A) To oversee wartime production.
B) To give money to businesses to fund war production.
C) To coordinate wartime business and labor.
D) To prepare the US for war.
The answer is B: To give money to businesses to fund war production.
The funding of war production was the goal of the Defense Plant Corporation (DPC). It was created in anticipation of a war break out. Therefore the U.S Congress financed and supervised the construction of industrial facilities sponsored by the federal agencies to administer defense and war programs. This was then dissolved and emerged with the RFC.
What is the Defense Plant Corporation?
The Defense Plant Corporation was a subsidiary of the Reconstruction Finance Corporation. Before the United States entered the Second World War, the government faced a crucial problem about the expansion of their industrial base for meeting military needs.
In 1940, Congress authorized the formation of the subsidiaries of the Reconstruction Finance Corporation to meet capital needs for building an industrial base.
The Defense Plant Corporation was formed in the month of August in 1940, and it contracted with private businesses to start defense-related businesses under a lease. But by the end of the 2nd World War, the corporation had dissolved. It owned 10 to 12 per cent of the United States’ industrial capacity.
Reconstruction finance corporation
The RFC was administered by the United States from 1932 to 1957, to provide financial support to governments and to make loans to businesses or mortgage associations. It was created with the purpose of boosting confidence and helping banks in their daily operations during the Great Depression.
RFC was an independent agency, fully owned and operated by the government. It was instrumental in the recapitalization of banks in the 1930s, reducing failures in banking activities and stimulating bank lending.
The Reconstruction Finance Corporation would lend to solvent institutions that couldn’t be sold to repay current liabilities but would be able to do it in the long run. This was to ensure that the people who made deposits could get their money back.
The Reconstruction Finance Corporation expanded further during World War II. It merged with the Federal Deposit Insurance Corporation and established eight new corporations.
The wartime subsidiaries of RFC were Defense Plant Corporation, Metals Reserve Company, Rubber Reserve Company, War Damage Corporation, Defense Supplies Corporation, US Commercial Company, Petroleum Reserve Corporation and Rubber Development Corporation.
Functioning of reconstruction finance corporation
They were mainly established to maintain production and development during wartime as well. The corporations helped in funding the development of synthetic rubber, construction as well as the operation of a tin smelter, along with the setting up of manila hemp or abaca plantations in Central America.
Abaca and natural rubber that is used in rope products were being produced in South Asia, which was under Japanese control during the Second World War. The programs by RFC encouraged the development of alternative sources for such materials.
The RFC would make loans to foreign governments, protect against disaster damages and war, and finance the operation and construction of war plants. Around $20 billion of the disbursements made by RFC went towards national defense in World War II.
U.S. government involvement in World War II industries
The federal government in the USA started mobilizing the US economy during World War II, right before the Japanese attack on Pearl Harbor.
President Roosevelt had stated to the Congress that the national defense was of paramount importance and the country must be ready to manufacture up to 50,000 planes in a year.
There was a call for increased production in industries that would be crucial for the war effort. Industries such as metals, machine tools, rubber, industrial chemicals and aviation gasoline were encouraged.
Private companies were willing to increase production in the wartime but were apprehensive of the financial risks. If they made payments for expansion and constructed new facilities, they were worried that the government might cancel contracts later, before they could recover the investment costs. The government wasn’t willing to give any guarantees.
The Reconstruction Finance Corporation came through at this time and received congressional approval to purchase and store materials that were strategically important.
They would also assist in financing new industries, as well as, expansion of old industries. RFC agreed to pay for the industrial capacity expansion and keep the ownership of equipment it paid for. Once the facilities were created, they entered into operating and leasing agreements with private players.
Defense plant corporation and reconstruction finance corporation
Government departments like the Navy and war departments, War Production Board, Office of Production Management and Maritime Commission would often request what they had a need for, from the RFC. Then the DPC would ensure that plants (like mills or factories) were built and operated.
Jesse H. Jones, Sam Husbands and Emil Schram managed the Defense Plant Corporation. From 1940 onwards till 1945, the DPC disbursed loans worth $9 billion, covering 2300 projects. Usually, the government owned the plants and then leased them to private businesses for operations.
As such the government got a dominant position in industries such as machine tools, nonferrous metals, aircraft manufacture, shipping and synthetic rubber. The materials produced during the war, through the DPC, included tanks, airplanes, ships and giant guns.
Around 50% of the spend was towards aviation, with the DPC’s largest project being a Dodge-Chicago plant, which was worth $176 million and manufactured engines for B-32 and B-29 airplanes. It had its own aluminium foundry and steel forge.
The Defense Plant Corporation invested in 3 ways
- Building entire standalone facilities.
- Building additional units in private industrial complexes that were already existing (called scrambled facilities).
- Purchasing and installing equipment in private facilities so that they could produce wartime products or expand production.
The DPC or Defense Plant Corporation was instrumental in implementing the government’s wartime efforts to meet production demands. Many assets were in its name, most notably those associated with synthetic rubber production.