Price Inequilibrium

Price Inequilibrium

Last week most U. S. businessmen prepared to write off 1938, if not with pleasant memories at least with grim thankfulness. Steel production, at 52% of capacity, was double that of a year ago. The stockmarket, though dawdling, was doing so on a plateau 25% above 1937's year-end levels. Virtually every index of production or distribution--building, power, car loadings --had enjoyed an upward surge.

Yet for one great segment of U. S. economy--the producers of raw materials whose prosperity varies with the price of commodities--"recovery" was still a will-o'-the-wisp. Last week the Bureau of Labor Statistics index of wholesale commodity prices was at a four-year low of 76.7.

In the recovery from 1933, commodities kept pace with business revival until the index hit 88.3 in April 1937 (v. 59.6 in 1933). Then, after Franklin Roosevelt remarked that certain prices were rising too fast, commodities hit the skids of Depression II. Since last summer when the industrial and financial tide turned again, commodities have kept right on sagging.

Immediate result of low prices is likely to be higher corporate profits, for many companies can buy raw goods cheap without reducing the prices of their finished products. Sooner or later, however, such profits fail, undercut by lack of buying power among producers of raw materials. Last week, for instance, the Department of Agriculture announced that farm income of $6,400,000,000 in 1938's first eleven months was 13% under 1937.

This evidence of low prices for farm products points to the most significant element in the commodity-price weakness-- the inequilibrium which worries Mr. Roosevelt when he suggests that some prices should fall, others rise. For, whereas prices of farm products and raw materials (output of which cannot be easily controlled) break on slight excuse, prices of manufactured products (output of which is more or less controllable) are firmly established.

In its efforts to bring farm prices into line, the New Deal has only three alternatives: 1) boost crop prices by controlling farm production, in which AAA I and AAA II have only partly succeeded; 2) lower prices of manufactured goods; 3) devalue the dollar again, giving commodity prices an inflationary shot in the arm. With new devaluation already threatened for the weak currencies of Britain and France, the homecoming of Ambassador Kennedy from England last fortnight hatched a new brood of rumors that the dollar's gold content was about to be cut from 59-c- to 50-c-. Asked about these rumors, Secretary of the Treasury Morgenthau wearily gave his standard answer--that he did not."consider them important enough to begin denying."

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