IN the seven years between Hitler's accession to power and the launching of his long premeditated and carefully planned attack, strategists on both sides tried to take stock of the resources which would be at their disposal when and if war came -- "when" was the German word, "if" the word preferred by his potential victims. There was little difference of opinion as to the facts. The difference was in the interpretation of the facts and in the political and military strategy based on those different interpretations. The democracies based their plans on what they had; the totalitarians based theirs on what they would get in the course of their conquests. Seven years of this difference between dynamic thought on one side and static thought on the other put the initiative into the hands of the aggressors; and the democracies, though potentially much more powerful, have found themselves terrifyingly close to disaster.

The domestic resources of the Germans, the Italians and the Japanese were inadequate in many respects; in some respects they were nil. They set about supplementing them by stockpiles of strategic materials. And when the war began they knew just what they wanted to secure from their military conquests, and just where to seize it and how to exploit it. By ceaseless toil and relentless concentration on the sole task of arming, they built up an overwhelming striking power; and then, utilizing that power, they went from one conquest to another, each economic as well as military.

Today the democracies are still stunned at the magnitude of their failure to appraise correctly the relative strength of the enemy. First France and Britain failed. Then the United States failed. The American Government and people are now making gigantic efforts to catch up. But it is the writer's opinion that even their boldest planning still fails to start from sufficiently pessimistic assumptions. If no doubt is to remain as to our eventual ability to wrest the initiative from the enemy, then our economic planning must be based on the worst conceivable military situation. Only that sort of assumption can provide the proper margin of safety.

In order to be realistic, in that sense, our military assumptions today must include even such possibilities as the following: the temporary loss of access to all the resources of the southwestern Pacific, not merely by ourselves but also by Great Britain and by China and Russia as well; the drastic curtailment of American and British intercourse with India and East Africa; and the temporary loss, for a longer or shorter period of time, of access to the Mediterranean and even, possibly, to the West Coast of Africa. While not all the military reversals which such economic losses as these imply will necessarily occur, the total impact ought to be considered in advance if we are to gird ourselves to face the worst possible eventualities and to set about creating the necessary margin of safety.

Planning calls also for a clear idea about the time element involved in various military operations. With the balance between the aggressors and the defenders what it is today, we would be indulging in criminal negligence if we worked on the theory that the war will last less than four or five years. Our production schedules and our estimates of raw material needs will be different, both in detail and in their general proportions, according as we plan for a war of two to three years or a war of four or five years. We do not need to plan now, however, for a longer war than, say, four years; for at the four-year scale of effort we attain, for all practical purposes, the full scope of our capabilities.

There are many reasons for adopting the most pessimistic view. Once we have done so, any fortunate break in our favor produces a net gain in striking power and widens the margin of safety. Moreover, it is only when the economic prognose pessima has been made that the military command can be persuaded to pay attention to their economic requirements sufficiently far in advance and to start planning how to hold the economic positions which are vital and which are in jeopardy.

Whether the United States will gain the upper hand in four or five years of hard war depends on the willingness and ability of the American people, now, at long last, to mobilize their resources to the fullest capacity. Whether they have that willingness and ability depends, in turn, on their equipment of vision, will power, initiative and organization. They will not win simply because physical assets are at hand. Statistics and dollars alone will not bring victory, but work and tools and guns. What are called "natural resources" are nothing but opportunities waiting to be exploited by man with energy and ingenuity and tools. Once we have realized this we begin to see a host of dormant American resources which might be marshaled now, for defense and for offense.

II

As a concrete demonstration of the claim that vast untapped reserves are available for much fuller utilization in our war effort than has yet been attempted or even planned, and that utilization of them is peremptorily demanded now as a result of recent military developments, the writer chooses a particular group of essential raw materials -- fats and oils. He chooses it, first, because Japan has now cut us off, or threatens to cut us off, from that large segment of our supplies of fats and oils which normally comes from the Pacific area; and, secondly, because he happens to have an intimate knowledge of the subject as a result of 15 years of research in it.

The United States ranks as the world's greatest producer and consumer of butter, lard and cottonseed oil. As a soybean producer it is second only to Manchuria. And it is the world's largest producer of inedible animal fats. All of these materials have specific technical usefulness and qualities, yet all of them are widely interchangeable as a result of modern technology's achievements in altering their aggregate form, color, flavor, odor, drying and non-drying capacity, saponification and other chemical and physical characteristics.

In order to get the dimensions of our present problem in fats and oils clearly in mind, we ought to know the answers to the following questions: First, what is the normal situation in the United States and in Britain with respect to production, exports and imports? Secondly, how has the war cut down or threatened the normal supplies from overseas on which we and Britain have depended in the past? Thirdly, what steps can the United States take -- by increasing production or decreasing consumption, or both -- to supply our urgent needs and those of the British?

The United States normally consumes about 10 billion pounds of vegetable and animal fats and oils for all purposes -- for foods, for making soap and for industrial uses. Of this amount roughly 80 percent has been supplied by domestic materials such as cottonseed, flaxseed, tallow, hog fat and butter. The 20 percent which has been imported includes coconut oil and copra from the Philippines, flaxseed from Argentina and palm kernel oil and palm oil from West Africa. Although we needed to bring in from abroad both edible and inedible fats, we regularly had a large surplus for export of one edible fat, namely lard, of which we shipped abroad on the average 500 million pounds yearly.

Our potential production of vegetable oils has never been fully utilized. On the other hand, our markets recently have been glutted by great surpluses of lard; this situation has driven the prices down, so that large amounts have been used temporarily for the production of soap. Butter prices, also, have been depressed because of local temporary surpluses. These facts, and the recent phenomenal increase of American soy bean production, show that large possibilities exist for expanding our domestic production.

The normal consumption of fats in the United Kingdom was about 3.3 billion pounds per year. This has now been reduced to about 2 billions. Practically all of this must be imported. In the past, the chief sources have been Argentina and the United States in the Western Hemisphere; Ireland, Denmark, Holland and certain other European countries; West Africa; and Asia and the southern Pacific. Canada normally imports 180 million pounds of fats more than she exports.

The war definitely eliminated one important American and British source of fats and oils. Whaling in the Arctic, which yielded over 450,000 tons, has ceased and will probably not be revived until the end of the war. In addition, we have to consider the disappearance from world markets, actual or potential, of the fats formerly supplied from the Netherlands East Indies, the Philippines, Australia, and other Pacific areas now occupied or threatened by Japan. We also face the possible loss, due to enemy action or to shipping shortages, of 450,000 tons formerly imported from India and 870,000 tons supplied by West Africa. Thus, in addition to the several hundred thousand tons of whale oil which we must write off, we have to prepare to go without some two million tons of imports.

This amounts to saying that, under the worst conditions, British and American fats requirements must be met essentially from sources in the Western Hemisphere. Under these worst conditions a total of from 3 to 4 billion pounds of fats a year must be found -- 1 to 1.2 billion pounds for the United States, 3 to 3.5 billion pounds for Britain, and .2 billion pounds for Canada. In addition, there already are heavy demands from Russia. This vast total must come from additional production at home, from added imports from areas not under Axis control, from savings in consumption, and as a result of other adjustments.

The two principal ways in which we can carry out our task are (1) by increasing production, and (2) by adjusting and restricting consumption. The United States is the best equipped producer of fats and largest per capita consumer; as such it must bear the brunt in effecting both changes. The per capita consumption of edible fats has already been reduced in Great Britain by 35 to 40 percent, and that of soap fats still further. The possibilities of increasing fats production in Great Britain are practically zero.

First, then, what can we do to increase our production of fats and oils? The revised goals set by the AAA in January 1942 aim at an increase of 1,200 million pounds of vegetable fats, made up of 600 million pounds of peanut oil, 350 million of soy bean oil, 100 million of linseed oil, possibly 125 million of cottonseed oil, and some smaller amounts of corn oil and other by-product oils. If the farmers fulfill these production goals in acreage, and, if, moreover, the yield should be average or better, we should have by the fall of 1942 a crop of 3.9 million pounds of vegetable fats instead of 2.9 last year. This at the same time would give us a greatly increased supply of oilcake, a valuable protein concentrate for cattle, which would help us attain the needed increases in the production of beef, dry milk and cheese.

Animal fats contribute more than twice the amount of all vegetable fats combined. The 1942-43 pig crop may reach 97 million head, or 10 percent more than any pig crop on record. It is planned to improve the yield of lard by 4 to 5 pounds per hog. The total lard production is expected to rise from 2.4 billion pounds last year to 3.1 this year. The tallow and grease output can be similarly improved by trimming meat-cuts more closely. We can envisage an increase in all animal fats to 7.6 billion pounds. This would raise the domestic production of all fats combined to a grand total of 11.5 billion pounds.

Still other adjustments in production can be made to help create a sufficient margin of safety. The fish oil industry has contributed 150 million pounds of oil annually. In order to give price protection to other fats and to conserve natural resources, federal and state authorities have restricted the sardine catch on the Pacific Coast. These limitations could be removed, resulting in a considerable increase in the output of fish oils in spite of the shortage of fishing vessels and various other handicaps. Again, it seems feasible to increase the amounts of corn oil extracted to the extent that the demand for other corn products like glucose, dextrose, other sugars and starch increases.

While we are tapping our domestic resources more fully, we must also bring those of other parts of the Western Hemisphere into wider use. Canada has a vast wheat surplus, which means that she will try to increase her output of hogs and linseed for delivery to the British Isles. Another great source of fats in this hemisphere is Argentina, the world's largest exporter of linseed and tallow. In 1938 Argentina and Uruguay together exported 2.2 million tons of linseed, the equivalent of 660,000 tons of linseed oil. Thus far Argentina has not been able to dispose of her linseed surpluses, and she expects to enter the coming crop year with a still greater carryover. Despite the shortage of shipping, it would seem sound policy for us to make a deal with Argentina to buy outright whatever part of her total linseed crop is not sold to the British. Ships, planes, tanks, guns, hangars, barracks, and the requirements of camouflage, both here and on all the outlying fronts, will consume record amounts of paint. Such a deal with Argentina might be expected to have a beneficial effect upon our diplomatic relations with her in addition to serving an important wartime economic purpose.

All the aforementioned measures combined still do not make good our loss of copra, coconut oil and palm oil from the Philippines, the Netherlands East Indies and Malaya. These fats are particularly important because of their high lauric acid content and high-glycerine test, and because no other sources are either militarily or technically accessible. Brazil is a great potential supplier of Babassu and other nuts which have certain of the desirable qualities. But a multitude of factors -- foremost the difficulties of labor and transportation there and the shortage of ocean shipping -- makes it necessary for us not to overestimate the real possibilities, especially in view of the fact that we must also turn to Brazil for many other materials like rubber. Only fractions of the supplies of coconut and palm oil formerly available for use in the better soaps can be expected from the jungles around the Amazon and from other areas. However, every bit that is obtainable should be obtained.

This brings us to the question of the adjustments which we must make in the manufacture of soap. If we were faced with a permanent shortage of fats we should have to ration those used for soap in order to keep up the more vital supply for food. Fortunately, if we adopt a farsighted fats strategy we may be able to avoid harsh actions. When soap is manufactured glycerine is set free as a by-product. Now glycerine is a vital material for making dynamite and cordite, used in war as propellants and explosives and also much used in mining. In the First World War glycerine had a priority rank of 1, but soap was in class 4. Since coconut and palm oil now will not be as plentiful as before, some soap formulas will probably have to be changed. We will not have soaps that lather as easily in cold water; but they still will be good soaps. To obtain all the glycerine needed for the war effort, the fats available could be split at once into glycerine and fatty acids; and the latter could be stored and supplied to soap manufacturers in accordance with their current requirements. Thus glycerine would be made available at once on the basis of soap stocks to be used later. Production of soaps containing glycerine, including certain soft and liquid soaps, could be prohibited. Moreover, for the sake of conserving fatty acids, fillers could be added to all kitchen soaps. These various regulations could be relaxed or tightened as the existing war reserves here and in Britain warrant.

Elimination of many sources of imports, possible losses in transit, hazards of drought, and heavier export requirements, make it seem imperative that for us at least to double our normal peacetime carryover of 23 percent of our annual consumption of fats. Recent government plans, however, provide for a carryover of only 16 percent at the maximum or 12 percent at the minimum. To build up our stocks to perhaps 50 percent of annual consumption, which seems to the writer to offer a proper margin of safety, we should have to impose temporary restrictions on consumption; this would create abundance within a year and afford protection against excessive price rises in the future. The steps required in the soap industry have been indicated. The steps required for creating stockpiles of fats for edible purposes would have to be entrusted to the meat-packing plants, the crushing mills, and the plants manufacturing margarine and shortening.

Other important adjustments can be made in the consumption of fats. For example, we can maintain and even improve our standards of cleanliness and sanitation and yet avoid much of the present improvident use of soap. Unnecessary waste of soap for dishwashing in households and restaurants could be prevented by suspending the production of soap flakes and granulated soap for the duration of the war or until the necessary minimum reserves of fatty acids have been accumulated. In many cases, soaps used in manufacturing can be replaced by soda and non-fatty detergents and by abrasives. Similarly, waste can be discouraged in other directions. Tallow and grease have a high-glycerine content and form perfect materials for making soap. They can be conserved by requiring the closer trimming of meat in the packing plants and butcher shops, and by the systematic collection of fatty scraps and remainders from households. The most feasible way of accomplishing the latter seems to have been worked out by the Wilson Packing Company and the Civilian Defense Council in Chicago, where butchers were induced to pay housewives from 3 to 5 cents per pound for grease, which gives both of them a profit.

All these and other similar adjustments should be worked out and put into effect at once. In combination they will afford us the absolute certainty, now still lacking, that the United States will have war reserves of fats large enough to meet all emergency demands, both at home and for our allies, even in case a bad drought should hit us again.

III

The goal, and specific adjustments to enable us to reach it, have now been indicated for one sample group of commodities. It is at this point that the statesman must make an important choice. How to accomplish the necessary adjustments with a minimum of red tape and the least possible distortion of the economic and political system? This involves one of our crucial current decisions.

The potential resources of the United States are ample to meet the most trying demands of a long war. This is true not only in the case of fats and oils. Drastic curtailments already effected in civilian uses of such commodities as rubber and tin give assurance that American production of war matériel can go forward on an all-out basis. But in trying to marshal our vast reserve resources quickly and effectively we have to choose one of two methods: to centralize and to regiment; or, by changing the relationship between existing competitive prices, to redirect economic processes so that the required goals will be reached.

After a generation of experimenting and planning here and in Europe and Russia we should be able to see clearly the conditions under which centralized regimentation can produce better results than a modified free economy, and those where it cannot. Moreover, the evils and merits of each process are fairly well known. It remains for statesmanship to choose the wise alternative.

Drastic laws which prohibit or enforce certain actions, supplemented by patriotic appeals to the public to do their duty, may perhaps be effective in a short war. In a protracted war of attrition they lead to disobedience, bootlegging, masses of red tape, changing and often contradictory regulations, more and more severe punishments for infractions, and, of course, pari passu with these developments, a lowering of public morale. These bad effects appear all the faster when there is abundant purchasing power and a shortage of commodities. In that case the only answer is an intelligent and fair system of rationing. Otherwise hoarding begins, and there develops a sense of injustice and inefficiency which will sap the morale of the most patriotic people. The necessary adjustments can be attained much more directly by mobilizing one of the most powerful of all incentives -- the profit motive. Price differentials will operate more powerfully and more effectively than the most elaborate system of government orders and laws and punishments.

Today, as has been indicated, we face an abundance of carbohydrates and a scarcity of proteins and fats. This means that the ratio between the prices of these groups must be adjusted. To illustrate, let us pick the case of soy bean production. If we want more soy beans, one course is to try to persuade or dragoon farmers into growing more. Even in Gestapo-ridden Germany at present this method does not work. However, all the soy beans we need will be produced if we establish a differential between the price of soy beans and that of corn sufficient to compensate for the lower yield of soy beans per acre. If the Middle Western farmer receives twice as much for soy beans as he does for corn, he will produce more soy beans because to do so directly increases his income. The same procedure applies in the case of other important items, for example hogs. If we arrange that market prices for fat and lean hogs shall put a sufficient premium on the former, we can start moving up the average weight of hogs produced almost at once. Similarly, if we want the housewife to be thrifty in using certain types of soap, the best way is not to appeal to her via 20 million radios three times a day, and certainly not by a system of government orders and fines. But if we raise the price drastically on those particular types of soap, and keep prices of substitutes low, the response will be immediate and general. Similarly, a high price for glycerine relative to fats and fatty acids will encourage the recovery of glycerine as well as thrift in its non-military use. The objection that preferential prices for fats are inflationary need not disturb us. The rise will be stopped by the increase in supply. Abundance is still the safest cure for inflation.

The necessary price adjustments can be achieved through administrative devices which do not involve much bureaucratic interference. Large advance purchases made by government agencies at the appropriate prices will have the necessary effect in all the ordinary channels of trade.

Those who administer a liberal war economy by means of remote controls also have other devices at their disposal. In order to achieve the desired effect, it frequently is necessary to create a wide differential between factory costs and consumer prices. This step would by itself produce excessive profits; and war profiteering undermines morale. In order to prevent this and yet maintain the differential, processing taxes or equalization fees must be added. For example, if it seems desirable to set a high price for certain soaps to consumers, while keepings costs of raw materials and of processing within limits, a processing tax or some other equivalent device would be the answer.

Where the introduction of a higher price would not be effective because additional supplies are unavailable due to priorities, then price ceilings not only are feasible but necessary. However, this measure alone is too clumsy and rigid to be satisfactory. A better technique seems to be the German one of establishing price floors and price ceilings, with a sufficiently wide margin between them. Price floors often are necessary if the profit motive is to be permitted to operate straight through to the last stage of production. Wage floors may be required as a corollary. They make machines more profitable, foster efficient utilization of labor, limit war profiteering and foster good morale.

However, even when the price mechanism has been perfectly adjusted to achieve the desired effect, there remains the necessity of freeing the appropriate executive agency from jurisdictional infringements by a multitude of peacetime and wartime offices in the several branches of the Government. A single case may illustrate this. In 1940 Norwegian whaling companies sold 130,000 tons of whale oil to Great Britain. This was stored in bonded warehouses, a large part of it on our Pacific and Gulf coasts. Today 70,000 tons still are so stored. It would be reasonable, of course, to put this oil in American ports to American uses, and for our Government in exchange to give the British export fats that can be shipped readily to them from Chicago, Boston or New York. To do so would save tank car space, tanker space, labor and time. Yet, since an excise tax exemption is necessary, and four or five different authorities in Washington are involved, the likelihood is that the British will have to put their whale oil into tankers on the Pacific or Gulf coasts and start it on long voyages through U-boat infested waters to England. If a single national agency or "commodity coördinator" were responsible for determining all policy concerning fats and oils, and if it were given appropriate authority, it could consult other Government departments and agencies concerned and solve such problems as this rapidly.

So far the arguments here presented have been based exclusively on defense economics. There are other good arguments as well. Prices have a powerful effect on the thinking and outlook of the people. Accustomed to measuring peacetime prosperity and depression by prices, they tend to use prices to measure the gravity of a war and to decide whether the Government is half-hearted or serious about it. Disastrous news from battlefields three thousand miles away may fail to make as deep an impression on the masses as higher prices for little luxuries. Thus on the score of morale, as well as to create a proper margin of safety for vital supplies, it seems good policy not to postpone rationing and other effective inducements to thrift and sacrifice to the last possible minute, but to start them the moment eventual shortages begin to appear likely. One more point. Enormous taxes have to be raised. If we can use the desired price incentive not merely to accomplish necessary economic adjustments and to boost the spirit of patriotism and civilian sacrifice, but also to raise more tax revenues from luxuries, we could flatter ourselves that we had approached the ideal of democratic all-out defense economy.

Various objections to the measures here proposed can be raised from the standpoint of an ideal liberal political and economic philosophy. The author upholds that philosophy and normally would not suggest any swerving from its rules. Unfortunately, we are faced with a totalitarian conspiracy. We have been left no choice but to hold obstinately to the operation of a free economy in all its welfare aspects, and be defeated; or voluntarily to suspend some part of it and to fight with planned discipline to victory. The war won, we then can transfer back into the hands of the people the extraordinary powers which they delegated to the central authority in a time of most extraordinary danger. The Axis Powers today have probably reached, or at any rate are approaching, the zenith of their performance. The United Nations so far have developed only a fraction of their potential military strength. Once the vast dormant resources of the American economy have been totally mobilized, once the American people's genius for mass production has been fully freed and properly directed, we shall develop the effective striking power necessary to outproduce, outfight and destroy the tyrannies which have united their forces in one all-out attempt to enslave us militarily, politically and economically.

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  • KARL BRANDT, Economist and Professor of Agricultural Economics at the Food Research Institute, Stanford University, California; formerly Professor of Agricultural Economics, University of Berlin; author of a number of economic studies
  • More By Karl Brandt