Now Priorities; Next Prices?

The Defense Commission is still as naked as the day it was born (May 28, 1940) of all but "advisory"' power. But last week it watched another feather sewn to the full war regalia it may some day don. Franklin Roosevelt appointed a new four-man priorities board. Administrator was Donald Marr Nelson, the Defense Commission's (formerly Sears, Roebuck's) purchasing agent. Chairman was Commissioner Knudsen, its member commissioners Stettinius, Henderson. Purpose of the board was to work out a priorities system. In some industries--notably among the more defenseless customers of copper-- priorities were already needed to determine who gets what. And besides, if logjammed suppliers are told they must make defense deliveries first, stall off their old (and often more profitable) private customers, this may encourage some of the plant expansion the U. S. sorely needs.

The new board, like the Commission, has as yet no administrative powers. But its creation was significant nevertheless. A priorities system is a war government's No. 2 weapon (No. 1: commandeering) for the enforcement of industrial edicts. The forging of the weapon reminded many businessmen of the edicts that may follow. And the edict they fear most is price controls.

When sage Bernard Mannes Baruch laid down the sceptre of economic power at the end of World War I, he gave the U. S. some shocking advice: that if it ever wanted to go to war again, it should fix a ceiling on all prices by fiat as soon as they threatened to go up. Mr. Baruch repeated this advice so often in the ensuing 23 years that many a businessman grew to think a war economy and price-fixing are inseparable. Already such businessmen see the corpulent outlines of price-fixing in the figure of New Dealer Leon Henderson, who sits on the Defense Commission (and now on the priorities board) as a price hawk, sounds off whenever a particular price seems too high.

Meanwhile, in the absence of any more formalized official price policy, price theorists have been making a private Babel of the subject. Among them: Hugh Johnson, Dr. William Trufant Foster of the Pollak Foundation, Economist Frank Ashmore Pearson (of Cornell's once famed goldbug team of Warren and Pearson), Brookings Institution's Harold G. Moulton, Brookings' Charles O. Hardy, whose Wartime Control of Prices, written for the War Department, appeared last month.

Main point of dispute was whether prices should be allowed to go up again or not. No. 1 advocate of price dictatorship was ex-Baruch-aide General Hugh ("Old Ironpants") Johnson. Said he: "You can't stop a skyrocket advance in prices of everything merely by tying prices of a few things to the ground. There is only one way to do this job. That is by fiat. ..." William Trufant Foster was just as gloomy, told hardwaremen: "I was on the Consumers' Advisory Board of the NRA and found it was window dressing. . . . The Government can't control the price level and stop the upward spiral." But unlike Johnson, he concluded the Government should keep hands off.

Forgotten Economist Pearson, who once wanted to manipulate all prices via the price of gold, also took a hands-off line. In a speech to farmers last summer he plumped for supply-and-demand, figuring it will get prices up just as effectively now as an inflationary policy did in 1933. For evidence Pearson went back to War I, recalled that in 1917-18 price inflation spurred production and cut consumption (by an estimated $8-10,000,000,000 for fixed-income groups). That, argued he, is the way to run a war.

Two other recent speeches took exception to this blunt thesis. One was made (to steelmen) by Dun & Bradstreet Economist Edwin B. George, who judged War I's price boom in terms of its crack-up in the 1920 depression, the most violent up to that point in U. S. business history. His counsel: "Price booms are more notable for their hangovers than for the fun they afford. ... At any point in the process prices become costs. Violent price spirals have firmly registered in many executives' minds as something to be dreaded, and by the same token there is little eagerness to be responsible for them. This may be industrial statesmanship or it may be merely a long memory." Seconders of this notion include SKF Industries' President (and defense dollar-a-year man) William L. Batt.

The other note of caution against Pearson's libertarian position came from a consumer's friend, American Retail Federation President David Rankin Craig. His point: War I's price ramp against consumption began when the U. S. was fully employed, cost the Government dear in higher prices for war goods, cost business dear in inventory losses when the war ended. But today "we are capable of producing a national income 20 billion dollars greater than at present. That was not true of 1916 and 1917. The existence of our unused resources is the main reason why prices have not risen during the past year any more than they have." General price inflation now, in short, would be not only bad but phony.

To ward off phony flurries, Craig's and 50 other U. S. retail associations were already at work last week. They had formed a Retailers' Advisory Committee headed by Columbus' Fred Lazarus Jr., Manhattan's Oswald Knauth, Chicago's Bruce MacLeish (halfbrother of Congressional Librarian Archibald MacLeish). six others. They had gone to Defense Commissioner Harriet Elliott (in charge of consumers' interests), cooperated her off her feet by proposing to 1) pool information about wholesale price increases, 2) discourage "buy-now"' scare campaigns, 3) publicize Government purchases, emphasizing their true relative size, 4) publicize all changes in the quality of merchandise. Behind them the Retailers' Advisory Committee had 10,000 stores, more than $1,000,000,000-a-year purchasing power--enough to scare any shortage-inventing manufacturer. So potent was the threat that the Committee took the precaution of securing the approval of Anti-trust Attorney Thurman Arnold.

With the Elliott-Lazarus apparatus. U. S. consumers were more elaborately protected against price rises last week than the Government itself. Although it could commandeer in a pinch, the Government's main safeguard was still Leon Henderson's eyes & ears. As yet Henderson has no need or desire for further apparatus. His price worries are limited to specific trouble spots. Example: lumber, whose price jumped from $28 to $48 a thousand feet in New England while the Army's cantonment orders were flooding the market last month.

But there are several other industries --steel, brass, machine tools, textiles--which are jammed to capacity with defense and other orders, and where, if the law of supply and demand were allowed full say, soaring prices could be expected any moment. In such bottlenecks the price controversy was most real last week. Within them, libertarians were for letting prices go up. Theory: the higher prices and profits would not only cut consumption, but also act as an incentive to plant expansion.

Leon Henderson disagreed. Gloated he at the New York Herald Tribune Forum last week: "Today the price level is lower than it ever was when wheels of industry were turning fast. This I regard as the healthiest sign of our industrial wellbeing. Low, noninflationary prices are necessary for stability and strength. . . ." Instead of letting free prices do the job, he and his fellow commissioners preferred to work directly for expansion. They were even encouraging inventory-buying in many lines, warding off future sales rushes.

They too had a theory, or part of one. It assumed: 1) that the bottleneck industries harbor no significant amount of small marginal capacity to be coaxed into use by higher prices; 2) but that higher prices now would simply shake off their non-defense customers; 3) and that as the price rise spread to consumer industries, it would reduce consumption, add to unemployment in the face of steady gains in defense output. Administration economists preferred not to discourage consumption at all until the U. S. has enlarged its present plant capacity to the point of full employment.

Question was whether full employment should be goal or by-product of rearmament. With the theorists still battling within and without the Commission last week, F. D. R.'s new priorities board, though it may become a weapon, was also a compromise.

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