July 30, 1941

[The New York Times, July 30, 1941.]

Inflationary price rises and increases in the cost of living are today threatening to undermine our defense effort. I am, therefore, recommending to the Congress the adoption of measures to deal with this threat.

We are now spending more than $30,000,000 a day on defence. This rate must and will increase. In June of this year we spent about $808,000,000-more than five times the $153,000,000 we spent in June, 1940. Every dollar spent for defense presses against an already limited supply of materials.

This pressure is sharply accentuated by an ever-increasing civilian demand. For the first time in years many of our workers are in the market for the goods they have always wanted. This means more buyers for more products which contain steel and aluminum and other materials needed for defence. Thus a rapidly expanding civilian demand has been added to a vast and insistent demand by the government.

Those who have money to spend are willing to bid for the goods. The government must and will satisfy its defense needs. In such a situation, price advances merely determine who gets the scarce materials, without increasing the available supply. We face inflation, unless we act decisively and without delay.

The consequences of inflation are well known. We have seen them before.

Producers, unable to determine what their costs will be, hesitate to enter into defense contracts or otherwise to commit themselves to ventures whose outcome they cannot foresee. The whole production machinery falters.

Speculators, anticipating successive price advances, withhold commodities from essential military production.

Costs to the government increase, and with it the public debt.

Increases in the workers' cost of living, on the one hand, and excessive profits for the manufacturer on the other, lead to spiraling demands for higher wages. This means friction between employer and employed.

Great profits are reaped by some, while others, with fixed and low incomes, find their living standards drastically reduced and their life-long savings shrunken. The unskilled worker, the white-collar worker, the farmer, the small investor all find that their dollar buys ever less and less.

The burden of defense is thrown haphazardly and inequitably on those with fixed income or whose bargaining power is too weak to secure increases in income commensurate with the rise in the cost of living.

And over all hovers the specter of future deflation and depression, to confuse and retard the defense effort and inevitably to aggravate the dangers and difficulties of a return to a normal peacetime basis.

Economic sacrifices there will be and we shall bear them cheerfully. But we are determined that the sacrifice of one shall not be the profit of another. Nothing will sap the morale of this nation more quickly or ruinously than penalizing its sweat and skill and thrift by the individually undeserved and uncontrollable poverty of inflation.

Our objective, therefore, must be to see that inflation, arising from the abuse of power to increase prices because the supply is limited and the demand inflexible, does not occur during the present emergency.

Today we stand, as we did in the closing months of 1915, at the beginning of an upward sweep of the whole price structure. Then, too, we enjoyed relative stability in prices for almost a year and a half after the outbreak of war abroad. In October, 1915, however, prices turned sharply upward. By April, 1917, the wholesale price index had jumped 63 per cent; by June, 1917, 74 per cent, and by June, 1920, it was nearly 140 per cent over the October, 1915, mark.

The facts today are frighteningly similar.

The Bureau of Labor Statistics index of twenty-eight basic commodities, by the end of June, had advanced 50 per cent beyond its August, 1939, level. It has increased 24 per cent since January of this year.

Since August, i939, the Bureau of Labor Statistics index of 900 wholesale prices has advanced 17 1/2 per cent. It has increased 10 per cent since January of this year. In the past sixty days wholesale prices have risen more than five times as fast as during the preceding period since the outbreak of the war abroad.

Since August, 1939, the Bureau of Labor Statistics index of the cost of living has advanced 5 1/2 per cent. It has increased 3 1/2 per cent since the beginning of this year, and the upward pressure is now intense. In a single month, from the middle of May to the middle of June, the cost of living was greater than during any similar period since the World War. But even yet the index does not fully reflect past increases, and only in a few months will it respond to current increases.

In 1915 the upward price movement proceeded unchecked so that when regulation was finally begun it was already too late. Now we have an opportunity to act before disastrous inflation is upon us. The choice is ours to make; but we must act speedily.

For twelve months we have tried to maintain a stable level of prices by enlisting the voluntary cooperation of business, and through informal persuasive control. The effort has been widely supported because far-sighted business leaders realize that their own true interest would be jeopardized by runaway inflation. But the existing authority over prices is indirect and circumscribed, and operates through measures which are not appropriate or applicable in all circumstances. It has further been weakened by those who purport to recognize need for price stabilization yet challenge the existence of any effective power. In some cases, moreover, there has been evasion and bootlegging; in other cases the Office of Price Administration and Civilian Supply has been openly defied.

Faced now with the prospect of inflationary price advances, legislative action can no longer prudently be postponed. Our national safety demands that we take steps at once to extend clarify and strengthen the authority of the government to act in the interest of the general welfare.

Legislation should include authority to establish ceilings for prices and rents, to purchase materials and commodities when necessary, to assure price stability, and to deal more extensively with excesses in the field of installment credit. To be effective, such authority must be flexible and subject to exercise through license or regulations under expeditious and workable administrative procedures. Like other defense legislation, it should expire with the passing of the need, within a limited time after the end of the emergency.

The concept of a price ceiling is already familiar to us as a result of our own World War experience. Prices are not fixed or frozen; an upper limit alone is set. Prices may fluctuate below this limit. But they cannot go above it.

To make ceiling prices effective, it will be necessary, among other things, for the government to increase the available supply of a commodity by purchases in this country or abroad. In other cases it will be essential to stabilize the market by buying and selling as the exigencies of price may require.

Housing is a commodity of universal use, the supply of which cannot speedily be increased. Despite the steps taken to assure adequate housing for defence, we are already confronted with rent increases ominously reminiscent of those which prevailed during the World War. This is a development that must be arrested before rent profiteering can develop to increase the cost of living and to damage the civilian morale.

Of course there cannot be price stability if labor costs rise abnormally. Labor has far more to gain from price stability than from abnormal wage increases. For these are likely to be illusory, and quickly overtaken by sharp rises in living costs which fall with particular hardship on the least fortunate of our workers and our old people.

There will always be need for wage adjustments from time to time to rectify inequitable situations. But labor as a whole will fare best from a labor policy which recognizes that wages in the defense industries should not substantially exceed the prevailing wage rates in comparable non-defense industries where fair labor policies have been maintained. Already through the efforts of the National Defense Mediation Board and wage stabilization committees wage standards are being established and a measure of wage stability is being brought to particular industries. It is expected that such activities will be continued, extended and made increasingly effective.

I recognize that the obligation not to seek an excessive profit from the defense emergency rests with equal force on labor and on industry, and that both must assume their responsibilities if we are to avoid inflation.

I also realize that we may expect the wholehearted and voluntary cooperation of labor only when it has been assured a reasonable and stable income in terms of the things money will buy, and equal restraint or sacrifice on the part of all others who participate in the defense program. This means not only a reasonable stabilization of prices and the cost of living but the effective taxation of excess profits and purchasing power. In this way alone can the nation be protected from the evil consequences of a chaotic struggle for gains which must prove either illusory or unjust, and which must lead to the disaster of unchecked inflation.


The White House, July 30, 1941.