Business: Boom, Shortages, Taxes, War

The U.S. economy has just finished the most active and productive year in its history. Impelled by Government spending which last month reached a level of $72,000,000* each business day, the national income reached an alltime high and so did industrial production. War materials replaced everything else as the nation's No. i industry. It began to put other industries out of business.

Yet when war came at last, the U.S. suddenly realized that its vast new industry had not prepared it for war at all. It was still just another industry, a peripheral hubbub, an invasion of the economy whose deepest salient was 17%. When it entered the war the U.S. still had an economy. It did not have what its enemies have: a total war machine.

The central controls of that economy, which in 1940 passed from business to Washington (TIME, Dec. 30, 1940), in 1941 bounced through Washington's streets like a red-hot football. They rolled from the White House to the Social Security Building to the Capitol and back again; but nobody fell on the ball. Washington had undertaken to replace business, as the source of power, but organization did not replace freedom, nor mastery drift.

The policy of Franklin Roosevelt in 1941 was not total defense, but all-aid-short-of-war-to-the-allies. That policy became obsolete on Dec. 7, but it gave its tone to business in 1941. Washington spent defense money at a record rate. A war industry was launched which made itself felt in the life of virtually every U.S. citizen. Some of them felt it as unemployment, the victims of priorities; but most of them felt it as an unexampled prosperity. The Administration's Cato, Walter Lippmann, was moved to characterize 1941 last week as "this disgraceful boom."

Money. In 1940 Washington split Business' money-power atom, taking the power but leaving business free to make money. In 1941 Business made plenty of money (even, to its surprise, after taxes). But for the individual businessman the money, thanks to the personal income tax, began to lose its value.

Furthermore the butter, so golden and freshly churned, was by autumn melting off the arms boom. For the first time in 24 years, the Land of Plenty confronted shortages.

The people had more money to spend than ever before in their lives. Total retail sales for the year were more than $54,000,000,000, which was $10,000,000,000 more than 1940 and $6,000,000,000 more than 1929. Since all retail prices (thanks to Leon Henderson) rose no more than 8%, the country lived better in 1941 than it ever had before.

Yet before the year was over, all this money was losing its value just as surely as though the inflation had been of an obvious, free-price type. For there got to be fewer & fewer things, especially durable things, the people could buy. Building, hardware, automobiles, were all under restriction by fall. Before inflation really got started, rationing set in.

Outstanding installment credit reached an alltime peak of $6 billions in August, just before the FRB put restrictions on it.