The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-11-11

principle OF sound price relation.
1T is interesting to examine what
has happened to American price
relationships since President Roose-
welt took Office. Fortunately there
is now available an expert study of
this subject covering the period up
through September.
The study has been made for the
National Bureau of Economic Re
search by Frederick C. Mills. There
is no more authoritative student Of
the subject than Mr.. Mills.
To put his results briefly, and
without using too many figures, Mr.
Mills finds that from March to July
the relation worked almost exactly
as one would have desired in order
to correct disparities of prices and
bring the economic system into bal
ance.
But he finds also that from July
to September the tendency has been
to increase the disparities and SO to
make it more difficult for goods to
be exchanged. His findings, which
are supported by closely analysed
statistics, correspond with the gen.
eral sense of the country.
Up to July it was generally be-
heVed that recovery was proceeding
rapidly; since July there has been
disappointment and sense that re-
cOvery was halted.
What was the evidence of a re-
f1ation between March and July?
Ignore prices stated in dollars and
measure what certain classes of
commodities will exchange for, that
is, buy in terms of other classes of
commodities.
In February, 1888, the raw prod
|, ucts of American farms could buy,
at wholesale, only 81 per cent of
what they bought in July, 1929. On
the other hand, manufactured goods
could buy Ill per cent. These arc
examples of what is meant by dis
parity Either farm prices were too
low or manufactured goods too
high. Until the gap was closed farm
products and manufactured goods
could not be exchanged success
fully.
Now what happened between
February and July? The purchas-
ing power of raw farm products
rose from "a to 81 per cent; the
purchasing power of manufactured
goods fell from Ill per cent to LOG
per cent. The gap had not been
closed.
But it was closing. Trade was
reviving. Recovery was under way.
Now look at what happened be-
tween July and September: Farm
prices fell from 80 to 70; manufac-
tured goods rose from 1O6 to LOT.
The gap was opening again.
The tendency was in the wrong
direction. The country felt it in
stantly and the doubt and discOn-
tent of the last three months have
reflected it.
THESE figures are, repeat, mere
Il ly samples. But they Illustrate
the problem of the administration.
1t is not simply problem of how to
raise prices. 1t is problem of how
to raise some prices and how to hold
down, even to depress, other prices.
For what is needed is to close the
gaps which the depression has
opened, and that means not only
raising farm and raw material
prices, but holding down retail prices
and pushing down prices entering
into capital equipment. For the
prices of capital goods are still in
ordinately high as compared with
other goods.
The administration has recog-
nized this fact, in forcing the steel
companies to lower the price of steel
rails. But it has not recognized the
principle widely enough in its gen.
eral policy.
| Under the AAA it has struggled
valiantly to raise farm prices. 1t is
also doing its utmost to raise them
by depreciating the dollar. But
under the NRA it has permitted
and even occasionally encouraged, a
rise in the prices of manufactured
goods. Yet such a rise defeats and
counteracts its efforts to raise farm
prices.
IF we are to have managed in
L flation, there must be real man
agement. That means that the
administration must be Just as &C.
tive in holding down prices that are
relatively too high as it is in try
ing to raise prices that are rela-
lively too low. It's objects must be
not to jack up everything, but tc
restore the balance by closing the
gaps.
For it is the gaps between diff
ferent kinds of prices that stop the
exchange Of goods.