To Date—and Tomorrow
"MORE DOLLARS DO NOT MEAN MORE GOODS"
By LEON HENDERSON, Administrator, Office of Price Administration
Before the Chicago Better Business Bureau, Palmer House, Chicago, Ill., February 20, 1942
Vital Speeches of the Day, Vol. VII, pp. 342-347.
WAR does strange things to people, to ideas, and to institutions. I wonder though if you have ever found yourself bewildered as I have with the contradictions of the various jobs I undertake to perform in the
war program. In the first place, as Price Administrator, I am supposed to establish fair prices on commodities, some of which are no longer manufactured because, as Director of Civilian Supply, I have established programs of curtailmentbecause as a member of the War Production Board, I have already voted to give the commodities to the Army and Navy. To further compound the complexity, the War Production Board tells me that they have a few tires and automobiles left over, and will I please ration these fairly and equally among 130,000,000 eager buyers, and do the rationing without causing any protests, or depriving anybody of any style of living to which they have become accustomed.
Is it any wonder that I sometimes feel like that unfortunate chameleon which got on a Scotch plaid and tried to be all colors at once?
Really, though, all these jobs tie together. As a member of the War Production Board, I am familiar with the requirements for the armed forces. After those requirements have been satisfied first, it is my job, as Civilian Supply Director, to try to act for the civilian population and decide what Mr. and Mrs. John Q. Public would choose if they were sitting in my place. Because the supply is bound to be short, prices would zoom out of sight unless strong controls were provided. Thus it is natural that I have the job of keeping prices down. And since inevitably if raw materials are scarce, the finished products are bound to be scarce, it is another additional corollary that I should do the rationing.
I feel that you are entitled to an accounting of my stewardship, as you know I am not an elected officer, although I have twice been confirmed by the United States Senate. As citizens, as taxpayers, and as Americans, you are entitled to know the principles and procedures of rationing, of price control, of the drastic curtailment of civilian industry, and finally as to the small part I perform in the conduct of production for war.
I have one simple basic promise. Hitler and the Japs must be defeated. So whether we are shutting down the automobile industry, or rationing the use of tires, or fixing the price of food, we have the same test to apply.
Do you realize how important a part is played by arithmetic and mathematics in a war? In the logistics of combat, it is a life and death matter to know the speed of a plane, the accuracy of a bombsight, or the resistance of armor plate. In the logistics of civilian economics in a war emergency, it's a matter of life and death sometimes to know that two and two still make four. Let me give you the simple arithmetic of inflation, rationing, profits, wages, and prices for 1942. We will have 9 billion dollars less of goods and services of all kinds. That means 9 billion dollars less of refrigerators, automobiles, typewriters, and copper cuspidors. We will have at least 6 billion dollars more of purchasing power with which, to buy this limited amount of goods; that is, we will have 6 billion dollars made up of more farm income, more wage income and more consumer buying power of all kinds. You don't need to be an economist, with all the fancy training that goes with the profession, to know that there is a gap of 15 billion dollars between what this country of consumers can buy and the amount of goods that there will be on the shelves. I call this plain and simple arithmetic, and if you want to know the detailed mathematics, just write me a letter to Washington. It may seem incredible that this country, which is producing goods at a rate of 50 per cent higher than 1929, should be 15 billion dollars short. The answer, of course, is that we are supplying our military machine with 40 billion dollars of the merchandise of death—guns, tanks, planes and ships, and are giving our allies several billion besides in the form of food and clothing.
I hope you will keep that 15 billion dollars in mind, because it is a simple measure of your problem of inflation.
There is no way to escape it, and in the years to come, itwill rise to haunt you unless, as a nation, you handle it satisfactorily. It is the reason why we must tax and tax and tax until it hurts. Its the basic reason why you must save and save and save. It explains why wages must be kept under control, why farm prices must be kept under control, why profits must not be allowed to skyrocket, and why the rise in the cost of living must be fought at every cross-roads.
Out of my experience, let me tell you that as a nation, we will not handle this 15 billion dollars of deficit in its entirety. It will be many months before Congress faces up squarely to the necessity for taxes that will really hurt. Labor today, quite understandably, is thinking of priorities unemployment, and the farmer is remembering the cruel years of the locust, when parity was something that politicians talked about to get elected. And business is thinking of those unsteady years when assets were dissolved in the bankruptcy courts, and the very name "Balance Sheet" seemed a cruel mockery.
For these reasons which I have just recited, which in the days to come may seem like national weaknesses, we shall have to fix prices and we shall have to ration goods. Let me divert for just a moment. Here is another paradox. In the days before the war, I was an orthodox economist. I hated price fixing. I fought it in the NRA and I fought it as Secretary of the Monopoly Committee. I rested my belief in the strength of the individual acting in free association and abhorred the rise in the power of the state. At first blush it may seem analogous that I should be the price fixer and the rationer. Almost as analogous as that a Chicago mail order executive should be the top man in production, and that a Hyde Park gentleman farmer should be the head of this glorious state. To me, however, it is the symbol of democratic America, an America whose course is still guided by facts and realities.
There is one school of thought which says don't scold. There is another school which says only ACT. We shall do both if they will help in accomplishing our objectives.
We will fix prices if that will help in combatting inflation. We will ration where that will help in securing an equitable distribution of scarce goods, but always we will be guided by our one major premise of licking the Axis.
Already we have established formal ceilings over the prices of more than 100 basic commodities or manufactured articles. That work will go on. Already we are beginning the work of rationing scarce commodities. We have imposed controls when prices began to show inflationary tendencies. We have rationed when scarcities began to become acute.
You, as businessmen, as housewives, as Americans, have a duty to perform in both of these fields.
In the price field you have the duty of helping us battle the menace of inflation by keeping prices down. Likewise, in your roles as consumers, you have a duty not only in resisting price increases, but also in minimizing the need for rationing by refusing to hoard goods.
Thus far the rationing that we have undertaken flows directly from the realities of the war. The Japs have nearly cut off the areas from which we secure, in normal times, 98 per cent of our crude rubber. The Japs forced us into rationing tires.
Likewise, the need for expanding our production of war materials made it necessary to draw in the vast potential productive capacity of our automobile industry. The war has forced us to ration our existing stocks of automobiles and trucks.
The story behind sugar rationing is the same. We've lost a million tons of sugar—nearly a seventh of our requirememts—by the Jap inroads in the Philippines. Our imports from Hawaii will probably be cut in half because of the threat to those Islands. Our supplies from the Caribbean will have to be used in part to help meet the needs of our allies, and, what's more, to make alcohol for the production of powder required by our soldiers and sailors.
I want to talk to the housewives for a moment about sugar. We will have enough in 1942 to meet all health needs, although our supplies available for home and industrial consumption will probably be about one-third less than in 1941. That reduction of one-third, however, makes it necessary to ration, so that everyone will get his or her fair share. Some of you have become frightened in recent weeks. Some of you have built up hoards of sugar, despite the commendable efforts of grocers to distribute sugar fairly. Under the sugar rationing plan, those who have built up stocks of sugar beyond their current needs will be deprived of the right to buy more until their stocks have been brought back to normal.
In anticipation of the beginning of sugar rationing, I want to urge those housewives who became frightened about the sugar situation after Pearl Harbor, to divvy up with their neighbors, or sell back some of their hoards to their grocers. By doing this, you will make it possible for everyone to get his fair share.
Remember! Hoarding helps Hitler. Hoarding of any commodity forces rationing, with all the confusion and bother that it entails. No patriotic American will hoard anything in this emergency.
The sons, brothers, fathers of some of us are on the fighting fronts, risking their lives to defend the ideals we all hold dear. But there is another front, the home front. The rest of us should be fighting on that front. In the months ahead, as the shortages develop, as the easy routine of our accustomed way of living is shaken and distorted, remember one thing—our deprivations, our hardships, our dangers are as nothing compared to those boys who are fighting with MacArthur for their lives on Bataan Peninsula.
On the economic side of our war effort, there is but one basic and controlling fact. We must produce more and consume less. Our reward will be the security of the growing force of ships and tanks and planes with which our civilization must be defended.
The total shrinkage in consumption will be too great to be borne by any one part of our people, whether that part be rich or poor. It must be shared. Nor are those who are already contributing their efforts exempt from the contribution that takes the shape of doing without things. Both kinds of contribution are needed, from everyone who is physically able to make them.
We are going to have enough to meet our commitments to our allies, and still meet the really essential needs of the American people—if what we have is equitably distributed. But it will not be equitably distributed if powerful economic groups within our own nation engage in a struggle, each trying to escape its share of sacrifice by raising its money income as fast as the cost of living rises, or faster. That sacrifice we cannot escape because more dollars now no longer mean more goods. From now on goods are limited by the requirements of war, no matter how many dollars people have. Those who get more goods by bidding for them with new dollars are taking goods away from others whose incomes are too small to bid successfully in the markets, and who cannot increase them. These are the people who are in danger of being deprived of the real necessities of life. These are the people for whom a runaway price inflation means both injustice and tragedy.
It is the struggle for our limited supply of goods whichmust at all costs be avoided. Economic groups must realize the suicidal character of such a struggle and must refrain, in their own interest and that of their fellows. The government, too, has obligations. Basic necessities, where a substantial shortage exists, must be rationed, and their retail prices controlled. The Office of Price Administration is entering on this formidable task, and is attempting to protect the people on this front. But such controls will not suffice. If our people accumulate dollars far in excess of the limited supply of goods and try to spend them, they will raise the prices of more things than can be effectively controlled and rationed. The government needs those extra dollars, and it must get them, either by taxes or by subscriptions to defense stamps and bonds, or in some other way.
In the supreme emergency we now face we must all realize that ordinary economic standards no longer hold. More dollars do not mean more goods. Taxes and loans are not the source of economic privations, but only the means of apportioning them. When some of us are giving our lives, it is little enough for the rest of us to assume cheerfully our fair share of economic sacrifice.
I'd like to tell you about prices and inflation, and I am not going to try to scold you. I think there has been enough of scolding. I know that most of us in that War Production Board are too busy for scolding. I'd like to say this, that up until recently, as far as price control is concerned, it has been a testimonial that will live for many years in the postwar period to the self-discipline of American business.
We have exercised price control. It was constitutional, of course, because there is a Bill of Rights in the Constitution which guarantees free speech. That has been the residual basis of our control. About 20 per cent of this economy has been under formal controls.
In the period beginning last March and ending as of the end of January, the increase in price of those controlled commodities went up but one per cent; while at the same time the whole price level was rising about eighteen per cent. That was a tribute to self-discipline. That was a tribute to those who refrained from scarce copy. That was a tribute to those who found themselves after many years of lean business, with a good ready-at-hand market.
We have run into a 15 billion dollar deficit of goods, and we have come now to formal price control through a price control law for the first time in our history. That price control bill, as we took it to Congress, had no trading in it. It had no bargaining in it. There was nothing in that bill which was intended to placate any groups in the community, and we fought it out on that basis.
Five times it got off the track, and five times we got it back. That bill is the only price control bill in the world that has standards in it which are binding on those who administer it. That is the only price control bill—the only one of wartime powers, rationing or anything else—which has embodied in it the ordinary rights of appeal to the courts for those who feel that they are aggrieved. The Canadian law, the Australian, the New Zealand, the English, contain no such provision. That bill is the only one that has a standard of profit in it. I want to think about that because it was not by accident that that bill contained standards. It was not by accident that there was a clear channel to the aggrieved that he might have his case reviewed by others than the administrative authority, and it was not by any fortuitous circumstance that it had a standard in there which undertook to say to a price administrator, be he Leon Henderson or those who come after, "You must give due regard to costs and profits."
A lot has been said about the Czaristic tendencies of thatbill. There have been a few things said about Czar Henderson as I recall. For the most part I think it is easier to say Slave Henderson than Czar Henderson, because the dictator is circumstance.
But that bill, if I understand things right, offers to American business to American labor, to American farmers, an opportunity for self-discipline. I was told many months before that bill was introduced that we should go all out on a complete freezing of every price, every commission, every rate. Maybe I guessed wrong. I had decided, however, from my knowledge of the guiding philosophy of America, that we were entitled to a chance to see what might be done.
Let me tell you what the price bill covers. It covers rent, but only rent in defense areas. Over the week end we will promulgate 20 defense rental areas. That means that we have found in twenty areas the shortage of housing as such that rental rates are way out of line. Before the administrator of the price control bill can establish a fair rent, a reasonable time must elapse to give the community and the state an opportunity to meet fairly set out standards. Failing in that, the national emergency becomes persuasive, and we have the right.
We have the right to establish prices at wholesale, and we have the right to establish prices at retail. In the matter of the retail price, with but few exceptions, we have had a magnificent exercise of self-discipline. The cumulative effect of a rise in wholesale prices, particularly those in foods and fibres, means that the retailers of America are confronted with constantly increasing replacement costs for their inventory. You are entitled to know what you can expect under this price law. What I am trying to tell you is that despite this tremendous pressure on prices, in any area of American business where self-discipline can be and is exercised to curb inflationary tendencies, the Great White Father in Washington should not be concerned. That is a type of opportunity that is not available in any other country at war. Canada has chosen an entirely different route. Just last week under the stress of the imminent danger of invasion, Australia went to perhaps the most harsh of controls that any democracy has, a limitation of freedom of movement by labor, a limitation of four per cent on investment to capital, a refusal to recognize absentee ownership, a refusal to permit capital to be entered into any investment without the positive compliance of the state.
It may be that one day there will be knocking at Congress legislation which will seek to control any or all of these items, but if it does, it will be because we as a people have found it impossible under the terms of this price control bill to exercise the discipline that kept us from inflation.
The price control bill itself does not stand independent. In this 15 billion dollars of the inflationary gap that I have mentioned, we find no possibility of preventing inflation unless we go much farther than we have already even dreamed of by way of auxiliary actions.
The tax bill will attempt, it is my guess, to take somewhere between 8 and 10 billion dollars additional by way of diversion, but that isn't enough. We are already confronted in the War Labor Board with requests for a dollar a day wage increases in some of the bellwether industries. In my opinion, as I have expressed it, we can have inflationary wages as well as we can have inflationary prices. Already we have been moving on many fronts, on the restraints of credit, installment credit. You are entitled to know that with the pressure that exists I shall certainly recommend that there be a restraint on open book credit, upon the charge account. Because unless that potential is removed, you have not 15 billion dollars, but something more.
We expect to oppose sales taxes, gross manufacturing taxes. They creep into the price system, because of their compounding effect and make the inflation more. We expect to continue as in the past to resist increases in transportation rates. We expect to urge that our great stores of agricultural supplies continue to be used so that the cost of living may be kept in line. And we expect, as we have already done with radio at retail, every time there is a transgression, to use the powers which Congress gave us.
These may seem like grim things, but inflation is much grimmer. As I said, you are entitled to know in the accounting of my stewardship, what I as an administrator, am thinking about. You are entitled, as businessmen, to know what is likely to happen by way of curtailment. Some of our great industries, as far as the making of civilian goods is concerned, will be completely shut down, not only because their facilities are needed for conversion to war work, but because those metals they are using, those raw materials, are limiting the production of war goods.
We know today from living with it intimately for several months that American industry can produce what the President said was his bench mark. We produce 45 thousand tanks—that is, American industry can produce them. We can produce 60 thousand planes or 75 thousand planes. We can produce 8 million tons of shipping, because for the first time since the early Twenties this sleeping giant, the American industrial system, has shaken off the stupor and lethargy that has bound it in chains, and it stands erect once more, saying, "Tell me what you want."
We know that the American labor force, with the potential of upgrading and training and apprenticeship, together with what might politely be described as a reserve but is in reality unemployment, is sufficient to make it. We know that as a nation there is no difficulty with appropriations. The real limitation upon America today is raw materials.
American industry, 50 per cent higher than in 1929, is making new records. The limitation which will constantly, like the two jaws of a pincer, be pinching us, is that of raw materials and the increasing demands, as the tragedy deepens —and it will deepen, as you know, on the military front— and says to those in charge of war production, "More, more; faster, faster."
For that reason, when I sit as Civilian Supply Director and we need more of a metal, of an alloy, of a raw material, I say that the civilian population will never be better served than if we get speedy, extra speedy production and extra speedy delivery of those arms to those who fight for us abroad.
You probably want to know—and you have a right to know—what I think of the war production effort. I can't tell you in a few minutes. I would be the last to say that we have the final word in organization of the war production effort. If there is any characteristic of the organization for war production that is outstanding, it is change. The English experience of recent days illustrates it more forcibly that I can. I do say, however, that as an observer of organization in the last war, as a student of organization, of business, of production, and as a participant in affairs today, I think this is a winning team. I think this is a good team. I think it has a great captain.
Let me say one thing more. There may be change. There should be change. In the Ordnance Department there used to be certain items for which you did not have to render an accounting: Scissors, paper clips, rubber bands, paper, pencils, incidentals of all kinds. They were called expendable, and it was said, in the last war, that as far as the infantry was concerned, second lieutenants were expendable. Let mesay in this war effort men are expendable. They are no more than paper clips or rubber bands. There ought to be no moaning if some of us "cross the bar," if we flag, if we falter, and somebody has to pick up the banner, don't feel sorry for us. You will do us a disservice if you feel that any one of us ought to be held on after we have reached the peak of our usefulness. There can come to no man a greater honor, a greater privilege, in a democracy than to have that opportunity to be chewed up and to have his remains spewed out when he had done all he can.
He is entitled to just one thing as he goes along. He is entitled to have you say, "He is my leader. He is my man. And, by God, I am going to stick to him!"
And that brings me to the fellow who is the captain of this team, one of your Chicago businessmen. I don't know where to start, because of my admiration. If there is any outstanding characteristic of Donald Nelson, it is that he is humble in the sight of great responsibilities. I know there are people who want the flashy leaders, who feel that we will never succeed until we have the man on horseback, who feel that you must have someone who has the elixir of complete, correct decision that can be exercised as an autocratic right. I don't share that belief. I think that you as businessmen, you as citizens will be better served by a man whose humility stems from a wish to understand the other man's point of view. I know of no man in public or private life who knows of the real dignity of another person's opinion better than Donald Nelson. I have seen him for months, those golden months he talks about. He wanted to go fast, not that he likes the waste of going fast, because as a businessman he abhors it. All his training runs against it. It is not that he likes war or the preparation for war, for he hates it as you do. But he felt that if we got on with our task, this great inanimate thing we call a state would take less of a hold of your lives and mine, that the tentacles of bureaucracy, the substitution of the state's desires for the free association of free people, would have less chance. As he used to say it, he would like to get the damned job done so he could go back home like other people. I think he is a great captain, and I think you in this city who have been privileged to serve with him should be proud to say, "I knew Don Nelson."
You have another great character in Chicago, and that is Ken Barnard. He and I chased loan sharks together. And when I say chased, I mean chased. Because in Detroit one time he rode the Black Maria with some loan sharks to make sure they got to jail. Now we chase chislers, I guess, and hoarders and scare advertisers. I will tell you what his secret was. When he was fighting the loan sharks, as was the case when, he was doing other things, and as he is doing things for you, he counted that day lost when he did not make a substantial contribution of some kind to the cause for which he was enlisted. I think that is a pretty good motto. I have known times that Ken would not go home because that daily duty to which he has assigned himself had not been performed.
I am scared about this war, and I don't mind your knowing it. I could tell you that I turned the pages of this book, and I see America glorious and triumphant at the end, and perhaps as an orator I would do so. But I Can't tell you that because I don't know that in this country every person is doing something every day which will further the war effort. I have that belief that we will reach that period. I don't know how it will come about. I don't know what has to happen to people, but you get the sense that we are in a physical combat, that we are fighting with somebody who isn't going to be satisfied if we say, "Allright, you have won. You can go home."
How many of you have been in a fist fight in recent years? How many of you have known that you had to win unless you wanted to be maimed, unless you wanted to be brutally kicked about? If any of you have, you know where we stand today; and if you have not, you don't know. Because we stand today at a place with a feeling that we are in a boxing match instead of in a fight. There used to be a famous saying. It was dignified enough to be carried into American history—"We haven't begun to fight!" Let me say that when we say that today, there is nothing dignified or heroic about it. And I say to you that unless each of you gets that sense of physical combat with some yellow man or some Nazi responsible for the things pictured in Time this week, and feels that he is at your throat and is likely to do the same thing to you, for all your glorious industrial record, you will not be proud of this period in which you say, "We haven't begun to fight."
Question by Mr. Pierre Carson (President, Cook County Council): The merchants of Cook County, through the Cook County Retail Council, in an endeavor to conserve rubber, have curtailed deliveries. If there is a genuine shortage of rubber, these curtailed deliveries are of great value. If not, we are misleading our customers. What is the true rubber situation and what, in your opinion, is the necessity of our program?
Mr. Henderson: That is a question again, of arithmetic. Last year before we curtailed the manufacture of rubber, we were using at the rate of one million tons a year. And that did not include much more than 15 thousand tons per month for the military, as I recall it.
At the present rate of demand by the United Nations, our supply of crude rubber would be gone not later than next June. You can't use synthetic rubber without some crude. Tires taken from German airplanes recently were found to contain as much as 35 per cent of crude. On a three-year basis, which is the only safe basis that I can see to calculate on the Far East, we will be practically out of a rubber civilization by June of next year. If there is anyone here who doesn't think that is a serious situation, I will go into the mathematics of it.
Let me say one more thing. In that rate of use there is not a single pound of rubber for passenger car tire use, not one single pound. We are distributing a limited stock pile through the Tire Rationing Board. They are doing a magnificent job. I look at the rubber picture every day. I applauded what was done by the retail store groups here. I think we are going to have to come to this same thing in every important delivery in this country, because I don't think we can live, produce as a nation, without rubber.
Question: At the close of the broadcast portion of your speech, in referring to the 15 billions of excess purchasing power that had to be absorbed, you mention that there are two ways in which it can be absorbed. One is through taxation and the other is through buying defense bonds. You said that if those two ways did not succeed, then other methods would have to be taken. Can you give us a hint as to what those other methods might be?
Mr. Henderson: I can give you a hint as to what I would suggest, and one is a compulsory savings program. The other is an extensive rationing plan. The third is a wider extension of priorities. The fourth is a wider extension of the price control at the retail level, a reduction in profit rates, a reduction in wage rates, or at least a freezing.
This system of ours operating at the highest level in its history, one of the most exhilarating flows of purchasingpower that it has even known, just cannot absorb 15 billion dollars in the price level without two things happening: First, without inflation; and second, without national industrial system so necessary for the production of war goods becoming demoralized and unmanageable. And I leave it to you whether or not in the face of that we should not take steps.
But first of all, I think it calls for discipline, voluntary discipline, action by Congress, and for everything that individuals can contribute.
Question: Is there any necessity for the rationing of gasoline?
Mr. Henderson: If you knew the war would be over nice and comfortably next June or July, we could draw on our reserves; but unless we can stop the sinking of tankers, unless we can get a tremendously increased flow of petroleum products in the northwest and the eastern seaboard, we will have to exercise restraints. Whether you go into the rationing or not depends again on many voluntary disciplines. If this country would face the facts of the rubber shortage, if we would cut out unnecessary driving, we could probably get away with it; otherwise I think you are entitled to know that there is a possibility that we may have to ration gasoline.