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.33 The Treasury Federal ReserveAccord was expected to relieve inflationary pressures in two ways.First, it would signal to the public that the Federal Reserve was readyto fight inflation through tighter credit, which would, in turn, dampeninflationary expectations.Second, by reducing the cash value of gov-ernment bonds, the public would be encouraged to increase savings,diminishing the likelihood of unnecessary buying.34As it turned out, however, the threat of further inflation proved tobe largely illusionary.As early as late February, the inflation rate hadnoticeably slowed.Continuing good news from the Korean front, talkof peace initiatives, record business inventories, and delays in defenseproduction schedules all helped break the inflation.This was certainlygood news for American consumers; it was less so for administrationofficials.Pointing out that the defense program would not reach criticalmass until sometime in the third or fourth quarter of the year, theywarned that the inflationary lull was only temporary.Administrationofficials clearly believed that inflation was still enemy number one.One of Eric Johnston s associates at the ESA asked the rhetorical ques-tion: (W)hich is our biggest enemy inflation or Russia? The answerappeared obvious: inflation. As Lenin observed, the memo contin-ued, a debauched currency is the easiest way to destroy a capitalistcountry. What mobilization officials feared most was that the slowingof inflation would bring with it a false sense of confidence among thepublic and the Congress alike.They were concerned that the lull wouldconvince the public that controls were no longer needed and would33.Joint Announcement by the Secretary of the Treasury and the Chairman of theBoard of Governors, and of the Open Market Committee, of the Federal Reserve System,March 4, 1951, President s Secretary s Files, box 144, file: Federal Reserve Board, HSTL;Hickman, Growth and Stability, 337; Business Week (February 10, 1951): 148.34.Rockoff, Drastic Measures, 187. 100 / Truman and Koreaprod Congress into diluting the Defense Production Act, which wasscheduled for extension in June.35The extent to which price and wage controls and economic stabiliza-tion in general affected the inflation rate is difficult to quantify.To acertain degree, the psychological impact alone of the price-and-wagefreeze undoubtedly contributed to the easing of inflation.Realizingthat the administration was serious in its fight against inflation, andsensing that shortages were not in the immediate future, consumersconcluded that there was no need to panic; buying out supplies andhoarding them were no longer necessary.In retrospect, it is clear thatthe two most active periods of Korean inflation (June September 1950and December 1950 February 1951) were not principally caused byincreased military spending, for defense orders did not begin to cutinto the civilian economy until the third quarter of 1951.Instead, for-ward buying of consumers and businessmen brought about these twoperiods of expectationary inflation.The deflationary trend that beganin March, then, was precipitated by unusually large inventories thathad been accumulating over the previous six months, combined withthe break in consumer expectations of more inflation.Yet the economycontinued to boom because, as economist Bert Hickman has observed,the decline in civilian spending was almost perfectly offset by the risein defense spending. For a time, Hickman notes, it was as thoughtwo economies existed side by side without touching. 36These positive developments were better than anyone would havedared to hope for only a few months before.But now the Trumanadministration found itself in the untenable position of insisting ontighter controls during a period of booming prosperity and lowerinflation.As a result, the public s confusion and frustration with themobilization program mounted.In an attempt to quell the negative tide of public opinion, several mo-bilization agencies, including the ESA, commissioned private studiesin the early spring of 1951 to measure public opinion.The polls indi-35. Is Deflation in the Winds? Newsweek 37 (March 26, 1951): 73 74; MonthlyEconomic Report, March 9, 1951, President s Secretary s File, box 143, file: Councilof Economic Advisers, Reports, HSTL; Cabinet Meeting, March 20, 1951, Papers ofMatthew J.Connelly, box 2, file: Notes on Cabinet Meetings, 1951, 2 January 31December, HSTL; Radio Transcript, April 6, 1951, Talk by Eric Johnston, RG 296, box19, NA.For quotation, see Memorandum to Mr.Eric Johnston, March 12, 1951, RG 296,Letters, Memoranda of Eric Johnston, ESA, box 98, NA.36.Hickman, Growth and Stability, 91 92. Labor s Cold Shoulder / 101cated a badly confused and divided populace.Most found the publicdissatisfied with the progress of the rearmament effort especially eco-nomic stabilization.And people blamed Washington for the perceivedfailure.Yet those polled appeared unwilling to allow the government totake stronger measures.Administration officials, in an effort to reshapepublic opinion and to bolster support for the administration s mobiliza-tion programs, tried repeatedly to launch public relations campaigns toblunt the criticism.One such attempt was quintessentially corporatist.On March 12 John T.O Brien, an information officer attached to theWhite House, suggested that the administration establish an industryadvisory board, consisting of about twenty top news executives.representing all media and regional viewpoints whose job would beto mold public perceptions of Korea and the mobilization program.Theambiguous and ever-changing military and economic goals, however,made such attempts nearly impossible.Once again, the Herculean taskof maintaining high public morale and support over an extended periodduring a limited war seemed to elude both the Truman administrationand the many corporate executives who were continually advising thegovernment
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