How High the Sky?

Once upon a time an acorn landed on a hen named Chicken Little, who ran to tell Ducky-Lucky that the sky was falling. Ducky-Lucky told Goosey-Loosey, and in a little while all the creatures of the nursery story's barnyard, without bothering to look up, decided that the sky was indeed falling.

Last week the Chicken Little economists were running about the U.S. shouting cries of alarm. "Catastrophic inflation" is coming, they said, and quickly. To be sure, they had felt more than the ping of a single acorn. Since the start of the Korean war, there had been a slow pitter-patter of inflation. Prices had risen sharply, followed by wage boosts which threatened still further price hikes. And last week more acorns hit: auto prices started going up again (Hudson, Kaiser-Frazer, Willys, Packard and Nash boosted prices from $10 to $127), and two small steel producers hiked their prices $5-$10 a ton on steel products, a possible forerunner of a general boost in that prime raw material.

But did that mean that the economic sky was going to fall? There was no sign of such a catastrophe in the barnyard--or in the sky. Despite the big rise in prices, commodity prices had still not yet reached their boomtime peak of 1948 (see chart). On the contrary, the first rumors of peace last week sent the Associated Press index of commodity prices tumbling in the biggest break in more than two years.

Quick Killings. There was also proof that some "scarcities" which had helped send up prices had resulted from speculators loading up in the hope of quick killings. Last week, some of them were already unloading. In Manhattan's Worth Street, dealers were dumping hoarded textiles at 2-c- a yard less than mill prices.

And those who pointed at the swift rise in bank loans as evidence of galloping inflation also overlooked some important facts. Loans had climbed $1.9 billion in 14 weeks to $15.3 billion, but industry had needed big money to step up production. Business loans were still below 1948'$ peak of $15.6 billion, while production had long since passed the 1948 high mark (see chart). Thus loans were considerably lower in relation to the economy's actual output.

In the same way, the surge of scare buying by civilians in the first post-Korea rush had caught the eye of Congress and helped bring on consumer credit controls. By last week, sales had slumped until they were barely above the previous postwar peak in 1948. Moreover, many a family which had decided in July to buy a new car or get the house painted--and hadn't yet done so--was now giving the matter second thought.

Sharp Cuts. This week the Administration planned to slap on new credit controls designed to trim the rate of new housing starts from the current 1,400,000 a year to 800,000. That alone would free about $3 billion worth of materials and thousands of workers. In fact, builders already had cut back so sharply that some of them were warning that existing controls will carry "deflation" in building too far (see Housing).

Nobody could say with certainty how much more inflation is ahead for the U.S. when the big new arms program begins to cut into the civilian economy in the next six months. The economy, which had been close to its postwar peak when the Korean war began, was showing an amazing ability to keep right on growing and handling the new burdens. Last week the industrial index hit an estimated 212, an 8% increase in output in the last three months. Since production is the only real preventive of inflation, it looked as if those who were calling for all-out wage & price controls and tight restrictions on how and what industry should produce were being frightened by falling acorns.

This file is automatically generated by a robot program, so reader's discretion is required.