AMERICAN INSTITUTE
for ECONOMIC RESEARCH
54 Dunster Street, Harvard Square
W E E K L Y
BULLETIN
Cambridge, Mass.
March 1
1943
RESEARCH REPORTS
In Great Britain, where food rationing has had an
extended history, difficulties were revealed that would
Food Rationing in Theory and Practice
not be apparent in a theoretical consideration of such a
In spite of the extremely small canned-goods
system. For example, individual establishments have
reserve allowance provided for each individual by the
trademarks and selling contracts, trained personnel,
Office of Price Administration, reports from registration
and other valuable assets that are in danger of destruccenters indicate that few families had excess supplies on
tion. I t is therefore natural to find opposition develophand. In reporting this situation, the press scarcely
ing in the trade.
concealed the suggestion that declarations frequently
Another unfortunate aspect of wartime food scarcilacked frankness and that home larders were somewhat
ties is its moral effect on the community. In the May
better stocked than was apparent. It is only natural
4,1942 Research Report bulletin, we quoted an excerpt
that the public as a measure of self-preservation would
from The Statist (London), a part of which may approfind various excuses for excluding "doubtful" items.
priately be reproduced at this time: "Retailers are being
Probably few expected as drastic limitations as were
pressed to inform against suppliers who suggest transimposed, and even yet many do not realize how meager
actions outside the Board of Trade regulations and cuswill be the family allotment of canned products, comtomers are being pressed to inform against their
pared with the supply to which they have become
retailers. Farmers receiving cartloads of unregulated
accustomed. Of course, the regulations bear most
necessaries are asked to inform against the friendly
heavily on the urban population, and Government
supplier who lines the cart with a contraband cargo of
officials may later be forced to take this into confeeding stuffs. In short, the whole Nation — manufacsideration.
turers, wholesalers, retailers, and consumers — has
been linked in a conspiracy to overcome the seemingly
It is possible that the restrictions were initially
senseless restraints on trade which various ministries
made more stringent than was indicated as necessary
have inaugurated, with the ostensible aim of organizing
by statistical studies. Such a policy would permit subthe people for victory. While the press and the politisequent relaxation tending to reconcile the public to the
cians and the broadcasters talk bravely of national
general rationing program. Furthermore, if householdunity, too many bureaucratic rules and regulations
ers are deprived of food supplies at this time, they will
have succeeded in creating a very real national disunity
be forced to draw on stocks that have been accumulated
— where every man's hand seems to be against his
in the home and which may tide them over until the
neighbor's, where every housewife's basket is a standing
1943 crop begins to appear on the market. If the latter
challenge to the envy of every other housewife, and
motive was a consideration in the plan's conception,
where all are linked against inspectors and snoopers and
officials must have been aware of the possibility of
the agents of the law, as were the Americans under
hardships that might be suffered in homes less amply
prohibition."
stocked than the average.
The establishment of country-wide food rationing
The black-market potential is far greater in the
inevitably entails economic changes that are not United States than it is in Britain. We have more
immediately apparent. The injection of Government
extensive farm areas here, and our private automobile
controls into the economic mechanism invariably
and truck transportation facilities have been less drascreates an element of friction. The confusion that
tically curbed. The cold-storage locker systems that
attended the establishment of the NRA illustrates the
are available in many sections of the country are
dislocations that develop when a radical change in a
especially adapted to promote "unofficial" food traffic.
complicated economic system is made. The mass of
An adequate administration of food rationing will
detail normally attended to by individuals engaged in
require a veritable army of Government representatives.
manufacturing and trade can hardly be supervised
There is no question but that, when supplies of the
efficiently by a bureaucracy, especially in the early
necessities of life are meager, they should be distributed
stages of the transfer of control.
equitably, and some form of control is essential. ProbFood processors and distributors are allowed to
ably some of the dissatisfaction that has been expressed
retain custody of their products but are deprived of
regarding food-rationing regulations arises from the suscontrol with consequent loss of flexibility of operation.
picion that the Government has placed emphasis on
Both those in the food business and their customers
means for regulating commodity scarcities rather than
suffer in consequence.
for alleviating them. Public protest over the situation
COMING EFFECTS OF CURRENT EVENTS
INDEX
OF LIVING
STANDARDS
//*\
CADJUSTEO FOR LONG TERM TREND)
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1913
'14
'IS
'It
'17
'18
'19
'20
'21
'22
'23
'24
'25
'26
'27
'2S
'29
'30
'31
'32
'33
r
' 3 4 ' '35
'36
'37
'38
'39
'40
'41
of food and clothing per capita than does the civilian
population. Although supplies produced for the Government and for civilians are not reported separately in
data available for calculating the index, it is apparent
that civilian living standards are now somewhat below
the level indicated by the index, because the armed
forces are better provided for as measured in terms of
food and clothing. Of course, this disparity will be
increasingly apparent to the civilian population as the
personnel in all the combat services is increased.
has recently become so vocal that there is hope for constructive accomplishment in the future. Congress has
been aroused to force the Administration to cooperate
with the Nation's agricultural establishments for the
planting and harvesting of an increased volume of farm
products during the present crop year. If such a campaign can be successfully concluded, it should ameliorate
some of the civilian hardships that are at present in
prospect.
BUSINESS
THE FUNDAMENTALS
Index of Living Standards
The Institute's index of living standards, shown in
the chart at the top of this page, reflects changes in the
per capita volume of consumer goods produced in the
United States. It is a six months' moving average
plotted at the sixth month to allow for the normal time
required for such goods to reach the hands of consumers.
It is adjusted for long-term trend by adapting "weights"
given to the component series of the index each year,
so that each item has an influence proportional to the
value of the year's production.
Even before our entrance into the war, the production of consumer durable goods after reaching record
high levels in the summer of 1941 was decreasing as
the Nation's productive capacity was being redirected
to output of war materials for our defense program.
This trend was accentuated after we became an active
belligerent, and the production of this class of goods,
although not entirely eliminated, has been reduced
below maintenance levels. Except for products of the
automotive industry, stocks of most consumer durable
goods were still available for distribution to the public
last year, but these have now been virtually eliminated.
In the meantime, the production of nondurable consumer goods has been fairly well sustained, although it
has receded from the high levels attained early last year.
Stocks of these goods in the hands of manufacturers and
merchants have gradually been reduced, and from now
on consumption will be practically limited to the volume
of production except where surplus supplies have been
built up in the home.
During February the index declined to a position
slightly more than ten per cent below estimated normal.
A substantial proportion of the current production of
consumer goods represents Government orders for the
Nation's armed forces, which consume a larger amount
Supply
The steel-ingot production rate was 99 per cent of
theoretical capacity last week, unchanged from the
preceding week's level. There has recently been a
decrease in the volume of incoming orders for some steel
specifications (apparently because of changes in types
of war production sought by the Government), but
aggregate orders continue to exceed shipments. It is
reported that a systematic plan for bringing idle and
excessive steel inventories in the industry into immediate use has met with considerable success and is
moving from 5,000 to 8,000 tons of steel a day into
consuming channels.
1929
1932 1937 1938 191& 19^3
Per Cent of Capacity
89.5
26.0
86.0
30.0
95.5 99.0
(Latest 1943 weekly data; corresponding week earlier years)
There was an increase in electric power generated
last week, although a seasonal decrease is normal.
Compared with output a year ago, a gain of slightly
more than 15 per cent was recorded for the second
consecutive week.
1929
Billion Kilowatt-Hours 1.71
1932
1.51
1937
2.21
1938
2.03
1942
3.42
1943
3.95
There was a greater-than-seasonal increase in lumber
production last week, and the adjusted index advanced
from 99.8 to 103.6 per cent of the 1935-1939 monthly
average. Although operations have increased somewhat
since milder weather has generally prevailed in the
Northern States of the country, the industry has not
succeeded in attaining satisfactory volume. Orders still
exceed production by about 15 per cent, and supplies in
lumber yards have been depleted.
1929
New York Times Index 130.0
34
1932
37.3
1937
78.8
1938
62.1
19^2 19^3
135.4 103.6
GOLD PRODUCTION AND PRICES
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WORl O PRO 3UCTIO ^ OF G
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COMI itODITY
PRICE S
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100
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1650
1880
1870
1930
I860
1950
The relationship between commodity prices and
gold production has been discussed from time to time
in these bulletins and is described in the "Explanation
of Basic Charts" that has been sent to all subscribers.
Stated briefly, when commodity prices rise to a level
higher than normal, costs of producing gold are
increased. Production of the metal is consequently
discouraged, and annual production decreases because
the price of gold is fixed in terms of dollars, whereas
costs of producing gold usually follow commodity-price
changes. Gold production is stimulated when commodity prices are low and is discouraged when commodity prices are high. The amount of gold produced
each year also has an influence on commodity prices,
because, as long as gold production continues at a
greater-than-normal rate, total purchasing media
increase more rapidly than normal.
The actual operation of these relationships is observable during the major price movements that have
occurred within the period covered by the chart. It is
especially interesting to compare the trends of the two
statistical series at the present time and during the
years in which the first World War was seriously distorting normal economic relationships. During periods
in which nations are engaged in large-scale wars, commodity prices rise, because such conflicts are usually
financed in part at least by inflationary means and
because commodity scarcities exist when manpower is
diverted into the production of war materials from the
creation of civilian consumer goods. Gold production
is curtailed during war time because operations have
become less profitable as labor and other costs increase
with the advance in the general price structure and
because manpower and machinery cannot be spared for
purposes not directly connected with the war.
The latest data for world gold production plotted
on the chart represent our estimate for the calendar
year 1942. Reports of world gold production made by
the United States Mint and the American Bureau of
Metal Statistics are published by the Board of Governors of the Federal Reserve System. Complete data
are not available after March 1942, but reports from
the leading producers are available for the full year;
Demand
The consumer buying wave touched off by shoe
rationing began to subside during the final week of
February, although the retail volume for clothing
remained abnormally large. With food rationed, shoes
rationed, and with many people stocked up with clothing as a result of the preceding weeks' panic buying, it
seems probable that the high point of the latest phase of
this abnormal demand-supply relationship has passed.
Within the next two weeks merchants will probably
notice the effects of the income tax on their sales volume.
However, this influence should not have an important
effect on the spring selling season, inasmuch as five full
weeks intervene between the March 15 income-tax date
and Easter Sunday.
Prices
Last week the sensitive wholesale commodity price
indexes extended the gain recorded in the preceding
week. Moody's Spot Commodity Price Index was
245.6 on February 18 and 246.0 on February 24. The
Dow-Jones Index of Commodity Futures closed at
89.92 on February 18 and at 90.45 on February 24.
FINANCE
Gold Production and Commodity Prices
The Institute's chart of gold production and prices,
presented in this bulletin, shows annual fluctuations in
world gold production over a ninety-three-year period,
together with average yearly commodity prices during
the same period. (The scale for gold production in
millions of fine ounces is at the left side of the chart.
The scale for the commodity-price index is at the right.)
Because data for prices are not available for the United
States during the earlier part of this period, English
prices are used until 1931, when the United States
Bureau of Labor Statistics' combined wholesale commodity-price index was substituted. Inasmuch as the
two indexes were then at practically the same level, no
break is shown in the continuity of the price-index line.
The index is also shown on the former gold basis since
January 1934, when the dollar was devalued.
35
and, inasmuch as these usually comprise about 75 per
cent of the total, they provide a reasonable basis for
estimating the total. During the early part of the war,
the South African gold fields (the largest in the world)
increased production substantially and maintained
their relatively high rate of operations until the latter
part of last year. During the years preceding the outbreak of the second World War, Russia became the
world's second-largest gold producer. Data for Russian
gold production are not available for the war period,
and if the Soviets have stopped the production of gold,
a more extensive decrease in world gold production in
1942 occurred than is indicated by our estimate, which
assumes a curtailment in Russian production proportionate to that recorded by producers for which data
could be obtained.
The down turn in the chart of world gold production
during the past two years follows a pattern similar to
that traced during the course of the first World War in
1916 and 1917. The rate of decline is somewhat greater
than it was in the earlier period, perhaps because Government restrictions on gold production have been
imposed in the present instance that were not resorted to
in the earlier period. The chart is significant in pointing to the existence of a force operating to stabilize
commodity prices that will ultimately tend to counteract some of the effects of the wartime inflation.
The dollar is still defined in terms of gold, and no
other satisfactory measure is available, although many
schemes have been proposed for supplanting the metal
as the money commodity. The fact that gold is eagerly
sought in all lands has made it a valuable aid in facilitating United States military operations abroad. Even the
finance ministers, such as Dr. Funk of the Reich, who
disparage gold as necessary to facilitate international
transactions, obtain possession of it whenever it can be
seized and carefully conserve national monetary stocks.
It is virtually certain that the past relationship between
gold supplies and commodity prices will be maintained
during the postwar period.
record for 1942 shows a slight improvement over that
for the preceding year, and private borrowing, although
meager, reached the 1940 level.
Monthly data have not been available since the outbreak of war, but annual figures are compiled by the
British Midland Bank and are summarized herewith.
New Capital Issues in Great Britain
RECOMMENDED BOOKS
The record of new capital issues in Great Britain
during August 1939 gave no indication that an immediate outbreak of war was anticipated. However, when
hostilities actually commenced, there was an immediate
drying up in the flow of funds into private industry.
The volume of new corporate flotations during the full
year 1940 in the London market was smaller than the
volume usually issued in an average month during the
preceding decade. Issues totaling £4,000,000 offered in
1940 were reduced to about £2,000,000 in 1941. The
"World Economic Survey, 19^1-^2" League of Nations,
Columbia University Press, New York. ($2.50)
The tenth "World Economic Survey" of the League
of Nations is the second since the beginning of the war.
The statistical material is of course more limited than
that included in the peacetime volumes. Nevertheless,
the book contains many significant tables and charts.
The League's studies afford the most authoritative
information on world conditions available today.
The study is especially interesting because it summarizes the elements of weakness and of strength in the
belligerent nations. Perhaps the most heartening portions of the report are those devoted to the administrative difficulties encountered by Germany in the
administration of conquered territories. The report
makes apparent that Japan is also having trouble in
creating her Asiatic "co-prosperity sphere."
SECURITIES
Bonds
Bond prices made further progress in the upward
movement followed by the average since early in
February. The railroad issues continued their leadership in the movement. The Dow-Jones average of 40
bonds advanced from 93.00 on February 18 to 93.68
on February 25.
Stocks
The advance in the stock market last week ignored
the analysts' prophecies that a substantial technical
reaction is overdue. Commentators continually point
to the "poor" market leadership, because activity has
recently been concentrated in issues in the lower-price
range. The obvious implication to be derived from activity in this type of issue is that war workers' surplus pay
rolls are finding their way into the niarket. These
probably represent speculative rather than investment
holdings and perhaps lack stability. However, as long
as industrial employees have larger incomes than they
are accustomed to use for living expenses, they will
probably seek opportunities to speculate. As the
inflationary progression develops, this speculative movement is quite likely to become more important as a
market factor. It will not grow on direct bank credit
as it did in the late 1920's, but this will be unnecessary
when the Government is underwriting the creation of
bank credit at a faster rate than the New Era speculators were able to attain in 1928 or 1929.
NEW CAPITAL ISSUES IN THE UNITED KINGDOM
Year
Millions
of Pounds
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
384
216
236
204
224
220
253
315
363
254
236
89
Year
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
Millions
of Pounds
113
133
150
183
217
171
118
66
4
2
American Institute for Economic Research is a nonpolitical, non-commercial organization engaged in impartial economic research.
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