Price Control 1940

In World War I the U. S. economy underwent a steep price inflation. It served the purpose of stimulating swift increases of production and was not checked until War Industries Board Head Bernard Mannes Baruch negotiated fixed prices with steel, copper, other major industries.

In World War II prices as a whole have not run away. The Bureau of Labor Statistics index for 28 basic commodities was last week only 106.8, less than seven points above pre-war August 1939, and well down from last September's peak of 127.2. Meanwhile the price index of finished manufactured goods held practically level. The industrial raw materials index was 66.5 before the war, 72.3 in September, only 70.8 three weeks ago. Hence most businessmen do not yet fear runaway prices. Actually, they are more alarmed by the idea of price-fixing by the New Deal.

Since War II started, Franklin Roosevelt and his men have damped more than one price spurt by methods not always polite. Last fall the posted steel price threatened to rise; the Temporary National Economic Committee called steelmen to Washington, argued for low prices, hinted at an anti-steel publicity campaign; the steel price stayed put. When housewives started to hoard retail sugar (TIME, Sept. 23), the President untied import quotas; in came Cuban sugar, down went prices. Copper began to move upwards; the President said the price was being watched, and the move slackened. Few weeks ago domestic mercury sold as high as $200 a flask. So the Administration stopped issuing export licenses for domestic mercury (a strategic material) and the price fell to $190.

In all these cases the Administration's methods had a spur-of-the-moment look, gave no hint of how prices might be controlled in the face of a real inflation. But last week that hint was given. The offending commodity: chemical wood pulp used for paper, rayon, explosives. The method: a round-table agreement. Franklin Roosevelt, in describing it, clearly indicated that his Defense Advisory Commission had established a precedent.

When the U. S. pulp markets lost access to Swedish and Finnish pulp, prices zoomed. Unbleached sultite rose from $40-42 a ton at the end of 1939 to $50 in 1940's first quarter, to $63-50-$67.50 last week. Although the 1,235,000 tons of chemical (sulfite and sulfate) pulp which the U. S. imported from the northern countries last year were only a quarter of U. S. domestic production, they played a disproportionately large part in fixing pulp's market price, because most domestic pulp is used by the same integrated paper mills that make it, never goes to market at all. Some integrated U. S. companies with pulp to spare made money from the price rise, many a small paper mill got stuck.

Last week the Defense Advisory Commission, whose price-hawk is Economist Leon Henderson, met 17 pulp & paper men (including Richard J. Cullen, president of vast International Paper & Power Co.) in Manhattan, got an agreement for no further rises. Both sides agreed on one important fact: total U. S. pulp-producing capacity is enough for all needs, except for a few specialties. Then, said the Commission, there is no excuse for carrying pulp prices higher. Pulpmen agreed that further price changes should result "only from actual changes in basic costs." Blamed for the pulp squeeze by both sides were "psychological factors"--i.e., hysterical forward buying.

To other economists besides Leon Henderson, the precedent set by this meeting made good sense. For there is no real necessity for rigid price-fixing in any industry until it is working at full capacity (as in Germany, where all prices are controlled). Significant was a sentence in the Defense Advisory Commission's release last week: ". . . It is upon an adequate supply that the country must rely principally for price stabilization."

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