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MARCH, 1945
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CONDITIONS
A REVIEW BY THE FEDERAL RESERVE BANK OF CHICAGO
State Budgets in the Seventh District
Substantial Surpluses Accumulate During War
The General Assemblies in Illinois, Indiana, Iowa, Mich
igan, and Wisconsin are currently formulating their finan
cial plans for the period July 1, 1945 to June 30, 1947.
Legislative attention is being given to executive budgets
submitted by the Governors of these states. With the ex
ception of four states in the nation (New York, New Jersey,
South Carolina, and Michigan), state governments adopt
two-year budgets even though far longer range planning
is thereby required than is characteristic of the financial
plans of local governments, the Federal Government, or
business enterprise. This forecasting of expenditures and
revenues for a period of over thirty months is subject to a
wide range of error. The budgets presently being considered
were prepared by the executive departments of the several
states in the latter part of 1944. They incorporate detailed
financial plans of expenditure and estimates of revenue for
a period in which the war will probably come to an end
and in which problems of reconversion and readjustment
will drastically affect state fiscal policies. The estimates of
revenue are subject to the same uncertainties in economic
conditions. The widespread practice of preparing biennial
budgets arises from the fact that legislative approval of ex
penditure programs is essential and the legislatures in only
four states meet annually. Special sessions would be re
quired to shorten the budgeting period.
The fact that budgets prepared for such long periods
of time are at all practicable and acceptable arises largely
from stability in state expenditure programs and their rela
tive insensitivity to changing economic conditions. Indeed,
the budgeting requirements themselves tend to accentuate
the inflexibility in state fiscal policies and make them un
responsive to rapidly changing economic conditions. The
level and timing of the state expenditures, the character
of state tax systems, the level of tax rates, and state bor
rowing and debt repayment practices are now recognized
as having significant effects upon local economic conditions.
Inadequate attention has been given to the nature of these
effects and the importance of properly shaping state fiscal
policy to minimize economic fluctuations.
STATE TAX SYSTEMS
State revenues in the Seventh District are largely derived
from payroll taxes for unemployment compensation; general
sales taxes; excises on alcoholic beverages, tobacco products,
and public utility services; general corporation taxes; insur
ance taxes; highway user levies on motor fuel and highway
vehicles; personal income taxes; and death and gift taxes.
Wisconsin and Iowa are the only District states with cor
poration and personal net income taxes, though the Indiana
gross income tax law applies to salary and wage income.
Wisconsin is the only state without a general sales tax. The
dependence upon excises and business taxes gives a greater
stability to state revenues in depression than is had by
resort to such levies as personal income taxes and reflects
in some measure the necessity of adequate provision for
the inflexibility in state expenditure programs.
STATE EXPENDITURES
State expenditures are primarily for highways, old age
and blind pensions, unemployment insurance, and a variety
of welfare functions including institutional care in prisons,
hospitals, etc. In addition, states make substantial grants
in aid to localities for the performance of purely local func
tions, principally education and street construction and
maintenance.
During the past three years state revenues, because of
the rising level of employment and prices, have increased
more rapidly than state expenditures and grants to local
government. As a result there have been substantial accu
mulations of cash which have been earmarked for postwar
expenditure on public construction deferred during the war
because of the lack of materials and manpower. The accu
mulation of these surpluses has necessitated tentative con
sideration of a program of postwar public investment, and
certain of the states are presently developing these programs
in specific terms, with priorities assigned to more urgently
needed improvements, and specifications and blueprints de
signed to put them into prompt execution.
RELATIVE IMPORTANCE OF STATE FINANCE
The year 1941 is the latest period for wl ' ' " ~-r ’etc
financial data are available for Federal, state,
y ■ernment operations.1 In that year state expend
ing aids to local units and debt repayment, we
of total governmental expenditures of 23.3 '
compared with 29 per cent for local governme:
cent for the Federal Government. From the
tax revenues, the states collected 27 per cent of total tax
receipts aggregating 16.9 billion dollars, the local units an
equivalent percentage, and the Federal Government 46 per
cent. The differences between expenditures and tax rev
enues are due to borrowings, non-tax revenues, and to grants
from the states to local units and from the Federal Govern
ment to the states.
The use of governmental cost payments, to compare the
relative importance of Federal, state, and local government,
is probably more appropriate than comparisons based on tax
revenues. LInfortunately the expenditure basis of compariJBureau of the Census, Financing Federal, State and Local Governments:
1941.
(Continued on inside back cover)
Wartime Great Lakes-Inland Shipbuilding
District Erodtices Large Volume of Ships, Engines, Equipment
Although most ships built during the war have been
launched at shipyards on the Atlantic, Pacific, and Gulf
Coasts, several hundred ships and barges of various types
have been constructed in more than twenty-five shipyards
on the Great Lakes and rivers in the Midwest. The largest
contribution of Midwest industries to the national ship
building program, however, has been in the form of steel
plates, marine engines, parts, and countless types of ship
equipment, to a great extent on a subcontract basis. Where
as only about 5 per cent of the value of all completed ships
has been launched on the Great Lakes and inland rivers,
Midwest manufacturers probably have accounted indirectly
for at least three times this amount in components for final
ship assembly elsewhere.
Since the outset of defense preparations in 1940, and
until recent months, the demand for ships for numerous
specialized war purposes has been at, or near, record levels.
The initial demand was for cargo and combat vessels de
signed to meet defensive requirements. New and expanded
shipyards on the coasts began to produce substantial num
bers of Liberty ships, destroyers, carriers, and other naval
vessels on a mass production basis in 1941. With shipping
losses from enemy action extremely heavy immediately after
Pearl Harbor, the need for more ship construction inten
sified greatly, especially for frigates or escort vessels, to meet
the submarine menace. In addition, the Navy expanded its
own submarine program and all of the services called for
many specialized types of ships such as tankers, subchasers,
tugs, badges, minesweepers, and retriever and salvage boats.
Further complicating the problem of adequate shipping
tonnage after Pearl Harbor, manpower stringencies became
so acute in most coastal shipbuilding areas as to limit
severely additional expansion of construction facilities.
Greater attention was then directed to using existing ship
yards and building new ways on the Great Lakes and cer
tain of the larger rivers which lent themselves to the pro
duction of the above-mentioned types of ships.
which in turn flows into the Mississippi. Bridges over the
drainage canal were found to be too low, and the normal
nine foot river channel too shallow, to permit passage of
large ocean-going ships.
Engineering ingenuity, however, overcame these obstacles.
By removing masts from the ships and taking on sufficient
ballast the bridges could be cleared. The shallow river chan
nel problem was found to involve principally the stems of
the ships which are weighted down by heavy engines and
other machinery. The solution agreed upon has been airfilled, steel drums serving as pontoons to lift the aft section
of the ship. At Lockport, Illinois, after moving through the
Chicago Drainage Canal, large vessels are equipped with
four of these pontoons, each twenty feet long and nine feet
in diameter. Once the pontoons are attached, pusher type
river boats move the ships through the locks into the Des
Plaines River, down the Illinois River, and ultimately via
the Mississippi to New Orleans. Masts removed and stowed
on decks at Chicago are put in place again at New Orleans.
Pontoons are returned to Lockport for further use.
With some existing facilities and suitable locations for
more shipyards, available manpower, and a satisfactory
method of delivery, sizable ship constmction contracts were
awarded in the Great Lakes area, but for the most part
several months after Pearl Harbor. The Maritime Commis
sion, Navy, and Army are all participating in the shipbuild
ing program on the Great Lakes and inland rivers. Although
some smaller vessels were launched earlier, the first frigate,
306 feet long and with 37^ foot beam, came down the ways
in July 1943.
As the offensive phases of the war were planned, ship
building needs of the nation shifted more and more to attack
cargo and combat vessels. The Great Lakes-inland shipyards
began production of new diesel cargo ships, which are the
largest ocean-going vessels to be built in the area. Although
smaller than the new Victory cargo ships built on the coasts,
they are said to be comparable in speed. In addition, the
output of many types of landing craft has been heavy on
the Lakes and rivers.
DELIVERY PROBLEMS MET SUCCESSFULLY
SHIPBUILDING EMPLOYMENT
HEAVY DEMAND FOR SHIPS
One of the principal problems to be faced before ship
building could be greatly expanded on the Lakes was the
method of delivering completed vessels to coastal ports. The
St. Lawrence River locks limit passage to vessels under 259
feet in length. Moreover, ships launched at Great Lakes
yards cannot be moved down the St. Lawrence River from
December to May because of ice conditions. The possibility
was explored of delivering ships through the Chicago Drain
age Canal linking Lake Michigan with the Illinois River
Employment in the Great Lakes-inland shipyards, accord
ing to the United States Bureau of Labor Statistics, exTHIS MONTH’S COVER
One of the largest ocean-going cargo vessels ever built
on the Great Lakes, being launched at
Sturgeon Bay, Wisconsin.
('Courtesy United States Maritime Commission)
Page 1
panded from about 6 thousand workers in June 1940 to 16
thousand at the time of Pearl Harbor, and then to a wartime
peak of 129 thousand workers in June 1944, a gain of 2,100
per cent for the entire period. This employment has since
declined to about 107 thousand workers, reflecting the over
all reduction in the national shipbuilding program. Indica
tive of the magnitude of wartime ship construction else
where, employment in the nation’s shipyards increased from
168 thousand in June 1940 to 556 thousand in December
1941, and reached a wartime record level of 1.7 million in
December 1943, an increase of 925 per cent over June 1940.
In December 1944, national shipbuilding employment num
bered 1.5 million persons.
That the peak employment level in the Great Lakes-inland area was reached six months later than the peak for
the nation indicates sharply the later timing of the ship
building program in this area. The proportion of national
shipbuilding employment in the Great Lakes-inland area,
moreover, remained roughly at 3.5 per cent from 1940 to
Pearl Harbor, but has since increased to more than 7 per cent.
PRINCIPAL SHIPBUILDING CENTERS
Prime contracts for ships, including marine engines and
propulsion equipment, awarded to Seventh District firms
from June 1940 through December 1944 have exceeded 2.2
billion dollars, or 8.4 per cent of the United States total.
Within the District the bulk of the contracts has been
placed in the Detroit, Rockford, Chicago, La Salle, SaginawBay City, Milwaukee, and Manitowoc-Sheboygan industrial
areas. Ship assembly in the District occurs principally in
Wisconsin: Milwaukee, Sturgeon Bay, and Manitowoc;
Michigan: Algonac, Detroit, Ecorse, and Bay City; and
Illinois: Chicago and Seneca. Most of the ship contracts in
the Rockford area and a large portion of those in Chicago,
Detroit, and Milwaukee are for marine engines for ships
launched on the coasts as well as the Lakes and rivers. Out
side the Seventh District, but in close proximity, are other
Great Lakes-inland shipyards at Superior, Wisconsin; Du
luth, Minnesota; Evansville and Charlestown, Indiana; and
Lorain and Toledo, Ohio.
Since June 1940, about 20 million dollars have been spent
for new shipbuilding facilities in the Seventh Federal Re
serve District. More than one-half of these expenditures has
been for equipment and the remainder for new structures.
Government funds have been used to finance more than 75
per cent of these new and expanded facilities.
The building of large ships during the war emergency is
not new to the Great Lakes area, such activity dating back
well into the last century. Ore carriers, tankers, car ferries,
and pleasure craft were important products of Great Lakes
shipyards during peacetime. The extent of the wartime
expansion in shipbuilding on the Lakes and rivers, however,
has brought tremendous increases in population, employ
ment, and incomes to many comparatively small communi
ties in the Midwest.
Sturgeon Bay and Manitowoc, Wisconsin; Bay City,
Michigan; and Seneca, Illinois are excellent illustrations of
Page 2
District communities which have been sharply affected by
the wartime upsurge of shipbuilding activity.
Sturgeon Bay, situated on Green Bay, 130 miles north of
Milwaukee, has shifted from a peacetime center of food
processing and small scale boat building to become one of
the most important ship construction points on the Great
Lakes. Door County, of which Sturgeon Bay is the principal
city, had a peacetime population of 19,000, which expanded
as a result of the in-migration of workers for the shipyards
to more than 22,000 persons. Demand deposits of individ
uals, partnerships, and corporations in the county have
shown one of the largest percentage gains since Pearl
Harbor among all counties in the Seventh Federal Reserve
District. Shipyards in Sturgeon Bay have contributed nu
merous escort vessels, cargo ships, tug boats, and a variety
of other craft to the nation’s shipping fleets during the past
two years.
Manitowoc, located on Lake Michigan, 75 miles north of
Milwaukee, has experienced an increase in manufacturing
employment from 6,600 persons at the time of Pearl Harbor
to 12,370 workers in July 1944, the peak month of produc
tion in the local shipyards. Employment has since declined
to about 8,000 workers. Manufacturing payrolls in Mani
towoc, also dominated during the war by shipbuilding, have
increased from 224,000 dollars in December 1941 to 601,900
dollars in July 1944, and since have fallen to about 425,000
dollars per month. The Manitowoc shipways are best known
for their submarine production, but numerous landing craft
and other ships have also been built.
Bay city, at the southern end of Saginaw Bay on Lake
Huron, is roughly 90 miles northwest of Detroit. Known
in peacetime for automotive equipment, knitwear, chem
icals, and heavy machinery, the area has produced a sub
stantial number of subchasers, minesweepers, rescue vessels,
and other ships under the emergency war shipbuilding pro-
SHIPBUILDING
EMPLOYMENT
GREAT LAKES-INLAND AND UNITED ST'
1940-1944
(DECEMBER 1941*100)
MIDWEST
SHIPBUILDING
MINN.
MICH.
gram. The population of Bay county has shown a small gain
of about three per cent from its 1940 level of 75,000 persons,
indicating the influx of new industrial workers who have
more than compensated for losses to the armed services.
Bank debits and demand deposits in the community have
increased 60 and 128 per cent, respectively, since 1941.
Seneca, located on the Illinois River, 60 miles southwest
of Chicago, is one of the largest inland shipbuilding centers
in the Midwest, with the entire facilities for ship construc
tion built after Pearl Harbor. From virtually no manufac
turing employment to more than 6,000 workers within six
months is a record of the change which shipbuilding has
caused in Seneca. LST’s (landing ships for tanks) have
come down the ways at a rate of more than one per week.
Population in Seneca has increased from 1,235 in 1940 to
more than 6,000 persons, and thousands of workers and
their families live in nearby Ottawa.
PRODUCTION OF SHIP COMPONENTS
Shipbuilding serves well to illustrate the importance of
subcontracts in Midwest industrial production. Data are not
available to show the volume of these subcontracts, but
Midwest manufacturing for at least two decades has been
marked by thousands of medium and small-sized establish
ments furnishing parts and equipment to make possible
mass production from large, final assembly plants within and
outside the District.
Prior to the outbreak of war, the Seventh District pro
duced nearly one-fourth of the value of the nation’s total
manufactures, but more than one-third of total production
of metals and metal products from which the principal ship
components come, including iron and steel, nonfenous
metals, and electrical and nonelectrical machinery. At pres
ent the District’s proportions of these national totals are esti
mated to he at least as large as in 1939. Total industrial
production in the District, however, is estimated to have in
creased more than 190 per cent, and output of metals and
metal products, 250 per cent from 1939 through 1944. This
industrial production expansion reflects directly the tremen
dous growth which has occurred in iron and steel, ordnance,
machinery, and transportation equipment.
Most, if not all, of the principal ship components are
produced in the District, including cast and fabricated iron
and steel shapes, engines, electrical equipment, and a wide
variety of fittings and related machinery. In addition, Dis
trict plants are recognized for their exceedingly large pro
portion of national ordnance output, which includes arma
ment, guns, and fire control equipment, all important in
wartime ship construction.
IOWA.
TENN.
MISS.
GULF
^ CONTRACTS
VALUED
OVER
IOO MILLION
^CONTRACTS
VALUED 5-100 MILLION
OF MEXICO
OOLLARS
DOLLARS
(CROSSHATOHED AREAS DENOTE PRINCIPALLY MARINE ENGINES AND PARTS)
Source: Adapted from War Production Board Supply and Facility Con
tract data, December 1944. Each location covers an entire
county.
SHIPBUILDING OUTLOOK
While the outlook for shipbuilding on the Great Lakes
and inland rivers during the next six months is obscured by
uncertainty about the end of the war in Europe and the
demand-supply situation for shipping to intensify the
Pacific offensive, production levels probably can he expected
(Continued on Page 8)
Page 3
Farm Prices Reach Wartime Peaks
Price Relationships Changed in Vive Years of War
Under the tremendous pressure of wartime expenditures
affecting materially all aspects of the national economy, the
rise in prices generally has been a much discussed problem
and the object of strenuous efforts at control. However, de
velopments in farm prices and in component parts of the
agricultural price structure are not so well known and are of
some particular interest to the general reader. This article
will, therefore, present a statistical history of some of the
major price series during the five years of war.
CHART IL
INDEXES OF PRICES
MEAT ANIMALS,
RECEIVED BY
FARMERS-U.S.
DAIRY PRODUCTS, CHICKENS ANO EGGS
(1909-14*100)
CENT
PER CENT
340 -------
RISES SIMILAR TO WORLD WAR I
During 1940 and 1941, the first two years of the war, the
general index of prices received by farmers for all commodi
ties sold rose at rates and by amounts closely paralleling the
rises during the first two years of World War I. The greatest
rate of increase in both periods was during the second year
of war. Here the parallelism between the two wars ends. In
1917, following United States entry into the war, farm
prices rose at an accelerated rate for several months. During
1942, following American entry into World War II, there
was not a corresponding acceleration in the rise of farm
prices. This may be seen in Chart I by the gap between the
lines for 1942 (or 1917) and early 1943 (or 1918). How
ever, in early 1943 United States farm prices were very
nearly double their prewar average, and were at about the
same level as they had been in the corresponding stage of
World War I, in 1918.
Farm prices in World War I continued to rise to the end
of the war, and after the war until the break in the middle
MEAT ANIMALS
1939
1940
1941
1942
1943
1944
1945
of 1920. During the two years since the spring of 1943
the United States farm price index has been generally stabi
lized at 90 to 100 per cent above the prewar years, although
a rise of 9 points was shown for the index b?f—~r>
of last year and February 1945.
PRICES IN DISTRICT REACH HIGE
INDEXES OF PRICES
RECEIVED BY FARMERS - U S.
ALL COMMODITIES
(1909-14*
100)
Rises in price indexes for each of the stat<
have closely paralleled the changes in th<
farm price index. There have been minor differences in the
timing and rates at which the several indexes advanced, but
by 1944 all farm price indexes for each of the five states
were roughly 100 to 110 per cent above the prewar levels.
During the years while the rises were occurring, price in
dexes in some states were substantially above others, but this
was chiefly due to the different rates at which commodity
groups advanced in price, relative to the change in the price
index for all commodities, and the differences in relative
importance of commodities in the total marketings in each
state. For example, the level of the price index for Michi
gan was several points above the other four states in 1940
due to the relatively high level reached by truck crop prices
and dairy products prices, especially in the first half of the
year.
Page 4
A similar example occurred in 1943 when the indexes for
Michigan and Wisconsin had advanced considerably less
than in the other three states, principally because the prices
received for meat animals advanced much less rapidly than
did the prices for dairy products, which are relatively most
important in Wisconsin and Michigan.
AVERAGE
PRICES
RECEIVED BY FARMERS-U S.
CORN
PRICE PER BUSHEL
$ 2.20
-------
AND SOYBEANS
PRICE PER BUSHEL
If 2 20
RISES VARY BETWEEN COMMODITY GROUPS
The most marked advances by major commodity groups
were shown for grains, fruits, and truck crops. However,
even for meat animals, dairy products, and poultry, the re
cent levels of prices have been nearly double those shown
for 1939.
Prices of truck crops have risen most rapidly during the
war and reached a peak in 1943 at a level that was, on the
whole, nearly three times that of 1939 (Charts II and III).
Since mid-1943 the prices for this group of commodities
have tended to decline for several months, reaching a very
low point last fall. Since that time they have again risen
substantially. Prices of fruits showed a similar advance, hut
the great upsurge in these prices came in early 1943 and
since that time they have remained fairly steady at a level
better than two and one-half times that of 1939.
Grain crop prices, aside from a brief spurt in the first 8
to 10 months following the outbreak of war in 1939, have
advanced fairly steadily during the period. There was a
temporary leveling off during 1942, and throughout 1944
the price index for the group was reasonably stable at a level
about 135 per cent above the 1939 figure.
Prices of chickens and eggs advanced generally, begin
ning in the summer of 1940 and reaching a seasonally high
peak in the late fall of 1943. The level of prices for the
CHART m
INDEXES OF PRICES
RECEIVED BY
GRAINS, FRUITS, AND TRUCK
FARMERS-US.
CROPS
(1910-14*100)
year 1943 was double that of 1939. The long decline in
the spring of last year resulted in a level for 1944 about 90
per cent above the 1939 season’s prices.
Prices of meat animals climbed steadily from the begining of 1940 and reached a peak in March and April of 1943
considerably more than double that at the beginning of the
rise. Meat animal prices adjusted downward from the spring
of 1943 to early last year, but since that time the price index
for the group has been stable at a level twice that of early
1940.
J
The index of prices for the dairy products group rose
steadily from mid-1939 to the middle of last year, when it
began to level off. The index for 1944 was 90 per cent
above the level for 1939.
PER CENT
NEEDS SET PACE FOR INDIVIDUAL COMMODITIES
TRUCK CROPS
1944
Variations in the timing and urgency of needs for indi
vidual commodities have largely set the pace for the ad
vances in the prices received by farmers for each commodity.
In the following charts and discussion only commodities of
major importance in the District are covered. Prices are the
averages received monthly by United States farmers.
Soybeans averaged less than 80 cents in 1939 but at the
outbreak of war rose soon to around $1.00, but receded in
late summer of 1940. However, once the need for soybean
oil and oil products for the defense program began to be
felt, the price rose rapidly and at a fairly uniform rate to a
temporary peak in the early part of 1942. A readjustment
back to below $1.60 occurred in that year, induced in part
by the fact that the 1942 crop was practically double that
of the previous year. Since the fall of 1942 the price has
risen steadily, but at a less rapid rate than previously, to
well above $2.00 at the beginning of 1945.
Corn prices have shown a less pronounced rise. Beginning
at 45 cents in 1939 the rise was gradual and uniform to
Page 5
the end of 1942. The tight feed situation induced an ac
celeration of the rise which continued well into 1944. It
appears at present that the price of com has begun to level
off, since the seasonally low price at the end of 1944 was
substantially the same as it was a year earlier.
Hog prices tended downward from about $6.00 during
1939 to a low of around $5.00 in the first half of 1940.
Thereafter they rose sharply to a level of $14.00 in the
summer of 1942 and had practically tripled in price by the
spring of 1943. From then until last summer the trend was
downward, reaching a level of $12.60 in June. Under the
present critical meat shortage prices have again risen and
are at the ceiling.
Beef cattle prices rose during the period between 1939
and 1943 from $7.00 to $13.00, but they, like hogs, have
declined materially, reaching $11.50 last December, but
have again turned upward since the end of the year.
Butterfat prices rose gradually from below 25 cents in
1939 to around 31 cents in midsummer of 1941. They then
leveled off at the latter figure through March, but rose
rapidly thereafter to 50 cents in the spring of 1943. Price
ceilings and subsidies since have kept the price leveled off
just above 50 cents.
Whole milk prices advanced from the seasonal low of
$1.40 in 1939 to the corresponding seasonal figure of $3.10
in 1944. There is evidence in Chart VII that whole milk
prices have begun to level off, since the seasonal high of
$3.40 in December of 1944 is identical with the seasonal
high month for one year earlier. Demand for whole milk
continues at unprecedented levels and were it not for the
dairy subsidy and stabilization programs (which payments
are not added to the prices in the Charts VI and VII) the
prices of milk and butterfat would probably still show an
upward tendency.
CHART 2
AVERAGE
PRICES
HOGS
DOLLARS
AND
BEEF CATTLE
RECEIVED BY FARMERS-U.S.
BUTTERFAT* EGGS
BUTTERFAT
I
(PER POUND) /
(PER DOZEN)
1940
* DOES NOT INCLUDE DAIRY PRODUCTION PAYMENTS, SINCE OCTOBER 1943.
Egg prices really began their marked rise from the sea
sonal low of 15 cents in 1940 and reached their peak in
1943 with a seasonal low of 34 cents, and a seasonal high
in November of 47 cents, compared with 26-27 cents in
1939 and 1940. The “collapse” in the egg market of a year
ago has been much discussed and needs no repetition here.
The seasonal low of 1944 was 27 cents (May) and the
January 1945 seasonal high point was 44.5 cents, below the
corresponding figure of 1944. However, prices for January
and February were 4 to 6 cents above those of a year ago,
and with present and impending shortages of eggs (ac
centuated by the meat situation) it is probable that a new
peak will be reached for egg prices by the end of this year.
PRICES PAID BY FARMERS RISE AT LESSER RATES
DOLLARS
PER CWT
i—i
Page 6
PRICES
RECEIVED BY FARMERS- U.S.
PER CWT
1940
CHART 3ZX
AVERAGE
1942
1944
1945
Alongside of rises in prices received by farmers have been
marked increases in prices paid by farmers (Chart VIII) for
goods and services used in living and production. However,
the increases have in general been less marked. Whereas the
index of prices received considerably more than doubled
from 1939 to 1944, the index of prices paid, including in
terest and taxes but not including farm labor costs and rates,
was 36 per cent higher in 1944 than in 1939. The advance
in prices paid did not really begin until 1941. It continued
quite uniformly and gradually until the end of 1943. Since
that time, due in part at least to the price stabilization pro
gram, the index has not changed significantly.
The index of prices paid is shown in two parts in Chart
IX, one for prices paid for goods and services used in living
and production, the other for prices of items used by the
farm family for “family living.” Two things are revealed
by the separation of the index into two components. First,
the increase in prices paid by farmers for items used in
family living had increased by February of this year slightly
more than the prices of production items. Costs of living in
February were 53 per cent above the 1939 level, while cost
of production goods and services (again, not including
labor) had increased by only 43 per cent. The second point
is that while the prices of production items were stabilized
at an even keel through 1944, the prices of family items
continued to rise, being 5 per cent higher at the beginning
of 1945 than they were a year earlier.
CHART SIH
INDEXES OF PRICES RECEIVED, PAID, AND PARITY
(1910-14-100)
PER CENT
340 -------
FARM WAGE RATES RISE RAPIDLY
Indexes of prices paid do not at present include wage
rates for hired or family labor. Bills have been introduced
in Congress to include one or both in computing the index
and in calculating parity. The index of farm wage rates for
hired labor (Chart VIII) began to rise sharply in the second
quarter of 1941, having remained fairly stable during 1939
and 1940. The rise continued to the middle of 1944, at
which time farm wage rates were more than 2Vi times the
1939 level. High wage rates are of course a matter of critical
concern to farmers producing commercially for market, es
pecially in dairy and meat animal production where labor
requirements are particularly high. While wage rates appear
to have become stabilized and to have leveled off during
the past nine months the underlying labor situation and
related factors do not warrant a conclusion that this stability
will continue for long.
Wage rates in the five states of the District (shown in
Chart X) had similarly advanced by 1944 to a level about
150 per cent above the rates for 1939-40. For Iowa a 1940
rate of $40 per month, without board, had risen to $107 in
the last half of 1944, an increase of nearly 170 per cent.
Rates in Illinois had advanced somewhat less, from about
$42 in 1939 to $96 at the end of 1944, or up 130 per cent.
Advances in rates for Michigan and Wisconsin fell between
those for Iowa and Illinois. Wage rates are somewhat
lower normally in Indiana. From the level of $37.50 in 1939
they increased to an average of $85 in the fall of 1944, an
’nerease 'b'fhtK' over 125 per cent.
* PRICES PAID,
x inp.i uniNG IN
PARITY RATIO*
1939
1940
1941
1942
1943
1944
1945
* RATIO PRICES RECEIVED TO PRICES PAID. INCLUDING INTEREST AND TAXES. 8UT NOT FARM LABOR
PARITY IS UP
“Parity” of prices received by farmers rises with farm
prices received and declines in proportion to increases in
prices paid by farmers. Both developments have been re
viewed above, but the conflict between the two forces in
effect on the “parity” ratio has resulted in a rise of the parity
ratio. Prices received have advanced farther and faster than
prices paid. The rise was largely confined to the period
between mid-1940 and early 1943. In 1939 prices were on
the whole at about 75 per cent of parity. The peak in the
ratio was reached in April 1943 when it was 122, or 22 per
cent above parity. By last fall the ratio had declined to 112,
but it rose again slightly during the late fall and winter.
CHART
CE
RECEIVED
WHOLE
BY FARMERS-U S.
MILK *
DOLLARS PER 100 POUNDS
4
1939
1940
1941
1942
1943
1944
* DOES NOT INCLUDE DAIRY PR00UCTI0N PAYMENTS, SINCE OCTOBER • 943
1945
FARMER’S SHARE OF CONSUMER’S DOLLAR RISES
Because over a long period of time prices received by
farmers fluctuate much more widely than do prices paid by
consumers for farm products, the proportion, or “share” of
the consumer’s food dollar going to the farmer is subject
to very wide fluctuations. In 1932, with low retail prices,
but with even lower prices for farm products, the farmer’s
“share” was less than one-third. This estimate is derived
by pricing the estimated annual purchase of 58 foods by a
typical workingman’s family at average monthly. United
States retail prices as reported by the Bureau of Labor Sta
tistics, and similarly pricing the farm products necessary to
furnish such a diet at farm prices as reported by the Bureau
of Agricultural Economics. By these computations the list
of foods had a farm value of $90 in 1932, and a retail value
of $276, leaving a farmer-to-consumer spread of $184 to
cover marketing, processing, wholesaling, and retailing costs
and profits.
Page 7
As prices advanced since 1932 the proportion estimated
as going to the farmer increased and amounted to 45 per
cent in 1937. Following the price recession of 1938 it drop
ped back to 40 per cent. For 1941 it had risen to 44 per
cent, and for last year the corresponding figure was 53 per
cent. At the beginning of this year the retail value of the
list of 58 foods was estimated to be $455, of which the
farmer received $251, or 55 per cent.
CHART X
MONTHLY WAGE RATES FOR FARM LABOR,
WITHOUT BOARD, BY STATES
DOLLARS PER MONTH
DOLLARS PER MONTH
FUTURE OF FARM PRICES
Under the various price support programs established as
war measures the Federal Government is committed to
supporting farm prices generally at 90 per cent of parity,
with some variations for individual commodities. A number
of difficult problems appear at the present time to challenge
the belief that the Government will be able to deliver on
these commitments.
With the price level for farm products at present around
118 per cent of parity, a drop of nearly 25 per cent in the
general level of farm prices could occur before the obliga
tions under the price support programs would be due.
At present the Federal Government is taking for war and
related purposes upwards of one-fourth of the total farm
output. Should substantial reductions in buying by this one
big customer occur following the cessation of hostilities in
Europe, it would then become a question whether the high
incomes of consumers (assuming they continued high
during such a period) would be sufficient to offset the drop
in Government buying.
Estimates as to the financial cost of price support com
mitments range from two to eight billion dollars annually.
It is doubted that the nation will be disposed to underwrite
such expenditures once the European war is ended, par
ticularly in view of other demands which will be made upon
the Government for expenditures in other directions, and
the political alignments which might be brought to bear
against expenditures of such a magnitude For this purpose.
CHART K
INDEXES, PRICES PAID BY FARMERS FOR FAMILY LIVING
AND FARM PRODUCTION
(1910-14.100)
Page 8
1940
1943
1944
1945
Stocks accumulated by Government buying almost in
evitably become a depressing factor in market prices, and
tend to offset the supporting effect of the programs. In the
case of non-perishables, such as hogs, poultry and eggs, and
dairy products, the problem is not so much the accumula
tion of large stocks to depress market prices, but a some
what more immediate and urgent one of finding suitable
outlets for such commodities before they spoil.
SHIPBUILDING
(Continued from Page 3)
to continue their steady decline. Several shipyards in the
area already have completed most or all of their latest
contracts.
The prospects for new, large contracts in the area obvi
ously depend on over-all ship requirements for the war pro
gram. Great Lakes-inland shipbuilders, however, are once
again beginning to face competitive disadvantages with
coastal firms because some of the new ship contracts are
being awarded on a competitive bid basis with delivery re
quired at East, West, and Gulf Coast ports.
On March 14, 1945, Vice Admiral Howard L. Vickery
of the United States Maritime Commission stated that the
“merchant shipbuilding program will be completed by the
end of the year,” and indicated that more than 500 thousand
shipyard employees will be made available for other war
work. Several thousand of these workers will leave Great
Lakes shipyards. Assuming no change in the war conditions
upon which Admiral Vickery based his prediction, it is
reasonable to assume that construction of at least ocean
going cargo ships on the Lakes also will be largely con
cluded during 1945.
STATE BUDGETS
(Continued from inside front cover)
TABLE II
son is impractical for a single state or a selected group of
states, as many fields of Federal activity such as national
defense cannot be assigned to a particular locality. The
alternative basis of tax receipts must be used though it also
has shortcomings. Tax payments to the Federal Government
are not reported according to the state of incidence but to
the state where collected. For example—liquor, tobacco, and
motor fuel excises are collected from distillers, manufac
turers, and refiners, and for these particular commodities
production is highly concentrated in a few states. It is gen
erally acknowledged that the major incidence of such levies
is on the consumers of the products; Federal tax payments
on that account, therefore, give an erroneous impression of
the distribution of such taxes among the several states.
A recent study based upon data for the year 1940 estimated
the actual incidence of Federal taxes by states.2
This distribution of Federal taxes according to incidence
may be combined with state taxes in 1940 and local taxes
in 1941 (the only year for which complete data are avail
able) to obtain the desired comparison. These results are
shown in Table I. The difference in years for local govern
ments does not materially alter the comparison, as there was
little variation in their revenues between 1940 and 1941.
This prewar pattern of Federal-state-local tax payments
is useful only as a bench mark for considering the effects
of war finance and the trend of postwar relationships. The
effect of high wartime collections of Federal war excess
profits taxes and personal income taxes is indicated in Table
II. Adjustments in collections to reflect incidence of Fed
eral taxes have been made in so far as corporate income
taxes and excises are concerned. The corporation taxes have
been distributed according to property income reported bv
the Department of Commerce by states for 1943, and excises
have been distributed according to estimated retail sales for
TABLE I
RAL TAX RECEIPTS ACCORDING
AND STATE AND LOCAL TAX
SEVENTH DISTRICT STATES,
0*411 aixD 1941 FISCAL YEARS
State
State
(1940)
Local
(1941)
Total
Per
Per
Per
Per
Amount Cent Amount Cent Amount Cent Amount Cent
420
41
267
26
345
33
1,032
100
Indiana.............
109
35
101
32
104
33
314
100
100
Iowa...................
71
30
71
30
97
40
239
Michigan.........
245
39
197
32
181
29
623
100
Wisconsin.......
120
36
96
29
116
35
332
100
District States
965
38
732
29
843
33
2,540
100
5,729
39
4,157
29
4,606
32
14,492
100
(amounts in millions of dollars)
Federal
(1944)
State
State
(1943)
Local
(1943)
Per
Per
Amount Cent Amount Cent
Total
Per
Per
Amount Cent Amount Cent
Illinois...............
3,228
83
309
8
360
9
3,897
100
Indiana..............
875
79
123
11
115
10
1,113
100
Iowa....................
490
73
74
11
110
16
674
100
Michigan...........
2,130
83
235
9
200
8
2,565
100
Wisconsin........
836
77
139
12
120
11
1,095
100
7,559
81
880
9
905
10
9,344
100
42,126
81
5,094
10
4,950
9
52,170
100
District States
United States
the year 1943. These two adjustments provide for the major
incidence revisions incorporated in Table I. The comparison
of Federal payments for 1944 with state and local payments
for 1943 (again the most recent year in which comparable
data are available) gives full effect to wartime tax rates and
economic conditions. Federal taxes will undoubtedly decline
in relative importance from these levels—how far depends
upon the role of the states and localities in the postwar
period and the measures of reduction in Federal taxes.
In subsequent articles the probable role of state govern
ment in the immediate postwar period, so far as it is discernable from state budgets for the next two years, will be
appraised in terms of anticipated tax revenues, expenditure
programs, and long term financial operations. Are the states
now planning an extension in their services, enlarged aids
to local units, soldiers’ bonuses, and huge capital invest
ments) Do they foresee important changes in their revenue
systems and larger grants from the Federal Government for
dually administered public services? To these and related
queries the current deliberations of the legislatures in the
Seventh District should provide pertinent comment.
Local Fiscal Relations, 78th Congress, 1st Session
Illinois..............
United States
1943 AND 1944 FISCAL YEARS
^Committee on Intergovernmental Fiscal Relations, Federal, State, and
Senate Doc. 69, pp.
207-220.
(amounts in millions of dollars)
Federal
(1940)
ESTIMATED FEDERAL TAX RECEIPTS ACCORDING
TO INCIDENCE AND STATE AND LOCAL TAX
COLLECTIONS, SEVENTH DISTRICT STATES,
»
wie oevenxn .District in the fiscal
year of 1940 was 983 million dollars and the estimated incidence 965 million
dollars. For the District as a whole there was a disparity between collections
and incidence of less than 2 per cent. For the individual states of the Dis
trict, however, the differences were much greater; thus, in Iowa collections
were only 85 per cent of the estimated incidence, and in Wisconsin 73 per
cent. For Illinois, Indiana, and Michigan collections exceeded the estimated
incidence by 6 per cent, 18 per cent, and 20 per cent respectively
The incidence of taxes on personal net income, estates and gifts, ad
missions, telephone and telegraph communications, narcotics, and’ em
ployees’ payrolls, with minor exceptions was regarded as identical to the
state of collection.
The incidence of taxes on corporation net income, capital stock, excess
profits, stock and bond transfers, and one-half of employers’ payrolls was
estimated to be proportional to dividend and interest payments reported by
the Department of Commerce. The incidence of taxes on liquor, tobacco,
manufacturers, motor fuel, electrical energy, customs, and one-half of the
employers’ payrolls was estimated to be proportional to retail sales generally
concerned.
SEVENTH FEDERAL
IOWA
RESERVE DISTRICT
@FedFRASER