² On the very limited role of the War Finance Corporation in World War I, see: First Annual Report of the War Finance Corporation (1918); Willoughby, Woodbury, The Capital Issues Committee and War Finance Corporation (Baltimore: Johns Hopkins Press, 1934)Google Scholar; Glover, J. D., “Defense Lending: 1918 and 1941,” Harvard Business Review, Winter 1941, pp. 194–240Google Scholar.

³ Economic Concentration and World War II, Report of the Smaller War Plants Corporation to the Special Committee to Study Problems of American Business (79th Congress, 2d Session, Senate Committee Print No. 6), p. 38.

⁴ Chawner, Lowell J., “Factory Plant and Equipment Expenditures Over a Quarter Century,” Dun's Review, 10 1942, pp. 12–13.Google Scholar The one tenth, representing almost exclusively arsenal-type facilities, tends to be somewhat misleading, however. During World War I a common practice in War Department supply contracts was to include the cost of additional facilities as one factor in determining the price of the supplies. Thus the contractor, in addition to his profits, levied an amortization charge on the government sufficient to pay the cost of his new facilities. The new facilities thus became a gift or windfall from the government. For examples of this, see Problems of Contract Termination (78th Congress, 1st Session, Senate Committee Print, Subcommittee on Contract Termination), pp. 138–39; Howard, Dorothy B., “Disposition of Five DuPont Munitions Plants, World War I, 1918–1926,” Historical Study Number 78, Bureau of Labor Statistics, Department of Labor, pp. 7–8Google Scholar.

⁵ , Chart: “Cost of Publicly Financed Industrial Facilities Initiated July 1940–June 1945,Google Scholar By … Sponsoring Agency and Type of Financing,” Facilities Financed with Public Funds Program and Statistics Bureau, War Production Board, August 31, 1945, p. 3; Economic Concentration and World War II (79th Congress, 2d Session, Senate Committee Print No. 6),. p. 48. In World War II, partly as a result of the success of the Defense Plant Corporation leasemechanism, a considerable number of direct contractors of the services also operated particular projects for their own accounts under lease agreements.

⁶ On tax amortization in World War I, see Majority Report (69th Congress, 1st Session, Senate Select Committee on Investigation of the Bureau of Internal Revenue), pp. 131–35; and Brown, E. C. and Patterson, Gardner, “Accelerated Depreciation: A Neglected Chapter in War Taxation,” Quarterly Journal of Economics, LVII (1943), 632–36Google Scholar.

⁷ , Chart: “Estimated Cost and Number of Projects…Which Necessity Certificates Have Been Issued…. Cumulative September 1940–July 1945,” WPB Facilities Actions, Program and Statistics Bureau, War Production Board, 08 15, 1945, p. 11Google Scholar; Economic Concentration and World War 11 (79th Congress, 2d Session, Senate Committee Print No. 6), p. 46.

⁸ Report on Audit of Reconstruction Finance Corporation and Affiliated Corporations: Defense Plant Corporation (80th Congress, 1st Session, House Document No. 474, 1947), IV, 36.Google Scholar For a succinct statement concerning DPC and its operations, see Klagsbrunn, H. A., “Some Aspects, of War Plant Financing,” Papers and Proceedings of the 55th Annual Meeting of the American Economic Association, American Economic Review, XXXIII (1943), 122–28Google Scholar.

⁹ DPC was dissolved and merged into its parent corporation by an amendment to the RFC Act, United States Statutes at Large, LIX, 310.

¹⁰ Report on Audit of Reconstruction Finance Corporation and Affiliated Corporations: Defense Plant Corporation, IV, 36.

¹¹ As of September 30, 1947, RFC had turned over to the War Assets Administration for disposition industrial properties valued at approximately $4.6 billion. Practically all this property had formerly belonged to DPC. Of the amount cited, WAA had sold property valued at $1.6 billion, of which $350 million had been sold with a reversionary right to the government.—Report on Government Owned Industrial Plants, as of September 30, 1947, War Assets Administration, April 1948. RFC had previously sold DPC property valued at approximately $.5 billion either under the purchase-option terms of the lease agreements or while it was the disposal agency for surplus war goods and properties.—Gerald T. White, “The Role of RFC in Expanding American Industrial Plant During World War II,” p. 329, RFC files.

¹² In the preparation of this article, I interviewed a number of individuals intimately acquainted with the plant-financing story during 1940–1941. Among those interviewed were Emil Schram, John W. Snyder, Clifford J. Durr, Hans Klagsbrunn, and A. T. Hobson, all formerly of Defense Plant Corporation; Claude Hamilton, Jr., former general counsel of RFC; Robert P. Patterson, former undersecretary of war; David Ginsburg, legal aide to Leon Henderson, price stabilization commissioner of the Advisory Commission to the Council of National Defense; and Frederick M. Eaton, legal aide to William S. Knudsen, industrial commissioner of the Advisory Commission to the Council of National Defense. Data not otherwise cited in the footnotes have been derived principally from interviews.

¹³ Quoted in the column of Lindley, Ernest, The Washington Post, January 13, 1941.Google Scholar Industrial expansion was a problem for which the nation was at best but partially prepared. Both the several industrial mobilization plans of the 1930's and the report of the War Resources Board in the fall of 1939 looked at the problem of expanding military production almost exclusively as one involving the conversion of existing facilities to war work. The excess capacity of the depression of the 1930's was quite probably responsible for this reasoning. See, for example, Industrial Mobilization Plan Revision of 1939 (76th Congress, 26 Session, Senate Document No. 134). The annexes to this plan were not printed but are to be found, among other places, in the Library of the Industrial College of the Armed Forces, Washington D.C. A copy of the “Report of the War Resources Board,”unpublished, may also be found there.

¹⁴ Wall Street Journal, July I, 1940.

¹⁵ On the EPF contract, see nn. 26 and 53.

¹⁶ The War Department got its first appropriation of “expediting funds”for new facilities on June 26, 1940. —United States Statutes at large, LIV, 602–3. This $200,000,000 was all needed, however, for purely arsenal-type construction. —Memo of a conference between John W. Snyder and Col. H. K. Rutherford, Director of War Department Planning Board, and others, July 24, 1940, Snyder file, RFC files. An additional $335,000,000 was made available by the National Defense Appropriation Act of September 9, 1940, and $178,000,000 more by the National Defense Appropriation Act of October 8, 1940. —United States Statutes at Large, LIV, 874, 970. The Navy got smaller amounts for extra expenditures, “including facilities,” particularly n i the appropriations of the Bureau of Ordnance and Bureau of Aeronautics.— United States Statutes at Large, LIV (06 11, 1940) 313,Google Scholar and the Acts of September 9, 1940, and October 8, 1940, cited above.

¹⁷ The New York Times, May 18, 1940; Wall Street Journal, May 18 and 21, 1940. Comment at this time was dominantly concerned with loans by RFC, although Jerome Frank, chairman of the Securities and Exchange Commission, suggested to the President on May 20 that RFC share the risk with corporations that had to expand their facilities in order to fulfill defense contracts through purchase of nonvoting or limited-voting stock in those corporations.—Memo, Jerome Frank to President Roosevelt, May 20, 1940, and accompanying correspondence, file 643, RFC file, Franklin Delano Roosevelt Memorial Library.

¹⁸ United States Statutes at Large, XLVIII, 1108–9.

¹⁹ Hearings on S. 3938. before the Committee on Banking and Currency, United States Senate (76th Congress, 3d Session), Part 2, p. 31.

²⁰ Ibid., pp. 42–46.

²¹ Ibid., p. 39. For similar comment from Taft, see report of a radio speech, The New York Times, June 2, 1940.

²² Ibid., p. 65.

²³ Congressional Record, June 14, 1940, pp. 8274. 8286–88, 8292.

²⁴ According to a statistical compilation by WPB, RFC disbursed a total of $329,815,000 for construction and equipment other than war housing. —Program and Statistics Bureau, War Production Board, Facilities Financed with Public Funds, August 31, 1945, p. 3. This figure does not include loans in which capital investment amounted to less than $25,000 per loan. Such loans probably involved an additional $20,000,000 in construction and equipment. —Interview with Thomas H. Graham, former facilities statistician with WPB, July 10, 1947. The Henry J. Kaiser interests, Cities Service Refining Corporation, Tennessee Transmission Company, Reynolds Aluminum Company, and Sheffield Steel Corporation were, severally, recipients of $265,000,000 in loans for facilities. —Interview with F. M. Lake, RFC Research and Statistics Division, July 18, 1947.

²⁵ United States Statutes at Large, LIV, 573–74. In 1940 RFC had four subsidiaries dating from the depression period: Electric Home and Farm Authority, RFC Mortgage Company, Federal National Mortgage Association, and the Disaster Loan Corporation. During 1940, in addition to DPC, Rubber Reserve Company, Metals Reserve Company, and Defense Supplies Corporation were created to perform various defense functions.

²⁶ This fear was reflected during the summer of 1940 in various ways. In August, in stating the request of certain aircraft companies for facilities titled to the armed services, the Wall Street Journal reported the idea as one that had been opposed by the NDAC. —Wall Street Journal, August 22, 1940. An early plan of NDAC's Emergency Plant Facilities contract provided that facilities constructed by the contractor and ultimately titled to the government through reimbursement of the contractor could later be taken over by the contractor on payment to the government of the use value of the facilities to the contractor, regardless of how little that use value might be. The value was to be determined by arbitration, and the result was binding upon the government. — Ethan P, Allen, Policies Governing Private Financing of Emergency Facilities, May 1940 to June 1942, War Production Board Historical Study Number 12, p. 29.Google Scholar This contract also was phrased so as to attempt to bind the government never to use the facilities for commercial purposes. A similar restriction was also included in contracts governing the construction and operation of certain facilities for the War Department early in the defense period. —Memo, January 20, 1944, DPC file 14, Secretary of Commerce files.

²⁷ Talk concerning excess capacity, particularly in steel, was common during the latter half of 1940. —Business Week., December 14, 1940, p. 15; “Fireside Chat”by President Roosevelt, December 30, 1940, quoted in Wall Street Journal, December 31, 1940; “What About Steel?”Fortune, October 1942, p. 204.

²⁸ Wall Street Journal, June 25, 1940.

²⁹ See, among others, the report of a letter from George L. Harrison, president of the Federal Reserve Bank of New York, to NDAC, June 19, 1940, in The New York Times, June 20, 1940; statement of Robert M. Hanes, president of the American Bankers Association, The New York Times, June 5, 1940; and statements of Emmet F. Connely, president of the Investment Bankers Association of America, The New York Times, June 18, 1940; ibid., August 9, 1940, September 26, 1940.

³⁰ For citations on this practice in World War I, see n. 3.

³¹ Memo from Knudsen, June 14, 1940; see also memo from E. H. Foley, Jr., general counsel of the Treasury, to Henry Morgenthau, secretary of the Treasury, June 18, 1940, both in DPC file No. 1, Federal Loan Agency files. A draft form of this proposed plan providing for an RFC subsidiary, Defense Finance Corporation, to lend to defense industry is also to be found in this file. No such subsidiary was established, since RFC itself by the amendment to the RFC Act of June 25, 1940, was designated to make loans for defense purposes.

³² LetterW. S. Knudsen to Jesse H. Jones, June 20, 1940, NDP, Council of National Defense, John W. Snyder files, in RFC files.

³³ Letter J. H. Jones to M. B. Gordon, June 20, 1940, DPC-Wright Aeronautical Corporation file, Federal Loan Agency files.

³⁴ Memo for J. H. Jones, July 25, 1940, DPC-Wright Aeronautical Corporation file, Federal Loan Agency files.

³⁵ Letter J. H. Jones to M. B. Gordon, July 26, 1940, DPC-Wright Aeronautical Corporation file, Federal Loan Agency files.

³⁶ RFC minutes, August 7, 1940, pp. 392–99.

³⁷ Durr, C. J., “The History of Defense Plant Corporation,”pp. 16–18.Google Scholar This manuscript is in the possession of Mr. Durr.

³⁸ Ibid., p. 9.

³⁹ Memo from C. J. Durr to J. H. Jones, June 29, 1940, DPC Organization, bylaws file.

⁴⁰ Memo quoted in , Durr's “Defense Plant Corporation,” p. 18Google Scholar.

⁴¹ Ibid., p. 20. The letter authorizing the organization of DPC was dated August 16, 1940, Jesse H. Jones to Emil Schram. In conformity with the terms of section 5d of the RFC Act, it was also approved by the President. —File 643, RFC file, Franklin Delano Roosevelt Memorial Library.

⁴² Like the nation itself at this time, RFC was divided internally on the urgency of defense needs. A contemporary suggestion of these divergent viewpoints within RFC toward defense may be found in an article, “The War Goes to Mr. Jesse Jones,”in Fortune for 12 1941.Google Scholar Those who felt the defense picture to be exaggerated were particularly concerned with the effect of defense financing on RFC's hard-earned reputation for sound financing. Consequently, Mr. Schram picked the original officials of DPC with considerable care in the endeavor to assemble a staff sympathetic to the lease idea. Mr. Schram, who played a very active role in DPC's activities until his departure to become president of the New York Stock Exchange toward the end of June 1941, became the new subsidiary's first president. The vice president was John W. Snyder, who had recently been brought in from RFC's St. Louis Loan Agency to administer a proposed program designed to stop the export of machine tools essential to the national defense program. Mr. Snyder filled his office, subsequently redesignated executive vice-president, ably and energetically for the next three years. An RFC assistant secretary A. T. Hobson, and an RFC assistant treasurer H. L. Sullivan, became, respectively, secretary and treasurer of the new organization. Mr. Durr was appointed general counsel and Mr. Hans A. Klagsbrunn and Mr. S. W. Livingston, assistant general counsels. Mr. Durr served DPC through its infancy until his appointment as a federal communications commissioner in October 1941, while Mr. Klagsbrunn and Mr. Livingston served with DPC throughout the war. Mr. Klagsbrunn succeeded Mr. Durr as general counsel and later succeeded Mr. Snyder as executive vice-president. DPC's board, like those of the other RFC subsidiaries, included the five RFC directors. One of these, Sam H. Husbands, succeeded Mr. Schram as president of DPC in July 1941 and served in that capacity throughout the war period. In addition, Mr. Jones, federal loan administrator, Mr. Hamilton, general counsel of RFC, Mr. John W. Snyder, and Mr. Lindquist, chief auditor of RFC, were named directors.

⁴³ Initially, in contrast to DPC thinking, the NDAC was considering DPC only as an alternative to direct government construction for facilities in which the manufacturer wanted no future interest. — Hearings before the Committee on Finance (76th Congress, 3d Session, United States Senate), 09 4, 1940, pp. 186–87Google Scholar.

⁴⁴ The New York Times, August 21, 1940; Wall Street Journal, August 21, 1940.

⁴⁵ Beasley, Norman, William S. Knudsen (New York: McGraw-Hill Book Co., 1947), PP 264–67;Google ScholarThe New York Times, June 27, 1940, July 13, 1940.

⁴⁶ Durr, C. J., “Defense Plant Corporation,” pp. 22–23.Google Scholar The first lease was drawn up and presented for approval and execution at a meeting of the DPC Executive Committee on September 6, 1940. Prior to this time, on September 3, it had been signed by M. M. Gilman, president of the Packard Motor Car Company, subject to approval by the Packard board of directors. The agreement provided for the purchase of machinery and equipment for the account of DPC by Packard, subject to certain checks, to the extent of $8,000,000. Since Great Britain was to receive monthly twice as many engines as the United States, her share of the investment was $16,000,000. This investment was considered sufficient to permit Packard to produce monthly 800 Rolls Royce aircraft engines. As rental on its investment, DPC was to be paid $1,500 for each engine delivered to the United States Government. DPC retained title to the machinery and equipment. By the terms of the agreement Packard was permitted in its price to the government no charge for depreciation or for use of the machinery other than the $1,500 per engine. The agreement also included an option by which Packard could purchase all, but not part, of the machinery at cost to DPC plus 4 per cent per year interest, less 10 per cent per year depreciation, or at cost plus 4 per cent per year, less the amount in rentals paid by Packard to DPC, whichever was the greater. —DPC minutes, September 6, 1940, pp. 16–24.

⁴⁷ TDPC minutes, September 12, 1940, pp. 36–44, October 14, 1940, pp. 76–83.

⁴⁸ Ibid., October 5, 1940, pp. 50–57. In this period the only other DPC activity was the purchase of two plant sites. Both purchases were made for companies to which RFC had tendered plant loans. One involved the purchase of land in Hamilton County, Ohio, for the proposed Wright plant. On the same day, September 12, 1940, the DPC board also approved a similar resolution for the purchase of an aircraft plant site near Buffalo, New York, for the Curtiss-Wright Corporation. —Ibid., September 12, 1940, pp. 31–35.

⁴⁹ Barrons; National Business and Financial Weekly, August 5, 1940, August 26, 1940; Wall Street Journal, August 21, 1940.

⁵⁰ Durr, C. J. “Defense Plant Corporation,”p. 19Google Scholar.

⁵¹ “Weekly Progress Report of the Advisory Commission to the Council of National Defense,” file 813A, NDAC Reports, Franklin Delano Roosevelt Memorial Library, 08 7, 1940, p. 114Google Scholar.

⁵² Minutes of the Advisory Commission to the Council of National Defense (Government Priming Office, 1946), pp. 71–73Google Scholar.

⁵³ On the Emergency Plant Facilities contract, sec McGrane, R. C., The Facilities and Construction Program of the War Production Board and Predecessor Agencies: 05 1940 to May '1945Google ScholarWar Production Board Historical Study No. 19, pp. 5–7; Allen, E. P., Policies Governing Private Financing of Emergency Facilities, pp. 28–41Google Scholar.

⁵⁴ United States Statutes at Large, LIV, 1029.

⁵⁵ EPF contract between the War Department and the Ford Motor Company, November 23, 1940, p. 9, RFC files.

⁵⁶ These and other criticisms are to be found elaborated in testimony of Undersecretary of War R. P. Patterson before the Appropriations Committee, House of Representatives, DPC file, Federal Loan Agency files, July 10, 1941; memo C. J. Durr, Council of National Defense, RFC files, August 24, 1940; memo (no name), DPC file, Federal Loan Agency files, October 16, 1940; Klagsbrunn, H. A., “Some Aspects of War Plant Financing,” Papers and Proceedings of the 55th Annual Meeting of the American Economic Association, American Economic Review, XXXIII (1943), 121–22Google Scholar.

⁵⁷ A total of $342,000,000 in new facilities was ultimately approved under EPF contracts. —Chart: “Distribution of the Value of Publicly Financed Facilities Initiated July 1940–June 1945…,” Facilities Financed with Public Funds, Program and Statistics Bureau, War Production Board, 08 31, 1945, p. 5.Google Scholar The vast bulk of this amount was approved during 1940–1941.

⁵⁸ Durr, C. J., “Defense Plant Corporation,” p. 37Google Scholar.

⁵⁹ Ibid., p. 38.

⁶⁰ Ibid., pp. 39–42.

⁶¹ Ibid., pp. 43–44.

⁶² Ibid., p. 45.

⁶³ DPC minutes, October 18, 1940 [tic], pp. 91–99.

⁶⁴ An early statement of these two forms of lease agreement, dated October 15, 1940, is to be found in DPC lease agreements, general file, Part I, RFC files.

⁶⁵ DPC minutes, October 14, 1940, pp. 66–75.

⁶⁶ Durr, C. J., “Defense Plant Corporation,” p. 51.Google Scholar A third type of rental arrangement, “depreciation rental,”in contrast to full rental, later came into use in many cases. This arrangement was used to equalize competition between suppliers manufacturing goods in government plants and those supplying similar goods from their own plants.

⁶⁷ First indorsement, Myron Cramer, chief of Section, Judge Advocate General, War Department, to Office of Assistant Secretary of War, to Memo from Office of Assistant Secretary of War to Judge Advocate General, War Department, October 29, 1940, Klagsbrunn personal file.

⁶⁸ DPC minutes, October 25, 1940, pp. 131–48.

⁶⁹ Ibid., October 31, 1940, pp. 179–89.

⁷⁰ Ibid., November 14, 1940, pp. 248–58.

⁷¹ Wall Street Journal, December 9, 1940 (Consolidated Aircraft Corporation).

⁷² Ibid., November 25, 1940 (North American Aviation Corporation).

⁷³ The New York Times, January 7, 1941.

⁷⁴ Wall Street Journal, January II, 1941.

⁷⁵ Ibid., January 14, 1941.

⁷⁶ The New York Times, February 13, 1941.

⁷⁷ Wall Street Journal, December 6, 1940.

⁷⁸ Ibid., January 21, 1941.

⁷⁹ The New York Times, February I, 1941.

⁸⁰ LetterJ. H. Jones to the President and Congress, January 16, 1941, Federal Loan Agency press release No. 76, RFC information division files.

⁸¹ Letter, Emil Schram to W. S. Knudsen, January 4, 1941, NDP-DPC, Snyder files, RFC files.

⁸² LetterJ. H. Jones to the President and Congress, May 9, 1941, Federal Loan Agency press release No. 134, RFC information division files.

⁸³ LetterJ. H. Jones to the President and Congress, September 15, 1941, Federal Loan Agency press release No. 413, RFC information division files.

⁸⁴ MemoJ. N. Ravlin to Mr. C. H. Hamilton, Jr., May 6, 1941, RFC file No. 4, Federal Loan Agency files.

⁸⁵ Congressional Record, May 16, 1941, p. 4161.

⁸⁶ Ibid., May 28, 1941, p. 4510.

⁸⁷ The New York Times, May 30, 1941.

⁸⁸ Congressional Record, May 16, 1941, p. 4161.

⁸⁹ Ibid., May 16, 1941, p. 4167.

⁹⁰ United States Statutes at Large, LV, 249–50.

⁹¹ Speaking for DPC's greatest beneficiary, the War Department, Undersecretary R. P. Patterson wrote Mr. Schram in mid-February 1941: “I wish to express th e deep appreciation of the War Department for the splendid cooperation that has been given our program by the representatives of the Defense Plant Corporation. The work done by you and by your associates has been of the highest quality, both as to skill and as to speed, and the effective program made toward the production of plant facilities could not have been achieved but for your wholehearted cooperation.” Letter, February 20, 1941, “P”file, John W. Snyder files, RFC files. Similar flattering testimony was given by Mr. Patterson before the Truman Committee, Hearings, April 15, 1941, Part I, pp. 25–26, and before the Appropriations Committee of the House of Representatives, July 10, 1941. —Draft of testimony in DPC file, Federal Loan Agency files. A generally complimentary appraisal of DPC is also to be found in Anderson's, Troyer MS., “History of the Office of the Undersecretary of War in World War II,” pp. 167–73Google Scholar, and in the “History of the Purchasing Division, Army Service Forces,” pp. 609–10, both in the files of the Historical Division, Special Staff, Department of the Army; in Russel, Robert R., “The Expansion of Industrial Facilities by the Army Air Forces, May 1940 to June 1945,” pp. 79–83,Google Scholar in the Historical Office, Headquarters, Army Air Forces; and in Baldwin, Rosecrans, “Report on the Activities of the Plant Facilities Section, Bureau of Aeronautic Navy Department, October 1940 to July 1946,” pp. 113,Google Scholar 124–126, in the files of that section.

⁹² In the case of nominal rentals, the option provided for purchase by the contractor at cost less depreciation at rates of depreciation specified in the lease. Where a money rental was charged, the contractor might exercise his option for cost less depreciation, or cost, plus 4 per cent per year interest, less rentals, less interest at 4 per cent per year on the rentals, whichever would yield a greater return to the government. Options were not included for the Geneva Steel Plant at Geneva, Utah (the largest individual DPC project), for aluminum reduction, magnesium, and synthetic-rubber plants, and for DPC's pipeline, barge, and troop-car projects. These projects represented about one fourth of DPC's total investment in war industry and allied fields. —Memo on options, September 9, 1943, DPC file No. 10, Secretary of Commerce files. Exceptions were made in these cases either because it was thought socially desirable to keep the hands of the government free in determining postwar policy with respect to use or disposition or because there was no interest in an option provision on the part of the defense or war contractor.

⁹³ I plan to describe and evaluate DPC operations during the war period in a later article.