Business: President’s Prices

Often and earnestly did President Roosevelt talk about prices during the early years of the New Deal. In those days the gist of his press conference remarks was that prices were entirely too low. Last week after prefacing pronouncements from two of his most trusted ministers, Secretary of Agriculture Wallace and Chairman Marriner Stoddard Eccles of the Federal Reserve Board (TIME, March 29), President Roosevelt declared that prices—at least of certain durable goods—were entirely too high. As a corrective the Government would drop its hitherto basic policy of stimulating heavy industry, direct its spending toward consumer industries (see p. 15).

While a timely warning against the inflationary upward spiral in commodities was admittedly in order, President Roosevelt moved onto spongy ground in some of his examples and explanations. Commenting on the President’s observation that trouble followed when the curve of durable goods industries passed the curve of consumer goods industries, Cleveland Trust Co.’s Leonard P. Ayres noted: “The recovery in durable goods is always faster than in nondurable goods. … It is true that improvement in durable goods is greater than in nondurable, but it is also true that most of the men still unemployed need to be employed in durable goods industries.”* Since the pump of heavy industry had been fully primed, no one seriously objected to a cessation of Government spending for that purpose. But to shift the spending into consumer channels only delayed the effect, since increased consumption would soon lead to expansion and modernization of nondurable goods industries, thus in turn stimulating the demand for durable goods. What seemed to be needed at this stage of Recovery, said most economists, was less Government spending all around. Cried President Frank Purnell of Youngstown Sheet & Tube: “If the President means to save money by not buying steel, and applies the savings to reduce Government expenditures and balance the Budget, I can heartily commend the action!”

A private bone to pick had the steel industry, for the President singled it out along with copper, as one of the commodities which had soared too high. The recent $6-per-ton boost, said he, was far more than was needed to cover increased labor costs. But the American Iron & Steel Institute figures that while higher prices will yield an additional $200,000,000, wages will be up $130,000,000; raw materials $85,000,000, leaving the industry $15,000,000 the worse. These calculations were on the basis of 1936 operations. With steel production now running at a belching 90% capacity, the Institute’s picture may be unduly pessimistic.

In copper the President had an airtight case, for that metal has been squeezed up by pure speculation. Anaconda, he said, could make money on 8¢ or 9¢ copper.

But President Roosevelt could not very well blame U. S. coppermen because domestic prices have merely trailed in the wake of the wild London market—until last week. Then, led by Phelps Dodge’s Louis Shattuck Gates, U. S. coppermen hiked the metal from 16¼¢ per Ib. to 17¢, bringing it above London for the first time with brief exceptions since the copper boom began last autumn. Copper is actually hard to get in the U. S., and Copperman Cates was apparently trying to stop the European drain on domestic supplies.

Politically it is always safe for a Democrat to take a crack at steel, but President Roosevelt soon learned last week that copper should not be treated in the same category. For one thing, copper wages are geared to the price of the metal, high prices meaning fat pay envelopes. Then there are the marginal, high-cost producers who open up when prices rise, shut down when prices drop. To the aid of these little fellows of the copper industry last week jumped Senator Burton K. Wheeler of the great copper State of Montana, trumpeting: “The price of copper can be reduced by cutting wages of miners to a scale where they will have to compete with the slave labor of Africa and the peons of Mexico. I don’t want to see that! . . . Independent mining companies in Butte tell me they have to get at least 14¢ in order to pay the present wage scale.” Withdrawal of Government purchasing would have little effect on either steel or copper at present because the demand from private industry is so insistent. The chief sufferer would be cement, since public works accounted for nearly one-half of the entire cement production last year: 112,000,000 bbl.

Shrewdly avoided by Franklin D. Roosevelt was any comment on one of the most conspicuous groups of soaring commodities—farm products, particularly grains.

Up 21¢ in the past fortnight, corn last week touched a twelve-year high of $1.33 per bu., a price which once looked mighty good for wheat. But wheat was as high as $1.45 per bu. for standard No. 2 contracts, while No. 1 sold at $1.50. Meantime in New Orleans spot cotton was up to 15¢ per Ib. with growers busy planting the new crop in the fervent hope that it would be 20¢ by harvest time.

What if anything he proposed to do about prices, beyond curtailing Government purchasing, the President did not say. Action came over the weekend—but in precisely the opposite direction. “With a view 1) to exerting its influence toward orderly conditions in the money market and 2) to facilitating the orderly adjustment of member banks to the increased reserve requirements,” the Federal Reserve Board’s open market committee announced that it was prepared to resume the buying of Government bonds for the first time since 1933, a policy which would directly swell the country’s money supply. Alarmed by the dropping bond market and the upward spurt in interest rates (TIME, March 29), the Reserve Board was back-watering, temporarily at least, in its determined pull for the shores of boom control.

*”The casual reader of the financial columns must prepare himself for an extraordinary amount of nonsense out of Washington,” wrote the New York Herald Tribune’s cynical Edward H. Collins. “If present conditions maintain, for example, there is every reason to expect that in the next few weeks the rate of finished and unfinished steel production will be far exceeded, proportionally, by the amount of finished and unfinished balderdash emanating from the President and such alter-egoes as Mr. Eccles and Mr. Morgenthau.”