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Subject Area: Political Theory

Wartime Regulation - Leonard P. Liggio, Literature of Liberty, January/March 1978, vol. 1, No. 1 [1978]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Wartime Regulation

Morrow, Jr., John H.

  • University of Tennessee, Knoxville

“Industrial Mobilization in World War I: The Prussian Army and the Aircraft Industry.” Journal of Economic History (USA), 37 (1977): 26–51.

The Imperial German wartime experience with mobilizing the aircraft industry reveals how wartime controls distort the nature of the economic system. One control inevitably leads to the need of others. The final step is complete nationalization if we pursue the full logic of intervention.

During World War I the Prussian army increasingly intervened in controlling the nascent German aircraft industry to guarantee an adequate supply of military aircraft. Even before the war, the Prussian Army effectively monopolized the aviation consumer market by strangling sport aviation to assure the industry's concentration on military planes. This military monopoly allowed the Army to control competition within the industry and to expand more stringent controls for the construction and type of military planes.

From the beginning of the war, the German government substituted non-market controls for market price signals. Attempts to mobilize the industry laid bare the scarcity of human and nonhuman resources as well as the competing claims of other wartime uses of the same resources.

In its attempt to hold prices down and preserve a pool of skilled labor within the aircraft industry, the Prussian War Ministry found itself interfering in management-labor relations and mandating wage increases. Paradoxically, it also found itself compelled to ratify price increases even while aiming at preventing these increases. Such interference in labor relations escalated state involvement in economic activity generally. Efforts to control raw material prices for aircraft were doomed because the relevant department was controlled by the same industrialists who stood to gain from rising raw material prices.

Officially, the War Ministry's policy had been to free competition among producers as a means of holding down prices. But successive wartime interventions led to forced syndication (Zwangssyndizierung) of the entire industry. Controls were piled on controls, but ambivalence in the War Ministry gave no coherence to these controls. Despite the success of the army's mobilization of the aircraft industry, military regulation of the German economy in general was inefficient.

The illogic and contradictions of the controls is illustrated in the wartime Euler-Siegert debate. One “gadfly” manufacturer, August Euler, refused to enter the government-sponsored industry syndicate because it was inefficient, illegal, and violated free enterprise. Euler was denied military contracts for his defiance. The military inspector, Major Siegert, argued that “law is powerful, necessity is stronger.”

In the Euler-Siegert controversy, the entrepreneur Euler correctly pointed out that the government's military plans, which spawned an unwieldy number of bureaus, were impotent to remedy the underlying shortages of men and material. On the other hand, Major Siegert's militarist position insisted that, given the previous government intervention, the existing Army systems of controls and their consequent shortages required mandatory rationing and allocation. Otherwise Germany could not continue its war production.

The Army, given the logic of intervention, could not abandon its economic controls. However, it failed to take the final logical step of nationalizing the German economy because of restraining economic and social attitudes. The Army was caught on the horns of a dilemma that it could not solve in the context of contradictory interventionist and noninterventionist sentiment within Imperial Germany.