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The Newburyport Anti-Inflation Plan – Podcast #188

Let’s dive into today’s story, which is a very timely one.  That’s because the prices on almost everything seem to be out of control lately.  That dreaded thing called inflation is taking a bigger chunk of our paychecks with each passing week.

Since the end of World War II, there have been six other periods where inflation, as measured by the Consumer Price Index (CPI), has been 5% or higher. Each inflationary period is different, but the one that we are experiencing right now is thought by many economists to most closely parallel what happened shortly after World War II ended.

During the war, households were very limited as to what they could purchase. Factories were geared up for military production, meaning that there was a shortage of most household goods. Both rationing and price controls were used to keep prices under control.

Then the war ended, and the soldiers returned home, creating a sudden demand for nonexistent goods. Forget buying a car, radio, or washing machine.  They were impossible to find. It took time for the factories that were geared up for the war to retool. Unable to purchase goods, personal savings began to balloon.  Now flush with cash, many considered buying a home or finding a nice apartment.  That was also nearly impossible because few new buildings were erected from the time of the Great Depression through the end of the war. It was the perfect recipe for high inflation: demand for goods far exceeded supply, price controls were lifted, there was a severe shortage of housing, and people were in the mood to spend.

Let me first throw some numbers at you so that you can get a feel for how bad inflation was back then.  For all of 1945, the last year of World War II, inflation was a reasonable 2.3%. Yet by December of 1946, it had jumped to 18%, peaking four months later, in March 1947 at 20%.  Many were certain that a recession was fast approaching and were hoping that it wouldn’t turn into another Great Depression.

Something needed to be done, but, just like today, there never seem to be any good solutions.  The federal government does have some tools to help ease inflation, such as raising interest rates or increasing taxes, but they usually inflict financial pain on those who can least afford it.

During the spring of 1947, President Harry S. Truman made repeated requests to manufacturers, distributors, and retailers to do all they possibly could to lower prices.  But that is far easier said than done.

Well, one town decided to take matters into its own hands.  On Thursday, April 17, 1947, a special meeting of the Newburyport Retail Merchants Division of the Northeast Essex Development Council was called at City Hall in Newburyport, Massachusetts.  There, hardware store proprietor John E. Swanson offered up a simple solution to the ever-increasing prices of goods. A discussion among the members took place, some modifications were suggested, and they voted to give it a try for ten days. If successful, they would extend the program indefinitely.

John E. Swanson, father of the Newburyport Plan.
John E. Swanson, father of the Newburyport Plan. Image appeared on page 104 of the May 8, 1947 edition of Hardware Age.

They were so proud of what they had come up with that council president Thomas E. Littlefield fired off a telegram to President Truman summarizing the details of their “Newburyport Plan.” It read:

“Newburyport is rushing plans to make effective your appeal for lower prices. A spontaneous movement is under way here to roll back retail prices to the consumer on a city-wide basis, embracing all goods and services wherever possible.

“Our retailers are pledging themselves (1) to support our Government and to start the trend toward lower prices; (2) to reduce our prices on goods and services and refund to the customer 10 per cent whenever possible; (3) to notify our suppliers that we are dropping our prices and that we expect them to do likewise; (4) to be sincere in this effort and not to take advantage of shortages or non-competitive items to raise prices, and (5) to refuse to buy merchandise for resale that in our opinion is too high.

“It is our hope that the Newburyport plan will lead the nation helping to stabilize our economy. The plan will go into effect next week and we will advise you of all details.”

Production Up, Prices Down. Newburyport Plan

Copies of this telegram were sent to Massachusetts Representative George J. Bates and Senators Henry Cabot Lodge Jr. and Leverett Saltonstall.  The message was also forwarded to various chambers of commerce across the nation, suggesting that they adopt similar plans.

It was a very simple idea: cut retail prices by 10% wherever possible, pressure suppliers to lower their prices, and if cities and towns across the country did the same, inflation would be stopped dead in its tracks.

Norman J. Randell, executive secretary of the Development Council remarked that “everyone was blaming everyone else for higher prices with no one taking the initiative. So this is Newburyport’s way of taking the first step.”

On Monday, April 21, 1947, the day before the price cuts were to begin, the front page of the Newburyport Daily News featured the headline, “The Newburyport Plan—Let’s All Support It!”  The story beneath it reads, in part:

“Primarily, ‘The Newburyport Plan’ for a 10 percent price reduction on all permissible goods and services, effective here tomorrow, has been devised to help you, the consumer, to buy some things you want, at figures below the unprecedentedly high levels which have been reached in the post-war inflation spiral.

“It is also geared to help your neighbor, the merchant, who has begun to suffer through public resistance to high prices and mounting inventories.

“In a larger, more idealized sense, the plan may be regarded as the spearhead of a national movement to adjust an economic machine, seriously out of balance. Widespread recognition of ‘The Newburyport Plan’ will make our city famous as the place where a great idea was originated and developed. Who knows how far-reaching, how momentous the results may be!

“The public has a serious responsibility in helping make the plan work. If the public fails to respond ‘The Newburyport Plan’ will go down in history as a flop and a folly. We can’t let that happen! It won’t happen!”

A small billboard was erected to announce that a meeting was planned for that evening at City Hall. It was the reproduction of a Western Union Telegram sent off to President Truman earlier in the day.  “We hear via radio Washington stores have followed the Newburyport Plan to lower prices. Would appreciate your endorsement to our plan for rally tonight.” It was signed by Norman J. Randell, Executive Secretary, Northeast Essex Development Council.

While they didn’t get that endorsement, the meeting went on as planned. More than 400 people, predominantly male, crowded into the City Hall auditorium to learn more. Richard Cole, a reporter for the Boston office of the Wall Street Journal, declared that “Probably a shot is being fired here that is going to be heard throughout merchandising circles.” As with the majority of those in the audience, he felt that “The Newburyport Plan could have wide reverberations,” and added, “All of us could be in on something of national significance.”

The next morning, the 15,000 residents of this coastal city awoke to find that they were the center of national attention.  Photographers and reporters were seemingly everywhere. All of the major papers, including Time and Life magazines, came to report on what was happening. Even a Pathe newsreel was filmed. And what everyone found was that sales were being held in just about every retail establishment in Newburyport. A full-page cooperative ad on page three of the Newburyport Daily News listed the more than one hundred merchants who had agreed to lower their prices.  The next day, another ten who had missed the print deadline were added to the list.

The Newburyport Merchants Division of the Northeast Essex Development Company placed this full-page ad on page 3 of the April 22, 1947 edition of the Newburyport Daily News.
The Newburyport Merchants Division of the Northeast Essex Development Company placed this full-page ad on page 3 of the April 22, 1947 edition of the Newburyport Daily News.

Overhead signs announcing the Newburyport Plan were hung over State Street, Storey Avenue, and Pleasant Streets, while wooden signs were erected at the city’s traffic circle and in other locations. Storeowners placed banners in their windows: “O K Mr. President, We’re With You,” and “Leading the Way in Lowering Prices and Fighting Inflation.”

All this publicity was great for Newburyport, but the big question was whether any customers would show up.  A 10% discount is unlikely to get anyone into a store today, so was it enough back in 1947?

You bet it was.

While Tuesdays are typically the slowest day of the week for retail businesses, shoppers flocked into Newburyport in large numbers.  While some stores only saw moderate sales increases, others reported that sales were up anywhere from 30% to 100%. The items in highest demand were reported to be men’s furnishings and automobile supplies.

As the weekend approached, more and more people crowded into the stores. Kray’s Men’s Shop reported sales 100% above normal, while their women’s store was doing 200% more. The Lincoln department stores decided to follow the Newburyport Plan at all fifteen of its locations and claimed sales for that Thursday were 110% above normal. The L. L. Peavey hardware store – owned by John Swanson, the brainchild behind the Newburyport Plan, reported that sales were up 45%. It was the same thing with other businesses: drug stores up 40% to 60% and jewelry stores up 40%.

Advertisement for the Newburyport Lumber Company that appeared on page 3 of the April 25, 1947 edition of the Newburyport Daily News.

Yet, the key to the Newburyport Plan being a success was having other towns and cities do the same.  Just having one town lower its prices by 10% was simply not enough to force suppliers and manufacturers to follow suit.

The first town to agree to the plan was Amesbury, Massachusetts (population 10,000 in 1947), which just happens to be the city directly north of Newburyport. This was followed by Leominster (population 22,000) and then Brockton (population = 63,000). Spring Valley became the first New York municipality to follow Newburyport’s lead.

It just spread from there.  Communities across the country adopted the plan, including, but not limited to, Old Town, Maine; Multnomah, Oregon, Chester, Pennsylvania, and Elgin, Illinois.

Then there were a large number of municipalities that had the Newburyport plan under consideration: Toledo, Ohio; Great Neck, Long Island; New Haven, Connecticut; Danville, Kentucky, Newport, Rhode Island, suburban Philadelphia, and many more.

One place that had no interest in the Newburyport plan was Portsmouth, New Hampshire, which lies about 20 miles (32 km) to the north.  Their Chamber of Commerce president, Harry Clarke, stated, “Newburyport is just engaging in a publicity stunt, a stunt worth millions of dollars.” He added that the businessmen there “are just seizing an opportunity to conduct some sales.”

The Newburyport Plan did not expect retailers to absorb the 10% loss on each sale indefinitely.  Instead, the hope was that the retailers would pressure the suppliers and manufacturers to lower their prices. To accomplish this goal, the retailers began to send out form letters to their suppliers, requesting price reductions.

Advertisement for Shannon's that appeared on page 1 of the April 24, 1947, issue of the Newburyport Daily News
Advertisement for Shannon’s that appeared on page 1 of the April 24, 1947 issue of the Newburyport Daily News.

The first large company to agree to price cuts was Lever Brothers, who agreed to cut the price on a number of their household goods by the 10%.  That included Lux toilet soap, Lux soap flakes, Rinso, Lifebuoy, and Swan soaps. These were all very popular products back in 1947, so it was a big step in the right direction.  Shortly after this, Colgate—Palmolive—Peet announced that they would offer the same discount on their soap products. A day later, Procter & Gamble did the same. Cannon Mills, perhaps the largest manufacturer of linens and towels in the world at the time, also reduced their prices by 10%. And here’s a bargain: DuPont lowered the cost of the now-banned DDT by 10%. But my favorite was The Doughnut Corporation of America informed Bob Campbell, who was known as the State Street Doughnut King, that they were reducing his costs by 10%.

As all this was unfolding in Newburyport, word began to spread around Washington that details of the plan should be looked at. Senator Saltonstall, who was sent a copy of that initial telegram to President Truman, cabled back that he was bringing the Newburyport Plan to the attention of the White House.

A few days after the Newburyport Plan got underway, John R. Steelman, Assistant to the President of the United States (now referred to as White House Chief of Staff), wired the following message to the Northeast Essex Development Council’s office at 12 Pleasant Street: “On behalf of the President, I wish to congratulate the city of Newburyport on inaugurating a city-wide plan for reducing prices. It is gratifying to know that other cities in your area are considering similar action. Your cooperation is very much appreciated.”

Vermont Senator Ralph E. Flanders also expressed interest in the Newburyport Plan. He requested that the Development Council prepare a report and forward it to him.  While just six days into their ten-day trial period, they happily prepared the report and sent it to Washington via airmail. As a member of the Committee for Economic Development, Flanders agreed to conduct hearings on the plan the following week, although it is unclear if that ever happened.

Development Council secretary Randell was thrilled that this was happening.  “Democracy is working in Newburyport,” he declared.  “The plan was designed for the little people and the grassroots information is taking hold across the nation.”

Customers crowd around a counter in a Newburyport retail store.
Customers crowd around a counter in a Newburyport retail store. Image appeared on page 13 of the May 21, 1947 edition of Pathfinder.

Before I reveal the final impact of the Newburyport Plan and whether something similar should be considered today to tackle inflation, let me first share some of my favorite advertisements with you:

“Mr. and Mrs. America, On your cooperation depends the success of this worthy experience of lowering the cost of living. Buy Now — Support and Encourage our Newburyport Plan and we will have nation-wide economy and prosperity instead of depression and disaster. You are backing your government when you’re backing our Newburyport Plan. Hyman’s, Corner Merrimack and Green St., Newburyport.”

Advertisement for Hyman's that appeared on page 6 of the April 22, 1947 edition of the Newburyport Daily News.
Advertisement for Hyman’s that appeared on page 6 of the April 22, 1947 edition of the Newburyport Daily News.

“We’re Falling in Line with the Newburyport Plan; 10% off Steak – Chicken – Lobster and other foods. Shannon’s. Route 1, Lafayette Road, Salisbury.”

“10% Reduction On Concrete; 15% Reduction For Veterans of World War II; Gilday—Morrison Co. (Concrete Boys) Newburyport Turnpike, Newbury.”

“The Newburyport Plan; In answer to our government and President Truman’s call for lower prices… Lampson’s, Inc., Boston’s Largest Chain of Haberdashers-Clothiers announces a 10% Cut on Everything. Everything in our five stores, and we mean everything… Shirts, Ties, Underwear, Hosiery, Pajamas, Sweaters, Jackets, Hats, Raincoats, Suits, Topcoats, Etc., Etc.”

“Attention Homeowners!! Price Reductions Better than The Newburyport Plan. Johns—Manville Asbestos Sidewalls and Asphalt Roofing.”

The ten-day trial period of the Newburyport Plan was set to expire on May 1, 1947, so the merchants met that evening to determine whether they should continue it or not. There was some discussion as to why some businesses were unable to do so.  For example, Frank Pond, a Merrimack Street grocer, pointed out that he operated on an 18% margin, but his overhead was 15%. He would be forced out of business if he was to continue his participation. But, in the end, a vote was taken among the sixty-five men present: they unanimously agreed to continue with the Newburyport Plan indefinitely but made it clear that merchants unable to financially do so, did not have to participate.

Fruit dealer in Newburyport, Massachusetts, posts notice of cooperation with lower prices campaign.
Fruit dealer in Newburyport, Massachusetts, posts notice of cooperation with lower prices campaign. Image appeared on page 4 of the May 19, 1947 issue of Junior Scholastic.

But a storm was brewing. That’s because suppliers and manufacturers were willing to offer discounts for the ten-day trial period, but no longer. In addition, these lower prices were for Newburyport merchants only. Other towns had far less success in convincing their suppliers to do the same. Newburyport retailers had mailed 8,000 letters to suppliers requesting discounts and an estimated 90% agreed to do so. Hingham, Massachusetts mailed approximately 1,500 similar letters, and according to Hingham Chamber of Commerce chairman John A. Bunyan, “Only four or five favorable replies were received.”

Retailers who participated in offering the 10% discount often found that they could only restock what they had sold at a much higher cost. Macy’s department store in New York rejected the plan outright. So did the National Association of Furniture Manufacturers, General Electric, and the American Retail Federation. Organized labor shied away because they feared that widespread adoption of the Newburyport Plan would interfere with their efforts to secure a 15% raise. The ongoing supply shortages allowed manufacturers to set the retail price and they threatened to cut any retailer who sold below it. On top of that, on May 5, 1947, Massachusetts Governor Robert F. Bradford proposed that the state increase its sales, gas, and business taxes to make up for budget shortfalls.

John Swanson posts a sign on the L. L. Peavy Hardware Co. window that tells its own story to Newburyport.
John Swanson posts a sign on the L. L. Peavy Hardware Co. window that tells its own story to Newburyport. Image appeared on page 105 of the May 8, 1947 edition of Hardware Age.

The Newburyport plan was doomed. Less than one month after the plan had been set in motion, most of the discount signs had been taken down. One by one, each retailer quietly withdrew from the program. The last person to admit defeat was John Swanson, the father of the plan. He tried to keep it alive by offering the 10% discount in his hardware store every Tuesday but took his sign down for good during the first week of September.

Not even the Northeast Essex Development Council, the plan’s sponsor, lasted as long as Swanson.  They decided to disband on July 11, 1947, following a membership drive that Council president Thomas Littlefield described as “a dismal failure.”

Yet Swanson and many others were confident that the Newburyport Plan did a lot of good. Psychologically, it gave consumers the feeling that something was being done to rein in inflation, even if the plan had minimal effect in lowering prices nationally. Plus, it showed the buying public that retailers were friend not foe, and were working with them to bring down prices.

I’ll leave you with one additional statement that the Development Council issued before its demise: “They say that we did not succeed in our purpose, that it is not economically possible to succeed. We say that we did succeed. We alone held back prices for a brief spell over a small area.”

Useless? Useful? I’ll leave that for you to decide.

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