Big Stick

If we are to keep this a New Deal war, we have got to keep prices from skyrocketing the way they did in the last war.

Well over a year has passed since the President laid down that basic principle to the inner circle of his advisers. Those months have seen the birth and death of the National Defense Advisory Commission, set up in May 1940 with an eye as much to keeping prices down as to getting armament up. They have seen the rise and eclipse of OPM, set up to still public clamor when NDAC did not seem to be delivering fast enough.

Last week, price-conscious Franklin Delano Roosevelt finally got back to his first principles and created a new defense agency to control prices with more potential power than NDAC or OPM had ever held.

He called it the Office of Price Administration and Civilian Supply: OPACS. He established it parallel to and not under OPM, with its chief equal to Knudsen-hillman.

At the head of it he placed burly Leon Henderson, most dynamic and executive of the New Deal coterie. Into Henderson's hands he placed powers which include authority to fix priorities on all civilian supplies, to withhold supplies from offending industries, to use priorities on transportation, to fix and publish maximum price schedules--and to advise the President to commandeer plants which fail to cooperate.

To Henderson the most important single sentence in the executive order creating his new job is the authority to "stimulate provision of the necessary supply of materials and commodities required for civilian use." Said he to his press conference: "The essence of control does not lie essentially in price-fixing administration, but resides largely in the question of supply and capacity." He considers himself a supply commissioner as well as a price tsar; he plans to use all his power to put pressure on business to drop opposition to plant expansion. Major examples of such opposition: the Gano Dunn report (declaring steel capacity adequate); frequent assurances from the railroads that they can handle all the country's transportation needs without additional facilities. In this respect, Henderson's new commission represents a major setback for Director of Priorities E. R. Stettinius Jr., who never publicly questioned the Gano Dunn report, and Transportation Commissioner Ralph Budd, who has consistently soft-pedaled agitation for increased railroad capacity.

The position of Stettinius and Budd is still further impaired by Henderson's power over priorities for the production and the transportation of civilian supplies. A further indication of their waning influence was given when the President mentioned Budd in press conference as one of the only two members of the original NDAC he had not taken care of in the new defense setup (the other: Chester Davis, who has just been given a Reserve Bank job in St. Louis).

Henderson laid hands on his new job with the gusto of a man who has starved for months for just such power to put over his ideas. "You can name anything and I would say that prices are already too high," he told his first press conference. "All of our prices must not go higher. All prices ought to come down." To keep them down he promised to use "economic sanctions." Specific industries he said he planned to go into are textiles, coal, steel, drugs, chemicals, non-ferrous metals, building supplies, machinery, hides and leather.

Creation of OPACS marks a sea change in both the President's recent views and the new commissioner's standing. Only seven weeks ago Mr. Roosevelt put himself on record with an all-out acceptance of the Gano Dunn report (which is the No. 1 red rag to New Dealers). And in January Henderson believed his "too little too late" views on the need of expansion were getting so poor a hearing at the White House that he went off on a long vacation to the Virgin Islands. About that time rumors spread that he was through with Washington, and he began getting offers of private jobs (including a feeler asking if he would like the $48,000-a-year post William McChesney Martin was vacating as head of the Stock Exchange). Since then four things have happened to change this picture:

1) Henderson got hold of Harry Hopkins for a two-hour talk at San Juan, P.R., and got Hopkins really alarmed about the defense situation. Hopkins is living in the White House and is closer to the President's ear than anybody else.

2) Commodity prices began rising.

3) The wage and strike situation grew increasingly acute, threatening to start an inflationary wage and price spiral.

4) Shortages developed in many industries, necessitating priority rulings in some of them.

All this, and fears of more to come, convinced the President that he could no longer afford to leave Henderson off in the sticks walloping individual price raisers.

He decided that the time had come to take the advice Elder Statesman Bernard Mannes Baruch has been giving him for months on end: create an overall-price authority.

The Henderson appointment represents a major triumph for Baruch. For months the man who armed America in 1918 has boiled because nobody in OPM bothered to read the record of his War Industries Board. Baruch considers Henderson almost the only competent student of World War

I in the defense setup. Also, Henderson has asked Baruch's advice, used the businessmen Baruch put him in touch with to handle individual prices, particularly copter (TIME, Dec. 9). For weeks Baruch has been a regular White House caller, and his influence with the President was the subject of many skits at this spring's Gridiron dinner.

Last month, in a Harvard Business Review article, Baruch called the turn. He aid flatly: "The priorities system cannot work alone." Advocating a price authority, e argued that as soon as industry reaches capacity, a ceiling should be placed over

aII prices, leaving them free only to fall. His reason for urging overall price regulation: attempts to fix individual prices

while the price structure as a whole was

running away would be unfair to the

regulatees, would swamp the regulators.

The Henderson appointment is therefore

victory for Baruch even though the new appointee is much more of a free-price

man. To prevent inflation, Henderson has ess faith in freezing prices `a la Baruch han in dynamiting bottlenecks as they arise and in stimulating increases in capacity to prevent bottlenecks before they arise.

Henderson's panacea for prices is more capacity and more production. To this one school argues (as Baruch does in the case of steel) that the need for immediate armaments is so pressing that existing capacity must be used sparingly for the creation of additional capacity because priorities and full-time operation of existing facilities are both far more important than plant expansion. And furthermore the time is so short that it might not be possible to bring added capacity into operation soon enough to be of any value.

Henderson's appointment and the creation of OPACS was not the only major price decision reached in Washington last week. Rising industrial prices have always been political dynamite, but rising farm prices have almost always been politically beneficial. This gave added significance to Agriculture Secretary Claude Wickard's decision to slap the farm organizations in the teeth and veto their demand for restriction on the new corn crop, in order to prevent a price rise. Low prices induce farmers to turn their corn into a strategic non-surplus crop--meat. Expansion is the new order of the day for agriculture as well as industry.

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