Strength Through Pain

While some people loudly cried for wage & price controls, the Senate-House watchdog defense committee last week lent itself to an all-out attempt to sabotage credit controls, the only existing brake the U.S. has had against inflation.

Up before the committee to complain came the National Automobile Dealers' Association, aided & abetted by the C.I.O. Autoworkers' Walter Reuther. Indirect controls, they cried, were awful. Regulation W was so harsh, said New Jersey Dealer William L. Mallon, that "many thousands of new car dealers [might be] compelled to discontinue their business." The auto dealers wanted the payment time on new cars to be extended from 15 to 18 months.

Reuther wanted much more than that. Regulation W, said he, was a "rich man's racket" which made it impossible for the workingman to buy a car. With no real documentation to back him up, Reuther said that the "meat-ax approach" of Regulation W, plus cutbacks in critical materials, would throw no less than 321,000 auto workers out of work. Reuther had a meat-ax approach of his own: slap immediate controls on everything except wages.

Help or Hurt? Next day FRB's Chairman Thomas B. McCabe read everyone a lesson on the theory and practice of credit controls. First off, said McCabe, Regulation W was doing just exactly what it was supposed to do: "It has limited the rise in prices in the durable goods field [and] has removed some of the pressure which would have hampered diversion of materials and manpower to the military effort." In the first few weeks of the Korean war, said McCabe, the average price of 1949 used cars in the popular-price lines rose from $1,430 to $1,635. But since Regulation W, the price of those cars has dropped to $1,280; the one-third down payment now is actually $118 less than before. In short, "Regulation W has helped rather than penalized the person of moderate or low income."

What was needed, said McCabe, was not a lessening of credit controls but a tightening. FRB was already considering a clampdown on charge accounts, bank loans and other inflationary influences.

Holler & Spurt. There was plenty of evidence last week that such a tightening could not come too soon. Despite FRB's credit pinching, bank loans kept right on rising to new alltime highs. And even though builders had hollered at Regulation X (TIME, Oct. 23), housing starts in 1951 might well be higher than FRB intended. Furthermore, the auto dealers were using old figures when they talked of slumping sales. With a threatened cut in auto output, car sales have recently spurted upward again. Nevertheless, FRB thought that tougher credit controls might check inflation--if given a chance to work.

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