Why did the U.S. government take control of the steel industry in 1952?

By Andrew Beattie AAA
A:

In early 1950, Senator McCarthy began seeing communists in every shadow, prompting him to accuse the Truman administration of being soft on the rampant communism spreading across the globe. When North Korea invaded South Korea, Truman saw his chance to get tough on communism abroad and led the nation into the Korean War. In the five-year break between WWII and the Korean War, the U.S.economy had staged a recovery and had begun to return to free market capitalism. The onset of another war, however, brought back price and wage controls that were necessary to keep the government from going bankrupt during war times.

The steel industry was particularly vulnerable to government controls because metal was vital for building the tanks, bombs and guns that were being driven, thrown, tossed and shot over the Korean peninsula. The government established quotas at low prices along with mandates that steel mills must meet the quotas before the mills could sell excess production on the more lucrative private market. However, steel mill owners wouldn't agree unless the wages they were required to pay were controlled in a similar fashion.

The steel industry felt no desire to expand operations to fill more government quotas at a loss, and the general inflation meant that holding down wages was the only way to eke out any profits. The steel union, understandably, saw the buying power of workers' meager wages drop as inflation advanced. Thus, the union proceeded with preparations to strike. The government attempted to play the middle, giving into half-measures on both sides in order to keep the mills churning out steel. But the ploy failed. The union decided to strike and, just before the strike was about to begin, Truman announced that he was seizing control of the entire industry. Truman declared that the uninterrupted production of steel was necessary for national security and, therefore, executed measures to nationalize the industry.

The lawyers for the steel industry instantly swung into action after the announcement. The media was aroused and many journalists made the connection between nationalization in fascist Germany and Truman's actions. Public opinion of the president was already negative because the shortage of domestic steel had choked off many steel-dependent industries, which had led to layoffs and shutdowns. The steel industry's legal team argued that unfettered presidential power was not a part of a constitutional democracy and the Supreme Court agreed.

The government gave control of the steel mills back to their owners and the Steelworkers Union of America promptly went on strike. The mills shutdown and the steel shortage became acute. Struggling industries as varied as automobile makers to food canneries were unable to obtain even leftover steel after quotas were fulfilled. No new steel was entering the market, so when the military began to run out of shells and bullets, the government stepped in again.

The government threatened to re-seize the industry under new legal grounds and began ordering steel directly from the mills to ship to the weapons manufacturers. This made the case for seizure stronger and brought the mill owners to the bargaining table. The price controls were relaxed and wages increased until the two sides reached an agreement. Finally, the furnaces were restarted and once again cars, cans, bombs and bullets began rolling off factory lines.

For more on this topic, read The Whens And Whys Of Federal Intervention.

This question was answered by Andrew Beattie.

RELATED FAQS

  1. Where was the Dow Jones when Obama took office?

    Find out the value of the Dow Jones Industrial Average on the Jan. 20, 2009 inauguration of President Obama and how it has ...
  2. What is the difference between communism and socialism?

    Learn how some countries are incorporating socialist methods into capitalism.
  3. Where does stimulus economics come from?

    Depending on which type of economist you talk to, stimulus economics originated from the ideas of either a book published ...
  4. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ...
RELATED TERMS
  1. Economic Justice

    Economic justice is a component of social justice. It's a set ...
  2. Social Justice

    Social Justice is the idea that all members of society deserve ...
  3. Eurasian Economic Union (EEU)

    An economic union created in 2014 by a treaty signed by Russia, ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases ...
  5. Committee on Foreign Investment in the United States - CFIUS

    An inter-agency committee of the United States government that ...
  6. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...

You May Also Like

Related Articles
  1. Investigate these expat havens if you seek a developed country with low barriers for getting a permanent resident visa – sometimes even citizenship.
    Personal Finance

    5 Developed Countries That Welcome Expats

  2. Some countries put up very high barriers for foreigners to get citizenship
    Personal Finance

    5 Countries Where It's Hardest To Become ...

  3. Depending on their parents, people not born in the U.S. either inherit U.S. citizenship or need to achieve it. Here are the steps to become an American.
    Personal Finance

    How To Become A U.S. Citizen

  4. Economics

    How A Limited Government Affects A Country's ...

  5. Even the most enlightened citizen curses taxes, possibly while simultaneously acknowledging that they're the price of a civilized society.
    Taxes

    How The IRS Works: Functions & Audits

Trading Center