In March 1918, responding to the mounting criticism that the mobilization was lagging, President Wilson reorganized the most ambitious of the war agencies, the War Industries Board, and placed at its head Bernard Baruch. Baruch was a successful Wall Street speculator, and a loyal Democrat. He went to work immediately, personally negotiating prices of key industrial raw materials. Other industrial prices were set by a separate Price-Fixing Committee within the War Industries Board. The committee often used a system called "bulkline pricing." Under this system, firms reported their costs of production, and the committee then set a price that would bring forth the “bulk” (say, 80 percent) of the maximum possible output. This system was designed to balance the need for raw materials against the need for overall price stability while limiting the profits of low-cost producers. Baruch also set up a system of priorities to guide business in filling the mounting volume of war contracts. Each contract was given a government priority rating: AA, A, B, C, or D. If a conflict arose, a producer had to fill an AA order before a B order, and so on. It sounded good. But when firms were given their own power to set priorities on subcontracts to save administrative resources, markets soon became choked with high-priority contracts. The natural tendency was to give everything the highest priority. (In World War II, “priorities inflation” led to the abandonment of the system.)
Baruch’s stint at the War Industries Board was brief—about eight months—but he drew strong conclusions from his experience. In subsequent years, he repeatedly argued that the War Industries Board proved the value of cooperation between business and industry in peacetime and centralized administration of the economy in wartime.
World History
