Towards a Shortage Economy

In time of peace most U. S. industrial capacity is made of India rubber. But last week, in a number of basic industries, capacity could no longer be stretched.

Fortnight ago, OPM's Priorities Division acknowledged the strain on aluminum and machine tools, put their customers on rations (TIME, March 10). Last week three more industries went under full priorities. Two--nickel and magnesium--were competitors of aluminum (nickel is an ingredient of stainless steel). The third was neoprene, the high-cost Du Pont synthetic which too many defense manufacturers prefer to rubber (for gaskets, hose, etc.).

But priorities were not likely to end there. Three more commodities were already being fitted for uniforms. First was zinc, of which the U. S. supply had dwindled to two days' worth. As a first step, last week trading was banned in zinc futures on the Commodity Exchange and producers were asked to earmark 5% of their April output for allotment by OPM.

Second was scrap, for which OPM set a price ceiling at $20 a ton. Third was lumber, which Price Commissioner Leon Henderson had already forced down below $25 a thousand board foot (TIME, Feb. 3). Last week, to avoid future dislocation, the Government talked of acquiring its own stock pile.

In many other industries businessmen thumbed the calendar, wondered when their turn would come: Warehouse space is one thing the U. S. has long had too much of. Some nearsighted manufacturers were still tearing down empty buildings in order to save local real-estate taxes last week. But U. S. storage capacity is near the danger line in many key production and merchandising areas--especially along tidewater, where the Navy has commandeered much space.

Still tighter, potentially, was space in the Grain Belt, where farmers worried about where to put the coming bumper wheat crop, alongside the record surplus.

Coal has been No. 1 horrible example of industrial overcapacity since 1920. Yet coal last week was hard to get. The reason is political: this week John L. Lewis, back from Florida, began negotiating with the mine operators for a new contract. Question before the operators was whether the Guffey-Vinson Act, which gives them a price compensation for all proved cost increases above 2-c- a ton, would be renewed by Congress before it expires April 26. If the Act is not renewed in time, a strike is certain; even if it is, Lewis may pull a strike anyway, to justify his thesis that labor can expect nothing but a raw deal from defense. The possibility was enough to start a near-panic among coal users, whose average supply last week was enough to last only 34 days (23 days for railroads). They soon found it impossible to get April delivery (on high-grade industrial types), bought all they could get for May and June delivery.

Railroad spokesmen have repeatedly affirmed their readiness to handle any foreseeable defense traffic. But the prospect of extraordinary wheat loadings, on top of the industrial boom, has caused some Midwestern roads to look around for a hedge. Third week in February, car-loadings on the Kansas City Southern ran 25% ahead of 1940, on the Frisco and St. Louis Southwestern 20%. Others felt the abnormal rush for coal, U. S. freight item No. 1. New York Central and Baltimore & Ohio, both big coal carriers, moved more freight that week than during 1940's traffic peak in October.

During 1941's first two months, car-loadings rose in a spectacular line from 3.6% above 1940 to 19.2%. (One growing reason for more carloadings: freight diversion from intercoastal shipping lines whose ships have been transferred to ocean routes.) Last week Transportation Commissioner Ralph Budd, optimistic as ever, predicted that 1941 would show an average gain of only 9.4% over 1940's carloadings. Yet already the average gain is 11.2%.

Still ahead lay other potential shortages --steel, copper, brass, power, freight-car manufacturing, foundries, shipping. As an omen of the shipping uncertainty, the price of imports--cocoa, rubber, silk--rose last week. Other commodities (flour, cotton goods, sugar) did the same. Meanwhile wages also nudged the trend. The woolen-textile industry upped wages 10%, and steelworkers met a U. S. Steel offer of 2 1/2-c--an-hour increase by a demand for 10-c-. By this week it was clear that, even if major strikes are averted, the U. S. economy was turning into a shortage economy. Higher inventories, higher prices, higher wages (and of course higher taxes) were all on the way.

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