(See Cover)
One afternoon last week, while the lazy Washington sunshine lay thick as honey, two of the most important citizens in the U.S. sat on a park bench in Lafayette Square, across the street from the White House. Pigeons strutted along the paths, inspecting the ruins of peanuts; sweaty tourists, slung with cameras, pounded past the corroded, green bronze of Andrew Jackson on a hobbyhorse, surrounded by toy cannons.
The two men were sitting in the park because only there could they get away from purring telephones and the endless shuffling of papers. One of them, lean, very tall (6 ft., 3½-in.), with a middle-parted mane of thick, snowy hair, cool, amused, shrewd eyes, was dressed conservatively and expensively, his crossed legs revealing old-fashioned high-lace shoes, with a boot pull at the back. The other, of medium height, fat, young, voluble, looked like an aggressive laundry bag; he was dressed as if various garments had been thrown on him as he hurried past.
The older man was Bernard Mannes Baruch, 70. Beside Mr. Baruch's right ear, the good one, sat Leon Henderson, 45, earnest, gesticulating, mildly profane.
History brought the Messrs. Baruch and Henderson together. One had made it; the other has read it, and now will have to make some himself.
War Is Hell. The primary fact about wartime economics is that war tears the guts out of the national economy—invariably, inevitably, always. Each major war in U.S. history has been accompanied by an irresistible, skyrocketing price inflation, with catastrophic results to the peacetime economy (see chart, p. 18). A corollary, with serious implications to the U.S. today, is that to increase actual over-all production is difficult during a war, since all of the production increase tends to go into the terrible luxury of armament, while civilian consumption drops.
In a pre-war economy the problem is to expand all production enormously, to insure reserves of butter before the time when most production will be of guns. The nation's essential goods must be produced and procured without wrecking the economy.
Prices are fundamental in the problem. Up-spiraling prices mean up-spiraled production costs. Two dollars are needed to buy one dollar's worth of goods; a billion must be spent for a half-billion's worth. Later, deflation doubles the cost of the war to future taxpayers.
There are two general ways to get more goods: by encouraging the expansion of capacity or by letting prices skyrocket until producers get in motion under the urge of big profits. The first seems preferable to Henderson and the New Dealers, and is the direction in which the U.S. is rapidly moving; the second is the theory of free-price advocates, who believe that the profit motive alone is sufficient incentive in U.S. industry.