By Henry Gantt


Looking backward over the great war, we have the opportunity better to understand and evaluate the different phenomena which were developed by it. Many incidents which seemed natural and in a measure unimportant when they took place, had a profound effect upon the outcome of the war, and promise to affect still more profoundly the period to follow.


Perhaps no one incident was more significant and fraught with greater consequences to the civilization of the world than the transfer, soon after we entered the war, of the credit center from Wall Street to Washington. This transfer took place without creating any stir, without any special opposition, and with the general approval of the community at large. We had just got the Federal Reserve Banking System into operation, and it had enormously increased our power as a nation to dispense credit, yet not with standing the most advantageous position in which we had thus been placed, the expert financiers of Wall Street submitted without remonstrance to the transfer of the whole credit center to Washington, where it was administered by men who, compared with the “giants” of Wall Street, were mere amateurs.


Why was it necessary for this transfer to be made, and why did Wall Street consent to it? Surely if it had been within the possibilities of Wall Street to finance the war, a serious remonstrance at least would have been raised to this transfer of the credit center. The New York bankers not only did not demonstrate, but in a most patriotic manner offered their services to help the comparatively inexperienced men in Washington handle their great undertaking.


If it had been possible for Wall Street to finance the war, it is inconceivable that the bankers of New York should have allowed the work to be taken over by other hands. Why, then, was it possible for Washington to do what was impossible for Wall Street? The answer to this question is not only very simple, but is indicative of the flaw in our whole business system. The financial methods of Wall Street were designed to operate only when we conducted “business as usual” hence their mechanism could give credit only to those who had tangible securities. They had no mechanism for extending credit to men who, although they had few or no tangible assets, might have tremendous productive capacity.


Because the war demanded that the nations as a whole produce goods to the utmost, we were obliged to invent a new kind of finance, in which the production of goods would be the first object. There was no tradition among the bankers of this country for financing any proposition except on the basis of tangible assets, and for the sole purpose of making profits. In many cases men who knew how to build ships or to make guns did not have tangible assets in sufficient quantity to satisfy the usual banking system. It was therefore necessary for the Federal Government to initiate a finance which was new, at least in this country, namely, that of extending credit to a man according to his productive capacity. There was no established mechanism for doing this, but it had to be done, and we did it, in a rather haphazard and ineffective manner. Nevertheless, the results have justified the venture, and the possibilities of a new credit system of vastly greater potentiality are opening themselves to us as soon as the mechanism for its operation shall have been developed.

A few of the great leaders of industry have understood in a general way this kind of finance. Among them may be mentioned Mr. Andrew Carnegie, who said he valued his organization more than his plants; and Mr. Henry Ford. Mr. Carnegie, through an understanding of this general principle, was able to dominate the steel industry; and Mr. Ford, by the same token, became the greatest automobile manufacturer in the world. The war has backed up Mr. Carnegie and Mr. Ford by proving that productive capacity is enormously more important than wealth, but inasmuch as our credit system has been based on “tangible assets” and not on productive capacity, there has been developed as yet no generally accepted mechanism for measuring the value of productive capacity.


The cost and accounting systems in general vogue take note only of what are called the “tangible assets”, which are necessarily static, showing only potentialities. They make but little attempt to find out how these assets are being used. The reason undoubtedly is that they see such assets from a sales standpoint ; in other words, our economic system is still patterned after the one which was originally built up to serve the needs of buying and selling. Productive capacity, on the other hand, can be measured only by taking account of what is happening. When we begin to regard matters from this standpoint, the so-called “tangible assets” are not nearly so important as the use being made of them, or the amount of product being turned out. In other words, the modem accounting system which deals with production must give us a picture of what is happening, as well as of the mechanism which causes the happenings. It must be based on charts which show what progress is taking place, and which bear the same relation to statistics as a moving picture film does to a photograph.


The question naturally asked is, If the above statements are correct, why have we not realized their correctness before? It took a great war, which required us to put forth all our strength, to wake us up to their importance. They have been increasing in importance for a number of years, and our failure to recognize this fact was one of the factors in producing the great catastrophe through which we have just passed.


For many years previous to the outbreak of the great war, financiers told us there couldn’t be any war, because the bankers wouldn’t stand for it. They thought money controlled the world. Books were written to prove that we could have no more war. The idea of war was called “the great illusion.” When this “illusion” was realized, they still maintained that the war could last only a few months. Nevertheless it lasted over four years, to the great confusion of our economists and theorists. We all know now that it was supported, not by finance, but by the grand scale production of modem industry. It stopped, not for lack of money, but for lack of means to live and fight with. We see, then, without any possible shadow of doubt, that inasmuch as production was the controlling factor in the great war, it will hereafter be the controlling factor in the world, and that nation which first recognizes the fundamental fact that production, and not money, must be the aim of our economic system, will, other things being equal, exert a predominating influence on the civilization, which is to be built up in the period of reconstruction upon which we are now entering.


Our immediate problem, then, is to develop a credit system that will enable us to take advantage of all the productive forces in the community. Such a credit system must not only be able to finance those who have ownership, but also those who have productive capacity, which is vastly more important. This is equivalent to saying that our wealth in men is more important than our wealth in materials. So far we have never used this force to more than a small fraction of its capacity, simply for the reason, as previously stated, that the originators of our financial system were traders and not producers. Now, however, when the supreme importance of the producer has been recognized, we must enlarge our credit system in such a manner as to enable us to take full advantage of his possibilities; in other words, we must make it democratic.


To meet the exigencies of war the Federal Government had no hesitation in inaugurating such a finance, for the benefit of the community. While it was done in a new and crude manner, we recognize that it was in the main successful. We shall soon find that there are exigencies in times of peace also that could be helped by a similar financial method. Some nations are going to see this, and realizing that the credit system of the country must always be available for the benefit of the community, take such action as to accomplish that result, and thereby force others to do the same. Through the War Finance Corporation Act (amended) section 21, March 3, 1919, we have already taken such action with regard to exports. During the war, we financed necessary production with public money; now in time of peace we finance another essential activity with public money. This is a most encouraging beginning. Can we not make public money available for the financing of all socially necessary activities whether of war or peace!


In the past what a man could do was limited by his financial and social condition; hence many of our most capable men were severely restricted in their activities. To be sure, a few have been able to rise above their restrictions — a rail splitter becomes the president of a great republic, and a harness-maker the first president of another. These examples, however, only illustrate the possibilities that are unutilized, because our credit system has not been democratic.

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