Fiction & Fact

Hot on the heels of the Korean outbreak, a scary rumor ran through the Midwest: the giant International Harvester Co. was switching to war production. A Kansas dealer said he had it straight from the home office, and helpfully passed the news on to a reporter. Not till after the story was printed did the facts come out: Harvester had signed a contract for some Army trucks, all right. But the order had been forthcoming for months.

Other jittery rumors that Cadillac, Packard and other automakers were switching to tanks were also flatly denied in Detroit and Washington. While the National Security Resources Board had long since prepared industrial-mobilization plans calling for an excess profits tax, allocation of materials and manpower and other stringent controls (see WAR IN ASIA), NSRB saw no reason to take the plans out of mothballs last week. NSRB had issued "phantom" orders for $900 million worth of machine tools months ago, with instructions to manufacturers to lock them up in company safes until they got wires to put them into effect; the orders were still locked up tight. Most industrialists, like the great body of U.S. citizens, took the Korean war news calmly.

No Slack. Not so calm, however, were the traders in the nation's futures markets, who saw higher prices ahead. For two straight days on Manhattan's Commodity Exchange, the price of rubber soared the permissible daily limit of 2$ a lb. Though Washington officials denied any plans to speed up buying for the Government stockpile (now only about 40% complete), commodity men did not believe them: up also went the futures prices of grains, copper, lead, tin and zinc. In five days, the Dow-Jones index of all futures prices rose 3.95 points to 150.48, highest close since July 30, 1948.

If the Korean war would cause heavier defense spending--and there seemed little doubt that it would--the big question was: How much more spending could an uncontrolled economy stand without serious inflation? There was now little overall slack in the economy. The Federal Reserve Board's index of industrial production for June was estimated to be equal to the record peacetime high. Steelmakers had been operating at better than 100% of their theoretical capacity for eleven straight weeks--and had not yet caught up with demand. Automakers and many another consumer-goods manufacturer were running months behind in their deliveries--thanks partially, in some cases, to jittery new orders resulting from the Korean war. Employment reached 61,482,000 in June, said the Census Bureau, within a shade of the 1948 high, and was still rising. With unemployment close to a bottom of 3,384,000 (v. 8,300,000 in June of 1940), there was no big jobless pool to draw from for new armament orders.

Plenty of Capacity. Any immediate and sizable arms increase might start pinching present civilian production, if only to the extent of voluntary allocation of such materials as steel. On the other hand, many a businessman thought that the current production rate would have tapered off towards year's end anyway, leaving enough slack to take up any moderate increase in arms orders. Despite some possible pinches here & there, the economy was far better able to take on new loads than it had ever been. Since World War IPs end, U.S. industry had spent a thumping $80 billion on expansion, almost as much as was spent from 1941 through 1945.

The steel industry had raised its annual capacity to 99.3 million tons (v. 81.6 million in 1940); by year's end it will have added still another 2,000,000 tons. Electric power capacity was 50% more than in 1940; aluminum production was up more than 100%. The oil industry, throttled down to 5,200,000 barrels a day, had plenty of slack; so did the textile industry.

The greatest worrying aloud about vital industrial materials was over rubber. To make up for the shortage in natural rubber the Government was already producing about 35,000 tons of synthetic rubber a month in its plants. But Goodyear Tire & Rubber Co.'s Chairman P. W. Litchfield last week said that the U.S. should reopen its other synthetic-rubber plants, boost production to 50,000 tons a month, and build up a stockpile of at least 200,000 tons. Warned Litchfield: "With no stockpile of synthetic rubber, our national security is placed in greater statistical jeopardy than just prior to Pearl Harbor."

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