Universal Price Ceiling.March 12, 2009 at 11:20 am | Posted in Historical | Leave a comment
Tags: american history, Franklin D. Roosevelt, inflation, WWII
With World War II came rapid price inflation. On August 28, 1941, President Franklin Roosevelt created the Office of Price Administration (OPA) within the Office for Emergency Management and tasked it with stabilizing prices and rents. It became an independent agency on January 30, 1942, under the Emergency Price Control Act.
The OPA was empowered to place ceilings on all prices except agricultural commodities, and to ration tires, automobiles, shoes, nylon, sugar, gasoline, fuel oil, coffee, meats and processed foods. At the peak, almost 90% of retail food prices were frozen. It also had the authority to subsidize production of some of those commodities.
In the face of rapidly increasing food prices and wage rates, President Roosevelt had a fireside chat with the nation on September 7, 1942 to explain the bill he was submitting to Congress for rapid passage to further stabilize prices. If you not heard one of FDR’s fireside chats, I recommend you click through and check out at least the beginning of the transcript (or the audio).
Unfortunately, Leon Henderson, the first administrator of the OPA, pissed off so many people the Democratic Party suffered election losses in November 1942 and it became impossible to pass any further New Deal legislation.
Business people were not particularly happy with FDR’s price controls but some on the left were upset as well:
The all-powerful government of the United States, which can stop strikes and freeze wages, by the use of troops if necessary, has no such coercive power over capitalist enterprise. Capitalists have to be cajoled “by flexibility in the price structure,” i.e., by skyrocketing prices, to turn to “more essential” war-production. Only by encouraging prices to rise could the government assure itself of expansion of war production. That is to say, only by yielding to the prices demanded by the capitalist owners of industry. Who is master in the house? Not Labor which is chained to frozen wages. Not the government which has chained Labor. The owners of the private property whom the government cajoles—they are master in the house, even in wartime when ostensibly the fate of the nation is taking precedence over private privilege. This is what is so glaringly revealed by Henderson’s admission that war production could be expanded at the expense of consumer production only by permitting skyrocketing prices in war materials. The 66 per cent increase in basic raw materials prices while consumers goods rose 25 per cent expresses the price mechanism by means of which—and only by this means—the government could get the private owners of industry to shift from civilian to war production.
However, this was only one aim of the government, and if it had been the only aim, it could have been achieved by leaving prices of war materials uncontrolled but fixing the prices of cost-of-living commodities. This is what would have been done—had the government wanted to prevent inflation, to prevent the 25 per cent rise in the price of food, clothing and house-furnishings. But the second aim of government policy was precisely a moderate inflation: rises in prices which would cut down the amount of cost-of-living commodities which the masses would be able to purchase with their lagging wages.
Despite its first year of difficulty, “the price control program proved effective. Overall from 1939 to 1943 the consumer price index jumped about 24 percent while from 1943 to 1945 it climbed only four percent.”
Public participation is thought to have been a key to the program’s success:
Most economists credit the government’s introduction of strict controls on the prices of many consumer goods, especially food items, for the success of its anti-inflation efforts. However, this explanation masks a critical fact: price controls proved effective only when the Office of Price Administration encouraged popular participation in the operation of its price control system. Tens of thousands of volunteers were formally authorized to visit retail locations to monitor business compliance with the controls and tens of thousands of additional volunteers served on price boards that were empowered to fine retailers who were found to be in violation of the controls.
I do not mean to romanticize the price control experience. The extent of popular participation was always limited by opponents within the government and business community. There is also no indication that those who volunteered developed a more critical understanding of U.S. capitalism. Moreover, the business community proved able to gut the program quickly once the war came to a conclusion.
Yet, it still remains true that this experience represents a unique case of nationally coordinated and popularly implemented social regulation of one important aspect of economic activity. I believe that by studying the class forces and struggles that shaped the government’s recruitment and use of volunteers to implement its price control policy, we can gain valuable insights into the interrelated dynamics of economic policy making, social mobilization and economic transformation.