This Is Where We Came In

October 29, 1951

When I was in Paris a few weeks ago the press was headlining what it called “l’opération bifteck”—the government’s order rolling back meat prices by 10 percent. The result, of course, was a meat shortage.

To an American it was all very familiar. When President Truman restored meat ceilings in September 1946, the Federally inspected production of beef, which had been 594,000,000 pounds in August, fell to 186,0, 000 in September (only 28 percent of production in the preceding September). Mr. Truman belatedly removed ceilings on Oct. 14, and in November beef production was back to 605,000,000 pounds.

Yet our price controllers seem incapable of learning even from our own experience. They seem determined to repeat and magnify every past error. They have raided hundreds of slaughtering plants and succeeded in bringing about another beef “shortage.” The American Meat Institute reports that in the four-month period of June through September, the 95 leading beef-producing plants were able to buy only 65 percent of the number of cattle they bought in the corresponding period of 1950. At the ceiling prices they were legally allowed to bid, they weren’t being offered any more. Yet in the same four months the receipts of cattle at the twelve leading livestock markets were down only 12 percent compared with the corresponding 1950 period.

What became of the cattle that were not bought by the 95 leading beef-producing plants? It’s a fair assumption that they went through gray-or black-market processors. If these processors are not paying much attention to official ceiling prices, will they pay much attention to the slaughtering quotas that Michael DiSalle has been demanding? Suppose DiSalle got his slaughtering quotas. And suppose even that he was able to enforce them. The first consequence would be sharply reduced competition among packers. (There are more than 3,000 plants.) The efficient packer could not expand, because the quota assignment would not permit him to. New entrants would be presumably barred. The inefficient packer could not be eliminated, because he would be assured of his quota. Incentives to better service and competitive cost-cutting—which help both cattle raisers and consumers—would languish or disappear.

To the extent that the OPS really did prevent black-market operations, it would repeat the 1946 shortage of meat. For by holding meat below the market price, it would both encourage increased meat consumption and discourage meat production. If DiSalle sincerely believes that he can hold meat prices substantially below free-market levels for any length of time without resorting to consumer rationing and eventually to subsidies, then he does not understand the tremendous task he is undertaking.

In Newsweek of Nov. 29, 1948, reporting on a visit to the stockyards of Fort Worth, I tried to explain why any effort to fix meat prices was bound to derange production: “It is the present relative prices of meat in the butcher shops to meat on the hoof, of hogs to corn, of corn to hay and wheat, of hay and corn to steers, of steers to calves, hogs, and sheep . . . it is this incredibly intricate maze of relationships which determines how much corn and wheat will be planted, how many hogs will be raised, how many steers will be slaughtered now, how many held for further feeding, whether on ranges or in pens, for just how long, to just what weights, and so on. . . . The intimate connexity of prices runs through the whole economy. It is the relation of the prices of thousands of different commodities to each other that determines the relative amounts produced of each of these commodities. It is not surprising, in view of these intricate interrelationships, that government price-fixing always upsets the balance of production.”

The worst of all excuses for price-fixing, we may add now, is “fighting inflation.” Price-fixing is a futile but harmful effort on the part of the government to protect the public against the high prices caused by its own overissue of money and credit.