Brookings' Advice

In a fact-packed 43-page pamphlet, the Brookings Institution this week blasted the New Deal's price-control policies skyhigh. Chief factors in rising prices, said Brookings, are higher farm prices and higher wages. A price bill that does not seek to control them is just no good.

Brookings undertook to find out who has benefited from the defense program so far and who has lost. Defense spending increased the national income from a rate of $70 billions a year in the spring of 1940 to a rate of $85 billions. Manufacturing got the most. Its share of the national income increased by 17%--at least in 1940, beyond which no Department of Commerce figures are available. Agriculture got only 3.45% more. Government 3.03%, finance 1.64%. Of 1940's extra $5.3 billions (over 1939), manufacturing got more than half.

Wages v. Profits. Hence profits rose mightily--by 19% for calendar 1940, by 16% for the year ended June 30, 1941. This was due chiefly to greater volume and lower unit costs. It was not due to higher prices of manufactured goods, which rose 21% in two years while raw-material prices rose 33%.

But "manufacturing" is not just corporations. Industrial wage earners benefited (as a class) still more. In the same year (through June 1941) in which profits rose 16%, average weekly earnings in 90 manufacturing industries rose 26% (from $25.25 to $31.84). Manufacturing workers did much better than other workers. In the first quarter of 1941, total wages of all Social Security registrants (some 31,300,000 names) were 16% more than the year before.

Significant sidelight on these increases: in 1941 wage increases have accelerated, while the increase in profits (thanks to taxes) has leveled off.

Farmers. The farmer's cash income had increased only 9% (over 1940) by June 30 of this year. But, says Brookings, most 1941 crops had not then been marketed; the full year's farm income will be 18% over 1940, highest since 1929. Since 1941 farm output will be only 2% above 1940, the farm income rise will be chiefly due to higher prices.

Thus corporations, labor and farmers have all benefited from defense. The loser, guesses Brookings safely, is the under-statisticked salaried class, whose taxes have gone up more than its income.

Prices. In price statistics of the last two years, the most striking fact is this: metals and metal products, where the U.S.'s chief shortages lie, have increased only 5.9% (wholesale) while farm products, which include the U.S.'s most troublesome surpluses, have increased 45.3%. Among manufactured goods, two that are processed from farm products--food and clothing--are also among the worst offenders, while many steel products have not gone up at all. Obvious reason: Government policy. While Leon Henderson has sat on many an industrial price, farm prices have been boosted by all kinds of Government aid.

Lesson. Adding it all up, Brookings concludes that since farm products and wage costs have risen farther and faster than the price of manufactures in the past two years, the price of manufactures will soon be under terrific pressure to catch up. Inflation will then be well under way. Retail price increases have not yet been great, but their turn is coming.

The Office of Price Administration, says Brookings, is helpless, since even the proposed law does not give it control over wages, or over farm products until 110% of parity is reached. Yet these two factors are chiefly responsible for the 21% rise in wholesale prices since 1939.

In Congress. This was just the kind of advice the House Banking & Currency Committee was busy ignoring this week. Black-haired young Albert Arnold Gore of Tennessee was the exception: he began drafting a Baruch-like bill which would freeze farm prices at parity, fix all other commodities--and wages--at their Oct. 1 levels. But Gore was taking the lonesome road.

This week Marriner Eccles urged the committee to write in wage and farm control, promised inflation if they did not. But Donald Nelson and Henry Morgenthau Jr. both testified against wage control last week. The farm bloc, meanwhile, rounded up enough committee votes to take farm prices out of the bill altogether --or failing that, at least to raise the ceilings to 120-125% of parity. Even before it reached the floor, the Price Control Bill was a sorry joke.

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