Managing Critical Input Scarcity With State Planning: The Case of the U.S. Aluminum Industry During WWII

During total war, governments often adopt unorthodox state planning tools rather than rely on uninhibited market forces to manage resource allocation, especially in sectors that produce systemically critical inputs—those essential for military production with limited short-term substitutes. This paper explores why this is the case. Drawing on classic texts on wartime planning and historical accounts of U.S. WWII mobilization, I synthesize theory explaining the limitations of market forces in facilitating the transformation to a wartime economy in critical input sectors. Time sensitivity, disincentives for private investment, inflationary risks, and the diversion of scarce resources to non-essential ends undermine the ability of market economies to meet the demands imposed by the political imperative of war mobilization, and prompt governments to rapidly develop alternative tools to manage resource allocation. Economic planning can serve as a transitional tool to expand the output of critical inputs while keeping prices stable, but imposes extraordinary logistical challenges and unintended consequences. The U.S. aluminum sector during the Second World War serves as a case study to demonstrate these arguments. Using archival material and secondary sources, I provide a chronological narrative of events that unfolded in the aluminum sector during the war, illustrating how market-driven resource allocation led to shortages and inflationary pressures, prompting mobilization planners to supplant market forces with ad hoc state planning. Policies such as price controls, rationing, and public financing were used to successfully facilitate a rapid expansion in aluminum output while maintaining price stability. I conclude by discussing the applicability of the wartime experience for a green transition, where shortages in important inputs such as critical minerals are once again a bottleneck for a rapid transition to a different national production structure.