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November 25, 1942


Rationing plays an integral part in economic stabilization in wartine; it serves "both to reinforce price control as a check on inflation, and
to augment production control " y assuring the proper distribution of limited
civilian supplies.

Economic stability is threatened fry increasing
demand, even while the supplies of consumers*
goods are being curtailed. If uncontrolled.
the disparity between supply and demand would
cause inflation and maldistribution.
The measures which have been taken thus far to convert

the national economy from a peacetime to a wartime footing cannot achieve stability until they are complete and well integrated.
When the exigencies of war require a redirection of the use of
men and materials, so that administrative decisions replace the
mechanism of a free market, government cannot its responsibility to correct any ensuing maladjustments which would be
detrimental to the war effort.

In the present situation it is

clear that we face such,-maladjustments. Where necessary, therefore, existing controls must be extended and strengthened, and
new ones must bo introduced.
Large scale expenditures for direct war production,
coupled with generally increased economic activity, arc progressively expanding the volume of income payments. Despite all
efforts towards wage stabilization, and control through fiscal
policy (of which more later), this is creating a growing purchasing
povop which promises to magnify the already large demand for coni

sumers1 goods. Pressure to buy is further intensified by the

twin fears of higher prices and of shortages . Buying sprees and

— 2*
hoarding are contagious.
At the same time that demand threatens to run away,
supplies of the principal elements that enter into the cost of
living arc being curtailed.

Voluntary or enforced conversion

of men, materials, and facilities to war production, shipping
and other transportation difficulties, and shortages of fuel,
power, labor, and materials, all contribute to diminish the
flow of goods available for civilian consumption.

The impact

of these shortages is uneven both in timing and in magnitude,
but in many fields, as soon as present invontorios run out, the
situation will be acute.
In the absence of any controls, this progressive disparity between demand and supply would result in inflationary
price adjustments, market demoralisation, and intolerably uneven
distribution of goods. The cost of living would soar, resources
would be wasted as labor and materials wore bid from one use to
another, and with each individual and business firm trying to
protect itself in the ch'aotic scramble for goods, only those with
the fattest purses would win out.

When trices are controlled to check inflation,
the pressures on limited supplies are intensified.
Either price control will break down under the
strain, or the distribution of goods will become
The imposition of price controls alleviates some of

these dangers but aggravates others. As soon as prico rises are
checked, the pressures on supply are increased. Although inflation
is stopped, m d goods no longer flow to the highest bidder, the

scramble for them becomes intensified.

Sellers may operate on a



- 3 "first cone, first served" principle.

They may sell much to

fivorcd customers and none to others. 3uying panics nnoaf consumers - n retailers nay readily develop.

Stocks will " e de-'

pleted to the point whoro they are inadequate for normal "business
turnover. Hoarding, discrimination, and "black markets will
follow. Price controls nay "break down under the pressure.
In any of these cases, grave dangers arc imminent whenever the relative shortage exists in a commodity that is a
civilian necessity.

Those consumers most urgently In need of

certain goods nay not obtain enough to meet their nininun requirements. Public morale nay suffer when it is apparent that some
persons arc getting nuch more than others, that the hand-to-mouth
"buyer or the conscientious non-hoarder is "being penalized, and

that equality of sacrifice is a pretense. Moreover, severe
criticism will " e levelled at the government for failure to assume
its full responsibilities. Any one of these possibilities may resulc in individual hardship, public dissatisfaction, and a disruption of the economy tdthe point of seriously impeding the war

Rationing, is the means bfv which price control can
bo sustained and maldistribution avoided. It
adjusts total demand to the available suTroly. and
assures the "proper distribution of essential goods
anong individuals.
Rationing, if intelligently conceived and well administered,

and if introduced in tine, can correct the operations of an upset
, market and avoid these dangers. As such it is the essential counterpart of price control, when supplies are scarce relative to demand.


- 4 Rationing of consumer goods has boon subject to a groat


nany nisundorstan&ings*

It is in large part because of such mis-

conceptions that public controversy concerning certain rationing
programs exists. The United previous experience in this country
with rationing, togother with journalistic accounts of rationing
in Europe during and after World War I, has left the American public with a distorted idea of the nature and purpose of rationing.
To r.ost persons rationing is thought of in its negative aspect.
It suggests pale, hungry, shabty women and children standing in '
line patiently waiting for their turn to "buy what they know will
" e far less than enough to meet evenfiininunhealth requirements.
It is looked upon as something to " e undertaken only when shortages
in retail stores arc so acute that nony essential needs arc "being




Actually, this need not " o so; rationing need not " e imb
posed only at . time of acute shortage. Rationing ray " e used as
a preventive measure to insure reasonable quantities of scarce goods

for all consumers.

If imposed early enough, when stocks are still

high "but supplies coming into sight threaten to " e less, rationing
can maintain a high level of consumption, or it may slow down the
total rate of consumption in periods of rolntivo abundance and keep
up consumption in later periods at a higher level than would otherwise be possible.
Rationing is frequently thought of as something that
causes a sharp cut in production and severe curtailment in consumption-. Actually, rationing is a r:oans by which, if production

is curtailed or total demand is outrunning supply, equitable shares
of limited resources may be maintained.

In its positive aspect, rationing is a device to insure
that individuals got their needed share cf scarce goods. Thus
conceived, rationing does not connote a curtailment of total consumption.

Tor nost persons it assures larger supplies than they

v;ould otherwise receive.

It is the only means of cuarantcoing

equality of opportunity for "businesses to " u f n of individuals
by id
to consume fair shares of whatever is available after the primary
needs of the war nachine have "been filled.

The Office of Price Administration has introduced rationing in a few

limited fields where shortages v/ere particularly acute and serious disruption
of the economy would follow from uncontrolled distribution.

These programs

have not aided price control in general; only a wide coverage of the principal
commodities which make up the cost of living could accomplish this purpose,

Nine rationing "Programs are now in effect; tires, automobiles
typewriters, sugar, bicycles, gasoline in seventeen states, and
men1s rubber "boots and rubber work shoes, fuel oil, and coffee.
To date, the Office of Price Administration, acting on directives

fron the War Production Board, hjas instituted consumer rationing of the
following commodities; or groups of commodities:
Gasoline (East Coast)
Temporary Plan
Present Plan
Men's Rubber Boots and
Rubber Vork Shoes
Puel Oil

Effective Sate of the Order
December 30, 1941
February 2, 1942
March 13, 1942
April 20, 1942
Hay 15, 1942
May 15, 1942
July 9, 1942
September 29, 1942
October 1, 1942
November 22, 1942


-, 6 3

Another program has been decidod upon, and will bo started as
soon as possiblo; national mileage rationing.
The decision has been mado "by the responsible agencies that tho

Office of Prico Administration should extend gasolino rationing over the
entire country.

This is to be done in the form of mileage rationing, and

is to be integrated with tire rationing.

Subject to the vagaries of print-

ing, the distribution of materials throughout the country, and the administrative delays of perfecting plans and organization, this program
should be in effect by December 1.

We believe that it will be necessary to ration all essential
food and clothing early in 1943.
The extension of rationing to other fields depends on a number of

fundamental policy decisions which have yet to be made. We believe
that to protect the cost of living f n to assure equitable distribution
of the scarce basic necessities of civilian consumption, most items of
food and clothing will have to be rationed as quickly as we can get the
progrpns into operation. A few other items of durable consumers' goods
may rlso require certificate rationing.
In each of these fields we have skeleton staffs making preliminary
studies of the problems involved in rationing, and devising tentative
programs to blue print our future operations.

Our estimates show

progressive disparities between demand and supply in these fields and
indicate that the situation in 1943 will be explosive unless adequate
controls are imposed.
Tho urgency of the situation is evident from the data "below.
They arc the best present estimates of the shortages, expressed in r.iininum
and maximum figures.. They have been based on various assumptions about
the measurement of dc:v\nd and the level of military requirements.

- 7


No allowances have boon na&o for najor chances in manpower policy.
Deficit of ITcvr
Calendar Tcf\r 1943
Fiscal Year 1943
All Food
ICcat, Fish,

Excess of Demand
Over Sumoly


Kin. 1,015 Million Linear Yds.
}fax. 2,353
. "
134 Million Pairs

21 ocr cent
55 u
43 n

Max. 5,000 Million Dollars

25 p e r cent




fox, 1,810





The Dcthodi by which comodities or groups of comodlttot can "be rationed
must "be related to the peculiarities of the problem involved. An effective
rationing program must include the following features:

the cost equitable

distribution of scarce civilian essentials, the rxixlnun administrative sir-iplicity,
and the nininun disruption of the custonary channels of distribution.
Each comodity presents different pro"blc:'.is, so each of our
rationing is in sonc respects unique.
It is not possible to £Oncralizo successfully rcr;ardinr; the tccliniqucs
by which the Office of Price Adninistration has rationed or is planning
to ration various cor-.r.oditics. The pattern of needs for a particular
conr.odity is too cor.iplcx, ^nC. even tho'u^i i.vany differences nust be disregarded in the interests of adninistrative simplicity, each program nust
be adjusted to its own peculiar problons. Thus, each of the pro/jmr.s now
in effect or contemplated is unique in nany respects.
The pro£r?ns now in operation have been designed with an eye to the
organization of each particular industry, its channels of distribution,
and the variations; consumers* noods.

The different rationing prograoi

h^ve varied in the type of rationing currency cr.ployed, in the ar:.ounts
issued, and in the nonna of issuing that currency,

2hcy have been adjusted



~ 8 ~
to the relative scarcity of each product nnci the de^reo to which it was


substitutp.blo nn£ each hat cPOfited new accinistrntlYC problems na& a
different decree of ftdninistrntirc burden upon the organization.

The -principal similarity a:.:on>~ the various systems is the use of
rationing currency which exchanges against rationed floods at all
levels of distribution. The currency may bo'.usoil in a certificate,
a unit, or a -point system. The total amount issued must equate
demand to the available
It is possible to indicate certain respects in which all programs

arc similar TX. to classify the:.: into three "basic types:
rationing, unit rationing, -.::d point rationing.


It is to bo noted that

this classification is V\so& primarily upon the type of ration currency
used; the peculiarities of a p~rticular co:.r::Odity r v y require that several
of those systems be used si:.:ult?iic:usly.
Each type requires the use of sor.e form of rationing; "currency,M

a certificate or a coupon which is r.iade available in determined quantities
to the consumer and v/hich boconoi his authorization to purchase , rationed

This rationing currency must bo surrendered to the seller in

each transaction, and is used "by him to replenish his stock from his

supplier. 'Thus, whilo fpods flow downstream throUjjh the channels of
distribution, alv;ays exchan^in--; arp,inst rationing currency, the currency
flows upstream until it reaches the manufacturer. At that point it is
extracted from the syetcm and destroyed.
In contrast to other countries where the currency serves as the
• manufacturer's authorization to obtain allocations of scarce materials,
in this country such allocations are typically determined independently
by the VZ-r Production 3oard.

This requires that the Office of Price

Administration, in establishing the value of tho rationing currency \nC.
the total quantity to bo issued nu3t take care that ,tho authorized demand



- 9 docs not exceed the supply.

Accordingly, rationing systems customarily

includo provisions for takin& physical inventory, f\nd oTDtaininr; accurate
records of subsequent production, shipments, receipts, and sales.

Certificate rationing is used when p, scarce commodity r.mst ^e
reserved for the r.ost urgent needs of a snail part of the
Certificate rationing is the ooani ty which an extremely limited

supply of an essential co:.r;.odity is rctoxvod for the use of those who
::*.ost need i t vjhile others whose needs are less urgent arc excluded fron
the market.

It is' the acthod " y which t i r e s , automobiles, typewriters,

"bicycles, rubber "boots and ruVjcr workshocs are bcin& rationed.


fication is .also a feature of several other programs, in the sense that
special, groups of consumers such as industrial users in su^ar, o"btain
their rationing currency in the for:.; of separate, certificates issued " y
Local Xar Price and HitIonian Boards.
This is the riost costly and, administratively, the most difficult
type of rationing program, since each consuner nust " e dealt with

It involves the construction of l i s t s of elif;i"ble groups

or the establishment of criteria''of eligibility " y which tho Local Boards
can determine in each case whether or not to groat an application.
Accordingly, i t is a method of rationing which can be used only sparingly
since a larr;e number of application! would place an intolerable "Uirdcn
on the field organization,

nevertheless any essential co:r:Odity, tho

supply of which is less than en~)uf;h for even per capita shares for a l l
consumers, or the nccC. for which is limited to particular groups, can
bo distributed to the ri;;ht hands only ^y such a system.





Unit rationing is used when a scarce commodity for v/hich there is
no substitute must "be distributedevenly .to the entire -population.
Unit rntioninr; is a"nropriato for c. aasi consumption It on for which

there is no substitute. Su^ar rind shoos arc essential eoonoditici that
loud the::.selves primarily to this t;:pc of rationing. Here, it is possible
to diBtribute enough rationing currency to the entire population to last
then for an extended period, and to insure equal shares on a per capita
M s in of a commodity which otherwise mi^ht bo distributed so unevenly
that sons consumers would receive none.

It it not ncccstnxy that .all

consumers "bo treated alike under this system:

the ';asic gasoline ration

is w\ila"blG only to car owners, ^.nC. different shoe quotr.s will "be
necessary for men, women, and children. The essential feature of unit
rationing is that the consumer is fivcn.a supply of currency, in the form
of stamps which he can spend at will during; n. specified time period, and

there is no necessity for individual hearings to determine his need
boforc he makes each purchase.
Although the administrative "burden per transaction is ^nly a fraction
of that involved in certificate rationing, the separate unit rationing of
mass consumption items should not "be recommended if a number of th-^se
item can "be combined in a point system. A host of tcparato programs,
each with its own regulations, instructions, forms, records, and currency
would ho highly undesirable as a ar.ttcr of aclninistration«

Hov/over, in

ever/ case where a particular shorta,;c threatens, and no substitute is
avrilan:le in the event of maldistribution, this technique must 'JO employed.

Point rationing is used to distribute groups of similar co:.u.ioditios
evenly to the entire *->o-">ul^.tion, while "preserving freedom of choice within this ~rouo.
Point rationing has not "bcon used in this country as yet, "but is


the method we recommend for rationing the Principal elements of the cost


~ 11 ~
of living:

f^>~.{u and clothing.

It is the method used in a number of other

countries " y which large groups of commodities can " e rationed in a single
system, so that every consumer has an equal opportunity to obtain scarce
goods but retains his freedom of choice among them.
In effect, a point rationing system establishes a schedule of values
. for inter-substitutable commodities which replaces the price system. Each

product within a group of similar products may be purchased only upon the
surrender of a specified number o f point-stamps.

The point value of each

product is determined v/ith reference to the amount of material it contains,
its relative scarcity, its essentiality, and the pattern of demand for it
as compared with other commodities, Each consumer is given a certain quantity
of ration stamps to use within a specified time period.' Within the limits
rf his total points, the consumer has complete freedom of choice as to
which products he prefers to buy.


Tho sum cf the t.tal points issued to all consumers must be clocoly
related to the aggregate point value of all commodities within that rationed

In the event that conditions change, the system can be adjusted to

a new equilibrium—that is, if total supplies decline or if total expenditures exceed supply, the time period within which points may be spent can
be extended.

Should supplies increase, all point values may be lowered,

or additional stamps may be issued.

If a particular commodity becomes

relatively scarce through an excess of demand over supply, its point value
may be raised.

Conversely, if a particular commodity is not being sold as

fast as it can be produced, its point value may be lowered.
It is important to note that this form of rationing can be used to
control largo segments of civilian purchases Within a single system.
Administratively, thoroforo , it is infinitely preferable to the particularised
treatment involved in certificate or unit rationing.

It has, however,


- 12 certain limitations.
If point rationing i3 introduced at a time when there is great hetero-

geneity of the products covered, both in variety and in price, serious
problems of classification and grave possibilities of discrimination in
favor of the wealthy may onsue. Moreover, commodities for which there
are no substitutes do not fit well into point rationing.

If they arc par-

ticularly scarce, there is danger that their entire supply may be rnaldistributed and exhausted unless there is a specific restriction upen their

It is imperative that point rationing, if it is to be used, be

introduced at a timo when inventories are fairly well in balance and when

supplies are ample. Otherwise, nany of its advantages are lost and an even
flow of goods is made impossible.

Reaching the decision to ration, deciding h«w and when, and organising the

administrative machinery to insure smooth operations Is a complex and timeconsuming process.

Sometimes we cannot afford the delays which occur.

Planning and operating a rationing program is a difficult administrative task requiring strong leadership, an extensive . n veilad
trained organization, control'over facilities necessary tp
operation, and streamlined administrative procedures.
The decision to ration a commodity or group of commodities is merely

the beginning of a long and complicated task.

The problem requires many

fundamental policy decisions as well as a multitude of administrative and
managerial matters. The task of instituting, on relatively short notice,
a program such as sugar rationing that affects almost every person in the
country or one like the rationing of heavy duty rubber footwear that requires careful individual consideration of some four million separate applications a year is frightening in its sizo and responsibility.


~ 13 ~
administrative problems are involved in organizing and running a field organization stretching out to 5,600 Local War Prico and Rationing Boards
in every part of the country.
It is necessary to have 3trong control over rationing policy and
procedure so that the various rationing programs will be consistent,
harmonious, and properly timed.

It is also necessary to place the respon-

sibility for particular programs in the hands of competent people w < . can
become exports in their field.

The necessity of achieving a balance between

general control and centralized responsibility, and of providing able
leadership, exists at all points from the formulation of the original
plan to the action taken by the Local Board.
Operations of the magnitude of rationing necessarily require considerable personnel and substantial funds.

Impacts on individuals are

manifold, and ^ r felt in the remotest parts of the United States. A l
adequately operated program can have dangerous repercussions, affecting
the prosecution of the war, public morale, and the prestige of Government.
The best way to SATO money on enforcement is to provide facilities for
effective- operation of rationing programs from the beginning.
Any rationing system requires an intelligent and efficient field
staff. A balance must be achieved between central direction and local

Lines of smooth communication botwoen Washington and the

fiold mu3t be maintained.

Specialized groups handling, the rationing of

particular commodities must be given adequate control over the ©peration
of their own programs in the field without creating a soriO3 of uncoordinated parallel lines throughout the organization.

Solution of such problems

cop-nds upon constant efforts to obtain qualified personnel - t all levels

. n to establish - n l improve administrative procedures.

- 14 /
The printing *n<?. distribution of materials can cause decays that are
ofton unpredictable and n«y in some instances require rather basic changes
in the syston itself.

It might bo possible to eliminate some of those dif-

ficulties; oven at best, factors of this kind require very substantial allowances of oxtra time in the preparation of any rationing program.


task is tremendous in distributing, for instance, 160 million coupon books
or* a variety of forms that must go to 5,600 War Prico and Rationing Boards.
The fact that materials must be used by citizens in general and by a
large number of Local Boards distributed throughout the country means that
the system and its documentation must bo prepared in such a way that it will
• be simple, easily understood, and relatively fool proof.

This involves not

only the competent preparation of regulations, instructions, forms and
publicity but the designing of a system that will bo workable and under•^

Each step in the process of planning or operation involves clearance
among various individuals or groups that may be concerned.

The nost frequent

arc clearances between the specialized operating group and the central
rationing personnel, between legal and operating personnel, between rationing groups an£ government information1 services, and between those responsible
for rationing and the agencies responsible for printing and distribution of

Clearances of this kind can multiply rapidly naA can easily

nullify any good results expected from the original specialization of the

The problem is most likely to become acute when clearance or

cooperation must be obtained among porsonuol who are soparated in the organizational pattern so that decisions must travel through several layers
of review before they reach a single point of determination.


The respon-

sibility for rationing cannot be discharged effectively unless it is accompanied by power to take action and by control of the facilities necessary

to that action.




Rationing -programs must bo introduced before supplies are too
greatly depleted; the need for rationing must be sufficientlyN
anticipated to alloy/ time for the preparation of the prograr.. .
One view of rationing holds that it is an instrument for use after ex-

isting inventories of goods have been used up, to distribute the small supplies
of new goods that may flow into the system. This view discards some of the most
useful functions of rationing, which are to save stocks of goods from undesirably
rapid depletion, to prevent the inequitable distribution that inevitably ac- /
companies the "scare buying" of short stocks, and to 3pread the consumption of
necessary goods while there is something left to spread.
If rationing is to bo undertaken just at the time when the pressure on
inventorios has reached a critical point but when inventory shrinking has not
become serious, both planning and actual decisions must take place while supplies aro still plentiful. Boldness may bo neeensary in making pro-dictions
before as many facts aro available as the planners would like to have. If the
decision is made too late, the damage of vanished stocks and unfair distribution
cannot be undone without diverting critical materials from vital war needs.
The physical process of planning and effectuating a rationing program is
unwieldy at best. Some of this v/ork, such at the gathering of information on
the production, distribution, and time flow of commodities in a given field, may
be begun before actual decision to ration is made.

It is not possible, however*

to v/ork out specific plans until agreement has been reached as to the necessity for
rationing, the commodities that are to be included, and the general system that is
to be used.

It would be almost impossible to complete the printing and distri-

bution of a coupon book and the other materials necessary for a point system in
less than three months after the finished material had gone to the printer. To
do the preliminary planning, the drafting of materials, the instruction of the
field staff a i otiK r essentials in less than six months after the decision to
ration anything but the simplest single commodity would involve extraordinary
effort. The

importance of foresight and early decision cannot be overemphasized•



As an example, wo cite below our ustirantes as to the earliest dates on
which it would be possible to introduce rationing in the food and clothing fields,
even if there were in every case clear-cut decisions today to'go ahead at full

Earliest date rationing
is feasible


Textiles and Apparel
Canned Goods
Fats and Oils
Dairy Products: 1/

February, 1943
April, 194-3
February 15, 1943
January 20, 1943
A pi' 11, L943
February 15, 1943 (with

Fresh Milk
Condensed, Evaporated, and Dried Milk


In a number of cases, those dates are later than the tine at \;hich
rationing would be advisable. The do lay can only result in depiction of inW^

vuntorioSj and may load to panic buying.

If further delays seriously jeopardize

total inventories or should uneven consigner or trade holdings of particular
commodities, it would be impossible successfully to distribute those products
through point system rationing.. The much more costly and complicated devices
of unit or certificate rationing of each of tho particularly scarce items would
have to be used instead.'
Closely connected with timing Is the special problem of advance publicity
on commodities like apparul. Oootis of this type, usually semi-durable items
subject to hoarding, ara particularly sensitive to panic-buying when supplies
become short. Thus it is not possible to mako a public announcement in advance
1/ Dairy products may not be rationed by an independent point system. There
are many reasons to boiievo that it would be bottor to handle the various
dairy products in conjunction with other programs; for instance, cheese
being A protein could bu combined with moats« Buttor could be combined v/ith
fats and oils; evaporated, dried ' a d condensed milk could bo combined with
uioatc or possibly with canned goods. Frost) milk is essentially a local
problem, which would have to bo handled separately in eachrmilkahed.





•' of tho actual rationing of such itums, f n trade sources cannot bo consulted
to any appreciable degree while tho program is being planned. This increases
the difficulty of obtaining current information and of obtaining tho cooperation of tho trade or the public in introducing the program.
It is imperative, therefore, that if apparel rationing is decided upon,
the decision be kept absolutely secret.

Since successful rationing is lar^lv dependent upon the
cooperation of the public, the rationing authority should
be accorded wide latitude in publicity.
Since iuccessf'il rationing depends in no small measure upon community

and individual acceptance, the publicity attendant upon a program is a vital

Unless intelligent explanation is made of tho necessity for rationing,

the program is likoly to be crippled.
Since reliance for administration falls on local boards, inadequate or
adverse publicity hampers their efforts. It soeinr, evident, therefore, that
once decision has been made to ration a scarce commodityj wide latitude in
publicity should be accorded th«; rationing authority.



Suggestions have been made thatfeommodityrationing is so costly and complicated that othor moans should be used to solve the problems which rationing
is designed to meet.


controls and voluntary rationing are pro>osed

as substitute8 for formal rationingJ fiscal measures such as taxation, compulsory saving and expenditure rationing arc de-signed to alleviate the pressure
on supplies by reducing total demand.

None of these measures appears likely to

offer £ real solution to the fund:'.mental problem of (istributing scarce goods
among consumers vho need them.


Production c mtrols along require rationing by tho trades;
cJ.ucir.ions as to tho ('.istrlbation of scarce floods i
T-vrs cannot bo loft in private hands.

It is frequently BUggostod tliat adequate production controls combining
thfe allocation of scarce mate-rials with tho limitation on their use for nonosaontial purposes aro sufficient to insuru economic stabilization in a war
ecnoi.iy. It has boen stated that rationing can bo avoided if a sufficient.
supply can bo produced to muut civilian noode. According tu this lino of
argument, rationing becorwa mjcesflary only yhon total supply is inadequate for
total minimum needs* This approach, laying emphasis n it clous on the productiun side of tho problem, ootnplatety uTurlooks tho distribution sldo. A
total supply equal, say, to tho amount cjn^unod in 1932, is fir fro« adequate
if t!«cy2nd is in excess - f th;..t, supply. Tho disparity betveon supply and. domand,
even apart fron its inflationary proseure upon price, iriovitably loads to maldistribution.
V^e cannot rely upon the chance decisions of meaberi of the trade to
manufacture the typos of civilian product! which are noodod, nor to distribute
them to, tho ge jgr>:.pnical areas whdro thoy are short. It is not sufficient uven
if it wore feasible to allocate suoplios within tha trade down to the retail
level without going a stop furtiior. Rotailore cannot bo expected to maintain
equitable; distribution ruaong the conoun...rG who aro besieging their stores for
scarce goods*

Govornmunt cannot purnit thca rationing powor tu rest in private

Accordingly production controls, liov/ovor ecfentia^l they oro to ("irect
scarce auitoriala to their most important usus, solvo only part of the problem
of economic st bilization, No measure short >f controlling purchases by consumers can be expect-:d to insure proper distribution among individuals.




Voluntary rationing is defeated by individual self interest.














Suggestions have been made''• that the govornuiont is too cynical v/ith

respect to the essential honesty and willingness to sacrifice jf the American
people. It has been held that far too much emphasis hai been placed upon
enforcement and far too little upun voluntary compliance. This lino of
argument is manifested in recommendations that the government appeal for
voluntary rationing of scarce commodities —

gasless Sundays, nicatlosfl

Monday•. •
The position taken by OPA in this witter is that sad experience has
proven the inadequacy of voluntary rationing.

However rnucv.' individuals may

protest their v/illingness to sacrifice, as long as s > a individuals are unre
v;illing voluntarily to make- that sacrifice, others cannot be ^y.poct^d to do
so. The^n/itur-il roactijn of American citizens v/hon rumors of throatoned
shortages roach their ears is to rush to buy. Rumors of rationing, of
limitation .orders, and even of style: restrictions have been used in the trade
to promote sales raid have provided incentives for buying sprees by the public.
Although none would be happier than we if more statements of intent and
hortatory efforts v/ero sufficient to check --^vor-buying of scarce c 'inmoditios, V
are firmly c evinced that voluntary programs will not work.
Voluntary programs ar^ likely t; be absurd in s > i | instances,—we could
hardly promote trouserless Tuuddnys*

Some voluntary schemes '.g^r'.vate the v..ry

situiti^ns they are designed t'> alleviate: o«g« "on«j to a cast-.mer sales"
merely start buyers making thii r.;unds i'v M

;ne store to ^another, and actually

stimulate buying by calling tlie consumers' attention to scarcity. Finally,
xxr t.xperl.-.nce with a n >n-enforceable, semi-voluntary, tenporary gasoline
rati;ning program, and Cannda'a recent uxporiunce with voluntary .sugar
rationing, has cast grave doubts ~>n the practic.lity -;f an;/ but the tightest

of rationing programs. The individual cannot be relied upon to protect the
interests jf others.



. •



Total dumand c:jijx^r;.(lii(!u(] by taxation • .pfl by voluntary
and compulsory sayings programs; those .ioasures cannot
be oxpoetod to go far enough.

Strong fiscal maaiurwS to reduce purchasing power c .uld alleviate the
throat if general inflation if they waro sufficiently drastic. Thoy also
could postpone tho noed for rationing*

We urge that all such means bo employed

to the fullest uxtont, but vro arc dubious as tu thoir ultimate succoss, and
convinced that, unaccompanied by oumaacllty rationing, they are ineffective.
Taxation cannot bo expected to cope with tho problem. Tho expedience
of jthor countries clearly shows that public tolerance of a tax burden is

Even under the greatest pressure, Congress has stopped far short

of what would be needed if inflation were to bo stopped by a tax program.
A great excess J£ purchasing power will still remain.

A further limitation

.>n the effectiveness of taxation as a m&ans of limiting ctapond arises from
the fact that taxation would not inly have to make a drastic cut in total
purchasing power, but would have to increase tremendousLy in progrdSSiY&nesSt
Otherwisej with a deep cut in supply, th« incoue structuro would permit such -in
inflationary volume jf purchases an to exclude individuals at tie lower end of
tho income scale from the market.


Aj)p«als for voluntary savings cannot be relied, upon*
of Treasury bjnd sales d >es not offer much uncOuragomcnt«

The present v -luae
loroover, uuen

saving tends to creatu restless money which lit any time can bo injected into
the system, and which, accordingly, constitutes art inflation potential.
Compulsory saving appears more promising.

nd brings revenue to the Treasury.

Simultaneously it cuts
It should be easily explained

and accepted by the public, particularly because it emphasizes tho virtues
of thrift. A snail start hns be^n made in this cliroctiutl by the present i/.x

However, the essential inequity and the inflationary danger bf such a

measure is that it cannot provont th'oee with capital accumulations from converting their assets.

Also, the severity which would be necessary if c . n 1 1 l . ;ry
• ,j; - : were effectively
Federal Reserve Bank of St. Louis

to purchasing power raises .mny ;f the 'same


• -21-

^problorns that arc involved in sharp increases in the tax rato. The progressivoness required suggests the necessity A for::: ' expenditure rationing.

Expenditure rationing is an ingenious idea, but it docs.not
seem feasible at present and, like all other fiscal approaches
to the problem, it cannot assure the proper distribution wf
thjse comirjjdities -which are particularly scarce.

Although it seems simple and clear-cut to limit tho voluiao of expenditures
jf oach person in the country, expenditure rationing is not SO easy, SO effective, nor so acceptable as it first appears.



As distinguished from c.-mpulsory savings which w >uld surely require
statutory authority, expenditure rationing could IDO introduced by the Executive.
This, jf course, would raise delicate problems with the Congress, inasouch
as it is clearly a fiscal measure of the greatest magnitude.
Tremendous dislocation of the economy w >uld follow the imposition ot
expenditure rationing.

F >r instance1, present Inventories consist of goods which

h ive been produced %j meet the demands >f individuals with vide variations in

Costs and prices vary accordingly, and are suitable for anything but

equal per capita expenditures.

It is doubtful whether

ec /nomic system could stand the liquidation

ur political and

f high priced inventurios v/hich

v/juld be necessary.
The mechanics of handling expenditure rationing currency, change-making,
and arranging its flow through the system, raises administrative problems no

serious than point rationing*
Tht: principal difficulty with expenditure rationing is that it, like

every fiscal measure, fails t > meet -ne uf the najor problems which is
solved by commodity rationing.

Expenditure rationing gives complete freedom

of choice tJ the consumer as to the objects f - which he spends his runey,
but fails tj offer any solution to the problems

f changing supplies, especially

.scarcities of particular essential gjodSj uxA shortages vf non-substitutable

Unit and point rationing such as is recommended by tho Office jf Price


Adrr.inistri.tijn face theso pr iblcms and assure the propur distribution of
•goods, rut money. A unit Bystfcffl can handle the distribution of, nonsubstitutable itoms, and a point system can idjust point values to jffset
particular deficiencies >f supply.

If uxponditure rationing wore instituted,

it is clear that G number it particular OASAodity rationing programs ;v/aid
still bo roqaired. • What is nore, if it were introduced when supplies were
depleted and unbalanced, it, like pjint rationing introduced too Lvto, v; :uld
havo to bo bolstered by a number of c .stly unit tind cortificato Bystom8«
Finally, it is wjrth noting that oxponditurt rationing has ni>t prorud
P'Llatible in England m d is unlikely to be palatable hal^. Pcplu -,r\: quite
prepared to accept rationing in wartime without hesitation. They are quite
prepared to see many g)>ds distributed - n a sharo-.nd-sh'ire-aiike basis. On
the other hand, they are unv/Llling to ao* tho wuna result r.OOi>Qpll0nod thr -ugh
a drastic increase in the progressiveness .f taxatim.

For tho BazM reason,

they will be unlikely t j accept the drastically progressive expenditure
rationing which would be nocesftary to achieve- tho same result rf must bo
achieved through rationing.

Having canvassed the need f ;r rationing, tho ait^.rn itive Methods \ hich

c :mld be employod, and the difficulties and timo involved, we feel that a
number jf b ;ld decisions are in;per:'.tive.

We recommend the immediate docisi.-n, n t to be m/ido public,
to ration all os_Sc?ntial itoms S civili-m f -xl and clothing.

To servu the twin ljurpoeee L»f maintaining ehocka

n inflation and

assuring proper distribution )t scarce oofRnjclitloe among consumersj we recjmmond
that commodity rationing be instituted to cover all major itoms >f tho cost it

food and clothing.

It is ossontial that these civilian necessities

be madu available to all, that they be evenly (distributed and th'tt thoy be
spared fr -m inflation. As u matter >f administrative simplicity, Me favjr
 use of point

system rationing with inter-substitutable ltemj grouped in

L8 few systems as possible.

Inasmuch as tho administrative details of

putting such progress Intj >pcratijn will require considerable an*<unti if
tine, we urge that this decision be mado immediately.

T J prevent upsets

if the market and buying panics, this decision sh «uld not be made public.

This decision has wide implications; it would involve the
c;xtensi m >f c jntr ^ls ;ver the qu-mtity and the c imp.^siti -n
;f the ba^ic ci.vilirm necut- sities*
The decision t-i ration is a decision .n the part of Government to dis<

tribute scarce supplies m \ fair and equitable basis am ;ng all consumers.
It is dictated by recjgniti^n Jt the fact that equitable distribution jf
scarce supplies cannot bo assured through tho normal ;peratijns~ >f the cvaxkot.
This docisijn, hjwevor, requires a br jad extension >f c^ntrA jver pr> auction
jf civilian gjodl bjth as to quantity and as t - comp>8ition«

In the absence

if such control, the quantity and c .unpusiti-n >£ civilian g-odi fire left to
the free play of nrirket forcoi. The kind and quality of goodi produced will
boar n; relationship to tho requirementfl it public policy.

It may Veil

hiVjion that the forces »f the market will, through the kinds and ^ricea of


produci3dj earmark f r tho use jf 5 pel1 cent jf the ^opulati-n 30 ^r

4.0 per cent >f the t >tal resources ^vhich are --v.ilab.le t i supply the needs
jf the entire population.

It fallows that if rationing is t- accomolish

its aim, control over the production j f civilian g >.>di is b88<