Evening star., 1941-07-06
Rising Costs Bring Initiation Fears
Situation Close Enough World War Pattern Alarm
BY Brandt

an inflationary spiral started in which
shortages of goods and increased wages
raise the cost of products, and increased
prices of products in turn necessitate
| further wage increases?"
The question is not as involved as it
sounds. Many persons remember that
Just this sort of spiral more than doubled
prices and rents during and after the
| last war.
The responsible Washington officials,
headed by Leon Henderson, director Of
the Office of Price Administration and
Civilian Supply, are striving to halt the
incipient spiral, or to use their own
| phrase, Ito stabilize living costs"
During the World War attempts at
price control were generally ineffective.
Prices rose, wages were increased; prices
rose higher and wages were increased
further, and so on until the peak was
reached in 1920. Then came the minor
panic which brought prices down about
20 per cent. Has the same process
started?
Labor Cites Big Profits.
The situation of 1939-1941 is not
exactly parallel with that of 19l4-16,
but there are enough SimilaritieS to
cause alarm. Now there are more gov
ernmental controls. Whether they will
prove adequate is another question. We
have in general larger supplies of raw
materials. Businessmen are fearful of
war boom Some of the larger COM
panies expect to make less than normal
profits on war orders, but enough are
showing such large earnings per share
of common stock that organized labor
is citing the profits as justification for
wage increases. Stock market specu-
lation has not yet begun: in fact, some
of the war babies" are well under their
1910 highs
But farm prices are 81 per cent higher
than year ago; all commodities are y
per cent higher. Cotton sold last week
for Is cents a pound, the highest since
1890: hogs on the Chicago markets
reached s11 a hundredweight. highest
since 1887. For the week ending June
a. the Bureau of Labor Statistics re-
ported that the price of 900 commodi-
ties was 81 per cent of the 1926 average,
an advance of 16 per cent since the out
break of the war in September, 1899.
Food prices on May 81 were 9 per cent
higher than in August, 1899, and, ac-
cording to the bureau, there probably was
rise of l per cent in June.
Elements of Initiation Present.
The basic elements of imitation" are
present, if by that term it is meant that
the active supply of money is greater
than the supply of goods and services.
The term, in present sense, does not mean
the "greenback" initiation of the Civil
War or the printing press imitation of
postwar Europe. The immediate dam
ger, if it is danger, is that of a price
imitation such as occurred in 19l6-192O,
when city rents were doubled, automobile
tires cost S75 to $50 piece, and wheat
reached 1884 a bushel at Chicago and
was finally pegged by the Food Admins
tration and the Grain Corp, at 1920
buShel
The present inf1ationary factors can
be summarized generally as follows:
l. An enormous gold supply and tre-
mendous bank reserves which are a
basis for credit imitation, such as
eliminated in the 1929 crash.
2. Unprecedented governmental dis
bursements for defense and little cur
tailment of non-defense spending.
3 Non-resistance of Government to
wage increase demands of organized la
Dor and to subsidy demands of farmers.
4. Possibility of large profits to indus
trialistS, defense and non-defense, who
grant wage increases, thus increasing
operating costs. rather than give most of
their profits to the Government through
increased taxation.
Regulation Held Necessary.
The main factors combating price
imitation, some of which were absent in
1914-1920, can be summarized as follows:
l. Remembrance of last war and 1929
initiation.
2. Increasing reserves of raw materials.
3. Mr.. Henderson and piecemeal price
fixing: co-ordinated governmental buy
ing; priorities and threats of rationing
of civilian products; anti-monopoly
prosecutions.
4. Higher taxes and threats of greater
taxation; sale of government securities
to public; Federal Reserve System con-
troll of banking, and Securities and Ex-
change Commission control of stock
market.
5. Large reserves Of workers (but
shortages of certain types of skilled labor
in sight.
Mr. Henderson and other Washington
officials declare they can prevent the
skyrocket ascent which started in 1916
and reached its peak in 1920, but assert
that some price-f1xing legislation will be
necessary. Even if that legislation is
passed by Congress, there is every indi-
cation that the upward trend will 90
up at least 20 points and certainly higher
if this country is forced by events into
the war.
Wages and Prices Leap Frog.
Until March of this year there was no
great rise in the cost of living if COM
pared with the plateau established be-
tween 1923 and 1929. Between 1914 and
1916 American prices, except for a few
imported materials, remained fairly
steady, but from the middle of 1916,
when war orders finally brought about
full use of productive capacity. they rose
rapidly. The effect was catastrophe.
Runaway prices disrupted production,
the draft took away many of the skilled
workers and the volume of goods pro-
duced in 1917 was less than in 1915.