Investment, demand, and technological change: Transformational growth in the aircraft industry during World War II

This dissertation explores the discontinuity in investment which arises during the shift from 'craft production mass production' (transformational growth). It is argued that where investment decisions involve the introduction of an entirely new production system, investment spending in new plant and equipment may not be forthcoming, unless there is a corresponding change in the basic characteristics of the market. It is argued that over the longer term, actual investment spending is limited by the parameters set by investment decisions. Keynesian fine-tuning policies may prove to be ineffectual if investment decisions are based on pessimistic expectations of the future.;This problem was manifest during World War II. The government initially tried to stimulate private spending on new capacity through taxation provisions and the Emergency Plants Facilities contracts. However, given the prevailing expectations about markets after the war, such spending was not forthcoming, especially when it involved dramatically new technology. Eventually, the state realized that it would have to intervene at a more fundamental level if it was to create the capacity it would need to prosecute the war.;By taking over investment decisions, the state had to confront the conditions operating in those industries which were at the core of the war effort. These leading industries, such as aircraft, had to engage in transformational growth if they were to meet the demands for wartime output. When an industry such as aircraft moves from craft to mass production, the discontinuity involved in production technology presents a hurdle to smooth expansion. This discontinuity involves overcoming the problem of high fixed capital on the supply-side, and restructuring markets so that demand is for standardized products on the demand-side. This is especially difficult for aircraft production because the learning-by-using process, which is an essential element in the development of a plane, prevents demand from ever being sufficiently stable to allow the long production runs needed to recoup the fixed capital outlays. Yet this learning-by-using process also raises the level of these fixed capital costs, especially in research and development. The state overcame these problems by financing the expansion of the capital base for producing planes and by achieving a greater standardization of planes and component parts.