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Price Controls, Politics, and the Perils of Policy by Analogy: Economic Demobilization After World War II

Published online by Cambridge University Press:  14 October 2011

Michael W. Flamm
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In August 1945 the Truman administration faced a host of dilemmas when it moved to demobilize the American economy and dismantle the system of wartime economic regulations. The new President and many of his top officials lacked executive experience, having assumed their positions less than six months earlier. Given Japan's sudden and surprising surrender, they also had not yet prepared detailed reconversion plans, since most had expected the Pacific War to continue for at least six months to a year longer. And within the administration there was no consensus on two key issues—whether price controls would help or hinder the transition to peacetime, and whether inflation or unemployment was the main threat to postwar prosperity.

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Articles
Information
Journal of Policy History , Volume 8 , Issue 3 , July 1996 , pp. 335 - 355
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Copyright © The Pennsylvania State University, University Park, PA. 1996

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References

Notes

1. On May 23 Congressman Clinton Anderson had moved from the House to the Department of Agriculture. In July Truman (who of course had assumed office in April upon the death of President Roosevelt) named former Senator Lewis Schwellenbach secretary of labor, shifted ex-Congressman Fred Vinson from the Office of War Mobilization and Reconversion (OWMR) to the Treasury Department, and picked John Snyder to replace Vinson at the OWMR. The only experienced reconversion policymaker was Chester Bowles, who had headed the Office of Price Administration (OPA) since mid-1943.

2. To cite one of many examples: “We found ourselves [after World War I] in one of the worst inflations in our history, culminating in the crash of 1920 and 1921…. We must be sure this time not to repeat that bitter mistake.” See Truman, Harry S., “Special Message to the Congress Presenting a 21-Point Program for the Reconversion Period, September 6, 1945,” Public Papers of the Presidents: Harry S. Truman, 1945 (Washington, D.C., 1961), 271Google Scholar.

3. Ernest R. May of course used this expression and warned about the seductive danger of analogies in “Lessons”of the Past (Oxford, 1973)Google Scholar. Other scholars, such as Otis Graham, have made similar observations.

4. Samuelson, Paul A. and Hagen, Everett E., After the War—1918–1920 (Washington, D.C., 1943), 13Google Scholar; Bartels, Andrew H., “The Politics of Price Control: The OPA and the Dilemmas of Economic Stabilization, 1940–1946,” (Ph.D. Thesis, Johns Hopkins University, 1980), 471 and 492Google Scholar; Congressional Quarterly Service, Federal Economic Policy, 33; McCoy, Donald R., The Presidency of Harry S. Truman (Lawrence, Kan., 1984), 60Google Scholar; Bowles, “Renewal of the Price Control Act,” Bowles Papers, Sterling Library, Yale University, New Haven, Connecticut [hereafter cited as Bowles Papers, Yale].

5. Goodwin, Craufurd D. and Herren, R. Stanley, “The Truman Administration: Problems and Policies Unfold,” in Exhortation and Controls: The Search for a Wage-Price Policy, 1945–1971, ed. Goodwin, Craufurd D. (Washington, D.C., 1975), 9Google Scholar.

6. Full Employment Act of 1945, Hearings before a Subcommittee of the Senate Committee on Banking and Currency, 79th Cong., 1st sess. (1945), 36; Full Employment Act of 1945, Hearings, 16.

7. The most thorough account of the Full Employment Bill and the Employment Act of 1946 remains Bailey, Stephen K., Congress Makes a Law: The Story Behind the Employment Act of 1946 (New York, 1950)Google Scholar. For somewhat different interpretations of the act's significance, see Stein, Herbert, The Fiscal Revolution in America (Chicago, 1969), chaps. 8–9Google Scholar; Lekachman, Robert, The Age of Keynes (New York, 1966), chaps. 6–7Google Scholar; Brinkley, Alan, The End of Reform: New Deal Liberalism in Recession and War (New York, 1995), chaps. 9–10Google Scholar; Blum, John Morton, V Was for Victory: Politics and American Culture During World War II (New York, 1976), 329–32Google Scholar; and Griffith, Robert, “Forging America's Postwar Order: Domestic Economics and Political Economy in the Age of Truman,” in The Truman Presidency, ed. Lacey, Michael J. (Cambridge, 1989), 68–70Google Scholar.

8. One such liberal was James Patton of the National Farmers Union, which had drafted the original Full Employment Bill, pressed for its introduction in Congress, and lobbied strongly for its passage. He considered the final version of the Employment Act “a tragic admission of our defeatist attitude toward achieving a high production, full employment economy in peacetime.” See Flamm, Michael W., “The National Farmers Union and the Evolution of Agrarian Liberalism, 1937–1946,” Agricultural History 68 (Summer 1994): 79Google Scholar.

9. A number of scholars have written on the postwar liberal consensus. For one description of how it emerged and why it took the shape that it did, see Brinkley, Alan, “The New Deal Order and the Idea of the State,” in The Rise and Fall of the New Deal Order, 1930–1980, ed. Fraser, Steve and Gerstle, Gary (Princeton, 1989), 85–121Google Scholar. For an even fuller description, see Brinkley, The End of Reform, passim.

10. Leuchtenberg, William E., “The New Deal and the Analogue of War,” in Change and Continuity in Tuientieth-Century America, ed. Braeman, John, Bremner, Robert H., and Walters, Everett (Columbus, Ohio, 1964), 81Google Scholar.

11. In the best overall history of price controls during World War II, Andrew H. Barrels cogently outlines the general strategies that the OPA pursued and perceptively critiques the role played by Chief Administrator Chester Bowles, but he does not analyze why Bowles acted as he did or assess the impact of the World War I analogy. By the same token, Barton J. Bernstein, in a series of articles culled from his dissertation, accurately stresses the mediocrity of many of Truman's advisers and the difficulty of framing policy amid what he terms “the politics of inflation,” in which the demands of various special-interest groups conflicted directly with the national interest. But his rather instrumentalist view of the state underemphasizes the relative autonomy that policymakers enjoyed and overlooks the extent to which history guided them during the reconversion period.

For Bartels, see “The Politics of Price Control: The OPA and the Dilemmas of Economic Stabilization, 1940–1946,” passim. For a condensed version of his analysis, as well as observations about the relationship between the OPA's failures and postwar liberalism's struggles, see also “The Office of Price Administration and the Legacy of the New Deal, 1939–1946,” The Public Historian 5, no. 3 (Summer 1983): 5–29CrossRefGoogle Scholar. For Bernstein, consult “The Truman Administration and the Steel Strike of 1946,” Journal of American History (March 1966): 791–803; “Walter Reuther and the General Motors Strike of 1945–1946,” Michigan History (September 1965): 260–77; “The Removal of War Production Board Controls on Business,” Business History Review (Summer 1965): 243–60; “Charting a Course Between Inflation and Depression,” The Register of the Kentucky Historical Society (January 1968): 53–65; “The Postwar Famine and Price Control, 1946,” Agricultural History (October 1964): 235–40; “Clash of Interests: The Postwar Battle Between the Office of Price Administration and the Department of Agriculture,” Agricultural History (January 1967): 45–57; “The Truman Administration and Its Reconversion Wage Policy,” Labor History (Fall 1965): 214–31.

12. Hugh Rockoff concludes that price controls did work—at least during the war itself—and without the establishment of a massive bureaucracy. Paul Evans agrees that they curbed inflation, but argues that a tight monetary policy would have achieved the same effect and led to higher employment and output. See Rockoff, Hugh, Drastic Measures: A History of Wage and Price Controls in the U.S. (Cambridge, 1984), 174–76CrossRefGoogle Scholar; Evans, Paul, “The Effects of General Price Control in the United States During World War II,” Journal of Political Economy 90 (October 1982): 944–66CrossRefGoogle Scholar.

13. In October 1917 Wilson rejected a proposal that he form a committee to discuss postwar issues, and in July 1918 he responded to a suggestion that the United States prepare for peace by saying that “it does not seem to me that just now very much can be done by way of preparation because of our concentration on other things.” See Ballard, Jack S., The Shock of Peace (Washington, D.C., 1983), 7Google Scholar; and U.S. Dept. of Labor, Bureau of Labor Statistics, “Dissolution of the War Industries Board and Release of Its Industrial Controls, 1918,” Historical Reports, no. 56 (December 1942).

14. Samuelson and Hagen, After the War—1918–1920, 6.

15. Schwarz, Jordan, The Speculator (Chapel Hill, 1981), 99Google Scholar.

16. “Renewal of the Price Control Act,” a presentation by Chester Bowles to the House Banking and Currency Committee on April 12,1944, Box 18, Folder 375, Bowles Papers, Yale.

17. “[The WIB] is a dead cock in the pit,” Baruch told Hugh Johnson, who later became head of the NRA. “Let's turn industry absolutely free. Everything that made us possible is gone—the war spirit of cooperation and sacrifice—the vast purchasing power of the government —the scant legal authority we have had-and the support of public opinion.” See Schwarz, The Speculator, 106.

18. Samuelson and Hagen, After the War—1918–1920, 5, 7, 13, 33.

19. “Renewal of the Price Control Act,” April 12, 1944, Bowles Papers, Yale; McCullough, David, Truman (New York, 1992), 145–51Google Scholar.

20. “The Massed, Angered Forces of Common Humanity on the March—The First Crack in the Axis Has Come,” President Roosevelt's fireside chat on the progress of the war and plans for peace, July 28, 1943, in The Public Papers and Addresses of Franklin D. Roosevelt, ed. Rosenman, Samuel I. (New York, 1959), 8:333Google Scholar.

21. James L. Tyson, “The War Industries Board,” Fortune, September 1940, 1.

22. When the Pabst Brewing Company, for example, announced in 1943 an essay contest on how to prevent a postwar recession, more than 36,000 manuscripts were submitted. The winner was Herbert Stein. See Stephen K. Bailey, Congress Makes a Law, 9.

23. Howenstine, E. Jay Jr., The Economics of Demobilization (Washington, D.C., 1944)Google Scholar; Samuelson and Hagen, After the War—1918–1920.

24. Howenstine Jr., The Economics of Demobilization, 298, 299, 309.

25. Ibid., 30–38.

26. Samuelson and Hagen, After the War—1918–1920, 15, 18, 21–22, 34.

27. Hearings before the Senate Banking and Currency Committee on S.J. Res. 30, 79th Cong., lst sess. (1945), 82–86.

28. John Snyder, “The Job Ahead for Business,” n.d., 1945, “Charles H. Kraus—Background Material” Folder [henceforth the “CHK—BM” Folder], Box 97, John Snyder Papers, Truman Library, Independence, Missouri; John Snyder to Robert Wagner, April 15, 1946, Official File 28, Box 158, Truman Library; John Snyder Oral History, September 1970, vol. 1, p. 307, Truman Library.

29. Heller, Francis H., The Truman White House: The Administration of the Presidency, 1945–1953 (Lawrence, Kans., 1980), 17–18Google Scholar.

30. On August 16 Truman contended that the end of the war meant that “there is no longer any threat of an inflationary bidding up of wage rates by competition in a short labor market.” In his address to Congress on September 6 he reminded his audience of the inflation of 1919 (see note 2) but downplayed the present inflation danger, contending that the rapid restoration of “fair competition” would prevent any “undue hardship on consumers.” Then he emphasized, in an October 30 radio talk, the threat to farmers, white-collar workers, and warbond investors of both “wide unemployment” and “runaway inflation.” See Harry S. Truman, Statement by the President Proposing Measures to Insure Industrial Peace in the Reconversion Period, August 16,1945, Public Papers, 221; “Special Message to the Congress Presenting a 21-Point Program for the Reconversion Period, September 6, 1945,” Public Papers, 271; “Radio Address to the American People on Wages and Prices in the Reconversion Period, October 30, 1945,” Public Papers, 443.

31. Truman, Harry S., Year of Decisions (Garden City, N.Y., 1955), 491Google Scholar.

32. Leuchtenberg, William E., In the Shadow of FDR: From Harry Truman to Ronald Reagan (Ithaca, N.Y., 1985), 14–15Google Scholar; Harold D. Smith, 15 May 1946 diary entry, 4, Box 1, Smith Papers, Truman Library.

33. Donovan, Robert J., Conflict and Crisis (New York, 1977), 108Google Scholar.

34. Bowles press statement, 7 May 1945, Chester Bowles Folder, Box 1, Douglas Bennet Papers, Yale.

35. See, for example, the statement by John Snyder before the Deficiency Subcommittee of the House Appropriations Committee, 5 September 1945, “CHK–BM” Folder, Box 97, Snyder Papers, Truman Library.

36. Bowles to Samuel Rosenman, 23 August 1945, Folder 202, Bowles Papers, Yale.

37. Bernstein, “The Removal of War Production Board Controls on Business, 1944–1946,” 246–247, 258.

38. Truman, Year of Decisions, 429 and 481.

39. Statement of Fred Vinson before the House Committee on Expenditures, 31 October 1945, Folder 250, Box 1, Gerhard Colm Papers, Truman Library. Earlier, in August 1944, Vinson had anticipated the government's “fighting against deflationary pressures in some sectors of the economy and against inflationary pressures in other sectors.” See Craufurd D. Goodwin, “Attitudes Toward Industry in the Truman Administration: The Macroeconomic Origins of Microeconomic Policy,” in The Truman Presidency, ed. Lacey, 92.

40. Bernstein, Barton J. and Matusow, Allen J., eds., The Truman Administration: A Documentary History (New York, 1966), 51Google Scholar.

41. For a more complete account of this development, see Bernstein, “Charting a Course Between Inflation and Depression,” 53–65.

42. For a sense of how deep the animosities ran, see Bowles to James Brownlee, 26 October 1945, Folder 42, Box 3, Bowles Papers, Yale.

43. McClure, Arthur F., The Truman Administration and the Problems of Postwar Labor, 19454–1948 (Cranbury, N.J., 1969)Google Scholar, 68A70.

44. Bowles, Chester, Promises to Keep: My Years in Public Life, 1941–1969 (New York, 1971), 130Google Scholar.

45. McCoy, The Presidency of Harry S. Truman, 50; Goodwin and Herren, “The Truman Administration: Problems and Policies Unfold,” 12.

46. Ibid., 51 and 57.

47. Anderson, Clinton P., Outsider in the Senate: Senator Clinton Anderson's Memoirs (New York, 1970), 63Google Scholar.

48. Matusow, Allen J., Farm Policies and Politics in the Truman Years (Cambridge, Mass., 1967), 12–13Google Scholar.

49. Matusow, Farm Policies and Politics in the Truman Years, 19; Bernstein, “The Postwar Famine and Price Control, 1946,” 235.

50. The New York Daily News, for example, printed this headline: PRICES SOAR, BUYERS SORE, STEERS JUMP OVER THE MOON. See Goldman, Eric F., The Crucial Decade (New York, 1956), 27Google Scholar.

51. Congressman Max Schwabe to Harry S. Truman, November 1945, Official File 28, Box 158, Truman Library; Bernstein and Matusow, The Truman Administration, 59–60.

52. Statement by John Snyder before the Senate Small Business Committee, 10 December 1945, “CHK-BM” Folder, Box 97, Snyder Papers, Truman Library.

53. Donovan, Conflict and Crisis, 125.

54. Harry S. Truman, “Radio Report to the American People on the Status of the Reconversion Program,” 3 January 1946, in Public Papers, 5.

55. John Snyder Oral History, September 1970, vol. 1, Washington, D.C., 416–17, Truman Library.

56. For evidence of personal conflict between Bowles and Snyder, see Bowles to Truman, 24 January 1946, Folder 230, Box 11, Bowles Papers, Yale; Bowles to Truman, 6 February 1946, Folder 230, Box 11, Bowles Papers, Yale; Bowles to Truman (unsent), 13 February 1946, Folder 230, Box 11, Bowles Papers, Yale.

57. For a detailed account of the strike, see Bernstein, “The Truman Administration and the Steel Strike of 1946,” 791–803.

58. Ironically, Truman did seize the mills later, during his 1952 confrontation with the steel industry. For a record of the OPA director's advice, see Bowles to Truman, 24 January 1946, Folder 230, Box 11, Bowles Papers, Yale.

59. Bowles, Promises to Keep, 146; Bernstein, “The Truman Administration and the Steel Strike of 1946,” 801.

60. Bernstein and Matusow, The Truman Administration, 71.

61. Anderson to Truman, 15 June 1946, President's Secretary's Files, Box 148, Truman Library; press release by Schwellenbach, 20 June 1946, Box 1, Paul Porter Papers, Truman Library.

62. OPA Radio Address by Truman, 29 June 1946, Clark Clifford Folder, Box 10, Truman Papers, Truman Library.

63. Bartels, “The Politics of Price Control,” 480.

64. On October 5 a Gallup Poll showed that, for the first time, less than half the nation favored the retention of price controls. See Gallup, , The Gallup Polls: Public Opinion, 1935–1971 (New York, 1972), 602Google Scholar.

65. U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, vol. 62, 480.

66. Bartels, “The Politics of Price Control,” 497.

67. See Brinkley, “The New Deal and the Idea of the State,” 102–4. See also Brinkley, The End of Reform, 182–200.

68. Even Bowles, in his guide to America's postwar economic future, foresaw prosperity through consumer spending and fiscal policy—not through a continuation of regulatory controls. See Bowles, Chester, Tomorrow Without Fear (New York, 1946)Google Scholar.

69. Hawley, Ellis W., “The New Deal State and the Anti-Bureaucratic Tradition,” in The New Deal and Its Legacy: Critique and Reappraisal, ed. Eden, Robert (Westport, Conn., 1989), 77–92Google Scholar.

70. Leuchtenberg, “The New Deal and the Analogue of War,” 143.