Full text of Marriner S. Eccles Papers : Letter to Mr. Eccles, Box 32, Folder 13, Item 1

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

OFFICE OF WAR MOBIUZATION AND RECONVERSION
WASHINGTON, D. C.

April 9, 1946

Mr. Marriner S. Eccles, Chairman
Board of Governors
Federal Reserve System
Washington, D. C.
Dear Mr. Eccles:
Attached is a copy of the Stabilization Report
which was made to the President and released by the
White House yesterday. You may find it useful in the
next few weeks in connection with any statements or
radio broadcasts on stabilization which you may have
in mind.
Additional copies of this report are available
from the O.E.S. - Mr. Douglas Bennet, Room 1202, Federal
Reserve Building. It would be helpful if your Director
of Information would give some thought to whether he
can effectively use additional copies by putting them
in the hands of key people or distributing them to
field offices and other established channels of
information.
Sincerely yours,

nthony Hyde
Deputy Director of
and Report

Enclosure

ACCOUNTING

"HOLD-THE-LINE"

TRUSTEESHIP

ORDER

PROSPECTS

UNDER

OF APRIL
FOR

THE

8,
FUTURE

From

Chester Bowles, Director
Office of Economic Stabilization

Paul Porter, Administrator
Office of Price Administration
W. Willard Wirtz, Director
National sVage Stabilization Board
John D. Small, Administrator
Civilian Production Administration
Clinton P. Anderson
Secretary of Agriculture

April 8, I9I46

HOLD FOR RELEASE

CAUTION:

NOTE:

HOLD FOR RELEASE

The following MUST BE HELD IN CONFIDENCE
UNTIL RELEASE

Release is for all regular editions
of Monday morning papers, April 8, 1946
Release by radio commentators not
earlier than 7:00 P.M., E.S.T.
Sunday, April 7, 1946

Charles G. Roes
Secretary to the President

The President today made public the attached
report of the movement of prices, rents and.wages
in the three year period since issuance of the
"Hold-the-Line" Order on April 8, 1943.

THE PURPOSE OF THIS REPORT

Three years ago today, on April 8, 1943, President Roosevelt issued his
Hold-the-Line Order. It was designed to check a steady increase in the cost
of living which threatened to break down the stabilization program wisely provided by Congress earlier in the war to protect the country from the ravages
of wartime inflation. The "Hold-the-Line" Order directed the stabilization
agencies to take certain stieps to insure that the intent of Congress-would be
carried out.
...
As heads of the agencies charged with administering the stabilization
program we again take the anniversary of the "Hold-the-Line" Order as an
opportunity to give you,an accounting of our trusteeship. This report also
contains our best estimate of the possibility of keeping the general level of
rents and prices reasonably stable in the critical months ahead.
But our report also has a more basic purpose.
Today after sacrificing the lives of almost a quarter of a million of our
finest young men for world peace and security, this nation stands at a crossroads. We believe that one way leads to economic disaster; the other to a
future of long-range prosperity. And there is no middle path.
The vast majority of American businessmen, farmers, factory workers and
housewives are determined that we must choose, the right road. Yet today there
is grave danger that we will be stampeded into a severe snow-balling inflation.
And if inflation comes the inevitable result will be depression, widespread
misery, several years' delay in our transition to a sound, full-production
economy, and serious impairment of our leadership, in the endeavor to build lasting world peace and security.
'
...
^
\.
Three years ago the American people faced a problem which was in many ways j
similar to the one we face today. It was the problem of achieving all-out pro- j
duction without at the same time creating runaway inflation. . •
J
We who are responsible for the administration of the stabilization program
feel that a look backward over the ground that has been held in the fight
against inflation should provide renewed confidence in this nation's ability to
prevent a disastrous boom and .collapse in the months ahead. : And we believe that
the record'of the last three years should give us renewed determination to take
whatever steps are necessary to see the fight through to a successful finish.
/

WHAT :HAS HAPPENED TO PRICES,
.
RENTS AND WAGES IN. THE LAST THREE YEARS?

• .

Every housewife knows that during the last three years since the issuance
of the "Hold-the-Line" Order, the prices of many individual items hsve .increased.

— 2—

For example, according to the Bureau of labor Statistics, the general
.level of c lotting prices ha a .risen 17.2 jpo.rcent from the time •• the "Hold- tlhe-Line" Order became effective- and-February-19U6. H.ous.e furnishings have
r.ise*n 18.6 percent in the same period. • ... , - ... •-•. -. ;
Both fields presented difficult pricing problems which -government and
industry together failed to meet adequately in the early days, of the war,
Today those problems are being dealt with more effectively and results are
beginning to show in more and better merchandise in the lower price ranges.
It should be remembered that, while increases in clothing and house
furnishings prices have had a serious effect on the cost.of living in this
war, those increases have been nowhere near so large as they were in the last
war when clothing prices rose 200 percent and house furnishings went up 179
percent.
There have also been substantial increases in a number of minor items
such as.beauty and barber shop services and theater tickets on which the
government has no authority to place price ceilings. .

But clothing* house furnishings and the troublesome miscellaneous items
on which there have been substantial price increases during the past three
years .— together .take., only about one-third, qf the expenditures of the
moderate income, urban family. On the other hand, rent> food, fuel, ice,
electricity and certain other items ~ on which there has been little or no
increase since the "Kold-the-Line" Order — together take.about two-thirds
of the moderate income family's expenditures.
This two-thirds of the cost of living has been held generally stable
and has prevented increases in the other one-third from causing a sharp rise
in the over-all cost of living.
According to the Bureau of Labor Statistics of the Department of Labor, \
the general level of rents has increased only three-tenths of one percent
/,
fromtoay.19ii3 to February 19l|6 (the latest date for which figures are available) i
' '
C
Food prices, which alone take U0 percent of the moderate income, urban \
family's budget, are actually lower by almost two and one-half percent than
C
they were three years ago, according to the Bureau of Labor Statistics* Because^
the moderate, income family spends about three times as much for food as for
.'
clothing, even this small decline in the general level of food prices is sufficient to- prevent the increase in clothing prices from raising the general level
of consumer prices substantially.

Probably because many families have been eating more and better food
and have therefore paid higher total food bills during the last few years,
it is- often hard to. convince the .average housewife that food prices have been
held generally stable. For the housewife who prefers to check the bureau of
Labor Statistics in her own way, the best evidence that food prices have in
general been held is a comparison of the actual prices of the most frequently
purchased items as they appeared in food store advertisements for May 19U3
today.

Almost invariably it will be found that the average market basket of
groceries can be bought today for the same amount —^ or a little less —

than it cost three years ago.

- 3 -

"...
:
:.-,-:.
Putting all of these" factors together, the Bureau of Labor Statistics..- •
reports that. the. general level of all consumer prices has risen 31 percent s'ince
September 1939 when, the. war in.Europe began. This is a creditable record when..it is remembered"that during the inflationary period of the last war llving;.
costs-rose to'a peak 108 percent above the -ore-war period.
But even more important is the fact that nine-tenths of the 31 percent increase in this, .war occurred before the "Hold-the-Line" Order. In the three year
period since then — a period of unprecedented inflationary pressures — consumer prices, according to the Bureau of Labor Statistics, have increased only
3.4 percent. In the" same threer-year period prices of industrial materials have
risen only 4.8 percent, and wholesale prices have gone up only 3.5 percent.
• Everybody knows that there has been some deterioration in quality,
"Bargain sales'1'are a thing of the past. The lower priced goods" in many fields
have-disappeared. Thus, in order to get a more nearly accurate estimate of the
cost/of living increase in the past three years, something must be added to the
3.4 percent which the statistics show.
But even with a reasonable addition for this purpose, the American people
have established a stabilization record of which they can well be proud. It is
a record which should settle once and for all the question of our technical
^ ability to resist an .inflationary blow-up in spite of staggering pressures.
1

Average weekly earnings of. factory workers were 4.2 percent lower in
February, 1946 than in May 1943;. and average hourly earnings were' 5.4$ higher.
• 'With the end of^ the war in August 1945 there were sharp cut-backs in takehome pay due to down-grading and-elimination of overtime. Since V-J Day. these
cuts have been partially restored through new wage agreements in. several'.
thousand industries. .This process is continuing under the new Wage-Price policy,
which'was announced oij. February 14th.
tt .
"The fallowing table compares the movement of the prices of important
cost of living items and of wages during the last three years with their movement in the :whole\of %,he World War II period and with World War 11 .

- 4 Percent
:
of Aver- :
age «• ;;..-••
Family .. -:
Expendi—. :
turee
:
100$

. •

•

. •

': ALL CONSUMER PRICES

•

•'

•

Eggs

•

;

Bread
.
Milk
Cereals-' : ' "'"• "Canned Goods-: •' _ -: •''
• : Fresh f r u i t s and'vegetables
%
Potatoes
'' '

•

16$

: RENT

• .13^.

•

' * •

•

(

•

• ZAIO

*
. *

:• • Industrial Prices
!.
Building Materials
:
Plate Glass '
:
Steel Plates
:
Copper
:
Anthracite Coal
:
Bituminous Coal
:
Textile Products
i
Blue Denims
:
Men's Cotton Hose

148
165

PRICES

•••••

:
:
:

17.2
6.5
4.7
54.0
15.9

3.2

• 48 .

18.6

j
:

:•

0.3

50
:
42
37
148
. 8 0

91
179

200
*

101

"'•••' "•

: • .,54.

s ALL WHOLESALE

: MISCELLANEOUS

3L<

•

( HOUSE FURNISHINGS " '•

214

-2.4
:
125
: .49
18
•: -11.1
:
85
;
24 . : -10.7
, : .125
: :
1.4
,
20a
-. : • 59 . ':
::
0.1
12
':
:
92
:
31
;
.
; , . . 9 4 •:, •: .
-0.4
;
.: 1 3 9 . •'- ••: • 1 8
: .4.3
,:
-0.2
• _ ,. .'. :
-,108- . : '. -6.2
,,.:
: . 119 • ; ' -23. •
: 291 :

ELECTRICITY, FUEL, ICE

.108$ •

, CLOTHING
:. . .Men's S u i t s
: /Men's'Shoes
!
House Dresses
• Cotton 'Work S h i r t s ; '"

'..".'. 40$ -;Vl F O O D - ••
'
'.
; '•' , " ' " / '
Round S t e a k ' ••' '
•
. .
Pork Chops

WORLD
:
WAR I .
: WORLD
: SINCE THE
$ Change : WAR I I . I T-3DLD THE
from J u l y . : $ Change :1 LINE ORDER.
1914 t o
: from Aug.; io> C h a n g e
peak of • : 1939 t o : : : frbm May 1 9 4 3
inflat.
•: Feb. 1946: to: Feb. 1946

8.5

25:

44
3.5
27
I • 4.8
35 \ . r
9.4
0 . r
0
13
:
13.1
15
!
0
44
:
15.9
.30
:
7.8
'51
:
4.9
104
:
16.4
77
:
3.2*

;

218 •

:
:
:
:
:
:
:
:

271
232
65
82
675
252
266
277

:
:
:
;...
:
:
!
;
:
:

: AVERAGE WEEKLY EARNINGS OF FACTORY
:
WORKERS

140

-4.2

: AVERAGE HOURLY EARNINGS OF FACTORY
:
WORKERS
•
•

5.4

(* No data available)

150

- 6THE RECORD HAS BEEN ACHIEVED IN SPITE OF STAGGERING INFLATIONARY
PRESSURES.

In the twenty-seven wartime months between the launching of the "Hold-theLine" program and V-J Day upward pressures on prices, due to unprecedented demand for an inadequate supply of civilian goods, were stronger than ever before
in history. When V-J Day came many people thought that sharp cut-backs in the
amounts of goods needed to supply thetarmed ftfrces and reductions in purchasing power due:to temporary unemployment would reduce the pressure on prices.
But the process of retooling our plants got underway much more quickly
than most people expected. Today employment is at a record peak in the peacetime history of our country. While take-home pay has been sharply reduced in
many cases, total purchasing power from current income still far outweighs the
supply of civilian goods which could be m^de available in retail stores in the ,
few months since full reconversion began". We are faced with severe shortages of
clothing, housing, consumer durable goods and"many food items. And tremendous
quantities of merchandise are needed merely'to fill the pipelines'of-our dis;:
tribution system.
•• "
\ . :. \ . • •
>:
. •.: ...:.-•. •••:.' ,.'./. ;
!
. Tofcay inflationary pressures'are many times greater than.'they were three
• to six months/after World War'I when inflation W o k e loose in'the' country
•

•

' •

- • "

•

;

•

' -

.:'•..'

•

;

'•..:.

•

r • : • ! • • ,

•

• •

...... WHAT HAS HAPPENED. TO PRODUCTION SINCE THE "HOLD-THE-LINE" ORDER?
:

Everybody agrees that all-out production is the only effective escape
valve for inflationary pressures." But there are those who say that in the fight
to maintain a. stable economy we have sacrificed production by imposing; "stifling"
price controls. What has actually happened to production in the past three years?
f

The fact is that total production for both military and civilian purposes
during the war exceeded anything this nation has ever known before.':" During the;
first World War/industrial production rfcse only a quarter'while industrial prides
doubled by November 1918. .During the war just past the increase in industrial|
production was four, to five times as much* as in the first war and industrial'3 •
prices increased only about 25 percent. (Although much finished war equipment:
such as planes, tanks and varships were not Bubject to price controls the basic
/materials which went into them were effectively held under price ceilings*) ': *J
1

•'••" ; This; record is even more remarkable when we consider'that both; industrial
prices and the cost of living index rose only about three percent from the time
"Hold^the-Xine11 Order went into actual operation in May 194& to V-J" Day; : Andthat'period of 'two'years and three months was-our period of; greatest production.
And what has happened to production since V-J Day? Severe dislocations were
to be expected in the process of converting our gigantic economic machinery from
war to peace. Production of many finished consumer goods is still lagging. Yet
•industrial production a3 a whole stands today at the highest point in our peacetime history — more than 60$ above the average of the pre-war years from 193$ to
1939. Employment is-at the highest peacetime levels on record.

Certainly it would seem-that, given the proper tools, the American people
have ample reason to be confident of their ability to stave off a. disastrous inflation and collapse during the critical months ahead and still create a flood of

production which will wipe out the possibility of a runaway inflation.

- 6-

THE DANGERS AHEAD.
But the next few months will be dangerqus, and difficult.
Even with the .present'rapid increase in production rates' continuing,, ..
supplies of goods available--to consumers are still short of the purchasing'"
power that people have from their current incomes. This gap will be closed in
the coming months as production expands and ,as business inventories at,all
levels are' built up to normal. There are still shortages of many materials and
parts used in manufacturing finished products. Most.of these shortages will
-k be eliminated as production expands in the coming months.
..., •
/**"
But in the meantime until shortages of materials and parts are
\
i eliminated and until the stores are full of consumer goods the danger of an
I explosive inflation is grave. Both business and consumers have immense
\ liquid savings. If they should become convinced that prices were going up
'sharply, they would try to protect themselves by turning their money'sayings
into whatever -goods they could find. This would mean that the actual working
.i-jiuand would greatly exceed supplies of everything. This is exactly the . ;•.
situation which gives rise to gyrating, cumulative inflation. "Hence it is ...
imperative to maintain price stability until the economy is working at
/capacity, shortages are eliminated.and people see the stores full of goods.

Nobody knows exactly how much prices would rise if our stabilization
controls were weakened or eliminated now. But we do know that inflationary
pressures arc many times stronger now than they were at this time after the
last war. The economic history'books tell the dismal .story of what happened .
in similar but far ^.ess dangerous circumstance.s at just about this time
,\
after ,tha last war, • • . '
...
Shortly after the Armistice in 1913 most of our leaders believed' that
the problem(iof. inflation was behind us, What controls we: had were discarded* •.
Prices dropped slightly while the reconversion process got-underway. Then.
the upward.,surge, began in 'March 1919. A frantic effort to reorganize our
defense's against inflation ?;as too late and.too weak. Businessmen began a . ,
perfectly natural scramble'for "inventories. Uncertainties about business
Costs and prices made long-range planning impossible; and hampered production.
As the co.st, of living moved up from1 62 percent.above pre-war levels to a peak
of 108 percent,above pre-war in the spring of 1920, millions of people living
on fixed incomes suffered, Workers who got wage, • increases found them swallowed
up almost-overnJ-gHt by new price increases. Men who had just returned from
war service found it-impossible to get their feet, on the ground and to get
started in bu.sine.ss-,
_ ../
Finally, when enough families, could no* -longer afford to pay the prices,
the final irvevi table' collapse came, in May .1920,• Factory payrolls'dropped kh,
percent leaving-nearly one-third of our factory workers unemployed. Businessmen lost eleven billion dollars in'the reduced values of inventories. Corporation
profits dropped from six&ict one half billion dollars to a not loss of fifty- ...
five million.. 106,000 businesses went .bankrupt. Farm income dropped 66
percent, and in the next five years' U53>000 farmers loat their properties through
foreclosures,
...
..
• .

— 7 —
tfHAT IS NEEDED TO INSUHE FINAL VICTORY OVER INFLATION

Vfo'hivs. the proof in.our wartime; record and in the record since V-J
Dcy that we can prevent a repetition of 't-hat disaster. The question is, are
we willing to deal with the present emergency in the same spirit and with the
saiua tools with which m me*t a similar emergency during the war.
The responsibility for determining the policies under which we as a
nation will face the stabilization task ahead rests entirely with Congress.
On the basis of thp record of the past.four years the American people can be
confident that Congress will fulfill"this responsibility in spite of heavy
pressures from special interest groups which-are'out to eliminate or cripple the
price and rent control legislation.
.
• ' .
As the heads of the agencies which are responsible for administering
the- stabilisation program we are convinced that the following legislation is
indispensable if the.danger of inflation is to be dealt with successfully
during the njxt crucial months.
. .
1.

A'e balieve that the"Emergency Price Control Act which expires on
June 30th must be renwesd without the crippling amendments which are
• now being proposed almost daily. The interests of the American people
would be better served by eliminating price control entirely rather
than encouraging the false sense of security which would result from
a mere illusion of price control.
And we believe that the Act must be passed in final form by May
at the latest. Already the delay in arriving at a final decision on
the course we are to take in'the months ahead is creating uncertainty.
Uncertainty, can only impede production and increase inflationary
pressures by encouraging hqarding and speculation. Above everything
else, the country needs to know where it stands. Before businessmen
can plan ahead in complete confidence they must-know that prices and
costs will remain generally stable. •

,. .

,2..----. Wife believe that effective price control and the subsidy program are
--••••- 'indivisible. - without a continuation of the present food subsidies
,. ...we- must expect sharp increases in food prices which would almost
certainly result in another round of wage increases, higher manufacturing
costs and still higher consumer prices.
.

. •

•

3& believe /that the Second War Powers Act must be extended beyend
June 30th to enable the government to prevent hoarding through inventory
controls and to .guide scarce materials into channels where they are most
needed. During the war the machinery of allocation and priority was a
powerful adjunct to price control, fie cannot expect to maintain our
'".',- economic stability and still get badly needed production — especially
in the clothing and building materials field — without the support
of allocations and priorities in the months ahead.
•

"I. We believe that uncontrolled inflation in the real estate field is a
serious threat ont only to rent controls, but to the entire stabilization
program, fife feel that it must be met through quick adoption of the
Patman Housing 3ill.

- 8We also urge that the nati6n act to check sharp
increases in
commercial rents. This step was first recommended eighteen months
ago. Since that time established businesses and veterans Drying to
get started in new ventures have in many arr.as been hard-pressed by
constantly rising rental costs.
5.

The stabilization agencies must have for the fiscal year I9J46—U7
adequate appropriations with which to enforce their regulations
and handle their v/orkloads expeditiously.

Given the necessary legislative tools, all of the stabilization agencies
have a heavy responsibility to administer them.wisely and with a minimum of
mistakes and delays Above all, they must avoid any action that might obstruct
all-out production. We must continue to have a sensitive stabilization
programtfhichtakes advantage of every opportunity to increase production.
tie must cut the red tape wherever possible. And we must make quick decisions
on prices wherever they are necessary.
Wage adjustments under the new wa£O-price policy must be acted upon
quickly and accurately within the industry patterns established by labor
and management in free collective bargaining between V-J Day and February liith
when the new policy was announced. Clearly, our ability to adhere to these
patterns will depend on our ability to hold prices and rents in line.

We must also be prepared to resist vigorously the inroads of any
individual group which is willing to risk the welfare.of the entire country
for its own selfish gain.
, •
Finally, success in our effort calls for a large measure of selflessness,
patience and give and take on the part of every group in the country —
businessmen, farmers and workers alike.
If we are prepared to face the next few critical months in the same
spirit in which we faced the war emergency, and if the necessary legislation is
passed, we believe that the last major stumbling block will be behind us.
We believe that the flow of goods which is now growing daily to record levels
willCome from our factories in even'greater quantities.
It is our earnest hope that if all goes well during .the next year the
danger of a severe inflation will have passed by the middle of 19U7* In
the meantime controls should be gradually removed wherever and whenever it
is safe to do so. By June 30, 19^7 only rent controls and some last remnants
of price control in a few isolated fields will remain. When that time comes we
.l.have the deep satisfaction of Knowing that we have come out of tha war
period with a firm foundation on which to build the full production, full
employment economy which we all agree our country can and must achieve.

Today America has almost within her grasp a future of economic security
and prosperity which is far beyond anything we have ever dreamed of in the past
It is unthinkable that with that goal in plain view and with the knowledge
that ws have met and dealt with an equally difficult task in the past, we vail
fail to take whatever steps are necessary to win through successfully.

Full text of Marriner S. Eccles Papers : Letter to Mr. Eccles, Box 32, Folder 13, Item 1

FRASER