Last Time & This

Congress' vote to liquidate OPA might be classed as political assassination or political accident (see NATIONAL AFFAIRS). But for the U.S. economy it was only an incident in the struggle to reach a national decision, the decision to have as much goods as higher prices could produce.

Those who participated in the decision were not only the Congressmen who stood OPA against a wall; not only vocal businessmen, pinched between rising costs and ceiling prices; not only silent consumers who satisfied their impatience for goods by going to the black market, but also OPA itself. As the end approached it too was convinced of the necessity of raising prices (last week it granted a dozen important price boosts).

How High Is Price? The sudden prospect of an end to all price ceilings was almost as staggering to businessmen as to consumers. How high could prices go?

The guesses ran from a 20% to a 50% rise. But the guessers forgot that in a free, productive economy things do not always work according to plan. As long as no one has enough money to buy everything he wants, then he can buy one thing only by not buying something else. Thus, if rents jump up 35% (as they have in many places) the hard fact is that the renter will not be able to buy something else. Prices of many items were certain to rise. But prices of other items may drop.

In the consumers-goods industries, the rises, if they come, will be spotty and cautious at first. The great mass-production industries (autos, refrigerators, stoves) cannot afford a price rise if 1) it cuts the market too much, or 2) gives a competitor an advantage. Many industries, which have been slow getting into production because of strikes and materials shortages, are now producing at, or close to, the break-even point. What they will do depends to a great extent on whether the prices of parts and basic supplies (steel, glass, etc.) go up. The manufacturers can afford to wait and see what happens. None of them can afford to lead the price-rise parade.

Higher prices will mean that consumers will be more careful in what they buy, will be far more ready to touch off a buyers' strike. And if food prices get out of hand, consumers will be forced to cut down. The U.S., as a whole, can afford to, if it does not like high prices. U.S. food consumption is well above prewar.

Most important, the abnormal demand for food, clothing and other consumer goods has been partially filled. The return to normal demand should put a crimp in prices. In any case, the spiral of wages & costs cannot rise indefinitely, as long as production is increasing. The fact that wages usually lag behind rising prices will bring acute hardship to many. But it will put an ultimate ceiling on prices. As purchasing power drops, prices will have to come down also.

Then & Now. The death of OPA set the U.S. down suddenly in the midst of a typical postwar economic cycle, like post-War I's. Such a cycle begins with an accumulated shortage of goods, and ends when that shortage is made up. But it never follows exactly the same course. A few months after World War I, prices began to climb and production soon followed. Prices reached their peak 18 months after the Armistice, in May 1920. During most of this period prices were boosted by the popular illusion that there was a great scarcity of goods, helped along by hoarding of inventories by businessmen. As now, the illusion of shortages was far greater than the real shortages. When the illusion collapsed, so did the boom.

Since World War II's end the course of events has been different. The demand has been bigger, but with OPA at the controls, the rise in prices has been gentler. Recovery of production has been far slower. There has been little speculative piling up of inventories. In fact, inventories, although growing, are still below normal.

Businessmen, still remembering the sad inventory crisis of 1920, may not repeat their speculative errors. The productive capacity of the nation is so much greater now than in 1920 that some shortages may turn into surpluses overnight.

Where Is Balance? In the end, the price level will be determined by the size of the market and production. Last week, CPAdministrator John Small, in his monthly report, told more about this than was revealed in the whole bitter OPA debate. The report, covering May, when the effects of the coal strike were still felt, showed very little of the great strides in production made in June. Nevertheless:

P: The number of people employed had in three months increased by 3.6 million, and was still climbing.

P: Building construction was rising. (An estimated 1,000,000 houses would be built this year.) In building materials, production was still below prewar and far below demand. But, it was from 5% to 100% above last August.

P: Production of washing machines, vacuum cleaners, gas-ranges, shoes, men's suits, automobile tires, was at prewar or above. Production of refrigerators and electric ranges was better than 60% of prewar. P: Automobile and truck production was up to 65,000 units a week (half of 1941). Steel production was up to 87.2% of capacity. The end of the number one shortage, copper, was in sight.

CPAdministrator John Small summed up: if production was not again interrupted by strikes, many shortages would disappear within three or four months. An impressive flow of goods was already coming from the nation's factories; shipments of goods in the first four months of 1946 were 40% above 1941 in value, 10% above 1941 in volume. And the outpouring had just begun.

Thanks to OPA's efforts since war's end, prices had been kept down until, for many kinds of goods, supply was almost within arm's reach of demand. For other goods, notably housing, there remained a big gap. No one really believed it would be bridged for several years. But that might not be wholly a misfortune: when prices start to recede on some fronts, continued house-building could keep the postwar cycle from ending in too vigorous a bust.

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