Prices: The Great Aluminum Rattle

Washington has watched with in creasing apprehension lately as a series of litt’e price increases has crept across the U.S. economy. Businessmen have wondered just how lonq Lyndon John son would let this inflationary trend proceed unchallenged, even if attacking it would mean some cost to the good will that he has built up among them.

Last week they got their answer — but in a manner so indirect and ambiguous that it took the nation a week to fathom what the President’s real feelings and intentions were. Convinced that one of John Kennedy’s greatest mistakes as President was his bitter, demagogic con frontation with the steel industry, John son managed to show his strong dis approval of price rises without uttering a single word in public.

Tales of Temper. It all began when Olin Mathieson, Reynolds Metals and Kaiser Aluminum announced plans to raise prices of primary aluminum about 2%, from 241£ to 250 per Ib. Two days later, the Texas White House quiet ly posted a notice that White House Special Assistant Joe Califano would meet with three Cabinet secretaries (Defense’s Robert McNamara, Treas ury’s Henry Fowler, Commerce’s John Connor) to consider ways of selling part of the Government’s huge aluminum stockpile. Though the notice said nothing about prices, the New York Times, acting on information from the Administration, headlined a story linking the two events. It quoted “Administration sources” as saying that Lyndon Johnson was “sputtering mad,” intimated that the surplus sale—which presumably would weaken aluminum prices—was a reprisal against the industry for its price hike.

Taking up the scent, other newspapers elaborated on the theme; soon, Administration sources were quoted describing Johnson as “foaming at the mouth.” Disturbed by this overdrawn image, the Texas White House began issuing denials. The President’s temper, said his aides, was quite cool. The stockpile meeting, announced Press Secretary Bill Moyers, was one of a series that had begun in January with industry representatives to seek a long-range plan to dispose of surplus aluminum.

At week’s end the Aluminum Company of America, the industry’s leading producer, announced that it would go along with the price rises (which left the metal selling for 10 per Ib. below its 1960 peak). That move, flagrantly ignoring Johnson’s veiled warning, brought the Administration into the open. At a press conference in Wash ington, called at Johnson’s specific command, Economic Adviser Gardner Ackley, Defense’s McNamara and Treasury’s Fowler declared that the alumi num price rises “have no justification under the wage-price guideposts and therefore are inflationary.” Though he denied that the decision had anything to do with aluminum price rises, McNamara announced that the Government will sell 200,000 tons of surplus alumi-num at market prices in 1966, allowed that the sale is “bound to relieve some of the pressure on prices.”

Backroom Battle. All week behind the scenes, the Administration tried to persuade the balking aluminum companies to buy the surplus tonnage it wanted to unload, dropping the politic mask of silence only when the firms rejected each of five alternate Government proposals. Determined as the Government may be, the extent to which it can affect aluminum prices remains in doubt. Now running close to 100% of its 2.7 million-ton-a-year capacity, the industry nevertheless cannot meet domestic demand. Furthermore, by law the Government must sell its surplus metal at market prices. It can, however, choose instead to provide it as Government equipment for defense contractors, thus cutting its own expenses. The 200,000 tons that the U.S. intends to dispose of next year—a good deal less than the nation will import—just about equals the expected rise in defense consumption of the metal.