Neutrality Act Revised to Allow Arms Sales on Cash-and-Carry Basis, Enabling Corporate War Profits

President Franklin D. Roosevelt signs the Neutrality Act of 1939 on November 4, repealing the arms embargo provisions of earlier Neutrality Acts and allowing arms sales to belligerent nations on a “cash-and-carry” basis, effectively ending the policy designed to prevent American business interests from profiting from war and entangling the United States in foreign conflicts. The revision occurs two months after Germany’s September 1, 1939 invasion of Poland triggers declarations of war from Britain and France, and it allows the United States to sell arms to its allies while maintaining formal neutrality. The change marks the abandonment of neutrality legislation enacted following the Nye Committee’s findings that businessmen and bankers had profited from World War I and influenced American entry into that conflict.

The Neutrality Acts of 1935, 1936, and 1937 emerged from isolationist sentiment following World War I, spurred by the Nye Committee hearings (1934-1936) and books like “The Merchants of Death” (1934) that supported widespread American conviction that U.S. entry into World War I had been orchestrated by bankers and the arms industry for profit. The original Acts sought to ensure the United States would not become entangled in foreign conflicts by prohibiting arms sales to belligerent nations, loans to countries at war, and travel by Americans on belligerent ships. However, these Acts made no distinction between aggressor and victim, treating both equally as belligerents, and limited U.S. ability to aid countries resisting Nazi Germany.

Roosevelt recognizes that the United States will eventually have to fight Germany but faces substantial isolationist opposition to direct involvement in European wars. He and his advisers make a determined push to revise the Neutrality Act by ending the arms embargo, arguing that cash-and-carry arms sales would allow Britain and France to purchase weapons while keeping America out of war. Congress finally agrees to the proposed changes on November 4, 1939, two months after Poland’s invasion. The “cash-and-carry” provision requires that purchasing nations pay in cash and transport materials in their own vessels, theoretically protecting American ships and financial interests from attack while allowing arms manufacturers to profit from the war.

The 1939 revision demonstrates the tension between preventing war profiteering and supporting allies against fascist aggression. While earlier Neutrality Acts had attempted to constrain corporate war profits based on World War I lessons, the 1939 changes prioritize strategic imperatives over anti-profiteering concerns, enabling American arms manufacturers to legally supply Britain and France. U.S. companies including Texaco, Standard Oil, Ford, General Motors, and Studebaker had already exploited loopholes in earlier Acts to sell trucks, oil, and other materials to General Franco’s Nationalists in Spain on credit (the Acts did not cover “civil wars” or civilian-use materials), accumulating over $100 million in debt by 1939. The Neutrality Act revision of 1939 formalizes corporate access to war profits while maintaining the fiction of neutrality, establishing precedents for the military-industrial complex’s role in foreign policy that expand dramatically during and after World War II. The legacy of the Neutrality Acts is widely regarded as negative since they initially aided Nazi Germany by preventing U.S. support for countries resisting fascist aggression, demonstrating how anti-war sentiment can be manipulated to benefit authoritarian powers.