got it right. and the problem is abandoned that legacy. arthur herman's book, "freedom's forge," shows that none of that common wisdom is true. ultimately what saved america and save the world was not the government finally getting it right, but the private industry

and all of the innovation and creative animal spirits that had been herded into the corner for the previous decade that came roaring out to save ourselves and save the world. let me introduce arthur herman that is a noted historian and the author of how the scots invented the modern world, "the new york times" bestseller and gondhi and church of the epic riflery which was a pulitzer prize finalist. we can only hope that "freedom's forge" brings so much critical and commercial attention. okay. [applause] >> thanks for coming out. the weather has been should we say less than cooperative. benign glad to see so many faces, many of them familiar, many of them new to my audiences. i also want to thank our host

american enterprise institute for all of their health, not just this event but also the work and research that is done for this book, "freedom's forge" coming in for all of the help and support of colleagues and others who have been instrumental in helping me to not only shaped the idea is that are contained in this book but also to give me a sense of what the real value of intellectual collaboration and cooperation is all about. as i discovered in many ways of capitalism, contrary to the myth is not just about competition, and it's also about cooperation and it is in many ways a cooperative adventure and so also is intellectual endeavor. now, what i want to do here tonight is to tell you a story,

and this is a story that usually is told that birds. if you go to the textbooks and go to the movies and go to the usual discussions of this, every often you will see illustration something like this when talking about the theme which is american wartime production in world war ii. seems like this. 29 is being built at the boeing facility in wichita kansas, and it's the story as my introduce are just told you a collective effort of government directing the resources of the american economy towards a single collective end and achieving in the process an outpouring of american wartime material unlike the world had ever seen before. 70% of all of the war equipment

used by the allies in world war ii cannot of american factories. it is an incredible story come industrial miracle of the 21st century that occurred. what i am going to tell you is a story that shows the usual version has this backwards. where we usually start is where it should finish, and where it should start actually is not in factories like wichita's bea 29 plant, but back in the spring of 1940. and i want to put you in the place of men who would set this entire process rolling namely franklin roosevelt as he gets news sitting in the oval office that a new kind of warfare, mass mechanized warfare supported by massive air power is sweeping

across western europe and overwhelming the democracies of europe, france and also threatening to do the same to britain. franklin roosevelt realizes sitting there that if france falls and britain falsework remains isolated, war is coming to the united states. maybe not in a year, media year-and-a-half to two years, but the war is coming, and roosevelt realizes that when he will be facing a situation which america must prepare to face an enemy whose military might looks like this, when the military might looks like this. this is an experiment of the vehicle tried out by the u.s. army in the mid 30's later dropped but it gives you an idea of the contras in the military

and the united states faced in the 1930's and 1940's. roosevelt realized she's sitting there in his desk and realizes that the united states has the 18th largest army in the world. holland has a bigger or medium the united states and hungary has a better army, but it has a fleet, a battle fleet and the united states navy which is built around world war i battleships which has no means of protecting power alone transoceanic and even more far-fetched across the pacific they were purchased a the 1500 planes lost of them by plants and obsolete trainers whereas modern air force like germany and britain we are talking 5,000 from 6,000 planes from a modern

warplanes. he suddenly realizes he's got to get this country ready for war and ready to be able to build the force that is to be necessary to build this war, but how are you going to do it? where do you start? the navy in the war department has no clue. they went through the process of world war i and it had been a fiasco trying to take over factories and place orders and decide what was going to be made. none of it arrived in time for the soldiers fighting overseas. he faces a congress which is deeply, deeply mired in isolationism which has no interest in spending any kind of money in the united states after all the war to end all wars. so it's not going to come for any kind of massive buildup. are you going to deal with this situation where do you turn to

transform both the american military bill also to get the u.s. economy after a decade of depression geared up for this kind of production record? the place that you turn is american business. that's what roosevelt did. roosevelt hated business. he despised businessmen and had campaigned the two presidential elections against business planning them for the depression and the prolonging of the depression. he saw them as bitter enemies. he really had no choice. there was no one else to turn to. he's given the army war department national mobilization plan to get the economy geared up for the war across the country, and it comes to 18 pages double spaced. he's got no where else to turn. so at the advice of his wall street fund-raiser bernard he

calls this man dillinger knudsen, a danish immigrant who would come over to america and started work in a bronx shipyard and worked as we haven't got a job the company making spare parts for ford and works his way up from the floor to become henry ford's right-hand man and then move to chevrolet and then finally to the president of general motors. he was a motor city legend who had really perfected the technique of what is called mass production and turned that into the means by which the american automobile industry had become the single largest employer in the country and have also become the master industry of the technological innovation and

quality of production. so he faced a dire situation no one else knows what to do. how do we get this economy as running and then going. roosevelt passes the buck and says by the way, in order to do this kind of job you will have no authority whatsoever. there is no statutory authority for what is going to take place here you just the sort of do this with your own powers and persuasion through the business connections in all the industries that are connected and supported at the same time. this becomes the job offer. the response is dramatic and he is a republican and democrat. they have spared and they've been at opposite ends of the political camps for more than a

decade but when he gets that call the first thing he does is quite as president of general motors and begin the process for the wartime production. of course now he also realizes the obstacles that he faces in this process. and he has the first of all american industry which is then falling into the hard times because of a decade of depression the steel industry for a sample which is about one-half of the production capacity that it had been in 1929 but also the fact many businessmen that he is dealing with including his own boss you see him step into the microphone from his own boss standing to the left, alfred sloan. you are going to work for roosevelt he will make a monkey out a few. this is not a project you want

to get yourself involved in in any way. this is just when to be an attempt to expand and grow the new deal. don't do anything along these kind of lines. you are making a huge mistake to read and he says to his boss and they came to the shores and a meeting i had i go to america. my president called. i'm going to answer. the problem he is going to face them is not just opposition from the fellow businessmen just as much as roosevelt k-fed and opposition from isolation congress but also the labor unions. the altar to get the economy going and geared towards wartime production. the resistance of the unions. a day fear that the shift to wartime production from civilian

production damage the gains they have made in terms of union power, in terms of union membership during the new deal and they resist the effort to wartime production to a degree that lasts not just in the pre-war period up until pearl harbor that goes on afterwards and extends out beyond that as well. it's one of the shocking stories of this whole thing is the degree to which the labor unions maintain the pattern resistance and strikes of every effort to get the wartime economy geared up and straighten out to read in the end he calculates that probably 25% of production was lost as a result of union resistance to changes in the workplace, changes in the rules that flowed out of the shift. all the same come he still

believes what roosevelt put in front of him. because he understands that american businesses offer the direction and give them a task to do. give them something the need to produce that they will be able to deliver under those sort of conditions that business can go and produce any number of things to read and american engineers love a challenge so the idea of not only producing new kinds of weapons, but designing them, designing the weapons to conceive of what have tremendous appeal to them and this is a kind of job that you're looking for. they've been waiting for since the depression began. and so roosevelt says i will make you a bet. he says if you give me 14 months to basically expand and plant

and retool in order to shift from making washing machines military machine guns and all the other material my colleagues and i might give you more war material than you ever dreamed. as he says to roosevelt if [alarm sounding] comes this will be a war of mass production. it's country quantity, not necessarily call the. it's when to determine who controls the sky, who ruled the seas and who wins the victories on land. you give the 18 months and we will deal to deliver the tools and the victory that make it possible to confront the enemy that comes with that and this is what it does as i explained in the book step by step demobilizes first but colleagues

in the automobile industry, colleagues. i need your help. the country has to gear up the war time to make itself ready for the war, to make itself ready to defend the country i need your help in this process and they said you've got. we will follow you wherever it is you want to lead coming and in many cases the deals had to be done with just a handshake because there was no money for contract. but he says to roosevelt if you make certain small changes in certain tax revisions, flexible, change the amortization schedules and cut them in half, right now it's 12 years, cut them in half to six or even five years we will have an incentive to invest in the factories over to making wartime production.

they were from at&t to go to the cabinet to explain what amortization is. it gives you an idea of the distance between washington and business and what really makes production possible in this country. and in the end, canoe and is right. in the end, by already the time of the bombs fall on pearl harbor, american wartime production is already approaching the level of nazi germany. already pushing the level of nazi germany. when the war comes the process is even going to gear up faster. the basic structure of it he saw the key to developing and bringing about change remains the same and that is you don't do it from the top down washington trying to get orders this is a demand that all of the new deals had in the production.

someone that is going to have this kind of almost wizard of oz to measure resources from the centralized bureau he said no this will happen from the bottom-up. they don't shut down a civilian production right away you have the factories began to convert because they have to to meet the contract and pretty soon it will have a process in which the conversion to wartime production has gone from tanks and planes. they are the most cost as productive how in the american economy one of them in the automotive industry. biggest employer in the country, but also the one in which the largest engineering staff who

will be able to take any kind of challenge the was thrown to them and make that kind of conversion was under way that they could carry out not just in terms of switching from civilian vehicles to military vehicles and trucks. i wasn't as easy as it looked actually because even from the shift from the civilian truck to the military truck a whole bunch of different specifications as a whole range as the capabilities that has to have a dry example those kind of things that no civilian truck manufacturer wanted to be able to be able to undertake. but also tanks. they fought think tanks are going to the company. the heavy industrial kinds of transportation companies. he says what we call my friend and say can you make a tank? and he says actually i've never seen a tank. but i will tell you what if you would take me off someplace where i can see one and driver now, i think i will be a will to see you on that coming and that

is exactly what happens, and the tank arsenal becomes the largest manufacturer of tanks during the second world war. but also, too, the retooling in order to provide the aircraft engines for companies like boeing and lockheed and curtis and all the other airplane inspectors for the military command and finally the plans themselves, the most classic example outside of detroit where ford takes on would soon be impossible for the liberator plans come hugely complex machinery yet managed to bring like gm itself is eastern aircraft plant which takes plans provided by a the drummond company, the grumman wildcats and avi tbm tortfeasor zero

debate -- torpedo avenger bombing. that is a pbm avenger as worth thousands of others in the course of the war to the american automotive industry, productive and innovative. also the aviation company says we have to remember that these companies at this time there is no defense industry to speak of. these are commercial companies that do military orders and supply those on the experience is building a whole range of aircraft for the customers so the shift into the military aircraft becomes simply a process of retooling and redesigning in order to meet these kinds of demands. also the engineers tapping the skills of engineers better than involved in the commercial planes for years and asking them, turning to them to take a new design a bomber that will do this, can you design a fighter that will do that? as i discovered working on this

book, every single plane that the united states flew, the warplane in the second world war except for one was a product of the prewar design. boeing, even the be 29 and the p 51 mustang. these four designs waiting to be turned. all they wanted were the works, the needed the orders come and knudsen set them off and got them started with that process and the result is thousands and thousands not just for the united states but also for the allies as well. these are p51 mustangs with british markets which were sold originally to the brits. they can over to dutch north american aviation they said can you make the p40 curtis hawks and he says yeah i can design a lot better plan than that for

you. he said give me 100 days and he did, he decided that he 51, which is a very good plan to be a really good plane. but then when the british got the idea of putting the rolls-royce engine on it, then you got the best one driven by the second world war and those engines were produced the big plant at packard in detroit where bill knudsen had approached the president and said i need engines. first for the british spitfire but then also for the peace 51 mustang. all the planes then except for one and that is the one that came out of the grumman plant in new york. in fact the only reason i had been using the images at all is because in the speech would have an excuse to show you this one. this is during the war.

this is a failed carrier landing. as you can see that pilot is in a bit of trouble trying to land on his carrier and there is one of his bat men sort of getting out of the way as it comes in. this is a photograph by the way to confirm the grumman news crafts letter and they are particularly proud of this because that plan no one got killed. the plane didn't crash it just power outcome circled and landed safely in the process. that is the one other plane that had come about. they were put into production for less than two years. then the construction industry and here the ban that dominates the scene of being mobilized for the process is the other main character in the book who was

henry kaiser, the man that was in road construction, one of the builders of hoover dam, and he and his colleagues with six companies, people like stephen bechtel, the bechtel corporation , henry morris, the morrison knudsen, different knudsen, not my knudsen, a different guy. it's probably the largest construction firm in the world right now. morrison-knudsen. and another company, stone and webster became involved in the wartime construction. all of these, understanding the process of large scale enterprise, which the u.s. not to construct the docks and repair pearl harbor for a simple command to repair the military facilities but also to build ships. kaiser's liberty ship being the classic example of that at the time in which it took to build constantly shrink down to fewer and fewer days until finally by 1942 they could launch a liberty

ship every five days if they had to. it's a great story about a lady that comes out to chris and one of the liberty ships at the portland yard up in portland oregon she comes out with her champagne bottle and the shift is already gone sailing down into the south so they come back and say wait a minute there will be another one and a few minutes not just shipbuilding but airplanes, magnesium which was essential for the aircraft manufacturing like metal and so on which kaiser began heavily involved in the process. ..

>> and other chemical companies become, again, involved in a whole variety of production efforts in order to make the arsenal, what would make this wartime development production possible here. and in the case of dow, one of the most important contributions they make, as i explain in the book, is again to the magnesium. it was herbert dow, founder of dow chemical, who had discovered this mag magnesium coming off aa by-product involved in the plant in midland, michigan. nice light metal here, very

flammable and also very hard at the same time. and he said to himself, this is before world war i, he said someday someone's going to figure out a way to make something out of this stuff. it's going to be the construction material of the future. i don't know what they're going to be doing, but he began stockpiling the stuff. and the dow formula becomes the basis for the american magnesium industry, being able to supply lightweight parts for american airplanes. in the process. plastics. world war ii was the making of the plastics industry in this country here. and, in fact, i found a wonderful article in american machinist magazine from about 1942 saying to, saying to the readers are you finding with regard to a lot of the work that you do in terms of machining and all that you can't get the kind of copper and steel components that you used to need, you know, to make dyes, right? for production kinds of things. and it says try plastics.

give it a shot. these things, you know, it's very inexpensive, it's easy to get, it's very lightweight and so on, get into plastics. dow comes in another surprising way as well, as i discovered, and that is with the problem of shipping all this wartime material that's going across the atlantic and can then eventually across the pacific at the same time. this stuff has got to be secured, it's got to be wrapped so it's sealed, so it's not going to, you know, corrode in these big, leaking liberty ships. and so dow comes up with a substance in order to do in this. and matter of fact, i talked to a guy who worked for a shipping company in the midwest with war supplies coming all over the place in ohio and then being, you know, prepared for shipment overseas. and he remembers when the dow salesmen showed up with sheets of this stuff. which was totally transparent, it was very strong, clings to everything that you can use to wrap up and make it watertight,

but you can also see what it is you're wrapping up. they said, we call it saran. and you should give it a try. and they did and, of course, it was a wonder. you could wrap everything, you could wrap machine guns, rifles, you could wrap an entire tank, sherman tank you could wrap in saran wrap. and then, of course, after the war it goes on to become one of the staples of the new consumer industries that spring up out of this wartime production. boom, it's taken place. and then dupont. we can't leave how dupont as well because when the manhattan project organizers realized that they're going to be involved in taking what are basically laboratory experiments in terms of splitting the atom and have to turn these now from, basically, a set of theoretical calculations and experiments into real industrial production, the one company that they turn to automatically in order to bring this about is dupont.

dupont, they realize, the engineers there are used to handling hazardous substances. they're used to construction under very tight schedules. the army had used them to build gun powder plants, for example. and so dupont takes on the job of creating n a sense, an industrial process that never existed before as they do enormous first at oak ridge and tennessee, but then, of course, the e more now facility -- enormous facilities out in washington where plutonium is going to be processed for the atom you can bomb that will be dropped -- atomic bomb that will be dropped on nag nagasaki. this is the process that bill knudsen sets in motion through the top prime contractors down through the subcontractors on through the rest of the american economy and industry that gets underway with it. by the time of pearl harbor,

it's a wartime which has gone, production which has gone from basically a standing start to approaching that of nazi germany. by the end of 1942 when the effort really gets rolling, by the end of 1942 when the effort really gets started with the full conversion of the automobile industry, for example, over to wartime production the united states is outproducing all of the axis powers combined. and by the end of 1943, the american economy is producing more war material than germany, the soviet union and great britain combined. ford motor company alone produces more than mussolini's economy as a whole. and, in fact, we produce enough steel, aluminum and other raw materials to enable the british, and we're the number one wartime manufacturer of airplanes. we produce enough raw materials

to enable the british and also the soviets to be the number two and number three aircraft producers in the process. the numbers are staggering. you've probably seen them in textbooks and so on. 280,000 war planes. 8800 warships, we were producing five aircraft carriers a month during world war ii. you're talking 86,000 tanks. one -- three and a half million trucks. studebaker. remember studebaker? studebaker alone supplies 200,000 to the red army. that's what -- studebaker trucks are the backbone of the soviet logistics system during the second world war. that's what enables stalin's armies to go all the way from stalingrad across eastern europe to berlin, studebaker trucks.

two and a half million machine guns, in the process -- many of them produced by companies that had never seen a machine gun before. companies like, for example, remington typewriter, national postage meter, rockola which produced m-1 car pines under contract -- carbines under contract using a design created by winchester. and then over 41 billion rounds of ammunition. outpouring industrial just as knudsen had promised and just the one in which you could, in fact, depend upon to bring about final victory in a war based on mass production. so if we look at this overall accomplishment, this amazing accomplishment, we have to ask ourselves, how do they do it, and is it the kind of thing an american economy could do again? i happen to think the answer to

the latter question is yes. i also happen too think that if we look at the reasons why this took place and why it happened, it begins to become clear why it is a reproducible effect and why the economic boom that came after the war as those production muscles that had been used for wartime production now shift back to civilian production, why that kind of, why that kind of boost and why that kind of productive boost would be possible. first of all, you have to realize again that the orderlies here, the money that is spent, $300 billion for world war ii wartime production, tsa in today's dollars about $3 trillion. that's a big stimulus check. but that's if you think about it in terms of stimulus. if you're mesmerized by the numbers alone, it seems like spending a lot of money. but remember, that's not just money that's simply poured into the economy or given out in large portions to certain kinds of favored corporations. this is money that is being used

to buy things that the government needs desperately and going to, again, the most productive and innovative sectors of the economy in the process. and those are the companies that are being mobilized and put to work. the aviation industry, automobile industry and the others. the second thing to keep in mind here as well is that this involves the creation of a whole new labor force in order to fill and take care of the, fill the jobs that are necessary to get this wartime production. not just, of course, the women who become involved in it, something close to about five million who go to work in wartime factories, and not just african-americans, something like one million move from the south up to industrial centers to work at the chrysler tank arsenal, who go to work in all the other kinds of wartime industries in the process, but

also as well a work force which is incredibly mobile. in other words, people were free to go where they needed to go in order to make this kind of war work. you chased after the wages. something like 20 million people leave their homes to go find work in wartime factories and plants. drawn by the better conditions, the better pay, drawn by the opportunity that this kind of work and this kind of industrial surge was able to create. mobility of labor. any aspect of this people can go where the product's based and set up. and, in other words, unlike, for example, in the soviet union, unlike even in britain, to -- no one tells american workers where to go even until the end of the war. they don't do this. and the same is true also for business too. it is a voluntary system that washington created out of here. nobody told anybody what to make. you were offered the chance, contract, but people were drawn

to it in order to get a government contract to shift your plant over to production and to make a contribution to the war effort and make some money while you're doing it. there was a wonderful book that came out in 1942 called your business goes to war put together by an outfit called the research institute in america. i reproduce in appendix b of the book some pages from that book which suggests to you if your business makes these kinds of things, these are the kinds of wartime production you could shift to and offer to make. if you make razor blades, for example, you could probably shift over to making the little blades that go into the rotary engines on aircraft engines. if you make lawnmowers, if you make lawnmowers, you could go over and shift to, for example, manufacturing machinery shrapnel. if you make vacuum cleaners, vacuum cleaners, make the transition to making helmet

liners. it's really quite fascinating to see what was being put out there as ideas. these were things industry had done, changes they had made and carried out which is sort of saying you can do this, too, you can get a government contract as well by making this kind of shift in this kind of direction. so the wartime production miracle turns out on to be a production miracle that springs not out of wartime necessity, that springs not out of washington's decision that this, that a war had to be won and that it would make, it would go, it would take on any means necessary in order to achieve its end direction, but that the real industrial miracle was the american free enterprise system turned loose on a major project which it could address the challenges and overcome them. and i guess in the end that's really the conclusion that i had to draw working on this book and that i hope people draw as they

read it, is that freedom's forge, the real freedom's forge is not the arsenal of democracy that bill knudsen built and the term that he coined that roosevelt stole -- [laughter] for his december 1940 fireside chat. the real freedom's forge is the american economy. real freedom's forge is the american economy. that when you turn that loose and take away the restrictions and the constraints upon it, it can accomplish anything. it can accomplish any kind of goal that it sets before it. and i have to say in working on this book that one of the things that i found so fascinating about it was not just the role that people like bill knudsen and others played in setting up the process, but also all of the other kinds of people who were drawn into it, the businessmen, kaiser and k.t. cellar and charlie sorensen who built the willow run plant for building b-24s, but also the people who sat in the factories and who

worked in the factories and who made new lives for themselves. the stories are incredible. you would meet people who had worked in these factories, who had done this kind of work, and some who didn't realize the degree to to which we were part of the greatest generation. we thought of the greatest generation as the lives who go out and risk their lives on the battlefield, who were over the skies of germany and japan here. they were part of this greatest generation as well. it's important to realize and shocking that in 942 the number of -- 1942 the number of americans killed and injured in war-related industries outnumbered the number of americans killed and injured in uniform. and we're talking 1942, that's the year of guadalcanal and midway and the battle of the atlantic. numbers of civilians killed and injured in wartime industries outnumbers the uniform casualties by a factor of 20 to 1. it's dangerous work, working in these shipyards. dangerous work doing the kind of work that was required here.

and shocking to realize that general motors, bill knudsen's own company, did 189 senior executives for gm died on the job during world war ii. they paid a price for the war effort that they had made. they paid a price for mobilizing their skills, their talents, their abilities for this great effort, the great war effort here. and the people that i think you'll meet in this book, the people that i met as a result of writing it and so on, i've got to tell you, i fell in love with them. and i hope in reading the book you will too. thank you very much. [applause]

>> [inaudible] >> sure, why not? we're all friends here. sure. >> okay. someone who used to try to teach principles of economics, you know, economists are trying to look at the inefficiency of wage and price. [inaudible] you can imagine all these different markets with a big increase in demand, paper, raw materials. how much did the attempt to control prices and wages -- [inaudible] down this massive effort? >> that's a very good question, and i like the way you put that, too, because what you're really doing is standing on head. the one aspect of policy that washington did try to follow through on by imposing its own will on economic transactions, and that was the issue about raw materials and wage and price controls. and in the end it, i think to

many it seemed like a very good idea. they remembered during world war i that the sudden onrush of demand for raw materials for war production had sent pries skyrocketing -- prices skyrocketing. there'd been huge inflation in world war i. a lot of them that lived through that experience were determined to restrain it in the process, and also to allocate materials as well. what department occur to them but -- what didn't occur to them but was happening under their noses was that what made the new materials available, critical materials such as steel, copper, aluminum, magnesium and others budget the allocation of resources and rationing out of them, but increased production. in fact, that was the way in which you saw the issue about material shortages, you just produced more. aluminum was a classic example. huge shortfalls when the war, even before the war begins. by 1942 it's reaching critical

factors, and they're wondering why we have all these, you know, great restraints on what civilian manufacture. but the fact is once you got reynolds, alcoa and the other companies coming on line and speeding up the process, as one war production board official put it, we've got aluminum coming out of our heres in the process. likewise with steel. critical, critical to war industries. let's ration the supplies that we've got. and, of course, the real solution was the technological break throughs that were coming like electric furnaces -- not just us, but all of the allies. rubber is another classic example. how are we going to go to war without rubber? you need rubber for trucks, for tires ask all these other kinds of things. well, lets scrap rubber drive. harold ickes was placed in

charge of that effort. we're going to be able to convert all of our tires and is so on. don't make any more new tires, we'll just convert it all here. and, of course, the stockpiles were nowhere near what they needed. ickes was sending people around to pick up the rubber mats around the white house to go into the stockpile for war. what was the solution? synthetic rubber. and the coming together of chemical companies and, also, oil companies including standard in order to produce the synthetic rubbers that are going to be necessary here for production. they create an swire new industry out of -- an entire new industry out of wartime necessity just by getting companies involved in the process. yeah, i mean, if they had had a sophisticated understanding not just of economics, but also of how american business works here, all of those wartime rationing controls were probably

completely unnecessary. and yet for most people's lives, that's the thing they remember most. the rations of sugar, the rationing of coffee, shoes. >> yes, christopher holland, small business administration. what kind of changes were there in government policy? you alluded to them at the beginning in terms of the new deal had taken an antagonistic of business for a while, there was the undistributed profits tax -- >> yep. >> -- which took a very hard toll on business. what kind of concessions did knudsen and others, i suppose, wring out of the government to make changes to make production for -- more effective? >> amortization was one, and at least one historian has said those changes in the schedule, which seem like a minor kind of thing, actually did more than anything else to spur wartime

production in the pre-war period, that crucial 18 months that knudsen had said would be crucial to it. one of the other big changes was they called off the anti-trust dogs. attorney general arnold who was an anti-trust crusader had over 300 people on his justice department staff. seems like a drop now, but in those days it was quite a sizable commitment of justice department resources investigating anti-trust violations. key industries like, for example, the oil industry, like the aluminum industry were under investigation at the very time roosevelt and knudsen are trying to get this process started and up and running. and they say you can't do this, we can't have these companies spending all their time and energy dealing with anti-suits when we need their -- anti-trust suits. but the dogs get called off on anti-trust. that's another crucial change

that takes place. now, there were a lot of safeguards built in to protect against evils of capitalism. there was an excess profits tax, for example, that was imposed. there was income tax raises across the board. and there was also a renegotiation law that congress passed in 1943 that allowed the government to renegotiate, allowed the vy and war departments to renegotie contracts where they felt that the charges in terms of cost were just exorbitant. and one -- and that really did happen, and one of the reasons was the contract would dictate certain costs. the raw materials, for example. but then as production takes off, the costs go down. and so one way for companies, aircraft companies in particular to get around an excess profits tax and that surcharge was you just voluntarily renegotiate your contract, reduce the numbers of costs. in the process your profits go down, your profit may go down,

but it's not going to be charged at that excess profits kind of a level. and small businesses, there was a big battle over small businesses which you can read about in the book. there was a lot of fear in congress that the big contractors are going to control everything, gm and ford and general electric and westinghouse. and the little guy's going to get nothing. so there was even a small business defense contracts committee that was set up to do this. it was a big crusade in washington to do that. knudsen knew the truth, and that is that once you engage the big corporations as prime contractors, there would be plenty for everybody down the subcontracting network to get everybody to not only gain employment, but also to spawn half a million new jobs in the process. and that, of course, is exactly, exactly what happened. >> thank you.

i'm caramel, i'm economic historian at gw university. i'm fascinated by your story, especially about the prewar buildup of production. what i'm wondering is these contracts that the firms were competing for, where did they come from? were they building up this stockpile of material in anticipation of wartime contracts, or were contracts being let out early, and if so, by whom? >> the contracts were a question to produce certain specific materials, but these are like, you know, war planes, for example, aircraft engines. they didn't exist yet. most companies didn't know how to make them. so the initial contract then would come with an advance, and this was also very different from the way in which defense contracts had been awarded before the war with an advance to allow you to expand your plant, to retool, to take on the kinds of expenses that would go

with conversion to wartime process. but most of the money was not forthcoming from congress until pearl harbor. they were not at all blood tested in doing this -- interested in doing this, got very suspicious of the process. so a lot of it had to be done through loans through reconstruction finance corporations still left over from the depression years which converted into the defense plan corporation, and a lot of it was through letters of intent which was another important thing. we intend to give you an order for, you know, 1200 fighters. you took that letter to the bank, and the bank even before you had a contract drawn up -- but very often it was done by a hand shake. this is what i need. absolutely, bill, let's do it. let's start building the plant. and the army at first was us pix but then began to realize what they were setting in motion was

something truly unstoppable. and, in fact, army procurement officials in dealing with the aircraft industry began to take on what they called the rule of three. ever heard about the rule of three? the rule of three was if you placed an initial order with somebody let's say for a thousand two-engine bombers, at the end of the first year, they'd deliver 3,000 once the conversion was all done. at the end of the second year, that number would grow by a factor of seven. so we're talking about 21,000 bombers at that point. and at the end of the third year, at the end of the third year, there was really the only limits to production and expansion of it was raw materials and labor. and labor was always a problem. labor was always a drag not just in terms of sort of union resistance to wartime conversions that might lose their power over the shop floor, but also because everybody's working somewhere else,? and so this became a constant

problem, where do you put factories, where do you expand new places where you're not going to siphon away labor from really vital wartime work that's already underway, but where you also are going able to to draw a pool of labor which, you know, you need and that can be trained to do the kinds of work that can be done. and of course, that's the economic opportunity to upward mobility. women, hispanics? people don't talk about the number of hispanics that get employed in places like california shipyards. it's huge. all this is possible, you know, workers, we don't care what you look like, and we will train you to do the job that you need to do. >> oh, i'm barry from george washington university. i'm interested in roosevelt. >> yeah. >> roosevelt sets this process in motion and sees it's being very successful.

so did it influence his attitude towards the business community? >> that's a really good question. and i have to say that in the -- this book -- roosevelt's attitude about is rather surprising to me, because i would have thought he would have endorsed the view with a lot of his new deal friends, including his wife. which is you need a war production czar, we have to convert overnight to wartime production, and the sacrifices should all fall on the heads of business. roosevelt didn't do it. he refused to appoint an all-powerful war production czar, not even bill knudsen was entrusted with that kind of power. and later on although he had people who have sort of a unified position, they never really have any kind of real power. by then the system is up and running anyway, they can't control it. the real problem becomes how you shut this down, this fountainhead of production that's taken on a life of its own. and i think in many ways, i

mean, historians give him all kinds of ignoble reasons or for doing that, and one is that he didn't want to have any single one agency or person have power over this war production effort. he didn't want the give up his own -- to give up his own power as commander in chief to a person who would be, if today had statutory authority, to close factories or open factories or tell people what you can make. basically, i mean, you'd have a second president on your hands. i think maybe he was also -- now, i also think to a degree he was kind of realizing there was nowhere else to go. the new deal had played out. they were run out of ideas of how to direct and control an economy in peacetime, let alone gearing up for wartime. and he was going to try this and see what happens. it may be in many ways that he also instinctively realized that a war production effort, national effort of any kind that

required a command issued from washington probably wasn't going to be worth much of an effort after all. had to come from bottoms up. did it change his attitude? not at all. in fact, in the state of the union address by 1944 having seen the transformation to free enterprise business, what it could do, the next step for him was now's our chance to really get the new deal finished and done in the process. and, you know, economic bill of rights, expand the whole -- turn the wartime production machine into a civilian collective, collective economy in the process. and, of course, truman carries out aspects of that as well. until a republican congress in 1946 stops him cold. >> roger pilon with the cato institute. i want to pick up a couple of the questions that, intriguing questions that henry raised at

the outset about parallels to the present. in the opening, your opening remarks, you mentioned how the depression policies didn't get us out of the depression, that the war production did. and then toward the end you said something that caught my attention. you said that government was buying things that government needed. um, one could think today about government buying things that government needs. i know you're an historian, not an economist, but are you suggesting that paul krugman might be right? [laughter] >> about you know the story -- paul krugman's story which suggested facetiously, but maybe only half facetiously, that we need to do a repeat of the world war ii production machine by declaring war on aliens on mars or whatever, and we'd suddenly

mobilize, and a new arsenal of democracy would appear out of nowhere, you know, subsidized and paid for by more and more washington deficit spending. no, i'm not enforcing that. and -- endorsing that. and the point that you made, i think we have to subtly correct. and that is that it's not that world war ii production got this country out of the depression. it, in fact, i think you could raise some argument that, in fact, in many ways it prolonged the depression. certainly in terms of a deprivation of a consumer economy which had, you know, fewer shoes, fewer consumer goods, washing machines, tractors and so on here. in fact, if you look at the numbers even from a production standpoint, this is very interesting, look at the production standpoint. the rate of increase we're talking about, the industrial miracle, right, of world war ii that gets underway here, if you

compare it to industrial production in the '30s, it's about half -- '20s, it's about half. '20s was much more productive over the course of the decade. and is if you look in terms of numbers, in terms of wealth, real wealth assets, they change almost hardly from 1940 to 1945. what you really see, however, is that what world war ii production didn't end the depression, but it brought business back. it geared up business for making things and for gauging in and expanding plant facilities, training a work force and reopening warehouses in order to stock inventory here and to create all this sort of machinery which could then be turned loose after the war when private investment comes back. all that pent-up demand, all the

business savings that had built up during the war years. because there's nothing to spend it on. nothing to spend it on. so people now come back to the consumer demand. and this is exactly what happens with these companies. they go from making washing machines to machine guns. frigidaire refrigerators, frigidaire, and they go back to making refrigerators again. but they do it in a much leaner factory with streamlined production line, and they know now how to adjust and shift and retool in this kind of production. so a tremendous, tremendous boost unleashing that potential for business. then comes the private capital invest. investment, and tow you've got a base from which a real consumer economy can grow from the that point on. >> [inaudible] >> hi. jo jensen with free think media. i'm working on the documentary honor flight which follows

getting world war ii veterans to see their memorial at no cost to them. and my question is, do you highlight the contributions that these factory pork workers made to the overall war effort? but this happened 70 years ago. so as you're writing your book, what resources were available to you to identify these workers and capture their stories? >> well, i'll tell you, there's a number of web sites. there's a rosy river web site that operates out of richmond, california, at the richman shipyards war, i wouldn't call it memorial, but historical memorial to the shipyards that are built there. a lot of it's oral history, there's a lot of interest in women workers, and the stories are just incredible that come out from all that process. and a lot of it is just material that you can find because all these companies, you've got to remember, were proud of their war effort. they published their stories, they can't wait to tell about, you know, the workers who came

in, what we did and what we accomplished. so the resources are tremendous, and the stories are incredible as well that you get of people working. my favorite one was a letter i found, i was on the rosy river web site. a letter from a woman who was working in the richmond shipyards, teenager. she was married to a marine who's serving in the pacific. and she tells him in a letter or, she's working in a river, right down on the bowels of these liberty ships, and she says i like to think i'm building the ship that will bring you home. one more? >> yeah, michael barone with aei and the washington examiner. arthur, you mentioned recruitment of blacks in the poor industries and a million southern blacks moved north more

than in the 70 years between the two. did the fepc, the fair employment practices commission, was that established under pressure from -- [inaudible] play any significant role in that? what role did business leaders in particular the auto company guys make efforts to get black workers in the south? is. >> i wrote about it in the book because i thought it was quite striking. knudsen was all in favor of bringing african-americans in, but he thought the fair practice was totally the wrong way to go. he said he'd go factory by factory. he just convinced them, look, you guys can do this work, and you do it in a kind of step-by-step, contract-by-contract process not by some changes in the rules of who can be hired and not. by the large, the role of

segregation of the workplace varied from company to company to company. not even just industry to industry, company to company. the gm plan, for example, i was talking about earlier was completely integrated. i was shocked a the african-american workers coming in, they'd sit down at lunch with white employees, etc. the glen martin plant was integrated. kaiser's plant, by the way, his shipyards at richmond, at the end of the war 70% of the employees on his payroll were women. that's how crucial a role they played there. um, and other, you know, in the south, obviously, a lot of workplaces were segregated. there were a lot of racial techs as with the detroit case -- tensionings as with the detroit case. but it's very interesting that the one segment of the american population who weren't protected under the fair practices act, who received no federal support whatsoever in terms of their rights to work, etc., in an

employment workplace but who benefited the most were the women. exactly. very interesting. >> [inaudible] [applause] >> thank you. [inaudible conversations] >> on the go? after words is available via podcast through itunes and xml. visit booktv.org and click podcast on the upper left side of the page. select which podcast you'd like to download, and listen to after words while you travel. >> all this week watch c-span for live gavel-to-gavel coverage of this year's republican national convention in tampa, florida. tonight's session includes speeches by senator rand paul of kentucky, 2008 republican presidential nominee senator john mccain, former secretary of state condoleezza rice and vice presidential nominee paul ryan. watch every minute, every speech

on c-span. here on c-span2 it's booktv all day every day throughout the conventions with highlights of nonfiction authors and books from this past year. and on c-span3 also throughout the conventions, 24 hours of american history tv with lectures, oral histories and a look at historical american sites and artifacts. >> what are you reading this summer? booktv wants to know. >> well, i am having an ambitious summer for reading. in between the stuff that i really have to read, i'm really, interested in reading "barack obama: the story." i already started it, and it seems like a pretty good read. it sort of ends before with it gets into politics, so it's a real insight into some of his ancestors and the conditions

that really led him to be who he is. also why good people are divided by reapplication and politic by jonathan haidt. i think that this is probably an updated form of what's the -- [inaudible] and i think it's really, it was recommended to me by someone who said that you've got to do more than just talk about the tea baggers and tell them how stupid and dumb they are. it tries to give some insight into the kind of fears, apprehensions and concerns people have. i'm almost done with rachel maddow's "drift." it really takes a really kind of technical subject and makes it really fun and historical, and i'm really enjoying that. i'm about three-quarters of the way through with that. i also plan to read "the immortal life of henrietta

lacks," and that is if i get enough time to do it. and maybe "the billionaire" by thomas frank. >> for more information on this and other summer reading lists, visit booktv.org. >> coming up today on c-span2's booktv, professor michael long on letters from civil rights leader bayard rustin. then a panel of librarians from around the country discuss their picks for this year's best books from university publishers. and later historian hugh howard recounts the war of 1812 from the viewpoint of president james madison and first lady dolly madison. >> john kennedy once met with harold mcmillan, the british prime minister. and you read the papers of the day, you know, they discussed arms control or whatever issues between the two parties, which they sure did, but only long

afterwards did we get the notes on what they said exactly to each other in private. turned out that kennedy spent a lot of the time complaining about bad press coverage. the press was being tough on jackie and other things. and mcmillan who was a generation older said, jack, you know, why do you care? brush it off, it doesn't matter. you have other things to worry about. and kennedy quite heatedly said, well, that's easy for you to say. how would you like it if the press said your wife is a drunk, and mcmillan replied, i would have simply said, you should have seen her mother. [laughter] it gives you a fun idea of what these people like that you just can't learn in realtime. >> historians and biographers use the advantage of hindsight to understand their subjects through a prism of time. sunday your questions, calls, e-mails and tweets for presidential historian michael beschloss on the lives of presidents and wars, hot and

cold. in depth, on c-span2 at noon eastern. >> tonight in prime time on booktv, "wall street journal" reporter kirsten grind talks about her book, the lost bank, detailing the collapse of washington mutual in 2008, the largest bank failure in u.s. history. >> so the crisis, they say it happens slowly and then quickly, right? and that was absolutely the case at wamu. it began to get very bad. all of their issues internally, their internal controls had just fallen apart. at one point they were making mortgages on 12 different systems. they had grown so fast that there was just no control internally. their mortgage division had ballooned out of control, they had this massive trading desk. they had turned into not a mortgage leonard as they were only -- lender as they were only 1r5 years earlier when lou was there, b