Luxuries–Just Luxuries

Last week even the President took notice of one of the most incongruous and politically uncomfortable facts in the U.S. war economy.

Despite all talk of belt tightening and return to depression living, the U.S. will celebrate its first year of war and its second wartime Christmas with one of the biggest buying sprees in its history.

Retail sales for October (see chart, p. 84) were running above sales for the same month last year even after price advances were discounted. Total dollar volume for the year may reach $56 billions as against the $48 billions of palmy 1929.

Without mentioning these figures, which make strange reading in other United Nations’ capitals, the President told a press conference his opinion of the jam-packed shopping districts around Washington. Three-quarters of the display windows, he pointed out, were crammed with luxuries—just luxuries. If the merchants would only put these luxuries out of sight, people would not ask for them. If people did not ask for them, shopkeepers would not try to reorder them. If shopkeepers did not reorder them, manufacturers might conserve vitally needed manpower.

What this little economic sermon failed to state was that this fall’s buying boom is less the citizen’s fault than that of his Government. One of the oldest theorums of practical economics is that if people have a lot of money, and if prices are held down, goods will go off the counter. The Administration by its own policies has created precisely these two conditions.

As to the money in the citizen’s pocket, Treasury Secretary Henry Morgenthau Jr., having recently defeated a sales tax, is still playing with cheap-money methods of financing the war which have a direct inflationary effect. As to cheap prices, Price Boss Leon Henderson has been doing a sterling job of creating retail bargains.

Last week, for instance, the OPA slashed the price of women’s full-fashioned nylon stockings from around $2.95 to $1.65. A Manhattan department store was advertising rye whiskey at $2.29 per quart, and Scotch at $3.29 per fifth. Gasoline, which the citizen ought to conserve, is still offered to him at between 17¢ and 23¢ per gallon—and the Government is paying a transportation subsidy to the oil companies to keep the price down in the East.

All this added up to a case for the proposition that the Washington experts might have done better had they concentrated price fixing and rationing on a few basic necessities, typically food, while allowing luxuries to find their own price in the market. Against such a policy the OPA argues that it is extremely difficult to distinguish between necessities and luxuries, and secondly that if luxuries rise in price, manufacturers will switch into making them rather than necessities. But OPA tends to gloss over the fact that higher prices also reduce the demand for goods.

This fact has something to do with the behavior of retail sales in the U.S. since the war began. At first prices rose steadily and so did retail sales measured in dollars.

In January of this year, although dollar sales indexes were up 13% over January 1941, the physical volume of goods sold was down 3%. This general relationship continued through the first part of the year when prices were still advancing. This fall, however, with prices stabilized, larger dollar sales are reflecting an actual increase in goods sold.

Meanwhile, caught between Mr. Morgenthau’s well-meaning ineptitude as a wartime Secretary of the Treasury, and Mr. Henderson’s great ability in keeping prices down, the U.S. citizen continued to act as economic man: he does his Christmas shopping on a big scale. Next year the case may be different. By then stocks of many goods will be exhausted as a result of the Government-promoted buying wave of 1942. And by then taxes affecting mass purchasing power—which the Treasury so long resisted—will be catching up with the nation’s pocketbook.