The profiteers of war

April 2, 2016 by Matthew Bellamy
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Men assemble boxes for munitions at W.C. Edwards Limited in Ottawa.
DND/LAC/PA-024572

Unseemly profits were made during the First World War
while men by the thousands were dying in the trenches

 

The worst thing a businessman can do in wartime is to earn excess profits, making millions while men die. Praying in public while preying in private. Halliburton is still a tarnished brand in the United States because of the excessive profits it made during the Iraq War. There have been few recent incidents of wartime profiteering in Canada. Today, the process of supplying the Canadian government with the instruments of war is slow but relatively transparent, fair and free of corruption.

This was not always the case. During the first few years of the First World War, jobbery, patronage and graft abounded as unscrupulous businessmen made mounds of money from the spoils of war preparation. They could not have feasted at the public trough, however, if their political patrons hadn’t let them into the pen.

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The minister Sir Sam Hughes (right) and General Carleton Jones visit a hospital ward.
DND/LAC/PA-007240

When the war broke out in August 1914, Prime Minister Robert Borden promised to do everything in Canada’s power to help Britain win it. Among other things, Borden pledged to send Canadian-made munitions in support of the cause.

The problem was that the Canadian munitions industry was embryonic on the eve of the First World War. Sir Charles Ross’s rifle factory and Dominion Arsenal in Quebec City were the only munitions plants in Canada. Indeed, Canadian manufacturing in general was weak after years
of being coddled by the state.

The task of establishing Canada’s munitions industry was assigned to Sam Hughes. A larger-than-life figure, Hughes was first elected to Parliament for the Ontario riding of Victoria North in 1892. Vain, colourful and on occasion charming, Hughes made a 30-year public career of politics and militia service. He fought in the Boer War in 1899 after having helped convince Sir Wilfrid Laurier to send Canadian troops to South Africa. In the years that followed, he spent his spare time trying to obtain the campaign decorations he felt were due to him. Ever the egotist, he was sure he should have not one Victoria Cross, but two.

While Borden felt that Hughes was a bit of a crank with an “unbridled tongue,” he could not deny his boundless energy or his dedication to the military. By 1911, Hughes had a solid record of caucus and parliamentary service, including 10 years as opposition militia critic. Hughes was appointed Minister of Militia and Defence after assuring Borden that he would be discreet and cautious in carrying out his duties. He would prove to be anything but.

As the Militia Department gained access to the government’s coffers, eager businessmen flocked to Ottawa hoping to benefit from Hughes’ largesse.

 

The Great War finally gave Hughes the national stage he had long coveted. To many Canadians, he was the personification of the war effort. From a distance, Hughes seemed a model public servant; a man who, in the words of one observer, “has stood off the grafters and jobbers to the best of his ability.” But up close, it was a different story.

The militia portfolio gave Hughes unprecedented power to reward those who had been loyal to him and the Conservative Party. On the eve of the First World War, patronage was still the beating heart of Canadian politics. As the Militia Department gained access to the government’s coffers, eager businessmen flocked to Ottawa hoping to benefit from Hughes’ largesse. To Hughes, patronage and cronyism were part of doing business and once the war began, he mobilized the army of Conservative Party workers, agents and friends to aid in the struggle.

Among the first of his so-called friends to take advantage of him were Philip and Matthew Ellis of the P.W. Ellis Company in Toronto. The “Ellis boys” had gone to school with Hughes. After the war broke out, they let it be known that their services were available. As it so happened, Hughes was looking for someone to supply his department with binoculars. Functional field glasses were essential to combat effectiveness. Binoculars were an extension of an officer’s eyes, and surveying the mangled landscapes of Flanders was crucial to any planned offensive.

Despite the fact that the Ellis boys were jewellers and silversmiths by trade, they were awarded the contract to sell binoculars to the Militia Department. Realizing that the Ellis boys knew next to nothing about binoculars, Lieutenant-Colonel William G. Hurdman of the Militia Department told them to contact Thomas Birkett. A hardware merchant, Birkett knew as little as the Ellis boys about making field glasses, so he contacted his friend Sam Bilskey. Bilskey said he could get the goods from the New York-based optical company, Bausch + Lomb.

However, Bilskey needed cash before he could make the purchase, so he went to Milton Harris, a New York broker. In return for his financial backing, Harris received a 10 per cent commission. Bilskey paid $15 for each pair of binoculars that were then sold to the Canadian government by the Ellis boys at $48 to $52 each.

The price inflated because of the chain of jobbers involved. Even Hurdman received $2 for every set he inspected on delivery to the department. For their two weeks of work, the Ellis boys walked away with more money than most Canadians would earn in a lifetime. But even more troubling was the fact that many of the binoculars were of “poor quality” and “inferior efficiency.” The financial cost of the scandal was not crippling, but to many Canadians the potential loss of life and the continual exploitation of the war for personal gain was a moral outrage.

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Muddy boots: A soldier scrapes mud off his boots while at a training camp in 1917.
DND/LAC/PA-001590

The public’s indignation was reignited in the early months of 1915 when it came to light that the government had mismanaged the purchase of bandages. At the centre of the scandal was W.J. Shaver, a sales representative for the Chicago firm of Bauer & Black. Shaver was interested in supplying the Canadian government with medical supplies and, in the winter of 1914, he contacted his business acquaintance, William Foster Garland. In addition to owning his own pharmaceutical company, Garland was the Conservative MP for the Carleton constituency near Ottawa. Garland introduced Shaver to Lieutenant-Colonel G. Carleton Jones, the Director of Medical Services. Jones was only too happy to arrange a contract with Shaver since the regular British suppliers were unavailable during the war. However, Jones told Shaver that the government would not do business with his company directly. Rather, he would have to go through a Conservative intermediary. Realizing this, Garland offered Shaver the services of his new apprentice drug clerk, Ernest Powell. The arrangement was to Jones’s liking, and as a result he issued a series of requisition orders.

Once the dressings were delivered to the Militia Department in late August, Powell submitted a bill for 23 cents per dressing. Even before the bill reached Canada’s financial watchdog, Auditor General John S. Fraser, the Militia Department began to inquire as to why the expected price of
18 cents had been suddenly increased to 23 cents. Powell lied and said it was because he had been charged more by the wholesaler. Worried that his fictional explanation might not prevent a formal investigation, he offered to lower his price to 21 cents per bandage. To further reassure the Militia Department, Garland stated that the new price was a reasonable one, given Powell’s understandable need for a five per cent sales commission.

Convinced by Garland, the Militia Department accepted the price of 21 cents and proceeded to pay Powell. However, suspicion regarding the deal was revived a few months later when the Public Accounts Department determined that the field dressings could have been acquired for as low as 16 cents each. When attempting to find an explanation of the discrepancy, Fraser was led to Garland, who admitted that the commission given to Powell was not five per cent but five cents per dressing—which represented a whopping 25 per cent commission. Flabbergasted, Fraser immediately withheld the monies owed to Powell and further demanded a refund so that the actual cost would be reduced to 16 cents per bandage. Under mounting pressure, Powell refunded his $6,300 in profits. It was a monumental sum for the time.

Initially, Garland denied playing any role in the scandal. But in June 1915, Powell confessed that Garland had been the real benefactor of his transgressions. Garland was responsible for increasing the dressing prices and collecting the monies given to Powell through secret banking transactions. It was a clear case of corruption. Garland had no choice but to resign his seat in Parliament.

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The war industry: Heavy equipment fills a munitions factory in Saint John, N.B.
J.D. Davidson/DND/LAC/C-003174;

While the bandages were expensive, at least they performed up to standard in the field. Sadly, this was not the case when it came to the boots worn by Canadian soldiers. Many of the boots were purchased from Charles Slater, a Tory middleman who got his supplies from the Gauthier Boot Company. Unfortunately, the Quebec-based firm was not an accomplished bootmaker. Indeed, the boots were about as suitable for active military service as a city man’s footwear would be for hunting. Soon after the arrival of the First Contingent of the Canadian Expeditionary Force in England, Sir George Perley, the acting High Commissioner for Canada, wrote to Borden warning him that the Canadian-made boots “will not stand mud and water and heavy work.” He was right. The boots soaked up water like blotting paper. In an effort to keep their feet dry, some desperate soldiers resorted to tying shingles to the bottom of their paper-thin soles.

Hughes’ patronage list had led the department to do business with unreliable manufacturers, which not only squandered precious funds but also jeopardized the well-being of the boys in uniform.

To add insult to injury, it was discovered that Slater had made a 50-cent commission on each pair of boots sold to the government. From a single contract, he pocketed $15,000. Hughes’ patronage list had led the department to do business with unreliable manufacturers, which not only squandered precious funds but also jeopardized the well-being of the boys in uniform.

The government’s purchases of boots, binoculars and bandages reflected only a fraction of the profiteering scandals that emerged during the first two years of the war. Scandals also emerged concerning the government’s purchases of horses, trucks, thermometers, clothing, the Ross rifle and even submarines.

The soldiers were frustrated and the public was outraged. Newspaper editorials linked the issue of civil service reform to the necessity of expediting the war effort. “It is Canada’s soul that is in real danger,” warned the Toronto Globe, “because of the poisoned atmosphere of dishonesty and selfishness and graft [in Ottawa].” Without a reformed government, many questioned how an “efficient and ungodly” German juggernaut could be defeated.

There was a growing sense in Ottawa that something needed to be done. Other war-related issues consumed Borden in 1915 but he could no longer ignore the growing fury directed toward his party and the government’s handling of the war effort. Patronage and jobbery were politically unacceptable as the casualty list grew. Hughes’ amateurish, improvised antics were at odds with the kind of war that Canadians wanted to fight.

When Borden asked him to tone down his meddling, Hughes refused and began scheming against the prime minister. That was the last straw and he was asked to step down. In November 1916, Borden accepted the resignation of his increasingly disruptive minister. Hughes’ meteoric rise and fall in a two-year period ranks as one of the most extraordinary events of the Great War. In the months that followed, Borden attacked the “enemy within,” by reforming government to stop the incessant patronage and by implementing a tax on “excess profits” to stop the profiteering. While Canada would continue to have its share of little pigs, now it was far more difficult for them to accumulate great wealth out of the blood and agony of those fighting in the trenches.

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