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Jack Ranger

Tapping the Wall St. Wire

More Inflation Ahead

(28 June 1948)

From Labor Action, Vol. 12 No. 26, 28 June 1948, p. 3.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The consensus of economists in and out of the government is that Washington’s rearmament program will become the dominant economic force as 1948 unrolls, and many observers believe a new wave of “hyper-inflation” is on the way. Martin R. Gainsbrugh, chief economist of the National Industrial Conference Board, recently declared that “each dollar spent for rearmament in the months ahead will push us steadily away from the possibility of absorbing the unparalleled inflation of World War II, toward a new sequence of hyper-inflation ... We now are embarked upon a new adventure with inflation which may not be so favorably resolved.”

Joseph M. Dodge, president of the American Bankers Association, pointed out in Chicago recently that whatever is taken out of present production for military use will have to be taken out of the consumer’s interest in present production. That would reduce the deflationary effect of production increases.

“There is none of the universal optimism which has been one of the most important factors in the development of past inflationary cycles,” he said. “Everyone is worried and thinking about the problems of either inflation or deflation.”

Mr. Gainsbrugh, in his analysis, said that prices would rise, particularly for manufactured goods. He predicted higher direct and indirect taxes, with tighter government control over the economy.

“The sapping character of the new re-armament program is not sufficiently stressed,” he added. “It comes after the world’s costliest war, followed by a period of hyper-full consumption and hyper-full capital replacement. The prolonged character of Rearmament II is also foreboding. Little prospect of reducing its strain exists, unless we engage in the costlier process of war itself.”

Parallel with the rearmament program is the Marshall Plan, which in the 12-month period from April 1, 1948, to April 1, 1949, will take the following U.S. materials to Europe: Iron and steel, 2,500,000 tons, up 40 per cent from 1947; machinery and industrial equipment, up about 2½ times over 1947, to $1,000,000,000; petroleum equipment, $250,000,000; steel producing machinery, $50,000,000; farm machinery, $120,000,000, about double 1947; coal mining machinery, $80,000,000; electric equipment, up 50 per cent over 1947, to $100,000,000; electric power plant construction equipment, $120,000,000; lumbering equipment, $20,000,000; industrial machinery, $250,000,000; office equipment, $45,000,000; aircraft, about $50,000,000; merchant ships, sharply down, to $50,000,000; freight cars and trucks, $300,000,000; coal, 33,000,000 tons; petroleum, the same as last year; chemicals, $350,000,000; non-ferrous metals, $70,000,000; wheat, down 15per cent, to 250,000,000 bushels; fats and oils, down to 320,000,000 pounds; other foods, up 25 per cent; raw cotton, up from 1.3 million bales to 2.3 million bales; tobacco, a 20 per cent increase to 440,000,000 pounds; timber, up slightly to 780,000,000 board feet. The above buying estimates are tentative, but serve to give a fair conception of the strain on the U.S. economy represented by the “stop Russia” European Recovery Program.

Profits, Prices Up

You will note that heavy industry accounts for most of the Marshall Plan spending, and will understand that it is heavy industry that is most firmly committed both to support of the Marshall Plan and to the rearmament program.

Estimates of 1948 profits indicate that, after all-time records in 1946 and 1947, they will be higher than ever in 1948. An analysis of earnings of 111 companies in 15 industries shows that in the first quarter of 1948 these companies had earnings 26 per cent above 1947, “to dispute a widespread belief that profit margins of business generally are shrinking,” as the Wall Street Journal put it.

A dozen oil companies almost doubled their profits in the first three months of 1948, compared with the same period a year ago.

Prices are jumping up again. Almost all automobile manufacturers have raised prices from 5 to 10 per cent in the last 60 days. Lumber prices have bounced back to last year’s peak. The prices of wool, both domestic and imported, have hit their highest peaks in 25 years. The clothing industry is estimating it will raise prices sharply on men’s and women’s suits in the fall. The price of hides has risen 25 per cent since the first of they ear. Cotton seed oil rose from 21 cents a pound in February to 35 cents; soybean oil, from 16½ cents to 26½ cents.

The Commerce Department’s Office of Business Economics reported that prices moved upward during April in all major commodity groups. Wholesale commodity prices were uniformly higher in April, indicating that the trend of retail prices will continue upward.

Well, what is the consumer doing during this profit festival? He is going further into debt, of course. According to a recent study by the Federal Reserve Bank of Philadelphia:

“In the year and a half since prices were decontrolled, the cost of living has risen by one-fourth. At the same time, consumer expenditures have increased and personal savings have decreased at about the same rate as the price rise.”

Lower income groups were found to be using “war-accumulated liquid assets” at a rising rate; there was a slowing down in repayment of debts and some rise in new debt, particularly for buying consumer goods and housing. The bank predicted “further heavy dissaving on the part of at least one-fourth of all spending units” in 1948. That’s a banker’s way of saying that one-quarter of the American people will be worse off at the end of the year than they were at the beginning.

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