INFLATION: Voice of Experience

By last week inflation was no longer a future threat to the U.S., it was here. Since August 1939 (chosen by the Bureau of Labor Statistics as the index month for prices of 28 basic commodities) prices have risen steadily. After 23 months of piecemeal price control, the Administration and the House Banking & Currency Committee hacked out a tentative control bill. Last August the committee began hearings. After two weeks of desultory wrangling, the committeemen adjourned. The price index then had risen 50%.

Last week—a month later—the committee returned to its boggled bill, and found that the index had jumped seven points, stood at 157.

Price Boss Leon Henderson told the committeemen: twelve of the 28 basic commodities were already subjected to price control. The price index of the controlled twelve had dropped 2.4 points; the uncontrolled had leaped from 154.9 points to 168. While the committee argued, basic foodstuffs had risen from 159.9 to 172.2. Said Henderson with ironic innocence, as if he were not spanking the committee:

“To sum up, the past month has witnessed a persistent spread of price increases from raw materials to semi-manufactured and then to finished goods. These in turn are more and more being passed on from wholesale to retail markets, and are affecting the living costs of the entire consuming population as well as the operating costs of the farmers.”

With relief the committee then turned from these disagreeable reminders to listen to the voice of experience, that of Elder Statesman Bernard Mannes Baruch, World War I defense tsar. Baruch’s testimony had been advertised as a thwacking assault on the bill. Several committeemen hoped this would include a few attacks on Henderson. But tall, silver-haired Bernard Baruch had nothing to say against Henderson; he paid him tribute, called him “Brother.”

Baruch’s testimony was much more than an attack on the bill. In a few hours he strove to educate 16 Representatives in the entire theory of total war, to persuade them into his belief that price control is essential, now. But price control, “the greatest single necessity of our present crisis,” he argued, “must be intimately tied up and move in step with all other war controls, wage and rent control, priorities, conservation, commandeering, war trade, war finance. . . . They are like the fingers of a hand. Without all together, the job cannot be done satisfactorily.”

Chief points in Statesman Baruch’s lesson:

> “Total defense must plan to fight, to win and, above all, to survive war. It must mobilize men, money, materials, morale—all resources—so they can be tapped at will for national defense and without exploitation and with the least dislocation of civilians. . . . Full mobilization means transforming American industry from a highly competitive economy to a practically single unitary system under which all producers will cooperate, sharing trade secrets, pooling patents, resources, and facilities. . . .

> “In no instance must any industry be destroyed. The ‘fat’ can be taken off all business but the skeleton and vital organs must remain. . . .

> “Priority means giving to one before another. When this occurs the man who has been displaced will seek to replace his position. If the total supply is not sufficient to go around, he will bid a higher price to get what he wants at the time he can use it. Manufacturers naturally seek to give preference to such high-priced orders and so, in effect, you build up a private priority system that competes with and impairs the system of Government priorities. That is why Government priorities cannot be wholly effective without price control. . . .

> “Except for human slaughter and maiming and all that goes with them, inflation is the most destructive of the consequences of war. . . .

> “Some persons have said they fear price control might mean the end of our free economy. The demands of total defense already have suspended our competitive economy. The question to be answered is, will our industrial mobilization prove effective? If it is not, we may lose the chance ever to return to a free economic society. . . .

> “In our present defense organization, again speaking roughly, the general staff has at last been set up in the SPAB. Also, the specialized functional divisions are provided for. But there is no chief of the general staff and the industry committees have only begun to be established, the defense councils have still to be formed . . . the industrial army we have today still lacks regiments, brigades, and divisions. . . .

> “Price control is essential if Government salaries and appropriations are to have any meaning. What will happen to the teachers, war veterans, social-security beneficiaries, policemen, firemen, all the hundreds of thousands of Government employes, Federal, State, county, and city, if prices are allowed to run wild? . . . Again, with appropriations so much is voted for guns, tanks, and airplanes. Before they have been produced prices have jumped and to get the same number of tanks and guns and airplanes additional appropriations are needed.. . .

> “So great are the stakes, there must be no compromise in drafting an effective program of price control. … I proposed that some date on which the normal operation of the law of supply and demand can be said to have controlled prices be selected and that the entire price structure be stabilized. I mean not freezing but subjected to a ceiling, as of that date. . . . The bill before this committee will not stop inflation. . . .

> “I admit the question presents terrific difficulties. I realize it demands courage. I believe you have that courage. … I recommend the words of George Washington to the members of the Constitutional Convention. As you know, the delegates to that Convention originally were supposed merely to patch up the Articles of Confederation. . . . Happily, the delegates chose to be guided by Washington’s advice: ‘It is too probable that no plan we propose will be adopted. Perhaps another dreadful conflict is to be sustained. If, to please the people, we offer what we ourselves disapprove, how can we afterward defend our work? Let us raise a standard to which the wise and honest can repair. The event is in the hands of God.’ “