6 - The Korean War

Summary

At the present time, we are beginning to impose price and wage controls. Extension of such controls now appears inescapable. To administer such controls, as well as to promote effective voluntary cooperation, price and wage specialists are being recruited and offices are being opened in various cities as rapidly as they can be manned.

Harry S. Truman, January 15, 1951

The crisis

On June 25, 1950 North Korea invaded South Korea. One of the consequences of this action, and of the American response, was a wave of inflation and speculative hoarding on the American home front that would soon produce a call for extensive wage and price controls. President Truman responded quickly to the invasion by authorizing the use of U.S. troops and ordering air strikes and a naval blockade. He did not, however, seek a declaration of war, or call for full mobilization, in part because such actions might have been misinterpreted by Russia and China. Instead, on July 19 he called for partial mobilization and asked Congress for an appropriation of $10 billion for the war. The reluctance to mobilize fully and to embrace across-the-board controls was reinforced by Leon Keyserling of the newly formed Council of Economic Advisors, who argued that price controls at that time would interfere with the expansion of production, the only real hope, as he saw it, for avoiding inflation.

Military events also delayed imposition of across-the-board controls. The Inchon landing and related actions undertaken in the latter half of September created the expectation of an early end to the war.