Wages and the Cost of Living


By PRENTISS M. BROWN, Administrator, Office of Price Administration

Delivered at a Members' Luncheon of the Boston Chamber of Commerce, Boston, Mass., July 16, 1943

Vital Speeches of the Day, Vol. IX, pp. 661-664.

WE in the Office of Price Administration are in the front line trenches on the domestic front. I know of no group or class that we do not reach—and we please none. Congress, producers, labor, consumers—all assail us. The soldier on the firing line expects to be shot at by the enemy he faces, but we are assailed from front, rear and flanks. We are surrounded by the enemy. Producers, processors, wholesalers, retailers, commission men, assert our prices are too low. Labor and many consumers assert we have let prices run too high. The farm bloc says our great mistake is a price level at which nobody can produce. One business and congressional group (which I shall not identify) called me to say that if potato ceilings in a certain early-producing section were fixed at $2.70 a bushel, not a potato would be dug out of the ground. But if they were $2.75, every spud would find its way to market. They stayed at $2.70—and they came to market.

It comes down to a struggle between pressure groups. This is one of the great banes in American government. Washington is filled with representatives of pressure groups which assault the Congress, the executives and each other. They are usually the architects of their own organizations and their existence depends on their success in first arousing groups to a feeling that their liberty, well-being and business are in great danger. And second, in assuring them that all will be well if letters, telegrams and financial support in sufficient number and generous amount are forwarded. In my deliberate judgment, these lobbyists do not represent the great groups they claim to represent. I appointed an excellent man to a high position in OPA. I received a wire stating that 927,267 members of a certain organization unanimously and vigorously protested. Three weeks later, representatives of the same group highly complimented me for the appointment, and this man has given more general satisfaction than any man in the organization. The American people do not know how many commitments are made in their name by these representatives, nor do they know how influential is their unknown and unauthorized voice. I entered OPA with the typical view of a man who hadbeen in Congress for ten years, with service in both branches, and with a bit more than usual knowledge of the general price control picture, because I had handled both of the price control bills as a member of the Senate. I have no doubt that much of the Congressional and public criticism was, and is, justified. And I sought, and am seeking diligently, to meet the sound objections to price control and rationing. But I am fully satisfied that no Administrator—no matter what his experience and background—can even come close to satisfying the many divergent elements and interests in our nation. One takes the veil, politically, when he goes into this service. However, I still have an abiding faith in the good sense of the American people, and am satisfied it will be adequately expressed.

One of the major reasons, in my judgment, for the recent conflict between the legislative and executive branches of the government is the fact that Congress had been in constant session from October 1939. There has been no opportunity for real contact between the Congressman and the people he represents. I highly approve of the action of the leaders in bringing about this two and a half month recess.

A Congressman cannot determine the prevailing public sentiment from the newspapers, his mail and the opinions of those who call on him in Washington (usually with some particular interest in mind). Contact must be made with disinterested people whom the Congressman knows, to get a real reflection of public opinion. There have been occasions when I returned home feeling that the entire people of my state were up in arms over a particular proposition. I have been utterly astounded on several occasions to find that the trumped-up sentiment which appeared in Washington did not cause a ripple on the placid waters of Michigan. That is why I am completely confident that price control is in much greater favor throughout the nation than it is in the Capitol. I base my confidence on contacts with the people of our country as a whole. True, the record of price and wage stabilization is not what I would like it to be, but it is so much better than prevailing Washington opinionmight lead one to believe, that I feel a statement of its record is due.

The claim is frequently made that the high cost of living has cancelled the benefits of higher wages. An opposing claim is that higher wages outstrip the increased cost of living and that the wage-earner is actually able to pay higher prices than those prevailing today. It seems to me, that much of the heat in this debate stems from an inadequate grasp of the facts. I propose to put these facts before you, confident that once they are clear, reasonable men can agree upon national policy which is fair to all.

It is useful, I think, to compare the increase in wages and the cost of living over three periods. The first is the period since August 1939. This comparison will show what has happened to real wages—-that is, what wages will actually buy in food, clothing and shelter—since the outbreak of war in Europe. In March of this year, average hourly earnings (outside of agriculture) stood at 27 per cent above the level of August 1939. But the cost of living for the same period was up 24 per cent. As far as actual purchasing power goes, wages had increased but 3 per cent above the level just prior to the outbreak of the war. This means that in spite of overtime pay, in spite of the shift from low-paid non-war industries to high-paid war industries—in spite of the fact that by study and hard work, millions of workers have acquired new skills, real average hourly earnings increased hardly at all over the pre-war level. These are, of course, average figures for all non-farm workers.

However, in the war industries the position of the workers has very definitely improved. In March, average hourly earnings in the war industries were SO per cent above the level of August 1939. Note, however, that when this wage increase is adjusted to the increased cost of living, it drops to 20 per cent. On the other hand, many important groups of workers have seen the increase in the cost of living cut the buying power of their hourly earnings to levels well below those of 1939. For example, workers in non-manufacturing industries generally have taken a 7 per cent cut—and this cut runs as high as 16 per cent—for Government employees—the fireman, the policeman, the school teacher, the clerk—all the thousands who work on fixed salaries or who have fixed incomes. So when you hear the rash statement that "Labor is making a good thing out of the war," just remember these figures.

The second basis of wage and cost of living comparison is the period since January 1, 1941. This is the base date of the Little Steel formula, the yardstick which the War Labor Board employs in determining whether wage increases shall be granted or not. Between January 1, 1941 and May 1942, the cost of living rose 15 per cent. Inasmuch as the President, in his seven-point program, directed that the cost of living be stabilized from May 1942 on, the War Labor Board adopted the Little Steel formula. This provides that wage rate increases be limited to 15 per cent above the level of January 1941 to match the increase in the cost of living.

Now what has happened under the Little Steel formula? From January 1941 to March 1943, average hourly earnings for all non-farm workers increased 20 per cent. Over the same period, the cost of living went up 21 per cent. Therefore, real hourly earnings decreased by one per cent. Here again, the average figure conceals improvement in the position of some workers and serious worsening in the position of others. In the war industries, higher wages passed higher living costs by 12 per cent. In the non-war industries, on the other band, higher living costs outdistanced wages by 9 per cent This means that since January 1941 these workers have had their real wages cut 9 per cent, and among them the Government workers-again the fireman, the policeman,the school teacher, the clerk—have had their real hourly wages cut 21 per cent. This situation causes me great concern. It caused the Congress grave concern last Fall and accordingly, in the Stabilization Law, it directed the Government to hold the line on wages and the cost of living, the line which prevailed on September 15. It directed that both wages and the cost of living be stabilized in their relationship at that time.

This brings us to our third comparison—the period since September 15, 1942. That was the date which Congress wrote into the Stabilization Act with the direction that wages and the cost of living both be stabilized at the level which prevailed at that time. What has happened to wages and the cost of living from the date which Congress fixed in the statute? Between September 1942 and March 1943, average hourly earnings rose 3 per cent—but the cost of living rose 4 per cent. Now of course average hourly earnings or wage rates don't tell the whole story—nor is there time here. There are the factors of higher pay for greater skills, for war work, overtime and so on. Even more important is the fact that men who were working 3 and 4 days a week in 1939 are working 6 and sometimes 7 days a week now. Taking account of all these factors, there can be no doubt that labor is in better economic position today than it has ever been before in our history. I, for one, am glad that this is so.

But before jumping to the conclusion that labor can therefore afford to take a cut in wages, let us remember this simple fact. We cannot expect men to work longer hours per day and more days per week—we cannot expect men to put the drive and heart into their work which is necessary to turn out the tools to win this war—with false promises. We cannot say on the one hand to labor: "The more you work, the bigger your pay envelope," and with the other hand promptly permit increasing cost of living to cut the buying power of that pay envelope. That is elementary common sense, as well as elementary justice.

Let me remind you that as long as a year ago the President declared that wage rates could be stabilized only on the basis of a stable cost of living. This principle underlies the Little Steel formula, which is the yardstick the War Labor Board is now using in its wage stabilization program. And this is the principle which Congress recognized in the Stabilization Act of last October.

But as you all know, despite our efforts, we have been unable to prevent a 6 per cent increase in the cost of living since last September. This has upset the balance between wages and the cost of living. That balance must be restored. But we in Government do not propose to restore it by increasing wages to match the rise in the cost of living. In that way lies disaster because in that way lies a never-ending spiral. If we increase wages to match the rise in the cost of living, that only pushes the cost of living up still further. We cannot stabilize that way.

We propose to restore the balance between wages and the cost of living by bringing the cost of living back into line with wages, back toward the level of September 15. You have already seen reductions in the price of meats and butter and you will see other reductions in the near future. We have for the first time cut the cost of living—cut it by but one per cent. But we are now battling to continue that trend. We shall press forward until our objective is won.

It seems to me that our difficulties in the past have stemmed from the fact that, while we have—all of us—recognized that wage rates are inevitably related to the cost of living, we have failed to appreciate the implications of that principle. I think the time has come to make clear that relationship. We must make it clear to farmers that anyincrease in the prices they get will be matched by an increase in wages—and that this will inevitably mean increased cost of the products which the farmers themselves buy. We must make it equally clear to workers that an increase in their wages means an increase in the price of food and other articles they buy. The parity principle guarantees it. Both farmers and workers must grasp the unavoidable fact that neither can possibly gain by further price or wage increases, and that the welfare of both depends upon the effective stabilization of the entire structure of prices and wages.

And that brings me to the matter of subsidies. The reason for the subsidy is simple. If we reach the point where the demands of wage-earners are supported by statistics showing rises in the cost of living upon the agreed and established September 15, 1942 level, considering the September 15, 1942 wage level and the relationship of each to the other, the question before the Administration is: "Which would cost less—the payment of a sufficient subsidy or a loosening of the price ceiling?" The payment of a subsidy does not give justification for a raise in the wage level. An increase in a price ceiling with its consequent effect on the cost of living does give rise to a just demand for an increase in wages; and an increase in wages inevitably results in a demand for an increase in prices. This process is continued and each rise in one gives basis for a rise in the other. It may be and is charged that the subsidy saddles onto the taxpayer the burden. It does saddle onto the taxpayer the burden, but the burden is far less than would be the one of constant creeping inflation.

The first week of July was one of the most critical weeks of the war period on the domestic front. There were times when I despaired of our unity; when I felt that selfish elements had completely triumphed in the legislative battles. The House of Representatives put an absolute strait-jacket on us which prevented us from using subsidies in any form. Representatives of the farm organizations raised their hands in holy horror at the thought of government subsidies. They seemed to be utterly oblivious of the fact that during the first eight years of the Roosevelt Administration, they had been battling for subsidies and battling successfully. And even in the bills tying our hands with respect to producer subsidies they are most careful to insert provisions which would not interfere with either soil conservation or parity payments, both of which are straight-out unquestioned subsidy payments to producers. The subsidy in relation to the rollback or holding of prices is a necessary adjunct to effective price control. It has been successful in England and has been successful in Canada, and not, as alleged, in England because of our lend-lease arrangements. Loose statements have been made to that effect. This is not a fact. Until the final balance is struck on lend-lease, its effect on the internal economy of Britain and the United States will not be known. It has been commonly stated that the only way inflation can be cured is to bring supply and demand into balance. The principle is a good one, but on many commodities supply and demand in a period of war cannot be brought into balance. What would be the price of fuel oil or of gasoline in Boston if we depended upon supply to control the price? Every person here knows that gasoline would skyrocket and likewise fuel oil. These examples are enough to disprove the arguments so freely made.

Getting down to other assaults upon us, we were met with an absolute prohibition voted by the House of Representatives against any standardization of products. If the House measure had been finally adopted, price control would have been seriously damaged. This standardization matter is not complicated, but simple. There are many standards which are in common acceptance. A little contemplation of whatwould happen if these commonly accepted standards did not exist will lead to a better understanding of what we mean by standardization. There is a common acceptance of the fact that a bushel of potatoes should weigh 60 pounds. What kind of price control would we have if Maine had a 60-pound bushel, Massachusetts a 55-pound bushel and New York a 50-pound bushel? Price control would be impossible. Now apply this principle as we do in our standardization program. If a pound of AA grade beef is not to be distinguished in any way from a pound of C grade beef, likewise price control is impossible. If the manufacturer of a 5¢ candy bar can reduce by weight the contents of his bar by 10 per cent, price control is a farce. So some standardization must be adopted to prevent quality and quantity degradation. If the provision in the War Agency Appropriation bill had passed, our program in this respect would have broken down. Fortunately, we battled for and obtained substantial modification.

In the matter of employment we were faced with an absolute prohibition against the employment of any person in OPA who has anything to do with price policy, maximum prices or price ceilings unless he has had five years of experience in the particular business affected. This was the result of the drive against those who are always described as longhaired college professors, coming mainly from the immediate vicinity of the place where I am now speaking. One must admit that the beneficiaries of the foresight of John Harvard have played a large part in our government and a large part in OPA. Some of my very best aides formerly taught in the classic halls of Cambridge; some in Williams; some in Amherst. Until I went into OPA, however, I had never been informed that either a little or a lot of education was a definite disqualification for service. But that idea seems to prevail among many people throughout the country. Actually, there are more business people than college professors in OPA. Actually, as every sensible man knows, men with scientific training are vital to the success of any program involving such tremendous changes in our economic life as we administer in our Office. It requires the services of men of both types. A policy-making officer who finally approves multitudes of prices in scores of businesses would have to be hundreds of years old in order to possess five years' experience in each particular field upon which he purported to operate. The provision has been modified, but is still unfair.

Well, there you have some of our problems, and our job in the capitol on public relations has not been a good one. In Washington we are attacked continuously. However, there is much better public acceptance of OPA in the nation as a whole. This is largely due, I think, to the excellent cooperation of the 60,000 volunteer workers in OPA. They make up the rationing and price panel boards. I know of no more difficult task for a citizen to assume, other than military service, than a non-paid job in the Office of Price Administration. His principal duty is to deny citizens the privileges which they have enjoyed for years. It is a case, for the common good, where men and women must continually say "No."

The task here has been most difficult. You in the Northeast have suffered more than any other section in the country. In the matter of meat and of gasoline, supplies have perhaps been at their lowest in New England. Because of the shortage of tankers, it has been necessary to haul war fuel from Northeastern ports to the European battlefronts. It is estimated that a tanker does three-sevenths more haulage from Northeastern ports than from ports in the Gulf of Mexico. In our efforts to alleviate the tightness of the fuel and gas supply, we have constantly had in mind the hardships which you in New England have suffered. I live in a cold country.

My home is farther north than Boston; in fact, it is farther north than Montreal. I know your problem and I assure you, not only of my past efforts, but of the continuance of them in the interest of the comfort of your people.

I know the fuel oil situation will be better handled this coming fall and winter than it was last year and I feel that the success in at least partial subjugation of the submarine menace should mean an increase in tanker tonnage and consequently a better supply, subject, of course, to military requirements. Certainly the railroad haulage is improving and pipe line completions should help materially, subject, again, to military requirements. This is not the sphere of OPA's operations. We ration what the Petroleum Administration for War gives us. But by new arrangements recently made, we can urge before the chairman of the War Production Board the necessities of the civilian in the Northeast for oil. You may be sure that Mr. Ickes and I will continue to do our utmost to see that those needs are supplied.

But you are as aware as I that the needs of war come first today. And news from Sicily and other fronts on which we are now advancing makes it pretty clear that a lot more gas and oil are going to be needed overseas. We all recognize that the needs of the boys at the front come first, but the effort to better the supply of those who need fuel oil and gas in this area will continue to be one of my prime objectives, within the limits of my authority. The Congressional delegation—Senators and Congressmen—of both parties from this area have been most diligent in their efforts to aid in the solution of your problem. I do not know how anyone could have done more. That we have had to say "No" many times when we would have liked to say "Yes" is, of course, a fact. But on many, many occasions the arguments made to those of us in charge of the administration of these difficult problems have been most potent in our decisions.

The picture is a little brighter on some of our other wartime restrictions however. If we can't fill up our gas tanks as we did in the old days, we can at least have another cupof coffee. Despite the hazards of shipping, we now have the most liberal allowances of coffee since it was rationed. And the sugar, which a lot of us like to put in our coffee, is now more plentiful.

Well, I have frankly stated our problems to you, pointed out the trends. Despite all of these difficulties, the record shows that we have done far better than in any similar period in the first World War. During the forty-fourth month of the first World War the cost of living had risen 40 per cent as against 26 per cent during the forty-fourth month of the second World War. On clothing, the rise was 64 per cent in the first war. In this one, 27 per cent. House furnishings in the first World War were 59 per cent. In this one, 23. Typical important foods were as follows: bacon in the first World War, 80 per cent rise; in the second World War, 47 per cent; eggs, 57 per cent in the first World War; in the second World War 53 per cent; bread was 54 per cent in the first World War; 11 in the second; flour was 106 per cent in the previous war, 69 per cent in the second; sugar 76 per cent in the first; 32 in the second. The wholesale price index in the first World War rose 87 per cent; in the second, 38 per cent. The record on outstanding commodities—the important commodities—has been excellent.

I look forward to the future with confidence, first because I believe that Congress will get a better understanding of the intense desire of the American people to avoid the dangers of high prices and high wages and will return in a better mood with respect to the Administration's efforts. I have the fullest confidence that once the American people make known their views and their attitudes, the verdict of Congress will be favorable. The only satisfaction that those of us in price control can take is that when the job is finished and the American people find that the inflation menace has been averted, that they will then thank the great army of volunteer workers and those of us in the Administration who have fought this battle.