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BOARD OF OF GOVERNORS THE FEDERAL RESERVE SYSTEM Office Correspondence To ' Mr« Goldenweiser m Date Subject; A u ^ t 19,19112 How t h i n g s s t a n d Frank R. G a r f i e l d C r i t i c a l problems b e f o r e t h e N a t i o n a s i d e f r o m t h o s e o f a s t r i c t l y m i l i t a r y n a t u r e r e l a t e t o overseas t r a n s p o r t and m a t e r i a l s f o r war p r o d u c t i o n . Then t h e r e i s t h e problem o f o r g a n i z a t i o n , and t h a t i s one t h a t seems t o d e f y s o l u t i o n * There are problems o f l a b o r s u p p l y , t o o , i n p a r t i c u l a r l o c a l i t i e s , b u t n o t w i t h s t a n d i n g a r a p i d r a t e o f i n d u c t i o n s t h i s problem seems much l e s s u r g e n t t h a n t h e o t h e r s mentioned. F o r t u n a t e l y enough a c t i o n has been t a k e n t o p r e v e n t p r i c e i n c r e a s e s so t h a t t h e problems o f t r a n s p o r t , p r o d u c t i o n , and l a b o r s u p p l y are n o t comp l i c a t e d by runaway p r i c e s as t h e y m i g h t have been* A t t i m e s i t may seem as t h o u g h t h e problems o f o r g a n i z a t i o n were c o m p l i c a t e d by h a v i n g one s e t o f managers p r e s s i n g f o r t h e maintenance o f s t a b i l i t y i n p r i c e s , wage r a t e s , and t h e l i k e and i t i s c e r t a i n l y t r u e t h a t a good many o f t h e most competent people a r e d e v o t i n g t h e i r e n e r g i e s t o t h a t problem. I t seems t o me c l e a r , however, t h a t t h e a l t e r n a t i v e problems would be more s e r i o u s and t h a t f a i l u r e t o t a k e a v i g o r o u s s t a n d c o n t i n u o u s l y on t h e i n f l a t i o n problem would l e a d t o t h e i m p o s i t i o n o f more r e g i m e n t a t i o n t h a n i s necessary i f t h e campaign a g a i n s t i n f l a t i o n and t h e d i s o r d e r t h a t would accompany i t i s waged i n an o r d e r l y fashion. I n p a s s i n g i t may be n o t e d t h a t t h e c e n t r a l problem f o r t h e Government i n h a n d l i n g i n f l a t i o n problems i n t h e coming months w i l l be t o secure c o n d i t i o n s w h i c h w i l l i n s u r e t h e f u r t h e r i n c r e a s e i n savings by t h e people o f t h e c o u n t r y e i t h e r on a v o l u n t a r y o r a compulsory b a s i s , I am assuming t h a t t h e t a x b i l l w i l l n o t be much l a r g e r t h a n t h e one passed by t h e House and t h a t any t a x b i l l t h a t w i l l be passed w i l l be w h o l l y i n s u f f i c i e n t o f i t s e l f t o p r e v e n t consumers f r o m h a v i n g enough income a f t e r t a x e s so t h a t i f t h e y chose t o t a k e i t i n t o t h e markets t h e y c o u l d push p r i c e s sky h i g h i n a v e r y s h o r t t i m e . A n o t h e r problem w i l l be t o p r e v e n t i n c r e a s e s i n c o s t s t h a t w o u l d f u r n i s h a good argument, and perhaps a r e a l r e a s o n , f o r p r i c e i n c r e a s e s . Overseas t r a n s p o r t The s i t u a t i o n i n t h i s r e s p e c t i s even worse t h a n I i n d i c a t e d i n my d i s c u s s i o n w i t h t h e Board. S i n k i n g s o f merchant Mr. Goldenweiser, page I2. s h i p s o f t h e U n i t e d N a t i o n s have c o n t i n u e d t o exceed d e l i v e r i e s o f new s h i p s and t h e merchant f l e e t o f t h e U n i t e d N a t i o n s i s now s u b s t a n t i a l l y s m a l l e r t h a n i t was when t h e U n i t e d S t a t e s e n t e r e d t h e war. I t w i l l n o t be back t o t h a t l e v e l u n t i l sometime i n I9k3$ assuming f u r t h e r i n c r e a s e i n b u i l d i n g and no f u r t h e r r i s e i n sinkings* I n a p e r i o d when t h e r e q u i r e m e n t s f o r s h i p p i n g are i n c r e a s i n g r a p i d l y t h a t c o n s t i t u t e s a v e r y s e r i o u s problem. I doubt t h a t t h e use o f cargo planes now under c o n s t r u c t i o n o r p r o posed w i l l a f f o r d much o f a s o l u t i o n t o t h i s problem f o r a l o n g time* I f a second f r o n t i s opened up i n Europe t h a t w i l l r e q u i r e shipment o f g r e a t amounts o f war m a t e r i a l s and w i l l t h e r e b y f u r t h e r complicate the shipping s i t u a t i o n * There a r e problems o f domestic t r a n s p o r t , t o o , b u t i t i s my i m p r e s s i o n t h a t most o f t h e s e can be s o l v e d t h r o u g h c u r t a i l C u r r e n t l y t h e r e are shortages ment o f c i v i l i a n t r a v e l and t r a d e . o f f l a t c a r s , open t o p c a r s , and t a n k c a r s on t h e r a i l r o a d s b u t t h e supply o f box c a r s seems t o be s u f f i c i e n t owing t o h e a v i e r l o a d i n g b r o u g h t about by t h e O f f i c e o f Defense T r a n s p o r t a t i o n * I t seems e n t i r e l y p o s s i b l e t h a t f r e i g h t c o u l d be s h i f t e d i n such a way as t o work o u t most c a r shortage problems except t h o s e on t a n k cars* That w o n f t answer q u e s t i o n s w i t h r e g a r d t o m o t i v e power b u t t h a t problem can p r o b a b l y be handled one way or a n o t h e r * "Whether most c i v i l i a n s , i n c l u d i n g salesmen, have t i r e s t o d r i v e t h e i r a u t o m o b i l e s i n customary f a s h i o n seems t o me, f r o m a n a t i o n a l s t a n d p o i n t , o f r e l a t i v e l y minor concern* I believe that eventually necessary r e s t r i c t i v e measures w i l l be t a k e n t o e l i m i n a t e none s s e n t i a l d r i v i n g and t h u s t o m a i n t a i n e s s e n t i a l s e r v i c e s and t h e p r i n c i p a l problem here i s t o g e t a c t i o n t a k e n soon enough. Production — materials A t t h e o u t s e t o f t h e defense program people were p e r f e c t l y w i l l i n g t o meet t h e obvious r e q u i r e m e n t f o r a l a r g e volume o f new p l a n t s p e c i a l i z e d f o r t h e p r o d u c t i o n o f f i n i s h e d war p r o d u c t s , such as guns and t a n k s , b u t t h e y were n o t so w i l l i n g t o produce more raw m a t e r i a l s * They s a i d t h a t most o f t h e m a t e r i a l s c o u l d be o b t a i n e d by c u r t a i l i n g c i v i l i a n consumption and b e s i d e s i t w o u l d be d i s a s t r o u s a t t h e end o f t h e war t o have on hand g r e a t l y e n l a r g e d c a p a c i t y f o r p r o d u c t i o n ; and t h e y p o i n t e d t o t h i j e k p a c i t y o f t h e J Q ' s . P r i m a r i l y as a r e s u l t o f t h i s a t t i t u d e t h e c o u n t r y now i s coming i n t o a p o s i t i o n where i t has more c a p a c i t y t o produce f i n i s h e d war p r o d u c t s t h a n i t has t o produce t h e m a t e r i a l s r e q u i r e d f o r t h i s p r o d u c t i o n and maintenance Mr. Goldenweiser, page I3. enough o f e s s e n t i a l c i v i l i a n s e r v i c e s . R i g h t a t t h e moment i t i s s t i l l t r u e t h a t some a d d i t i o n a l m a t e r i a l s c o u l d be o b t a i n e d f o r war purposes by r e d u c i n g o u t p u t o f c i v i l i a n goods, such as f a r m equipment* I t i s a l s o t r u e t h a t some a d d i t i o n a l m a t e r i a l s can be o b t a i n e d by t r a n s f e r r i n g e x c e s s i v e s t o c k s h e l d by some people t o o t h e r s who are s h o r t * Nevertheless the basic p r o d u c t i o n p r o b l e m , and one t h a t w i l l be w i t h us f r o m here o u t , w i l l be t h a t o f r e l a t i v e l y s h o r t c a p a c i t y f o r p r o d u c t i o n o f materials. That i s , i t w i l l be unless somebodjr e x e r c i s e s r e a l ingenuity i n the r e w r i t i n g of s p e c i f i c a t i o n s f o r f i n i s h e d products* Somehow Germany gets a l o n g on v e r y much s m a l l e r amounts o f m a t e r i a l t h a n we have a v a i l a b l e and c u r r e n t e f f o r t s by t h e "WPB and some people i n t h e armed f o r c e s t o reduce r e q u i r e m e n t s f o r m e t a l s i n s h o r t s u p p l y s h o u l d be encouraged* This whole problem o f m a t e r i a l s w i l l be s e r i o u s over t h e coming months and w o u l d be even more so i f t h e f a c i l i t i e s were a v a i l a b l e t o t r a n s p o r t overseas a l a r g e r share o f t h e p r o d u c t i o n t h a n now can be c a r r i e d * Of course t h e r e has been some i n c r e a s e i n c a p a c i t y t o produce m a t e r i a l s and i n l i n e s such as aluminum and magnesium t h i s i n c r e a s e has been and c o n t i n u e s t o be s p e c t a c u l a r * Pig i r o n c a p a c i t y i s b e i n g i n c r e a s e d by 10 p e r c e n t t h i s y e a r and s t e e l i n g o t c a p a c i t y by 5 p e r c e n t ( f r o m 88*6 m i l l i o n t o n s t o 9 3 * 7 ) J and f u r t h e r s u b s t a n t i a l i n c r e a s e s are p l a n n e d f o r e a r l y 19U3* Such c a p a c i t y i n c r e a s e s as these h e l p t o make p o s s i b l e a cont i n u i n g r i s e i n i n d u s t r i a l o u t p u t as a w h o l e , b u t t h i s r i s e f o r some t i m e has been l e s s r a p i d t h a n had been a n t i c i p a t e d o r t h a n w o u l d seem t o be r e q u i r e d t o u t i l i z e f u l l y t h e f a c i l i t i e s a v a i l a b l e f o r t h e p r o d u c t i o n o f f i n i s h e d war p r o d u c t s * L a s t November t h e Board 1 s i n d e x o f i n d u s t r i a l p r o d u c t i o n was a t 166 p e r c e n t o f t h e 1935-39 average* I n t h e e i g h t months f r o m t h a t t i m e u n t i l J u l y , when t h e i n d e x reached 179 or 180, t h e r i s e was about 8 p e r c e n t * To some e x t e n t t h e r i s e i n t h i s p e r i o d was l i m i t e d by c o n v e r s i o n o p e r a t i o n s * The p r o s p e c t seems t o be t h a t d u r i n g t h e remainder o f t h i s c a l e n d a r y e a r t h e i n d e x w i l l advance o n l y s l o w l y owing t o m a t e r i a l shortages and t h a t i t w i l l n o t r e a c h t h e 200 l e v e l * P r i m a r y p r o d u c t i o n o f most m a t e r i a l s i s i n c r e a s i n g o n l y s l o w l y and s t o c k s can be drawn upon i n i m p o r t a n t amount over an extended p e r i o d o n l y f o r items such as r u b b e r , s u p p l i e s o f w h i c h were accumulated e a r l i e r * Scrap c o l l e c t i o n w i l l be i n c r e a s e d b u t t h e r e c o r d so f a r on t h a t i s n o t t o o encouraging* This slow i n c r e a s e i n i n d u s t r i a l p r o d u c t i o n w i l l r e f l e c t marked i n c r e a s e s i n o u t p u t o f a i r c r a f t and o t h e r m u n i t i o n s , o f f s e t i n p a r t by f u r t h e r d e c l i n e s i n o u t p u t o f c i v i l i a n goods* Some t y p e s o f m i l i t a r y p r o d u c t i o n may n o t be expanded as much as had been planned* I t s h o u l d be n o t e d , however, t h a t f a i l u r e o f some o f t h e new p l a n t s t o o p e r a t e a t f u l l c a p a c i t y may n o t r e p r e s e n t f a i l u r e o f those p l a n t s t o t u r n o u t as much as had been a n t i c i p a t e d ; c a p a c i t y o f war p l a n t s was i n many cases g r e a t l y u n d e r e s t i m a t e d * Mr. Goldenweiser, page I4. The f o l l o w i n g t a b l e shows t h e volume o f i n d u s t r i a l p r o d u c t i o n f o r war and f o r c i v i l i a n s i n June 19U0 a ^ d i n J u l y 19Li2 as near as we can e s t i m a t e i t . INDUSTRIAL PRODUCTION ( P o i n t s i n t o t a l i n d e x , 1935-39 =* 100) Total Durable manufactures Nondurable manufactures Minerals For a l l purposes June July 191+1 19k2 June 191+1 July 191+2 180 95 61+ 21 32 23 6 3 89 68 15 6 159 7b 65 20 For war For c i v i ! Lians June July 191+2 19U1 127 51 59 17 91 27 1+9 15 A n o t h e r t a b l e shows a comparison between November 19Ul and J u l y 19l|2. INDUSTRIAL PRODUCTION ( P o i n t s i n t o t a l i n d e x , 1935-39 » 100) Total D u r a b l e manufactures Nondurable manufactures Minerals For 1a l l purposes Nov, July 191+2 191+1 Nov. 191+1 July 191+2 180 95 61+ 21 1+7 31+ 9 k 89 68 15 6 166 79 67 20 For war For c i v i ! .isms Nov. July 191+2 191+1 119 1+5 58 16 91 27 1+9 15 I t i s our e s t i m a t e t h a t o u t p u t o f d u r a b l e i n d u s t r i a l p r o d u c t s f o r war p r a c t i c a l l y doubled between November and J u l y ; t h a t war p r o d u c t i o n o f nondurable goods rose by t w o - t h i r d s ; and t h a t war p r o d u c t i o n o f m i n e r a l s i n c r e a s e d by h a l f i n t h i s i n t e r v a l * M r . Goldenweiser, page I5. For i n d u s t r i a l p r o d u c t i o n as a whole t h e r i s e i n war o u t p u t f r o m November t o J u l y was p r o b a b l y between 85 and 90 p e r c e n t . An i n d e x o f m u n i t i o n s p r o d u c t i o n r e c e n t l y p u b l i s h e d by t h e WPB showed a n i n c r e a s e o f n e a r l y 190 p e r c e n t f r o m November t o June and w i l l show a f u r t h e r increase f o r July. I t s h o u l d be n o t e d , however, t h a t t h e d e l i v e r i e s o f war p r o d u c t s , w h i c h i s f o r t h e most p a r t what t h e WPB i n d e x measures, were s t i l l a t a v e r y low l e v e l l a s t Novemb e r . We have i n c l u d e d i n t h e war component o f t h e B o a r d ' s i n d e x t h e p r o d u c t i o n f o r war purposes a l l t h e way back t o t h e m a t e r i a l s t h a t go i n t o t h e p r o d u c t i o n o f machinery t o be used i n t h e manuf a c t u r e o f m u n i t i o n s . A l s o , f o o d and c l o t h i n g f o r s o l d i e r s . I n c r e a s e s i n i n d u s t r i a l p r o d u c t i o n and i n a g r i c u l t u r a l o u t p u t , t o g e t h e r w i t h heavy shipments o f m i l i t a r y equipment and w i t h heavy t r o o p movements, have r e q u i r e d i n c r e a s e d domestic transportation. A l s o a c t i v i t y i n some s e r v i c e i n d u s t r i e s has been s t i m u l a t e d by h i g h consumer demand. I n p a r t , these i n c r e a s e s have been a c h i e v e d a t t h e expense o f a c t i v i t y i n d i s t r i b u t i v e l i n e s and i n some o t h e r forms o f s e r v i c e s ; t h e t o t a l o f p r o d u c t i o n , however, has been i n c r e a s e d and t h i s i s e v i d e n t i n n a t i o n a l income f i g u r e s , w h i c h r e f l e c t t h e volume o f p r o d u c t i o n t o g e t h e r w i t h t h e changes i n r a t e s o f pay and t h e l i k e . Income payments t o i n d i v i d u a l s reached an a n n u a l r a t e o f $111 b i l l i o n i n June and p r o b a b l y §112 i n J u l y as compared w i t h $97 b i l l i o n l a s t November. I n c r e a s e s i n t h e coming months may be l e s s r a p i d t h a n t h e y were f r o m November t o June i f e f f o r t s t o s t a b i l i z e p r i c e s , wages, and t h e l i k e are successful. There w i l l be, however, some f u r t h e r i n c r e a s e i n income as c a p a c i t y and o u t p u t c o n t i n u e t o expand. I n t h a t conn e c t i o n I am assuming t h a t a s u f f i c i e n t number o f w o r k e r s w i l l be a v a i l a b l e n o t w i t h s t a n d i n g t h e f a c t t h a t p r o b a b l y i ^ j m i l l i o n men a r e a l r e a d y i n t h e armed f o r c e s and i n d u c t i o n s are c o n t i n u i n g at a rapid rate. I t i s my n o t i o n t h a t o c c u p a t i o n a l deferment w i l l be extended as may be r e q u i r e d , p a r t i c u l a r l y i n v i e w o f t h e shortage o f overseas t r a n s p o r t t o c a r r y t r o o p s and s u p p l i e s . Organization There was a t i m e when a l l moving o f Washington o f f i c e s was a f t e r w o r k i n g h o u r s ; now people are o f t e n moved i n t h e m i d d l e o f t h e day and t h e i r f u n c t i o n s are changed a l m o s t as o f t e n as t h e i r o f f i c e s . As y e t no one has been able t o b r i n g enough o r d e r i n t o t h e process o f d i r e c t i n g t h e f l o w and u t i l i z a t i o n o f m a t e r i a l s f o r war and c i v i l i a n purposes. Of course i t i s easy t o s e t up an unreasonable s t a n d a r d o f p e r f e c t i o n as t o r e s u l t s , tfeeaa p a y i n g scant a t t e n t i o n t o the r e a l complexities of the problem; Walter Lippman t a l k s as t h o u g h i t w o u l d be simple f o r a p r o d u c t i o n man M r . G o l d e n w e i s e r , page I6. t o do t h i s j o b when a c t u a l l y t h e m a t t e r i s v a s t l y more comp l i c a t e d t h a n any p r o d u c t i o n man ever f a c e d . N e v e r t h e l e s s t h e r e q u i r e m e n t s are u r g e n t and i t does seem e s s e n t i a l t h a t a c t i o n be s u b s t i t u t e d f o r endless conferences i n more t h a n one q u a r t e r . P r o b a b l y as t i m e goes on and as p r e s s u r e s become g r e a t e r , t h e r e w i l l be more d i r e c t a c t i o n and l e s s n e g o t i a t i o n and concern f o r p r o p e r t y r i g h t s - a t l e a s t o f some o f t h e people - b u t t h i s i s a process w h i c h i s n o t e a s i l y c a r r i e d f o r w a r d i n a d e m o c r a t i c community d i s t a n t f r o m t h e scene o f a c t u a l combat* There has a l r e a d y been some i n c r e a s e i n army c o n t r o l w i t h r e s p e c t t o m a t e r i a l s , and i t i s l i k e l y t h a t t h e r e w i l l be f u r t h e r moves i n t h i s d i r e c t i o n , b u t I am by no means sure t h a t t h i s would solve t h e p r o b l e m s . Labor s u p p l y problems I am s k i p p i n g on t h e t h e o r y Ken W i l l i a m s can give you i n f o r m a t i o n you may d e s i r e . that Problems o f i n f l a t i o n The f a c t s w i t h r e s p e c t t o i n f l a t i o n can be c o n s i d e r e d i n terms o f c o s t - p r i c e r e l a t i o n s h i p s and c u m u l a t i v e market developments; a l s o f r o m t h e p o i n t o f v i e w o f consumer demand i n r e l a t i o n t o t h e s u p p l y o f consumer goods. From t h e l a t t e r (gap) p o i n t of view the c e n t r a l facts are: The volume o f income payments b e i n g r e c e i v e d by i n d i v i d u a l s i s a t an e x c e p t i o n a l l y h i g h l e v e l and i s c o n t i n u i n g t o increase. 2 . The amount o f such income w h i c h i s a v a i l a b l e t o consumers f o r t h e i r own use a f t e r payment o f p e r s o n a l t a x e s i s a l s o l a r g e and c o n t i n u i n g t o i n c r e a s e . I t a l s o seems c l e a r t h a t , n o t w i t h s t a n d i n g any t a x program t h a t may be adopted i n t h e near f u t u r e , d i s p o s a b l e income i n t h e hands o f consumers w i l l c o n t i n u e a t or above c u r r e n t h i g h l e v e l s . For some b a s i c f i g u r e s , t e m p o r a r i l y c o n f i d e n t i a l , see a t t a c h e d t a b l e . 3* Output o f consumers' goods has a l r e a d y d e c l i n e d s h a r p l y and many commodities, p a r t i c u l a r l y a u t o m o b i l e s and some o t h e r d u r a b l e goods, a r e a l r e a d y u n a v a i l a b l e t o most c i v i l i a n s . The volume o f goods a v a i l a b l e c u r r e n t l y f o r d i s t r i b u t i o n , however, c o n t i n u e s s u b s t a n t i a l l y above c u r r e n t o u t p u t as l a r g e s t o c k s o f many commodities had been accumulated i n v a r i o u s stages o f d i s t r i b u t i o n * A t department s t o r e s s t o c k s amounted t o lj..6 months 1 s u p p l y on June This was s u b s t a n t i a l l y above t h e 2 . 8 months 1 s u p p l y on hand a y e a r e a r l i e r and f o r many departments t h e CONFIDENTIAL CONSUMER POSITION ( B i l l i o n s of dollars) Annual rates3 Quarterly t o t a l s , unadjusted A d j u s t e d f o r seasonal . v a r i a t i o n D i s p o s a b l e ExpendDisposable ExpendSavings Savings income itures income itures 1941 1st q u a r t e r 2nd q u a r t e r 81.0 86.0 72.8 75.6 8.2 10.4 19.2 21,5 16.8 19-3 2.4 2.2 1942 1st q u a r t e r 2nd q u a r t e r 99.9 103.G 80.6 78.8 19.3 24.2 22.6 25.4 18.9 19.7 3.7 5.7 N o t e t — D i s p o s a b l e income i s income payments t o i n d i v i d u a l s l e s s d i r e c t p e r s o n a l t a x e s . E x p e n d i t u r e s i n c l u d e o u t l a y s f o r d u r a b l e goods as w e l l as f o r o t h e r goods and s e r v i c e s . Savings i s t h e i n d i c a t e d d i f f e r e n c e between d i s p o s a b l e income and e x p e n d i t u r e s . For t h e second q u a r t e r o f 1942 t h e i n d i c a t e d savings are lower t h a n t h e $ 6 . 5 b i l l i o n e s t i m a t e d by G o l d s m i t h . S o u r c e : — R . B. Bangs, Department o f Commerce. Mr. Goldenweiser, page I7. i n c r e a s e was much l a r g e r t h a n t h i s . D u r i n g t h e remainder o f t h i s y e a r s t o c k s i n d i s t r i b u t i v e channels may v e r y w e l l be s h a r p l y reduced, e s p e c i a l l y i f p r o s p e c t i v e shortages l e a d t o renewed b u y i n g by consumers. 1;. N o t w i t h s t a n d i n g t h e v e r y h i g h l e v e l o f incomes, t h e p h y s i c a l volume o f goods and s e r v i c e s purchased by consumers r e c e n t l y has been s m a l l e r t h a n t h a t a y e a r ago when incomes - b o t h b e f o r e and a f t e r p e r s o n a l t a x e s — were nowhere near as h i g h * a s i n r e c e n t months. D o l l a r e x p e n d i t u r e s i n t h e second q u a r t e r were o n l y J4 o r 5 p e r c e n t h i g h e r t h a n a y e a r ago, a l t h o u g h p r i c e s were 10 t o 15 p e r cent h i g h e r . 5» I n t h e second q u a r t e r t h e a n n u a l re^te o f s a v i n g s , as e s t i m a t e d by M i l t o n G i l b e r t and Robert Bangs^was 2b, b i l l i o n d o l l a r s as compared w i t h 10 b i l l i o n d o l l a r s a y e a r ago. Goldsmith ^ shows a s t i l l h i g h e r r a t e o f savings i n t h e second q u a r t e r . This v e r y h i g h l e v e l o f savings has t a k e n many f o r m s t t h e purchase o f savings bonds; t h e repayment o f consumer debt w i t h o u t t h e i n c u r r i n g of corresponding o b l i g a t i o n s ; the accumulation of c u r r e n c y , demand d e p o s i t s , e t c . I n the near f u t u r e presumably a l l t h e s e savings may c o n t i n u e and i n a d d i t i o n t h e r e may be a r e d u c t i o n i n mortgage debt as t h e number o f new mortgages d e c l i n e s (as a r e s u l t o f reduced p r i v a t e r e s i d e n t i a l c o n s t r u c t i o n ) and as a m o r t i z a t i o n o f o l d mortgages c o n t i n u e s . 6* I n . c o n s i d e r i n g a n t i - i n f l a t i o n p o l i c y f o r t h e f u t u r e , i t i s e s s e n t i a l t o i n q u i r e under what c o n d i t i o n s consumers w i l l continue t o increase t h e i r r a t e of savings; also t o consider c o s t price relationships. The a n t i - i n f l a t i o n program o f t h e Administra-* t i o n , announced i n f o r m a l l y by t h e m i d d l e o f A p r i l , has c e r t a i n l y had c o n s i d e r a b l e i n f l u e n c e i n t h e r e c e n t p e r i o d i n p r e v e n t i n g i n creased incomes f r o m b e i n g r e f l e c t e d i n a n t i c i p a t o r y b u y i n g and p r i c e i n c r e a s e s . Another i m p o r t a n t i n f l u e n c e , however, has been t h e a v a i l a b i l i t y o f many t y p e s o f goods w h i c h had been o r d e r e d b y merchants l o n g ago. I n t h i s p e r i o d some r e t a i l e r s have even been w o r r i e d about t h e p o s s i b i l i t y o f d i s p o s i n g o f t h e i r s t o c k s o f t e x t i l e s and t h e l i k e . As commodities t h a t have been i n p l e n t i f u l s u p p l y become scarce and as consumers b e g i n t o wear o u t some o f t h e t h i n g s on w h i c h t h e y s t o c k e d up l a s t January and l a s t summer, t h e r e may be renewal o f a c t i v e b u y i n g i n r e t a i l m a r k e t s . With l i m i t e d new s u p p l i e s becoming a v a i l a b l e , t h i s c o u l d go q u i t e a ways and b r i n g v e r y i m p o r t a n t p r e s s u r e t o bear on p r i c e s , e s p e c i a l l y i f i n t h e meantime c o s t s o f m a n u f a c t u r e r s and d i s t r i b u t o r s have been r i s i n g . A l r e a d y i n many u n c o n t r o l l e d f o o d markets p r i c e s had been r i s i n g and t h i s w i l l c o n t r i b u t e , a l o n g w i t h many o t h e r f a c t o r s , t o c o n t i n u e d demand f o r h i g h e r r a t e s o f pay, even t h o u g h t h e c o s t o f l i v i n g g e n e r a l l y i s b e i n g h e l d f a i r l y s t a b l e by t h e price control authorities* M r . G o l d e n w e i s e r , page I8. I n any e v e n t , i t seems c l e a r t h a t under t h e c o n d i t i o n s and p r o s p e c t w i t h r e g a r d t o income payments, t a x e s , and s u p p l i e s o f goods, t h e p o s s i b i l i t y o f a v o i d i n g tremendous upward p r e s s u r e on p r i c e s w i l l h i n g e v e r y d i r e c t l y on v o l u n t a r y s a v i n g by consumers, on t h e course o f p r o d u c t i o n c o s t s , and on t h e p r i c e p o l i c i e s o f m a n u f a c t u r e r s and d i s t r i b u t o r s * No compulsory savings program on a s c a l e l a r g e enough t o i n s u r e o n l y a reasonable amount o f p u r c h a s i n g power i n t h e markets i s i n immediate p r o s p e c t * Over t h e n e x t few months t h e upward p r e s s u r e on p r i c e s may become v e r y g r e a t ~ w i l l u n l e s s consumers go on i n c r e a s i n g t h e i r savings — e s p e c i a l l y i f costs r i s e . The P r i c e A d m i n i s t r a t i o n w i l l p r o b a b l y be f o r c e d t o r a i s e c e i l i n g s on p r i c e s o f many commodities, o r a t l e a s t t o arrange s u b s i d i e s . I f w i t h the p a r t i c u l a r combination o f v o l u n t a r y and compulsory a c t i o n t h a t e x i s t s now t h e s i t u a t i o n seems t o be g e t t i n g o u t o f hand, t h e n comprehensive measures f o r r e d u c i n g t h e volume o f d i s p o s a b l e income by i n c r e a s i n g t a x e s o r p r o v i d i n g f o r l a r g e compulsory savings — w i l l p r o b a b l y be g i v e n a much more s e r i o u s h e a r i n g t h a n a t p r e s e n t . Wage p o l i c y The wage p o l i c y e s t a b l i s h e d i n t h e L i t t l e S t e e l case has been p r a i s e d as a s t a b i l i z a t i o n move and damned as an i n f l a t i o n a r y move. Ken W i l l i a m s w i l l no doubt g i v e you a comprehensive memorandum on t h e s u b j e c t p r e s e n t l y * I n t h e meantime we have s a t i s f i e d o u r s e l v e s by s p e c i a l s t u d y o f t h e average h o u r l y earnings f i g u r e s t o a d j u s t f o r overtime t h a t the increase p e r m i t t e d under t h e 15 per c e n t p r o v i s i o n would be s m a l l , a t l e a s t i n terms of the previous a n t i c i p a t i o n s of workers. The amount o f t h e i n crease y e t t o be made a v a i l a b l e i n a l l m a n u f a c t u r i n g w o u l d be ©si*si4eFF8steiy l e s s t h a n h a l f a b i l l i o n d o l l a r s and f o r a l l l i n e s o f a c t i v i t y w o u l d be l e s s t h a n a b i l l i o n d o l l a r s a y e a r - - u n l e s s t h e i n c r e a s e s due t o change i n c l a s s i f i c a t i o n w i t h i n f i r m s i s l a r g e r t h a n we t h i n k * T h i s i s much l e s s t h a n t h e J b i l l i o n d o l l a r s o r more t h a t t h e OPA e s t i m a t e d as t h e amount o f i n c r e a s e . There i s a r e a l p o s s i b i l i t y tha-t s u b s t a n t i a l i n c r e a s e s w i l l be g r a n t e d t o t h o s e now r e c e i v i n g substandard wages ( i n t h e case o f c o t t o n t e x t i l e s , where t h e average h o u r l y e a r n i n g s a d j u s t e d f o r o v e r t i m e had been 51 cents i n Hay, t h e Board a l l o w e d an i n crease o f 7j| c e n t s an h o u r ) and t h a t t h e Board w i l l g r a n t minor i n c r e a s e s on t h e grounds o f e x i s t i n g i n e q u i t i e s . But, allowing f o r t h e s e f a c t o r s , t h e OPA e s t i m a t e s s t i l l seem h i g h * The i n c r e a s e s i n c l u d e d i n t h e s e grand t o t a l s w i l l n o t a l l come a t once and many o f them w i l l n o t come a t a l l s i m p l y because w o r k e r s w i l l n o t be s u f f i c i e n t l y o r g a n i z e d t o pres ; t h e i r c l a i m s * M r . G o l d e n w e i s e r , page I9. As l o n g as -wage i n c r e a s e s a r e k e p t w i t h i n t h e g e n e r a l range i n d i c a t e d i n t h e L i t t l e S t e e l and o t h e r r e c e n t cases i t can be argued t h a t t h e y need n o t n e c e s s a r i l y be i n f l a t i o n a r y i n any g r e a t d e g r e e . The a d d i t i o n s t o income payments w i l l n o t be l a r g e and some o f t h o s e i n c r e a s e d payments w i l l -probably be saved. M a n u f a c t u r e r s may be a b l e t o a v o i d i n c r e a s i n g p r i c e s by r e d u c i n g t h e i r outlays i n other directions. Taxes may be r e d u c e d and under p r e s s u r e i t i s u s u a l l y p o s s i b l e t o w o r k o u t o p e r a t i n g economies. On t h e o t h e r hand, t h e economies o f c a p a c i t y o p e r a t i o n s have a l r e a d y been a c h i e v e d and i t i s c l e a r t h a t h i g h e r wage r a t e s w o u l d p r o v i d e an e x c e l l e n t argument f o r demanding h i g h e r p r i c e s . I n general any p o l i c y w h i c h p e r m i t s one group i n t h e community t o g e t a h i g h e r r a t e o f r e t u r n , whether f o r f a r m p r o d u c t s , f o r l a b o r , f o r managerial s e r v i c e s , o r f o r t h e use o f p r o p e r t y , t e n d s t o encourage o t h e r groups t o i n c r e a s e t h e i r demands and t o c o n t r i b u t e t h e r e b y t o t h e g e n e r a l upward movement o f p r i c e s so d i f f i c u l t t o a v o i d i n a p e r i o d o f t h e s o r t t h a t l i e s ahead. The d i s c u s s i o n o f wage r a t e s and o f p r i c e s g e n e r a l l y has rum p r e t t y much i n t e r m s o f commodities and s e r v i c e s and n o t h i n g has been s a i d a b o u t c a p i t a l v a l u e s * I t is entirely p o s s i b l e t h a t people w i l l decide t o i n v e s t t h e i r funds i n f a r m land, urban r e a l e s t a t e , e t c . , thereby i n f l a t i n g values; plans s h o u l d be l a i d f o r h a n d l i n g any problems t h a t may a r i s e i n t h i s c o n n e c t i o n , as w e l l as f o r m a i n t a i n i n g o r d e r l y c o n d i t i o n s i n t h e m a r k e t s f o r commodities and s e r v i c e s .
@FedFRASER