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OFFICE OF PRICE ADMINISTRATION W A S H I N G T O N 25, D. C. CHESTER BOWLES August 21, 19AA ADMINISTRATOR Mr* Marriner S . Eccles Chairmen Board of Governors Federal Reserve System Washington, T). C. Dear Marriner: I am enclosing three speeches thst I am giving on a Western trip* I am hammering the full production and full employment theme as much as I can* I am preparing a talk on agriculture to be given in Denver end I will send a copy on to you when it is completed» I would appreciate your reactions and comments if you have a chance to look these talks over* ?Jith my best regards Sincerely Chester Bowie Administra tor Attachments (3) FROM THE DESK OF CHESTER BOWLES ADMINISTRATOR OPPICI OP PRICE ADMINISTRATION V—<—-t*-*-^/ ; INF-06 9-(8-44) Office of.Price Administration Washington 25, D.C. ADDRESS BY CHESTER BOWLES, OPA ADMINISTRATOR, BEFORE THE DH'VER CITIZENS FOR VICTORY CLUB SPEECH, AUGUST 31, 1944, 12:15 p.m. MVT During the last two v;eeks, while visiting OPA field offices and local boards, I have hod an opportunity to meet and talk with a good many representatives of business, labor and agriculture in all parts of the country. I have been more than ever impressed with the magnificent job of working together which these major groups have done in carrying on our war production program. The price control and rationing job which we in OPA were asked to do could not have been done but for the fact that production, both for military purposes and civilian uses, has been carried to levels which a fev; years ago would have been thought incredible. The price control and rationing job has not been an easy one. V'e have been blazing new trails. There were few, if any, landmarks to guide us. The job of controlling literally millions of prices and establishing fair rents on more than 14 million dwelling units- has been a Herculean task. It is little wonder, then, that there have been mistakes — plenty of them. There has been some confusion — there have been delays. It could not have been otherwise in the face of the gigantic problem whic^i faced us all. t, on the whole — thus far — the job has been done with reasonable success. Retail prices, have risen about 9 percent since May 1942 — when retail price control was first put into effect. Daring the last 15 difficult months, retail prices have been held to a rise of than 2 percent. During the last year food prices at retail have held steady. Clothing prices, it is true, have risen about 7 percent, and clothing quality, as every housewife knows, has deteriorated. But for two years there has been no rise in the general level of rents. In tiie case of industrial price of steel plates has only 15 percent since the and aluminum has declined prices, the record has been even more remarkable. The not changed for more than two years. Pig iron has risen war in Europe began. Cement has risen only 5g percent, nearly 27 percent during the same period. The index of all industrial prices has rien only 23 percent since the beginning of the war in Europe. This is a record which I believe no one, neither inside or outside of government, would a few years ago have thought possible. There are several reasons for this. But I believe that the most important is that production of civilian g'0odsis now at its highest point in our history. W e have not only carried on a gigantic war production program, but also turned out — ' at the same time — the largest volume of food, clothing, and household necessities that we have ever produced in any comparable period. To a certain extent, price control has itself played a part in this production ^ c o r d . In the industrial field almost every price is somebody else's cost. The ^ct that prices generally have held stable has made it far easier for industry to calculate costs in advance, make its commitments, plan its production, and turn out " the goods, C 3c¿ -2- . - 77S'304-. i : If prices had been constantly fluctuating, it would have forced our industrial managers to speculate, to attempt to hoard and to divert a large part of their energies from the main job of getting out the finished goods. It is an interesting fact, then, that although the tremendous record of production« which we have rung up during the last three years has been in a large measure responsible for the success of price control, price control has itself contributed to the record of production. There have been other reasons for the success of price control. Although we have turned out an unprecedented volume of food, clothing and household necessities, the volume of purchasing power distributed to workers, farmers, businessmen, professional people and landlords is vastly greater than the amount of goods and services available in the markets. If this surplus purchasing power had all competed for the available goods and services, we should nover have been able to hold our ceilings on prices and rents. As a matter of fact, however, the patriotic willingness of our people to put their money into war bonds and savings has drained away billions of dollars which would otherwise have been used to bid up prices and rents. This willingness to save money during wartime has made the price control job immeasurably easier. There is a third factor in .the success of price control which I think should be . emphasized. The great majority of our businessmen and consumers have an inherent dislike for trading in black markets. To a large extent, therefore, price and rationing regulations have been self-enforcing as a result of the voluntary compliance of hundreds of thousands of businessmen and millions of consumers. And a fourth reason for the success of the program has been the patriotic devotion of thousands of volunteers in every city and town and village who have served on local OPA War Price ana Rationing boards. In addition to these local board workers,^ other thousands of businessmen, labor representatives and farm leaders have volunteered for service, on OPA advisory committees, both in Washington and in our OPA regional and district offices. Without the help of those volunteer workers, the job could not be done. One of the principal years is that we can planning and through We have demonstrated top speed. lessons which all of us learned during these past three or four reach full production and employment if we try through proper full cooperation of industry, labor, agriculture and government. in actual practice that we can make our economic system run at This is a lesson which we must not forget. In fact, I think we dare not forget it if we wish to retain our.system of free private enterprise. It is a lesson which our workers, our farmers and our returning soldiers will not let us forget. As a result of full production - both on the farms and in the cities - our farmers for the first time in twenty years have enjoyed a measure of real prosperity. Farm production has risen by nearly 25 percent or 5 times as much as it did during the last w a r . Our farmers have not only met the needs of our armed forces, and the lend-lease committments to our allies, but they have also made available to civilian? more food than we have ever had before. For example, pork production in 1943 was 82 percent above the average of the 1935 to 1939 period. Poultry and eggs were 52 pericent above this average. Potatoes have risen 28 percent. Beef and veal were up 21 percent, and lamb and mutton have risen 27 percent. ( This increased farm production has also been accompanied by a substantial rise in farm prices. Between the beginning of the war in Europe, and the present time, wheat prices, for example, have risen 155 percent. Hog prices have risen 140 percent -3Potato prices are up 99 percent. Lambs are up 76 percent. Milk is up 103 percent. Ootton is up 104 percent, ahd wool is up 94 percent. All together the weighted average of farm prices has risen 116 percent 'above the level of August 1939. i tere is a third factor which explains the present high level of farm prosperity. A l t h o u g h farm costs have risen they have not risen anywhere near as much as farm prices. Prices paid by farmers for food, clothing, household equipment, and for feed, fertilizer, farm machinery, supplies, interest and taxes have during the last 5 years risen only 33 percent as compared with the 116 percent increase in farm prices. These three things — increased farm production, increased farm prices, and relatively stable farm costs, explain why net farm income in 1943 reached the highest point in.farm history. Net farm income in 1943 was more than 12 billion dollars as compared with 6¿ billion dollars in 1941, and 4¿ billion dollars in 1939. In other words net farm income during the years in which price controls were in effect was almost twice as high as in any recent prewar year. After many years farm income has reached a level which, if it could be maintained, would assure the average farmer a secure living. But I am sure, from many conversations I have had with farm representatives in recent months, that the farmer is worried — worried about the future, and I think he has good reason to be -- if he regards the past as anything like a guide to what may happen after the war is over. For a great many years, the average farmer has had a long, tough, hard row to hoe. During the first world war the farmer enjoyed some prosperity, but in several respects it was a false prosperity. Between 1914 and 1920 farm prices rose substan^ ally. But farm costs also rose. To be exact about it, farm prices rose 109 per-^ent, but farm costs rose 98 percent. The net improvement in the farmer's position, therefore, was only 11 points. Many farmers mortgaged their farms to buy new lands at inflated prices. Few farmers were able to reduce their debts. Few farmers were able to set aside any savings. And then in 1920 came the collapse of farm markets and farm prices. Before the bot-^ torn was reached farm prices fell disasterously. Beef prices dropped 58 percent and lamb 59 percent. Wheat, 62 percent - and potatoes, 85 percent. Although farm costs also dropped,•the fall was nowhere near as rapid, or as great as the drop in farm prices. Net farm income, taking into account inventory changes, dropped from nearly 9 billioi dollars.in 1919 to more than 3¿ billion dollars in 1920. Average farm income droppec from $1360 in 1919 to $460 in 1921. Foreclosure sales swept across the farm country and in the next five years 450*000 farmers lost their farms through'market foreclosures. During the late twenties, the farmers position improved somewhat but never again approached the 1919 level. A fair idea of the farmers meagre existence can be gleaned from the fact- that the farm families in the country, which made up 25 percent of th e population, received only about 10 percent of the total national income. Then the depression of 1929 - 1933 again put the farmers through another heart breaking round of falling markets, falling prices, foreclosures and destitution. c In tho later thirties with tho holp of governmental programs, farm 4 incomes and farm markets roso somewhat, but they novel again ròachod the lovol of 1929 - much legs than. 1919. Even, in I9U0 - a yoar of rolativo prospority, only, a third of our farmors had oloctricity. Only a quarter had telephones, and nearly IjD percont did not own the farms on v/hich they worked. Conveniences.v/hich havo long sinco bccomo nocossitios to most of us city dwellers wore enjoyed , in I9I1.O by only a small minority of thoso who fed and clothed tho nation. . . . • It is little wondor then that the average farmer, today enjoying unprecedented prosperity, looks forward to the futuro with uncertainty and . with foreboding. Thcro.are, howover, several differences between tho position of tho farmer now, as ho facos the future, and tho position of tho farmor at . . tho closo of tho last war.' •./.-•• two In tho first placo, during tho last/years, farmers havo boon able to pay eff their mortgages, buy war bonds, and put money into savings and checking accountS^in small country banks havq increased 200 porcont. / Since_the beginning of the"~war inEuropo, bri ancos in chocking accounts N Secondly,"aitlìough Ìhe orice of farm land has advanced almost as r&pidly as it did during tho last war, a far higher percentage of farm purchases are being made 011 a cash basis than w a s true last time. Those two facts taken together havo resulted in a 20 percent reduction in tho dollar total of farm mortgages since 1939* This is a sharp contrast to what happened during the first 5 "jo ars after tho outbreak of the la et war whon farm mortgages increased<by 52 porcont. It moons that the farmers who have not bought land at recently inflated values now face tho future in better ..financial shape than ho did at the end of ".Jorld 1/ar I. . Thoro is one further fact which is of somo imp.ortanco to tho f a r m o r s future. At the close of the last war, farm costs continued to riso for many months after tho armistice. This time, we havo a system of price controls which it is our obligation to uso until all danger of inflationary farm cost . increases is passod. Vio can and must 'continuo to hold the prico lino not only to keep dovn. tho cost of living for thoso of us who live in the cities, but also to protoct the farmor from increases in his cost of living, and incroases in his production costs. Prico controls by themselves, however, will not assure the farmer of postwar prosperity. It will take cooperative planning by industry, labor, agriculture and government if wo are to achiovo this goal. All of us havo a stake in achieving this goal. A prosperous farm community means a largo market for tho products of industry. \ It means that farmers can equip their houses with running water,. oloctricity, telephones, washing machinos, radios, and other electrical appliances. It moons that farmers con lighton the burden of thoir toil with modern farm machinery and farm equipment. It means that farmors will be able to take advantage of tho most recont improvements in methods of farm production* All of this, in turn, means that industry will find a vast domestic market for its goods. It means that labor can find full employment at high ^/77^'dOJL. . . - 5- » vrcigoe. It moons that our industrial workers will havo the employment and income nocossary to buy t h e products of our farms. **N Finally it moans that tho prosperity of the farm and the prosperity of tho city arc cach dopondont upon t.hc other. If the farms arc to b o prosperous,-there must be full production i n the cities. And if the cities arc to prosper, thoro m u s t bo full production on the farms. For a good many months, a part of tho responsibility for reaching full production and full employment in industry v/ill havo to bo assumed by tho O P A . Before long, durable goods, such as flatirons, radios, washing machines, cooking ranges and vacuum clcancrs — which have boon almost entirely out of production since 19^2 will reappear on the market. Pricos must bo sot on those new products. They must be sot in such a way as to encourago business to oxpand production as rapidly as possiblo. They must take into account tho increased wage rates and material prices which havo occurred in m a n y industries. But they must also take into account the fact that during the last three yoars, tremendous improvements in methods of production have been m a d e . In many cases, tho reductions in costs resulting from those improved methods vail more than offsot such increases in wago rates and material prices as m« a y have taken place. » » In sotting thoso now prices, therefore, we in tho OPA must keep thrco objectives in mind. Pricos must not bo so low as to causo downward pressure on wago rates which would result in reducing the purchasing power nccessary to sustain farm markets and buy tho now products of industry* Yet they must bo high onough to cncourago business to expand production as far and as fast as possible. And our pricing methods must cncourago business to hand on to consumers, in tho form of lower prices, and increased output the benefits of tho vast improvements in production efficiency which havo occurred during the w a r . r Jhon civilian supplies of industrial products have expanded and the present enormous military demands have oasod away, prices will begin to drop bolow thoir legal coilings. As soon as inflationary pressures have clearly subsided, tho OPA vail bo only too glad to lot tho full responsibility for proper pricing return to tho hands of private enterprise. The w a y t h a t responsibility is used is of critical importance - not only to business, labor and agriculture, but to the futuro of our systum of free enterprise. "To cannot go back to the production levels of 19^0. The Department of Commerce recently estimated that if in 19^6 wo wore to go back to I9I4O total production at the I9L1.O hours of labor there would be 19 million unemployed . That would moan shrinking markets and falling prices for farm products. It would moan that our farmers, our workers and our returning sold iors would havo to compote with each other for a mcagor scarcity® Mo dare not permit this to occur. Tho people of this country havo learned during the last 3 yoars that full production is possiblo if industry, agriculture, labor and government coopcrato and work together to achicvo it. VJo have had a glimpse of what full production in time of pca.ce could mean in terms of moro food, moro clothing, moro and better houses, cars, radios and labor-saving doviccs which our people need and ought to have. U o co.nnot go back to an oconomy of scarcity. And there is 110 need for it — if wo all face tho problem intelligently together. -6 Part of tho responsibility for reaching full production w i l l rest v/ith tho loaders of businoss and industry. Aftoi* government prico controls arc r o m o v e d , it will b o tho responsibility of businoss to soo to it that wo practico a policy of low-profit m a r g i n s , low pricos, high wages and high volume of o u t p u t . It is this kind of p o l i c y w h i c h makos full production possible. On the other h a n d , if wo adopt generally a policy of high-profit m a r g i n s , high prices and low wage r a t e s , it m o a n s that salos volume will f a l l , production w i l l bo cut, omploymcnt will bo restricted, and wo shall faco a dosporate.struggle among competing pressure groups for a shrinking economic p i o , • I am sure that the statesmanship of our business and industrial loaders w i l l rise to tho opportunity which lies in t h e i r hands to m a k e this a f i n o r , more [prosperous country than w o have over k n o w n , • , , But I,? personally, a m equally suro that if business is t o m o o t this task it m u s t have the help and cooperation of government, agriculture and l a b o r . Y;o have learned how to cooperato during tho war — and I soo no • reason w h y w o can't do it for pcacotimo production and prosperity. It seems to me that tho' government, as well as farm g r o u p s , must continue vigorously and couragoously t o promote the various devices of farm crod^t, farm cooperatives, flood control, irrigation, soil conservation and cheap clcctric power which w i l l bring farmers greater prosperity and greater purchasing power» .. •.. Mo must also m a i n t a i n a program to support farm prices at a point which will yiold a fair return on farm labor and offort — w h i c h will dispol tho farmer's woll-foundcd foars of falling pricos and shrinking markets — and v/hich w i l l enable farm families to roach and maintain-a decent standard of l i v i n g . , .. A n d more t h a n this', in m y opinion, the government has a clear obligation to underwrite tho lovol of production and national incomc and bo ready to take whatever steps' prove necessary to sustain thoso levels» This means that tho government m u s t bb prepared to encourage'the largest possible volume of exports to • the w a r - t o r n countries of Europe and '• A s i a . It also means that w o must be prepared in t h e short run to finajico thoso exports and in the long run to accept payment for them b y t h e import of ojthor goods, and .commodities which w o neod and which .wo can uso in helping to m a i n t a i n full production and full employment» . It means that tho gbvornment must bo preparod to sustain our national purchasing powor b y a program of' useful public works geared to our noed for public improvements, as well as to our noed to m a i n t a i n employment and income» And it means that w o m u s t b o prepared to adopt the kind of government fiscal policy -- t a x a t i o n , expenditures, borrowing, and lending --.which will supplement -and smooth o u t any irregularities in the flow of purchasing power. I f e e l confident t h a t if t h e government stands ready to underwrite in this manner, a high level of national income, b u s i n e s s , labor and agriculturo will bo fully preparod thomsclv-s to undertake t o run our e c o n o m y a t top:speed 77^302- with a minimum of dopondonoo upon actual governmental assistance. Tho completeness of tho guarantou vdll itsolf lcoop tho noed for govornmcnt aid at a minimum. But more than anything el so, all of us -- industry, labor r.nd agriculture — must h w o the courage and vision to pirn to produco, distribute and consumo at far higher lovols than w o hr.vo ever before reached. '."o know this is possible, 17o have proved it during tho last thrco years. Uo cannot tolerate tho idea that wo can make our economy run only for purposes of military destruction. All of us must bccomc preachers and practicers of the idoa that w h a t can bo done for war con b o dono for poaco. If wo implant this idea firmly in our minds and this practico in our ovm fields of enterprise, I am certain that American workers, American business and American farmors — vorldng together v/ith their government — will move forward into an ora of poaco, production, and prosperity groator than any of which this nation has ovor dreamed. ¿1/77^-34:2- *INF~054( B-44) ' : 05TI CE OF PRIGE ADMINI STRAT IOM Washington 25, D.C. - ADDRESS BT<CHESTER BOWLES OPA ADMINISTRATOR AT THE DALLAS CHAMBER OP COMMERCE DALLAS. TEXAS. AUGUST 21. 1944 , -- x I have "been asked, to talk to you today about our fight against inflation and atjout some of' the problems that lie ahead. I am glad of an opportunity*to do this and am going to speak particularly in terms of the eleven million members of the armed services — to whom we all owe so much. During the last generation or so all of us have heard a good deal about pressure groups: economic groups, political groups, special interest groups, labor, management, farmers, white-collar workers, and so on. To judge from what you.hear and read, you would almost think that each one of ; these groups had no other interest than to feather its own nest. Actually, of course, all the groups which go to make up America have worked together.during the last three years more closely than ever before in our history. Tiieir contributions to the war have be6n>overwhelmingly positive and constructive. Together'they have put their shoulders to the wheel. Together they have helped to make our war production record in the cities and on the farms a record which a few years ago none of us would have thought possible. : During the next year or .so'we a r e g o i n g to hear a great deal more from another group - the soldiers, sailors aid;;marines returning from training camps and battle front$ all ovei^the world. This group, with its families and friends, may easily become the mast influential of all of the groups in our democracy. It is a group from which we have thus far heard very.littie. Its members have had little or no voice in the war production program. Its views"about the conduct of our home affairs have had very little chance for expression.,'"' • Naturally they will want to know in detail-how we have handled our pait of the job here at home - the kinds of problems that we faced and'the manner in which.we have met them. 'In general'I believe they'will be impressed, for in spite "of many inevitable mistaken this war is likely to be remembered as the best organized and most vigorous!:^ prosecuted war in American history. American'industrial workers and American business management, working closely;with the-War Production Board, have raised industrial production 129% 'ovei? prewar levels. Our'record of wartime production is an absolute miracle of m6derh planning and vigorous effort; ' : Our farmers and cattle raisers, working closely with the'War Food Administration, have increased farm production to unheard-of levels. In spite of shortages of manpower and equipment they hare produced more food and better food than the most optimistic prewar, prophecies;iforetold. ~0ur railroads and truckers, working-'with' the Office of Defense Transportation, have carried l-li4258-302 double their prewar burden -'with'a minimum of delays and a maximum of effectiveness and speed. And in spite of huge "inflationary pressures, all of us businessmen, labor, and farmers, working withTn"óur organization, the OPA - have maintained a relatively even level of pricè's.. In the last war industrial prices rose 98/&, the cost of living went up 108/b from 1914 to the post war peak in 1920. :: In this war-industrial»prices have risen less than 3jt> since the spring J of 1942, thus-saving all b'f' US' as taxpayers countless billions of dollars on the cost of thet gbods that--the" Government must buy to fight the w a r . The cost of living - averaging in "rent, food, „clothing^., and house.'fur-' >nishings for the middle-income family - hàs risen only in, t h ^ V s a m e «period During the .last fifteen'months it has scarcely risen at all, $ <,:':• ••' Thus for the. first time in any war we*'have managed to keep our price levels from skyrocketing upward. And in so doing we have, given a^Lli of us including- the wives -and families 'of our absent, fighting men - protection that we have never had before in wartime. '"' . Taken all in all, I believe our'returning soldiers and sailors will . ••<• find that our wartime record has been good.."' Naturally, their next question will be about the future. go from here? # Where do we .. ; . . ! It seems, to me pretty obvious;, that "the most important single -question >;7: on the minds of our fighting men cm trhe'.ir return will be jobs and the chance -' for a secure" and. prosperous future. It" seems to me equally obvious that this'group will, present its 'demands for jobs and security during the coming, years with vigor, intelligence', and persistence. • ; \ ' ' During the last three or four months there has been much talk of relief for our returning fighters. Clearly there must be some form of;transition payments to.soldiers- to keep them on their feet while -they are finding their way back • to. normal peacetime life. The OI Bill of Rights, represents a wholesome move in this direction. But yo.u. and X know that our returning fighting men don't want- relief or doles.v. They want a genuine opportunity to make, their.-own way in the. world* They want good jobs and a sense of security. They will rightly insist on this and they will have the strength to make.their insistence felt. . Their attitudes toward this problem will surely be deeply affected by the experience of their childhood before the war. When the depression of 1929 hit, most of them were under 12 years of'age. As children, many of them saw their parents lose their jobs, their incomes and.their savings* Some ' heard from their parents about the collapse of farm prices and the disr-< appearance of farm markets. - Othersv savi bread lines replace the tramp of feet into the factories. • . . . They knew of the uncertainty about whether those who had jobs could keep them, and the questions as to whether farm prices would ever rise to a lavel which would make a decent, secure life possible. Most of them knew intimately : " " ' " \ l-li£5B " http://fraser.stlouisfed.org/ " P OBank O i wof St. Louis ... . .. • Federal Reserve and at first-hand about the millions of poorly clothed, poorly fed and poorly housed men, women and children, both in the cities and on the farms. During "the war they will have made up their minds that, never again will they accept that kj.nd of world for .themselves, their families or their friends. They will come back, it seems to me, prepared to cooperate with all the other groups in making a nation which will provide opportunities and jobs for all. They will not' want ,to return to a country in which group is set against group, fighting for a.larger share of a relatively small size p i e . They will insist, as they should, .on an economic, pie big enough to feed us all - industrial workers, farmers, businessmen - o n a scale that will reflect our huge capacity to produce. They will point out realistically that - as.we produced at full speed' to win the war - we must now produce with, equal vigor for a land of peace and plenty. There will be no question about the right of our soldiers to raise-this issue vigorously and persistently-,. They have left their homes, their families and their communities.' They have faced boredom, privation, hardship, disfigurement, capture and' death. Their sacrifices and accomplishments entitle them to an opportunity to make a secure place for. themselves, their families and friends in an economic era.of plenty. They will 'demand, with 1 justice, that all groups pull together to achieve ti>is objective. It is clear, I believe, to all of us that full production in peacetime means prosperity for all of u s . Pull production.means plenty of jobs good jobs, Pull production means good profits for business. Pull production means a high level of income for our farmers. Pull production means more .. and better schools, libraries, hospitals. In specific terms, full production, according to a-recent study of the Department.of Commerce, means three times more houses than we had in 1940 - 51c/o more medical care - A2% more : recreation - 62^> more food - 72^ .'more clothing and clothing accessories 105$ more household furniture - 165)o more radio apparatus and phonographs, •• In other words, a new prosperous, vigorous America, entering a new era of peace and security. • • . How do we get full production? By working closely together. By raising our sights high. By forgetting outworn economic dogma. By bold, positive, '' ; courageous, democratic action. .... ./»•'"-' . ' ' Pirst, we must make certain that.inflation remains in check. After the last war prices rose 40$. There was a mad scramble for 'inventories. The price bubble grew bigger and bigger. ' Then in May 1920 t.he bubble burst. In a brief period, cotton prices dropped 7-3$, beef steers fell 56$, wheat fell 65$, petroleum products -60^. Pactory payrolls were down 44$. Profits after taxes fell 104$, that is». profits were converted into actual losses, which practically wiped out ,all the reserves accumulated during the. war period. Our battle against inflation is far from being won. The problems that ; lie ahead are still difficult. . • Ho one in OPa wants to continue price controls a day longer than necessary to prevent inflation, But we cannot overlook the fact that during the World War I period, the worst inflation came after the war was over. This time l-li+258 there nay "be still greater inflationary forces at work. If fwe permit prices to soar even as much as they did diming the two years after the Armistice, we shall "be inviting a worse depression than any we have- yet experienced. The OPA's part in preventing this twin disaster is vital. We must see to it, with the help of business, labor and agriculture, that the cost of living is held until the danger of inflation has passed. We must be prepared' to set new prices on such goods as washing machines, radios, electric irons, refrigerators and cook stoves as promptly as cutbacks in war contracts release plant capcity and manpower for their production* We must be sure that o'tir policies do not -set—in^ motion reductions in. wage rates which- would- contribute to* a disastrous post-war. deflation. We. must be prepared to remove price and rent controls in one commodity field or community after another as soon as it is clear that the danger of inflation is over. If we can do this job right, I believe we can provide a peacetime structure of prices which will provide a basis for full production after the war. * But it will take more than a stable price structure to assure our soldiers, our workers ahd our farmers the jobs and markets we must have if we are actually to use the enormous productive capacity of our economic system. To a large extent, it seems to me, thè final decision as to whether there will be full production or not lies with business itself. When wartime price controls are removed, both business and government will breathe a sigh of relief. But, actually^ .some of our biggest problems will still be ahead. In my experience in private business, I could not help observing before the war - an increasing tendency among some businessmen to set their prices at relatively high levels in order to secure the largest possible profit on each unit of output. Competition, of course, always sets some limit to this practice. But, as all óf us know, competition is far from perfect in today's economic system. Many a business which carries a trade name and advertises it extensively tends .to compete more in sales efforts than in price'reductions. This situation is, of course, in sharp contrast to what happens in agricultural markets where prices are set almost entirely by the free play of supply and demand. A'business policy of relatively high prices and high unit profits does not necessarily result in large total profits.' High prices limit demand, sales, production and employment. As employment and purchasing power are reduced, the total market for both industrial and agricultural products shrinks. Farm prices tend to drop rapidly, leaving the farmer unable to buy the products of industry. More unemployment and still greater reductions in purchasing power result. . The stage is thus set for collapse, both in agriculture and industry, with, prolonged depression as the aftermath.' In view of what we have learned during the war about our enormous productive capacity, I am confident that the people of this country - our returtiing^oldiers, our industrial war workers, our professional and whitecollar peSfLe, our farmers and our businessmen - will never again.be content with a meager economic p i e , • • I doubt personally whether our democratic system of government can stand up under the pressure politics.'which would result from the kind of competition 1-1U2.58 - 5 - among groups who would much prefer to divide fairly a larger pie, "but who will unquestionably and perhaps rightly'seek to protect themselves if there aren't, enough -jobs and. go.od.-s to go ..around. Therefore, "it seems jx? -me .that "we who have had experience both in business and in government share a'responsibility to put into actual practice the lessons we have-, learned.from the great industrial and merchandising leaders of this generation, . That' lesson, it seems' to -me, is that reductions in costs of production resulting from increasing efficiency must be handed on to the .consumer in the form of lower prices,; It.is.an experience which strongly suggests that small profit oargins on a large volume of production not only serve the interests of our whole system,,.bu^rproVi'de larger profits to the owners and managers of industry.than the-opposite policy of high prices, high unit profits and restricted productia\ • • sf These, of c o u r s e w a r e „-only my personal views,- based on some years of experience?, 'in business , ,as well as the experience of 2-1/2 years in government service, working in clos.e.'..cooperation with 'Imsine-ss, labor and agriculture, I do feel-.ho w e v e r , t h a t they are "views --which .-are shared by "large numbers of bur '-péople and which will be brought to our at tent i on-with justice and with vigor not;only by. our returning' soldiers,, but also by all. Of us here at home who have witnessed the almost miraculous record, of production which has been achieved, durúng the^ last three years, Business has its jjostwar ¿ppór.ttmities'-'and? i^pp^sib.iii'Vieá,Agr-i-6Ultur.ej--.l^s them,, too. If we are to próvidé our returning soldiers and sailors -with..a;..rvigpra*us, fully produc.tive postwar economy, we .must' see. /to it t h a t a g r i cultural markets' arid-prices are sustained, :. •• . • 'V '- > i . . •. During the : last two or three" yéars, farm prices have .advanced considerably from the l o w levels prevailing just before the war, whereas farm ' costs have been held" relatively stable*. Thi-á has-^e.-sulteá in the highest farm income we have ever experienced,"' This-,- in turn, -makes possi.blé" :ther purchase by farmers and their fallies of "ther p*rac&ict&which. 'industry is s-b fully capable of producing, - . ' ; •- .; • . .k * " Not only for the sake of the farmer and farm communities, but"also for the sake of markets for industrial products which the farm community provides we must see to it that farm income is maintained at as nearly its present level as constructive thinking and planning can assure. The maintenance of full production and employment in the cities will go a long way toward making this possible. The farmer, through his own organizations, can also help himself a great deal to meet this problem, but in the last analysis it seems to me that the government must itself be prepared to assure farm prosperity through the maintenance of support prices and through the development of export market for agricultural products prices-to name just two of the possible responsibilities which may be assumed by the government. It seems to me fully as important that the government undertake these responsibilities as it is that we maintain effective minimum wage laws, unemployment compensation and old-age benefits to assist in supporting the incomes of urban and industrial workers. l-lii258 Finally, it seems to me that the government, through its encourage- . ment of exports to aid in the rehabilitation of war-torn Europe'; through its fiscal policies of borrowing, taxing and spending; and through .its . control of public works;,and its, encouragement of housing construction, has, an inescapable responsibility;''f&r underwriting, full "production and employ- ' ment. " "* ~ " . .. • _ • . ^ ' r Through these, means, the government, can maintain conditions under which free private enterprise .can t h r i v e B y judic'ious use of these instruments, the government.'.can help., indus try, agriculture and labor to make full use of the improvements.'in^methods of production which have developed during the w a r . If these instruments are used boldly and quickly, it is highly probable that they will not have to be used extehsively. ~ If business', agriculture and labor recognize that the government is fully prepared t"p .. maintain high levels of production and employment,' all three groups Will, of themselves, make..the decisions which contribute toward this objective. If workers are .not constantly faced with the fear of unemployment,, 'they'will spend their earnings' and thus provide the markets for the gpo;ds which they ;'' produce. If "agriculture is assured that its markets and prices' Will be supported, they'will plan t o produce the food and textiles which: our people ' need and will be able : to^buy if industry is running in .high g e a r . . ( "V" In summary, a choice between two. alternatives, faces u s . If-we f u m b l e . the ball and make no concerted .cooperative, effort to reach "thé cp.mmon goal of making full use of our productive capacity, w.e face a future of 'unemployment and chronic .depressions. Pressure, groups, including" a large bod^'; of disillusioned soldiers, will "soon be waging a desperate but fruitles.s .iight over the distribution of a meager scarcity. If .we. face the future squarely,, ^cooperatively, "intelligently, and "' ~ .. ... vigorously* we can readily achieve. £he same miracle of production in peace as we have i n w a r . That's the kind of America our boys want to come back to - that's the only kind"of country, which can repay our obligation for the terrible sacrifices which they have made. ... *" . • X. 1-11+258 OFFICE OF PRICE ADMINISTRATION ADVANCE RELEASE not for use before 12:15 p.m. Pacific W a r Time Friday, August 25, 1944 ADDRESS BY CHESTER BOWLES, OPA ADMINISTRATOR, BEFORE SAN FRANCISCO' CHAMBER OF COMMERCE, FRIDAY, AUGUST 25, 1944, 12:15 PWT The war has entered its climactic phase. The long months of training and preparation, the long months of sweat and strain are now paying dividends in great strides being made toward victory. W e know, of course, that a lot of hard fighting lies ahead for our boys before even the European phase of the war is ended. And all of us here on the home front are determined to keep war production going at full blast, so that those boys shall have everything they need where and when they need i t . That is our first job and for a long time to come will continue to be our first job. But, while doing everything w e on the home front can do to help win the w a r , we must prepare to face the problems of peace and reconversion. It is important that w e face up to these problems, that w e see them clearly and think straight in preparing to solve them. What w e are planning for is our economic.future, no less. This goes for the whole broad task we face in reconverting from an economy of war to one of peace and it certainly goes for the problems that arise in the particular field of price control during the period that lies ahead. V Let me say at the outset that I am confident of the outcome. The problems of reconversion will be tough, but the problems of wartime have been tough, too, and w e have licked those. The record that has been rung up is evidence that as a people w e have what it takes to manage our economic affairs in ; times of stress. • ' . That record stands up extraordinarily well. Consider that since spring 1942, when price control authorized by the Price Control Act went into general effect, industrial prices have risen by less than 3 percent and the cost of living by about 9 percent. These are index numbers, general averages, but they summarize the movements of literally millions of prices. Many, many prices have been held to even lesser rises than these. Prices of steel plates, for example, which at their peak in the last war rose to 7 times their prewar level, have been firmly held this time right where they were in 1941. And in the cost of living, average rents have been stabilized now for 25 months with scarcely a flicker in the index. That record of price stability has been rung up by the American people during a period of unbelievably intense economic pressure. In my opinion it fully deserves to rank with the remarkable production achievement of the home front. Indeed I think the two are closely related. As I see it, there are four basic reasons for this record, four reasons why w e have been so successful in restraining prices. In the first place, there is the miracle of production. However great the demands which were placed upon our productive machine, those demands were met and exceeded. W e have filled the vast needs of w a r . We have met the needs of the civilian economy too. Abundant supplies have had a good deal to do with keeping prices down. On the other hand, let me add, stability of prices and http://fraser.stlouisfed.org/ 21680 - 302 Federal Reserve Bank of St. Louis -2costs has had a good deal to do with the production records. During the last war businessmen could never tell how they were going to come out in the race between prices and costs. That is, I think, one reason why in the last"war, a shorter war, production increased only 25 percent, while in this war it has more than doubled. Second, the country has responded to the call for wartime saving. In spite of the vast increase in production, there have been billion upon billions of dollars of excess purchasing power. These billions, which could have put prices through the roof, have gone instead into war bonds, repayment of debts, insurance. The people of this country have saved nearly 100 billion dollars since Pearl Harbor. This too has had a good deal to do with our success in stabilizing prices. Third, people have recognized as necessary and fair the wartime controls that have been imposed. Because they have recognized these controls as fair and necessary they have stayed out of black markets, they have put up with shortages. They have played the game according to the wartime rules. That has been no small factor in our success. Fourth, we have had a national stabilization program developed under authority of the Price Control and Stabilization Acts. I think it fair to give the stabilization agencies, including my own, credit for controls that have stuck pretty close to plain common sense solutions of some extremely complex and vital problems. The job that we in OPA have done could have been a better job. No one will quarrel with that. But bear in mind two things. It has been a perfectly tremendous job and it had to be done from scratch. We have had to set literally millions of prices. We have had to establish rents for 14g million dwelling units. And for a period of a year, we were having to ration one commodity after another, and each one before we licked the problem of rationing the last. And, except for the experience gained in England and Canada, no one in America, knew the first thing about any of these jobs. It was a question of taking on a job, doing what seemed to make sense, and then making changes where experience showed they were needed. What is more, this record has been achieved without damage to any economic group. Corporation profits in 1943, even after payment of high wartime taxes, exceeded net profits in the peak year 1929 and were more than double net profits of 1939. Farm operators' net income was up 170 percent from 1939 and running 3g billion more than in the peak year 1919. Industrial, wages show the same thing — all time highs in industry after industry. All things considered, I'm willing to rest on the: record as it stands. I think it's a pretty good one. And it provides a favorable omen of success in the period ahead. I don't think we should forget that we faced this reconversion problem once before and that that time we bungled it, bungled it badly. In November 1918, when the Armistice was signed, such price controls as existed were pulled off almost immediately. The economy was left to find its own way back to normal. For a few months prices and wages did remain stable, even declined slightly. But by spring of 1 9 1 9 they were surging upward once more. As a result, almost half of the total inflation of the last war occurred after the Armistice. For a year and a half we had a mad speculative spree. In the middle of 1920 w e began to pay the piper. . The bubble burst and a savage deflation set in which carried prices and wages downward even more rapidly than they had risen. Wholesale prices fell. 40 percent. Unemployment shot up by nearly 6 million, payrolls http://fraser.stlouisfed.org/Federal Reserve Bank of St. Louis 21680 -3payrolls shrank 44 percent and the average weekly earnings of workers who kept their jobs were cut by one quarter. O Corporate profits tumbled from 6g billion in 1919 to a loss of 55 million in 1921. Inventory losses totalled 11 billions and wiped out practically all the reserves accumulated out of wartime profits. Business failures in the next 5 years totalled 106,000, forty percent more than in the five years 1910-14. The farmers too took a beating. Farm prices fell 61 percent and taking into account inventory loses, net farm income tumbled from nearly 9 billion to less than 3 billion. In the next 5 years 453,000 farms were lost through foreclosures . That's the story of reconversion after the last war. Everybody had moved up together and everybody came down together. Vie went up fast; we came down hard. It's a story that provides a perfect lesson on how not to handle the problems of reconversion. It's a story which we are determined shall not be repeated this time. Let me say right here that I came to Washington to do a wartime job. Price control, in my opinion, is a wartime measure and has no place in an economy of peace. But we dare not make the mistake again of supposing that the economic impact of war ends when the shooting stops. The time will come when the 0PA regulations can be torn up. But we mustn't tear them up for confetti the minute the whistles and sirens start to blow and we all get into the streets to celebrate the German collapse. Wow in saying this what happened after the last of a war economy overnight. tightly wound mainspring out of these hard facts. A page shelf of logic. O I'm not saying anything new. Most people remember war. Most people recognize that we can't pull out T ^'e all know what happens when a small boy pulls a of a clock. But we need to keep reminding ourselves of history, someone once said, is worth a 5-foot Vie are determined to avoid a repetition of what happened last time. But in tackling the problem let us recognize that the job this time is far bigger and more difficult than the one we faced at the close of the last war, the one that licked us. Just consider — last time, with all our straining, we increased industrial production by only 25 percent ana farm production by only 5 percent. In this war we have more than doubled industrial production, bringing it up 120 percent, and farm production has expanded 21 percent or 4 times as much as in the last war. Last time at the peak of the.war effort we devoted only a quarter of our total production to war. In this war we have reached a level of nearly one-half of a vastly greater output. In the last war hardly a single industry was fully converted to war production. In this war all our heavy industries have been converted. There can be no question — the job this time is bigger and more difficult. But we come to the. job of reconversion this time with a far better record of price and wage control during the actual fighting, with a price and wage structure that is sound and balanced. What is more, in making that record we have- acquired a know-how we didn't have last time. And most important of all, we come to the problem with our eyes open. -..We, know the dangers that lie ahead. Last time we didn't. . ; •»..•• C 21680 • -4Let 'me stop a moment here and spell out what I mean by this know-how that we have acquired. We have issued I don't know how many regulations and amendments to regulations by now — the regulations themselves run to over 500, the'amendments run into the thousands. In working out these regulations and in amending them,, each one geared increasingly to the individual requirements of the industries affected, we have learned a lot about our price system and the way it works. And we have learned too the kind of pricing technique that is best suited to each industry and trade. W e know now those in which it is best to stay with a "freeze" of prices as of some base date. W e know those industries in which "formula pricing" is appropriate. By that I mean setting prices on the basis of costs plus a margin. And we know what industries operate best with a flat dollar-and-cents type of price ceiling. I think it is going to make a great difference, in the reconversion period, that we have this hard-earned knowledge of the many industries that go to make up our economy and of the types of price control that can most effectively be used in each one. In issuing these regulations we have been under legal obligation to establish prices which are generally fair and equitable. This we have done and at the same time we have also given full effect to the requirement of the statute that we facilitate the expansion of essential production. As the record amply demonstrates, we know how to establish prices which stimulate production and which at the same time are fair to both buyer and seller. This too is going to stand us in good stead in the months ahead. While the standards under which we have operated are pretty well known, let me summarize them for you here very briefly. We have taken the position that a price is generally fair and equitable if it enables an industry to earn profits equal to or greater than those it earned in peacetime. For this purpose we have taken the years 1936-39 as our principal benchmark. Now this does not mean that any earnings above the 1936-39 level are taken to be excessive. Quite the reverse — we feel that earnings need to be above that level if they are to be fair, and we undertake to raise prices whenever .earnings fall below it. Most industries, as you know, are earning well above that. All corporations taken together had earnings in 1943 totalling before taxes nearly six times peacetime levels and, after taxes, nearly three times those levels. Now a price which is fair for an industry may still entail hardship for an individual firm. As we all know there has always been in every industry a group of producers who have' operated in the red. This has always been true in peacetime, when prices have been established by the free play of market forces, though I think it is worth remembering that as a matter of fact there have been fewer cases of individual hardship under price control than there were even in our most prosperous peacetime years. In dealing with the question of individual hardship, we have made a number of simple and I think common-sense decisions. First of all, we decided that w e couldn't set the price for an entire industry at a level high enough to cover the costs of the least efficient producer. This is essentially what was done in the last war and it didn't work. It pushed up prices and costs all along the line and in due course put the marginal high-cost producer right back where he started — in the red. We decided, rather, to take care of individual hardship cases through individual price adjustments. This has been fair to the individual producer, while it has saved the Government and consumers billions of dollars. 21680 J -5Secondly, in dealing with the problem of individual hardship we have made two simple distinctions. 'Where a product was needed in the war effort, or where it was essential to civilians — where, in other words, we needed every ounce of output vie could get — we provided individual adjustments even in cases of extreme inefficiency. On the other hand, where the item was not essential, either to the war program or to civilian life, and where the resources and manpower employed by the firm would therefore be more usefully employed elsewhere, we have in general refused to make individual price adjustments. However, and this is thu second distinction, even in nonessential fields we have provided individual price adjustments where the producers affected were relatively efficient. For we have recognized that this would save the consumer money. If these efficient producers were forced out of business, consumers would have to turn to less efficient producers and pay a higher price. I have sketched these outlines of our prj ce control policy simply to make clear what I mean when I say we have know-how- in this field that was lacking after the last war. We know how to adapt our techniques to the requirements of the individual industry while at the same time applying uniform standards of fairness to all industries. I think, then, that we can approach the problems of reconversion with confidence. While it is true that the problems are larger and more difficult than they were last time, w e have great advantages which then were lacking. Now, of course, there are no magic formulas, there are no simple answers we can pull out of a hat. Our pricing will have to develop industry by industry, changing as conditions change and improving as we gain experience in this new field. But our objectives are clear and the principles upon which we shall operate are common-sense principles that anybody should be able to understand, and, I think, approve. Let me sketch them for you. First, we must continue to hold the line against inflation. We can't let our fighting men come home this time to face rising rents and climbing food prices as they try to get a new start in civilian life. Vie cannot afford to let the price level go, and with it the wage level, in a speculative spree that must inevitably be followed by a collapse. This isn't going to be easy, but do it we must and do it we shall. Second, we must take no action which would deflate the economy. There are hundreds of items which have been out of production since immediately after Pearl Harbor. Since that time costs have not stood still. If we were to require the producers of each of these items to bring them back on the market bearing the same price tags they had when they went out, this would force many producers to cut the wages they are currently paying labor, to cut the prices they are currently paying their suppliers. Such a policy could easily touch off a spree of price and wage cutting which could put our economy into a tailspin. This too we are determined to avoid. If it's a question of cutting costs to match a pre-war price or of raising prices to match current costs, there's no doubt in my mind we shall choose the latter. The dangers of deflation, when war4 expenditures are pulled out of the economy, are sufficiently grave that we 1 an? : r ^ nothing that would increase those dangers. Accordingly, the prices we are going to'establish for new goods brought back into production will definitely take account of the increases in wage rates and in raw material prices that have taken place since they were last in production, 21680 -6It is only common sense that we should take these increases into account. There has been a lot of loose talk, however, about increases of 25 and 35 percent in automobile prices over the levels of first quarter 1942. There has been similar loose talk with regard to the prices of refrigerators and other consumer durables. That talk is highly irresponsible and I hope that what I have to say tonight will have some effect in stopping it. In the first place, there has been no increase of wage rates or of material prices that would warrant any such increases. Hourly earnings in the automobile industry for example have increased by about 9g percent since the first quarter of 1942. And that is based on gross earnings, with overtime averaged in. On a straight-time basis, hourly earnings are up only percent. The prices of cold rolled sheet steel and of steel plates have not increased at .all since first quarter 1942. Neither copper nor aluminum prices have increased either. In fact, if we compare them with 1941, aluminum prices are down.9 percent. Now where in all this can anyone find basis for increases of the dimensions that have been so loosely mentioned? It may be that there are some hidden cost increases that, as a layman, I may not know about. Add these in too, and the entire change since first quarter 1942 is still extremely modest. So modest, in fact, that I am confident these cost increases will be found to be completely offset by the cost reductions that have been achieved under the demands of wartime production. The automobile industry and the other heavy industries will enter the postwar period with unbelievably more efficient machine tools. One such machine is reported to have cut production time on a given unit from 90 hours to 2 hours, 20 minutes. Another new machine replaces 17 pieces of equipment formerly required for all operations in drilling, machining, and finishing a casting. It has cut costs from $3.88 to 22 cents per casting. These too are cost changes which must and will be taken into account in. reconversion pricing. Let me say right here that if industrial leaders actually put their prices up 25 percent or 35 percent after the war that would be the best news that new industrial leaders on the West Coast and elsewhere could ask for. Men like Henry Kaiser know that they could easily undersell these prices and take over the leadership of the industry in the process. "t" So as we scan the future of prices, let's keep these things in mind. Let's-remember that new materials are now available, cheaper and better than before the w a r . And unbelievably efficient tools are available with which to fabricate them, so that items which four years ago took days to produce, now take only hours, and even minutes. All these developments are going a long way, not only in automobiles but in every other industry as well, toward counteracting the increases in wage rates and raw material prices. Furthermore, the very fact that we shall be producing at new high levels, with overhead costs spread over a larger number of units, means further reduction of costs. When I prices, remember have risen. And of them all, not say that OPA is going to take costs into account in fixing that we're going to be looking at all costs, not just those that so, while we may have to mark up some prices, that won't be true by a long shot. 21680 -7Third, we shall price for a full-production, full-employment economy. Before the war the United States was known the world over for our achievements in mass production. But those have been utterly dwarfed by our achievements during the war itself. Today the index of industrial production stands more than 125 percent above its peacetime level. Right there in that figure is the story of what is happening in Poland and in France, what is happening in the islands of the Pacific. Right in the figure is the reason why, while swamping the Axis on every front, we have at the same time sustained a standard of living at home higher than we have ever had before. Having demonstrated what we are capable of producing when we put our minds to it, we are not going back to half-production and halfemployment and half-consumption after the war. Our farmers have tasted, for the first time in a generation, the fruits of all-out production. They are not going to take a slash of prices and income such as they took after the last war. Our workers have tasted, for the first time in a generation, the fruits of full employment and wages a man can raise a family on, decently and in comfort. They are not going to unemployment, insecurity, and a handout to keep body and soul together. And our businessmen, they too know what it means to have a market for everything they can produce, they know what a full-production, full-employment economy means in terms of the dollars they can bank. They know what it means in terms of the open ladder to those with competence and initiative ad enterprise. They are not going to take a shrinking market lying down. And let's not forget that eleven million men returning from the corners of the earth — those of them who do return — aren't going to take apple selling and like it. In fact, they aren't going to take it — period. Some of them are going to want jobs, good jobs paying a living wage. Others are going to want farms on which they can raise a family. Still others will want to go into business. But all of them are going to want opportunity. And I have a hunch they are going to figure that it's up to us, who have been running the home front while they have been doing the fighting, to see that they get that opportunity. What is more, I think they're right. Now, what does all this mean for prices? It means prices that are set to tap mass markets, prices that yield profits on the basis of volume, not on the basis of mark-up. Too often in the past, our industrial leaders have lacked the imagination to tap mass markets. They have tried to play it safe by pricing their products to yield a profit at 50 percent of capacity. But the result has been that their operations never got much above 50 percent of capacity, while men went without jobs, and consumers without goods. The national income as a whole has run at half what it might have been, so that all of us, business leaders as well as everybody else, have earned far less than we might have done. We aren't going to go forward by playing it safe. A mass production economy doesn't work that way, and ours, we have found, is far and away the most powerful mass production economy on earth. During wartime we have priced on the basis of mass production and that is why we have been able to hold prices stable in spite of rising wages and still yield business the highest profits they have ever enjoyed. This has, I think, persuaded lots of our businessmen of what the automotive industry from its earliest days has always known. During the reconversion period we propose to price on a full-production basis. That means 21680 -8stable prices. That means narrow margins. I think our experience during reconversion w i l l persuade those who still have some doubts that what w e can do in time of war w e can also do in time of peace. If w e proceed on this basis, as I propose we shall, then when the ( day comes to strip off the last of the wartime controls, w e shall turn back to American industry a price structure fully geared to all-out production. From that time on, how prices are set w i l l be the responsibility of American business At this point let me repeat what I have said on earlier occasions. I am convinced that only Government can underwrite the level of production and income. I am convinced, furthermore, that in a modern industrial economy Government must underwrite the level of production and income and be ready to take whatever steps prove necessary to sustain those levels. But. I am also convinced that this very guarantee, fully implemented by adequate programs ready for instant use, w i l l make it possible for private enterprise to outdo itself, so that actual Government operations under that guarantee will be at a minimum. If the Government's guarantee is to have this effect, however, it will be up to businessmen to gear the prices they charge and the wages they pay to the requirements of our full-production economy. I, for one, think American businessmen will measure up to that responsibility. I, for one, am confident that the lessons of the w a r period, re-enforced by those we shall draw from pricing during reconversion, will be so persuasive that no important sector of business opinion w i l l still hold to the old views and old habits. It is upon this confidence of American business working shoulder to shoulder with farmers, with workers, and Government that I lo.ok forward beyond the reconversion period to the greatest era that American enterprise and the American people have ever known, an era in which the tremendous potential which w e have only now come to realize is ours will be fully harnessed to' the advancement of the. material and moral well-being of all America to heights never before even dreamed of. 21680 INF-060(8-44) OFFICE OF.PRICE ADMINISTRATION ADVANCE RELEASE Not for use before 6:30 p.m. Pacific .War Time Monday,•August 28, 1944. ADVANCE RELEASE . ADDRESS BY CHESTER BOWLES, OPA ADMINISTRATOR, BEFORE SEATTLE CHAMBER OF COMMERCE, MONDAY, AUGUST 28, 1944 6:30 P.M. PWT I believe all of us are wiser citizens today than we were in the days before the war. During the last few years we have learned a great deal more' about the inter-relation* of all the groups that go to make up our economic system. Our farmers have learned what high purchasing power in the cities can mean to their own incomes. Labor has learned to respect capable and intelligent management. Management has learned that without the energetic cooperation and backing of labor, efficient production is impossible. All groups have learned that in the final analysis our government belongs to them. That government problems are their problems - problems which must be solved efficiently and on an understanding give-and-take basis, if our democracy is to continue to meet the demands of a difficult and changing world. In the OPA we have an unusual opportunity to see the workings of our economic system at first hand. Each week we receive more than two and a half million telephone, calls from businessmen, farmers, industrial workers and everyday consumers. Every week we receive some 500,000 visitors drawn from every section of our economy. Every week we answer many thousands of letters, asking specific questions about the wartime regulations for which we are responsible. Through our 487 Industry Advisory Committees, plus our several hundred additional informal trade committees, we are in close contact with every busines group in the country. Through our 94 Labor Advisory Committees we learn what labor is thinking and worrying about. Through our scores of Farm Advisory Committees and through contacts with hundreds of individual farm groups we have an opportunity to know at first hand the hopes and fears of our farmers. These groups talk to us primarily, of course, about the economic problems whi.ch confront them today under wartime conditions. But invariably the conversations edge around to'the problems of the future. What kind of conditions will businessmen face after the war? What about prices, profits and taxes? What does labor face? What, about wages? Will peacetime wages and jobs keep up to the high levels of wartime? What lies ahead for the farmer? Will their prices collapse when the war is over,•as they did after the last war? And back of this, there is the question in everybody's mind: How will eleven million soldiers ana sailors fit back into our economy? It would be impossible for anyone to take part in these many conversations without beginning to develop some ideas of his own. During the last year or só I have, frequently .been asked to express "them. - 2 - ' ( * I have hesitated to do so, because, after all, I am neither a politician nor a permanent government servant. I entered government service in December, 1941 to do a wartime job. Until that time, I had concentrated a major part of my energy in running the business which I started in 1929. Economics and polit ical science, on a strictly amateur basis, were only a sideline. My present job as Price Administrator gives me plenty to do without venturing into difficult outside fields in which I do not pretend to be an expert. However, when I was again asked to give my views here in Seattle, I agreed with humility to do so - with a warning that I am offering only my ideas as an individual, trying, like everyone else, to see clearly through the maze of problems which lie ahead. All right, then, where do we go from here^ the war is over? ahead. r ~hat lies ahead of us when That's not an easy question to answer. No one can say just what lies But•there is one thing that is clear to all of us. We can't go back. What is there that we would want to go back to? Certainly not the wild stock market era of the 1920's and its inevitable aftermath. Certainly not to the paralyzing depression s of the early '30's, and not even to the partial recovery of the later 1930' - heartening though it was at the time. Let me sketch for you just what it would mean economically to go back where we were.even. %n 1940.' According to a recent publication of the U . S. Department of Commerce, if, in 1946, w e no more than match our 1940 production levels, that will mean a cut of more than 30$ below our' present level of production* Taking, account of technological advance since 1940 - and of the increase in output.per man hour - production at this level would result in the shocking figure of 20 million unemployed - an increase of 12 million over the actual unemployment of 1 9 4 0 a s s u m i n g the same hours of labor as in 1940. It is clear that our country as a : whole - our farmers-, businessmen, our industrial workers - would never accept such a situation particularly after our amazing production record in the war period. And even if w e here at home were spineless enough to accept that sort of an economy, we can be sure that our returning soldiers and sailors would be quick to tell us that they have not been fighting this war just for a chance to sell apples. Let me say again, we can't go back. Vie must go forward. What, then, lies ahead;? In my opinion there is only one answer to that question which the American people will accept - full production in our factories, full production on our farms. What actually does full production mean? It means simply that we use our manpower and our resources in time of peace as fully as we are using them in prosecuting this war to a vigorous and victorious conclusion. At present levels of farm ana factory prices.and at present wage levels, this means a national income of 150 billion dollars - 150 billions of purchasing power and 150 billions- of goods and services to spend it on. According to the - same study by the Department of Commerce, full proa national purchasing power of 150 billion dollars means statistically duction and 1 ZUIU></f -360$ more food than w e consumed in 1940, 72$ more clothing, 68$ more refrigerators and other electrical equipment, 105$ more household furniture, 130$ more new farm machinery, and three times the number of new home building. That would be a wonderful kind of America to look forward to. An .economy like that would provide prosperity, opportunity and security for all of us. There can be no argument about the goal. And I don't think there can be much argument about our capacity to achieve it. Our wartime production record is too vivid. The question is what steps must we take to reach it? With the repeated warning that my views are my own and only my own, let me offer an economic program which, in my opinion, would be likely to do the job. The first point in this program involves the price levels for which the OPA is responsible. In my opinion, w e must, during the reconversion and immediate post-war period, continue to maintain stabilization of price inflation on the one hand and the disastrous effects of deflation on the other. A stable, fullemp.ioyment Economy cannot be built on unstable prices and costs. To insure stable prices and costs is not going to be easy. Witness our experience during and after the last war. During the last war, wholesale prices, industrial prices, and the overall cost of living more than doubled. This resulted in the addition of 14 billions of extra dollars to the actual cost of the war. It imposed untold suffering on many of our citizens whose incomes failed to keep pace with sky-rocketing prices. It produced chaotic market conditions and — note this well — production increased only 25 percent. No business man could hope to know how he was going to come out in the race between his prices and his costs. In this war the story has been vastly different. Industrial production has increased by 119 percent. It is this staggering increase of production that lies behind what is happening today on the eastern front, on the western front and in the Pacific. Today in spite of vastly greater inflationary pressures than in the last war, industrial prices are less than three percent above the levels of May 1942 when price control became general. Prior to this time, industrial prices had risen 20$ since the German invasion of Poland. While to management and labor must go the greatest share of credit for this, X think the fact that they have known what prices, costs and wages were going to be played a significant part in their success. Steel and copper are still selling at 1941 prices. Aluminum, in the production of which Bonneville power has played so important a role during the war, is actually a trifle lower. Coke and industrial chemicals are virtually unchanged. This stable level of industrial prices has resulted in enormous savings to the taxpayers as far as war costs are concerned. Your guess is as good as mine as to how much extra our battleships, machine guns, and other war equipment would be costing us today, if the prices of these basic materials had not been kept under strict control. Since the Spring* of 1942, « ^ ^ r i s e in the cost of living of the average middleT income family has been only/7g percent - a fraction of the rise during World '~ar I. During the last 16 months the rise has been practically negligible. Rents have been stabilized at the levels of 1942, food is actually three or four http://fraser.stlouisfed.org/ percent cheaper at retail than a year or so ago. Q/Hfirfft Federal Reserve Bank of St. Louis . .. -4- ( Clothing to bs sure has gone up and there has been quality deterioration too. But 'in general the cost of living line has been held to a degree that we never dreamed pos-sible-.in the early stages of the war. The record has, in my opinion, been due to these four basic reasons: First, the tremendous output (and all-out production) of our farm and our industrial plants, which have provided goods in reasonable supply for all of us as consumers. Second, the inherent honesty of the American people which has kept them for the most part from patronizing the black markets. Third, the traditional desire of all of us whenever possible to save oUr money. The hundred billion dollars in war bonds and other savings would have blown us out of the water long ago if it had been used to bid up prices. Fourth, the work of the price control agencies, which I can assure you has not been an easy task. We have had to carry a big responsibility in a strange new field in which none of us had any experience or training. And we were subject to tremendous pressures - some thoughtless, and some selfish and vicious in t'he extreme. Very frankly we could never have withstood these pressures and come through with the stable price levels that we have today without the backing and support of all the groups which go to make up our country. So far we have kept our price level relatively stable. But we must never forget that nearly half the increase in World War I prices took place after the Armistice. Controls then were quickly dropped, and there was a wild scrambl for goods both for personal use and to build up business inventories. Our returning soldiers and sailors were greeted with booming rents and skyrocketing prices for food and clothing. In 1920 the inflationary bubble broke. Factory payrolls dropped 44 percent in a little more than a year. Farm income dropped 61 percent from 1919 to 1921. Corporation profits tumbled from 6J million in 1919 to a loss of 55 million in 1921 and the business reserves which had been accumulated during the war period were wiped out by inventory losses. Today we have all the makings for an inflation and eventual collapse on a far greater scale than anything we knew in 1918. Inflationary pressures are vastly greater. The whole tempo of our economy is stepped up to a far higher and potentially more dangerous level. We will need an intelligent governmental program and the close cooperation of our farmers, businessmen and workers if we are to steer our way through the twin dangers of inflation on one hand and deflation on the other. The first requirement in our program for full production, then, must be governmental policies which will keep our price levels relatively stable. The second point should, it seems to me, be the passage of tax laws for the reconversion and postwar period which will encourage the investment of risk capital and which will discourage the hoarding of savings by either corporations or individuals. I certainly can't qualify as a tax expert, but it'seems clear to me that business must be given an incentive to risk its capital in a producti\^ enterprise. And it seems equally clear that we can't let corporation income accum ulate in stagnant pools. We need to provide incentives for business to take risks SblMt Corporate hoarding tends to slow down our economy and destroy opportunities for * , employment. This is a field in which I assume Congress will take action during the coming year. Upon such action will depend in great part the levels of national income and of production and employment. Third, we must encourage competitive free enterprise in every possible way. And when I say free enterprise I mean just that. I mean freedom to compete, not freedom to suppress competition. Every possible effort must be made to combat monopolies either direct or indirect. Beyond this, every effort should be made to encourage businessmen to price their goods at the lowest possible levels, and to depend for their overall profit on full production with a small profit per item. Most businessmen will approve of that idea in theory| But I know many who have failed to practice it. Fourth, we must give particular encouragement to small business for it is small business which is the heart of competition. Credit facilities and perhaps research facilities should be made available by the government in order to encourage small firms to get started and to help struggling firms stay on their feet. Our peacetime economy, as I see it, must be squarely based on free enterprise and competition with a minimum of government interference. That does not mean, however, that the government has no major role. As I see it, the role is more important than ever before. It is the role of backing up our traditional system of free enterprise, and guaranteeing at all times the conditions under which that system, which is the bulwark of our economic and social democracy, may •• function vigorously. . Fifth, we must take all necessary steps to insure a high level of farm income; In 1940* 80 percent of our farmers were without plumbing facilities of any kind.' 72 percent of our farmers lacked electricity. Half of our farm buildings were in bad states of repair. The. 30 million people living on our farms, representing 23 percent of our population, were receiving only 8 percent of our national income. Our farmers were indeed the "forgotten element" of our economy. Their families were deprived of many of the marvelous creations of modern science which had long since become an accepted part of the lives of those of us who lived in the.cities and larger towns. If our farmers remain prosperous after the war, they will provide huge markets for manufactured goods, for building materials, electric; equipment, household furnishings and machinery. Without these markets on the farm, we can't provide full employment in the factory. In the past our farmers have suffered in periods of drought and short crops. Some times they have 'suffered equally when heavy production drove prices below the already too low levels. Basic farm prices after the war, must, in my opinion, be maintained at profitable levels. If we succeed in getting full production in our factories the city demand for farm products will support these prices. The government must at all times be prepared, through its support programs, to prevent any decline, even temporary, from profitable levels. Beyond this we must encourage the development of the family sized farm and the use of greatly enlarged freezer and cooler space to provide a steady flow of farm products throughout the year. C ¿ ¡ u r i Our farmers want to produce to the limit. They have proven during the war that they know how to produce on a scale which will lift up our health and nutritional levels to new heights. It is only through full production on the farm that all of us can be supplied with the food products which the high p o s t w a r purchasing power will allow us to buy. Never again, in my opinion, can we allow our farmers to slip back into the economic difficulties and insecurity which have plagued them in the past. • Sixth, we must increase and broaden our social security benefits for older people and for people who are unemployed. This the Nation is well able to do. And this I think the Nation must do if it is to maintain full production. Ours is a mass production economy which can function only on the basis of mass consumption. If any large.fraction of our population remain ill clothed, ill fed and ill housed, a similarly large fraction of our population will remain unemployed. Seventh, we must encourage in every way a vigorous program of housing and slum clearance. In 1940 a study revealed that more than one third of the homes in this country were in need of either replacement or substantial repairs. With few exceptions our major cities istill have their slum areas which breed disease, crime and misery. It seems to me we ought to establish a ten year program to eliminate those slums. The Government should establish annual construction goals, undertaking by one means or another, but always through private enterprise and private construction as far as the need can be met, to assure that these goals are met. A healthy construction industry must play a large part in any full-employment economy. Eighth, we must, in my opinion, develop a major works program covering > reforestation projects, flood control, irrigation projects, great highways, m e d - * ^ ical centers, hospitals, schools and recreational facilities. This part of our post war program should be conceived on a bold and imaginative scale, if we are to increase our level of national productivity and to take full advantage of our national resources. Many of the projects should be kept in blueprint form with the actual construction postponed until periods when unemployment threatens and private investment slows down. This public works program should be worked out in close cooperation with States and municipalities. Ninth, we must encourage exports, to the maximum possible extent. During the past decade we have made long strides toward freeing ourselves from our high tariff tradition. This must be continued. In the years ahead, freedom from artificial trade restrictions will be more important. After the w a r , the American industrial machine alone will be in good repair. All over the world there will be a great need for our goods. Machine tools, and machinery for construction products which has served us so well in time of war, will be in particular and immediate demand in Europe, Africa and Asia. This vastly increased export trade will require the extension of loans for at least a period of time. The World Bank, a tentative blueprint which has just been completed, and the Export-Import Bank will play an important role in meeting those financing needs. Obviously we cannot go on exporting indefinitely without taking goods in return. The materials and products we can use from a b r o a d are virtually countless and some are essential in the highest degree. In this connection we should remember that there are 26 strategic materials, all essential -7to the fighting of modern war, which are lacking to a greater or lesser extent within the boundaries of the United States. The government might consider a program of stock piling such materials to serve as a guarantee that no future war can cut us off from vital supplies. In return for our shipments of American industrial products for example we could take platinum from Russia, tungsten from China, tin from South America, and other products that America needs in its industry, commerce and daily life. The future prosperity of many millions of people in this country rests on our willingness to export, and on our ingenuity in developing methods of taking payment on a far broader scale in the coming years than in the years before the war. Tenth, we must get rid of wartime controls as quickly as possible, but we must remember the lessons of World War I. Under no circumstances can we afford to repeat the follies of 1919-20. The problems of reconversion are difficult in the extreme. They can not be solved by slogans or by simply driving the so-called bureaucrats out of Washington. As far as I can see the major problem is how to keep the loyal public servants there long enough to finish the job. The ones with whom I come in contact are only too anxious to get home. Eleventh, we must continue - all of us to work closely together, management and farmers. During the last few years we have learned that no can win a war single handed. We have produced in great volume since Pearl because we have worked closely together. We should know that no one group can win the fight for a prosperous, full production, peacetime economy. labor, group Harbor alone Labor, management and farmers can exert tremendous group pressure on our government. During the next year or two these three major groups will be joined by a fourth - our returning soldiers and sailors. Unless our productive power is fully unleashed and unless we are running at full productive capacity, these four major groups will soon be fighting among themselves - each for a share of the meager economic pie. If that occurs we will be facing economic and social disaster» That can well lead to the eventual collapse of our democracy. Prosperous and well paid industrial workers and businessmen with profitable businesses, offer huge markets to our farmers. A prosperous farm economy provides unlimited markets for the products of industry. If we are all well paid and prosperous we will have no difficulty in paying for all the goods which our factories and our farms can produce. During the last three years our wartime record as a nation has been outstanding - here at home as well as overseas. But there is no questioning the fact that some of the toughest problems that any people ever faced lie just ahead. The answers are not easy and perhaps you may disagree with those that I have suggested here today. But the right answers can and must be found. The right program can and must be developed. If we have the courage, the imagination and the vigor, we have before us an opportunity for one of the greatest eras in the history of the world. We have done and we are doing an outstanding job of war. We can't afford to fail when it comes time to tackle the peace. September 12, 19J-4+* Honorable Chester Bowles, Administrator, Office of Price Administration, Washington 2 5 , D . C . Dear Cheti You were good enough to send me some time ago copies of the three speeches you were giving on your western trip, I just wanted to let you know that from my standpoint they are absolutely first-rate and should be helpful in dispelling thi s myth that those of us here in Washington concerned with the future think the country is ¿nature in the sense that it will stagnate and will be incapable of full employment and production, I note that the press has commented favorably on your addresses, as they in all fairness certainly should. The editorial in today's Washington Post struck me as particularly good. With kindest personal regards, Sincerely yours,
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