Chills & Fever

Snuffling, sneezing and moist-eyed, the U.S. showed all the symptoms of a man with a nasty winter cold. The cold was inflation. Despite brave attempts just to bundle up a little more warmly and forget all about it, the U.S. had undoubtedly come down with something.

There was no denying the fever. Last week the chart of the nation's inflated economy spurted higher & higher. Wholesale prices reached a new postwar top (59.2% above the base year of 1926), after three weeks of record-breaking climb. For the second month in a row, average factory wages passed the $50-a-week mark, to a new record of $50.97.

As usual, everyone had a helpful home remedy to suggest. As usual, no one seemed really to know what to do.

Curb or Cure. The Administration's specialists, testifying before congressional committees last week, argued that the way to stop inflation was first to control exports and allocate scarce materials to the most essential users. As insurance against a future turn for the worse, they also recommended price, wage and rationing controls and restored curbs on installment buying.

Republican doctors cried that this prescription was both too vague and too sweeping; in effect it asked for unlimited powers. The patient might be doctored right out of existence.

Into this deadlocked consultation stepped the Federal Reserve Board's Chairman Marriner S. Eccles, a man with decided opinions of his own. To Eccles, the Administration's program was no more than dabbing at the patient's beak with a soggy handkerchief. It might curb the effects of inflation; it would not cure the cold.

The trouble, said Eccles, was simple. There was just too much money in circulation. It had been pumped out by the Government's wartime borrowing (and such easy postwar credit as G.I. loans for houses at inflated prices). Between 1940 and 1946, the hard cash in the nation's pocket had increased from $40 to $106 billion. In the same period, production had leveled off at only 186% of the 1935-39 average. The result, when controls came off, was a tremendous new demand which sent prices soaring.

"Ultimate Solution." Eccles had his own remedies ready. One way to cure the disease, he said, was to reduce the money supply and thereby cut demand. He proposed: voluntary wage ceilings, lower profits (and lower prices), an end to Government support of farm prices (unless price ceilings were restored). To sop up excess credit, he wanted the Government to keep high tax rates and whittle the federal debt. To check the flow of new credit he wanted to raise the banks' reserve requirements and force interest rates up.

Cutting demand would certainly be one way to stop inflation. The other way was to increase production. Said Eccles: "Production is the ultimate solution for inflation." But with the U.S. already riding a full employment economy, that could only mean the harder work and longer hours Eccles suggested. The U.S. was still feeling only a little sick; it was not yet feeling bad enough to work the fever off.

By this week it was evident that Congress could hardly bring itself to accept such Spartan cures as Banker Eccles recommended. With the new strains of the European Recovery Program still to be considered, the U.S. was bound to keep on sniffling for a long time.

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