Export Demand Lifts Prices

November 17, 1947

In his radio address of Oct. 24, President Truman declared: “An attempt has been made to place the blame [for higher prices] upon our foreign aid program, but this is not borne out by the facts.” His own economic agencies think otherwise. The Bureau of Agricultural Economics tells us that export demands have “generally helped to hold up” farm prices. The Council of Economic Advisers admits that “the increase in exports” in the second quarter of 1947 “undoubtedly affected the price level during this period.” It adds that “the large foreign requirements have undoubtedly been a factor in the price rise” not merely of grains but of livestock and other food products. That our export and foreign aid program has raised food prices here, therefore, ought to be beyond controversy.

But for how much of the rise has export demand been responsible? Here is a more difficult question. It cannot be answered merely by citing statistics. In the 1946–47 fiscal year our exports of wheat amounted to 34 percent of our 1946 production. The wholesale price between May 1946 and May 1947 increased 47 percent. But in the same period (according to the National Industrial Conference Board) our exports of all meats amounted to only a little more than 2 percent of our production. And their average wholesale price jumped 85 percent. Does this mean that our export program was irrelevant to the jump in meat prices?

Only those who are unfamiliar both with foodstuff markets and with the way in which supply and demand are really related will draw such a conclusion. If 100 houses are wanted by only 99 families, one house must go empty; if they are wanted by 101 families, one family may be left in the cold. The demand will have gone up only 2 percent; but the consequent increase in rents may be 20, 50, or even 100 percent. A collector at an auction may pick up a painting, if no one else there particularly wants it, for $100; but other determined bidders may force him to pay $1,000. He gets the whole painting; he does not share any percentage of it whatever with the other bidders. Yet their bidding has forced up the price on him by 900 percent.

In less extreme degree these principles apply to the present situation in meat. It is impossible to tell from the actual percentage of exports what the real effect of export demand has been on the price. Meat prices, moreover, depend not merely on meat exports but on grain exports. When prices of feed-stuffs are forced up prices of meat must soon or late rise also. Grain is fed to animals only insofar as that remains a profitable procedure. Again, expected future exports of grains and meat are as much a factor in present prices as past exports. Finally, to produce our export surplus, wages and profits are paid out which can only be used to bid up prices of the goods that remain at home.

The President’s Council of Economic Advisers tries to belittle the effect of the export surplus by comparing it with the gross national product. It declares that “the high foreign demand has added to the inflationary pressure on prices, but the much larger domestic demand has been the principal cause of the upward pressure.” But such statements leave the real question unanswered. They are like saying, in our rent illustration, that the first 99 families have more effect on rents than the last two families. Such a statement would doubtless be true enough even if the marginal addition of the last two families raised rents, as it might, by 50 percent or more. But the real question now is: Would food and other prices have gone up at all in the last nine months, or would they have gone up even half as much as they did in that period, if it had not been for the unprecedented export demand financed by our foreign aid program?

No one can answer such a question with exact percentages. But I submit that our unparalleled export surplus, two-thirds of which has been paid for by our own government, is a major inflationary force at the present moment. It is not a service to the American people to attempt to present it as a negligible factor.