A Tale of Three Countries

We must disabuse ourselves of the idea . . , that our supreme objective is to freeze prices. Our objective should be to see to it that the necessities of life are fairly rationed, so that the sacrifices which must be made are spread equally. The idea of frozen prices is a mirage.

Thus did Walter Lippmann last week set in a broader perspective the first price-control law in U.S. history. His conclusion was one that England had learned the hard way, that Canada fast was learning: the only sure way to control prices is to control supplies. In that perspective, the manhandled U.S. price bill was not so bad.

England has a comprehensive system of price ceilings, licensing and rationing, applicable (though not applied) to all products, from raw material to store counter. It came piecemeal, and its enforcement is shared by two Ministries (Supply & Food) and the Board of Trade.

Britain tried to freeze retail prices as early as January 1940. But after the fall of France, the war budget soared, wages rose, unemployed went to work. More & more money competed for fewer & fewer goods. Inflationary profits were taxed out of circulation, wages were not. Labor opposed a wage ceiling; it demanded and got rationing, price ceilings, forced savings.

Yet even now only twelve food products, clothing and gasoline are rationed in Britain. One reason: Lend-Lease. Because it increases the amount of consumer goods without generating more purchasing power, Lend-Lease is a big anti-inflationary influence in Britain. (It has the opposite effect in the U.S.)

Canada, unlike Britain and the U.S., undertook to freeze both prices and wages at the Sept. 15-Oct. 11, 1941 level. Canada had tried temporary ceilings (wool, leather, bread, butter), but when it had to earmark half its national income for war, it decided to shoot the works. Its Wartime Prices and Trade Board has full licensing power (TIME, Dec. 1), by March 15 will have licensed every food & clothing retailer in Canada (some 200,000). But WPTB shares control over supplies with the War Industries Control Board, and has yet to ration anything but sugar.

Except for Government and agricultural workers, all Canadians fall under the wage-freezing order, get no raises for the duration. But they can and do get "promoted," and unless they are foremen, or earn more than $3,000 a year, they must also be given bonuses. Hence wages can and do go up.

The big freeze stopped Canada's price rise dead for almost two months. But it also brought forth some loud squeals. Many retailers were caught because their prices had risen more slowly than their costs. Importers, unable to raise prices on higher cost goods, had to be subsidized. Farm pressure forced WPTB to eliminate some ceilings. Meanwhile, Canada still has more "free" buying power than goods, to avoid inflation is having to turn to more taxes, savings, rationing.

U.S. The new price-control law last week in effect legalized the 80 price ceilings Leon Henderson had issued under jawbone control, gave him power to enforce them. He can license anyone dealing in commodities over which he has set ceilings, put in-fractors out of business for twelve months after a single warning. Congress also gave him the power to buy, sell and subsidize scarce materials.

But if Leon Henderson was to stop inflation, he had to move fast. Already the cost of 40 commodities to U.S. citizens was 3% above Canada, only 6% below England.* Congress had done nothing to control wages, and tried to keep farm prices out of his hands. OPA feared rising food costs would carry other prices up with them 30-40% this year-unless the farm bloc, momentarily outfoxed by the President, stays outfoxed.

Henderson will use his new powers in the same selective way he used his jaw. So far he has fixed only three formal retail ceilings (flashlights, tires and retreads, new cars), and he will probably continue to specialize in key wholesale and factory prices.

But Henderson's ability to lick inflation by this piecemeal method has nothing to do with his partial power over prices. For Henderson is also the administrator of civilian supply, with complete power over rationing. Without a Gestapo no price ceiling is effective on scarce materials whose supply is uncontrolled; and when the supply is controlled--i.e., rationed--the price ceiling enforces itself. Thereafter, as both Britain and Canada know, control of inflation is a Treasury matter: more taxes, more savings.

*Based on General Motors-Cornell University index of 40 basic commodity prices. Commodities are the same for each country and are weighted uniformly according to their importance in prewar world production.

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