Economics 2A

In 1933 President Roosevelt declared that a prime New Deal objective was to raise commodity prices to the level of the ''normal'' year 1926. Last spring, when the commodity price level (Bureau of Labor Statistics) was still only 88% of the 1926 norm. President Roosevelt announced that commodity prices in general and steel and copper prices in particular were too high. His remarks precipitated a worldwide slump in commodity prices, which have fallen almost steadily since, were last week back to 80% of the 1926 norm.* Last week Franklin Roosevelt once more delivered himself on commodity prices.

Frequently the President's obiter dicta on prices appear to be tossed off extemporaneously. Just so in press conference he remarked that he still believed--as he had in 1933--that prices were too low but that he did not mean that copper should go up again to 19-c- a lb./- However, he coupled this casual expression of his views with the announcement that three days later he would really go into the question.

During the waiting period, speculators taking the hint tentatively bid up commodities and stocks. When the day of the event arrived, the press, 125 strong, trooped into the President's oval office; they found it rigged up, as one reporter murmured sotto voce, like a college course in Economics 2A. At his desk sat the President, jovial as ever. Behind him was an easel stacked with charts. 'Primly erect, like a visiting professor, Secretary of the Treasury Henry Morgenthau sat at one side, flanked by James Roosevelt, Charles Michelson, Steve Early, Marvin Mclntyre and the usual Secret Service men. First part of the lesson was the reading aloud by the President of a statement prepared for Secretary of the Treasury Morgenthau, Secretary of Agriculture Wallace, Secretary of Labor Perkins, Federal Reserve Chairman Marriner Eccles, by their economic experts. Excerpts:

"A year ago there was ground for concern that a too rapid rise in the prices of some commodities was encouraging a speculative boom. During the past six months, on the other hand, the general price level and industrial activity have been declining. Government policy must be directed to reversing this deflationary trend.

''This does not mean that all prices should advance, nor that the rise should be rapid. Prices of different groups of products must be brought into balanced relations to one another. . . .

"The prices of some items are still at the highest levels reached in 1937; some are even higher than in 1929. When high prices sharply curtail sales there is real danger. This is shown by our recent experience with housing. A year ago there was a serious shortage. We had unused productive resources ample to overcome the shortage. Yet all the major elements in housing costs advanced so sharply by the spring of 1937 as to kill a promising expansion of activity in an industry whose restoration is vital to continued recovery.

"For industries, such as agriculture, that operate at a high level of capacity even when business activity is at low levels, the restoration of profits must come pri marily through higher prices. . . . Recently wholesale prices have declined markedly, yet that decline has been reflected in the cost of living only to a very slight degree. . . . It is clear that in the present situation a moderate rise in the general price level is desirable, and that this rise need not and should not extend to all prices."

That prices too high should be lowered and prices too low should be raised was not by itself a highly enlightening eco nomic doctrine. But as a political announcement it had force, for it laid at rest conjectures that the Administration was specifically bent on inflation. Professor Roosevelt picked up a slim wooden pointer and, leaning back in his chair, proceeded to elucidate his meaning with nine separate graphs on specific prices.

As an example (too high), he pointed out that plaster prices are double those of 1929. As another example (too low) he pointed to agricultural prices, whose graphs in the last ten months resemble a precipice. Once remembering the presence of Exchange Professor Morgenthau, he paused and asked politely: "Is that right?"

"Yes," said Mr. Morgenthau and relapsed into silence.

Professor Roosevelt said he knew that the reporters had many questions, and to save them the trouble of asking, he had phrased them himself. Picking up his notes, Professor Roosevelt proceeded to ask and answer.

What is to be done? Well, there are many elements in the recovery program but all are directed toward a better balance of prices. The Farm Act, the Housing Act and expanding relief ought to help.

Does this mean inflation? No, definitely no.

Does this mean further devaluation of the dollar? No.

Did last week's desterilization of gold [TIME, Feb. 21] play any part in the program? Yes.

Are we trying to get back to the 1926 price level? Yes and no. The object is more to establish a balance of prices than to reach a norm.

Are labor costs too high? The objective is lower production costs through greater volume rather than through decreased wages.

Did labor costs rise too fast last spring? Many firms were in a position to raise wages in 1935 and 1936; it was questionable judgment to postpone wage increases until the last minute and then try to absorb them in one lump. During downswings people speak of cutting wages, but they seem to forget to raise them during recovery.

Clearly, if Franklin Roosevelt meant to regulate all prices up & down to fit his theory, he was launching his Administration on the biggest thing in planned economy it had yet attempted. But to the 125 reporters, perspiring after the longest press conference in months, the most striking fact was that he had proposed no legislation.

What he had given them, to all appearances, was the Administration's rounded view on prices. As such its chief significance was 1) that the Administration might use it as a reference point for future policy, 2) that it might help to resolve public bewilderment caused by conflicting statements and acts of the President and his Cabinet.

* Prices of some typical commodities:

1926 (Year's Average) April (High) Last Week (Close) Copper $ .14 a lb. $.17 $.10 Steel .02 1/2 a lb. .02 1/4 3/4 .02 1/2 Corn .76 a bu. 1.40 1/2 .59 1/2 Wheat 1.55 1/2 a bu. 1.51 1.02 Cotton .17 1/2 a lb. .15 .09 Hides .13 a lb. .17 .09 The peak referred to actually was 17 3/4

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