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Here is a story about government industrial policy as told by Burt Folsom in his wonderful, Myth of the Robber Barons. This one is about the government’s involvement in the steel industry around WWI.

In 1916, then, Daniels and Tillman began the campaign to convince Congress to spend $11 million for an armour factory. In the Senate, Tillman argued that the government would save money and would no longer be at the mercy of identical bids from “greedy and hoggish” steel companies. President Wilson backed Tillman and said, “I remember very well my promise to help all I could with the bill for the construction of an armor plant and I stand ready to redeem my promise.

Schwab [wintercow: he was the CEO of Bethlehem Steel] led the effort to defeat the bill. He spoke out against it in public and ran ads in over 3,000 newspapers challenging the need for a government plant. He stressed the fairness angle. He said that years ago the government had “asked” Bethlehem to make armor; they had done so only when the government agreed to buy from them. Now, with $7 million invested in equipment, the government was planning to build its own plant and make Bethlehem’s useless.

Most Congressmen, however, bought the arguments of Tillman and Daniels. The bill passed the Senate and the House by about two to one margins, and Wilson signed it. As Senator Albert Cummins of Iowa said, “It is one of my profoundest convictions that the manufacture of armor plate for battleships is a government function. I hope the private enterprises will be entirely eliminated.

Dozens of cities lobbied to be the site for the new plant. From Rome, GA to Kalamazoo, MI, city after city was put forth as being uniquely situated to produce armor plate. The winner of this competition was South Charleston, West Virginia. Congress soon raised the appropriation tp $17.5 million and authorized the South Charleston plant to make guns and projectiles as well as armor. Construction began in 1917 on the new factory and on hundreds of houses for the workers. The war delayed the building, but it was continued later. Higher construction costs after the war meant an overrun of several million dollars. By 1921, the new plant was making guns, projectile, and armor — all at prices apparently much higher than that of Bethlehem Steel. Within a year the whole plant was shut down, put on “inoperative status,” and never run again.

I am astonished by something that might have been lost in this egregious example. At least in this case, the government shut down one of its awful ideas. Too bad we don’t do that with Medicare, Medicaid, the Post Office … the entire enterprise itself.

2 Responses to “Sleeping with the Enemy – “I Hope the Private Enterprises Will be Entirely Eliminated””

  1. Speedmaster says:

    That book has been in my Amazon queue for a long time, I really need to get it.

  2. […] the National Archives The Truth About the “Robber Barons” – Thomas J. DiLorenzo Sleeping with the Enemy – “I Hope the Private Enterprises Will be Entirely Eliminated” Boudreaux on Market Failure, Government Failure and the Economics of Antitrust Regulation Share […]

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