The Lumber Salesman's Part in National Defense

(Following is an address by Peter A. Stone, Price Executive, Lumber, Building Materials and Furniture Section of the Price Division of the Office of Price Administration and Civilian Supply, before the National Forest Products Sales Congress, Columbus, Ohio, on June 13,194r.)

My job today is to try to answer some of the questions that are on your minds about what the Price Administration is and what it is trying to do. OPACS, from the initials of Office of Price Administration and Civilian Sup- ply, was established by executive order of the President on April ll, 1941. The executive order set definite duties aiming at certain objectives. I can briefly summarize those objectives as:

1. Control over prices.

2. Provision for the necessary supply of materials and commodities for civilian use, after military needs have been met.

3. Equitable distribution of those materials and commodities.

4. Protection of consumer interests.

While our objective on the supply side is that of civilian supply, it is very difficult to divorce the question of supply and price, and since the price responsibility extends to all materials the question of supply of all materials, including defense materials, must also be taken into account in many of our actions.

Let me dwell for a moment on the question of price. In the normal course of events we have all been accustomed to, thinking of the exchange of goods in terms of money. 'We exchange our goods on the basis of so much in dollars and cents, but this war has, as have all wars for that matter, broadened our concept of exchange to mean more than money. For instance, you no doubt-have read a recent article by our former ambassador to Belgium, Mr. John Cudahy, in which he related that Belgium having 175 million dollars in American gold, sought to purchase food stuffs from Russia, but to -her dismay found that she couldn't buy in terms of gold dollars but only -on the bSsis of an exchange for ceriain things that Russia wanted, such as technical machinerv. Don-t misunderstand me. I am not saying that we are about to enter into a barter arrangement, but we are going to have to change our views as to function of price in 6ur economy during the emergency. The comm-on concept during normal times is that price is a function of supply and de-mand. When the demand is greater than the-sirpply the price_ goes up, thereby furnishing an incentive foi gieater supply._.That concept of the function of price is ilready bejnq discarded, -for no matter how much higher yoir raised the price of aluminum today you would nol produce one pound more than is being produced. The same is true of zinc, cadmium, chromium, and many of the strate- gic metals for which the supply has been -commandeered for d-efense purposes. An increase in our production of aluminum, again using this as an example, bf more than 100 per _cent took place, during a period when the price remained unchanged. And as the tempo of defense ac- tivity increases and the proportion of-our total supply used for that purpose becomes greater, the function'of price as an incentive for increased supplies will diminish to the- point where it will entirely disippear. In an allout effort such as ours \Me cannot rely on indirect activity to produce the necessary supply. Supplies must be iricreased Fy mote 4itqg! action, by supplying funds on a loan basis or even building plants direiill' bv the Govern- ment-a course that now becomes necessary in certain instances.

There are great quantities of tung oil available in China at the same time that there is a scarcity of that product here. Now whether or not ships will be used to bring tung oil from China will not be determined by the price but by the value of the product to our defense effort as related to other products for which shipping space is needed. This example can be multiplied to apply to at least a dozen other articles for which there is an insufficient supply at present in this country, but of which great quantities are available in foreign ports. To increase the price of the supplies that are in this country because of the lack of ships to get more is what we would classify as speculative price rise and is profiteering.

Our job, then, is to increase as rapidly as possible our productive capacity first for the purpose of meeting our objective of all-out aid to the democracies and second to have a sufficient residue to allow the civilian population adequate supplies to maintain a normal standard of living. And we must do this in such a manner and with such judicious use of the price factor that our ends will not be defeated by a complete disruption of our economy. This brings me to the dangers of inflationary price movements. I assume that all of my hearers are sufficiently acquainted with those dangers io require no elaboration 9n my part. It is sufficient to say, I believe, that the price factor during a period when demand will be practilally unlimited can, if left uncontrolled, produce a state of chaos which will reduce our productivity. What I am try- ing to tell you is that the prlce function during this preient emergency can be only that of representing a fair exchange of goods, and what I mean by a fair exchange of goods is not the exchange of commodities at a price based on_the demand, but rather one based on ability 1o produce.

Up- to now I have said nothing about lumber, and yet that is the commodity you are most interested in. Let me apply what I have jlst said to this specific commodity. You know probably better than I do that there is great production capacity for Douglas fir on the West C-bast, but only a certain portion of that production can be moved economically because of the limited supply of low-cost transportation-specifically ocean transportation. In the normal course of events that should result in an extremely high price for Douglas fir in the eastern markets, and an extremely high ocean rate for the limited amount of shipping available. Yet we have recently prevented ship- ping companies from increasing their rate-by as much is $1 a thousand on the few remaining ships. - Our reasons for combatting this requested increase are very simple. We know that increasing the rate would not have brought out or added a single ship to the supply of space aviilable; nor would have an additional rate of $5 per thousand brought out any more space. The price -incentive in ocean shipping was absolutely gone. You are probably also aware of the fact that as a result of the shippin! situation on the West Coast tidewater mills are over-stocked and have used up all storage space available for piles of lumber which, although in demand in the eastern markets, cannot, be moved at a rate low enough to main- t"ig 1 rea_sonable price level. True, it can be moved by rail, but that means a higher price level not only for th-e fir that will be moved_ by rail, but for competing species as well. Under normal circumstances this siluation would mean a general increased price level forall lumber in the eastern markets. In order to avoid that the Office of Price Administration -and Civilian Supply has joined with the West Coast producers in a petiiibi to tlie railroads for a lower rate on green lumber moving from the Pacific Coast into the North Atlantic territory. Thus rve are attempting to decrease this cost, and by that method bring the supply to the place rvhere it is needed without using the incentive function of price. This is the step we are now taking. It is only when such indirect influences fail to solve the problem that the more drastic price ceiling is resorted to.

As you may have gathered by this time rve are not relying solely on the powers provided in the executive order to fix ceiling prices. In fact, it is only, as I have just stated, where all other efforts fail that this is resorted to.

I am happy to say that in the past we have had excellent co-operation in these indirect influences. These indirect influences vary depending upon the industry, of course. In lumber much can be done and has been done to change purchasing methods. f know that the lumber industry has much to complain of, and justly so, in the matter of methods that were pursued in the early days of the defense effort. However, it must be remembered that these regulations and indirect influences can be applied only where we have that influence such as in our co-operation with the Purchasing Division of the OPM, but this influence cannot extend to the field of private purchasing. The tendency to claim shortages as an excuse for rapid increases and the effort to sell at warehouse prices regardless of quantity because of alittle delay in obtaining straight carloads direct from manufacturers can be combatted only by the one avenue left open to us-price schedules.

I suppose that one of the foremost questions in your minds is how We determine a satisfactory price levelwhat return do we consider reasonable or non-profiteering. I cannot give you any flat formula that can bi applied tb every industry. On the whole I can say that a price based on cost plus a reasonable return should be considered satisfactory. The rub comes in a determination of reasonable return, because what may be reasonable to some may be unreasonable to others. In making this determinition many things must be taken into consideration-the history of the industry, the history of its prices, the source of capital, and the type of commodity. For instance, while som^e motor companies may have operated on a margin of 25 per cent above out-of-pocket cost, sugar and fl6ur companies, have operated on as small as 5 per cent above out-of-pocket cost.

Another important matter of concern to you is at lvhat levels will price ceilings be set ifit is neceisary to resort to price ceilings in_ t!r9 lumber industry. We must regard the practic-e of in_cluding salesmen's commissions as b"eing established, and f see no reason why it cannot be mainl tained. In talking with the Timber tontroller of Canada he told me their experience was that at first wholesalers insisted upon addinC the_r-r commission to the fixed price ceiling. This was not allowed, but the old practice ^continued. So far no one seems to be hurt bv ii. However. if it becomes necessary !o _c-arry the price ieiling one step farther into the retail field, the ceiling would probably be set on.a- percentage markup above c6st. That'p".."r,iage would be determined from cost experrence.

So far.I have spoken- largely of the objectives of our othce-what we are- doing and what we hope to do. I should like to.say a few words now about lvhai you can do. -I'he job of the salesman, particu-larly the lumber sales_ man, is certainly changing in a situaiion such as we are facing today. Your job in the past has been to find buvers for_ a surplus of commodities already created. yotr (a"" had cut-throat competition to face and there has b;";;; lack of supplies !q m.eet.the buyers' demands. B;i y;; are now faced rvith.the.job of iompeting fo, suppiiJs_ not buyers. And this will become more'the .u.d'in ihu future than in the past, for f can foresee tfrat a iuli year's production may very easily be allocateJ n"r.r"-ii