WWII & Postwar

World War II required the most massive mobilization of economic resources in human history. The United States spent approximately $296 billion on the war effort between 1941 and 1945; equivalent to roughly $4.8 trillion in modern purchasing power. This spending transformed American industry, created millions of jobs, and ultimately won the war. But it also created opportunities for fraud, waste, and corruption on a scale that dwarfed every previous conflict. The defense contracting system that emerged during WWII; with its cost-plus contracts, sole-source procurement, and intimate relationships between government officials and corporate executives; established patterns of military-industrial corruption that persist to the present day.

The war also produced a remarkable anti-corruption success story: the Senate Special Committee to Investigate the National Defense Program, better known as the Truman Committee. Chaired by Senator Harry S. Truman of Missouri from 1941 to 1944, the committee is widely credited with saving an estimated $15 billion (approximately $250 billion today) through its investigations of waste, fraud, and inefficiency in war production. The Truman Committee demonstrated that vigorous congressional oversight could serve as a genuine check on corruption, even during wartime when patriotic pressure to avoid criticism of the military was intense.

But Truman's own presidency (1945–1953) became mired in corruption scandals that, while less dramatic than Teapot Dome or the Tweed Ring, demonstrated how deeply corruption had become embedded in the routine operations of federal government. The Internal Revenue Service scandal of 1951–1952 revealed that tax collectors across the country were accepting bribes and fixing tax cases. The Reconstruction Finance Corporation scandal showed that government lending decisions were being influenced by political fixers. And the "Five Percenters" scandal exposed a network of influence peddlers who charged a 5% commission to help businesses secure government contracts; a precursor to the modern lobbying industry.

Meanwhile, in the nation's cities, the great urban political machines reached the peak of their power. Chicago's Democratic machine, which would dominate the city for the rest of the century under the Daley dynasty, was taking shape. The machines' ability to deliver votes, distribute patronage, and control local government made them essential partners for national politicians of both parties, ensuring that the corruption they generated would be tolerated at the highest levels.

WWII Contract Fraud

The speed and scale of wartime procurement made fraud inevitable. Between 1940 and 1945, the federal government awarded approximately $175 billion in defense contracts, most of them without competitive bidding. The "cost-plus-fixed-fee" contract, which guaranteed contractors their costs plus a percentage profit, was the dominant model; and as in World War I, it created powerful incentives for contractors to inflate costs, since higher costs meant higher profits.

The Truman Committee documented numerous specific cases of fraud and waste:

• Curtiss-Wright Corporation was found to have falsified inspection records for aircraft engines destined for military use. Defective engines were passed by company inspectors who altered or fabricated test results, potentially endangering the lives of military pilots. The company was eventually convicted of fraud.
• Andrew Jackson Higgins' boat-building operation in New Orleans, which produced the famous Higgins landing craft, was investigated for labor fraud and cost overruns, though Higgins himself was cleared of personal wrongdoing.
• Carnegie-Illinois Steel (a subsidiary of U.S. Steel) was found to have delivered substandard steel plate for Navy warships, falsifying quality test results. The company paid a fine but no executives were imprisoned.
• Anaconda Wire & Cable Company delivered defective wire for military communications systems, falsifying test certificates. The fraud was discovered after field failures of communications equipment.
• Wright Aeronautical Corporation (a division of Curtiss-Wright) was documented as producing defective aircraft engines with falsified inspection records at its Cincinnati plant. Army investigators found that hundreds of engines had been shipped with known defects.

Beyond outright fraud, the committee documented massive waste. Defense plants were built and never used. Materials were stockpiled far beyond any conceivable need. Contractors maintained excessive overhead and padded payrolls. The committee estimated that $1 billion had been wasted on defective or unnecessary camp construction alone in the first year of the war.

The Truman Committee (1941–1948)

The Senate Special Committee to Investigate the National Defense Program, established on March 1, 1941, was one of the most effective congressional oversight bodies in American history. Chaired by Senator Harry S. Truman of Missouri, the committee conducted 432 public hearings, published 51 reports, and investigated virtually every aspect of the war production effort. Its work is credited with saving an estimated $15 billion, preventing countless production failures, and establishing a model for congressional oversight that has never been fully replicated.

The committee's success rested on several factors. Truman insisted on bipartisan cooperation and fair treatment of witnesses, which gave the committee credibility that purely partisan investigations lacked. The committee focused on waste and inefficiency rather than personal scandals, which made it less threatening to the administration and more useful to the war effort. And Truman was relentless in his pursuit of the facts, traveling extensively to inspect defense plants and refusing to be deterred by pressure from contractors, the military, or the White House.

Key investigations included the exposure of faulty steel being used in warship construction; the documentation of wasteful and poorly planned military camp construction; the investigation of rubber shortages and the government's inadequate response; and the exposure of substandard aircraft engines being produced by Curtiss-Wright. The committee also played a crucial role in breaking up bottlenecks in war production by identifying inefficiencies and pressuring both government and industry to fix them.

The committee's work had a direct impact on Truman's career. His reputation as an honest, effective investigator made him a national figure and contributed directly to his selection as Franklin Roosevelt's vice-presidential running mate in 1944; a choice that put him in the White House upon Roosevelt's death in April 1945.

Truman Administration Scandals (1945–1952)

The irony of the Truman presidency is that the man who built his reputation on fighting corruption presided over an administration that was plagued by it. The scandals that beset Truman's second term, while never touching the president personally, created an atmosphere of sleaze that contributed to his historically low approval ratings and the Republican victory in 1952.

The IRS Scandal (1951–1952)

The most damaging scandal involved corruption in the Bureau of Internal Revenue (now the IRS). Beginning in 1951, congressional investigations and Justice Department probes revealed that collectors of internal revenue, the officials responsible for tax collection in their districts, had been accepting bribes, fixing tax cases, and engaging in influence peddling across the country.

The scope was remarkable. Between 1951 and 1952, the administration was forced to fire or accept the resignation of 166 IRS employees for corruption, including nine collectors of internal revenue. The most prominent cases included:

• James P. Finnegan, Collector for the St. Louis district, convicted of misconduct in office for accepting bribes to fix tax cases. Sentenced to two years in prison.
• Denis W. Delaney, Collector for the Boston district, convicted of accepting bribes from taxpayers seeking favorable treatment. Sentenced to prison.
• James G. Smyth, Collector for the San Francisco district, convicted of tax evasion and accepting bribes.
• T. Lamar Caudle, the Assistant Attorney General in charge of the Tax Division of the Department of Justice, was fired in November 1951 for outside activities "incompatible" with his office, including accepting gifts from individuals with tax cases pending before his division. He was later convicted of conspiracy to defraud the government.

The IRS scandal led to a fundamental reorganization of the tax collection system. The patronage-based system of presidential-appointed collectors was abolished and replaced with a professional civil service structure. The Bureau of Internal Revenue was reorganized as the Internal Revenue Service in 1952, with all positions (except the Commissioner) placed under civil service protection. It was one of the most significant structural anti-corruption reforms of the postwar era.

The RFC Scandal

The Reconstruction Finance Corporation (RFC), originally created in 1932 to provide emergency lending during the Depression, continued to operate after the war as a major government lending institution. A Senate investigation led by J. William Fulbright of Arkansas revealed in 1950–1951 that RFC lending decisions were being influenced by political fixers, including individuals with close ties to the White House.

The investigation documented that RFC director Walter Dunham and other officials had approved loans based on political recommendations rather than creditworthiness. The most embarrassing revelation involved E. Merl Young, a White House aide whose wife, Lauretta Young, worked at the RFC and was found to have accepted a $9,540 mink coat as a gift from an attorney who represented RFC loan applicants. The "mink coat scandal" became a symbol of the Truman administration's ethical failures, and the phrase "mink coat" entered the political vocabulary as shorthand for petty corruption.

The Five Percenters Scandal (1949)

The "Five Percenters" scandal exposed a network of influence peddlers who charged businesses a 5% commission to help them secure government contracts. The fixers, who operated in Washington and at military installations across the country, traded on their personal connections to government officials, often cultivated through social entertaining, gift-giving, and the exchange of favors, to steer contracts to their clients.

The scandal broke in 1949 when a Senate investigation, initially focused on military procurement practices, revealed that numerous individuals were operating as unofficial "consultants" who claimed the ability to influence contract awards. The most prominent figure was James V. Hunt, a management consultant who had provided deep freezers as gifts to various government officials, including presidential military aide Harry Vaughan. The investigation revealed that Hunt and others like him maintained extensive contacts within the military procurement system and that their interventions could and did influence contract decisions.

The Five Percenters scandal was significant not for its scale; the amounts involved were modest by historical standards; but for what it revealed about the emerging culture of Washington influence peddling. The fixers who operated in the late 1940s were the direct ancestors of the modern lobbying industry, and the patterns they established; building relationships with government officials, trading on access and influence, blurring the line between legitimate advocacy and corruption; would grow into the multibillion-dollar influence industry described in Chapter 15.

Urban Machines at Peak Power

The late 1940s and early 1950s represented the peak of urban political machine power in America. The machines had survived the Progressive Era's reform efforts, thrived during the New Deal (which channeled billions in federal funds through local political organizations), and emerged from World War II stronger than ever. The most significant machine of this era, and arguably in all of American history, was Chicago's Democratic organization.

Chicago's machine had its roots in the Democratic Party organization built by Anton Cermak in the early 1930s, but it reached its full power under Edward Kelly and Patrick Nash (the Kelly-Nash machine of 1933–1947) and their successor, Jacob Arvey (1947–1950). The machine controlled an estimated 30,000 patronage jobs, making it the largest single employer in the Chicago metropolitan area, and used those jobs to build an electoral organization of unmatched effectiveness. Every patronage employee was expected to canvass voters, distribute literature, work the polls on election day, and contribute to the party financially.

The machine's power rested on its ability to deliver tangible benefits. City jobs, building permits, zoning variances, paving and sanitation services, police protection, and assistance with government bureaucracy were all distributed through the ward organizations that comprised the machine. In return, residents were expected to vote as directed. The system worked because it provided genuine services that government agencies, especially in minority and immigrant communities, often failed to deliver through official channels.

In 1955, Richard J. Daley was elected mayor of Chicago, beginning a 21-year reign that would make the Chicago machine the most powerful urban political organization in American history. Daley's machine and its corruption are examined in detail in Chapter 8.

Timeline of Key Events

Sources