The Profiteer Hunt Is On

September 29, 1947

The basic causes for high prices in this country have been frequently rehearsed in this column. The volume of money and bank deposits competing for goods is now more than three times as great as in 1939. This has been reflected in money incomes. Total pay to employees increased from $47,800,000,000 in 1939 to an annual rate of $125,300,000,000 in the first half of this year. Expenditures on personal consumption of all classes increased from $67,500,000,000,000 in 1939 to a rate of $158,000,000,000 this year. Inevitably this has been reflected in an increased demand for food. In spite of the price rise, the per capita consumption of meat in this country, which was 132 pounds in 1939, is now running at an annual rate of about 155 pounds.

On top of this basic increase in domestic monetary purchasing power have been the shortages in Europe. European demand has been greatly increased by American Government aid which has supplied Europe with additional dollar purchasing power to compete for our goods. This has drained away part of those goods, particularly foodstuffs, and so raised prices further.

These, and prospective new loans under the Marshall Plan, have been the real major causes of the price rise. But politicians and professional business-baiters are ignoring them in a shrill hunt for personal scapegoats. First come “the speculators.” The drive against speculation is reflected in the demand of the Federal government that the nation’s principal grain exchanges double their margin requirements. This strikes merely at a symptom. Speculation is an inherent part of the process of production. Whether a prospector is sinking an oil well, or a department-store buyer is guessing what women’s skirt lengths will be a few months from now, or a miller has contracted for wheat, there is a speculative risk involved. Someone has to assume it. In the grain, cotton, and other markets there has grown up a class of professional speculators willing and eager to assume these risks, so that processors are relieved of them.

The speculator can make money only if he guesses right on future prices. If he guesses wrong he loses. He is popularly supposed to be wicked when he buys grain and holds it off the market in the hope of higher prices. But if his judgment is right, he performs a public service: he conserves supplies to sell at a time of greater scarcity than when he bought. To the extent that the speculator is right he stabilizes prices. Another set of scapegoats now being hunted out by the politicians are the “profiteers.” This is reflected in the drive of the Department of Justice against those perennial scapegoats, the meat packers. Now it happens, if facts matter, that the profit margin on sales of seventeen principal companies in the meat-packing industry in 1946 was only 1.7 percent, compared with an average of 6 percent for industrial companies in general. The “profiteering” drive has turned as well against retail butchers and grocers. Yet even if we assume for the sake of argument that nearly everybody in the business of supplying the world with food is greedy for profits, the assumption does not tell us why such greedy people were not charging just as high prices nine months ago or nine years ago.

The rise in prices has been followed by the inevitable demands from the uninformed for a return to price-fixing. The reimposition of price-fixing in the United States would be particularly ironic. European price-fixing has been one of the major causes of the shortages in Europe.

The rest of the world has turned to the one great remaining free-enterprise country to make up the scarcities that its socialism and “planning” have brought about. This has naturally sent prices here soaring. If now we too reduce prices by decree, we in turn will reduce or remove the incentives to produce.

The one thing that government interventionists cannot learn is that wherever exceptional shortages exist we need exceptional profits to give exceptional incentives to production. The chief effect of the mania for government meddling all over the world has been to prevent free markets from balancing and increasing production.