Despite all of FDR’s stimulus efforts in the New Deal, steel companies like Youngstown Sheet & Tube would only reach their pre-1929 production capacities as government defense contracts poured in to prepare for World War II. (The MahoningValley Historical Society)
JUNE 14, 1940
The European picture looks blacker than ever for the Allies. Paris falls before the invading Germans—1st time since 1870. Hitler is expected to make a triumphant entry into the city. The Maginot Line has been circled and is now being attacked from both sides. Spain enters war and with Italy is pressing from South. Germany now holds most of French and Belgium port cities and is completely segregating England.
Yesterday it was announced that England would buy for cash much needed war supplies and the market spurted up 5 points. This is the 1st change in the picture since the war started last September. Our steel mills are now operating at 70% and the picture looks pretty good for Youngstown for the immediate future.
JUNE 17, 1940
France surrenders to Germany. England faces all Europe alone. The situation seems hopeless. What will come next nobody knows. Tomorrow England will make an important announcement of her future course of action. Two months ago such a conclusion seemed impossible. Today it is a reality.
Stocks are at their lows for past two years. High and low quotations for 1940 are as follows:
AT&T 175-145; B&O 6 3/4-2 3/4; Bethlehem Steel 89-63; GE 41-26; GM 56-37; Penn RR 24-15 1/2; Radio 7 1/4-4 1/4; Republic Steel 23-14; U.S. Steel 68-42; Steel & Tube 48-26.
JULY 26, 1940
The war drags on in Europe and Germany consolidates her position as the conqueror of Europe. The threatened invasion of England by Germany has not taken place yet although the reason for the delay is unknown.
In the U.S. defense preparations go forward rapidly. It is probable that a national draft act will pass Congress in the next few weeks calling for registration of all males 21 to 64 and one year compulsory training.
Steel mills at 85% and business is active, but in spite of this, there are many misgivings for the future. The stock market is slowest since 1918—200,000 share days—and prices are stagnant.
The whole question is what will happen if Britain falls before Germany. Our export trade is already lost. Germany trades by barter—not by gold. Will the gold supply of U.S. (80% of world supply) become of no value if Germany wins and we are the only country left on the gold standard? Hitler will sell to South America and all Europe at low prices made possible by slave labor. How can we compete with him?
No matter which way the war goes—Europe faces starvation this winter while America does not know what to do with her food surpluses.
Even tho there is a gamble involved, it seems to me to be a good risk to buy stocks at present prices on the chance that Great Britain will win or that something will happen this winter to stop Hitler. Starvation in Europe may bring on revolt.
AUGUST 20, 1940
The blitzkrieg by Germany against England is now on and so far very little reliable news comes to us. Swarms of German planes cause havoc in England. This will probably be followed by a land invasion.
Our stock market shows doubt whether Britain can survive. It is at lowest point in 2 years and the volume of daily sales is lowest since 1916. In the meanwhile, domestic business is good and is feeling the stimulus of the defense program. Youngstown steel mills operate at 85%.
The national political campaign starts with Wendell Willkie opposing Franklin Roosevelt for a 3rd term. Willkie’s chances look good. If Great Britain survives and Willkie wins we should experience an upsurge.
If Great Britain does go down—war orders will cease and there will be financial chaos. At present stock prices, I think it is a good gamble to buy although nobody can foresee the outcome.
AUGUST 21, 1940
The European war drags on. Air raids take place daily over London but the threatened Blitzkrieg has not yet taken place. The stock market continues to drag at low volume, waiting to see which way the battle will turn.
SEPTEMBER 10, 1940
For the past three days Germany has bombarded London unmercifully. This is supposed to be preliminary to a land invasion. If England can withstand the bombardment until then and hold back an invasion—then the crisis will be over for the winter and anything may happen before spring. The U.S. gave Britain 50 old destroyers in exchange for leases on naval bases. Co-operation between Britain and U.S. is growing closer. If the war lasts we will be in it by spring. Congress is about ready to draft all men between 21 and 45.
SEPTEMBER 25, 1940
Since Sept. 10th Germany has bombarded London incessantly and laid the city in ruins, but thus far no invasion has been possible and it seems now with the coming of fall weather that an invasion of England is out of the question until spring. The English Air Force has put up a battle that will be long remembered. Just now it looks like a long war—with starvation for Europe because of the British blockade. In the meanwhile the U.S. cooperates more closely with Britain and we may be in the war by spring. The peace-time conscription bill passed and registration takes place Oct. 16th for all men between the ages of 21 to 35.
SEPTEMBER 29, 1940
Each day the international situation grows more complicated and brings the U.S. closer to war. Yesterday Japan signs a pact with Germany and Italy agreeing on a military alliance if the U.S. enters the war. Then the Japanese proceed to march into French Indo-China. This endangers U.S. supply of tin, rubber and other essential materials. U.S. retaliated by cutting off export to Japan of scrap iron. It seems to me this will end soon in a declaration of war of U.S. and we will then see the 2 remaining democracies—U.S. and Britain—against the rest of the world, now under totalitarian domination.
In the meanwhile U.S. spends billions on defense and industry begins to hum. On Oct. 16th young men will register for the draft. The National Guard has been called to active training. Everything points to war. [Roth’s wife] Marion has volunteered to help register the draftees.
Early corporation reports show about 25% of profits paid for taxes. The excess profits tax may add an additional 20 or 25%. This tax plus rising costs may result in a situation where industry works full gear but earns very little. This is one of the reasons why stocks have not increased with rising production. In spite of this I feel that stocks like Sheet & Tube at 32, Republic Steel at 18 and U.S. Steel at 58 are good buys. Higher taxes will to some extent be passed on to the consumer and these steel stocks which have not paid dividends for a long time will earn enough in spite of taxes, to pay good dividends.
War hysteria has blotted out the political campaign. Willkie delivers speeches but war headlines take precedence. Just now it looks as tho Roosevelt will get a 3rd term.
Time and again the thought of inflation comes into my mind. The national debt is $45 billion now. Defense contracts total $15 billion more and we are just getting started. In addition to this industry will borrow the huge bank surpluses for expansion. All this is borrowed money and higher taxes will not change the picture.
7/12/44
War debt is $200 billion and no inflation.
10/10/52
War debt is $270 billion and the 1939 dollar is now worth 52¢.
It seems to me we face a big headache after the war. If it follows the pattern of past wars we will have a first-post-war depression when the war ends (1921). This should last about 18 months while industry changes from war to peace time production. Then will come 6 or 8 years of hectic activity and inflation—while we feed and help to rebuild the world (1921-1929 period). At the end will come a severe crash and long depression during which currency will be placed on a normal basis and we hope for a quiet period for normalcy (1930-40).
It is a frightening picture and there is no assurance that either democracy or the capitalistic system can withstand the shock.
How to get ready to face such a world is the problem. To be conservative in investments or to be a gambler and fish in troubled waters? There will undoubtedly be violent up and down swings in the market. They will be unpredictable. Everybody will try to buy low and sell high. But what is “low” and what is “high” at a time like this? The inevitable result will be a group who will end with a profit but the vast majority broke and disillusioned.
4/2/62
I did not buy stocks because I was flat broke. Connie was in college and we had a tough time making ends meet.
OCTOBER 1, 1940
Joe R—was telling me today about Tony M—. Tony is unmarried—47—auditor for a steel company—earns about $5000. For the past 20 years has slowly accumulated the highest grade income stocks such as DuPont—G.E. etc. Buys one or two shares at a time whenever he can spare the money. Has a beautiful list of stocks today and a substantial income. Pays no attention to stock market.
Geo. F. Baker the New York banker varied this plan by buying good stocks whenever he thought they were selling below intrinsic value—and then held on. The trick is to have the cash whenever the opportunity to buy comes. During the late depression DuPont sold as high as 223 and as low as 22. Certainly the time and price of purchase were an important consideration. Seems to me Tony could have done better by holding his cash for the right buying opportunity.
EDITOR’S NOTE
In the buildup to the U.S. entry into World War II, a newfound symbiotic relationship between business and government was forged, strengthening the nation’s defense while smoothing over many hindrances to corporate output and innovation. During Roosevelt’s first two terms, corporate America resented many of the administration’s New Deal policies—from the NRA to tax policies and tighter banking regulations—believing they sabotaged the natural need for freedom in private enterprise. But from 1940 onward, government’s engagement with big business became much more cooperative as lucrative defense contracts were parceled out. In Youngstown Roth witnessed his local steel mills operating at full capacity as the nation ramped up for war. Nationally, some leaders would even leave private industry altogether to head federal agencies, such as Donald Nelson, a former vice president of Sears-Roebuck, who chaired the U.S. War Production Board from 1942 to 1945. The relationship would outlast the war as the military-industrial complex: an alliance between big business and government that would endure with mutual satisfaction for decades to come as industries finally realized the profitability of government spending and debt. Business would also finally regain its long-missed position of authority and respectability that it believed had been lost during the Great Depression.
Indeed, many historians and economists look to the relative success of the war production effort as validation of the fiscal theories of John Maynard Keynes, the British economist whose General Theory of Employment, Interest, and Money advocated New Deal-style government spending and “pump priming” to lift economies out of downturns. Through Roosevelt’s first two terms there were always fiscal and political limits to his being able to enact a full Keynesian program, but the war created a mandate for massive government spending and private-sector output and is generally believed to have finally pulled America out of the Depression.
Even in strict employment terms, the war accomplished what the New Deal alone could not. When the Selective Training and Service Act of September 1940 required all men aged twenty-one to thirty-five to register for the draft, many young men were turned away from duty, even though there were just 350,000 in the navy, army, and air corps combined, due to malnutrition. This fact only underscored some of the shortcomings of the U.S. relief efforts. While New Deal employment and relief programs helped buoy the economy for about eight years, the nation was also still grappling with a 15 percent unemployment rate. Millions of families still had barely the means to exist on a subsistence level with an adequate dietary intake. The war was a great employer, but of course it also came at a tremendous cost.
OCTOBER 16, 1940