Analysis: More Dollars Do Not Mean More Goods

Date: February 20, 1942

Author: Leon Henderson

Genre: speech

Summary Overview

This speech was given to the Chicago Better Business Bureau within two months of the United States declaring war on Japan and subsequent declarations by Germany and Italy. The declaration of war caused the pace of war production to increase dramatically. War industries boomed, and more Americans had disposable income than ever before, just as there were shortages of all kinds of consumer goods. In addition, the Japanese had cut off access to key raw materials such as rubber and sugar, and the war at sea inhibited the delivery of other materials, such as gas and oil, all of which needed to go toward the war effort anyway. In an attempt to control inflation and ensure that there was a fair distribution of consumer goods while providing the war effort with the materials it needed, the Office of Price Administration (OPA), headed by Leon Henderson, rationed consumer goods and set prices. In May 1942 the OPA froze prices on many consumer goods to March 1942 levels. All rationing in the United States ended by September 1945.

Defining Moment

In May 1940, because of economic pressures from the war overseas, the United States added the Price Stabilization and Consumer Protection division to the National Defense Advisory Commission (NDAC). The scope of this division was very limited, regulating the price of scrap metal and recommending rent controls in areas needed for war industry workers. The defense of England after the fall of France to the Germans in June 1940, and the desire to be prepared for war, sent the United States into large-scale military production, which created an economic boom. In response, in April 1941 the Office of Price Administration and Civilian Supply (OPACS) was created, with Leon Henderson, who had been the head of the Price Stabilization Division, appointed as administrator. He was more aggressive in his attempts to control prices and was known as the Price Czar. In August 1941, OPACS was renamed the Office of Price Administration (OPA).

The United States entered the war after Japan attacked the US naval base in Pearl Harbor on December 7, 1941. Germany then declared war on the United States, and preparations for war accelerated rapidly. At the same time, Germany and Japan attacked shipping in the Atlantic and Pacific, and Japan's invasion of the Philippines and the Dutch East Indies choked off the supply of vital materials, particularly rubber and sugar.

Even before the war, the United States had begun to stockpile rubber but only had enough in supply for one year. The OPA was charged with developing and enforcing a rationing system, beginning with rubber tires, starting on December 27, 1941. Local boards were set up to examine requests for tires that needed to be retreaded, and gave out rations for new tires to essential personnel. Civilians were allowed five tires for the duration of the war and had to surrender any others. Within months, goods such as sugar, gasoline, typewriters, and automobiles were also rationed.

The other charge of the OPA was to set prices on necessary goods as a check to inflation, which had made many basic household supplies very expensive during World War I. During the previous war, the government had worked with industry leaders to manage shortages and prevent price gouging, but food and coal prices surged. In May 1942 the OPA froze prices at March 1942 levels. In October 1942 the agency was also able to regulate rent.

The ticketing ration system implemented during World War II used a combination of vouchers to manage the distribution of some foods and other items in short supply. The ration book contained universal coupons for items like sugar, where the same amount was allotted to each person, and also point rations, where points could be used for a variety of needed items. Special permission was needed to buy gasoline, tires, typewriters, and farm equipment. The rationing system was so strict as to encourage black-market trade but did keep prices low and inflation in check.

Author Biography

Leon Henderson was born in New Jersey on May 26, 1895. He attended Swarthmore College, but left to join the army during World War I. After the war, he returned to and graduated from Swarthmore, and then went on to teach at the University of Pennsylvania and the Carnegie Institute of Technology. He served in the administration of the governor of Pennsylvania until 1925, when he was hired by the Russell Sage Foundation in New York. His department researched predatory loan practices, and the resulting studies informed legislation against loan sharking in several states.

In 1934 Henderson joined Franklin D. Roosevelt's administration as a consumer advisor in the National Recovery Administration. He was quickly promoted to the director of research and planning, where he was known for his motto, “Keep your eye on the consumer.” By 1939 Henderson was one of the most influential members of Roosevelt's administration, and he was appointed to the Securities and Exchange Commission. In May 1940, Roosevelt selected Henderson to be one of seven members of the newly established National Defense Advisory Commission before making him head of the OPACS (later known as the OPA) in April 1941. Henderson's price controls and rationing were hated by many businesspeople and unpopular with many consumers as well. He was blamed for several Democratic congressional losses in the 1942 election and resigned in December 1942. After the war Henderson worked as a consultant and businessman. He retired in 1960 and died in California on October 19, 1986.

Document Analysis

At the beginning of this speech, given before an audience of potentially unfriendly Chicago businessmen, Leon Henderson lays out the nearly impossible task he has been asked to perform. His job seems impossible: provide the armed forces with what they need, while not asking too much of the civilian population, and keep prices low on items that are now so scarce as to be nearly nonexistent. He feels like an “unfortunate chameleon which got on a Scotch plaid and tried to be all colors at once.” Fortunately, when the ultimate goal of defeating Germany and Japan is kept first in mind, his various jobs all “tie together.” When raw materials and consumer goods are scarce, prices can “zoom out of sight” without strong controls in place to keep them low.

Henderson lays out the mathematical reality behind price controls: there will be a shortfall of nine billion dollars' worth of goods and services available for purchase. At the same time, there will be nine billion additional dollars available to consumers. This is a fifteen-billion-dollar gap, and if prices are unrestrained, the gap will be closed by skyrocketing inflation, Henderson contends. Henderson's solution was one admittedly unpopular with businessmen: “We must tax and tax and tax until it hurts (and) you must save and save and save.” Profits and wages need to be kept under control, along with food and commodity prices. Henderson admits that he dislikes price fixing and meddling with the free market, but “always we will be guided by our one major premise of licking the Axis.” Businesses have a role to play in the wartime economy, despite the severe restraints on their profits. They can keep prices low (widespread price controls had not yet come into effect) and avoid hoarding.

Henderson lays out the reasons for strict restrictions on rubber, automobiles, and sugar, and addresses the hoarding that went on, particularly with sugar, after the attack on Pearl Harbor. Specifically, hoarding makes rationing, though bothersome, necessary; to engage in hoarding during wartime is unpatriotic. Prices must also be “limited by the requirements of war, no matter how many dollars people have.” Without price controls, the basic necessities of life might become too expensive for some people to afford, leading to “both injustice and tragedy.” Henderson defends his price control bill and mocks his nickname, stating that he should be called Slave Henderson, rather than Czar Henderson, “because the dictator is circumstance.” Henderson leaves open the possibility that if the nation can regulate itself, additional restrictions may not be necessary. Every effort must be made to provide the war effort with whatever it needs, however, even if that means rationing goods that are taken for granted in other times. Henderson ends his speech by introducing other senior members of OPA and answering questions from the audience about the rationing of rubber and gasoline.

Glossary

bellwether: a person or thing that assumes the leadership or forefront, as of a profession or industry

bombsight: an instrument for aiming bombs at a target

chisler: properly spelled chiseler; a person who cheats or tricks; a swindler

cuspidors: a large bowl serving as receptacle for spit, especially for chewing tobacco

divvy up: to divide; distribute

incidentals: minor expenses

Jap: a derogatory slang term for a person of Japanese descent

parity: equality, as in amount, status, or character; equivalence; similarity

Bibliography and Additional Reading

Beevor, Antony. The Second World War. Little: New York, 2012. Digital file.

Ciment, James and Thaddeus Russell, eds. The Home Front Encyclopedia: United States, Britain, and Canada in World Wars I and II, Volume 1. Santa Barbara: ABC-CLIO, 2007. Digital file.

Hirsch, Julius. Price Control in the War Economy. New York: Harper, 1943. Print.

Manning, Thomas G. The Office of Price Administration: A World War II Agency of Control. New York: Holt, 1960. Print.