Business & Finance: Freedom Road

An elder statesman of U.S. finance this week warned against straitjacketing the nation’s rearmament economy with price & wage controls. In an all-out war, said Russell C. Leffingwell, who at 72 had just stepped down from the chairmanship of J. P. Morgan & Co. Inc., such controls are necessary. But in the twilight period of half-war, half-peace that lies ahead, they would stifle the economy. The basic problem, wrote Leffingwell in Barren’s, is to stimulate production, discourage nonessential civilian consumption. Price-fixing, he insisted, would do neither.

“Price-fixing,” he said, “. . . discourages production and stimulates consumption, and the latent inflation may do more damage when it breaks out later than if it had been allowed to run its course in the first place . . . Price-fixing has always failed, from Diocletian* to Truman . . .” Free prices “provide the best method of stimulating production of the things that are really needed, and of restricting consumption of the things that are in short supply.” To Leffingwell, frozen wages are no better than frozen prices: they “tend to retard the movement of men from nonessential to essential jobs … I do not believe in forced labor . . . and that is what wage-fixing means.”

Instead of such blinders on the economy, Leffingwell suggested that government try “self-control—the most difficult of all controls for government to exercise.” Federal, state and local governments should “rigidly curtail their own demands . . . for purposes not related to defense.”

At home, government road building, housing, etc. should be curtailed in order to free men and materials. Abroad, non-defense spending should likewise be cut. For with increased outlays by the U.S. to win local wars and build up defenses abroad, “there will be little more need of Marshall aid … Exports will shrink as our labor and materials are diverted to the defense effort . . . The dollar gap will be filled.”

* Roman Emperor (245-313 A.D.) who issued an edict fixing prices of such things as cereals, wines, meat, fruits, vegetables, leather, timber, carpets and clothing. Punishment for overcharging: death or deportation. Fate of Diocletian’s program: utter failure.