How War Amplified Federal Power; R. Higgs

World War I Despite expansion during Woodrow Wil son's first term as president, the federal gov ernment on the eve of World War I remained small. In 1914, federal spending totaled less than 2 percent of GN~ The top rate of the recently enacted federal individual-income tax was 7 percent, on income over $500,000, and 99 percent of the population owed no income tax. The 402,000 federal civilian employees, most of whom worked for the Post Office, constituted about 1 percent of the labor force. The armed forces comprised fewer than 166,000 men on active duty. Although the federal government meddled in a few areas of economic life, prescribing rail road rates and bringing antitrust suits against Robert Higgs is editor of The Independent Review and author ofCrisis and Leviathan (1987). 26 a handful of unlucky firms, it was for most citizens remote and unimportant. With U.S. entry into the Great War, the fed eral government expanded enormously in size, scope, and power. It virtually nationalized the ocean shipping industry. It did nationalize the railroad, telephone, domestic telegraph, and international telegraphic cable industries. It became deeply engaged in manipulating labor-management relations, securities sales, agricultural production and marketing, the dis tribution of coal and oil, international com merce, and markets for raw materials and manufactured products. Its Liberty Bond drives dominated the financial capital markets.

It turned the newly created Federal Reserve System into a powerful engine of monetary inflation to help satisfy the government's vora cious appetite for money and credit. In view of the more than 5,000 mobilization agencies of various sorts-boards, committees, corpora tions, administrations--eontemporaries who describedthe 1918 government as "war social ism" were well justified.2 During the war the government built up the armed forces to a strength of four million offi cers and men, drawn from a prewar labor force of 40 million persons. Of those added to the armed forces after the U.S. declaration of war, more than 2.8 million, or 72 percent, were drafted.3 Men alone, however, did not make an army. They required barracks and training facilities, transportation, food, clothing, and health care. They had to be equipped with modern arms and great stocks of ammunition. As the mobilization began, the requisite resources remained in the possession of pri vate citizens. Although manpower could be obtained by conscription, public .opinion would not tolerate the outright confiscation of all the property required to turn the men into a well-equipped fighting force. Still, ordinary market mechanisms threatened to operate too slowly and at too great an expense to facilitate the government's plans. The Wilson adminis tration therefore resorted to the vast array of interventions mentioned earlier. All may be seen as devices to hasten the delivery of the requisite resources and to diminish the fiscal burden of equipping the huge conscript army for effective service in France.

Notwithstanding those contrivances to keep the Treasury's expenses down, taxes still had to be increased enormously-federal rev enues rose by nearly 400 percent between fis cal 1917 and fiscal 1919-and even greater amounts had to be borrowed. The national debt swelled from $1.2 billion in 1916 to $25.5 billion in 1919. To ensure that the conscription-based mobilization could proceed without obstruc tion, critics had to be silenced. The Espionage Act of June 15, 1917, penalized those con victed of willfully obstructing the enlistment services by fines up to $10,000 and imprison ment as long as 20 years. An amendment, the Sedition Act of May 16, 1918, went much fur ther, imposing the same severe criminal penalties on all forms of expression in any way critical of the government, its symbols, or its mobilization of resources for the war. Those suppressions of free speech, subse quently upheld by the Supreme Court, estab lished dangerous precedents that derogated from the rights previously enjoyed by citizens under the First Amendment.

The government further subverted the Bill of Rights by censoring all printed materials, peremptorily deporting hundreds of aliens without due process of law, and conduct ing-and encouraging state and local gov ernments and vigilante groups to conduct warrantless searches and seizures, blanket 27 ~ arrests of suspected draft evaders, and other outrages too numerous to catalog here. In California the police arrested Upton Sinclair for reading the Bill of Rights at a rally. In New Jersey the police arrested Roger Bald win for publicly reading the Constitution. 4 The government also employed a massive propaganda machine to whip up what can only be described as public hysteria. The result was countless incidents of intimidation, physical abuse, and even lynching of persons suspected of disloyalty or insufficient enthusi asm for the war. People of German ancestry suffered disproportionately.5 When the war ended, the government aban doned most, but not all, of its wartime control measures. The draft itself ended when the armistice took effect on November 11, 1918.

By the end of 1920 the bulk of the economic regulatory apparatus had been scrapped, including the Food Administration, the Fuel Administration, the Railroad Administration, the War Industries Board, and the War Labor Board. Some emergency powers migrated into regular government departments such as State, Labor, and Treasury and continued in force. The Espionage Act and the Trading with the Enemy Act remained on the statute books. Congressional enactments in 1920 preserved much of the federal government's wartime involvement in the railroad and ocean shipping industries. The War Finance Corporation shifted missions, subsidizing exporters and farmers until the mid-1920s. Wartime prohibition of alcoholic beverages, a purported conservation measure, transmogri fied into the illfated Eighteenth Amendment. Most important, the dominant contempo rary interpretation of the war mobilization, including the belief that federal economic controls had been instrumental in achieving the victory, persisted, especially among the elites who had played leading roles in the wartime economic management. It was hard ly surprising that 15 years later, in the depths of the Great Depression, the federal govern ment employed the wartime measures as models for dealing with what Franklin D.

Roosevelt called "a crisis in our national life comparable to war."6 28 THE FREEMAN/IDEAS ON LIBERTY • WAR IN THE BALKANS • JULY 1999 ~ )M( )( ~ )M( .)( /)( )( ~ World War II When World War II began in Europe in 1939, the size and scope of the federal gov ernment were much greater than they had been 25 years earlier, owing mainly to World War I and its peacetime progeny, the New Deal. Federal spending now equaled 10 per cent of GN~ Of a labor force of 56 million, the federal government employed about 1.3 million persons (2.2 percent) in regular civil ian and military jobs and another 3.3 million (5.9 percent) in emergency work-relief pro grams. The national debt held outside the gov ernment had grown to nearly $40 billion. Most important, the scope of federal regula tion had increased immensely to embrace agricultural production and marketing, labor management relations, wages, hours, and working conditions, securities markets and investment institutions, petroleum and coal marketing, trucking, radio broadcasting, air line operation, provision for income during retirement and unemployment, and many other objects'? Notwithstanding those prodi gious developments, during the next six years the federal government would assume vastly greater dimensions-in some respects its greatest size, scope, and power ever.8 During the war the conscript-based armed force, which ultimately comprised more than 12 million men and women, required enor mous amounts of complementary resources for its housing, subsistence, clothing, medical care, training, and transportation, not to men tion the special equipment, arms, ammuni tion, and expensive weapons platforms that now included tanks, fighter and bomber air craft, and naval aircraft carriers.

For the Treasury, World War II was ten times more expensive than World War I. Many new taxes were levied. Income taxes were raised repeatedly, until the personal income-tax rates extended from a low of 23 percent to a high of 94 percent. The income tax, previously a "class tax," became a "mass tax," as the number of returns grew from 15 million in 1940 to 50 million in 1945.9 Even though federal revenues soared from $7 billion to $50 billion between 1940 and 1945, most war expenses still had to be financed by borrowing. The publicly held national debt rose by $200 billion, or more than fivefold. The Federal Reserve System itself bought some $20 billion of government debt, thereby serving as a de facto printing press for the Treasury. Between 1940 and 1948 the money stock (M1) increased by 183 percent, and the dollar lost nearly half its purchasing power. The authorities resorted to a vast system of controls and market interventions to get resources without having to bid them away from competing buyers in free markets. By fixing prices, directly allocating physical and human resources, establishing official priori ties, prohibitions, and set-asides, then rationing the civilian consumer goods in short supply, the war planners steered raw materi als, intermediate goods, and finished products into the uses they valued most. Markets no longer functioned freely; in many areas they did not function at all.1O World War II witnessed massive violations of human rights in the United States, apart from the involuntary servitude of the military conscripts. Most egregiously, about 112,000 blameless persons of Japanese ancestry, most of them U.S. citizens, were uprooted from their homes and confined in concentration camps without due process of law. Those sub sequently released as civilians during the war remained under parole-like surveillance. The government also imprisoned nearly 6,000 conscientious objectors-three-fourths of them Jehovah's Witnesses-who would not comply with the service requirements of the draft laws.11 Signaling the enlarged federal capacity for repression, the number of FBI special agents increased from 785 in 1939 to 4,370 in 1945.12 Scores of newspapers were denied the priv ilege of the mails under the authority of the 1917 Espionage Act, which remained in effect. Some newspapers were banned alto gether. 13 The Office of Censorship restricted the content of press reports and radio broad casts and censored personal mail entering or leaving the country. The Office of War Infor mation put the government's spin on whatHow WAR AMPLIFIED FEDERAL POWER IN THE TWENTIETH CENTURY 29 )I()< J< ;.<)«, J< ;.< ever it deigned to tell the public, and the military authorities censored news from the battlefields, sometimes for merely political reasons.

The government seized more than 60 industrial facilities-sometimes entire indus tries (for example, railroads, bituminous coal mines, meatpacking firms)-most of them in order to impose employment conditions favorable to labor unions engaged in disputes with the management.14 At the end of the war most of the econom ic control agencies shut down. But some pow ers persisted, either lodged at the local level, like New York City's rent controls, or shifted from emergency agencies to regular depart ments, like the international trade controls moved from the Foreign Economic Adminis tration to the State Department. Federal tax revenues remained high by prewar standards. In the late 1940s the IRS's annual take averaged four times greater in constant dollars than in the late 1930s. In 1949, federal outlays amounted to 15 percent of GN:g up from 10 percent in 1939.The national debt stood at what would have been an unthinkable figure before the war, $214 billion-in constant dollars, rough ly a hundred times the national debt in 1916.

The prevailing interpretation of the wartime experience gave unprecedented ideo logical support to those who desired a big fed eral government actively engaged in a wide range of domestic and international tasks. To 1. Bruce D. Porter, War and the Rise of the State: The Military Foundations of Modern Politics (New York: Free Press, 1994), p. xv. 2. Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (New York: Oxford University Press, 1987), pp. 123-58; James L. Abrahamson, The American Home Front (Washington, D.C.: National Defense University Press, 1983), pp. 101-12. 3. John Whiteclay Chambers, III, To Raise An Army: The Draft Comes to Modern America (New York: Free Press, 1987),p. 338, n. 68. 4. Michael Linfield, Freedom Under Fire: U.S. Civil Liberties in Times of War (Boston: South End Press, 1990), p. 65. 5. Ronald Schaffer, America in the Great War: The Rise of the War Welfare State (New York: Oxford University Press, 1991), pp.3-30.

many, it seemed that a federal government capable of leading the nation to victory in a global war had a similar capacity to remedy peacetime economic and social ills. Accord ingly, in 1946 Congress passed the Employ ment Act, pledging the federal government to act as America's permanent macroeconomic warden. The Cold War The end of World War II blended into the beginning of the Cold War. In 1948 the gov ernment reimposed the military draft, and over the next 25 years conscription was extended time and again. After 1950 the military-industrial-congressional complex achieved renewed vigor, sapping 7.7 percent of GNP on average during the next four decades-cumulatively some $11 trillion dol lars of 1999 purchasing power.15 During the Cold War the government's operatives committed crimes against the American people too numerous to catalog here, ranging from surveillance of millions of innocuous citizens and mass arrests of politi cal protesters to harassment and even murder of persons considered especially threaten ing.16 C'est la guerre. The government's rep rehensible actions, which many citizens viewed only as abuses, we can apprehend more plausibly as intrinsic to its constant preparation for and episodic engagement in warfare. D 6. Quoted by Porter, War and the Rise ofthe State, p. 277.

7. Higgs, Crisis and Leviathan, pp. 159-95. 8. Abrahamson, American Home Front, pp. 131, 142. 9. Carolyn C. Jones, "Class Tax to Mass Tax: The Role of Pro paganda in the Expansion of the Income Tax during World War II," Buffalo Law Review, Fa111988/89, pp. 685-737. 10. Higgs, Crisis and Leviathan, pp. 196-236. 11. Abrahamson, American Home Front, p. 159. 12. Porter, War and the Rise ofthe State, p. 284. 13. Linfield, Freedom Under Fire, p. 73. 14. Ibid., pp. 102-103. 15. Robert Higgs, "The Cold War Economy: Opportunity Costs, Ideology, and the Politics of Crisis," Explorations in Economic His tory, July 1994, pp. 9-10. 16. Linfield, Freedom Under Fire, pp. 113-67.