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1946 EXTENSION OF THE EMERGENCY PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED HEARINGS BEFORE THE COMMITTEE ON BANKING AND CURRENCY HOUSE OF REPRESENTATIVES S E V E N T Y - N I N T H C O N G R E S S SECOND SESSION ON H. R. 5270 A BILL TO A M E N D THE E M E R G E N C Y PRICE CONTROL ACT OF 1942, AS A M E N D E D , A N D THE STABILIZATION ACT OF 1942, AS A M E N D E D , A N D FOR OTHER PURPOSES VOLUME I FEBRUARY 18, 19, 20, 25, 27, 28; MARCH 1, 5, 6, 7, 8, 9, 11, 12, 13, 14, 15, 18, 19, 1946 Printed for the use of the Committee on Banking and Currency UNITED STATES GOVERNMENT PRINTING OFFICE W A S H I N G T O N : 194K COMMITTEE ON BANKING AND CURRENCY B R E N T S P E N C E , Kentucky, Chairman P A U L B R O W N , Georgia W R I G H T P A T M A N , Texas W I L L I A M B. B A R R Y , New York A . S. M I K E M O N R O N E Y , Oklahoma J O H N H . F O L G E R , North Carolina H . S T R E E T T B A L D W I N , Maryland B R O O K S H A Y S , Arkansas D A N I E L K . H O C H , Pennsylvania G E O R G E E. O U T L A N D , California W I L L I A M R . T H O M , Ohio P E T E R A . Q U I N N , New York C H A S E G O I N G W O O D H O U S E , Connecticut J O H N J. R I L E Y , South Carolina A L B E R T R A I N S , Alabama JESSE P. W O L C O T T , Michigan F R E D L. C R A W F O R D , Michigan R A L P H A. G A M B L E , New York JESSIE S U M N E R , Illinois F R E D E R I C K C. S M I T H , Ohio JOHN C. K U N K L E , Pennsylvania H E N R Y O. T A L L E , Iowa F R A N K L. S U N D S T R O M , New Jersey C L A R E N C E E. K I L B U R N , New York H O W A R D H. B U F F E T T , Nebraska D . E M M E R T B R U M B A U G H , Pennsylvania M E R L I N H U L L , Wisconsin WILLIAM J. HALLAHAN, M A R G A R E T H . SMITH, Assistant n Clerk Clerk CONTENTS Statement of— Page Alexander, John, Jr., National Retail Lumber Dealers Association 917 Allred, Hon. James V., former Governor of Texas 367 Anderson, Hon. Clinton P., Secretary of the Department of Agriculture 333, 352 Barrett, Mrs. Linnie W., of Dallas, Tex 491 Bechhold, S., on behalf of South Florida Canners' Association, Florida 776 Besse, Arthur, president, National Association of Wool Manufacturers, 673 Bowles, Chester, Director of Stabilization 4, 97, 125 Brownlee, James F., Office of Economic Stabilisation 311, 331 Carey, James B., secretary-treasurer, Congress of Industrial Organizations * 377 Dressier, George, national secretary, National Association of Retail Meat Dealers of Chicago 708 Eccles, Marriner S., Chairman, Federal Reserve Board 169 Elliman, Douglas, New York City, real estate agent 488 Elsev, Brodehurst, secretary-treasurer, Indianapolis Glove Co 889 Engiar, George M., president, National Apartment Owners Association. 472 Farr, "William D., secretary, Colorado and Nebraska Lamb Feeders Association 740 Farrington, C. L., of Indianapolis, Ind., National Livestock Exchange772 Flanders, Ralph E., president, Federal Reserve Bank of Boston, chairman of Jones & Lamson Mailing Co., of Springfield, Vt., and chairman of the research committee of the Committee for Economic Development 231 Frawley, J. E., president, American Hotel Association 852 Goss, Albert S., Master, National Grange „ 397 Holman, Charles W., secretary, National Cooperative Milk Producers Federation 934 Houghten, C. T., president, Good Luck Glove Co., Carbondale, 111 894 Howe, D. K., of Omaha, Nebr., representing the American Butter Institute 952 Hurtz, L. E., chairman of the Dairy Industry Committee 949 Kaiser, Henry J 254 Kelly, William J., president, Kelly Steel Works; Oscar E. Kiessling, secretary, Machinery Institute; George H. Houston, George H. Houston & Co., New York; R. E. LeBlond, president, the R. K. LeBlond Machine Tool Co., Cincinnati; E. J. Schwarhausser, vice president, Worthington Pump & Machinery Corp., Harrison, N. J.; Guy A. Wainwright, president, Diamond Chain Co., Inc., Indianapolis 499 Koppel, Arthur D., vice chairman, Metropolitan Fair Rent Committee, New York 441 Mason, A. H., executive vice president, W^ells Lamont Corp., Chicago, 111 902 McCargo, WTade, part owner and manager, H. V. Baldwin & Co., Richmond, Va 664 Milnor, Bennett, president of Wood-Harmon Corp 498 Nystrom, Dr. Paul H., president, Limited Price Vaiiety Stores Association, New York City 551 O'Brien, Daniel J., treasurer, American Hotel Association 847 O'Dwyer, Hon. William, mayor of the city of New York 389 O'Neal, Edward A., president, American Farm Bureau Federation 746 Owen, H. T., Alexandria, La 537 in IV CONTENTS Statement of—Continued Page Page, Walter, evaporated milk member of the Dairy Industry Committee 961 Petersen, J. C., representing the feeder section of the National Lamb Industry Committee 704 Porter, Paul, Administrator of the Office of Price Administration; James G. Rogers, Deputy Administrator; Zenas L. Potter, Richard Field, general counsel; Geoffrey Baker, Deputy Administrator; Stephen Ailes, assistant general counsel 53 Porter, Paul, - Administrator of the Office of Price Administration; Zenas L. Potter, Director, Office of Congressional Information; Geoffrey Baker, Deputy Administrator; Stephen Ailes, assistant general counsel; Sam Levittes, Director, Consumer Goods Division-_ 101 Rimsburg, Ozzie, of St. Paul Union Stockyards Co., of south St, Paul, Minn 770 Rothrock, W. J., secretary, Southern Florida Canners Association 780 Seidel, Robert A., vice president, and comptroller of W. T. Grant Co., director of National Retail Dry Goods Association 578, 649 Sherrard, Glen wood J., chairman, board of directors, American Hotel Association 844 Small, John D., administrator, Civilian Production Administration 279 Smith, A. A., Sterling Colo., American National Livestock Federation 733 Smith, J. Francis, the National Retail Lumber Dealers Association 907 Smith, Patrick J., attorney, Indianapolis, Ind 879, 885 Snyder, John W., Director of War Mobilization and Reconversion 209 Stokes, T. R., chairman of the executive committee of the Boss Manufacturing Co., Kewanee, 111 893 Taylor, Jay T., Amarillo, Tex., on behalf of joint livestock committee 721 Vaughn, Howard, California Wool Growers Association, California 696 Wason, Robert, president, National Association of Manufacturers 795 Wicker, John J., Jr., general counsel of Virginia Hotel Association 861 Wilson, J. B., secretary, Wyoming Wool Growers, and chairman, legislative committee, National Wool Growers Association 713 Younglas, Webster City, Iowa, president of the Iowa Swine Producers Association 738 Zimmerman, George H., vice president of William Cameron & Co 926 Briefs, letters, statements, etc., submitted for the record: Advertisement of the National Manufacturers Association 70 American Farm Bureau chart on how to reduce personal income taxes in 1946 by 17 percent (?) 754 Bank purchases of securities directly from United States Treasury 192 Borwick, Harry G., article, Half of Items Freed of Price Controls Fail to Advance, etc 815 Bowles, Chester, letter to Hon. Brent Spence concerning Henry Ford II; also 6 enclosures 128 Brownlee, James F., and Ralph E. Flanders, letters to Hon. Brent Spence 253 Caught in the housing shortage 476 Considerations involved in the issuance of amendment 13 to revised price schedule No. 6 37 Cornell University data on cash and noncash costs in dairy farming, exhibit B 943 Document No. 46145, Part 1306, Iron and Steel 21 Document No. 52890, Part 1306, Iron and Steel (corrected copy) 46 Dun & Bradstreet's, list of business failures by industrial groups, 1939, 1944, and 1945 112 Dun & Bradstreets' list of Federal debt and business failures, 1914-45. 120 Earnings in manufacturing and in agriculture, 1939-45 160 Elliott, E. Glenn, affidavit 1 904 Emergency Price Control Act of 1942, act of January 30, 1942 (Ch. 26, 56 Stat. 23), as amended, etc 885 Estimates of the annual administrative costs of the food subsidy programs 145 Executive Order 9638 305 CONTENTS V Briefs, letters, statements, etc.—Continued Page F.,& N. Lawn Mower Co., letter to their customers 637 Farm Bureau Federation resolution passed in December 1945 747 Federal Register report (MPR 188, Order 3897), Michigan Electrical laboratories 629 Federal Register (MPR 188, Order 4327) on Sun-Ray Appliance Co_. 610 Federal Register insert (MPR 188, Order 4345), Jamaica Machine Co 650 Federal Register report (MPR 188, Order 4435), Detroit Appliance Manufacturing Co 632 Federal Register insert (MPR 188, Order 4614), Lexington Machinery & Development Co _ 640 Federal Register (MPR 188, Order 4723), on General Electric Co 611 Federal Register insert (MPR 188, Rev. Order 4723), General Electric Co 612 Fischbach, H. I., amendment to Office of Price Administration 635 Ford, Henry II, telegram to Hon. Brent Spence 126 Hamilton Steel Products, Inc., letter to customers 643 Hatch Textile Research, tests 588, 590-595 Horror exhibit by NRDGA 655 How far out of line is the present ceiling on butter prices? Exhibit A_ _ 957 Liquid assets 193 Mansfield, Harvey C., price executive, Durable Goods Price Branch, Office of Price Administration, letter to Mr. R. A. Seidel, vice president and comptroller, W. T. Grant Co., New York City 626 Maximum average price directives for the record by Mr. J. Bryon Wilson 716 Maximum prices for domestic shorn wool, from Harding F. Bancroft to David Cobb 714 Murray, Philip, president, CIO, statement to Chester Bowles 377 National Cooperative Milk Producers' Federation list of voting members and resolutions passed in Chicago, exhibit A 935 Northern California district office quiz to school children 672 Ohio Window Glass Co., letter to customers 644 Oklahoma Hotel Association, letter to Hon. A. S. Mike Monroney 877 Potter, Zenas L., letter to Hon. Brent Spence, on business failures of firms in 1924 113 Price increases granted to encourage production of low-end items, September 1944-January 1946 62 Price of plant-separated cream primarily for fluid use, compared with price of farm-separated cream primarily for butter, butterfat basis, exhibit B 958 Private liquid asset holdings as of the end of June 1945 164 Production and Marketing Administration, Commodity Credit Corporation, losses from subsidy programs 360 Progress report on decontrol, etc 165 Property owners' letter 494 Reconstruction Finance Corporation letter and statement to committee. 361 Resolution memorializing the Congress of the United States to prohibit the Office of Price Administration from placing discriminatory price ceilings against southern pulp wood growers 50 Resolution urging changes in the price formula of the Office of Price Administration adopted unanimously by the National Wool Growers Association 719 Rogers, Josephine, letter to Mr. George M. Englar 485 Seidel, R. A., vice president, W. T. Grant Co., letter to James F. Brownlee, Deputy Administrator, Office of Price Administration. _ 624 Series of total civilian goods production now as compared with prewar. 298 South Florida Canners Association resolution 782 [SR 14J, Amdt. 3], Part 1499, Commodities and Services, Electric Irons 627 Statement of bottleneck committee on Office of Price Administration building material price actions 19, 60 Statements and facts regarding six displays in National Retail Dry Goods Association "horrors exhibit" 102 Stone Manufacturing Co., letter to Office of Price Administration 602 VI CONTENTS Briefs, letters, statements, etc.—Continued Page Title 32—National Defense, chapter XVIII—Office of Economic, Stabilization, directive No. 68 166 Amendment No. 1 167 Amendment No. 2 168 Washington Post, statement on price of fruit and vegetables up 8 percent 735 Whip Up Your Own Butter at $1.50 a Pound, Chicago Daily News, Wednesday, March 13, 1946, exhibit C 949 Winsberg, Arnold, telegram to Hon. Henry D. Larcade 551 Wool textile industry: Exhibit A 692 Exhibit B 694 Exhibits, C and D 695 1946 EXTENSION OF THE EMEEGENCY PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED M O N D A Y , FEBRTJABY 18, 1948 HOUSE COMMITTEE OF REPRESENTATIVES, ON B A N K I N G AND CURRENCY, Washington, D. C. The committee convened at 10:30 a. m., Brent Spence, chairman, presiding. The C H A I R M A N . The committee will be in order. We will consider H. R. 5270, a bill to amend the Emergency Price Control Act of 1942, as amended, and the Stabilization Act of 1942, as amended, and for other purposes. (H. R. 5270 is as follows:) [H. R. 5270, 79th Cong., 2d sess.] A B I L L To amend the Emergency Price Control Act of 1942, as amended, and the Stabilization Act of 1942, as amended, and for other purposes Be it enactedJ>y the Senate and House of Representatives of the United States of America in Congress assembled, That section 1 (b) of the Emergency Price Control Act of 1942, as amended, is amended by striking out "June 30, 1946" and substituting "June 30, 1947". SEC. 2. Section 6 of the Stabilization Act of 1942, as amended, is amended by striking out "June 30, 1946" and substituting "June 30, 1947". SEC. 3. Section 2 (e) of the Emergency Price Control Act of 1942, as amended by the Stabilization Extension Act of 1944, is hereby amended by striking out therefrom the last paragraph thereof, effective July 1, 1946, and inserting in lieu thereof the following: "During the fiscal year ending June 30, 1947, the making of subsidy payments and the purchase of commodities for resale at a loss, and thereby subsidizing directly or indirectly the sale of the commodities, shall be limited as follows: "(1) With respect to the Commodity Credit Corporation— "(A) for operations with respect to the dairy production payment program, $ : Provided, That in carrying out the dairy production payment program the rate of payment per pound of butterfat delivered shall not be less than 25 per centum of the national weighted average rate of payment per hundred pounds of whole milk delivered; "(B) for operations with respect to other noncrop programs, including the ; and feed-wheat program, $ "(C) for operations with respect to the 1946 crop program operations, $ : Provided, That not to exceed 10 per centum of each amount specified in clauses (1) (A), (B), and (C) shall be available interchangeably for the operations described in such clauses but in no case shall the total subsidy payments and losses absorbed under any one of such clauses be increased by more than l'O per centum; and "(2) With respect to the Reconstruction Finance Corporation— "(A) for materials or commodities other than rubber and rubber products produced outside the United States, $ ; "(B) for rubber and rubber products produced outside the United States, $ ; "(C) for materials or commodities produced in the United States as follows: "(i) meat, $ ; "(ii) butter, $ ; 1 .2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 "(in) flour, $ ; "(iv) petroleum and petroleum products, $ ; " ( v ) copper, lead and zinc in the form of premium price payments, $ ; "(vi) other materials or commodities, $ : Provided, That in the event the entire amount of any of the above allocations is hot required for its purpose, the unused portion of such allocation, but not to exceed 10 per centum of such allocation, may be used for making such payments on and purchase of any item or items enumerated in this section as may be determined by the Stabilization Administrator in the Office of War Mobilization and Reconversion. "(3) The amount of funds authorized to be expended under subsection (1) above by the Commodity Credit Corporation shall be increased by such amounts as may from time to time be determined by the Secretary of Agriculture, as follows: " ( A ) Not to exceed with respect to livestock and livestock products, $ : " ( B ) Not to exceed with respect to wheat and wheat products, $ ; " ( C ) Not to exceed with respect to butterfat and butter, $ ; Provided, That the amounts authorized to be expended by the Reconstruction Finance Corporation under subsection (2) above for subsidy payments on meat, butter, and flour shall be reduced correspondingly." SEC. 4. Nothing in this Act shall be construed to affect the provisions of Public Laws 30, 88, and 164, of the Seventy-ninth Congress. The C H A I R M A N . Mr. Bowles, I have asked that you testify first because you have been the symbol of price control to the American people. You have administered the Office of Price Administration for a long time, and you are familiar with its administration and policies and I thought it would be proper that you testify first. In this morning's paper I saw a reported interview with me, saying that 25 percent of the mail that we had received in the committee and that I had personally received had been in favor of the continuation of price control. That was a very obvious error. What I said wras that 95 to 98 percent of the mail we had received had been in favor of continuation of price control and the Stabilization Act. I understand you wish to complete your statement without interrogation, Mr. Bowles, and after you have concluded it, you would like to be subject to interrogation; is that right? Mr. B O W L E S . Yes, sir. I am here, in a sense, in two categories. I have a new job on wrhich the Executive order has not been prepared, and I am still Price Administrator, therefore, but just moving into this other job. Mr. C R A W F O R D . May I be recognized, Mr. Chairman, before Mr. Bowles starts? The CHAIRMAN. Mr. Crawrford. Mr. C R A W F O R D . In the previous bill, the housing bill, I , at least, somewhat, misunderstood the arrangement we had, and I would like to have the chairman state, for the purpose of the record, the general procedure with respect to the hearings on this bill. The best I can determine, from my district, the Eighth Congressional District of Michigan, is that from 75 to 85 percent of the people in that district are against a continuation of the Office of Price Administration. I do not mean to say by that that I am against it, because my mind is open on this proposition, and I want to hear what is to be said by the Administration as well as by the opponents to a continuation of this legislation. What I w^ant to find out from the chairman for the record is what chance the opposition will have to present its case to this bill. .3 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The other bill I referred to was the housing bill. I would like now for the chairman to state, for the purposes of the record and for the benefit of the press and the public generally, what chance there will be for opposition witnesses to appear on this bill. In other words, will the opposition witnesses be cut off? Will they be crowded out of the picture and will those members of the committee who wish to develop opposition be restricted in the cross-examination of administration witnesses? Those are the points I would like to have cleared up. The C H A I R M A N . I do not know why the gentleman hints at such apprehension. Mr. C R A W F O R D . It is because of my misunderstanding on the other bill. The C H A I R M A N . As judged by the past, 1 do not think we have cut off people. Mr. P A T M A N . We had 2 months' hearings on the housing bill. Mr. C R A W F O R D . Well, we can make this very short, Mr. Chairman. The C H A I R M A N . I am going to make it very short, if you will let me. Mr. C R A W F O R D . D O not try to lecture me on my position on the committee. The C H A I R M A N . I am not trying to lecture you. You ought to lecture yourself. You understand the difference between those two things, do you not? Mr. C R A W F O R D . I am not going to be lectured to about my position on this committee. I am asking for a clear-cut statement as to the procedure on this bill. The C H A I R M A N . We are going to give you every opportunity to have those witnesses heard, those that are opposed to the bill. You say you do not know whether you are opposed to it or not, but that 85 percent of your people are opposed to it. I do not know who you want as witnesses. We are not going to stay here indefinitely to hear witnesses in the opposition, but you are going to have a fair opportunity to present your witnesses when the time arrives. It certainly would be inconsistent to let the opposition introduce witnesses, as witnesses for the continuation of the Office of Price Administration proceeding. It ought to be conducted in an orderly fashion, and according to the rules of evidence. Those who have the burden of proof—and I think the proponents of the bill have the burden of proof—should have the opening and then you can introduce testimony opposed to the continuation of price control and the Stabilization Act, and those who have the burden of proof should have the concluding testimony. Mr. B U F F E T T . Mr. Chairman, last year we had no adequate opportunity for questioning many of the witnesses in favor of price control. The C H A I R M A N . I do not know what "adequate opportunity" is. Mr. B U F F E T T . I'll amend to that "any opportunity." The C H A I R M A N . Some people think adequate opportunity is to continue day after day to ask questions and explore fields that have nothing to do with price control. If that is your purpose, it may be cut off. But as long as pertinent questions are asked to develop the matters the committee ought to hear, there will be no attempt to cut off your testimony. Mr. Bowles, you may proceed. .4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . I would like, Mr. Chairman, if I might—— The C H A I R M A N . I just want to say one other thing, first. You want expeditious hearings. Let us apply some of the rules of evidence to the hearings. Let us see if we can eliminate incompetent, irrelevant, and immaterial testimony and that the questions be direct to the matter under consideration by tbe committee. If we do that, I do not think we will have any trouble. The hearings will be expeditiously conducted to the conclusion, and everybody will have an opportunity to question the witnesses. Mr. Bowles, you may proceed. S T A T E M E N T OF CHESTER B O W L E S , D I R E C T O R OF S T A B I L I Z A T I O N . Mr. B O W L E S . Mr. Chairman, as you suggested, if I might, I would like to read this statement, wThich will cover the problems in general that we face, and some of the difficulties we have been through. I am very sorry that we have had to ask for several postponements of these hearings. I think all of you know that for the past few weeks we have faced a crisis of major proportions on the stabilization front. It was imperative that Administration policy be clarified before I could come before your committee to request extension of the stabilization statutes. I appreciate more than I can say the committee's patience in postponing its hearings. It would be difficult to exaggerate the gravity of the inflationary crisis we face. An expectancy of higher and still higher prices is sweeping the country. The speculative fever is reminiscent of 1929. We can see it in the stock market, in the real-estate market, and even in almost every commodity market. Everywhere men are betting on inflation. Everywhere the inflationary pressures have reached explosive proportions. It should be obvious to any reasonable mind that only by the most vigorous action—action taken now—can we regain control. What is at stake is more than our reconversion program. What is at stake is our entire economic future. The answer to our present problems rests with you here in the Congress no less than with us in the executive branch of the Government. In the next few weeks and months we shall be deciding whether we build a future of prosperity and security for all of us or whether we permit the present inflationary dynamite to go off in an explosion that will emash our economic system beyond hope of repair. It is, I think, important to review briefly the events that have led up to this crisis. Let me go back, therefore, to VJ-day. At that time there was a general expectation that the inflationary pressures would diminish. We expected pay-rolls to fall off sharply because of the elimination of overtime, the downgrading of workers and other factors. And we expected that during the *tooling-up period unemployment would reach substantial proportions, further cutting into pay rolls and purchasing power. As a result of all these factors most experts anticipated softening of markets and an abatement of pressure on prices. At the same time, the whole country was eager to get rid of wartime controls as rapidly as possible. After 4 years of the rigors of wartime controls it was natural for all of us to hope for the speedy restoration of the free market. This was how the country felt; and this was how you, in the Congress, no less than we in the executive branch, felt. .5 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The Congress, for example, moved promptly to eliminate the excessprofits tax and to reduce taxes on individual incomes. In the Office of Price Administration, the staff was put to work to carve # out broad areas of the price structure which it was hoped and expected could be exempted from price control during the fall and winter months. And in collaboration with the Department of Agriculture a program, indeed almost a timetable, based on the expectancy of lower food prices, was developed for a progressive removal of food subsidies. The War Production Board proceeded at once to dismantle its structure of production and other controls. Regulations in batches were pitched into the wastebasket. The same was true of the Department of Agriculture, the Petroleum Administration, the Office of Defense Transportation, and the Foreign Economic Administration. In all this, needless to say, there wras considerable difference of opinion among the various Government agencies; not disagreement on the general policy, but disagreement as to timing. Ordinarily my own record as a prophet is no better than the next man's. But on this issue I happened to be one of those who wanted to play it safe. I was fearful of a repetition of the disaster of 1919 and 1920 when prices soared and then promptly collapsed. I did not feel that price and rent controls alone could carry the burden of inflation control. Having lived with 4 years of other wartime controls we could, it seemed to me, take another 6 months or whatever was necessary to be sure we were on solid ground before scrapping those controls. One element of the program for orderly liquidation of Government controls was the wage-price program. It was expected, as indeed it has actually come to pass, that the take-home pay of millions of American workers w^ould be cut drastically. That was why, on August 18, the Administration dismantled the complicated and often cumbersome structure of wartime wage controls and restored collective bargaining, setting labor and management free to negotiate wage increases on their own. There was, however, one basic condition— that these negotiations take place within the framework of stable prices. The President urged management to negotiate wage adjustments in order to cushion the cut in take-home pay. He pointed out that management could, in general, afford to grant such increases, emphasizing particularly the high profitability of most American industries, the excellent financial condition developed during the war, the protection against the risks of reconversion embodied in the tax laws, and the increase in earnings retained by business resulting from the elimination of the excess-profits tax. But the President emphasized, too, that such wage increases must vary widely from one industry to another, depending upon the ability of management to pay these increases without raising prices. As Price Administrator I subscribed to this policy. Although I knew that it would put some strain on prices, I believed it to be compatible with effective price control and in line with our best labor-management traditions. And indeed I supported the President's entire reconversion program. It was a program designed under the then existing conditions to give us a swift and orderly transition from war to peace. .6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 What, then, produced the crisis which we face today on the stabilization front? Well, first of all, the tooling-up process of reconversion has proceeded faster than anyone thought possible. As a result, while average take-home pay has been cut, the volume of unemployment has not reached the proportions that were feared. That means that total pay rolls have stayed higher than expected with a resulting high demand for all products of our factories and farms. Second, speculation, which, after the last war, became a dominant factor only after 5 or 6 months following the cessation of hostilities, this time put in an earlier appearance. The speculators started betting on inflation, and that showed in all our markets. And so, instead of a softening of pressure on prices in key areas of the economy, we have had prices pushing up hard against the Office of Price Administration ceilings all across the board, and prices in the speculative markets which wrere not under control moving up to new high ground almost from day to day. Looking back on it, with the knowledge that we have today, and bearing in mind what 1 have just said about the inflationary pressures, it is perfectly clear that we moved too fast and too soon in stripping off the wartime controls. Many of the actions taken, reasonable and proper though they may have seemed at the time, have not only meant hardship for our people; they have encouraged hoarding and added fuel to the flames of speculation. And finally, let me turn to the wage-price policy. On the whole, that policy has wrorked extremely well. Industrial and other wholesale prices as well as retail prices have been held very close to their VJ-day levels, while thousands of collective-bargaining agreements involving substantial wage increases have been concluded in an orderly fashion. I am told that 6,000,000 workers have received wrage increases during this period. Nonetheless, the wage-price policy broke down in a number of vitally important areas. Why it broke down in these particular areas can be left to the economic historians and to the theoreticians to decide. It seems to me high time that we stop arguing about "who did what to whom" and get on with the job of meeting a national emergency. A speculative fever has taken hold of the country. The pressure in the boiler is up to the bursting point. The lobbyists and the profiteers are licking their chops. It is going to take firm and decisive action—it is going to take teamwork and support on every hand—if we are to hold this country on an even keel. The President, last Thursday, laid down a new stabilization program. He called upon me to take responsibility for its administration and upon the country to close ranks and see this job through to the finish. I think it is a good program and a workable program, and I mean to put everyting I have got into making it succeed. I am confident that the American people will give the President the support he has asked for. Let me turn now to the program itself, and specifically to the wageprice aspects of that program. I am not prepared this morning to give you all the details. Many of them have still to be worked out. The baby is only 48 hours old. But the basic policy is clear and understandable. Let me say once more, and as strongly as I know .7 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 how, that the basic principles are good. They are workable. If we have congressional as well as public backing, they will enable us to keep inflation under lock and key and to maintain stability in our American economy. On the wage side, control has been reestablished. This does not mean a wage freeze. Wage increases within the industry patterns already laid down since VJ-dav will be approved by the Government. Every effort will be made to speed up action and to establish streamline procedures. I expect to have an announcement about how this can be accomplished within the next few days. What does this new policy mean to prices? It means that manufacturers will no longer be required to wait 6 months before the wage increases which they have granted will be taken into consideration in setting their prices. If for any reason an industry—operating at normal volume—is in hardship, price adjustments will be granted. These price adjustments will be designed to assure the minimum level of peacetime earnings for that industry during the coming year. Does this mean general price increases throughout the entire economy? Does it mean a retreat to a new price line—to a new higher level of prices? Emphatically it does not, and it is vitally important that we understand why this is so. First of all, let us remember that the number of industries which have been, or are likely to be, forced below their prewar earnings for any reason is relatively very small. The present pattern of wage increases can be, and in many instances has already been, establiehed in scores of industries with no price consequences whatsoever. It is generally true of such industries as the food processing and petroleum industries where labor cost is a relatively small part of the total sales dollar. It is true of the apparel industry and many others where labor costs represent a higher proportion of total costs—but where profits generally have been abnormally high. It is less true of some of the metal-using industries where labor costs, direct and indirect, represent a sizable factor in the total price. The result of this new wage-price policy will, as I say, not necessitate a retreat from the present price line. It will mean a bulge in one relatively narrow section of that liue—a bulge which must not be allowed to spread. Food prices represent 40 percent of the total cost-of-living line as reported by the BLS index. This new policy will have little or no effect on food prices. Provided Congress continues the present food-subsidy program, the line on food prices can be held, as it has been held for 32 months, at roughly present levels. Rent represents 19 percent of the cost-of-living line. This new policy will have little or no effect on rents. The rent line can and must be held. Apparel represents about 12 percent of the cost-of-living line. This'new policy will have little or no effect on apparel prices. It is my belief that we can continue to step up apparel production at roughly the present average of prices. And what is true of food prices, rents, and apparel prices is generally true of furniture prices, the prices of house furnishings and services. It is in some of the metal-using industries, a relatively small section of the cost-of-living line, where some price increases will be needed. .8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 There will be a few other places, but not so many, I think. But let me make this situation clear beyond all question. The price line simply must be held. The prices of food, rent, and apparel must be kept from rising. Oh that all-important sector there can be no retreat. There will, of course, be loud cries from the "now I want mine" boys. And there will be sober and understandable requests from many farmers for the removal of food subsidies. These objections to a continued "hold the line" policy—both irresponsible and responsible objections—will be based on a plea of fairness. Businessmen will say, "Labor has had rather general increases in wages. We want general increases in wages. We want general increases in prices." Some farmers will say the same thing. For this reason, I would like to discuss this subject of fairness of income—group by group. Let me say at the outset that there is probably far more fairness of income distribution in our economy today than at any previous point in our peacetime history. Let me say further that if we strive now to work out all the unfairnesses which remain, we shall only succeed in blowing up our entire antiinflation program with resulting disaster to everyone. That is, in my opinion, the key point of these hearings and which Congress must decide. If we are going out to try to erase and eliminate every unfairness that can be found in our economic system, you arc going to get inflation, and you are going to get it this year, and you are going to get it with very loud explosive characteristics. We have always had some unfairness, some inequities, I believe we have less unfairness, and I think the record will show that, today we have less than we ever had. We hope that over a period of time we will gradually have still less and less. There will always be some, no matter how we may attempt to work it. Mr. SMITH. Did you say more unfairness or less? Mr. B O W L E S . Less unfairness today than we probably ever had. Not that we have no unfairness, but I believe there is considerably less today, than we have had at any other time in our peacetime history. Let us examine, first of all, the position of labor. There are some people who throw up their hands in horror at the thought of any wage increases at all. Well, let us look at the problem like reasonbale men. The fact is that the elimination of overtime and downgrading have sharply cut the take-home pay of millions of American workers. There are all kinds of figures tossed around about basic wage rates, straight-time hourly earnings, and average hourly earnings. But let us remember that it is take-home pay that buys groceries and pays the rent. And when take-home pay is cut, the family has got to tighten its belt, as the President pointed out in October. The pattern of wage increases established over the past 3 months in most instances provides adjustments that go only part way toward making good the loss in take-home pay. These wrage increases, and others which will be coming along in certain other fields, do not represent a new advantage to labor. They represent a cushioning of the blow that millions of individual workers have had since VJ-day. They do not give labor an unfair advantage as compared to other groups in the community. They are designed, rather, to maintain something approaching the balance we had in wartime. .9 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Under the new wage-price policy, wages generally will be stabilized according to the new patterns established since VJ-day. A further increase over the present pattern would make economic stabilization impossible. But the fact that many increases have occurred and others will occur in industries where pre-VJ-day contracts are still in effect, is in my opinion, healthy, proper, and in the interests of every one of us. How about business? Business is doing very well. American industry, on the whole, is extremely profitable. Only limited areas of it have been affected adversely by the shift from war to peace. The food industry, the textile and clothing industry, the department stores, the service trades—none of these industries have had to reconvert. They have kept on producing right straight through. They were very profitable during the war, they are very profitable today, and they are going to stay very profitable for a long time to come. Corporation profits, as a whole, before taxes are expected to total in 1945 some $22,000,000,000 compared to a little under $25,000,000,000 in 1944. It will be said that most of this profit was earned in the first half of the year, while the shooting was still going on and that since VJ-day the situation has been entirely different. We do not have the full details of profits quarter by quarter for 1945, but it is significant, I think, that the boards of directors of American corporations declared a billion and a half in dividends in the final quarter of 1945— the period of economic readjustment. This was just as much as they declared in the final quarter of 1944. And total dividends last year were right up to the 1944 level. And, incidentally, I know none of my business friends who have had their salaries reduced since VJ-day. There may be some, but I have yet to hear of them. Now, it is true that in the reconversion area—and I mean by this not only those industries which have stopped producing war equipment and are now producing civilian items, but also industries like steel winch have had to change the character of their production—operations are less profitable at the moment than in other parts of the economy. But let us keep our perspective. All these industries together make up less than 15 percent of the American economy. No one can know for sure how these industries are making out now. Nonetheless their outlook for 1946, as a whole, is extremely favorable. For one thing, they face an almost unlimited demand for their output. Once they really get rolling, they will be producing far more than they ever produced before the war, and increasing volume means decreasing costs and rising profits. That the outlook for these industries is bright is confirmed by the fact that the stocks of corporations in the reconversion area have not been lagging behind in the general boom on the stock market. That is why until recently we felt it fair to ask the reconversion industries, as well as all others, to wait 6 months after negotiating wage increases before concluding that price relief was necessary. That, of course, has been changed under the new policy. So let me say once more—let up keep our sense of perspective. We are not confronted with a situation in which scores of industries and hundreds of thousands of firms are on the verge of bankruptcy. The very opposite is true. On the whole, American iadustry is extremely profitable. Only 15 percent of it is affected materially by the transi- .10 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 tion from war to peace. Its prospects, in general, were never brighter. And, as I pointed out before, we have never in our entire history had a period in which there was less hardship in American business. In 1945 bankruptcies fell for the third successive year to an all-time low of 810. This compares to 22,900 bankruptcies in the boom year 1929. Finally, how about our farmers—the group whose extraordinary record during the war is perhaps lest appreciated, the group which for more than a generation has profited the least when times were good and suffered the hardest blows in times of adversity. In 1939 our farmers, representing 25 percent of our people had only 9 percent of our national income. When the experts stress the gains which our farmers have made during this war, they often fail to mention the low levels from which they had to start. Nevertheless it is a fact that our farmers, like the rest of us, have done rather well since the days before the war. Today net operating income per farm is more than three times as great as it was in 1939, and the increases have been pretty general. On VJ-day the experts generally prophesied that farm prices and farm income would drop rapidly in the following months. But again the experts were wrong. In December, the cash income of our farmers, after seasonal adjustments, was 2 percent higher than in August. To those of our farmers wrho are inclined to criticize labor and and deplore the increases in wages which have occurred, let me point out one all-important fact. The decrease in farm income which they expected 6 months ago has failed to materialize largely because total factory pay rolls in our cities did not drop to the extent expected— because employment held up and increases in wage rates offset, in part, the loss in take-home pay due to a shorter workweek. The same is true of the merchants who enjoyed such a tremendous quarter in the last quarter of 1945. Some 12 to 15 percent higher than the highest previous year in their history. It is not too much to say that our farmers today hold the key to economic stabilization largely in their hands. For unless food subsidies are maintained beyond July 1, the control of the present inflationary dangers will become impossible. If food subsidies were withdrawn, food prices would rise promptly and dangerously. The food index which has been held steady since May 1943, would immediately rise more than 8 percent. This would force a major increase in the cost of living. This, in turn, would force compensating wage adjustments on a broad scale. As surely as day follows night, we would be started on a spiral of wage and price increases leading directly to disaster. Very properly, our farmers liate subsidies. I do not blame them for that. Subsidies are a necessary evil, and the quicker we can be rid of them without blowing up our economy, the better off we will be. But subsidies are absolutely vital to the success of our program. I am hopeful and confident that much as our farmers may dislike them they dislike and fear inflation more. The stabilization program has meant much to our farmer?. The prices he receives have risen on the average exactly the same percentage in this war as in the last—113 percent. That is the general average. But the prices he pays, including interest and taxes, have risen only 40 percent this time against 94 percent the last time—for the single reason that price and rent controls have been in effect. A good .11 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 example is farm machirery. In the First World War it rose in price, on the average, 68 percent. The increase since 1939 has totalled only 14 percent. If the present price line is broken—if inflationary forces break loose —there is no group in America which will more surely suffer disaster and heartbreak than our millions of farm families. I have come to know our farmers well and feel that I understand many of their problems. I sympathize deeply wTith their concern over the future. They do not want to go back to the kind of farm economy they had before the war. The low incomes they had, I think, were a disgrace to this country in the generation before the war. The leaders of farm organizations are my friends. I have confidence that they will rise to the present emergency in the same statesmanlike way in which they have supported price and rent controls during the most critical period of the war. So much for price and wage policy and its effects on our economy. We have a bulge in our line and a threatened break-through. We must stop the break-through, seal off the bulge, and continue to hold the line where it is. This is our new program. It is a program that will work. It is a program that will stabilize the American economy. To those people who are betting on inflation in the stock market and in the commodity markets, let me say, "You are betting on the wrong horse. There is not going to be any inflation. We are going to hold the price and rent line as we have held it since May 1943—the speculators, lobbyists, and pressure groups to the contrary notwithstanding." It is, of course, expanding production which will bring us to the point where price, rent, and wage controls can be dropped. Production is the only answer to inflation. There are some who say. "Yes, but under price control production is impossible." I see our friends, the NAM had that to say in the morning newspapers. The record clearly proves that this is nonsense. During the war industrial and farm production under price control rose fully five times as much as in World War I. Today production is surely at the highest point ever achieved in peacetime. Unemployment is at the lowest peacetime point in 20 years with as many people on our pay rolls as in our best wartime year. What are those 52,000,000 workers doing if they are not producing? Why is it that industry after industry is crying for more and more employees? Why is it that reconversion has been accomplished in record time? Why is it that every business forecast indicates rapid increases in production throughout 1946? Why are retail sales continuing to higher and still higher levels—all under a program of price control? As production recovers from recent shut-downs, let us forget this propaganda talk about price controls making production impossible. Let us take off our coats, forget our differences, and get out the goods. That is the way—the only way—to get rid of price control without the most disastrous inflation this country has ever seen. It should be perfectly clear to all of us that we are going to have to retrace some of the steps we have taken since VJ-day. As I pointed out, we are going to have to abandon early liquidation of the subsidy program. We cannot permit an increase in the price of food. The fact that we were ready to liquidate that program, and, S8512—46—vol 1 2 .12 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 indeed, make a beginning, should provide assurance that that program will not be continued a single month beyond what is necessary for the continued stabilization of our economy. Furthermore, we shall probably have to restore some of the production controls which were abandoned last fall. Obviously we shall have to move with discretion and only where the need is very clear. But we shall see to it that the orders that are necessary to get clothing for our veterans, and building materials for the construction industry will be put into operation promptly. And I mean to make the fullest use of the authority under the Second War Powers Act to prevent hoarding. If there is any doubt on that score, let me dispel it now. That is one thing we simply must not tolerate. Speculators take notice. If we are to win through in our fight against inflation, it wrill take the best efforts we can put forth in the executive branch of the Government. More than that, it will take action by the Congress. I urge that you renew without amendment and at the earliest possible moment, after all due opportunity for groups to make their opinions felt, the stabilization statutes. The speculative fever in this country has reached such a pitch that it can be overcome only if it is unquestionably clear to everybody that the Congress, no less than the executive branch of the Government, is determined that inflation shall not come. Under other circumstances, I would not urge the reenactment of the legislation without amendment. But the dangers today are great. Any sign of weakness will be quickly and greedily seized upon by the speculators and other enemies of inflation control. Delay in reaching a decision will do irreparable damage to the entire program. I further urge with all the vigor at my command that the Congress enact at the earliest possible moment legislation to stop the [inflation in the real-estate market. If this inflation is permitted to continue unchecked, it will undermine the construction industry just as it did after the last war. And it will strike a body blowT at any hopes we may have for a secure and prosperous economic future. Mr. Wilson Wyatt has recently developed a magnificent veterans' housing program. It will not only provide the housing which the veteran so desperately needs at reasonable prices, but it will also put the housing industry generally on a firm and solid basis such as it has never before enjoyed. Legislation to prevent inflation of realestate prices is imperative if this program is to have a chance of success. Gentlemen, the program the President has laid down is not a perfect program. Under the circumstances which we face, there can be no perfect program. But it is a good program, and a workable program. It will prevent inflation, which benefits no one and spells disaster for all of us. And I want to say as strongly as I know how that it is a fair program. Under it, we shall not be able to eliminate every inequity in our economic system. That, I am afraid, will never be possible. But we can and we will do broad justice to all the economic groups of the country. Clearly this program of economic stabilization—or any program of economic stabilization which might have a chance of success—will be attacked by every irresponsible pressure grouo in the land, such as the group that demanded the removal of all price controls on .13 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 February 15—last Friday—at the very height of this inflationary crisis, and then repeated that request in the morning newspapers. I am obviously referring to National Association of Manufacturers. In the past 4 years of price and rent controls, Congress has courageously resisted the pressures of these groups. Congress has consistently turned down their periodic drives for needlessly higher prices, rents, and profits. By taking this stand, Congress has so far saved the people scores of billions of dollars and prevented a disastrous inflation. Over and over again on this vital issue, Congress has proved that the people's case is in good hands. Let me repeat that it is not unfair or unreasonable to ask American business to live with its present generally high level of profits, with adjustments in prices limited only to those who really need them. The vast majority of businessmen are as reasonable, sensible, and patriotic as any group in the land. Let me repeat that it is not unreasonable or unfair to ask the farmer to accept the present general level of prices for his products. Some months ago it was expected that farm incomes would decline in 1946 some 15 percent below the levels of 1945. It is now perfectly clear that farm incomes will not decline. If anything, they will go up from the 1945 level. That is due in no small part to the wage increases which have helped to prevent a decline in total wage income. Such a decline in wage income would have resulted in a decline in farm income, too. And, as I pointed out before, the expectancy in the decrease in farm income was based on the expectancy of a decline in general wages and salaries. Finally, it is not unreasonable or unfair to ask labor to accept temporary Government controls over wages and some cut in their takehome pay as a result of reduced overtime. Much as we might wish to prevent that cut, there is no way in which we can do so without precipitating an inflation in which the workers, like everyone else, have everything to lose and nothing to gain. You and I and the American people all face a grave responsibility. I am confident that in the face of the danger of inflation we shall close ranks, as the President has called upon us to do, and carry through the program which he has laid down. I am confident that we shall now throw our economic machine—the most productive in the world—into high gear. That is the way—and the only way—in which we can quickly get back to a free market, free collective bargaining, and a free and prosperous America. The C H A I R M A N . Mr. BrowTL. Mr. B R O W N . Mr. Bowles, what is the purchasing power of the dollar now conmpared to 1941? Mr. B O W L E S . There is a difference of about 2 0 percent, I think. Mr. B R O W N . I understood that the purchasing power of the dollar was really around 75 cents. Mr. B O W L E S . Seventy-five to 8 5 cents, I think is about the right figure. Mr. B R O W N . Of course, we all realize that the most important thing for the American citizen today is production of food. Mr. B O W L E S . That is right. Mr. B R O W N . Production of clothing and production of building materials. Mr. B O W L E S . That is correct. .14 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B R O W N . A S you stated a few moments ago, full production would help us control inflation. Mr. B O W L E S . It is the answer to inflation. That is the way you get out of all these controls. Mr. B R O W N . SO I think, and I am satisfied you think it too, that this law should be administered chiefly with a view to obtaining full production. Now, the pattern that you established the other day with regard to steel, giving labor 18}£ cents per hour increase, and steel producers around 15 cents per hour, I think you did right. If you are going to increase the manufacturing costs, you certainly ought to increase the ceiling on steel in proportion. Now, do you propose to follow that plan with all commodities? Mr. B O W L E S . Mr. Brown, the program is this: Of course, as you know, w^e have always adjusted any industry's price where that industry fell below their prewar profits. In other words, we established a floor under profits. Industry has never had a floor in the past— they have had it during the war period, which, of course, continued after VJ-day. When any industry falls below that point, there is a general industry increase. Also, we have made increasing allowance for individual increases, particularly since VJ-day. In other words, you may have an industry where the industry, as a whole, is doing very well, but where there are individual firms in it having trouble, we have made close to 9,000 individual adjustments since VJ-day, beyond the industry earnings. Under the former wage-price policy put out in October, if industry gave an increase in wages, it would not be allowed to take that into consideration in appealing for a price increase until 6 months had passed, unless the wage increases were approved, and there were a very narrow group that were approvable. In other words, we said, "Gamble a bit now. Your costs are probably going to decrease as your volume comes up, and at the end of 6 months, regardless of the reason why you are in trouble, whether it is wages or what it is, we will adjust if necessary at that time. We will review and adjust." Now, the new policy states that wage adjustments that have been made in the past, that we have already had, or wage adjustments to be made to that same pattern in the future, will be immediately taken into consideration in setting prices or in granting hardship relief. That does not mean, obviously, that every time a wage is raised, prices are raised. Actually, the number of industries which are below the prewar level of earnings in the country, is a relatively small number of the whole. It would only apply in that area. Is that clear? It is a rather complicated problem and I would like to be sure it is clear. Mr. B R O W N . Yes. Many people think—and I think—that you have put what you considered a fair ceiling on all commodities, 2 years ago, and last year. Now, my theory is this: That wrhen labor costs and other costs go up, and you allow the increase, that you ought to let the producer have an increase in the same proportion, whether it is done by raising the ceiling or by subsidy, to keep him in business. If you have had a fair ceiling in all these years, you have got to raise prices in proportion with the increased cost of production, or wages. Do you agree with that philosophy? Mr. BowrLEs. Do you mean, Mr. Brown, provided that the increase in w7ages has resulted in a hardship or anticipation of hardship, .15 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 or do you mean in any case where wages are increased, prices ought to be increased correspondingly? Mr. B R O W N . Not only that but other things. For instance, take the steel industry. Mr. Bowles. I just wanted to be sure what you mean of those two. Mr. B R O W N . I mean not only labor but all wage costs. Mr. B O W L E S . But do you mean that all wage increases ought to be reflected in a price increase? Mr. B R O W N . That is right. That is to keep him in business, if we want production. Mr. B O W L E S . If they are in difficulty, I would certainly agree with you a hundred percent. But, obviously, in a free-enterprise economy, whenever you get a cost increase, you do not automatically up your price by that amount, because there are other corresponding elements which bring your costs down. For instance, as you develop greater volume. The proof of that, of course, is in your general overall figures for the last 20 years. Your wage rates, in 1919, were, roughly, 44 and 47 cents, average, throughout the industry. They are, roughly, 97 cents today. In other words, more than double. Now, price levels, generally, are about the same today as they were in 1919. If you will look at the general price levels, they are just about the same. Now, profits are far greater. So what we have done in 20 years is to double wage rates, increase profits very substantially, and hold prices roughly to the same level. That, of course, is because w^e have had greater labor productivity, greater efficiency, better management, more volume. Now, obviously, you cannot go beyond the point we have gone in this crisis we are in, to go on increasing wages beyond this pattern, because you get into difficulty, and we are going to, in fact, have to go back, as I pointed out, and correct some of these prices that need correcting. But I would assume that over the period of the next few years, or 20 years, we would tend to repeat the pattern of the past, with prices, by free competition, held stable or even declining, with wages going up quite substantially and thereby increasing the purchasing power, which people need to buy the goods, including the farmers' products. Mr. B R O W N . I take this position: we want to curb inflation; and in order to curb inflation, you have got to keep the costs of production down ? Mr. B O W L E S . That is right. Mr. B R O W N . If not, you have got to raise the ceiling to the producer. For instance, in the case of steel, you have not only increased labor, but you have increased the producer's prices 15 percent. Farm implements are practically all worn out—we could not get any during the war. Most of them are made of steel. Take in manufacturing enterprises, such as cotton mills. A great deal of their machinery is worn out. They have to buy new machinery And in setting your ceilings on these products, I think you have got to take into consideration increased labor costs, increased price of steel, and these other things. Now, I am like you. I want to curb inflation. But at the same time the only way to curb it is to get production. You have, in fixing a ceiling, a clause to the effect that the ceiling must be generally fair and equitable. A lot of people will object to .16 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 that word "generally," and they claim that the higher producer has put the other ones out of business. I, of course, know a lot of my producers have quit. It would be awfully hard to find out any that went out of business. Well, supposing the word "generally" was stricken out, would that interfere with it? Mr. B O W L E S . I cannot think of any |word that Congress could change that would have more disastrous effect on your economy than the wrord "generally" in the phrase "generally fair and equitable." It is a pretty important word. What we have tried to do is this, however, and wTe have gotfe a long way toward doing it. During the war period, as I pointed out, we had not verv much hardship; 810 bankruptcies in the year 1945 as against 22,000 in 1929. Now, I think I ought to interpret that figure a little bit, because the firms that are inclined to go bankrupt are new firms. There have been fewer firms started in 1945, obviously, during the war, because they could not get materials. There will be many new firms starting now, and the bankruptcy rate will obviously increase. But we have gone a long way toward meeting the question which you asked, by individual adjustments to firms which, where the industry is O. K.—in other words, the price is generally fair and equitable to the industry—but where there are individual firms, all the way through that industry, which need relief. And we have gone to work to try to get it for them. Mr. B R O W N . For instance, a man in the building game: he sells different kinds of materials. For instance, Mr. Johnston, I believe it was, testified a year ago. He is head of the Chamber of Commerce of the United States, or was at that time. He said he was engaged in the production of building material, among which was brick. He said over-all he made a lot of money, but on one item, brick, he lost $2 per thousand. Air. B O W L E S . Of course, that has all been corrected and changed since VJ-day. Mr. B R O W N . I know, but I am just getting back to the word "generally." Of course, "generally" he made a profit, but a lot of people just engage in making one item, such as brick, and so if you have the same ceiling on that fellow as you have on a man who makes other material, he just goes out of business. I am bringing that to your attention, as to whether or not the words "generally fair and equitable" should apply. Mr. B O W L E S . Of course, we take brick as an industry. We have made over 400 adjustments since VE-day in industry prices. Mr. B R O W N . Why was he losing $2 per thousand? That was the testimony. He wanted the Office of Price Administration extended, just as I do, but why did he lose $2 per thousand? Mr. B O W L E S . Well, during the war we were pretty careful and individual adjustments were held to a minimum; as I say, now we have stepped up all the processes of giving individual adjustments and we have given many, many more. As I said, 8,500, since VJ-day. However, we also make adjustments to get supplies up. For instance, we have had adjustments in brick this fall. The brick industry, you see, was always a rather low-paid industry, and they had to get higher prices in order to get wage rates up and in order to attract labor, and we have given about a 40 percent increase all told in the brick business, .17 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 I think maybe a little more than that. Brick production is coming up very fast now, as you know. Also soil pipe, cast-iron soil pipe, which is the same type of thing. We have given those increases since VJ-day pretty generously and pretty broadly, in order to get production. I do not know how much of that type we have given to get production but it would run into a good many. I agree with you perfectly. You have got to get production going, and cannot let price stand in the way of it. Here are 36 adjustments since VJ-day, price adjustments on building materials, increasing prices of building materials to get production. I have a list that was just handed to me. Mr. B R O W N . Of course, a great many of these producers have gone out of business. I do not know why. Mr. B O W L E S . There is no reason, Mr. Brown. We have adjustments for any firm that would make it impossible for him to go out of business. Mr. B R O W N . D O you have a way of speeding these adjustments up? That is one problem. I feel you want to do a good job, and have done a pretty good job. I have no complaints about the adjustments. But it takes too long. For instance, in the case of brick, it took about 6 months to do it. Do you have any scheme to speed up these adjustments? Mr. B O W L E S . The more individual adjustments you have, obviously, the more your work load is. We have delegated a good part of that out to the field organization and pushed it out of the National Office, into the field offices, where they are empowered to make many of them on an automatic basis. For instance, take firms under $200,000. They do not have to go near the Office of Price Administration at all. They are reconverting, and they simply make out a simple form, set their own price, report to the Office of Price Administration, and if the Office of Price Administration does not do anything about it in, I think, 20 days, that price holds. That covers something like 80 percent of all reconverting firms, under pureb* automatic pricing. Now, as a result of that automatic pricing, you get some sloppy pricing. Obviously, you get some things too high, and so on. As some of these foolish cases you hear about, where one is priced too high, come from that automatic pricing, as a result of our attempt to streamline the operation. T, for one, though it was better to take some of the rather ridiculous results you would get, in a small number of them, which make dramatic and sometimes entertaining examples, but get the red tape out and let those fellows move ahead, which is what we have done. I might just say one more thing on this. Everyone has a problem. I have often said, and I guess a lot of other people have said it, that there is no problem in Washington that cannot be solved by increasing the price. Even though you cannot get more manpower, even though you cannot get more lumber, even though you cannot get more of this or more of that, it, at least, makes you feel better to have a higher price. We established—not we, but another office—the Office of Economic Stabilization—established a Bottleneck Committee to examine each bottleneck situation of the country where production was not coming up. They have various representatives of all the agencies interested .18 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 sitting on that committeee, independent of the Office of Price Administration, with only one Office of Price Administration man on the committee, and the Office of Price Administration has accepted every recommendation that that committee has made to raise a price to get out of the way of any production. Every single recommendation they have ever made has been promptly accepted. Mr. B R O W N . Of course, you realize that where you place a ceiling on a product, you may have a very high cost producer. If you fix a ceiling where he can make a profit, of course, a capable man will make more. That is natural. Mr. B O W L E S . There is no harm in that. Mr. B R O W N . And it is a very difficult thing to keep all producers in business. Of course, you have got to give them all the same proportion if they are in that line of business. Mr. O U T L A N D . Would you yield for one question on your point regarding speed by which adjustments are made, Mr. Brown? Mr. B R O W N . I yield. Mr. O U T L A N D . Mr. Bowles, if Congress had been a little more generous in providing additional funds for the Office of Price Administration so that more and more competent people could have been hired, would it have helped you speed up the adjustments? Mr. B O W L E S . Very definitely, Mr. Outland. That is always a problem, of getting enough good people to do these jobs, particularly enforcement. But we have tried, whenever we see ourselves getting in a jam, and see a bottleneck developing, with too slow action, to streamline the procedures. Usually you cannot get more people or enough able people, so we have made our procedures simpler and taken chances many times to accomplish that. Mr. O U T L A N D . But if we, in the House of Representatives, provided ample funds, it would cut some of that red tape and make your adjustments more rapid? Mr. B O W L E S . Tremendously. Mr. W O L C O T T . Will you yield, Mr. Brown? M r . BROWN. Y e s . Mr. W O L C O T T . Mr. Bowles, you have half the work that you have to do now as compared to a year ago? You have cut out all of your rationing? Mr. B O W L E S . Well, we have cut our staff in half also, Mr. Wolcott. Mr. W O L C O T T . Why did you do that? Mr. B O W L E S . We did it since VJ-day. Mr. W O L C O T T . Y O U did not do it because of any lack on the part of Congress, did you? Do not come up here and try to tell us that you have reduced your staff because Congress reduced your appropriation. You cut off your staff voluntarily when you cut off rationing. Mr. B O W L E S . We have never had enough people, in my opinion, to enforce our regulations properly or to get all the regulations out as fast as I would like to see them. Mr. G A M B L E . N O Government agency has. They all say the same thing. Mr. B O W L E S . That is correct, and often it is true. We moved ahead very rapidly after VJ-day to get our staff down. It is down from 62,000 on VJ-day to 28,000 now. .19 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. W O L C O T T . Why did you reduce it if you have not enough men? Mr. B O W L E S . We have gone back to Congress. One thing that has gotten us into a little trouble is this: the statement that I offered you here went into some detail as to the amount of de-control we thought we could get. We thought we could drop controls. For instance, on rent, we assumed we would be out of 150 of our 470 rent areas by June. Actually, we have gotten out of about 30 and had to move back into about 20. Mr. W O L C O T T . That is not the fault of Congress, is it? Mr. B O W L E S . NO, that is not the fault of Congress. The Congress cut our budget. Mr. W O L C O T T . Y O U have cut your force voluntarily. Mr. B O W L E S . Congress did not give us the budget we requested last fall, if that is your question. They cut it $3,000,000, and that was a very vital $3,000,000. However, I went over it the other day. You cut us $3,000,000 over what we asked for in September. I went over it the other day and presented a case to get some of it back. The Committee has acted favorably on that. I hope the Congress will act favorably on it, because it will mean a great deal to us, I think, in improving our operation wherever we can. Mr. K U N K E L . I was wondering if Mr. Bowles would care to put those price adjustments in the building field, the list you have just referred to, with the date as to when they were made, because they are of interest to us. Mr. B O W L E S . I would like to do that. I have it here but I will insert the dates and put it in the record. (The document above referred to is as follows:) STATEMENT OF B O T T L E N E C K C O M M I T T E E ON O P A ACTIONS BUILDING MATERIAL PRICE OPA price actions in the building materials field since VJ-day have included many items not designated as bottlenecks by CPA, accounting in some measure undoubtedly for the shortness of CPA's list. Since VE-day, OPA has made one or more general price increases applicable either to large areas or Nation-wide on the following building materials: Dates of price actions 1. Vitrified clay sewer pipe and allied products 2. Building lime. 3. Rough quarry limestone blocks 4. Lineal sash and frame stock 5. Douglas fir stock millwork—screen doors and door frames. 6. Cast-iron soil pipe and fittings. 7. 8. 9. 10. 11. 12. 13. 14. 15. Gypsum lath and linerboard. Concrete blocks Cast-iron tube radiation Cement Calcined gypsum bag goods _ Common and face clay brick Structural clay tile Hinges and butt hinges Builders hardware 16. Automatic electric temperature controls - _ May 5, July 21, Dec. 17, 1945; 6-inch and above, Dec. 26, 1945. May 12, June 21, Aug. 13, Oct. 4, 1945. May 17, 1945. M ay 30, 1945. June 11, 1945. June 14, Sept. 7, Dec. 31, 1945. Aug. 21, 1945. Aug. 20, 1945. Aug. 22, 1945. Sept. 5, 1945. Sept. 14, 1945. Sept. 19, 1945; Jan. 2, 1946. Sept, 19, 1945. Oct. 8, 1945. Oct. 8, Nov. 14, 1945—lowpriced builders' hardware. Oct. 9, 1945. .20 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Dates of price actions 17. Ready-mix concrete 18. 19. 20. 21. 22. 23. 24. 25. Oct. 30, Nov. 14, Dec. 18, 1945. Nov. 8, 1945. November 20, 1945. November 24, 1945. December 7, 1945. January 2, 1946. January 7, 1946. January 14, 1946. Do. Stokers Douglas fir open window sash Douglas fir and minor species of plywood Window and picture glass Enameled cast-iron plumbing fixtureware Clay drain tile Domestic oil burners Gas-fired and liquid-petroleum-fired furnaces and unit heaters. 26. Brass plumbing fixtures : January 21, 1946. 27. Southern pine lumber July 23, 1945. 28. Yellow cypress lumber August 22, 1945. 29. Douglas fir boards Do. 30. Redwood lumber September 4, 1945. 31. Western pine 4/4-inch boards September 11, 1945. 32. Walnut lumber November 23, 1945. 33. Lake States logs November 29, 1945. 34. White birch logs Do. 35. Hardwood handles December 10, 1945. 36. Northern hardwood and softwood lumber December 26, 1945. The above list reflects appi oximately 60 separate price actions. Some of the actions were discretionary, and many simply fulfilled the legal minimum standards. Some involved relatively small price increases, others substantial raises. Further adjustments will undoubtedly become advisable within some of these same commodity categories. Mr. B R O W N . Mr. Bowles, I had a restaurant owner here speak to me about some article. He said there was plenty of this particular article. He said that by placing a ceiling on it, with the ceilings too high, everybody thought they would have to run quick to get it, because if there was a ceiling on it, it w^ould be scarce. If it did not have a ceiling, of course, people would not rush to buy so quickly, and the price would be under ceiling. That is his philosophy, of course. He is against the Office of Price Administration altogether. But he told me about it, and I am just passing it on to you. Mr. B O W L E S . If he can find me any items that are selling below ceilings—potatoes, of course, did drop, and we took the ceilings off, and they have stayed off, and we have apparently gotten on all right on potatoes. That was said on chickens, but I do not think it is correct. The C H A I R M A N . Mr. Bowies, you spoke of the increase of $ 5 a ton on steel right across the line. What percentage of increase in the price of steel would that result in? Mr. B O W L E S . I think it is about 8 percent; maybe a little more than that—7 or 8 percent, I am told; that is, in general. Of course, some items, Mr. Spence, would go up considerably more than that. The C H A I R M A N . It is a rather complicated formula, is it not? I mean many of the steel products are low-priced per ton, and many are higher. Mr. B O W L E S . Many would have higher increases than that; yes. The C H A I R M A N . It would operate a greater percent in some items than in others? Mr. B O W L E S . Yes; our big problem is the small nonintegrated companies who are going to need considerably higher increases than that to get them into a good position. The C H A I R M A N . What did the highest increase fall on? Mr. B O W L E S . The highest increase in price? T h e CHAIRMAN. Yes. .21 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . They are not worked out in detail yet. They wrere being worked out over the week end; and I probably should not be talking about them, because I have nothing very exact. As soon as we get them—and it might be incorrect—as soon as we get them, we wall give you all the increases. We are trying to particularly help the small nonintegrated companies, which, as you know, have been in difficulty for some time. Mr. SMITH. Could we have them inserted in the record? The C H A I R M A N . Does that run from $38 a ton to $70? Mr. B O W L E S . Up to $1,800 a ton, some of them. Some of these steels they use in chisels and things like that would be $1,800 a ton. Mr. SMITH. I would like to make a request that those data be placed in the record. Mr. B O W L E S . All right, Mr. Spence. We would be glad to do that. (The document above referred to is as follows:) OFFICE OF P R I C E RPS 6 INCL. AMDTS. 1 - 1 3 M A Y 21, 1945 ADMINISTRATION (Document No. 46145) PART 1 3 0 6 — I R O N [RPS 1 AND STEEL Incl. Amdts. 1-13*] IRON AND STEEL PRODUCTS This compilation of Revised Price Schedule 6 includes Amendment 13, effective May 23, 1945. Portions amended by Amendment 13 are underscored. Redesignations and revocations are indicated by note. Price Schedule 6 was issued on April 16, 1941 to stem a threatened general increase in steel prices. It successfully achieved the major purpose. Such inequities and hardships as were inevitably involved in an action of this nature have been alleviated in the course of administration. In June 1941 a revision of Price Schedule 6 was issued to incorporate certain suggestions received from a cross section of the industry. Subsequently, Revised Price Schedule No. 6 was issued, the revision being designed to eliminate ambiguities and minor errors which in no way affected the major provisions of the original Schedule. The present Schedule continues to employ the multiple basing point, price leadership, and extra systems which are presently in effect in the industry. As before, the acceptance of these systems merely as a vehicle for determining price should not be regarded as approval thereof. Such specifications and standards as arc used in this schedule were, prior to such use, in general use in the trade or industry affected. [Preamble amended b y Supplementary Order 62, 8 F. R. 1255-3, effective 9-11-43; and A m . 13, effective 5-23-451 Sec. 1306.1 1306.2 1306.3 1306.4 1306.5 1306.6 1306.7 1306.8 1306.9 1306.10 1306.11 M a x i m u m prices for iron or steel products. Less than maximum prices or charges. Evasion. Adjustable pricing. Filing, invoicing and record-keeping requirements. Enforcement. Petitions for amendment and applications for adjustment or exceptions. Definitions. Licensing. Appendix A : Domestic and export ceiling prices for sales b y producers of iron and steel products. Appendix B : Products included in the definition of iron and steel products, § 1306.8 (c). 1306.12 Appendix O: Principal established basing points for selected products covered b y Revised Price Schedule N o . 6. 1306.13 Appendix D : Export base prices of United States Export Company for principal products, F. A . S. principal ports, in effect on April 16, 1041. 1306.14 Appendix E: Exceptions to Revised Price Schedule No. 6. 1306.15 Appendix F: Maximum charges for conversion or processing operations. 1306.16 Appendix G: Summary of provisions of the Maximum Export Price Regulation particularly applicable to Revised Price Schedule No. 6. AUTHORITY: § § 1306.1 to 1306.16, inclusive, issued under 56 Stat. 23, 765; 57 Stat. 566; Pub. Law 383, 78th Cong.; E. O. 9250, 7 F. R . 7871, and E. O. 9328, 8 F . R . 4681. i 7 F. R . 1215. "•Statements of the Considerations involved in the issuance of amendments have been issued simultaneously therewith and filed with the Division of the Federal Register. Copies may be obtained from the Office of Price Administration. .22 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 § 1306.1. Maximum prices for iron or steel products. On and after the 23rd day of May, 1945, regardless of any contract or other obligation: No producer shall sell or deliver iron or steel products at prices higher than the maximum prices established by this Schedule; No person shall buy or receive iron or steel products from a producer at prices higher than the maximum prices established by this Schedule; No producer shall charge a fee for the service of converting or processing in any manner an iron or steel product which is owned by a person other than the producer in excess of the maximum charges established by this Schedule; No person shall agree, offer, solicit, or attempt to do anv of the foregoing The provisions of this Schedule shall apply to all sales and deliveries by producers of iron or steel products in the forty-eight states of the United States and the District of Columbia. Maximum prices for sales to exporters and for export sales of iron or steel products are established by the 2nd Revised Maximum Export Price Regulation and a summary of the provisions of the 2nd Revised Maximum Export Price Regulation particularly applicable to this Schedule is hereinafter set forth in § 1306.16 Appendix G. [§ 1306.1 amended by A m . 13, effective 5-23-45] 1306.1a [Revoked] [§ 1306.1a added by A m . 8, 8 F. R . 6042, effective 5-13-43; and revoked by A m . 13 effective 5-23-45] § 1306.2. Less than maximum prices or charges. Lower prices and charges than those set forth in this regulation may be charged, demanded, paid or offered. l§ 1306.2 amended by A m . 8, 8 F. R . 6042, effective 5-13-43] § 1306.3 Evasion. The price limitations set forth in Revised Price Schedule No. 6 shall not be evaded whether by direct or indirect methods in connection with a purchase, sale, delivery or transfer of any iron or steel product, alone or in conjunction with any other material, or by way of any commission, service, transportation, or other charge, or by tying agreement or other trade understanding. Without limiting the generality of the foregoing, the price limitations set forth in Revised Price Schedule No. 6 shall not be evaded by improper classification of any iron or steel product; by improper application of extras; by elimination or reduction of any customary or general privilege as defined in § 1306.10 (h); by the charging of any premium for prompt or early delivery; by the splitting of orders into small quantities with design to increase prices; or by pricing on an f. o. b. mill basis or on the basis of any other than designated basing points, when either of these practices results in a higher than ceiling delivered price. § 1306.4 Adjustable pricing. Any person may agree to sell at a price which may be increased up to the maximum price in effect at the tin e of delivery; but no person may, unless authorized by the Office of Price Administration, deliver or agree to deliver at prices to be adjusted upward in accordance with action taken by the Office of Price Administration after delivery. Such authorization may be given when a request for a change in the applicable maximum price is pending, but only if the authorization is necessary to promote distribution or production and if it will not interfere with the purposes of the Emergency Price Control Act of 1942, as amended. The authorization may be given by the Administrator or by any official of the Office of Price Administration to whom the authority to grant such authorization has been delegated. The authorization will be given by letter or telegram when the contemplated revision might be the granting of an individual application for adjustment. [§ 1306.4, formerly § 1306.7a, added b y A m . 10, 9 F. R. 7601, effective 7-12-44; redesignated by Am. VA. effective 5-23-45. Former § 1306.4 revoked by Am. 13] § 1306.5 Filing, invoicing and record-keeping requirements—-(a) Filing. On or before the 23d day of June 1945, every producer of iron or steel products shall file with the Iron and Steel Branch, Office of Price Administration, Washington 25, D. C., if he has not already done so, all charges, terms and discounts, including base prices published or quoted as of April 16, 1941, and extras which were (1) published and quoted, and (2) actually and customarily charged as of April 16, 1941. On and after the 23d day of May 1945, except as specifically authorized by the Office of Price Administration, no prices, extras or other charges permitted by Revised Price Schedule No. 6 may be charged by any producer unless such filing has been made, Provided, however, That a detailed price filing is not required in the case of speciality products (such as special bar mill sections) which are sold in very small quantities to one customer only. This exception, however, does not in any way affect the application of other provisions of this Schedule to such items. .23 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (b) Invoicing requirements. Every producer making a sale of iron or steel products shall furnish to the buyer an invoice describing the material sold and terms of sale in such detail that the buirer can determine whether the material is priced in accordance with this Schedule. The invoice shall contain at least the following information: The date of sale; the name and address of the seller and purchaser; the quality, size, grade and quantity of the material sold; the price per item; and transportation charges, if any, paid by the purchaser. Copies of such invoices shall be retained, by the seller for the duration of the Emergency Price Control Act of 1942, as amended, or for a period of not less than one year whichever is shorter. (c) Records. Every producer of iron or steel products shall keep for inspection by the Office of Price Administration for the duration of the. Emergency Price Control Act of 1942, as amended, or for a period of not less than one year, whichever is shorter, complete and accurate records of each sale, showing the customer's name and order number; date of order; date of shipment; shipping point and destination; a complete description of the material sold including quantity, size, grade 2nd quality; and special operations or services performed by the producer for which a charge is made; the price of each item sold showing separately each price component; transportation charges paid by the buyer, if any; terms of sale and other credit terms. (d) Reports. Every producer of iron or steel products shall submit to the Office of Price Administration such reports as it may from time to time require, in accordance with the requirements of the Federal Reports Act of 1942. l§ 1306.5 amended by Am. 6, 7 F.R. 4780, effective 6-30-42; Am. 8, F . R . 6042, effective 5-13-43; and Am. 13, effective 5-23-45] § 1306.6 Enforcement, (a) Persons violating any provision of this Revised Price Schedule No. 6 are subject to the criminal penalties, civil enforcement actions, and suits for treble damages provided for by the Emergency Price Control Act of 1942, as amended. (b) Persons who have evidence of any violation of this Revised Price Schedule No. 6 or any price schedule, regulation or order issued by the Office of Price Administration or of any acts or practices which constitute such a violation are urged to communicate with the nearest field or regional office of the Office of Price Administration or its principal office in Washington, D. C. [§ 1306.6 amended by Supplementary Order No. 3, 7 F.R. 2132, effective 3-16-42] § 1306.7 Petitions for amendment and applications for adjustment or exception— (a) Petitions for amendment. Any person seeking an amendment of any provision of this Schedule may file a petition for amendment in accordance with the provisions of Revised Procedural Regulation No. I 2 issued by the Office of Price Administration. (b) Applications for adjustment. Any producer of iron or steel products may file an application for adjustment of the maximum prices established by this Schedule when he can demonstrate hardship in his over-all financial position or in the production of any item, product or line of products, because of the maximum prices established by this Schedule. Such application shall be filed in accordance with Revised Procedural Regulation No. 1. (c) Applications for exception. Any producer of iron or steel products may file an application for an exception from the maximum prices established by this Schedule for a sale or group of sales of iron and steel products which are necessitated by the war effort and involve shipments into areas not normally served by such producer or the absorption of abnormally high transportation costs either of which would result in hardship to the producer. Applications for exception shall be filed in accordance with Revised Procedural Regulation No. 1. [§ 1306.7 amended by A m . 2. 7 F.R. 2299, effective 3-25-42; Supplementary Order 26, 7 F.R. 8948, effective 11-2-42; and Am. 13, effective 5-23-45] § 1306.8 Definitions. When used in Revised Price Schedule No. 6, the term: (a) "Person" includes an individual, corporation, partnership, association, or any other organized group of persons, or legal successor or representative of any of the foregoing, and includes the United States or any agency thereof, or any other government, or any of its political subdivisions, or any agency of any of the foregoing. [Paragraph (a) amended by Supplementary Order No. 12, 7 F.R. 6385, effective 8-17-42] 2 9 F . R . 10476, 13715. .24 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (b) "Producer" or "producer of iron or steel products" means any person who manufactures or produces any of the iron or steel products as defined in paragraph (c) herein; (c) "Iron or steel products" means and includes all iron or steel ingots, all semifinished iron or steel products, all finished hot-rolled or cold-rolled iron or steel products, and any iron or steel product which is further finished by galvanizing, plating, coating, drawing, extruding, etc. Without limiting the generality of the foregoing, the term shall include all products listed in Appendix B (§ 1306.11) of Revised Price Schedule No. 6. The term shall also include all seconds and off-grade iron or steel products: Provided, That the term shall not include axles or car wheels, or any combination rolled or forged, or pig iron. [Paragraph (c) amended b y Am. 10, 9 F. R. 7601, effective 7-12-44] (d) "Governing basing point" means that established basing point the use of which results in the lowest delivered price at the place of delivery. (e) "Emergency basing pomt" means the established basing point at or nearest the place of production or of origin of shipment. (f) "Usual market area" of any mill with respect to a shipment of any product means that area into which the particular iron or steel product had, in the course of the two years prior to April 16, 1941, been customarily shipped by such mill in quantities comparable to the shipment being made. (g) "Basing point base prices" means: (1) The prices announced prior to December 31, 1940, or customarily quoted by Carnegie-Illinois Steel Corporation, American Steel & Wire Co., Tennessee Coal, Iron & Railroad Co., National Tube Co., and Columbia Steel Co., as base prices effective during the first quarter of 1941, or in effect on April 16, 1941, and applicable at designated basing points for iron or steel products; or (2) In the case of an individual producer, the prices announced or customarily quoted by such producer during the first quarter of 1941, or in effect on April 16, 1941, as base prices applicable at designated basing points for iron or steel products: Provided, That the base prices under this subparagraph (2) shall not be in excess of the base prices under subparagraph (1), for the purpose of this definition, except to the extent which actually prevailed in the case of such producer, during the entire third quarter of the year 1940; or (3) Where there are delivered prices applicable at a particular place, including Detroit, eastern Michigan, and the Gulf and Pacific Coast basing points listed in Appendix C (§ 1306.12), and such prices are less than the basing point base prices at the nearest governing basing point plus transportation charges, such prices for the purpose of Revised Price Schedule No. 6 shall be deemed basing point base prices applicable for delivery at such place: (i) Provided, That such prices, except in the case of the Gulf and Pacific Coast ports, are not to be used to arrive at delivered prices to other destinations: (ii) Provided further, That when delivery is made in any part by water transportation, to these maximum delivered prices may be added any excess in the charges for war risk marine insurance above the charges prevailing prior to January 8, 1942: (iii) Provided further, That this paragraph need not apply (a) in the case of a shipment to or based upon Gulf or Pacific Coast points, if the customary means of transportation are not used or (b) if the shipment is outside the usual market area, as defined in § 1306.8 (f), in which cases the shipment mav be priced in accordance with paragraph (b) of Appendix A (§ 1306.10). (iv) [Revoked.] [Subparagraph (iv) added by Am. 4, 7 F.R. 3115, effective 4-30-42; revoked by Am. 9,8 F . R . 6440, effective 5-15-43] (h) (1) "Extras" means when used with reference to domestic sales (i) the published or quoted extras of the subsidiaries of the U. S. Steel Corporation as of April 16, 1941, or (ii) the published or quoted extras of the individual producer, as of April 16, 1941, being additions to or deductions from the base price to make adjustment for variations in the product sold from the product governed by the base price, which variations might be in size or other physical specifications, chemical analysis, processing or other quality or treatment or in the quantity of the product: Provided, That (except as permitted under § 1306.10 (h)) where any extra may have been so published or quoted but had not been charged, in whole or in part, by a producer for a specific application to a particular group or groups of buyers on April 16, 1941, or during the two years prior thereto, before such published extra may be charged or invoiced by such producer after March 15, 1942, to such particular group or groups of buyers such producer must apply for approval to and receive approval from the Office of Price Administration for .25 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 the charging of such extra for such application to such particular group or groups of buyers. Any extra approved by the Office of Price Administration under this section may after publication thereof be charged by all producers covered by Revised Price Schedule No. 6. Without limiting the generality of this proviso, approval may be denied for the charging of any such extra, even if published as of April 16, 1941, to the extent that such extra during the two years prior to April 16, 1941, had been generally ignored in pricing steel for a particular group or groups of buyers so that the failure to charge such extra constituted a customary trade practice in respect to such buyers. (2) "Extras" when used with reference to export sales means (i) the export extras published or quoted by the United States Steel Export Company, by the Steel Export Association, or by the individual producer, as of April 16, 1941; or (ii) where extras provided under (i; are not applicable, domestic extras as defined in paragraph (h) (1) above. (3) The extras or other charges which may be charged on sales of cold finished steel bars and shafting shall be as established in subparagraphs (1) and (2) above: Provided, That: (i) With respect to sales of cold finished carbon steel bars and shafting. (а) The extra of $0.10 per hundred pounds for magnetic testing may be charged only when the specification expressly calls for magnetic testing, or when the specifications for surface seams and other defects of this type are sufficiently critical so that magnetic testing is necessary to determine whether or not the material will be acceptable. (б) The extra of $0.25 per hundred pounds for United States Government specifications requiring physical inspection or physical testing is restated to read for "U. S. Government specifications requiring physical testing," and this extra may be charged only when the steel is produced to definite physical specifications requiring tensile, impact, fracture, or similar tests. (c) The extra of $0.10 per hundred pounds for U. S. Government specifications requiring chemical inspection or chemical testing is eliminated and such extra may not be charged. (d) The extra of $0.15 per hundred pounds for extensometer testing may be charged only when the use of this instrument is specifically required in the specification, and this extra may not be charged when the extra of $0.25 per hundred pounds for physical testing is charged. (e) Extras for quality, such as "special requirement quality" and "shell quality", may be charged only when and in the amount that such extra has been charged by the producer of the hot rolled steel from which the cold finished steel is made. In the case of producers making both the hot rolled and cold finished bars, such extras may be charged only when properly applicable to the hot rolled bars. (/) When strain and stress relieving or stabilizing by baking is specified or required to meet physical requirements of the U. S. Army and Navy specifications for 20 mm, 1.1", 37 mm and 40 mm shells and other ammunition components covered by U. S. Army specifications 57-107-29, AXS-485, and AXS-605, and U. S. Navy specifications OS-1231, OS-829, Grade C, and OS-829, Grade D (Class 2) and similar Army, Navy, Lend-Lease, British or other specifications, the extra of $0.75 per hundred pounds for annealing or normalizing may be charged, but such charge shall include all charges for physical testing, including magnetic testing and use of extensometer, and no other extras for physical testing may be charged. (ii) With respect to sales of cold finished alloy steel bars, (a) The maximum chemical analyses extras for the following basic open hearth grades shall be: per 100 lbs. NE 8600 $0. 65 .70 NE 8700 AISI 4100 (Mo.—.15 to .25) . 70 AISI 3100 . 85 On analyses of alFother alloy steels for which chemical extras and extras for alloy content are not; in eluded in the standard extra list, the applicable charge for chemical composition and alloy content shall be calculated from the list of extras for hot rolled alloy steel bars as published and filed by the Carnegie-Illinois Steel Corporation. The customary differentials for electric furnace quality and for variations from the standard analyses range shall apply to these extras. [Subparagraph (a) amended by A m . 10, 9 F. R. 7601, effective 7-12-44] .26 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (b) On U. S. Government specifications requiring physical testing such as tensile, impact, or fracture testing, an extra of $0.25 per hundred pounds may be charged: Provided, That when this extra is charged, the extra of $0.25 per hundred pounds for use of extensometer shall not be charged: Provided further, That this extra shall not be charged when the steel is heat-treated and/or stress relieved by the cold finished bar producer. (c) The extra of $0.10 per hundred pounds for U. S. Government specifications and/or inspection may be charged only when such extra has been charged by the producer of the hot-rolled steel from which the cold-finished steel is made, or, in the case of integrated producers, only when applicable to the hot-rolled bars. (d) The maximum extra which may be charged for the stamping of heat numbers and symbols on one end of individual bars shall be $0.25 per hundred pounds regardless of the number of stamps which may be required. (e) When bars in the form of rounds or hexagons are furnished in coiis, a discount of $0.15 per hundred pounds shall be deducted from the selling price. (/) The extra of $0.50 per hundred pounds for steel guaranteed free from decarburization may not be charged when the steel is turned, turned and polished, or turned, ground, and polished. (iii) Where the rules and interpretations as listed above mention "U. S. Government specifications", this term shall include British, Russian, and other governmental specifications of a similar nature, and also other specifications designed to procure steel for ordnance purposes. [Subparagraph (3) added by A m . 6, 7 F.R. 4780, effective 6-30-42, amended as otherwise noted] (4) The extras or other charges which may be charged on the sales of hot finished alloy steel bars and bar strip, billets, blooms, and slabs, cold rolled alloy strip, and hot and cold finished alloy mechanical and pressure tubing shall be as established in subparagraph (1) and (2) of § 1306.8 (h), Provided, That: (i) with respect to sales of alloy steel bars, bar strip, billets, blooms, slabs and cold rolled alloy strip the maximum anahrsi^ extras for the following basic open hearth grades, shall be: Basic Open Hearth Bars—Bar Blooms strip cold billets and rolled strip slabs Per 100 Per gross lbs. ton N E 8600N E 8700 AISI 4100 (Mo.—0.15 to 0.25) AISI 3100 $0. 65 .70 .70 .85 $13.00 14.00 14.00 7.00 The customary differentials for electric furnace quality and for variations from the standard analysis range shall apply to these extras. (ii) With respect to sales of alloy steel merchanical and pressure tubing (except aircraft tubing and bearing tubing) the maximum analysis extras for the following basic open hearth grades, NE 8600, NE 8700, AISI 4100 and AISI 3100, shall be the bar extras stated in subparagraph (i) of this paragraph converted to a percentage "base" in accordance with the "Analysis Extras and Deductions" tables filed with the Office of Price Administration by producers of alloy steel tubing. [Subparagraph (4) added by Am. 10, 9 F. R. 7601, effective 7-12-44] § 1306.9 Licensing. The provisions of Licensing Order No. I,3 licensing all persons who make sales under price control, are applicable to all sellers subject to this regulation or Schedule. A seller's license may be suspended for violations of the license or of one or more applicable price schedules or regulations. A person whose license is suspended may not, during the period of suspension, make any sale for which his license has been suspended. [ § 1306.9, formerly § 1306.6a, added by Supplementary Order No. 72, 8 F. R. 13244, effective 10-1-43; redesignated by Am. 13] [Former §§ 1306.9 and 1306.9a revoked by Am. 13, effective 5-23-45] § 1306.10 Appendix A: Domestic and export ceiling prices for sales by producers of iron and steel products, (a) The domestic ceiling delivered price for any iron or steel products for which there are basing point base prices shall be the aggregate of: 3 8 F . R . 13240. .27 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (1) The basing point base price at the governing basing point; (2) Applicable extras, as defined in and subject to the provisions of § 1306.8 (h): Provided, That in no case shall an extra or extras be charged for any processing, testing, chemical specification, special quality, quantity, etc., unless these services are actually performed and are necessary in order to furnish an iron or steel product of a type and quality required to fabricate successfully the article in question or to meet the specifications of the purchaser. (3) Transportation charges in effect at the time of shipment from the governing basing point to the place of delivery as customarily computed. (b) Notwithstanding the provisions of paragraph (a), if in any case in which by reason of unusual circumstances arising directly from the emergency demands of the war program, a shipment of any product is made to a place which is not within the usual market area of the mill from which shipment is made, the emergency basing point, may be used and transportation charges may be calculated from the emergency basing point to the place of delivery. Such transportation charges shall in no case exceed the actual cost of transportation on the shipment. All persons selling iron or steel products under this paragraph (b) shall maintain complete and readily available records of all such sales and shall report such sales to the Office of Price Administration as the Office of Price Administration may from time to time require. (c) The maximum prices for export sales shall be determined in accordance with the provisions of the Second Revised Maximum Export Price Regulation issued by the Office of Price Administration. A summary of the provisions of said Second Revised Maximum Export Price Regulation 4 particularly applicable to this schedule is set forth in Appendix G hereof. [Paragraph (c) amended b y Am. 8 . 8 F . R . 6042, effective 5-13-43] [Former paragraph (d) revoked by Am. 8, 8 F. E. 6042, effective 5-13-43. Former paragraphs (e), (f), (g), (h), (i) and (j) redesignated (d), (e), (f), (g), (h) and (i) by Am. 8, 8 F. R. 6042, 7257, effective 5-13-43] (d) For all iron or steel products, such as specialty products, for which there are no basing point base prices and extras or United States Steel Export Company F. A. S. seaboard prices, the ceiling prices shall be the prices and extras which were or would have been charged by the seller on April 16, 1941 (upon the basis of the prices, discounts, charges, or extras then listed or quoted by the seller) for such iron or steel products. [Subparagraph (d) (4) (incorrectly designated), added by Am. 12,10 F.R. 2432, effective 3-1-45; and revoked Am. 13, effective 5-23-45] (e) (1) The maximum delivered prices for flat rolled iron or steel products which either have been rejected from the original order for which they were rolled or contain imperfections customarily distinguishing secondary or off-grade iron or steel products from products of prime quality, shall be as set forth hereinafter in this paragraph (e): Provided, That a product which has been rejected from the original order for which it was rolled may be applied at the full applicable prime price against a different prime order if such product fulfills in every respect the quality and other requirements in the original specifications for such different order, and if such product may be used by the purchaser without resorting to additional processing not usually performed in order to adapt the material to his requirements. (i) "Seconds arising" shall not be sold at a price in excess of the applicable prices filed therefor in accordance with paragraph (a) of § 1306.5 of this Schedule. [Subparagraph (i) amended by Am, 13, effective 5-23-45] (ii) "Rejects" shall not be sold at a price in excess of the aggregate of 85% of the applicable basing point base price at the basing point nearest freightwise to the point of shipment plus 85% of such of the following extras established by this Revised Price Schedule No. 6 as may be applicable: (a) m the case of hot rolled sheets and cold rolled sheets, the standard extra for 32" x 96" sheet in the gage specified, and, in the case of hot rolled pickled sheets, the pickling extra; (b) in the case of hot rolled strip, cold rolled strip .26 carbon and higher, commodity cold rolled strip and cold rolled spring steel, the standard extra for gage and size and, in the case of hot rolled pickled strip, the pickling extra; (c) in the case of cold rolled strip under .26 carbon, the standard extra for gage and size in cut lengths, for either hard or soft temper; (d) in the case of plates, the standard extra for thickness, for wide widths, for pickling or sandblasting and for quality (provided such quality is actually furnished and was not the reason for the original rejection and is specified by the customer); and (e) in the 4 8 F. R . 4132, 5987, 7662, 9998, 15193; 9 F. R. 1036. 83512—46—vol. 1 3 .28 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 case of galvanized sheets, galvannealed sheets, long terne sheets, and all other products with separate gage extra and size extras, the extra for gage. "Rejects", for the purpose of this subparagraph are flat-rolled iron or steel products which are of a designated specific size and gage and which contain minor imperfections such as minor surface defects, lack of flatness, camber, off or fluctuating gage or temper, and similar imperfections, but which may be utilized without requiring unusual processing in order to remove or minimize injurious defects. (iii) "Wasters" shall not be sold at a price in excess of the aggregate of 75% of the applicable basing point base price at the basing point nearest freightwise to the point of shipment plus 75% of such of the extras set forth in (ii) of this subparagraph as are applicable. "Wasters", for the purposes of this subparagraph, are flat-rolled iron or steel products which are of a designated specific gage but are unassorted to size, and which are otherwise of the same quality as "rejects." (iv) "Waste wasters" shall not be sold at a price in excess of the aggregate of 65% of the applicable basing point base price at the basing point nearest freightwise to the point of shipment plus 65% of such of the extras set forth in (ii) of this subparagraph as are applicable: Provided, That in computing the maximum unit price for any lot of "waste wasters" containing a range of gages, the maximum price for the gage within the range carrying the lowest gage extra shall be the price used in determining the maximum price for the entire lot: Provided further, That the maximum prices for plates which are "waste wasters" shall be those set forth in (iii) of this subparagraph. "Waste wasters", for the purposes of this subparagraph, are flat-rolled iron or steel products which are unassorted to both size and gage and also include flat-rolled iron or st^el products which, in addition to the imperfections list'ed in (ii) of this Subparagraph, also contain imperfections appreciably limiting the utility of the product, such as blisters, laminations, perforations, dirty surfaces, bad edges, wrinkles, or other mars, and which require further processing by the purchaser, such as shearing, pickling, or scrubbing, in order to remove or minimize such injurious defects. (v) The maximum prices which may be charged for tin plate "waste waste" shall be $2.80 per hundred pounds, and for manufacturers' terne plate "waste waste" shall be $2.25 per hundred pounds. (vi) To the maximum prices established in (ii), (iii), (iv), and (v) above may be added the actual cost of transportation from the immediate point of shipment to the point of delivery. (2) The maximum delivered prices for "semi-finished rejects" shall be not in excess of the aggregate of 85% of the applicable basing point base price at the basing point nearest freightwise to the point of shipment for an identical quantity of the iron and steel products of a rerolling grade plus such extra for cross-sectional area as may be applicable and plus the actual cost of transportation from the immediate point of shipment to the point of delivery. "Semi-finished rejects" for the purposes of this subparagraph, are partly finished iron or steel products, such as blooms, billets, tube rounds and slabs, which have been rejected because of poor surface condition, lack of internal soundness, or other defects which render the steel unsuitable for sale or use by the mill as a prime product. (3) The maximum delivered price for any secondary or off-grade iron or steel product for which a maximum price is not established in subparagraphs (1) and (2) above shall be an amount not in excess of the maximum delivered prices established by this Revised Price Schedule No. 6 for an identical quantity of the same iron and steel of prime quality. [Paragraph (e), formerly (f) amended by Am. 7, 7 F. R . 7240, effective 9-17-42] (f) (1) The maximum base price for carbon steel ingots, rerolling quality, standard analysis, shall be'$31.00 per gross ton, f. o. b. mill. (2) The maximum basing point base price for unfabricated new-billet concrete reinforcing bars shall be $2.15 per hundred pounds, subject to the following mandatory adjustments: (i) A discount of $0.25 per hundred pounds on orders released for shipment to one installation at one time and in quantities of 20 tons or more of one size and one length 30 feet or over or in random mill lengths, when such sales are made to persons in the business of fabricating such reinforcing bars for resale and who maintain warehousing facilities, equipment for cutting and bending, and engineering services. This paragraph shall apply to direct purchases by the Tennessee Valley Authority and the Bureau of Reclamation. (ii) Such other functional or customary discounts to contractors, jobbers, brokers, or others as each individual producer was granting on April 16, 1941, and is required to maintain by § 1307.10 (h) . .29 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (iii) Such differentials as are allowed or enforced by other sections or paragraphs of Revised Price Schedule No. 6 in the case of Gulf ports, Pacific ports and other delivered price areas. [Paragraph (f), formerly (g), amended by Am. 6, 7 F. R. 4780, effective 6-30-42] (g) In any case in which the maximum prices set forth in this schedule are no applicable to a new product, or a substantial variation in a product or a new proc ess or service, the producer shall apply to the Office of Price Administration. Washington 25, D. C. for a maximum price for the product or process. He shall submit his proposed selling price and substantiating information. If the new product or process is such that an in-line price may be established by interpolation of existing maximum prices the interpolation procedure must be clearly set forth, otherwise detailed estimated costs must be submitted on OPA Forms #674-530 (a), (b), (c) or (d) whichever is applicable. The Office of Price Administration shall act upon such application within 10 days after itte receipt or after the receipt of any additional information requested. It may deny the application or establish a different price and may impose such conditions as are appropriate. If the Office of Price Administration has not acted upon an application within the period specified, the applicant may use the requested price until such time that he receives notice from the Office of Price Administration that his price has been revoked or modified. Pending action of the Office of Price Administration upon an application, the producer may make offers or enter into contracts upon the basis of the requested price, but may not receive payment until action by the Office of Price Administration or until expiration of 20 days after mailing of the application. [Paragraph (g) amended by Am. 13, effective 5-23-45] (h) All customary or general privileges in effect as of April 16, 1941, including, without limiting the generality of the foregoing, delivery and other services of all kinds, credit or other terms of payment, functional discounts and allowances such as those customarily made to jobbers, dealers or other distributors and discounts and allowances customarily made to specific classes of purchasers such as manufacturers of roofing materials, chain link fencing, culverts, etc., shall be continued without diminution or extra charge: Provided, That this paragraph shall not apply to any reductions in published or quoted base prices arising from specific competitive situations: Provided further, That the discount or allowance to be made on bale tie low carbon Bessemer or low carbon basic manufacturers' wire, shall be, not less than 20 cents per hundred pounds off the base price for such wire, except that, insofar as a lesser discount, was actually and customarily granted, as of April 16, 1941, by a producer who customarily sold such bale tie wire to bale tie manufacturers, such lesser discount may be used by the producer on its sales of bale tie wire to such manufacturers. [Paragraph (h), formerly (i), amended by Am. 1, 7 F. R. 2153, effective 3-17-42; Am. 5, 7 F. R. 3941, effective 5-30-42; and Am. 13, effective 5-23-45] (i) Notwithstanding the provisions of any other section of this Revised Price Schedule No. 6, the maximum basing point base prices of steel wire screen cloth, both black painted and galvanized, in standard length rolls of 100 lineal feet and in standard widths of 18" to 48" inclusive, shall be a,s follows: To jobbers stocks Carload Less than carload Direct to dealers; A R E A S OTHER THAN PACIFIC COAST Discount off list, of List in effect Apr. 16, 1941 50 & 15 percent 50 & 12 H percent $1. 67 1.80 2.04 2. 36 2:64 $1.88 2. 02 2. 29 2.60 2. 95 50 & 10* percent PACIFIC COAST Net prices per 100 sq. ft. 12 mesh 12 mesh 14 mesh 16 mesh 18 mesh black painted galvanized galvanized galvanizedgalvanized or 2. 25 2.52 2. 86; 3. 90 $2. .30 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 All extras, terms and conditions of sale, delivery and other services shall be maintained. [Paragraph (i), formerly (j), added b y Am. 3, 7 F. R. 2997, effective 4-27-42] (j) (1) Additions to basing point base prices for certain products. Notwithstanding the provisions of any other section of this Revised Price Schedule No. 6, there may be added to the basing point base prices otherwise established by this schedule for the products listed below, the amounts indicated: (1) Carbon steel blooms, billets, slabs, and sheet bar of all qualities—$2.00 per gross ton. (ii) Carbon steel tube rounds, and tube billets exclusive of billets not directly converted into seamless pipe or tube—$4.00 per gross ton. (iii) Carbon steel plates, all types and qualities, produced to the dimensional tolerances in A. I. S. I. Manual Section 6, Carbon Steel Plates, March 1943 revision—150 per 100 pounds. (iv) Rails, except light rails, all types and grades—$3.00 per gross ton. (v) Light rails, all types and grades—$5.00 per gross ton. (vi) Tie plates, all types—$3.00 per net ton. (vii) Carbon steel hot rolled merchant bars and bar size shapes, all types and qualities—100 per 100 pounds. (viii) Carbon steel hot rolled wire rods, all types and qualities—150 per 100 pounds. (ix) Carbon steel manufacturers wire and carbon steel merchant quality wire, all types and finishes, except such manufacturers wire for which a base price in excess of $3.20 f. o. b. Pittsburgh, Pennsylvania, or $3.30 f. o. b. Worcester, Massachusetts is otherwise established by this schedule—150 per 100 pounds. (x) Nails and staples, other than galvanized nails and staples—350 per 100 pounds except that for all Miscellaneous Nails and Wire Brads having maximum prices based on list prices less published discounts, the increase of 350 per 100 pounds may be added to the maximum delivered prices. (xi) Twisted barbless wire and barbed wire—100 per 100 pounds. (xii) Bale ties, all types—350 per 100 pounds. (xiii) Hot rolled carbon steel, porcelain enameling, iron, and electrical steel sheets, including roofing and siding manufactured from those materials, all types and qualities— 100 per 100 pounds. (xiv) Galvanized iron or steel sheets, and zinc coated specialty iron or steel sheets, including roofing and siding manufactured from those materials (not including galvannealed sheets)—200 per 100 pounds. (xv) Track spikes—250 per 100 pounds. [Subparagraph (1) amended and (4) revoked b y A m . 13, effective 5-23-45] (2) The increases granted in this § 1306.10 (j) shall apply to all shipments made on and after the effective date hereof. (3) The increases granted in this § 1306.10 (j) may not be added to prices established by individual price adjustment. The companies to which individual price adjustments have heretofore been granted may sell at the prices established in this § 1306.10 (j) or at the prices established by their individual adjustment order, at their option. (4) [Revoked] [Paragraph (j) added by Am. 11, 10 F. R. 520, effective 1-11-45; and amended by Am. 12, 10 F. R. 2432, effective 3-1-45 and as otherwise noted] § 1306.11 Appendix B: Products included in the definition of iron or steel products, § 1036.8 (c). The following iron and steel products and their alloys (including stainless) are "Iron or steel Products" as defined in § 1306.8 (c). This list does not limit the generality of the definition of iron and steel products contained in § 1306.8 (c). Bars and small shapes, new billet and Ingots rail steel—all types and grades inBlooms cluding: Billets Merchant Slabs Cold finished—carbon Sheet bars Concrete reinforcing Skelp Alloy-hot rolled Tube rounds cold finished Muck bar Hoops and baling bands Forging rounds .31 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Tool steel bars—rolled and forged Plates—all types Armor plate—forged, rolled and otherwise Shapes including bearing piles Sheet piling and accessories Rails—all types Track materials including: Tie plates * Tie rods Track spikes Splice bars (joint bars, angle bars, rail joints, and fish plates) Ties Pipe and tube—plain, threaded, and coupled—all types and grades, including: Conduit Spiral welded Mechanical tubing Boiler, pressure, and heat exchange tubing Black Plate Tin Plate—all types Sheets and strips, all types, including plain and corrugated; and roofing and siding of all types; including: Hot rolled Cold rolled Galvanized Ternes Enameling Electrical All other Wire and wire rods—all types and Merchant wire products, including: Nails, staples, and brads Merchant quality wire Wire fencing, including woven, chain, link and lawn Bale ties and buckle wire Posts—all types and accessories Poultry and animal farm netting Twisted barbless and barbed wire Wire clothes line Wire rope, wire strand, and special cords such as aircraft Woven wire cloth—insect, hardware, and all other Wire belting Wire hoops Communications and power transmission wire Welded or woven wire fabrics for reinforcing [List amended by Am. 10, 9 F. R. 7601, effective 7-12-44] $ 1306.12 Appendix C: Principal established basing points for selected products covered by Revised Price Schedule No. 6. ["Axles-Rolled or Forged" effective 5-23-45] deleted b y Am. 13, Bale Ties: Birmingham Chicago Cleveland Duluth Pittsburgh Pacific Coast Ports Bars—Alloy Steel, Hot Rolled: Bethlehem Buffalo Canton Chicago Massillon Pittsburgh Bars—Allov Steel, Cold Finished: Buffalo Chicago Cleveland Gary Pittsburgh Bars and Small Shapes—Carbon Steel and Rail Steel, Hot Rolled: Birmingham Buffalo Chicago Cleveland Duluth (Carbon Steel only) Gary Pittsburgh Gulf Ports Pacific Coast Ports Bars—Carbon Steel, Cold Finished: Buffalo Cleveland Chicago Detroit Gary Pittsburgh Bars—Concrete Reinforcing, New Billet and Rail Steel: Birmingham Buffalo Chicago Cleveland Gary Pittsburgh Sparrows Point, Md. (New Billet only) Youngstown Gulf Ports: Beaumont, Texas Galveston, Texas Houston, Texas Orange, Texas Port Arthur, Texas Pacific Coast Ports Bars, Billets, Blooms, Muck Bar—Iron: Berwick, Pa. Burnham, Pa. Chicago Coatesville, Pa. Columbia, Pa. Creighton, Pa. Cuyahoga Falls, Ohio Dover, N. J. .32 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Bars, Billets, Blooms, etc.—Continued Jersey City, N. J. Lebanon, Pa. Louisville, Ky. Pittsburgh Richmond, Va. Terre Haute, Ind. Bars and Billets—Tool Steel: Bethlehem Pittsburgh Syracuse, N. Y. Blooms, Billets and Slabs—Alloy Steel: Bethlehem Buffalo Canton Chicago Massillon, Ohio Pittsburgh Blooms, Billets and Slabs—Carbon Steel, Forging and Rerolling: Birmingham Buffalo Chicago Cleveland Duluth (Billets only) Gary Pittsburgh Sparrows Point, Md. (Rerolling quality) Youngstown Fence Posts: Birmingham (Angle line posts only) Chicago Cleveland Pittsburgh Pacific Coast Ports Pipe—Wrought Iron: Pittsburgh Pipe—Steel: Gary Lorain Pittsburgh Ingots—(Forging): Pittsburgh Ingots—(Alloy): Pittsburgh Bethlehem Buffalo Canton Chicago Coatesville Massillon Plates—Carbon: Birmingham (up to and incl. 106" wide) Chicago Claymont, Del. Cleveland, Ohio Coatesville, Pa. Gary Pittsburgh Sparrows Point, Md. Youngstown Gulf Ports Pacific Coast Ports Plates—Alloy: Chicago Coatesville Plates—Alloy—C ontinued Pittsburgh Gulf Ports Pacific Coast Ports Plates—Floor: Pittsburgh Chicago Gulf Ports Pacific Coast Ports Girder Rails and Splice Bars Therefor: Lorain, Ohio Steelton, Pa. Light Rails—(60 lb. or less per yd.): Birmingham Chicago Pittsburgh Rails and Splice Bars for Rails (over 60 lb. per yd.): Gulf Ports: New Orleans On sales to Mobile, Ala. Railroad Galveston, Tex. Cos. 200 g. Houston, Tex. t. or more for Pacific Coast Parts: rails, and Oakland, Calif. any quantity San Francisco for splice San Pedro, Calif. bars. Portland, Oreg. Seattle, Wash. Railroad Tie Plates—for Standard Tee Rails: Birmingham Buffalo Chicago Kansas City, Mo. Minnequa, Colo. Pittsburgh Portsmouth St. Louis Steelton, Pa. Weirton, W. Va. Pacific Coast Ports Railroad Track Spikes: Birmingham Chicago Kansas City, Mo. Lebanon, Pa. Minnequa, Colo. Pittsburgh Portsmouth, Ohio Richmond, Va. St. Louis Weirton Youngstown Pacific Coast Ports: San Francisco San Pedro, Calif. Portland, Oreg. Seattle, Wash. Sheet Bars: Buffalo Canton Chicago Cleveland Pittsburgh Sparrows Point, Md. Youngstown .33 E X T E N D PRICE CONTROL A NSTABILIZATION D ACTS OF 1 9 4 2 Sheets—Cold Rolled: Buffalo Chicago Cleveland Gary Granite City, 111. Middletown, Ohio Pittsburgh Youngstown Pacific Coast Ports Sheets—Enameling: Pittsburgh Chicago Cleveland Gary Granite City Middletown Youngstown Pacific Coast Ports Sheets—Electrical: Pittsburgh Granite City Pacific Coast Ports Sheets—Galvanized: Birmingham Buffalo Chicago Gary Granite City, 111. Middletown, Ohio Pittsburgh, Pa. Sparrows Point, Md. Youngstown, Ohio Pacific Coast Ports Sheets—Hot Rolled: Birmingham Buffalo Chicago Cleveland Gary Granite City, 111. Middletown, Ohio. Pittsburgh Sparrows Point, Md. Youngstown, Ohio Pacific Coast Ports Sheets—Long Terne: Chicago Gary Pittsburgh Pacific Coast Ports Skelp—Carbon Steel: Chicago Coatesville Pittsburgh, Pa. Sparrows Point, Md. Youngstown Skelp—Charcoal Iron: Coatesville, Pa. Steel Sheet Piling & Accessories: Buffalo Chicago Pittsburgh Pacific Coast Ports Strip Steel—Cold Rolled: Chicago Cleveland Pittsburgh Strip Steel—Cold Rolled—Continued Worcester, Mass. Youngstown Splice Bars for Light Rails: Pittsburgh Strip Steel—Commodity: Pittsburgh Cleveland Youngstown Worcester Strip Steel—Alloy: Pittsburgh Bethlehem Buffalo Canton Chicago Massillon Strip Steel—Hot Rolled: Birmingham Chicago Cleveland Gary Middletown, Ohio Pittsburgh Youngstown Pacific Coast Ports Structural Shapes: Bethlehem Birmingham (Standard Shapes Only) Buffalo Chicago (except ship sections not rolled) Gary (except ship sections not rolled) Pittsburgh Gulf Ports Pacific Coast Ports Tin Mill Black Plate: Chicago Gary Granite City, 111. Pittsburgh Pacific Coast Ports Tin Plate and Terne Plate: Chicago Gary Granite City, 111. Pittsburgh Tubing—Mechanical: Canton Detroit Milwaukee Shelby Pittsburgh Tubing—Pressure: Pittsburgh Twisted Barbless & Barbed Wire: Birmingham Chicago Cleveland Duluth Pittsburgh Pacific Coast Ports Tube Rounds: Chicago Cleveland Pittsburgh .34 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Wire Rods: Birmingham Chicago Cleveland Pittsburgh Worcester, Mass. Gulf Ports: Galveston, Tex. Pacific Coast Ports: Los Angeles San Francisco Portland, Ore. Seattle, Wash. Wire—Drawn (Includes Manufacturer's and Merchant Quality): Birmingham Chicago Cleveland Glassport, Pa. (Hot copper covered steel only) Duluth Pittsburgh Worcester, Mass. (Manufacturer's wire only) Pacific Coast Ports Wire—Spring: Chicago Cleveland Pittsburgh Worcester, Mass. Pacific Coast Ports Wire—Telephone: Cleveland Munice, Ind. Pittsburgh Sparrows Point, Md. Trenton, N. J. Waukegan, 111. Worcester, Mass. Wire Fencing (except chain link): Birmingham Chicago Cleveland Duluth Pittsburgh Pacific Coast Ports Wire Hoops: Chicago Pittsburgh Wire Nails and Staples: Birmingham Chicago Cleveland Duluth Pittsburgh Pacific Coast Ports Pacific Coast Ports, except where otherwise enumerated are as follows: Bellingham, Wash. Everett, Wash. Long Beach, C?lif. Los Angeles, Calif. Oakland, Calif. Portland, Oreg. Sacramento, Calif. San Diego, Calif. San Francisco, Calif. San Pedro, Calif. Seattle, Wash. Stockton, Calif. Tacoma, Wash. Wilmington, Calif. Gulf Ports, except where otherwise enumerated are as follows: Beaumont, Tex. Galveston, Tex. Houston, Tex. New Orleans, La. Orange, Tex. Port Arthur, Tex. § 1306.13 Appendix D: Export base prices of United States Export Company for principal products, F. A. S. principal ports, in effect on April 16, 1941 P E R GROSS T O N Products Ingots Blooms-billets & slabs, sheet bars Forging billets Wire rods in coils _ _ .. _ Light rails (60 pounds and under) Heavy rails (over 60 pounds) Girder rails . __ San Francisco, Seattle, Portland, Los Angeles (San Pedro) Boston, New York, Philadelphia, Baltimore, Norfolk Charleston, Savannah, New Orleans, Mobile $37. 00 42. 00 48. 00 52. 00 52. 50 54.15 55. 00 $37.00 42.00 48.00 52. 00 52. 50 54.15 58. 55 $39. 49 44.49 50. 49 54. 49 58. 01 59. 66 60. 25 $46.60 51.60s 57.60 61. 60 62. 21 63. 86 64. 27 $3. 52 2. 92 3. 25 3. 58 2. 40 2.80 2. 45 $3. 64y2 3. 04K 3. 37K 3. 66 2. 48 2.88 2. 57K $3. 92 3. 32 3. 65 3. 78 2.60 3.00 2.85 Galveston, Houston P E R 100 P O U N D S Angle splice bars for heavy rails. Tie plates Track spikes Axles Skelp Piling Plates (carbon steel) >3. 52 2. 92 3. 25 3. 38 2. 20 2. 60 2. 45 .35 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 § 1306.13 Appendix D: Export base prices of United States Export Company for principal products, F. A. S. principal ports, in effect on April 16, 1941—Con. P E R 100 POUNDS—Continued Boston, New York, Philadelphia, Baltimore, Norfolk Products Structural shapes (standard) Merchant bars and bar mill shapes Concrete bars (new billet) Cold finished carbon steel bars Hot rolled alloy bars Cold finished alloy bars.__ . Hot rolled carbon tool steel bars (Tennessee special). Black annealed wire. Galvanized plain wire, . Galvanized barb wire Bright nail wire Wire nails . Galvanized staples (incl. $1.17 extra for galvanized). Bright staples (including 72 cents extra for bright).. Charleston, Savannah, New Orleans, Mobile Galveston, Houston San Francisco. Seattle, Portland, Los Angeles (San Pedro) $2. 45 2.45 2.45 3. 08 3. 04 3. 69 7. 57 3. 30 3. 80 3. 85 3. 00 2. 85 4.12 3. 72 $2. 573^ 2. 57K 2. 57^ 3.16 3. 04 3. 69 8. 37 3. 38 3. 88 3.93K 3. 08 2. 983^ 2. 41 3. 81 $2.85 2.85 2. 85 3. 28 3.14 3. 79 7. 50 3. 50 4. 00 4. 07H 3. 20 3. 29 4. 34 3. 94 $5.35 $5.49 $5.80 $3.25 2. 35 $3. 25 2. 35 $3. 373^ 2. 473^ $3. 65 2. 75 3.40 3. 90 2. 40 3.10 3. 60 3. 90 2. 60 3. 30 3. 68 3. 80 4. 30 2. 80 3. 50 $2.45 2. 45 2. 45 2.88 2. 79)4 3. 56 7.57 3.10 3. 60 3. 65 2. 80 2. 85 3. 90 3. 50 P E R BASE B O X T i n plate 14" x 20" 107 pounds—112 sheets, wooden boxes—wire strapped $5. 35 P E R 100 P O U N D S Hot rolled sheets, 24 B. G. plain bundles (includes 90 cents for gage) 10 U. S. G. plain bundles. _ Cold rolled sheets, 17 U. S. G. in 2-ton metal crates (includes 15 cents for packing) __ Galvanized sheets , 24 B. G. in plain bundles Hot rolled strip Cold rolled strip 4 . 0 2y 2 2. 68 3. 38 Percent American standard pipe, black, T . & C. 1" to 3" American standard pipe, galvanized, T . & C. 1" to 3" American extra strong pipe, black, plain ends, 1" to 3" American extra strong pipe, galvanized, plain ends, 1" to 3" American double extra strong pipe, black, plain ends, 2" to 23^" American double extra strong pipe, galvanized, plain ends, 2 " to 23^" f English gas tubes, black, T . & C. y%" to 6 " . _ \ J English gas tubes, galvanized, T . & C. to 6" I / English steam tubes, painted, T . & C. to 6" \ English steam tubes, galvanized, T . & C. to 6"__ J \ 67 65 64.2 56.2 54.2 53.4 52.2 65.5 63.5 62.7 61.5 55.7 53.7 52.9 51.7 53.8 51.8 51.0 49.8 40.2 164.5 62. 5 1 56.5 2 54.5 1 593^ 2 54i/2 147^ 39 163.5 61.5 155.5 2 53.5 1 58. 5 2 53.5 146.5 2 45.5 43 167 159 57 i 62 41 6534 63M 157M 2 55M 1 60M 150 1 2 65 2 257 249 1 2 2 55)4 4834 2 47M 2 2 46K 63 2 DISCOUNTS: American standard pipe—off American list No. 6. English gas tubes—off English list No. 3, converted 2 cents to the penny. South American markets. 2 Other markets. 1 § 1306.14. Appendix E: Exceptions to Revised Price Schedule No. 6. Since the issuance of Price Schedule No. 6 and its revisions, various persons have been granted exceptions or adjustments pursuant to the provisions of the schedule, by orders issued by the Office of Price Administration. Persons interested in the provisions of such orders may secure copies thereof by applying to the Distribution Branch of the Office of Price Administration at Washington 25, D. C. [§ 1306.14 amended by Am. 13, effective 5-23-45] .36 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 § 1306.15. Appendix F: Maximum charges for conversion or processing operations. The maximum charge which may be made by any producer for converting or processing in any manner an iron or steel product which is owned by a person other than the producer shall be determined in the manner hereinafter set forth in this section. [Above paragraph amended by Am. 13, effective 5-23-45] (a) When the converted or processed iron or steel product is to be sold by the owner at a price not in excess of the applicable maximum ceiling price established by Revised Price Schedule No. 6 or by Revised Price Schedule No. 49, there shall be no maximum charge applicable to the conversion or processing operation. (b) When the aggregate charges for any conversion or processing or group of conversion or processing operations on any quantity of steel, shipped at one time to the producer's plant by the owner, do not exceed $500, there shall be no maximum charge applicable to such transaction. (c) When a conversion or processing operation consists of an operation such as annealing, machine straightening, pickling, etc., for which there are standard published extras, the maximum charge shall be the applicable published extra for such operation plus a handling charge of not to exceed $5.00 per net ton. (d) If for any reason the maximum charges as established by paragraph (c) are clearly not applicable to a particular conversion or processing operation, the converter or processor shall apply to the Office of Price Administration for a maximum charge for the conversion or processing operation. He shall submit his proposed conversion or processing charge and appropriate substantiating information. If the conversion or processing operation is such that an in-line charge may be established by interpolation of existing maximum charges, the interpolation procedure must be clearly set forth in the substantiating information, otherwise detailed estimated costs must be furnished on OPA Forms #674-530 (a), (b), (c), or (d), whichever is applicable. The application must specifically state the details of the operation performed, including size before and after conversion, complete specifications, and the quantity involved. The Office of Price Administration shall act upon such application within 10 days after its receipt or after the receipt of any additional information requested. It may deny the application or establish a different price and may impose such conditions as are appropriate. If the Office of Price Administration has not acted upon an application within the period specified, the applicant may use the requested price until such time that he receives notice from the Office of Price Administration that his price has been revoked or modified. Pending action of the Office of Price Administration upon an application, the producer may make offers or enter into contracts upon the basis of the requested price, but may not receive payment until action by the Office of Price Administration or until expiration of 20 days after mailing of the application. Once a charge has been established pursuant to this section the same charge may be made for subsequent similar conversion or processing operations without the necessity of reapplying for approval thereof. All filings made prior to the issuance of Amendment 13, and not disapproved or modified, shall remain in full force and effect notwithstanding the provisions of this § 1306.15 (d), and the same charges may be made for subsequent similar conversion or processing operations without the necessity of further approvals thereof. [Paragraph (d) amended by Am. 13, effective 5-23-45] (e) All maximum charges for conversion or processing operations set forth in this Appendix F are exclusive of transportation costs incidental to the conversion or processing operation. § 1306.16 Appendix G: Summary of provisions of the Maximum Export Price Regulation particularly applicable to Revised Price Schedule 6. (a) The maximum export prices of products sold under a contract of sale entered into on or after April 2, 1943, shall be either: (1) The aggregate of: (i) the domestic or export base price of the product at the governing or emergency basing point, plus applicable domestic and export extras, as provided in this schedule, and plus inland transportation charges (at export rates where applicable) from such governing or emergency basing point (whichever is applicable) to the port of exit: Provided, however, That if an emergency basing point is used the transportation charges shall in no case exceed the actual transportation charges from the producing mill to the port of exit; and (ii) Expenses incident to exportation and incurred or to be incurred by the exporter such as demurrage, storage, transfer to the export carrier, ocean or other export freight, marine and war risk insurance, and consular fees; or .37 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (2) The aggregate of: (i) The export base price of the product quoted by the United States Steel Export Company f. a. s. the port of exit on April 16, 1941, plus applicable exports extras, as provided in this schedule (see Appendix D for such export base prices for principal ports), plus any increases in mill base prices or maximum delivered prices permitted by amendments to Revised Price Schedule No. 6; and [Subparagraph (i) amended b y A m . 12, 10 F. R . 2432, effective 3-1-45] (ii) Expenses incident to exportation and incurred or to be incurred by the exporter for demurrage, storage, and transfer to the export carrier, in excess of the amounts of such charges which were normally included in the price under (2) (i) above; and (iii) Other expenses incident to exportation and incurred or to be incurred by the exporter such as ocean freight, marine and war risk insurance, and consular fees; or (3) Where a product has no basing point base price, the maximum price established by (2) above, or the aggregate of: (i) the export price, including applicable extras, which was or would have been charged for the product by the producer on April 16, 1941, plus inland transportation charges (at export rates where applicable) from the producing mill to the port of exit (except that portion of those charges which was or would have been included in such price); and (ii) Expenses incident to exportation and incurred or to be incurred by the exporter in excess of the amounts, if any, of such expenses which were normally included in the price under (3) (i) above. Provided, That on a sale to a procurement agency buying for the account of the Office of Lend-Lease Administration, the maximum price shall be the maximum domestic price established by this schedule, except that (a) where there are no published or filed domestic extras, export extras shall apply; (b) inland transportation charges shall be computed at export rates where applicable, otherwise at domestic rates; and (c) where there is no established domestic ceiling price for the product, the maximum price shall be determined in accordance with the provisions of (2) or (3) above. [§§ 1306.15 and 1306.16 added b y A m . 8, 8 F. R . 6042, effective 5-13-43] This Schedule shall become effective April 17, 1941. inally issued April 16, 1941] [Price Schedule 6 orig- [Effective dates of amendments are shown in notes following the parts affected] NOTE: All record-keeping and reporting requirements of this regulation have been approved b y the Bureau of the Budget, in accordance with Federal Reports Act of 1942. Issued this 21st day of May 1945. CHESTER BOWLES, Administrator. S T A T E M E N T OF C O N S I D E R A T I O N S I N V O L V E D IN THE I S S U A N C E OF A M E N D M E N T 13 TO R E V I S E D P R I C E S C H E D U L E N O . 6 Amendment No. 13 to Revised Price Schedule No. 6 continues or revises the interim maximum prices of certain steel products which were increased by Amendment No. 11 and grants increases in other products. The price revisions and increases, over the levels in effect prior to Amendment No. 11, are as follows: 1. Carbon steel blooms, billets, slabs, and sheet bar, of all qualities—$2.00 per gross ton. 2. Carbon steel tube rounds, and tube billets exclusive of billets not directly converted into seamless pipe or tube—$4.00 per gross ton. 3. Carbon steel plates, all types and qualities, produced to the dimensional tolerances in A. I. S. I. Manual Section 6, Carbon Steel Plates, March 1943 revision—150 per 100 pounds. 4. Rails, except light rails, all types and grades—$3.00 per gross ton. 5. Light rails, all types and grades—$5.00 per gross ton. 6. Tie plates, all types—$3.00 per net ton. 7. Carbon steel hot rolled bars and bar size shapes, all types and qualities—100 per 100 pounds. 8. Carbon steel hot rolled wire rods, all types and qualities—150 per 100 pounds. 9. Carbon steel manufacturers wire and carbon steel merchant quality wire, all types and finishes, except such manufacturers wire for which a base price in excess of $3.20 f. o. b. Pittsburgh, Pennsylvania, or $3.30 f. o. b. Worcester, Massachusetts is otherwise established by this Schedule—150 per 100 pounds. .38 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 10. Nails and staples, other than galvanized nails and staples—350 per 100 pounds, except that for all Miscellaneous Nails and Wire Brads having maximum prices based on list prices less published discounts, the increase of 350 per 100 pounds may be added to the maximum delivered prices. 11. Twisted barbless wire and barbed wire—100 per 100 pounds. 12. Bale ties, all types—350 per 100 pounds. 13. Hot rolled carbon steel, porcelain enameling, iron, and electrical steel sheets, including roofing and siding manufactured from those materials, all types and qualities—100 per 100 pounds. 14. Galvanized iron and steel sheets, and zinc coated specialty iron and steel sheets, including roofing and siding manufactured from those materials (not including galvannealed sheets)—200 per 100 pounds. 15. Track spikes-—250 per 100 pounds. The amendment is further designed to clarify and renumber certain provisions of the Schedule, to elaborate on the record-keeping and invoicing requirements, and to require the specific approval of special prices rather than permit their establishment by a mere filing. THE HISTORY OF P R I C E CONTROL IN STEEL Price Schedule No. 6 was issued on April 16, 1911 by the Office of Price xldrninistration and Civilian Supply. The Schedule established as maximum prices those prices quoted and in effect on that date. Subsequent to the enactment of the Emergency Price Control Act of 1942, the Schedule was revised in some minor respects and reissued as Revised Price Schedule No. 6. The basic price level remained unchanged. During the years 1942, 1943, and 1944 the Office of Price Administration conducted three detailed and comprehensive surveys of the steel producing industry's production costs in addition to many examinations of individual company data submitted simultaneously with petitions for individual price adjustments. Quarterly profit and loss information was also secured. From this information it was possible to segregate profits derived from steel making activities and those derived from such other activities as ship-building and munitons production. It was also possible to measure accurately trends in such cost factors as wages and costs of raw material, as well as changes in the relative proportion of high, medium, and low profit, or loss products in the industry's product mix and their effect on the earnings position of individual companies and the industry as a whole. Throughout the war years there was a steady increase in the cost of producing steel as a result of increases in raw materials such as coal and iron ore, wage increases, a general deterioration in the quality of scrap, increased use of pig iron, increases in the cost of fuel oil, refractory and other miscellaneous supplies, and increases in overtime costs, in addition to increased labor turnover, and accompanying decreases in labor efficiency. Working against these increases in costs were the economies secured from a sustained maximum operating rate, and increase in average sales realization derived from the production of a greater proportion of specialty and war products. Certain of the specialty products are normal to the steel industry such as alloy and tool steels. The majority, however, are fabricated war goods ranging from ships to landing mats. They are produced under contracts with the Armed Services or other government agencies and are generally profitable. The basic steel products were profitable in the year 1941. Thereafter, however, the situation was reversed as the factors tending to increase costs and other factors tending to decrease profitability became more prevalent. 1941 was also the most profitable year on the basis of over-all earnings. In subsequent years there was a decline in earnings. This decline was not as rapid as the decline in profitability of basic carbon steel products as the earnings in 1942, 1943, and 1944 were still being bolstered by a continued increase in the production of war goods. At a meeting on December 16, 1943, between the Steel Mill Industry Advisory Committee and representatives of the Office of Price Administration, it was asserted by the Committee that the steel producing industry was operating at unsatisfactory profit levels, that it was threatened with substantial losses and that further cost increases could not be absorbed. The Committee further asserted that the steel producing industry was selling iron and steel products at maximum prices which would not return total manufacturing costs and recommended that the Office of Price Administration undertake a cost and financial survey in regard to carbon steel products and thereupon adjust the maximum prices of said products to levels which are generally fair and equitable to the industry as a whole. At that time the steel labor unions had indicated their .39 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 intention to request a further advance in wage rates. It w^as the contention of the Committee that the industry would be unable to absorb any further increases in w^ages without securing compensating price increases. This Office, in response to the Committee's request, undertook a comprehensive survey of steel costs and of the financial position of the industry. Tw^enty-one basic carbon steel producers accounting for more than 85% of carbon steel production and including mills of a representative group, submitted integrated cost and financial information from the mining of coal and ore through to the sale of the finished product. The month of November 1943 was used as being a representative month for the cost data. When this information was tabulated in February, 1944, it was apparent that a number of basic carbon steel products were being produced below manufacturing costs. After a discussion of the summaries of such costs was had with the Committee, they formally recommended that the Office of Price Administration grant certain specified price increases in various basic carbon steel products. Appropriate price action could have been taken for those products being sold below the out-of-pocket costs of the producers, but the action was deferred in view of the pendency of the steel wage decision and the hope that a second series of financial and cost studies could thereby be avoided. The industry acquiesced in this course. Throughout the year 1944 the financial position of the steel producing industry continued to deteriorate. In the first three quarters of the year the return on sales was 5.6 percent, 4.9 percent, and 4.5 percent, respectively. The return on net worth was 10.4, 9.1, and 8.4 percent, respectively. Within these averages, however, the range of profit or loss on a particular product was wide. Those companies who were able to concentrate their activities in the more profitable specialty items and to bolster their earnings with substantial profits from war fabrication were considerably above the average. Other companies, however, were forced to concentrate their production in ba^ic steel products and showed lower than average earnings. In a substantial number of cases such companies were operating unprofitably. The inability of certain companies to bolster their earnings through the production of specialty items and fabricating activities stems from a combination of factors. At the start of the war many concerns had available production facilities wrhich could be readily adapted to the war demands. The War Production Board in its efforts to meet the urgent requirements of the Army, Navy and Lend Lease naturally concentrated production in the most readily available facilities. The war demand also required large increases in many of the heavy, basic, normally low profit items such as plates. Some companies were forced to concentrate their production in these products to the almost complete exclusion of their normal products. The natural result of these factors was a wide dispersion in profits between companies. The Office of Price Administration attempted to alleviate financial hardship by granting individual adjustments to those companies who applied. Approximately 100 orders were issued granting individual adjustments to these companies, many of which could not continue to survive without such price relief. On November 25, 1944, the War Labor Board granted the steel workers certain "fringe" increases. The factors which increase costs can be divided roughly into three groups: (1) liberalized vacation allowances, (2) shift differentials for the second and third shifts, and (3) elimination of intra-plant inequities. Soon after the War Labor Board decision, the Committee renewed its request for increases in the prices of certain basic carbon steel products. The Committee also requested that the period 1936 through 1939 generally used by the Office of Price Administration in calculating the base period earnings rate, be expanded to include subsequent years in which higher average operating and earning rates were experienced. After careful consideration of the Committee's application on this point, the request for a change in the base period was denied by the Administrator. As the cost data collected in 1943 wras then approximately one year old, it was determined to conduct a new cost survey based upon the first nine months of the year 1944. It was recognized at the time of the commencement of this new survey that the collection of the information and its analysis would necessarily be a time consuming operation. It was then decided that in order to alleviate ar,y immediate hardship certain '•'interim increases" in five basic carbon steel products should be made at once. On January 11, 1945, Amendment No. 11 was issued adjusting the prices for those products. The amounts of the increases and the reasons therefor are set forth in the Statement of Considerations which accompanied Amendment No. 11. .40 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 T H E NEED FOR PRICE ACTION On the basis of the latest financial information it has been determined that the steel industry as a whole is not entitled to a general price increase under the "industry earnings standard". The financial position of the steel industry has improved over that in the years 1936-1939. Steel Mill Products—Financial Data [21 companies] Net profit before income taxes— Period 1936-39 1940 1941 194219431944: First quarter Second quarter. Third quarter- As percent of net worth 2 As percent of sales 1 4.2 8.0 20.8 19.7 12.1 14.5 6.7 12.3 11.0 6.6 10. 4 9.1 8.4 5.6 4.9 4.5 2 2 1 1938 was a loss year and is in the average as zero. 2 On an annual basis, and before any provision for wage increases to steel workers and coal miners granted in December 1944, and M a y 1945, respectively. When the over-all earning position of the industry is better than it was in the pre-war years, 1936-39, then the industry earnings standard has been satisfied and no general price increases are thereby required. However, under the secondary standard established by this Office, known as the "product standard", which has been approved by the Congress and subsequently confirmed by the Emergency Court of Appeals, the maximum prices for a particular product or line of products are not deemed generally fair and equitable unless they cover the outof-pocket costs for the industry generally. In the statement made before the Senate Banking and Currency Committee on March 2, 1945, Mr. James F. Brownlee, Deputy Administrator for Price, in discussing the product standard stated: "Out-of-pocket costs are those which would be eliminated if manufacture of the product were to be discontinued. While these are the costs which in principle should be covered, we have found that is is often a matter of serious a3Counting difficulty to compute them—as, for example, to find out just what part of factory overhead is included. We have come to the conclusion, therefore, that as a working rule we ought ordinarily to use the higher measure of manufacturing costs, although deductions from these costs, or additions to them, will be appropriate in some cases. By then using the average of these manufacturing costs, with or without such adjustment, we are able to cover the out-of-pocket cost for the bulk of the output". The standard set forth in Mr. Brownlee's statement has been applied to the cost information submitted by the steel industry. The cost data cover approximately 85 percent of the ingot capacity of the industry. The companies included are representative both as to size and geographical location. The cost data for the first nine months of 1944 were collected in sufficient detail so that the cost components for all products could be reconciled in total to the profit and loss statements of each company. The period covered represents maximum capacity operation under the most favorable mix of wartime production and includes full operation of all new facilities which were built during the war. The period does not represent maximum overtime labor cost since overtime hours are still increasing. Furthermore, because of changes in steel requirements under WPB directives, the profitability of the product mix has appreciably deteriorated since the period covered in the study. The cost data cannot be analyzed as such but must be used as a comparison against sales realization. The realization figures represent total net income to the companies for the products listed and, as far as is known, represent the maximum realization possible under the Controlled Materials Plan of the War Production Board and ceiling prices established by the Office of Price Administration. .41 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Since the close of the period under study, the realization of emergency freight on shipments required by CMP out of normal market areas of mills has declined. For West Coast shipments most companies have adopted the Chicago basing point base price plus freight from Chicago whereas the Price Schedule permits addition of freight from nearest basing point to the producing mill.1 Sales realizations include the adjusted prices allowed in some 100 individual adjustment orders granted by the Office under Revised Price Schedule No. 6. The difficulty of determining what the sales realization would have been without giving effect to price adjustments represents too great an accounting task for the industry and a serious administrative burden. Under the standards of the Office, the total costs for individual products have been adjusted to eliminate: (1) Selling and general administrative expenses, averaging roughly $1.70 per ton of finished product. (2) Excess of amortization of emergency facilities over estimated actual depreciation. (3) Any excess of the transfer price at which materials were charged to finished products over cost for raw materials transferred between affiliates of an integrated steel company. Adjustments have been made for the minimum effect of two of the three fringe adjustments granted in the steel wage decision, determined at 4 cents per hour. The reasons for this determination are developed below. A further adjustment has been made for the increase in wages to the coal miners, just granted, estimated at 20 cents per ton of coal, a like amount per ton of ingot steel, which on the basis of individual product yields will average 30 cents per ton of finished steel product. Realizations in the cost study do not include amounts granted as interim increases on January 11, 1945, of $5.00 on nails, $3.00 on rails and galvanized sheets and $2.00 on plates and hot rolled sheets. These increases were estimated to amount to approximately $36,000,000 annually or roughly one percent of sales of all steel products covered by Revised Price Schedule No. 6. An analysis of the cost survey after all the adjustments heretofore described discloses the necessity of increases in the prices of basic carbon steel products which are presently being produced below their average manufacturing cost. PRICE ACTION AND ITS JUSTIFICATION The peculiar construction of the steel industry with respect to integration, the diversity of products, the prevalence of single line producers in some areas, the complex price structure and other factors of this nature tend to complicate the problem of making an extra price adjustment. It has become apparent that it will not be possible in every instance to apply an exact mathematical formula to the cost information and thereby determine the precise amount of price increase which should be made for each particular product. To attempt such a procedure would so disrupt the normal price relationships between products that the flow of steel to consumers might be interrupted or distorted. The Administrator is vested with discretion in such situations, since there is no requirement that price adjustments otherwise reasonable conform to a precise formula, so long as they keep within the broad limits of the basic standards for determining whether maximum prices are "generally fair and equitable." In order to determine the total amount of the price increase required by law to be granted to the steel industry on carbon steel products, the following procedure was applied to the data after the adjustments mentioned: 1. The weiglited average realization was subtracted from the weighted average manufacturing cost for each product in the cost sample to determine the average profit or loss for the product. 2. The total loss dollars in the sample was then determined by multiplying the loss shown on each product showing a net loss by the number of tons for that product and totalling the loss dollars. 3. The total loss dollars were then distributed among those carbon steel products reflecting a net loss on the following principles listed in order of importance: (a) Increases were established in units of 50 per hundred pounds of the base prices (the prices established by the Schedule are based upon even amounts of 50 per hundred pounds or its equivalent, except for products priced on gross ton basis, in which cases even dollars per ton were used). i Whether the recent decisions of the United States Supreme Court in the Corn Products and Staley cases will require any adjustments in the basic steel price structure is a matter which is now under study b y this Office. However, it was determined not to defer issuance of this amendment until the study could be completed. .42 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (b) Increases were related to the average amount of "loss" on each product, that is, the average amount by which realizations were less than manufacturingcosts, using the average which most nearly represents central tendencies consistent with Item (c) below. In the majority of the products increased, the weighted average loss, rounded to the nearest even dollar, is the exact price increase granted. However, there were some variations from this rule in the case of semi-finished products going to non-integrated producers. (c) Relationships between products were so maintained as to avoid a squeeze on non-integrated producers. Some products are generally purchased by these producers whose existence depends upon the spreads between the prices of semifinished and finished products. Wherever it was evident that financial hardship would result to these segments of the industry if we failed to maintain customary price spreads, adjustments were made to balance the increases in semi-finished products and the converted finished products. (d) Slightly larger upward adjustments in base prices were made on end products going to industrial consumers who could absorb increases in the cost of their raw material and would not pass on the increase, thus minimizing the inflationary effect. (e) Section 1306.10 (h) is amended to decrease the required discount on bale tie wire from 40 cents to 20 cents per one hundred pounds. Bale tie wire is a form of manufacturers wire sold to non-integrated bale tie producers. As the loss on manufacturers wire generally justifies a 15 cent per 100 pound increase, the requirement that bale tie wire sell at a price discount of 40 cents under the general level of manufacturers wire substantially increased the hardship existing on sales of this product. In order to prevent hardship to the non-integrated bale tie producer the price increases in bale ties, manufacturers wire, and the required discount on bale tie wire, have been balanced to preserve the spread between bale tie wire and bale ties. The total amount of all the adjustments mentioned is equal to the total dollar loss indicated by the cost sample. In calculating this total dollar Loss and the adjustments based thereon, the interim increases granted*in Amendment 11 were disregarded. Hence, the present increases are not in addition to those interim increases but supplant them. The Statement of Considerations which accompanied Amendment 11 stated: "In determining the extent of the increases to be granted, the cost data obtained in that survey have been conservatively appraised to minimize the possibility that the data to be obtained in the new survey would require reductions in the prices thus increased. The new data may require further increases in a number of these prices and hence the present increases are being granted on a temporary basis. When the current survey is completed, these interim price increases will be adjusted in subsequent price actions, upward or downward, depending upon the results of the survey." None of the five increases granted in Amendment 11 have been reduced. At a meeting of the Industry Advisory Committee held on February 9, 1945, the Committee recognized the necessity for making many of the adjustments hereinabove described and passed a resolution recommending to the Administrator specified increases in certain basic carbon steel products which in some instances were lower than the then estimated manufacturing costs and in other instances were greater. The Administrator has carefullv considered this recommendation and has in the main conformed to it. With reference to some products, however, it has been necessary to deviate from the Committee's recommendation'in order to meet the immediate needs of a particular product in accordance with the principles set forth above, and to keep the total amount of increases granted within the total dollar deficiency heretofore described. As has been indicated above, this action is predicated on a cost study of operations for the first nine months of 1944. Nevertheless, the cost data have been adjusted to reflect two of the wage adjustments authorized by the National War Labor Board in its order of November 25, 1944, approved by the Economic Stabilization Director on December 30, 1944. Two types of adjustments were authorized in the Board's order, the first group liberalizing vacation allowances and providing shift differentials, the second authorizing the companies and unions to negotiate for the correction of intra-plant inequities by reclassification, subject, however, to the limitation that in no case should the reclassifications applicable to any particular company exceed an average of 50 per hour. Although the former category of wage adjustment has been effective since January 1, 1945, and the latter is still the subject of continued negotiation, the adjustments of both types are retroactive to about January 1, 1944. .43 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 It is not the general policy of this Office to act on the basis of estimates as to the effect of wage adjustments save in occasional cases where discretionary price increases are authorized to remove impediments to supply. However, by this time experience has accumulated to such an extent under the first category of the wage awards now in effect (vacation allowances and shift differentials; that it is possible to calculate their impact on costs. Under the circumstances, particularly the fact that the increases have been already operative for four months and are retroactive for at least a year, it would seem inequitable to require the industry to institute a new cost study before giving effect to the minimum impact of such wage increases on production costs. For the purposes of this action, the Office is computing the minimum impact of this category of wage increases to be an average of per hour and has made appropriate adjustments in the production costs. This conclusion has been arrived at by the Office on the basis of convincing evidence as to the operations of these increases already effective. With respect to the increases resulting from reclassification, a different problem is presented. This Office cannot forecast with assurance the result of a bargaining process. In fact to do so would be to. influence the pending negotiations. In connection with its consideration of the question, this Office has been advised by the Office of Economic Stabilization that, in its judgment, to give effect to the reclassification adjustment in the present action would conflict with the War Labor Board's action in leaving the determination of these adjustments to negotiation, subject to a maximum limitation. Furthermore, no accurate estimate can be made of the impact of a wage increase not yet determined, upon production costs not yet affected. For these reasons no adjustment for the wage increase resulting from reclassifications has been made. Of course, it will be open to the industry to show, in a i ^ subsequent cost study, the amount of the reclassification increases and their effect, if any, upon production costs, and also that the other wage adjustments have in fact amounted to a higher figure than the Administrator's computation. By thus taking into account the cost increases resulting from the wage increases now in effect the Office is authorizing increases in certain basic carbon steel products on a basis different from that forecast in its letter of December 21, 1944, to the Economic Stabilization Director when the steel wage case was pending before him. At that time the Office stated that, while certain price increases were required by law under the product standard, these would be based on the cost studies for the first nine months of 1944, and that when it later became necessary to take the wage increases into consideration, it was expected that these could be offset by compensating decreases in steel prices so that no net increase in the general level of steel prices would result. Under the procedure established for determining the price effects of pending industry-wide wage cases, it is frequently necessary for this Office to reach conclusions which are essentially forecasts based either upon such assumptions as may then appear reasonable, or on such data a? are then available to the Office. Wage awards cannot be required to remain inoperative during the extended periods which are sometimes necessary for final conclusions to be reached as to the necessity for and the amount of price increase. Such was the case when this Office was required to report its opinion as to the effect of the wage action last December. The only data available w^ere derived from a study of November 1943 costs which had been completed in the Spring of 1944. Although the 1944 cost study on which this action is based was then being developed, its result, the Office knew, would not be available in sufficient time to permit deferring its report to the Economic Stabilization Director until it was in hand. At the time of the issuance of the report to the Economic Stabilization Director in December, 1944, on the basis of the 1943 data then available and of the methods theretofore developed for the application of the product standard, it appeared that the price increases already required under the product standard would so affect the overall earning position of the industry that no further net increases in the general level of steel prices would be necessitated by the wage adjustments. However, when the results of the 1944 survey were received, and the product standard was applied along the lines indicated by the Deputy Administrator for Price, Mr. Brownlee, to the Senate Banking and Currency Committee in March, 1945, they compelled a substantial revision downward of the expectations of this Office with reference to the amounts of the product increases and their effect on the over-all earnings position of the industry. Moreover, the summaries of cost submitted by the 21 companies included in the sample, reflected substantial amounts of accelerated amortization of emergency facilities, payments for materials by one 83512—46—vol. 1 4 .44 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 corporate subsidiary to another at market prices rather than at cost of production, and other items which had to be extracted from the costs to obtain a true average manufacturing cost representative of the out-of-pocket cost of the industry generally. To make these adjustments in the cost data obliged the Office to await the acquisition of the detailed accounting reports of costs from each of the companies in the sample. This delayed the taking of action for another considerable period. At the time of the submission of the report to the Economic Stabilization Director on December 21, 1944, it was belived that the product increases therein referred to would be established almost immediately subsequent to the granting of the wage adjustments, and the submission of data. However, in view of the prolonged delay in obtaining all the data necessary for the adjustments referred to above, it has been considered inequitable to postpone further any action which would reflect the impact of the wage adjustments on production costs. The Administrator has therefore determined that, in order to satisfy the requirements of law, the product increases granted in this action must take the wage adjustments into account. To this extent, the present action represents a change of the Administrator's position as set forth in the letter of December 21, 1944, a change necessitated by the considerations discussed above. It is impossible to make a reliable estimate of the aggregate amount by which the price increases authorized by this action will increase the total revenues of the steel industry in view of the important changes in product mix which will result from reductions and changes in military demand during the coming year. However, the impact of the increases on ultimate consumers of finished steel will be materially reduced by total or partial absorption of the increases oil the part of steel producers who purchase semi-finished steel, and also on the part of distributors of steel products. After allowance is made for such absorption, it is unlikely that the increases, including the interim increases, will average 2 percent of the total sales of the steel products covered by this Schedule. So far as can be determined from all information presently available to this Office the price increases granted by this Amendment 13 meet the minimum requirements of law. Some information is still inconclusive and for that reason final and definitive action cannot be taken thereon and must await a later date. The full impact of the steel wage case and of the coal wage decision on steel producing costs have been conservatively appraised because of the lack of operating experience. Furthermore, as recommended by the Committee, certain standing sub-committees have been or are being formed to report on the subject of extra charges and to make such recommendations thereon as will enable the Administrator to establish price levels more generally fair and equitable to all branches of the industry and further to enable him to concentrate greater relief in the area of greatest hardship. The Committee has also resolved that, subsequent to the granting of product increases, a general study will be commenced by sub-committees with the objective of recommending further adjustments, upward and downward, in order to obtain a sound price structure. In addition there are certain minor steel products, such as insect screen cloth principally produced by single line producers, where the cost studies have not as yet been completed. Upon completion and analysis of all these studies further action will take place with reference to steel mill prices. In connection with the above studies, this Office will undertake additional cost studies of profitable steel products with a view to ascertain where compensatory price reductions may be possible. This course is consistent with sound pricing policy and with the recommendation of the Industry Advisory Committee. MISCELLANEOUS CHANGES 1. Invoicing and record-keeping requirements. Section 1306.5 has been amended by elaborating the invoicing and record-keeping requirements setting forth in detail the minimum items to be contained on the invoice and in the producers' records. The reason for incorporating these requirements into the Schedule are as follows: (a) To inform producers of iron and steel products of the types of records necessary for price control purposes. (b) To assist the Office of Price Administration in securing information essential for the proper determination of maximum prices and hence for the proper enforcement of the Schedule. .45 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 It has been ascertained that the steel industry generally does keep the records and does issue the invoices as required by the amended provision. To the extent that it may require some slight changes in the present records of a few producers, the elaboration of the record-keeping and invoicing provision has been found necessary to achieve effective price control and to prevent circumvention or evasion of the Schedule or the Emergency Price Control Act of 1942, as amended. 2. Adjustable pricing. The previous Section 1306.4—Existing Contracts, has been revoked as no longer necessary, and the Adjustable Pricing Section, formerly numbered Section 1306.7a, has been renumbered and inserted in its place. 3. Licensing. The previous Section 1306.9—Effective date of Price Schedule No. 6, has been revoked as no longer necessary and the Licensing section, previously numbered Section 1306.6a has been renumbered and inserted in its place. 4. Approval of special prices. Sections 1306.10 (g) and 1306.15 (d) have been amended to require the application to the Office of Price Administration for a maximum price for a new product or a maximum charge for an unusual conversion process rather than the existing provision requiring merely a filing of such price or charge. Under the amended provisions the price would not be established until the Office had approved the charge or until 10 days had elapsed fron* the time of receipt by the CfBce of the application. It has been determined that the previous filing provisions were inadequate to achieve effective price control in that they permitted the charging of prices once filed, until theia formal disapproval by this Office. Under the amended provisions, the price is not established, unless approved in writing, or by failure of this Office to approve, disapprove or modify within ten days. 5. Secondary grades. Section 1306.10 (j) (4) has been revoked. The increases granted by Amendment 11 and by the present amendment may apply to the secondary grades as well as to prime quality. At the time of the granting of the interim increases by Amendment No. 11 it was determined not to extend the increases to secondary grades because no determination could then be made from the cost data concerning the necessity for increasing those grades. The Industry Advisory Committee, however, has since requested that any increases granted to prime products should similarly be granted to secondary grades and since it was not administratively possible to differentiate between prime and secondary products, all increases have been applied uniformly to both grades. For that reason the provisions concerning the application of the increases to secondary grades has been revoked. 6. Conversion charges. Section 1306.15 has been amended by deleting the clause which limited the application of conversion charges to a product "which was not produced by such producer." It is generally impossible to ascertain whether or not a particular iron and steel product delivered to a producer for special conversion or processing was produced by that producer. Furthermore, there are other circumstances under which special conversion or processing is necessary for goods owned by others but still in the possession of the producer. The charges established by Section 1306.15 for conversion or processing are limited to filed charges or extras, or to charges approved by the Office of Price Administration upon application. Under these circumstances it, is believed that this provision cannot be abused and it has therefore been determined to delete the phrase "which was not produced by such producer." All provisions of this Amendment and their effects upon business practices, cost practices or methods, or means or aids to distribution in the industry or industrk s affected have been carefully considered. No provisions which might have tl~e effect of requiring a change in such practices, means, aids or methods established in the industry or industries affected, have been included in the Amendment unl( ss such provisions have been necessary to achieve effective price control and to prevent circumvention or evasion of this Schedule or of the Emergency Price Control Act, as amended. The Administrator finds that the prices established by Amendment 13 are generally fair and equitable and will effectuate the purposes of the Emergency Price Control Act of 1942, as amended. The Administrator also finds that Amendment 13 is not inconsistent with Executive Orders 9250 and 9328. For the reasons set forth above, the Administrator deems it necessary and advisable that the accompanying Amendment 13 to Revised Price Schedule 6 be issued. Issued this 21st day of May 1945. CHESTER BOWLES, Administrator, .46 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 RPS 6 AMDT. 15 MAR. 1, 1946 Corrected Copy (Document No. 52890) OFFICE OF P R I C E A D M I N I S T R A T I O N (Corrected Copy) PART 1306—IRON AND STEEL [RPS 6, Amdt. 15] IRON AND STEEL PRODUCTS A statement of the considerations involved in the issuance of this amendment, issued simultaneously herewith, has been filed with the Division of the Federal Register. Revised Price Schedule No. 6 is amended in the following respects: 1. A new § 1306.17 Appendix H is added to read as follows: § 1306.17. Appendix H: Modification of maximum prices for certain iron and steel products. Regardless of the provisions of any other section of this schedule, the modifications set forth below may be made in the applicable maximum prices otherwise established by this schedule. The increases in basing point base prices and maximum prices may not be added to prices established by individual price adjustment orders * but companies which heretofore have been granted such adjustments may sell at maximum prices determined in accordance with Revised Price Schedule No. 6 as modified by this Appendix H or at the maximum prices established by their individual adjustment order, at their option. (a) Additions to basing point base prices for certain carbon iron and steel products. The sums specified below may be added to the applicable basing point base prices otherwise established by this schedule for the particular carbon steel products named, both prime and secondary quality. (1) Ingots and sheet bars, all types and qualities (2) Blooms, billets, slabs, and tube rounds of all qualities except forging. (3) Skelp (4) Forging billets and blooms (5) Structural shapes and piling (6) Plates—all types and qualities _* (7) Rails—all types and grades except light rails (8) Light rails—all types and grades (9) Splice bars—all types and grades (10) Tie plates—all types and grades (11) Hot rolled merchant bars and bar sized shapes—all types and grades. (12) Concrete reinforcing bars—all types and grades except fabricated. (13) Hot rolled wire rods—all types and grades (14) Manufacturers' wire and merchant quality wire—all types and finishes except such wire as is suspended from price control under Amendment 6 to Supplementary Order 129. (15) Nails and staples—all types and finishes except miscellaneous nails and brads priced on a list and discount basis. (16) Twisted barbless and barbed wire (17) Wire fencing, including woven, chain link and lawn (18) Bale ties, all types (19) Fence posts—all types and accessories (20) Tin plate, including hot dipped, electrolytic and canmaking quality black plate. For all such material sold on a 100 lb. basis, 250 per 100 lbs. may be added. (21) Terne plate (22) Long terne sheets (23) Hot rolled iron and steel sheets (24) Cold rolled sheets (25) Galvanized sheets (26) Enameling sheets (27-a) Electrical sheets—electric, armature and field grades. $2.00 per gross ton. $3.00 per gross ton. $0.15 $5.00 $0.25 $0.25 $5.00 $9.00 $0.15 $0.25 $0.25 per 100 lbs. per gross ton. per 100 lbs. per 100 lbs. per net ton. per net ton. per 100 lbs. per 100 lbs. per 100 lbs. $0.20 per 100 lbs. $0.15 per 100 lbs. $0.30 per 100 lbs. $0.35 per 100 lbs. $0.35 per 100 lbs. $0.25 per 100 lbs. $0,325 per 100 lbs. $0.25 per 100 lbs. $0.25 per base box. $0.25 per 100 lbs. $0.25 per 100 lbs. $0,225 per 100 lbs. $0,225 per 100 lbs. $0.35 per 100 lbs. $0.35 per 100 lbs. $0.60 per 100 lbs. .47 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 (27-b) Electrical sheets—all other grades $0,375 per 100 lbs. (28-a) Hot rolled strip, six (6") inches and narrower $0.35 per 100 lbs. (28-b) Hot rolled strip, wider than six (6") inches $0.25 per 100 lbs. (29) Cold rolled strip $0.25 per 100 lbs. (30) Track spikes $0.40 per 100 lbs. (31) Cold finished bars $0.35 per 100 lbs. (b) Modification of maximum prices for certain carbon and alloy steel products. The maximum prices for the carbon and alloy steel products listed below may be modified in accordance with the provisions of this paragraph. (1) Pipe and oil country tubular goods: (1) Buttweld and lapweld—increase the applicable maximum base prices by $6.00 per net ton. (ii) Electric weld and seamless—increase the applicable maximum base prices by $5.00 per net ton. (2) All alloy steel products except stainless—increase the applicable maximum price (base price plus extras) otherwise established by this schedule by 4 (four) percent. (3) Tool steel and specialty steels, both carbon and alloy, produced by tool steel producers—increase the applicable maximum price (base price plus extras) otherwise established by this schedule by 8.2 (eight and two-tenths) percent. (4) All carbon and alloy steel tubing (other than oil country tubular goods and carbon steel pipe)—increase the applicable maximum base prices on hot finished products otherwise established by this schedule by 6.6 (six and six-tenths) percent; increase the applicable maximum base prices otherwise established by this schedule on cold finished products by 9.9 (nine and nine-tenths) percent; increase the applicable maximum extras otherwise established by this schedule which are not calculated as a percentage of the base price by 8.2 (eight and two-tenths) percent. On all tubing schedules of prices, items are to be priced individually by size, grade, and for shipment to one destination. (5) Miscellaneous nails and staples priced on a list and discount basis—add 0.35 per 100 pounds to the applicable maximum delivered price otherwise established by this schedule. (6) Steel screen wire cloth. The maximum basing point base prices of steel screen wire cloth, both black painted and galvanized, in standard length rolls of 100 lineal feet and in standard widths of 18" to 48" inclusive, shall be as follows: To jobbers stocks Carload Less than carload On direct shipment to dealers 0) (2) (3) A R E A S OTHER THAN PACIFIC COAST Discount off list, of__. List in effect April, 16 1941. Retail dealer discount off list, 40 and 10 percent. Net prices per 100 sq. ft.: 12 mesh black painted 12 mesh galvanized 14 mesh galvanized 16 mesh galvanized 18 mesh galvanized PACIFIC COAST $1. 81 1.95 2. 21 2. 55 2.86 $2.03 2.19 2.48 2.81 3.19 $2. 24 2. 43 2. 73 3.09 3. 57 150 and 8 percent. 50 and 6 percent. 50 and 3 percent. 2 3 All extras, terms and conditions of sale, delivery and other services shall be maintained. (7) All carbon steel products except shell steel and except the products listed in (a) and (b) (1) to (6), inlcusive, including but not limited to poultry netting, hardware cloth and wrought iron (but exclusive of new products priced by special order issued by the Office of Price Administration for which no industry-wide prices have yet been established in the schedule, for example steel screen wire cloth 18" x 14" mesh—.011 gauge)—increase the applicable maximum prices (base price plus extras) otherwise established by this schedule by 8.2 (eight and two-tenths) per cent. .48 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (8) Canmaking quality black plate—all canmaking quality black plate (118 pound basis and lighter) may be sold on an area basis and the maximum prices may be computed by making the following deductions from the maximum base prices of coke tin plate: 55 pounds to 70 pounds, inclusive—deduct $1.30 per base box; 75 pounds to 95 pounds, inclusive—deduct $1.40 per base box; 100 pounds to 118 pounds, inclusive—deduct $1.30 per base box. 2. Section 1306.8 (c) is aimended to read as follows: (c) Iron or steel products includes all of the products listed in (1) below, but does not include any of the products listed in (2) below: (1) The term includes: All products listed in the Table of Capacity and Production for Sale set forth in the Annual Statistical Report of the American Iron and Steel Institute, for 1939, pages 42, 43 and any additional products listed in § 1306.11, Appendix B; and all such products further finished by galvanizing, enameling, plating, coating, drawing, extruding, or otherwise in a manner commonly employed b}^ or for steel mills and rolling works. It includes such products in prime, secondary or rejected quality. (2) The term does not include: Pig iron, concrete reinforcing bars to the extent that the sale thereof is covered by Revised Maximum Price Regulation No. 159—Fabricated Concrete Reinforcing Bars; cut nails or cut tacks; steel gates; lead head nails; steel conduit; welding rod; wire rope slings; cast iron pipe; pipe couplings (except when attached to pipe); pipe fittings; rolled or forged axles or car wheels or any combination thereof; industrial wire cloth. 3. Section 1306.8 (h) (5) is added to read as follows: (5) The maximum extras which may be charged for selected rimmed stock for hot and cold rolled carbon sheet and strip steel shall be the extras which are presently in effect for aluminum killed steel; however, in no instance may the producer charge more than one of the following quality extras: the extras applicable to aluminum killed steel, the extras applicable to deep drawing quality, or the extras established by this subparagraph. The extras established by this subparagraph are only applicable when drawing quality, or physical test properties or values are'specified or required, beyond commercial bend tests, by the purchaser. 4. Section 1306.10 (i) is hereby revoked. 5. Section 1306.11 Appendix B is amended by the deletion of the word " c o n duit." 6. Section 1306.11 Appendix B is further amended by changing that portion of the appendix which now reads " W o v e n wire cloth—insect, hardware, and all other" to read " W o v e n wire cloth—insect and hardware". This amendment shall become effective March 1, 1946. Issued this 1st day of March 1946. PAUL A. PORTER, Administrator. The CHAIRMAN. We will proceed. Mr. B R O W N . Mr. Bowles, I have a letter here from a mill owner, a man in my State. I just want to read one or two paragraphs. Now, I am bringing up these complaints so that you can answer them. Do not let these questions I am asking you mislead you into thinking that I am against the Office of Price Administration. I am not. Mr. B O W L E S . Y O U have always been a good friend of it. Mr. B R O W N (reading). If the present situation continues, this liquidation of spindles will continue. It is a matter of common knowledge that mills in this country are reducing their operations from '48 hours per week to 40 hours per week and are discontinuing entirely their third-shift operations. Mr. Mr. BOWLES. BROWN. What kind of mills are these? Cotton mills. [Continuing:] Already many people who are converters of cotton goods, and some who are buyers and users of cotton goods, are purchasing mills in the hope that by such a purchase they can insure a supply of goods for their business. They realize the present owners of these properties cannot continue to operate them successfully under existing conditions. .49 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 There came in my mail this morning a communication from a man who operates a business of selling cotton mills and second-hand cotton-mill machinery here in the South. He starts his communication with this statement: "Here is the way to get plenty of cotton, merino, or spun rayon blends, as well as all other kinds of cotton yarns. The way is to do as your neighbors and competitors are now doing—which is to buy a good southern cotton mill in full operation, with good management, good location, and good reputation for yarn, and make yourself safe for the future." He then proceeds to call attention to four different plants which are now producing weekly, 110,000 pounds per week per mill, down to amounts ranging 100,000 per week and 30,000 pounds per week, and suggests prices for these mills from $945,000 per mill on down to $800,000 per mill, $715,000 per mill, and $500,000 per mill. This is a bad siutation and a bad trend, when you consider the future of cotton and cotton consumption. If these mills are sold to concerns who propose to use the product themselves, then it is obvious that they will utilize them so long as it pays them and then junk the mills and buy their goods in the open market, when such goods are available and when the present inflated demand is satisfied. Mr. B R O W N . Of course, the main point I want to get to you is this— if they are just working 40 hours a week as against 48 hours a week, and then cut off one shift, we are not getting the production of clothing we should, and I think they should be encouraged. But how? Mr. B O W L E S . I think you will find that no industry has increased its percentage of profit to the extent that the cotton-textile industry has—or very few have increased it more, let me put it that way, during the war and now. They are in pretty good shape. Now, the problem in getting cotton textiles out is manpower, and that has been the difficulty in some of these bottleneck areas. They happen to have been industries, like brick, cast-iron soil pipe, some of our foundries, lumber to a degree, textiles, and some where you have had very low-paid labor. They have always gotten along by dipping into the unemployment pool, pulling out workers at very low wages all the way through. A lot of those workers during the war went into aircraft plants and war plants and made very big money, and they are reluctant to go back at 50 cents, 45 cents, 55 cents, or 60 cents an hour. There have been wage adjustments in there to get more workers into those trades, but I think if you will examine carefully the textile situation, you will find that what they want is more workers, and they are crying for them, they are going on the radio trying to get them, they are doing everything they can to recruit more people. Mr. B R O W N . Well, now, if the cost of labor is more, and the machinery cost is more, you will need to increase the ceiling on their product. Mr. B O W L E S . If they are in hardship. But they are far from it. Mr. B R O W N . Some of them might be in hardship. Mr. B O W L E S . Some may be, but I will be glad to get any cases you have and investigate them for you and give you the full story on them Mr. B R O W N . Of course, I have heard a good many complaints. I do not know them myself. Mr. B O W L E S . I think you will not shed any tears over the cottontextile industry if you get into it and get the over-all figures in it. There may be an individual firm in difficulty here or there, and where there is, they are entitled to adjustments, and those adjustments will be given to them. .50 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B R O W N . I want to bring another thing to your attention. I have a resolution passed by the legislature of my State with regard to pulpwood ; complaining about it. It says: The Congress of the United States should be requested to take the necessarysteps to prevent the Office of Price Administration from discriminating against southern pulpwood growers, and that the selling price on rough pipe pulpwood be uniformly placed at $16.25 per unit f. o. b. cars at shipping point, and a ceiling price uniformly placed on rough hardwood at $17.19 per unit, f. o. b. cars at shipping point. Now they complain that down there the ceiling price is $9.60. against $16.25 in some other areas, and $10.16 in other areas of the country. And this pulpwood is just as good. So I cannot understand why you have such a difference between one section of the country and another, when their pulpwood is just as good as the others, they claim. Mr. B O W L E S . There are tens of thousands of items in the country now. I do not have them all at the tip of my tongue. I know in pulpwood there is a price increase being granted in the very near future—this week Mr. B R O W N . I understood that you had increased it recently, but I wanted to bring this out and put it in the record because it came to me from, the legislature of my State. Mr. B O W L E S . That is right, sir. I have not come over—maybe I should have—prepared to go into the individual cases, partly because I am out of the Office of Price Administration. Mr. B R O W N . Well, we will just leave it there, and I will file this for the record. The C H A I R M A N . It may be filed. (The resolution above referred to is as follows:) A R E S O L U T I O N M E M O R I A L I Z I N G T H E C O N G R E S S OF T H E U N I T E D S T A T E S T o P R O H I B I T T H E O F F I C E OF P R I C E A D M I N I S T R A T I O N F R O M P L A C I N G D I S C R I M I N A T O R Y PRICE CEILINGS AGAINST SOUTHERN PULPWOOD GROWERS Whereas, many formers of Georgia and other Southern States are selling pulpwood at prices far below the ceiling prices prevailing in other sections of the United States, and Whereas, we regard this discrimination against southern pulpwood growers as outrageous and indefensible; and the forest of the Southern States are being demanded at prices far below those in keeping with the material produced; and Whereas, w^e are advised by the Farm Bureau representative at Washington, D. C., that the Office of Price Administration has fixed the following ceiling prces on pulpwood; to wit—southern rough pine, f. o. b. cars shipping point, $9.50 per unit; northern rough pine, f. o. b. cars at shipping point $16.25 per unit; southern rough hardwood, f. o. b. cars at shipping point $10.12}^ per unit, northern rough hardwood, f. o. b. cars at shipping point $17.19 per unit. Thus it is shown how the southern farmer is being discriminated against; and Whereas, the product made from southern pulpwood is equal in every respect t o that produced from pulpwood grown in other areas and pulp mills have been erected in the South because of the recognized value of southern grown pulpwood; now therefore, be it Resolved, by the house of representatives, the senate concurring, That the Congress of the United States be requested to take the necessary steps to prevent the Office of Price Administration from discriminating against southern pulpwood growers, and the ceiling price on rough pine pulpwood be uniformly placed at $16.25 per unit f. o. b. cars at shipping point, and a ceiling price uniformly placed on rough hardwood at $17.19 per unit, f. o. b. cars at shipping point; Be it further Resolved, That the clerk of the house, jointly with the clerk of the senate, send each Member of the United States Congress a copy of this resolution. .51 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . I would like to say just one thing on the subject of production. I think it would be very foolish for anybody to deny that out of all of the 3 million business firms in the United States there is not some place somewhere, probably many, individual cases where you can find where some bad prices are in effect—we have something like 8 million prices—some bad places or some squeeze, or somebody is stupid and has done the wrong thing. But I think the general statements that we get about price control interfering with production need to be looked at with a very cold and fishy eye. Let me just point out again that we never had the production that we had during this war. The rate of increase in production was five times the increase of the last war. To be exact, we got 25 percent more production in the last war; we got 119 percent extra production in this war under price control. This time industrial prices have gone up some 26 percent. Last time they went up a hundred percent. You did not get the production last time—you got it this time. It does not mean that you got it because of price control. It does not sound as though price f control stood in the way, however. One more point: we have today fewer unemployed workers—first of all, we have more men at work in our factories, plants, stores, and so forth, than ever before in our peacetime economic history. Today we have fewer people unemployed, out of a job,,than at any period in our economic history. The want ads for people in factories, farms, and everything else have never been quite as packed with requirements in peacetime as they are today. Now, all I know is that those people must be doing something. I assume they are producing, and producing in very big quantities. Mr. B R O W N . I overlooked one question a while ago. You gave the purchase value of the dollar now as compared with 1941. What was the purchasing power of the dollar right after the First World War? Mr. B O W L E S . The price level in general was right about where it is today, after the last war. Mr. B R O W N . Did the purchasing power of the dollar go down considerably in the years following? Mr. B O W L E S . After the last war, yes. Mr. B R O W N . H O W far down did it get; that is what I want to know. I want to make the comparison between now and then. Mr. B O W L E S . Well, starting, as you know, in 1 9 2 0 , everything collapsed, after the inflation. The National Association of Manufacturers' theory, of course, is let prices go up, get production, and that will get production, according to the National Association of Manufacturers, and then let them collapse down to where they ought to be. Well, that does not make sense to me. You did not get production when you had the inflation of 1919 and 1920. It did not give you production. All you got was inflation and out of it a collapse. Now, how far the purchasing power of your dollar fell after that point— well, the purchasing power went up obviously as your prices collapsed. The collapse came. I will get you the figure. Mr. B R O W N . I will release the witness at this point. The C H A I R M A N . Mr. Bowles, will you be able to come back after lunch today? .52 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . I did not know you were going to go on. I have a date at the White House at 3:15. I would be very glad to do this, Mr. Spence: I have a date at the White House on this new set-up at 3:15. I think what we would like to do, if it is all right with you gentlemen, is to go into the Office of Price Administration presenta*tion, which covers a great many of the subjects that you are asking, on production, on all these questions of speed, and administration, and all of that, which is the regular Office of Price Administration presentation on a somewhat different basis than you have ever seen it. I will be there during that period. I could drop out for three-quarters of an hour for this date. Otherwise I will call the President and make a change. The C H A I R M A N . Y O U will return, though, to continue the, interrogation? Mr. B O W L E S . Yes. I did not realize you were going right through the afternoon. The C H A I R M A N . Will you be here while the Administration of the Office of Price Administration presents its case, part of the time? Mr. B O W L E S . I will certainly be here part of the time if you would like. Mr. B A R R Y . Mr. Chairman. The C H A I R M A N . Mr. Barry. Mr. B A R R Y . Mr. Bowles, with respect to production, would you, not now but when you come back again, give us the figures of the farmers' production, say, in 1940 and 1941, and compare it with the figures during the last 3 or 4 or 5 years, up to date? Mr. B O W L E S . Well, production increased during the war, from farms, about 25 to 28 percent against about 5 percent in the last world war. Mr. B A R R Y . All right. Now, you have the 13 percent over parity. Last year the farmers produced an average of 17 percent above parity. I would like you to check that figure of 13 percent. Mr. B O W L E S . 1 1 3 percent. Mr. B A R R Y . N O W , in 1 9 4 1 , the average farm prices, as I recall them, were about 18 percent of parity. Mr. B O W L E S . 80 percent. Mr. B A R R Y . About 85 percent of parity? M r . BOWLES. Y e s . Mr. B A R R Y . And has increased to about 17 percent above parity, which is 32 percent, plus the various changes that take place when the parity formula is revised. So I would lil^e to get the actual increase of farm prices since 1940 or 1941 to date, and the increase in production, because a good part of the objection to the Office of Price Administration comes from the Farm Belt and I would like to have the exact figures. Mr. B O W L E S . Of course, the farmer has had—I am surprised that you say that, because we have had almost more support from farmers, outside of the subsidy quest'on, with which they do not go along at all—than from anybody else. Mr. B A R R Y . On that point, there is a provision in another bill that the farmer will get his subsidy if the prices fall below parity after the war ends. I cannot see where farmers have ever objected to subsidy. .53 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. PATMAN. That is a mistake. They do not get a subsidy. They get a loan. Mr. BARRY. A loan which they never pay back. The CHAIRMAN. Are there any other witnesses for this afternoon? Can the Office of Price Administration proceed this afternoon? Mr. BOWLES. Yes, sir; definitely. I would suggest they go ahead with their regular presentation. The CHAIRMAN. And you will come back and subject yourself to regular interrogation? If you cannot do it this afternoon, you can be here tomorrow morning? M r . BOWLES. Y e s , sir. The CHAIRMAN. Very well. We will adjourn now and proceed with the Office of Price Administration this afternoon at 2 o'clock. (Whereupon, at 12:30 p. m., the committee recessed, to reconvene at 2 p. m.) AFTERNOON SESSION (Whereupon, at 2 p. m., the committee reconvened, pursuant to the recess.) The CHAIRMAN. The committee will be in order. The Office of Price Administration officials are here this afternoon and they desire to present the story on price control. Mr. Rogers, I understand, is going to take chargejof the presentation. If he desires the other witnesses to proceed in order, he may designate whom he wishes to proceed. Mr. ROGERS. Mr. Chairman, this morning it was stated that the Office of Price Administration, this afternoon, would make a presentation. STATEMENTS OF PAUL POTTER, ADMINISTRATOR OF THE OFFICE OF PRICE ADMINISTRATION, JAMES G. ROGERS, DEPUTY A D MINISTRATOR, ZENAS I . POTTER, RICHARD FIELD, GENERAL COUNSEL, GEOFFREY BAKER, DEPUTY ADMINISTRATOR, STE- PHEN AILES, ASSISTANT GENERAL COUNSEL. The CHAIRMAN. State your connection with the Office of Price Administration, Mr. Rogers. Mr. ROGERS. Deputy Administrator. The CHAIRMAN. YOU may proceed. Mr. ROGERS. We would like, if we may, this afternoon to go through the charts which have been prepared to state the case for the Office of Price Administration. Mr. Zenas Potter will read through the charts and answer any questions on those charts that members of the committee have. I also have with me, Mr. Richard Field, General Counsel, and Geoffrey Baker, Deputy Administrator for the Price Department. The CHAIRMAN. I do not think we ought to just introduce them indiscriminately. I think we ought to proceed in order, and let Mr. Potter take charge of the charts. Is that the way you intend to do it? M r . ROGERS. Y e s . The CHAIRMAN. Otherwise, it does not make a very good record, if you introduce various witnesses indiscriminately. We ought to .54 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 introduce the witnesses singly. It will be easier on the reporter and make for better procedure. Mr. Potter may proceed. Mr. T A L L E . May I ask a question, Mr. Chairman? The C H A I R M A N . Mr. Talle. Mr. T A L L E . D O I understand that those charts contain information we have not already had presented to this committee? Mr. P O T T E R . Yes, sir. This is the basic economic situation of the country, and we are answering particularly ten of the most important questions which Congress has asked about price control, and its effect upon the economy. The C H A I R M A N . What charts are these? Mr. Potter. You have not been over these yet. The C H A I R M A N . Proceed, Mr. Potter. Mr. P O T T E R . Four times this committee and Congress have faced the decision which is the greater evil: 1. Temporary and limited control of free enterprise, while the inflationary pressures created by war persist, or 2. Inflation. Four times the decision has been to protect the Nation from inflation. Congress is by now so familiar with the blows inflation inevitably visits upon the people and has so clearly indicated its determination to protect them from such punishment, that it seems unnecessary to again review those dangers. Instead, let us take up and seek to answer 10 questions Congress is being asked and which it must answer before it makes its basic decisions. First. Is it true, as is being alleged, that inflation already is here, that more of it is inevitable, and that we may as well let it have its way? Second. Is it true that a little inflation may help solve some of the Nation's problems and will not really hurt anyone? Third. Is it true that the Office of Price Administration is too inflexible and has not conformed its policies to meet the needs of the postwar period? Fourth. Is it true that production, which everyone agrees is the principal cure for inflation, is being curtailed by price control, and that while seeking to prevent inflation the Office of Price Administration is perpetuating it? Fifth. Is it true that the Office of Price Administration pricing policies have driven low-end goods off the market, forcing the public to buy higher-priced goods and defeating the purpose of price control? Sixth. Are the Office of Price Administration's policies creating business and landlord hardships? Seventh. Is it true that the Office of Price Administration is so slow in reaching decisions that it interferes with the forward planning of busin ess? Eighth. Since subsidies are a large item of expense, is it not time they were dropped? Ninth. Is it true that the Office of Price Administration is trying to control the prices of too many things: that Congress should cut the number when it renews the act? Tenth. When will inflationary pressures end so that we can get rid of price control without inflation? .55 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 We shall review these questions one at a time. Question 1. Is it true, as is being alleged, that inflation already is here, that more of it is inevitable and that we might as well let it have its way? It is true that inflationary pressures are at a very high level. In uncontrolled areas of our economy, the stock market, residential real estate and farm lands, dangerously inflationary conditions are evident. But control of commodity prices, in spite of very great inflationary pressures, has been outstandingly successful. Let us examine the facts. A substantial drop in public income, lasting for many months, was anticipated after the war's end. Actually, the drop was 6 percent from the first to the last half of 1945. These bars you see here represent the expendable income; in billions of dollars in 1939 it was $68,000,000,000; in 1944, it was $137,000,000,000. The first half of 1945 was at the rate of 139.9 billion dollars, and the last half of 1945 was at the rate of 131.8 billion dollars. The expendable income at the end of 1945 was up 95 percent over that at the start of 1939. Last August the McMahon report by the Nation's leading retailers said: " T h e drop in munitions production, the unavoidable disployment, the cut in work week and overtime premium, mean a major reduction in income payments. Retail sales will be adversely affected. This is what actually happened. This dotted line down here represents 1939 department store sales. This longer dotted line represents 1944 sales. The solid line represents 1945 sales. December, 1945, sales were up 12 percent over those of 1944, which were the greatest in history, and they were up 95 percent over the department store sales of 1939. The volume of money in circulation, both currency and checking account balances which are drawn against as a medium of exchange, is above any previous levels. Currency in circulation at the start of the war was 7.2 billion dollars. In November, 1945, it was 28.2 billion dollars. Balances in checking accounts in banks, at the start of the war, was 27.4 billion dollars; in November, 1944, it was 60.5 billion dollars. Mr. BUFFETT: Mr. Chairman, are we going to have a chance to ask questions on these charts? Mr. POTTER: I will be glad to stop at any moment to clarify the record, if anybody wants to ask a question. Mr. BUFFETT. Mr. Potter, that $80,000,000,000: that is an inflationary force, is it not? M r . POTTER. Y e s , sir. Mr. BUFFETT. HOW do you propose to dispose of that? Mr. POTTER. I think that that will be gradually absorbed as we get into goods production on a very large scale, that will gradually be absorbed into our economy. Mr. BUFFETT. IS it not true that all goods production automatically produces its own buying power? Mr. POTTER. Goods production produces its buying power, yes, to a great extent, not entirely, because capital goods do not produce their own buying power. .56 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The C H A I R M A N . I suggest you let Mr. Potter get through. Mr. B U F F E T T . Mr. Spence, we do not want to come back to these charts. The C H A I R M A N . That is all right. Mr. P O T T E R . Capital goods do not produce their own buying power. Goods shipped abroad in relief to other countries do not produce the goods for their buying power. Mr. B U F F E T T . They produce dollars in the market here that add to buying power, do they not? Mr. P O T T E R . That is right. Mr. B U F F E T T . They make it bigger? Mr. P O T T E R . That is right. These inflationary conditions are increased by $145,000,000,000 in wartime savings hanging over the market. This sum is double the public expendable income in our most prosperous prewar year. Those are the inflationary pressures that are pressing on the price level in the country. In uncontrolled areas, they are represented in substantial increases in prices. In other words, the soaring stockmarket prices reflect the inflationary condition of the country. They have gone up 22 percent since VJ-day. Even a hundred percent cash payments for stocks has not been able to check the boom. That the inflationary trend in residential real estate was powerful in the last 6 months of 1945 is shown by these facts. This is the ratio of the sales prices of single family homes to the monthly rentals in 63,300 sales of single family houses reported to the Office of Price Administration. The formula has always been estimated in the real estate market as approximately a hundred times monthly rentals. In the second 6 months of 1945 these sales registered 149 times monthly rentals. Rise in farm land prices is close to that which, with the price collapse, led to 451,000 farm mortgage forcelosures after World War I. From 1914 to 1920 the increase in farm lands was 65 percent. From 1939 to 1945 it has been 58 percent. Inflationary pressures, as we have seen, are at an all-time peak. In uncontrolled areas of our economy dangerous inflationary tendencies are evident. But control of commodity prices ordered by Congress may be an outstanding curb. Mr. B U F F E T T . May I ask a question? M r . POTTER. Y e s . Mr. B U F F E T T . IS it not true that those inflationary pressures are increasing every month by the amount of the national deficit? Mr. P O T T E R . By the amount of the national debt? Mr. B U F F E T T . National deficit. Mr. P O T T E R . Well, that is a factor in the situation, but when we get really rolling in production, we are going to see a trend in the opposite direction. We have not yet gotten into full production in this country. Mr. B U F F E T T . What is your definition of the basic cause of inflation? Mr. P O T T E R . The basic cause of inflation—of course, there are a number of factors operating in the inflationary market—the basic cause of inflation is a public income far in excess of available supplies of goods. That is the basic cause. Mr. B U F F E T T . Then) in order to stop inflation, we have got to attack .57 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. P O T T E R . We need production and more production. Mr. B U F F E T T . The income beyond the supply of goods; is that not right? Mr. P O T T E R . We need production and more production in this country to wipe out this surplus of buying power that exists and these goods shortages that have carried over since the war. Mr. B U F F E T T . H O W are you going to get a goods production that will not generate its own purchasing power? That is something that I have never had satisfactorily explained to me. Mr. P O T T E R . Well, I think you are going to get a good production, and it will generate its own purchasing power to a considerable extent,, of course. But when we get an economy operating at full capacity— at the present time we have a very high purchasing power without the production of goods, because we are reconverting our plants, but we are not yet in full operation, and consequently we are keeping up our purchasing power without the goods to offset that situation. Mr. B U F F E T T . Yes; but is it not true that as long as we indulge in deficit financing, we are issuing more dollars than the amount of goods produced? Mr. P O T T E R . I take it that the Government is going to come to the end of deficit financing in the relatively near future. It is exceedingly important, I think, as the President has recognized, that that should be done. Mr. B U F F E T T . Mr. Eccles testified before this committee that inflation is caused by appropriations beyond tax collections, and he seemed to think that that was the basic cause of inflation. Mr. P O T T E R . I think that is a secondary factor in the situation. The biggest factor is that during the war we produced, as we did, an enormous quantity of goods—46 percent of them went off to war, leaving the money paid for that production- competing in the market for the remaining goods. That was the basic cause, I think. The C H A I R M A N . Might I suggest that you continue, Mr. Potter. Mr. P O T T E R . Well, I am glad to answer questions as we go along. The C H A I R M A N . Yes, but these questions are not questions addressed to this particular chart, they are general questions, and we want to get through with the charts first. We are going to call the committee. We will establish the old rule that we will call the committee and give every member a chance to interrogate the witness. Mr. P O T T E R . All right. The point that I made was that in the uncontrolled areas we have a lot of inflation, and in controlled areas we have done a remarkably good job, and this chart shows the trend of wholesale prices. This is the last war, they went up to 148 percent and then collapsed. And in this w^ar, up to May 1943, which is about here on the chart, we hit a dead level, which we carried very well. Here is the trend in consumer prices, for the last war, up to 108 percent, and then collapse set in, and in this war we are on this level. The next chart will show the distribution. Most of the price rises resulting from World War II took place before the hold-the-line order became effective in May, 1943. In wholesale prices, 38.8 percent occurred; 38.8 percent of the inflation occurred over 35 months; 4.2 percent occurred over 31 months, the last 31. .58 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 In consumer prices, 26.9 percent occurred in the first 45 months, 3.8 percent in the last 31 months. In areas of our economy under control, stabilization has been an outstanding success. That inflation is here, and is sure, and that there is little we can do about it has been proved untrue by what has been done. Although inflationary pressures are at a peak, and are creating dangerous inflation in uncontrolled areas of our economy, controlled wholesale and consumer prices have been held practically stable in the past 2 years and 8 months. We are very confident Congress will not believe the interests of the Nation will be served by weakening or ending controls and throwing the Nation into a spiral of inflation that inevitably will end, as it did in 1920, in collapse and depression. Now, question 2. Is it true that a little inflation may help solve some of the Nation's problems and will not really hurt anyone? People who ask that question have varying ideas, but they all want standards more generous to business than the Office of Price Administration has applied. Their demands run all the way from a moderate relaxation of pricing standards to a passing through to consumers of all the wage and material cost increases without examination of ability by business to absorb. The Office of Price Administration's policy has been to make only such price increases as are necessary to meet the standard set up by Congress and Executive orders. First, to encourage essential production. And second, to maintain generally fair and equitable prices. These policies have proved themselves in the astounding success of wartime production, and the almost complete absence of hardship in the business world. Since VJ-day, as we shall show you, the Office of Price Administration has adapted its standards to meet the changed conditions and needs of the transition period. Any substantial departure from these basic standards, in view of the great inflationary pressures just reviewed, will set in motion forces which no one can control. If our economy were made up of isolated and unrelated areas, a program of having a little inflation would work. Prices in one area *could be advanced without affecting those in others. Actually, areas are inseparably interrelated. Apart from a cushion for cost absorption, increases in raw materials raise the prices of semimanufactured goods. Increases in prices of such goods raise the prices of finished goods. Increases in the prices of such goods raise the cost of living. Increases in the cost of living raise wages. Increases in wages raise all production costs. Then, you are ready for another round of increases, starting at a higher price level. This is how inflation grew when wholesale prices turned upward in March 1919, after the slight set-back that followed the armistice in World War I. The first month that prices turned up—this red area on the chart shows the monthly increase; the first month it was 2.2, the next 2.5, the next 3.4, then it fell back to half a percent, then it went to 8.4, and in the tenth month we ended up with an increase in that single month of 8.9 percent; in the eleventh month we had an increase, in a single month, of 10.7 percent. Note the pyramiding effect of monthly price increases, and I may say that pressures today are far more explosive than they were when that record was made. .59 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 This is how ail inflationary spiral operates: Material price increase, finished goods price increase, living cost price increase, production increased cost, living cost increase, production cost increase, and then you have the bust. The only safe way to deal with an inflationary spiral is not to set it in motion. Once we depart from sound standards geared to encourage production and to maintain equitable prices, designed to keep business in general good health, there is nothing to keep a little inflation from becoming a big inflation Question 3. Is it true that the Office of Price Administration is too inflexible, and has not adjusted its policies to meet the needs of the transition period? Actions speak louder than words. Since VJ-day, we have taken 11 important steps to fit our pricing policies to the needs of the postwar period. Let us review these evidences of flexibility in the Office of Price Administration's policy. Step 1. Reconversion prices: The Office of Price Administration has reviewed the ceiling prices of products largely off the market during the war (1) by adjusting 1941 costs for increases in (a) basic wage rates of factory employees, (6) general legal increases in materials prices and by adding the industry 1936-39 market profit. In addition, an expansive program of individual adjustments for reconverting manufacturers was adopted particularly liberal to small firms. Step 2. New products: The end of the war was certain to bring a flood of new consumer durable products for pricing. T o help new small business firms get started in the manufacture of durable consumer goods, the Office of Price Administration allows them to selfprice on the basis of their own costs, plus a profit margin. Such small businesses file their costs and prices, and if they do not hear from the Office of Price Administration in 15 days, they may sell at those prices. This order took out of the Office 75 percent of the work load in pricing ilew products. It allowed more time for pricing new products for established firms. The benefits from this program far outweigh any difficulties arising from unusual differences in prices of similar goods. Price increases to help break bottlenecks. A few commodities occupy a strategic role in reconversion. Among them, building materials and iron castings. Where it is clear that these are in short supply, and that, together with other steps being taken, higher prices would stimulate production sharply, the Office of Price Administration raises prices. For example, ceilings were increased on brick, cast-iron soil pipe, and other building materials to aid in breaking a bottleneck in construction. In some of these cases, price increases are being correlated with wage increases to help solve manpower problems. Bottleneck Committee: And I would like to enter in the record, Mr. Chairman, if I may, at this point, a statement from the chairman of the Bottleneck Committee set up by the Office of War Mobilization and Reconversion. The C H A I R M A N . That may be inserted. Mr. P O T T E R . I would like to read the first paragraph: OPA price actions in the building-materials field since VJ-day have included many items not designated as bottlenecks by OPA, accounting in some measure un83512—46—vol. 1 5 .60 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 doubtedly for the shortness of CPA's list. Since VE-dav, OPA has made one or more general price increases applicable either to large areas or Nation-wide on the following building materials: Thirty-six are listed, and then it says: The above list reflects approximately 60 separate price actions. The C H A I R M A N . That statement may be inserted in the record. (The document above referred to is as follows:) STATEMENT OF BOTTLENECK C O M M I T T E E ON ACTIONS OPA BUILDING MATERIAL PRICE OPA price actions in the building-materials field since VJ-daj^ have included many items not designated as bottlenecks by CPA, accounting in some measure undoubtedly for the shortness of CPA's list. Since VE-day, OPA has made one or more general price increases applicable either to large areas or Nation-wide on the following building materials: 1. Vitrified clay sewer pipe and allied 20. Douglas fir arid minor species of plywood. products. 21. Window and picture glass. 2. Building lime. 22. Enameled cast-iron plumbing-fix3. Rough quarry limestone Dlocks. ture ware. 4. Lineal sash and frame stock. 5. Douglas fir stock millwork—screen 23. Clay drain tile. 24. Domestic oil burners. doors and door frames. 25. Gas-fired and liquid-petroleum-fired 6. Cast-iron soil pipe and fittings. furnaces and unit heaters. 7. Gypsum lath and linerboard. 26. Brass plumbing fixtures. 8. Concrete blocks. 9. Cast-iron tube radiation. 27. Southern pine lumber. 10. Cement. 28. Yellow cypress lumber. 11. Calcined gypsum bag goods. 29. Douglas fir boards. 12. Common and face clay brick. 30. Redwood lumber. 13. Structural clay tile. 31. Western pine 4/4-inch boards. 14. Hinges and butt hinges. 32. Walnut lumber. 33. Lake States logs. 15. Builders' hardware. 16. Automatic electric temperature con- 34. White birch logs. 35. Hardwood handles. trols. 36. Northern hardwood and softwood 17. Readv-mix concrete. lumber. 18. Stokers. 19. Douglas fir open-window sash. The above list reflects approximately 60 separate price actions. Some of the actions were discretionary, and many simply fulfilled the legal minimum standards. Some involved relatively small price increases, other substantial raises. Further adjustments will undoubtedly become advisable within some of these same commodity categories. Mr. POTTER. The Bottleneck Committee to consider production problems of materials in seriously short supply and essential on reconversion, was set up by the Office of War Mobilization and Reconversion. On it was represented the Office of War Mobilization and Reconversion, the Office of Stabilization Administration, the Office of Civilian Production Administration, the Office of Price Administration, and the United States Employment Service. Any agency may bring cases before this committee and recommend action. The Bottleneck Committee studies the needs, then recommends appropriate action, and traces adoption. The committee has been acting also for the National Housing Administrator. The Office of Price Administration has put into effect committee recommendations in every case in which price action has been proposed. There is one action now in process. Dollar-and-cent prices on building materials. To further encourage building, we are replacing ineffective freeze .61 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 regulations controlling prices on building materials and standardized contractor services, with community ceiling prices similar to those that have proved so effective for foods. These will not change the level of legal prices, but by enabling persons building or remodeling homes to know when they are being overcharged, will make compliance far easier. Shift to dollar-and-cent pricing will also iron out the inequities among firms frozen with different orice levels. Next, extension of individual adjustments. Wartime cost increases and other developments affect firms witliin the same industry quite differently. For example, some companies were located in war production centers. Others were not. Some firms, with a long record of success, found themselves unable to operate under prices that were generally profitable for their industries. Recognizing this, the Office of Price Administration has greatly extended its provisions for individual adjustments where this could be done without upsetting effective price control. Provisions for individual pricing for reconverting manufacturers has been described above. Individual price adjustments since VJ-day. This is August 1 to December 31: Applications, protests, 6,809; granted in full, 3,567; granted in part, 1,290; making the total about 4,700 or 4,800. Denied, 1,221; dismissed, 435; withdrawn, 296. I think that shows that the Office of Price Administration has adopted a flexible policy toward the needs of the reconversion period. Here is another chart which shows the extent to which the Office of Price Administration's flexibility is meeting the situation, the changed situation, or the needs of individual petitioners. Landlords petitions filed: In 1945 a total of 278,000 individual landlord petitions were considered and acted upon by the Office of Price Administration. Of these, rental increases were granted in 192,600 cases. Reasons for granted increases, major capital improvements, 63,000; increased services, equipment, and so forth, 82,000. I will not go into the others. General rescue order: As part of the individual adjustment program, we adopted a general rescue order. This is designed to give individual manufacturers losing money under ceilings generally profitable to their industries prices sufficiently high to cover their total costs. These are people who cannot be taken care of by all the other individual price adjustments. If they do not fit any man, then, we give him a bale-out under this general rescue order. In general, this adjustment order is available to all manufacturers, except where individual firm adjustments would impair effective price control—that is, where you have dollar-and-cent prices, for example. An example of the exception is commodities with uniform dollar-andcent prices. Stimulation of low-end production: Rising costs usually hit first low-end items, on which producers ordinarily have low margins. It should be emphasized that many profitable low-end items have been dropped because manufacturers could, in a seller's market, concentrate on high price-high profit lines. It is true, however, that wartime increases in labor materials have made some low-end goods unprofitable to produce. We are granting special increases on such low-end goods to encourage their production, and I would like to file, .62 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 with the record, if I may, Mr. Chairman, a list of these low-end orders. It is quite lengthy and I do not want to read it all. The CHAIRMAN. That may be incorporated in the record at this point. (The document above referred to is as follows:) Office of Price Administration list of low-end price actions Commodity Regulation M P R 260. Foods: Cigars Consumer durables: Miscellaneous listed modities. Furniture com- RadiosTextiles: Cotton blankets Bedspreads, napery woven decorative fabrics. Snowcloth, meltons Textiles produced W P B directive. under Heavy-weight underwear. Low-end garments, underwear, shirts, pajamas. Machinery products: Fractional horsepower motors. Metal stampings D r o p forgings Screw machine products _ Steel drums, 55 gallons and 58 gallons. Building materials: Gypsum lath and board Neet plaster Stokers Builders' hardware _ Brass plumbing fixturessupply fittings, and trimmings. Plaster lath Rubber: Mechanical rubber products (soft) (base period lines). Same for hard rubber goods.. Paper and paper products: Gummed cloth tape___ Groundwood specialty papers (19 grades only). Book paper, finishing and packing differentials. Wrapping paper, sheeting and slitting differentials. Standard boxboard •Contemplated: Plywood Douglas fir doors.. Date Nature of action November 1944.. Differential increase low-end ( M A P ) . SO 148 Mar. 8, 1946 M P R 188 Dec. 28, 1945.... Order 4800, M P R 596- October 1945.... Individual adjustments and cut-off prices. General increase on lowend items. Differential percent increase on low end. SO 131, amendment 4 SO 131, amendment 7. Oct. 24, 1945— Nov. 30, 1945.. M P R 163. SO 86 Apr. 12, 1944.. SO 131. SO 137. Mar. 11, 1946_. Oct. 17, 1945— SO 139. l^ov. 13, 1945.. Amendment M P R 136. Amendment M P R 136. ....do do for Increases on lower half of each seller's line. Differentially higher markups on low-end items. "Vinson formula" of cost plus 2 percent. 5-percent increase. Adjustment provision allowing cost plus 4 percent on individual items. Permits increases up to 15 percent on items below specified cut-off points. 17 to Oct. 16, 1945... 9 percent over 1941 prices. 11 to Sept. 19, 1945.. 8 percent over March 1942. .do.. .do- Amendment 3 to SR 14 G. Amendment 17 SO Order 1, M P R 592. Amendment 3 SO Order 1, M P R 592. Amendment 17 SO Order 1, M P R 592. Amend 6, Order 48, M P R 591. Amendment 6, R P S 40. Amendment 4, M P R 413. Amendment 2, Order 1, M P R 591. Amendment 5, Order 48 M P R 591. Jan. 2, 1946- Do. 8 percent over March 1942 prices. 8-11 percent over base period prices. Nov. 16, 1945.. $3 per thousand square feet. Aug. 21, 1945.. 26 percent. Nov. 16, 1945- $1.50 per ton. Jan. 16, 1946... 10 percent. Oct. 8, 1945.... 10 percent over base prices. do Nov. 13, 1945.. Do. Do. Jan. 16, 1946— 3-15 percent over average increase of 9 percent. 21 Feb. 26, 1946. $4 per thousand. Amendment 20 M P R 149. Oct. 29, 1945- Up to 15 percent over base period prices. Amendment 24, M P R 149. Mar. 1, 1946- Up to 15 percent over base period prices. Amendment 3, M P R 129. Amendment 5. M P R 449. Amendment 3, R M P R 451. Amendment 13, M P R 182. Amendment 25 RPS 32. Dec. 27, 1945. Dec, 29, 1945. 26 cents per thousand inchyards. 10 percent over ceilings. Jan. 9, 1946... $14 per ton over ceilings. Feb. 15, 1946. 25 cents per hundredweight over ceilings. $0.75-$1.75 over average increase. Amendment R M P R 26. Feb. 1, 1946. _ .63 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Mr. P O T T E R . Field office adjustments: Channeling individual adjustments through the national office created difficult administrative problems and resulted in delays. We therefore, delegated to our field office authority to grant most individual firm adjustments affecting smaller firms. For similar reasons, most new goods pricing also was delegated to the field. As a result, there inevitably will be some unusual variations in prices on similar products, but the gains from the program far offset this disadvantage. Decontrol: We worked out, with the Office of Economic Stabilization, standards for decontrol which became OES Order 68. Suspension of price control of any commodity is authorized when in the Price Administrator's judgment the price will not go up. Termination of control is later authorized if the price, in fact, does not go up, or threaten to do so. Decontrol may also be adopted: (1) WThen a commodity does not enter significantly into the cost of living or into business costs, and (2) When the administrative difficulties are disproportionate to the effect of this control or to the contributing or contribution of stabilization, and (3) when there is no threat to substantial diversion of materials, facilities, or manpower from production of other commodities. (4) When it does not impair effective control of the prices of other commodities. A transition standard: It has been the Office of Price Administration's policy, when the multiple product industry was making not less than its prewar profits, but losing money on an individual product, or minor products, to raise prices to cover the out-of-pocket costs to the industry generally. This is one of the situations which Mr. Brown discussed this morning. Usually the average manufacturing cost was used as the measure of this adjustment. General overhead and sales expenses were not included. Now, save in special circumstances, the Office of Price Administration will, under such conditions, make price increases to cover average total costs of the industry. That is a change from just covering out-of-pocket manufacturing costs to a covering of total costs. Mr. W O L C O T T . Will you yield for a question there? Do I understand it is going to be the policy of the Office of Price Administration to set their ceilings on the basis of cost of production costs, from now on? Mr. POTTER. It has been the policy of the Office of Price Administration to adjust prices for two basic reasons, Mr. Wolcott. First, when an industry as a whole was not earning its prewar profits. Then the price for the whole industry was increased. In the second place, in multiple-product industries, and industries that produced many different items, it was the policy, through the war, to bale out on the basis of out-of-pocket costs, which covered total manufacturing costs. The new standard, with certain limited exceptions, is to cover on an individual product of an industry that is making its over-all profits on an individual product, the total costs, which include overhead, sales costs, and so forth. Mr. W O L C O T T . Let us see if we can put our finger on something. You said that, excepting in special circumstances, your ceilings were going to take into consideration cost of production. Now, why can we not have an outright statement as to what the policy is going to be? .64 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Mr. R O G E R S . I will ask Mr. Baker, Deputy Administrator for Price, to answer that. Mr. B A K E R . Mr. Wolcott, we have not yet released this policy. We have listed two cases which would be illustrative of those special circumstances not finally decided. They will be decided before this hearing is concluded, and we will then present the list. As illustrations of two, the first case would be in some instances where we have small products, which are manufactured characteristically by multiple-product industries, where the item does not present a special problem, through being produced at a loss by single-line producers. Mr. W O L C O T T . Y O U mean that they absorb the loss on one line by an average over-all profit? Mr. B A K E R . Yes, sir. Another case, which partly duplicates that, as I am sure you will recognize, is a case where the item characteristically sold at a loss during the peacetime period. We have examples of such instances, as you know, in many industries. For example, the sale of steel rails, by the steel industry. In some cases we might even move those up to a total cost basis. But there may be cases where, as you point out, they may merely be part of the pricing policy of the industry as a whole, and we would then probably leave them in that situation, unless substantial areas of single line producers would be in a loss as a result of doing so. Mr. W O L C O T T . Will you go back to that chart again, Mr. Potter? That chart says that now, save in special circumstances, the Office of Price Administration will, under such conditions, make price increases to cover average total costs for the industry. Franldy, I do not know just what your policy is going to be from that language. That is why I am asking you if, from now on, your policy is going to be: excepting in such special circumstances as you have mentioned, that the ceilings are going to be cost-production plus? Mr. B A K E R . May I continue on that, sir? M r . WOLCOTT. Y e s . Mr. B A K E R . Remembering what Mr. Potter has said, that our first standard is the earning standard, and assuming Mr. W O L C O T T . Y O U mean the first standard—the profit? Mr. B A K E R . The first standard we look at is profit, which is the 4-year base period profits, with which you areiamiliar, where, if we find that in an industry that is being currently satisfied, we then have that same problem that we have had before, where a given product may be sold at a loss, and where single line firms, producing either that product only or, let us say, where that product presents an important percentage of their total production, are in difficulty because of the fact that we are looking at the industry as a whole—that is the setting in which we have established our product standard. Now, we start with that setting: during the war we used average manufacturing cost as the figure that we would cover. We are now changing, in those cases, to average total cost. In other words, we will still make the finding that we have a case where our product standard should be applied, as I have described it, and as it has been described to this committee before, and this merely is a change, sir, in the measurement of it, but not a change in the area or scope of the application of the standard. Mr. G A M B L E . IS that not a cost-plus policy? .65 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. W O L C O T T . We do not know yet what such a policy is goirg to be. Can we not get some simple rule, which you applied by that language? You say that except in special circumstances, the Office of Price Administration will make price increases to cover total cost for industry. Now, as I interpret that, and I think the public have the right to interpret it so as I read it there, it means that, excepting in special circumstances, your ceilings are going to be high enough to cover total cost. How do you want us to interpret it otherwise than what that language said? Mr. B A K E R . One of the difficulties is the one you pointed out in the first place, the fact that we have not spelled out what the special circumstances are. That makes it difficult. We must do so to make it clear. But going to the illustration which I gave, let us suppose that a multiple-product industry produces, let us say, steel rails, and only multiple-product industry produces steel rails. Mr. W O L C O T T . I understand that. Mr. B A K E R . In such a case we would not apply tl>< product standard at all. Mr. W O L C O T T . All right. What are you going to do where the multiple-products industry says, "We are not going to produce the product on which we take a loss, but are only going to produce the products on which we make a profit," and, consequently, the industries which are dependent upon the product which they are not manufacturing? Mr. B A K E R . Sir, that is a matter which we have taken care of by so-called incentive pricing. You are familiar, I think, with our so-called low-end pricing. Mr. WOLCOTT. Who would you give the incentive to? Mr. B A K E R . It would be given to those who produce the product. Mr. W O L C O T T . Let us take a concrete case. Here is a woolen mill, fabricating different kinds of cloth, for different units of the clothing trade. A concern had been buying from this mill a certain grade of cloth, taking the whole output. And this concern cannot get this product any more because it is one of the items on which they take a loss. It does not make any difference how you raise the price to the fabricator, or to the processor of that material if the mill does not produce it. Mr. B A K E R . That is correct. Mr. W O L C O T T . What do you plan to do in that case? Mr. B A K E R . In that case, let us suppose it was an item of heavy weight worsted which we encourage for the production of suits for returning veterans. In such a case our approach would be to do two things: First, to make sure that the profitability of that item, that particular item, was at least equal to the profitability of other items which those weavers, those manufacturers of that fabric, were making. Having done that, > would then ask the Civilian Production Board to issue a v eimg order, which would require the production of that item, or a certain proportion of that item, relative to the amount of yarn being secured by those mills. In other words, by a joint production and incenti ve pricing action, we would endeavor to secure, if not an adequate snppjy, at least avoid an impediment to supply. .66 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 In this case, however, sir, we are not attempting to cope with that particular problem. That is an additional thing, which we would do beyond the application of this ordinary standard, which would not be applied to products because they are essential, or because they are low priced, but would be applied generally to products which come under the classifications that I have described, of being produced to some substantial extent by single line industries. In other words, that is a general applicability not related to essentiality. The incentive proposition always that I have described in the illustration would be over and beyond such an approach. Mr. W O L C O T T . N O W , let me give you still a further example that I had in mind when I asked the question. A concern with which I am familiar, which employs 200 people and which makes a very high grade of children's snow suits—they have developed children's snow suits, to begin with—and they make them out of very fine fabric, which is almost as tough as suede. They buy the entire output of a mill in Pennsylvania. They sold this snow suit, before the war, for I believe, about $10, in round figures. The mill says, "Sorry, but we cannot afford to make this fabric any more. It is a very high grade fabric and we cannot afford to make it any more and sell it to you so that you can sell it for the same price that you sold it for before the war." So the mill is not weaving it, and the factory is not fabricating it, is not making it into snow suits. They have asked, I think, for an over-all increase in price of something like 50 or 60 cents on snow suits to put the mill in production on this high grade material and also to put this fabricating mill, cutters, and so forth, to work in making these suits. The suit would sell for $10.50 or $11. In the meantime, their principal complaint is that manufacturers of children's snow suits, making snow suits of a sleezy material, are allowed to sell these sleezy snow suits for $15 and $18. That is the principal objection to the manner in which the price control would be administered, and what I am trying to get at is: Does your new policy contemplate that you are going to give some relief eventually to such cases as I have mentioned. It shows that it gets the American people to thinking that they are not saving any money when they have to buy two $15 suits to get through the same period of time that one $10 or $11 snow suit would. Mr. B A K E R . May I suggest, sir, that that problem, and it is a very real one, is not the one that this standard attempts to answer. Mr. W O L C O T T . Well, have you got some other policy? Mr. B A K E R . Well, with your permission, sir, I would like to bring that forward at another time, when I can ask Mr. Livittes, the head of our Consumer Goods Division, to be here, or to take it up at a time connected with another part of this presentation. But I would like to suggest that that is a twofold problem. First, it involves the methods of giving prices to people, new manufacturers, and so forth, as compared to old manufacturers. I Second, it involves the problem of quality deterioration, which nothing like this will do anything about, unfortunately. That is another problem—an entirely separate one, sir, which we have not coped with up to this time. Mr. W T OLCOTT. It seems to me you could do the job if you priced in such a manner as to give encouragement to the weaving and the fabrication of quality materials. .67 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . Well, may I make this suggestion Mr. W O L C O T T . That was my point, that if parents can buy snow suits for $10.50, which will last their children twice as long as a $15 snow suit, then, I think you should give consideration to adjusting these prices. Mr. B A K E R . We certainly ought to, sir; yes, without question. Let us suppose that the item you refer to is a certain weight of fabric, a certain construction, which is known in the trade and describable, having a certain weight or a certain weave, that is. That constitutes a product. Now, if that particular product, that particular construction, which is sufficiently different from others to be known as a product, is generally being produced by the industry, at less than the total cost, and if that industry has in itself some substantial elements of single line manufacturers, like the one you described in Pennsylvania, then, this standard would give them total cost. It would go that far. It would not, however, perhaps go as far as you would need, since if he produces nothing else, the prospect of total cost may not be attractive enough to keep him in production. That is why we would next have to decide whether that construction was one where we wanted to divert yarn from other constructions to that one and then we have a problem of essentiality on which we lean heavily on the Civilian Production Administration for a decision. It is obvious we cannot give incentives to all the constructions or we are right back where we started from, and it becomes a question of choosing certain essential items, usually the least expensive ones, for that purpose. That does not, however, solve your quality point, and the deterioration point. Mr. W O L C O T T . Well, I brought it out because I think that is rather basic, and I think most of the complaints against the Office of Price Administration in the past have been based on it. Also, I might say that I do not think there are too many people who are opposed to the continuation of price controls. I think the opposition is to the manner in which price control has been administered. A great many people believe that you are using the power to control prices in order to control our economy. That is why "there is this perhaps overwhelming demand to kill all price controls, because they do not think that you have administered price controls in a manner designed to get full production. Our files are full of these cases. I picked this one out as more or less typical, and it would seem to me that for the Administration to tell parents, in this case, to pay $30 to $36 for two children's snow suits when it would be quite logical for you to raise the price of snow suits 50 cents, is the point. You would still have price control and have production. Mr. B A K E R . This is still a question that requires full discussion and a full statement by us. Mr. W O L C O T T . It has been discussed ever since price control came in, but we realized that while we were in the war, probably one reason why they were not getting the yarn and why they were not fabricating—just using this as an example—was because of the war effort, and everybody went* along with it. But now we have a little different proposition here. Mr. B A K E R ; I would certainly agree, sir; our plan had been, with the chairman's permission, to present and submit to questioning on the .68 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 whole textile question, and, as a separate portion at a time convenient to the chairman, when we could review wool, cotton, and rayon, what items were being given incentive pricing and so on. Mr. W O L C O T T . Well, what I want is just your over-all policy, as to what you are going to do about it. Because we have a similar case in toys. Mr. B A K E R . What is the question on toys, sir? Mr. W O L C O T T . Well, it might have been corrected, but I have in mind a toy concern which sold a popular brand of toy for a dollar before the war. They were manufacturing metal toys. They converted to war production during the war. On VE-day their contracts were canceled and they came to the Office of Price Administration and wanted a price on this same toy, so that they could get back into production. The War Production Board at that time gave them the materials, there was no question of materials, but that plant stayed idle for months. Perhaps you have made some adjustment since then on it, but that plant stayed idle for weeks and weeks that I know of before you would give them a price, because they could not afford to produce under the price under which they had produced back in 1941. You said, "You are an old-established concern, you have a price history, therefore, you must go back to the 1941 price," and negotiations went on—perhaps they are still going on, I have never heard of the case being definitely settled, although it is not a case I was particularly interested in—at any rate, for weeks and weeks you were determining this question of price for this little concern. In the meantime, 3 , 0 0 0 toy industries came into existence and you gave them a price of production-plus. Mr. B A K E R . Y O U are right, sir, in saying that that question has been answered by the exemption of toys and games from price control on January 28. That is just a coincidence, however. It does not answer your basic question, of course. With respect to the rest of the question, I take it that part of it relates to slowness of administration, which is the thing that I am sure concerns alj of us, and, second, to the necessary technique of in-line pricing, which has often resulted in prices for new manufacturers, which are higher in terms of cost-price relationship than those for old ones. It is not a satisfactory situation, but the best way we know in which to handle the pricing of that class of merchandise. It does result in some freaks, there is no question about that, freaks of pricing. Mr. W O L C O T T . Well, could we not take a more or less definite formula, the same as the Little Steel formula for wages, and say that the cost of production generally has gone up 8 percent or 10 percent, or whatever the percentage is, and say to people, "Go back into production and charge no more than 110 percent"? They would get back into production under that new formula; would they not? Mr. B A K E R . With respect to small manufacturers, our order 4 3 4 2 does substantially that, by permitting them to calculate their own prices on the basis of their own costs, and we have no limitation, except that they are only permitted to use them unless we tell them not to. In general, our practice has been Mr. W O L C O T T . When you get around, a few months after, to tell them not to, what happens? .69 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . Our general practice has been not to review those determinations until they had had actual cost experience. Mr. W O L C O T T . Y O U mean a concern can put its own price on a product after reconversion? Mr. B A K E R . Yes; that is true of only new small manufacturers. Mr. W O L C O T T . If an old-established concern, having an established price history on its commodity does that, you crack down on him. He has to go back to his 1941 price; does he not? Mr. B A K E R . We have to take an illustration. The toy one does not fit any more. But if you care to have another illustration given, we would have to look that up and give you the right application. Mr. W O L C O T T . Where is the logic and reasoning behind such a ruling? A new concern, you saj^, can establish their own price, on a cost-of-production-plus basis without coming to the Office of Price Administration, and then later on you adjust that, and say he has to bring it down, if nothing happens to it in the meantime, But here is an old-established American concern, just by way of example, that has a price history, and because they have a price history, they cannot turn a wheel until—that concern cannot say, "Our cost of production is 10 percent more than it was in 1941, so our commodity is going to sell for $1.10 instead of a dollar." Where is the reasoning behind that? Mr. B A K E R . The implication is that we do not have individual adjustment provisions. We do have individual adjustment provisions in practically every regulation that we issue. Whether a particular provision would fit the case you have in mind would depend on what item was under discussion. We have provisions which, in some cases, at the very least, permit a total cost over-all basis. We have other provisions which permit a profit, an individual profit over and above total cost in other cases, generally fitted to the type of regulation. For instance, in machinery, our regulation permits, on an over-all basis, the full base-period profit of the individual firm, and they grade on down from there, depending upon the essentiality of the item. But there are individual adjustment provisions, sir, which, at^least, allow total cost to be recovered in such cases, on a product basis, and at least total cost and sometimes a profit in addition, on an over-all company-wide basis. We would be glad to present, for the record, a list of our individual adjustment provisions, explaining the items they are applicable to, and what their provisions are, so that the committee can judge for themselves as to whether they, in general, cope with this problem. Mr. W O L C O T T . Y O U mentioned machinery. I have a case right in my own town where a foundry was making manhole covers, and some machinery before the war. They were in war production. Then they reconverted. In the meantime they had developed a new woodworking machine. They made application for a price on the other things that they had been manufacturing, and they could not get a price that would authorize them to go back into production. Now, you have given them a price where, if they were a single-unit manufacturer, if they wanted to manufacture only this new woodworking machine which they had developed and which you had given them a price on, if they had a market sufficient for it, they could get back into production. But the fact that they have got to produce all these other things means they cannot make sufficient profit on the wood- .70 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 working machinery to offset their losses on manhole covers, and so forth. And all over the United States today cities and villages are all crying for manhole covers that they are not getting. Mr. BAKER. I should think that would be a very good case for the application of an incentive price. Mr. WOLCOTT. That has been before the Office of Price Administration, to my knowledge, since VJ-day. Mr. BAKER. I would like the opportunity of looking up the case and reporting back to the committee after I have had a chance to examine it. I am sorry not to be able to reply here now. Mr. WOLCOTT. I did not intend to take up that much time. The CHAIRMAN. Mr. Potter, you may proceed. Mr. POTTER. "Step 11, Price Adjustments for Industries," affected seriously by sharp drop in war orders. The Office of Price Administration adjustments of ceiling prices on reconversion goods • by use of our reconversion formula has been almost completed. We are now prepared to adjust these ceiling prices further when— (1) Bulge costs, such as buying materials from new sources of supply, and so forth, results in a hardship, or (2) Operating results after good volume of production is reached, show that prices are too low. For nonreconversion industries whose operations were radically changed by VJ-day, the Office of Price Administration uses quarterly or semiannual operating statements in making price increases needed to keep industries profitable until more complete financial statements from postwar operations become available. Industry-wide adjustments. Since VE-day, 459 industry-wide adjustments have been made, classified as follows: (1) To maintain or increase supply—that is, incentive pricing, 115 orders. (2) To keep prices generally fair and equitable, as is required by law, 170 orders. (3) To make controls more effective, 12. (4) To correct maladjustments and inequities and to prevent certain inequities, 77 and 85. A total of 459. These 11 changes fit our policies to present needs. The Nation's economy, however, is in a very fluid state. Continuous changes are needed to keep abreast of changing conditions. If and when they are needed, they will be made. Question 4. Is it true that production which everyone agrees is the principal cure for inflation is being curtailed by price control, and that while seeking to prevent inflation, the Office of Price Administration is perpetuating it? I do not know how many of you saw the advertisement of the National Manufacturers Association in the morning papers, but I would like to read it, because it is exactly the question that we now seek to answer. [Reading:] ADVERTISEMENT OF T H E NATIONAL MANUFACTURERS ASSOCIATION You do not want your dollars to buy less and less and less. You do not want your savings to melt away, or the value of your life insurance to dwindle. Yet that is what inflation can do to all of us. Therefore, thoughtful people everywhere are concerned with ways to smother it before it gets out of hand. .71 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 One major cause of inflation is a shortage of goods, when people have money to spend for the things they want. That cause can be eliminated by the production of goods, fast, in quantity. During the war there was not enough labor and materials to meet the needs of war and still produce all the civilian goods people wanted and could buy. Therefore, price control on civilian goods were substituted for competition to keep prices down. Today this country has all the labor and materials necessary to turn out the things people want. Yet goods are still scarce. Store shelves are still bare. The national pocketbook continues to bulge. Inflation grows. Why? Because price controls in peacetime hinder the production of goods. Business cannot live by producing at a loss, and so goods that cannot be made to sell at the prices fixed by the Government, just do not get made, nor will the raising of price ceilings solve the problem, when costs and selling prices are subject to change at any moment by Government action, Production has to be on a day-today basis. That means uncertainty, reduced output, more inflation. Remove price control on manufactured goods, and production will step up fast. Goods then will pour into the market, and within a reasonable time prices will adjust themselves naturally, as they alwravs haye in line with the real worth of things. Competition has never failed to produce this result. This is the way you can get the goods you want at the prices you can afford to pay. Please think this over, then tell your Representatives in Congress what you believe should be done. You owe it to yourself and to your country's welfare. Certain business interests are seeking to bring about termination or crippling of price control. Among these are the powerful National Retail Drygoods Association. They are endeavoring to persuade Congress and the public that the Office of Price Administration pricing policies are responsible for existing goods shortages. A careful analysis of existing shortages and their causes is highly important to Congress and the Nation. The first fact worthy of note is that instead of being at a low level, industrial production 5 months after VJ-day was at a rate exceeding that of any prewar year, even 1941, when defense production had lifted output above real prewar levels. This chart shows the 1939 level, counted at 100. 1941 industrial production was stepped up to 149. In December 1945 it was at the rate of 151. One can hardly consider an output of 51 percent above the 1939 level and above that of any prewar year as a production failure. Mr. SMITH. May I ask a question, Mr. Chairman. The CHAIRMAN. Mr. Smith. Mr. SMITH. In terms of what do you reckon your last figure there? In terms of dollars? Mr. POTTER. This is in terms of output, volume of output, as measured by the Federal Reserve Board index. The volume of output as measured by the Federal Reserve Board index. Mr. S M I T H . D O you understand that index? M r . POTTER. Y e s , sir. Mr. SMITH. And do you think that index Mr. POTTER. I do not make up the index. is valid? It has been the standard for measuring industrial production for a great many years. Mr. SMITH. I have examined it and I seriously doubt its validity, and, therefore, I doubt your figures. Mr. POTTER. Well, I do not say that I am an expert on that, except that that has been the standard of measurement for a great many years. Mr. WOLCOTT. Will you yield, Dr. Smith? .72 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 M r . SMITH. Y e s . Mr. W O L C O T T . Let us clear up this situation of whether that index is on the dollar basis or goods basis. Mr. P O T T E R . That is not the question, I think. M r . SMITH. Y e s ; i t is. Mr. W O L C O T T . That is what I asked you. We had an increase of 51 percent in production of goods in dollar use or units? Mr. P O T T E R . This is in units of production. Mr. SMITH. Well, now, just a minute. If you are using the Federal Reserve Index, it also gives weight to price, and that is why your figures are not correct. They do not take into consideration depreciation of the money. Mr. P O T T E R . M y understanding is that this is a measurement not of dollars but of volume. Mr. SMITH. I have gone into that just in the last few days, and that does take into consideration, and does give weight to prices. Mr. P O T T E R . Mr. Chairman, I suggest that we have our experts on this matter get the basic information from the Federal Reserve Board, which gets this up and determine the question. Mr. SMITH. Apparently you do not understand, yourself, the proposition that you are setting up. Mr. P O T T E R . I have stated my understanding of the situation, sir. Mr. P A T M A N . That index has been accepted by business for 2 5 years, Mr. Potter. The C H A I R M A N . Well, now, as I understand it, you will bring the experts here who formulated that index? Mr. P O T T E R . That is right. The C H A I R M A N . Y O U may proceed, under those circumstances. Mr. W O L C O T T . Well, may I ask one more question? Has that been adjusted for an increase in population of 10 million people? Mr. P O T T E R . N O , this has not been adjusted. This is physical volume, as I understand it. Mr. W O L C O T T . What is the increase in industrial production since 1939 on a per capita,basis? Mr. P O T T E R . I do not know. Of course, you have got your soldier situation thrown into that picture. Mr. W O L C O T T . We have 1 0 million more population now than we had in 1940, according to the estimates. Mr. P O T T E R . Y O U have your soldier situation thrown into that picture, Mr. Wolcott. It is very difficult, I think, to estimate. Mr. B U F F E T T . Mr. Potter, would you yield for an addition to the record at this point? I inspected that Federal Reserve Board index yesterday, and I find that durable goods production declined from a high of 346 percent in terms of the 1935-39 average down to a low of 187 percent of the 1935-39 average in December 1945. Mr. P O T T E R . I would expect that, sir, because we had $ 4 0 , 0 0 0 , 0 0 0 , 000 worth of cut-backs in war contracts, most of which was durable goods. Mr. B U F F E T T . Yes; I think so. But there has been a very serious shrinkage of production of durable goods. Mr. P O T T E R . But to offset the $ 4 0 , 0 0 0 , 0 0 0 , 0 0 0 cut-back there was an increase of $20,000,000,000 in civilian goods, which I will show you in just a minute. The C H A I R M A N . Y O U may proceed, Mr. Potter. .73 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. P O T T E R . A S a matter of fact, the job of reconversion has been extraordinary considering that less than 6 months ago the Nation was engaged in an all-out war. Said the Committee for Economic Development on January 13, 1946: Employment in this country today is at the highest peacetime level in our history. Despite current labor-management disputes, approximately 52,000,000 workers are now holding productive civilian jobs, and unemployment is only a fraction of that officially predicted at the conclusion of hostilities with Japan. This reflects more rapid reconversion than anticipated. In many areas reconversion is 90 percent complete. Pay rolls and individual earnings, which turned downward immediately after Japan surrendered, are now only slightly below wartime peaks, and rising. Production of civilian goods is now 50 to 75 percent above July 1945, levels, and that is expanding rapidly. That is the statement of business' own organization for postwar planning. The remarkable speed of reconversion is revealed in the January report of the Office of War Mobilization and Reconversion. In 8 months the Nation— this is a quotation— In 8 months the Nation has swung full-cry from all-out production for war to the threshold of all-out production for peace. At VJ-day goods and services were being produced at the annual rate of just over $200,000,000,000, nearly half of which was for war. Now, although the war's share of output has fallen by about $40,000,000,000, total national production has fallen much less, and stands at about $180,000,000,000. We already are producing for our civilian market at the rate of $20,000,000,000 more than we were 4 months ago. Our industries are on the threshold of mass production of peacetime goods. And I would like to say, to give $20,000,000,000 worth of production an understanding, that our total industrial production in 1933—the peak of the depression—was $31,000,000,000. Mr. SMITH. What was the volume? Mr. P O T T E R . I say that was the volume of production of industrial goods Mr. SMITH. That is in terms of dollars? M r . POTTER. Yes. Mr. SMITH. What was the cost of living then compared with the cost of living now? Mr. POTTER. Well, it would be considerably up, sir, but $ 2 0 , 0 0 0 , 000,000 is still a very large production of civilian goods to gain in 4 months. Very few household appliances were included in the output of 1945. These, however, are due to reach large volume in 1946. The manufacturers of such goods estimated to Civilian Production Administration that June 30—made these estimates of their putput as of June 30 compared with 1939 shipments—and all reconversion industries—this prediction was made last November, before our present flurry of labor difficulties—1939 as a hundred, mid-1946, 300; 200 percent gain, they predicted. Internal-combustion engines from 100 to 444, radios from 100 to 396. Farm machinery from 100 to 334; tires and tubes from 100 to 276; hardware from 100 to 191; clocks and watches, 100 to 186. Strikes and parts shortages may delay attainment of the July 1 goal. That it will be reached later, is not questioned. When reconversion goods are added to the retail sales of 1945, we shall reach a .74 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 civilian goods output far exceeding our wildest dreams of the prewar period. The basic reason for shortages is not production failure, but a greatly increased demand growing out of a remarkable increase in the public spendable income. Counting 1939 spendable income as 100, it rose to 131, up 31 percent, in 1941, and in 1945 attained 195, or 95 percent greater spendable income on the part of the public than in 1939. Mr. SMITH. Would you explain that a little bit further? Mr. P O T T E R . H O W is that? Mr. SMITH. Just what do you mean by "spendable income"? Mr. P O T T E R . This is the total Mr. SMITH. Current income? Mr. P O T T E R . Total current income of the public. To expect our econon^, 5 months after an all-out war, to meet without shortages a demand so far above prewar levels, is to expect the impossible. To blame those shortages upon price control is to distort the truth. I would like to say, just expanding on this a little bit, before the war the average meat consumption in this country was 129 pounds per person, carcass weight. We have gotten up around 165 or 170 pounds per person carcass weight. Liquid milk consumption has increased somewhere around 20 to 25 percent. I had lunch recently with the biggest egg producer in America. He had 60,000 laying hens. And he told me that the public today was eating 100 more eggs a year than they were eating before the war. So that we have not only a production problem of meeting prewar production, but because of this largely increased spending power, we have the problem of meeting an enlarged consuming capacity on the part of the public. Mr. B R O W N . Is that a hundred eggs per person per year? Mr. P O T T E R . Per person per year. A hundred more eggs per person per year, he told me, than in the prewar period. Mr. B R O W N . They cannot get any bacon. They have to eat eggs. Mr. P O T T E R . That might be, sir. Mr. H U L L . H O W about the production of butter? Mr. P O T T E R . Well, that is a very complex question, and if you want that answered, we can attempt to answer it. It is going to get us into a long argument. Mr. H U L L . I do not wish to interfere with your statement at this time. Mr. K U N K E L . We would like to have it answered, though. Mr. P O T T E R . We would be very glad to answer it. We will come back and we will answer the butter question fully. Mr. BARJIY. I S that income before or after taxes? Mr. P O T T E R . ' That is before taxes. Mr. B A R R Y . That makes quite a difference, does it not, in the spendable power? Mr. P O T T E R . Oh, yes, it makes some difference; but 95 percent up is still high. Mr. B A R R Y . It is still high; yes. Mr. P O T T E R . Yes. Wait a minute. I am told that that figure is after taxes. Spendable income is after taxes. .75 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . Mr. Chairman, may I just say, with regard to butter, that the matter is before the Stabilization Administrator for approval and, with the indulgence of the committee, we would prefer, if we may, to return to the question upon a ruling by the Stabilization Administrator, which we expect momentarily. There is some discussion among the various agencies. It might be a little better if we could do that. Mr. K U N K E L . D O you expect that ruling will take as long as the one on steel? Mr. B A K E R . I cannot answer that question, sir. I trust not. I would liice to say, also, sir, if I may just put it in the record, that it turns out for our benefit, that manhole covers were also exempted on December 31, 1945. Mr. W O L C O T T . I am glad to hear that, because they have been trying since VE-day to get a price on it. The C H A I R M A N . It looks like we are getting a lot of questions answered satisfactorily. You may proceed, Mr. Potter. We will discuss the butter question later. Mr. P O T T E R . Those who blame existing shortages upon pricing policies fail to give recognition to the size of our labor force and to the extent to which it is employed. This line shows the number of persons employed in the United States from 1939, average monthly figures, through 1944, and then monthly for 1945. We start in 1939 at 34.9 million persons. At the very peak of the employment, which was July 1 9 4 5 , we got up to 5 4 , 3 0 0 , 0 0 0 employed persons. In December 1 9 4 5 , we had employed 5 1 , 4 0 0 , 0 0 0 persons. Mr. G A M B L E . What was your peak? Mr. P O T T E R . The peak was in July at 5 4 , 3 0 0 , 0 0 0 persons. Mr. G A M B L E . And it went down to 5 1 million, you say? Mr. P O T T E R . 51 million in December; yes. Mr. G A M B L E . Thank you. Mr. P O T T E R . Note that in December 1945, employment was million above 1939, 2 million above 1941 levels. Unemployment was estimated, in December, at 2 to 3 million, 2 million being considered normal unemployment, arising out of transfers between jobs. I think that with all the war-migrated workers that are going home today, probably the normal at the present time is a little above that 2 million which has been considered normal. In other words, there are labor shortages all over the country today. When a labor force is rather fully employed, general price increases to raise production cannot substantially increase general output. You can increase the price of a particular product to stimulate that, if it is out of line with the others, but you cannot increase general production by general price incentives when your labor force is pretty generally employed. Now, as we demobilize our armed services, as those people become available, we will have more people to go to work, and people figure that the labor force will run somewhere around 58 to 60 million. There is nothing whatever incompatible between effective price control and attainment of large postwar production. On the contrary, if history teaches anything, it is that a sharp rise in prices harms, while stable prices aid production. 83512—46—vol. 1 6 .76 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. Bowles referred this morning to what happened to production and prices in the two wars. That production is handicapped by runaway prices and aided by stable prices is very clearly shown by price and production trends of the two wars. In World War I, industrial prices went up 88 percent. Production went up 24 percent. In World War II, with price control, industrial prices, in the same period, went up 21 percent, and industrial production went up 116 percent. Mr. SMITH. May I ask a question there? M r . POTTER. Y e s . Mr. SMITH. What was the increase in production following the war, up to 1929? Mr. P O T T E R . I do not have the whole record through to 1 9 2 9 here. We will be glad to file it. But I have the record for the immediate years after the war, which I will reveal in just a minute. Mr. SMITH. The reason I ask the question is: We had no price control but we did increase our production about 100 percent; is that not a fact? Mr. P O T T E R . Yes, sir. I realize that, and I am no,t claiming that price control—I think price control aids production, but it is not the only factor that creates production. I am saying that it is not standing in the way of production. The reason for these remarkable comparisons—— Mr. W O L C O T T . Mr. Potter, your increase in industrial production, does that include or exclude war production? Mr. P O T T E R . These are both war years; comparison of the two wars. Mr. W O L C O T T . Does your increase in industrial production include machinery for war? Mr. P O T T E R . Yes; both wars. Mr. W O L C O T T . Then, what good is your chart? Mr. P O T T E R . Both wars. Mr. W O L C O T T . Nobody contests the fact, I do not think, that we had a production effort in this war—you rather disappoint me that it is not higher than it is on that chart. We are dealing in prices of consumer goods, and not in prices of machine guns and tanks. Mr. P O T T E R . I am only claiming that, Mr. Wolcott Mr. W O L C O T T . Well, what I am bringing out is the fact that price control on consumer goods had no relationship or any influence whatsoever on the manufacture of tanks and guns. Mr. P O T T E R . I will agree with that. All I am saying is this: that during the last war, without price control, we got a small growth of production, and a very high increase in price Mr. W O L C O T T . What was the relationship between price control in World War I and the manufacture of Smithfield rifles and machine guns and so forth? Mr. P O T T E R . This is total production, civilian goods and war goods. M r . WOLCOTT. Yes. Mr. P O T T E R . In World War I Mr. W O L C O T T . In this war your chart is the same. Now, of course, we all know that we produced ever so much more during this war than we did during the last war. The point is, what relationship is there between price controls on consumer goods and the manufacture of war goods. There is not any, of course, you know that. .77 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. P O T T E R . I am not comparing. Mr. W O L C O T T . I am just keeping this record as straight as we can as you go along. M r . POTTER. Y e s . Mr. W O L C O T T . We have had these illustrated lectures every year, you know, since price control went in and we have gotten so we do not take these charts for granted any more, we start to ask questions about them. Mr. P O T T E R . That is quite right, sir. Mr. W O L C O T T . Then, why bring in that chart and try to show us or indicate to the American people that industrial production has increased so rapidly, even though we have had price controls, when probably the major part of your industrial expansion there is in the field of war materials? Mr. P O T T E R . It is shown with that understanding, sir. But the prices of industrial goods, to get that production, last time, rose 88 percent, and this time 21 percent. Last time we got 25 percent gain in production; this time 160. Mr. W O L C O T T . I can make a chart, Mr. Potter, to show that the production of consumer goods during this war, proportioned to total production, was much less. What would that prove? I would not advance that as a proof that price controls prevented the manufacture of consumer goods during the war. So I do not think that your charts in that respect are effective. Mr. P O T T E R . All right. Mr. T A L L E . May I ask a question? The C H A I R M A N . Mr. Talle. Mr. T A L L E . The greater part of your production as indicated on your chart is war production, is it not? Mr. P O T T E R . Last time it was 2 5 percent and this time 4 6 percent. Mr. T A L L E . Well, I am saying the greater portion of your production is war goods production? Mr. P O T T E R . Practically half of it, 46 percent. Mr. T A L L E . H O W much? Mr. P O T T E R . Forty-six percent was war production. Mr. T A L L E . And did price control apply to that production? Mr. P O T T E R . Yes, to great areas of it. Mr. T A L L E . You are sure that price control was applied to that? Mr. P O T T E R . All your basic metals, all the material prices, were under controls. Mr. T A L L E . Was that not done under cost-plus? M r . POTTER. N o . Mr. T A L L E . Why, certainly. Mr. W O L C O T T . The manufacture of war materials was not under price controls, you know that, the manufacture of ships and everything else. Mr. P O T T E R . The materials, Mr. Wolcott, were all under price control. Mr. W O L C O T T . They were on a cost-plus or fixed-fee basis. Mr. B A K E R . Mr. Wolcott, all the basic materials, such as aluminum and so forth, were under price control. You are right in saying that finishedtairplanes and such items were not. Mr. W O L C O T T . Yet that is included in your total production, is it not? .78 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . On the other hand, their price reflected the fact that the basic price had not gone up. Mr. W O L C O T T . It did not make any difference what the price of the finished product was. Mr. B A K E R . The price was of the sum of the margin plus the cost. Mr. W O L C O T T . Y O U were paying higher prices for those raw materials, subsidies? Mr. B A K E R . On copper, for example, yes, sir. Mr. W O L C O T T . SO that did not control the fact that you put a price on copper, and paid a subsidy to get maximum production, was not reflected in the ultimate cost of the battleship? Mr. B A K E R , Mr. Wolcott, the subsidy on copper, if you will remember, was paid only for marginal production. Mr. W O L C O T T . That does not make any difference who it was paid to. The price control on the copper and the subsidies we paid on copper have no relationship whatsoever to the cost of the battleship? Mr. B A K E R . Sir, I think I would like to take exception to that, if I may. It is obvious, is it not, that the sum of the subsidies paid for copper and the price paid for the copper is the total cost of the copper? That cost was kept down. That cost was kept down by price control. It did not rise under the absence of price control as it did in the first war. To the extent that it did not rise, subsidy plus price, of course, you are right there, that was a saving to the taxpayer. Is that not so, sir? Mr. P A T M A N . I would like to ask Mr. Potter a question at this point. In 1944, price control had saved $80,000,000,000 on the cost. Mr. W O L C O T T . You have raised that now, Air. Patman from $60,000,000,000. Mr. P A T M A N . Well, now, just a minute. I am going to ask this question myself. Up to a point in 1944, price control had saved $80,000,000,000 on the cost of the war; that is, by keeping down the price of steel, which did not go up at all; plate glass, which did not go up at all; cement, which did not go up at all; and a number of materials like hat; used in the war effort, did not go up at all from 1939 clear on through the war. By reason of holding those prices down, compared with the last war, there was a saving of $80,000,000,000. In other words, the war debt would have been $80,000,000,000 more had the prices gone up as they did during the first war. That was in 1944. Up to the end of the war, how much was that saving? D o you know? Mr. P O T T E R . I think your figure of $80,000,000,000 was to the end of the war, Mr. Patman. Mr. P A T M A N . T O the end of the war, in 1945, instead of 1944. Mr. P O T T E R . That is right; that figure, however—let us understand exactly what we are talking about when we talk about that. It is not quite right to talk about it as a saving, because that is an estimate of how much more this war would have cost had prices increased as they did in the last war. Mr. P A T M A N . Well, do you not assume Mr. P O T T E R . Whether they would have, we do not know. Mr. P A T M A N . IS it not fair to assume they would have increased a lot more, because the pressures were a lot greater than during the other war? .79 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. P O T T E R . That is my opinion, but that is purely—let us not call it a saving because we do not quite know about it, it is based upon the assumption that if they had increased to that extent, it would have cost that much. Mr. P A T M A N . Well, I do not think there is any doubt about that. I think pressures were so much greater that the savings would have been a whole lot more. Mr. W O L C O T T . Mr. Potter, just in that connection, the Metals Reserve Corporation had complete control over the production and distribution of most all strategic materials, did they not? They had the authority to channel all strategic and critical materials into war production or civilian production? In other words, for a large percentage of the strategic and critical materials, the Government was the only market which the producers had, and there was price control right there, independent of the Price Control Act, was it not? Mr. P O T T E R . That is very true, sir. That was another part of the Government's control program. The C H A I R M A N . Y O U may proceed, Mr. Potter. Mr. P O T T E R . We tried the production incentive of soaring prices in 1919. As was to be expected, although prices rose 25.8 percent during the year, production fell below 1918 levels. There, on the chart, you see 1914 at 100; 1918 was 125 percent; 1919, 117 percent. The production story is not completed, however, until we study the end result, when inflated prices dropped 44 percent in 13 months, between May 1920 and June 1921. 1921 industrial production fell far below that of 1919, almost to the 1914 level. Here on the chart, you see 1914 as 100 percent; 1918, 125 percent; 1919, 117 percent; and 1921, back almost to the 1914 basis, 104 percent. Mr. SMITH. Is that according to the index, again, of the Federal Reserve Board? Mr. P O T T E R . This is according to the index of the Federal Reserve Board. If we want long-standing full employment and production we should not applv the price solution to production problems that we tried after World War I. Last November, the Bridgeport Chamber of Commerce hired a firm of industrial engineers to survey Bridgeport's industries to determine the full effect of Office of Price Administration regulations upon full employment and production. On January 19, 1946, the findings of the survey were quoted by Mr. Robert R. Wasson, president of the National Association of Manufacturers, as evidence of how OPA is hampering production. The Bridgeport Chamber of Commerce got out this booklet, which I hold in my hand, entitled "This Is Bridgeport, Conn., under the OPA." The first of their findings was that unless price controls were removed or relaxed, 8,700 workers would be laid off in Bridgeport by February 15, 1946—that is last Friday. Mr. P A T M A N . When was the booklet gotten out? Mr. P O T T E R . The book was gotten out some time in November, when the prediction was made. Now this is what has happened up to January 15: Loss predicted by February 15, 8,700 workers; gain made by January 15, 4,800 workers. According to the United States .80 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Department of Labor, Bridgeport employment reached an all-time peacetime high in January 1946. Mr SMITH. D O you attribute that to the Office of Price Administration regulations? Mr. P O T T E R . I attribute to the Office of Price Administration regulations the fact that, instead of driving 8,700 pe.ople out of jobs, the employers, who were going to do this, instead added 4,800 workers. Mr. SMITH. That still does not answer my question. Do you attribute that to the Office of Price Administration regulations? Mr. P O T T E R . I do not attribute it to the Office of Price Administration regulations. It was stated that if OPA was not abandoned or radically changed, 8,700 men would be put out of work. They were not. That is the only statement I make. Mr. G A M B L E . Y O U would like to show that somebody else can be wrong once in a while, is that right? Mr. POTTER. That is right. Mr. B U F F E T T . The C I O sent me a bulletin back on last September 1, saying that 10,000,000 would be out of employment by January 1. That suggestion was a little bit overly pessimistic too, was it not? Mr. P O T T E R . Oh, yes; there have been many bad predictions. Mr. K U N K E L . Mr. Potter, just what does that Bridgeport matter prove, or what is it intended to prove? Mr. P O T T E R . It proves that the Bridgeport Chamber of Commerce, quoted by the National Association of Manufacturers, set out to try to prove that OPA was hampering production, and driving people out of jobs, and it did not turn out to be true. Mr. K U N K E L . But it does not have anything to do with our problem here. It is just a "straw man" that you have set up in order to knock down. Mr. P O T T E R . I did not set it up; the Bridgeport Chamber of Commerce set it up. Mr. K U N K E L . Y O U brought it in to knock it down. It has nothing to do with the question at issue, does it? Mr. P O T T E R . I think it has a great deal to do, sir, with what the National Association of Manufacturers and a great many Mr. K U N K E L . Well are you representing the National Association of Manufacturers or the Office of Price Administration? I have been having a little trouble deciding. The C H A I R M A N . Proceed, Mr. Potter. Mr. P O T T E R . We have heard a great deal about the Office of Price Administration hampering the production of lumber by refusing to grant price increases. Let us see what has happened to lumber prices, production, and employment since 1939. The price rise on lumber, since 1939, is 66.4 percent. That is the highest, I believe, of any of the major industrial products, with the average being about 25 percent. We have put it up repeatedly, on the recommendation of the War Production Board, that we needed an incentive increase in prices. This is what happened to production: It went up a little bit, and then it went down, and today, in 1945, rather, it was 9.5 percent below the 1939 production level—a very bad record. But employment was down 21.8 percent. 9.5 percent as against 66.4 percent ; clearly price increases granted to stimulate production were ineffective. The trouble was a steadily dwindling labor supply. .81 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. G A M B L E . Y O U had a strike out in the West, too, did you not? Mr. P O T T E R . At times we had strikes in the picture, yes, sir. Prices in World War I rose 231 percent over the 1914 level by 1920. A very great stimulus to production. But production dropped, during that period, 13.6 percent, or more than it dropped this time. Mr. W O L C O T T . Mr. Potter, will you go back to that lumber chart for a moment. Do you claim that the production of lumber decreased because you increased the price of lumber? Mr. P O T T E R . N O ; we say that Mr. W O L C O T T . Well then what is your chart int<3nded to prove? Mr. R O G E R S . The point there, Mr. Wolcott, is simply that the problem in lumber production has been labor; there has not been enough labor to get the wood out, with the result that price increases Mr. W O L C O T T . I have never heard it contended that the decrease in lumber production was due to the increase in lumber prices, or to lumber prices going down. I think we all recognize the fact that the reason you do not have any lumber is because you have not been able to settle the wage-price formula for lumber, as you have for steel. Mr. R O G E R S . N O , sir, so far as lumber is concerned—well let us take southern pine as an example: The main problem there has been the lack of manpower for quite some time. There are other factors that go into it, such as the weather conditions,lack of proper machinery, and so on. Mr. W O L C O T T . Why did you not get manpower into the lumber industry? Mr. R O G E R S . Well, the bottleneck committee and the Civilian Production Administration have done everything possible. Mr. W O L C O T T . Why did you not get manpower into the lumber industry? Why are they striking? Mr. R O G E R S . There is no strike in the South, that I know. Mr'. W O L C O T T . But there is in the West. Mr. R O G E R S . Yes; there has been there, and it is now settled. Mr. W O L C O T T . Why are they striking? They are striking for higher wages, are they not? Mr. R O G E R S . Yes, 1 5 cents higher wages. Mr. W^OLCOTT. What are you going to do about prices? Are you going to give an increase in the price of lumber sufficient to give the the increase in wages? Mr. R O G E R S . We will, in all probability, give some increases there. But I think the point of the chart, however, is this: We are not trying to draw the conclusion you suggest; we are trying to indicate, on the other hand, that in some of these cases—we thought, in the case of southern lumber, for example, that there should be a price increase—or, going back over the entire period of the war, we have made several price increases—but the fact is that production is still down. Mr. W O L C O T T . Does it not also prove that price controls are ineffective when applied to nonexistent goods? Mr. R O G E R S . Well, I do not know about that. Mr. W O L C O T T . Have you given consideration to adjusting the demands of labor and considering increases in prices to absorb that in order to get full production of lumber, as you have done in the case of steel? .82 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. R O G E R S . Yes, we have; particularly on those bottleneck items, we have done that consistently, all the way along. Mr. W O L C O T T . We are interested, of course, because we think that lumber is one of the important materials in home construction, and that much of the trouble in housing is due to lack of materials, the most important of which is lumber. Mr. R O G E R S . We feel that way, too, and that is why we have worked with this bottleneck committee, to try to analyze and determine just what the problem has been, all the way along. Mr. W O L C O T T . Has the bottleneck committee made any recommendations? Mr. R O G E R S . With respect to price, yes; they have; and we have followed those recommendations. Mr. W O L C O T T . Have you increased the prices as a result of their recommendations? M r . ROGERS. Y e s , sir. Mr. W O L C O T T . What are they doing with respect to the labor situation, as to increases in labor costs? Mr. R O G E R S . I do not know specifically what the recommendations with respect to labor are. Mr. W O L C O T T . Does not that seem to be the bottleneck in lumber? Mr. R O G E R S . It does—one of them; the main one with respect to southern lumber is labor; yes. Mr. W O L C O T T . The reason you have not had sufficient manpower in the lumber industry is because that industry cannot pay wages high enough to attract manpower. Mr. P O T T E R . We will cover that in just a moment, Mr. Wolcott. Mr. P A T M A N . Mr. Chairman, Mr. Potter has only gotten down to the fourth question so far, and he has 10 of them. We have been sitting for 2 hours now. Mr. W O L C O T T . Well we have other things to do, too, besides just listening to this illustrated lecture. I, for one, have things that need my attention in my office, and that is the reason I haVfc been asking these questions, in the event it should become necessary for me to leave. Mr. P A T M A N . Can you not make notes of the points on which you wish to ask questions", and ask them later on? Mr. W O L C O T T . We will not have an opportunity to cover it later on, and I think we can cover it better as we go along. Mr. K U N K E L . It seems to me, Mr. Patman, that there has been one important thing brought out by the evidence just given in connection with this chart, which is that the chart does not include many items of great importance, and therefore that the chart is highly inaccurate, and it is important that it should be supplemented by the evidence given. Mr. P A T M A N . Of course that is your own opinion, that it is highly inaccurate; that is merely your point of view. Mr. K U N K E L . It is borne out by the evidence just given by Mr. Rogers. Mr. W D L C O T T . Just a minute. What I am trying to get at is this: The President, in his statement releasing the steel settlement characterized the increase in the price of steel as a bulge; he said that it was not a breaking of the line, but rather a bulge in the line, and that he expects Congress to do something to help him prevent a break- .83 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 through. Now do we understand that, in the case of lumber, there is another bulge in the line? Mr. R O G E R S . I think the President's point there is with respect to, and that he was referring to, the whole cost-of-living line, and when he spoke of a bulge, he meant a bulge in a certain part of it. He did not mean a bulge in steel, but in the entire cost-of-living line. Mr. W O L C O T T . If you increase the cost of lumber to absorb the increase in cost of production, you will just increase the bulge a little more. Mr. R O G E R S . There will be some increases in various areas, and all during the war there have been necessary increases in lumber. Mr. W O L C O T T . What can the Congress do, and what do you recommend that Congress do to prevent that bulge from finally breaking through? You are doing it in steel; you are doing it in lumber; why not be realistic and recognize that you may have to give consideration to an over-all, horizontal, percentage increase in prices in order to absorb an increase in production costs. Mr. R O G E R S . We believe, and we believe it can be shown, that in large areas the line as it is now can be held—particularly with respect to foods and rents, which make up a very, very large proportion of the total cost-of-living index, something approaching 60 percent—and that also, in the other areas, there are a very great number of industries which will not require an increase, and that the bulge will be confined to certain specific areas—those using metals obviously being one. But if we take the contrary position, and say "Let us raise the general level of prices 5 percent or 10 percent," we will not be able to contain those increases, and the necessary increases which will follow, within anything like that level, because we will then be started, will lead, as the charts indicated, to inflation. Mr. W O L C O T T . Incidentally, I asked that question following up the question I asked earlier, namely, as to whether it was possible to develop an over-all policy so that there would not be so much uncertainty as to what the governmental policy is going to be in that respect. Mr. R O G E R S . Uncertainty as to what? Mr. W O L C O T T . For industries that are reconverting to peace production, so that they will not be help up, and so that we might formulate some policy that would allow them to get back into production— old firms, as well as new concerns. New concerns, as I understand it, can set their own prices, and then you adjust those prices later on; but if an old firm, which has a price history, does the same thing, they are violating the regulations, unless you give them a price. It seems to me we could get rid of much of our difficulty here if we were realistic and recognized that the same rules should apply to the old industry as apply to the new industry, and maybe we could prevent so much pressure on this bulge by doing so; perhaps we could hold the line, and there would not be any bulge. Mr. R O G E R S . With respect to the comment you made as to firms fixing their own prices, the point that Mr. Baker was discussing includes only the price adjustment to new manufacturers only—only a certain kind of new, small, manufacturers. As to the broad point, however, it seems to me that the most constructive thing we could do would be to give you, for the use of the committee, a general statement as to all of CPA's pricing standards, which is the policy under which we operate with respect to these .84 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 various industries which, all taken together, we believe, will allow the line to be held, except for the bulge of which you spoke. Mr. C R A W F O R D . Mr. Chairman, may I ask a question in connection with this bulge? The C H A I R M A N . Mr. Crawford. Mr. C R A W F O R D . I hesitate to ask this question, because the chairman made a definite ruling that Mr. Potter was not to be interrogated while in the course of his presentation, and I agreed to it. But if it is going to be the custom to interrupt and ask questions, I would like to ask this one: I would like to ask the witness who is now speaking whether or not it is a fact that Mr. Bowles called in the farm leaders last week—the Grange, the bureau, the producers, the Farm Union—and explained to them at the time that he proposed this bulge, and requested them at that time, to go along with him without any increase in farm prices? Mr. R O G E R S . I think the best thing to do, in connection with that question, Mr. Crawford, would be to ask it of Mr. Bowles directly. Mr. C R A W F O R D . T will not have an opportunity to ask Mr. Bowles. Mr. R O G E R S . He will be here tomorrow morning. I cannot answer it, because I do not know. Mr. C R A W F O R D . Y O U do not know whether the conference was held or not, do you? Mr. R O G E R S . I know there was a conference with farm leaders; but what transpired, I do not know. Mr. C R A W F O R D . Are you familiar with the paragraph, on page 9 of Mr. Bowles' statement of this morning, on this same subject, namely, the bulge and farm prices? Mr. R O G E R S . Yes, sir; I know what his attitude is toward the subject in general. Mr. C R A W F O R D . But you do not know what he said this morning? Mr. R O G E R S . NO, sir; I was not here. Mr. C R A W F O R D . D O you think it fair to raise the price of steel, and wages of the steelworkers, and to tell the farmers of this country that their labor, in the form, of the products they put on the market, has to be held down, in order to hold the line, and in order to hold the bulge, and at the same time force the farmer to pay a higher price for every piece of steel that comes to his farm? I am asking you for your opinion, now. Do you think that is fair? Mr. R O G E R S . If I may, I would like to say that this matter that you are bringing up deals with the relationships of the entire stabilization program.. Mr. Bowles has been The C H A I R M A N . Mr. Bowles is coming back tomorrow. Mr. C R A W F O R D . I am asking you for your opinion, now. I am not asking about Mr. Bowles. I am trying to get your opinion. Mr. R O G E R S . My personal opinion on the matter? Mr. C R A W F O R D . Yes, sir; on this matter of farm wages, and incident to this bulge. You have been discussing the bulge for several minutes, and I think the question is pertinent. Mr. R O G E R S . I feel that I would be glad to answer the question personally, although I really do not feel that it is my affair, since it is a matter for the Economic Stabilization Director. Mr. C R A W F O R D . What is your position with the Administration? Mr. R O G E R S . I am Deputy Administrator of the Office of Price Administration. .85 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. CRAWFORD. All right; go ahead and answer it personally, if that is your attitude. Mr. ROGERS. My personal attitude is that, after YJ-day, labor has been cut from 20 to 40 percent. Even with increases to labor, they will still be getting a level of over-all income lower, in relation to the formula, and as compared to what it was 6 or 8 months ago. The farmer will depend, for his income, a great deal upon how much income goes to the wage earner. His level of income is being maintained. Mr. CRAWFORD. YOU are speaking about gross income now, are you not? M r . ROGERS. Y e s . Mr. CRAWFORD. All right. Now suppose his costs, by reason of these labor increases pulling the workers away from the farmer and into competitive industry, rise to a point where his gross income does not cover the cost. What are you going to do then? That is the crux of the whole situation. And yet Mr. Bowles says here that — it is not unreasonable or unfair to ask labor to accept temporary Government controls over wages— And further on — let me repeat, it is not unreasonable or unfair to ask the farmer to accept the present general level of prices for his products. So, if the farmer's cost goes up, due to his having to bid for labor, said labor having had its wages increased, and prices going up because of everything he buys having advanced in price, do you still think that his gross income covers the proposition? Mr. ROGERS. Well, it would seem to me that, without knowing the details of the farmer's net and gross income, and what the effects of the increases might be in the near future, and particularly what the effect might be on parity, which again affects the farmer's income, that at this stage of the game it would not seem to me that the United States can sit by, with the inflationary problem we have confronting us, and say: "We must have exact equity all the way through the economic system." I do not think we can, under the circumstances. Mr. CRAWFORD. I want to say that I think it is absolutely unfair for the Office of Price Administration to take the attitude that it can economically guillotine one section of the population, namely, the farm operators and owners, and protect the other section. I will close with that statement. Thank you. The CHAIRMAN. We have heretofore proceeded in an orderly fashion, and I wish to adhere to that procedure. Otherwise we will never be through with these hearings. I will concede to every member of the committee who desires it the right to attack the presentation at the proper time, but I think we ought^to allow Mr. Potter an opportunity to complete his statement. You will then have ample time in which to introduce your witnesses and make your arguments, as well as to attack all the charts that have been presented. Proceed, Mr. Potter. Mr. WOLCOTT. Mr. Chairman, I desire to say that I do not see how I can draw these charts for future reference, or how I can make notes fast enough to remember the charts, or what the problems are. However in view of your ruling, I am not going to interrupt further. Mr. Potter may complete his statement without any interruption, as far as I am concerned, but I .86 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The C H A I R M A N . I did nob mean to imply that a member could not interrupt for an explanation, or, if he misunderstood the chart, to ask for the correct explanation. But let us not go into the broad field at this time; we will have to go into it later on, when the other witnesses are presented. I think we ought to allow them to get through with their general presentation first. Mr. P O T T E R . 1 would like to say, Mr. Chairman, that there has been given to each and every member a statement which contains the factual information which is presented in the charts. The C H A I R M A N . Very well; proceed. Mr. P O T T E R . N O W , Mr. Chairman, we had gotten down to the point where lumber prices had increased, during the last war, to 231 percent and then had dropped very substantially, and overnight, until they were only 78 percent, in 1 year, above i914 prices. That is a drop from 231 percent. And at that time, production dropped 27.4 percent. The Office of Price Administration has a sincerely cooperative spirit in seeking greater lumber production. These two lumber charts, however, raise serious doubts if the problem can be solved by price action. The mills themselves appear to have a job to do. Mr. B U F F E T T . Mr. Potter. M r . POTTER. Y e s , sir. Mr. B U F F E T T . Sometime during January, there was issued a price order raising the price of southern pine $3.25 as of May 1, 1946; is that right? Mr. P O T T E R . That is right. Mr. B A K E R . May I correct that, sir? Mr. B U F F E T T . I think that is right, because I have a copy of the order in my office. Mr. B A K E R . There was originall}7 a directive issued by the Administrator, which said the price would be raised $3.25 if a certain production goal were achieved. That was later revised and an order has just gone out which raises that price effective immediately, and it is good for a 6 months' period and will be continued if a certain production goai is achieved during that period. Mr. B U F F E T T . Let me ask you this: Did you ever know of any thing surer to stop production than telling a man that by holding off until a future date he is going to get a higher price? Mr. B A K E R . I am not certain I understand what you mean. Mr. B U F F E T T . I say, do you know of a surer way to stop the sale of lumber produced than to tell the producer that after May 1, 3 months away, or 5 months away, the price is, in all probability, going to be raised? Mr. B A K E R . I would certainly agree with that, sir. But I will remind you that the order reads that the price is increased at once. If you are directing your statement to the original directive, I would certainly agree with you. Mr. B U F F E T T . Yes. It was a mistake, and it has been changed? Mr. B A K E R . That is one reason why it was changed. Mr. B U F F E T T . And that is one case where raising prices could lower production, if that policy were adhered to? Mr. B A K E R . That is very well stated. Mr. SMITH. Did you not have the same sort of an order out respecting sewer pipe? .87 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . Sir, the order on sewer pipe contemplates an immediate increase, without any strings attached to it. It has no production quota attached to it. Mr. SMITH. Why did you take the strings off? Mr. B A K E R . I do not recall, sir, that there were ever any strings on sewer pipe. Mr. SMITH. I am talking about lumber. Mr. B A K E R . There are still strings on lumber, sir, but it is turned around. What we say, in effect, is: "Here is your increase now; use it to get more production; if you get a production goal set by Civilian Production Administration in 6 months, we will continue it, because that will be evidence that this price increase really could help you get production." Mr. S M I T H . And if they do not get production, do you mean to say that you are going to reduce the price of lumber? Mr. B A K E R . The present price of lumber, prior to this $ 3 . 2 5 increase, is entirely satisfactory under our earnings standards, sir. It returns to the industry the proper earnings which it should have under our standards. The $ 3 . 2 5 , which is now granted for 6 months, is in excess of our requirement by that amount and therefore is only justified if it turns out to have been an incentive. If it is not an incentive, it is not authorized under the law and under Executive Order 9 5 9 9 , under which we operate. Mr. SMITH. What makes you take into consideration the possibility of an incentive on a proposition of that sort? Mr. B A K E R . I do not understand your question, Mr. Smith. Mr. SMITH. Well, you say that if it is not an incentive and if you find out, in the course of 3 or 4 months, that it has not been an incentive—why do you think about incentive in the first place? Mr. B A K E R . We take that chance. The southern pine industry has made representations that a higher price will get more production. We are in some doubt about it. I am frank to tell you that I just do not know whether it will or not, and whether this lowered production is not due to labor difficulties, the weather, the shortage of equipment, and so forth, which Mr. Rogers has described. We are taking a chance on it. The building-construction program is so important that we do not dare not to take a chance, and that is why we are giving them an incentive price now, even though we are not quite sure about it. Mr. K U N K E L . Y O U were sort of in the same position, on that first order, as the Bridgeport Chamber of Commerce, were you not? Mr. B A K E R . Let us say the Government is, sir. Mr. P O T T E R . That lumber companies have not been put in a position where they could not operate or expand production because of losses due to inadequate prices is shown by these facts: The earnings of 98 logging, lumber, and plywood companies—this is the average return on percentage of sales—are as follows: 1 9 3 6 - 3 9 , 3 percent on sales; 1944, 12.1 percent. Earnings on net worth: The average for 1 9 3 6 - 3 9 was 1 . 8 percent; 1944, 12.2 percent. Clearly there is plenty of profit margin for tbe mills at present prices. The problem of turning out more lumber is clearly in their hands. Mr. B U F F E T T . Mr. Potter, those 1 9 4 4 figures, though, are before .88 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 the loggers went on strike, are they not, and take no cognizance of the new wage scale? Mr. P O T T E R . I will grant you, sir, that there may, unquestionably, be £ome increase in costs in 1945 over 1944. Unfortunately we do not have later figures. But I would say that the increase from 3 to 12 percent, and from 1.8 to 12.3 percent, allows a fairly adequate margin for some absorption of increased costs, and still could keep them in a satisfactory operating position. Mr. B U F F E T T . Certainly, but the lumber production was down, in the first part of February, 34 percent under a year ago, and you would not contend that a man making 12 percent on his money should try to reduce his business if he was making that much money? Mr. P O T T E R . The figures show a drop in production from 1 9 3 9 . Mr. B A K E R . If I may say so, the reduction in production in spite of what you describe as a good profit, is an illustration that price is not the problem at the moment. With respect to the northwestern loggers, who have been recently given an increase of 15 cents an hour, that increase will come under our provisions under the new price policy, and will be considered as part of cost and an appropriate adjustment made. Mr. B U F F E T T . D O you mean that prices have already been adjusted to effectuate that increase, or they will be? Mr. B A K E R . They will be. Mr. B U F F E T T . When did the strike out in the Northwest begin? Mr. B A K E R . I do not recall when it began, sir. I do recall that in ended recently. Mr. B U F F E T T . It has been going on for several months; has it not? M r . B A K E R . Y e s , sir. Mr. B U F F E T T . And all the time, it must be costing production of lumber. Mr. B A K E R . Well the attitude of the employers with reference to the strike, I believe, sir, was not based upon the price situation. Mr. B R O W N . All right, Mr. Potter; you may proceed. Mr. P O T T E R . The American Association of Taxpayers is reported to have sent to Congress a resolution recommending an ending of price control so that we may get houses to wipe out the housing shortage. Let us see what happened after World War I, when we took the medicine which they say will cure our scarcity of houses. This is what happened to construction costs from the armistice, 1918, to 1920; construction costs rose from 77 percent above the prewar level to 189 percent; 40 percent of the rise was before the armistice, and 60 percent after the armistice. And here is what happened to construction: Construction rose from 174,000 units in 1918 to 405,000 units in 1919. And then there was a buyer's strike against those high prices, and it dropped in 1 year to 247,000 units, with a great accumulated demand. The housing boom lasted just 1 year. We certainly want no such solution of our housing shortage this time. There are, of course, firms whose costs are so high that they cannot make out under Office of Price Administration ceilings. There were, before the war, firms similarly unable to operate profitably under prices set competitively by free enterprise. The difference is that the number unable to make out now are far fewer than they were before the war. .89 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Here you see failures of manufacturing and mining companies as reported by Dun & Bradstreet: 1929, 2,919; 1945, 280, of which, 68 in die last quarter. As to firms in difficulty: Most of the Nation's 810,000 manufacturers are operating successfully; a few are in price-profit difficulties, and come in to see us. And, I may say also, they come in to see M embers of Congress. Some are entitled to relief under our regulations, and get it. Others are from industries just getting into difficulties through rising costs. Industry-wide adjustments usually solve their problems. Occasionally changing conditions present new difficulties. These have to be worked out by amendment of our regulations. The many policy changes made since VE-day to keep goods and firms in production already have been reviewed. And I may say that there are, in certain areas at the present time, firms in difficulty, and we have cost accountants who have just collected a great deal of information from them, especially firms in the process of reconversion, and we are about to adjust our policies to the conditions revealed in those studies. Too, most, though not all, of the firms in difficulty, are high-cost concerns that would have little chance for survival under normal conditions. They may not survive when competitive conditions are again restored. Now, however, inflationary buying power and goods shortages make it possible for them to sell at prices based upon their high costs. We seek to keep every possible manufacturing firm in business when it can be done without wrecking price control. However, we cannot fix industry-wide prices on the basis of costs of high-cost producers, without complete abandonment of effective price controls. In summary, December 1945, industrial production was at an alltime peacetime peak, although millions of our workers were engaged in reconverting factories; production of reconversion goods, due to rise 200 percent above 1939 output had hardly begun. Second, existing shortages do not arise from production failure primarily, but from vastly expanded demand for goods. %hird, run-away prices hurt and do not help production, as was proved by our experience during the two world wars, and by what happened after World War I. Fourth, evidence offered to show that price policies are hampering production, is full of misrepresentations. Five, a far larger percentage of our producers are able to operate profitably than.were able to so operate before the war. The unanswered question is: Whether the period of large production we are entering will be stable and long-lasting or if we are in for another inflationary "boom and bust." Is it true that Office of Price Administration pricing policies have driven low-end goods off the market, forcing the public to buy higherpriced goods and defeating the pruposes of price control? High-priced goods before the war yielded producers bigger dollar profits than low-priced goods. Frequently they also yielded higher margins of profit. Producers therefore sold all the high-cost goods they could. They produced low-priced goods only because markets for high-priced goods were very limited. To get volume, they had to produce lowpriced merchandise. .90 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B R O W N . IS that true now? Mr. P O T T E R . I am coming to that right now, sir. The war did not change the greater profitability of higher-priced goods; neither did it change the desires of producers to earn maximum profits, and those are legitimate desires. What it did was to vastly increase the buying power of the public, and create goods shortages. It added largely to the number of persons able and willing to pay high prices. Responding to enlarged profit possibilities, many producers reduced or dropped production of low-end lines. Unable to find enough lowend merchandise in the stores, the public has had no choice but to buy higher-priced goods. But the higher-priced goods available, unfortunately, have not always been the quality goods of the present war period, but low-end goods, overstyled, and overpriced. Mr. K U N K E L . May I ask a question there, Mr. Potter? Mr. P O T T E R . Certainly. Mr. K U N K E L . I S that statement, embodied in those last two paragraphs, taking into account your cost of living index? Mr. P O T T E R . The depreciation of quality of goods is not reflected in the cost of living index. Mr. K U N K E L . Neither is the disappearance of low-end goods, is it? Mr. P O T T E R . The disappearance of low-end goods is reflected in the cost of living index, because they take the next item up in cost. Mr. T A L L E . In other words, the poorer quality is another bulge? Mr. P O T T E R . The poorer quality is another problem; yes, sir. Mr. T A L L E . It is a bulge? Mr. P O T T E R . That is right, sir. Mr. K U N K E L . That renders inaccurate your figures depicting how you have held the cost of living index? Mr. P O T T E R . Yes; except that we measured the two wars by the same yardstick, both subject to the same error. Mr. B R O W N . Y O U may proceed. Mr. P O T T E R . Seeking to check this inflationary practice, the Office of Price Administration adopted its highest price line limitation. This bars producers of products covered from the sale of goods in lines above the highest price lines they delivered in the base period, and the maximum average price order requires manufacturers to sell at the average prices they charged during the base period. The highest price line limitation sets a top price limit; it does not prevent trading up of all production to the highest price line delivered in the base period. Mr. SMITH. What is the base period? Mr. P O T T E R . The highest price line limit. M r . BAKER. 1942. Mr. P O T T E R . And 1944. Mr. SMITH. When the maximum average price basis is 1943 and you speak of that average, you mean through the year? Mr. P O T T E R . It means the average price. They have maybe six different lines, complete production, and they are required to charge not in excess of the maximum average price they charged in the base period. Mr. SMITH. During that year? .91 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . With the chairman's permission, Mr. Ailes can explain how that is taken. It is not an annual basis. Mr. A I L E S . Are you talking about the highest price line or the maximum average price? Mr. SMITH. I am talking about the base. Mr. A I L E S . For the highest price line, that is used mostly in apparel, which is a seasonal industry. So that you have a base period in the fall for the fall line, and a base period in the spring for the spring line. So there are two different periods that are used as the base. In the case of the maximum average price line, you can either work on a quarterly basis, or half year basis, or on a full year basis, whichever way you want. The regulations provide an option there. Mr. SMITH. It resolves itself into an average over the year, then; does it not? Mr. A I L E S . That is what it comes down to. Mr. POTTER. The maximum average price line, while difficult to administer and requiring frequent adjustments to keep out of the way of production, brought up-grading to a stop. Mr. B R O W N . Mr. Potter, why did you let this inferior material get in there? Why did you not put a ceiling on it? Why did you let it go so high? You said they made a lot of profit out of it. That is the point covered by the Bankhead-Brown amendment, and that was its main objective, to get the low-priced merchandise on to the store shelves. You have stated that it just went out of sight, and that these mills, by making merchandise just a little bit better than they were accustomed to making, and marking it up, made a greater profit. Mr. B A K E R . There are two problems; first, a frank admission that during the early stages of price control, our control of textiles and apparel was not good, and these results occurred. Secondly, we did not have the opportunity to put quality standards into operation. If we had started, at the beginning of the war, with a program of quality standards, we would have done a much better job than we have. We have done a poor job because of the fact that we do not have them. The difficulty of trying to price items which can be varied by the addition of a belt or a buckle, is very great, and our problem, therefore, was to place on them some kind of an over-all control, which would be that much better than no control. In our opinion, the highest price line achieves that result, since it says to the manufacturer: "We do not care what you do with this garment; you are limited to the highest price line that you used in the base period." That is not entirely satisfactory, but it is a far cry from no control at all. # Mr. B R O W N . Of course my argument on that was that you had ceilings, in certain items, which reflect parity, and on a great many other items you had a ceiling which did not reflect parity. The latter, of course, controlled the price of cotton. In addition to that, you took the position that you would put a ceiling on all the textile items, and you would get back the cheaper garments selling, at that time, at a much higher price. That was the purpose of it, and I thought we were going to get it immediately. It seems as though we have not gotten it yet. We have not gotten the low-priced garments onto the shelves of our stores yet. Mr. B A K E R . That is true, sir, and it is our opinion that, most of 88512—46—vol. 1 7 .92 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 that is due to a lack of yarn, due to the lack of labor. You are more familiar than we are with that question, and I think you will realize the labor and facilities problems which have confronted the mills during this time, when they have been way below capacity, and when the lack of yarn has prevented the Civilian Production Administration, the channeling program, and our own low-end program, which you know about, from coming to fruition as quickly as it should have. However, there has been a big increase in labor—I think the figure is 24,000 additional workers in the textile mills—which means that we will be seeing increased quantities of fabrics, and then, eventually, increased quantities of apparel in the low-end cotton items. Mr. G A M B L E . Would the gentleman who spoke on the highest price line explain the maximum average price to us? He touched on one, but not the other. Mr. A I L E S . I think I stated what the base period was for the M. A. P. regulation, sir. Are you interested in that, or what the regulation is? Mr. G A M B L E . I am interested in getting rid of it, but I would like to have you explain it a little bit more. Mr. A I L E S . The regulation incidentally does not apply to cotton textiles at the mill, it applies to rayon and wool, and at the garment level applies to most of the important garment categories. It provides that each mill covered by it, or each manufacturer, will find out what his average price was, of particular categories of merchandise, in the base period. The base period is the year 1943, except with respect to woolens^ in which case it is 1944. Then he is told that he is to arrange his production currently so that at the end of each quarter, his average price, in each category, will be the same as the average price back in the base period. Very briefly, that is what the regulation does. In fact today as an operating document, it is more complicated because we have exemption levels in there which say that if your average in the base period was below this figure, you take this as your- average. We also have tolerances, which allow you to miss by a certain amount without being in jeopardy under it, and the sanctions in the regulation are rather complicated, too. But, briefly, that is what the regulation is. Mr. G A M B L E . It seems to me there is a terrific amount of opposition to it, judging from the mail I have received from the trade; at least, they are not very happy about it. The CHAIRMAN. Suppose a manufacturer is making child's dresses that sell for $1.98, and one for $2.98, and one for $3.59. D'o you put *in, as a price line, the highest price, and then all of them can go to that line? Is that the highest-price line? Mr. A I L E S . That was the effect of the highest price line limitation. The CHAIRMAN. Would that not have the effect of making the cheaper goods go to the highest line? Mr. A I L E S . I do not think that it caused that. That situation was developing, and the highest price line limitation was a first step in an effort to control up-grading. You see, at the time it was put out, the manufacturer who was making those three lines was dropping them all and was making five-, six-, or seven-dollar lines. So as a first step, we put the highest price line limitation in, to keep him from .93 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 going into a new bracket. That proved ineffective to do the whole job, so we followed it up with the maximum average price regulation. The highest price line regulations were put in, for the most part, back in 1942. There are some commodities that have had highest price line limitations put on them at a more recent date, but the maximum average price regulations were put into effect beginning June 1, 1945r when it became clear that the highest price line controls were no where near adequate to conserve the supply of those low-priced lines which a manufacturer could drop under the highest price line limitation. The C H A I R M A N . Well, could the lower-priced goods rise to the highest-price line? There was no way to prevent them doing that, was there % Mr. A I L E S . Let us get one thing clear, Mr. Spence; each of those items also had a ceiling price' on the item itself. In other words, if you take a simpler commodity, like men's shirts, which were under the the general maximum price regulation, if a manufacturer had a $1, a $2, and a $3 shirt, he could not, because of the highest price line limitation, charge $3 for his $1 shirt. That still had a ceiling of $1 on it; but what he could do was this: there is considerable interchangeability of fabrics, and he could take the fabric that he used to put into the $1 shirt, give it the trim, and put the buttons on it, and so forth, and make a $3 shirt out of it, and in that way drop his lower-priced line. Mr. B R O W N . That is what was done on overalls and work shirts. Mr. A I L E S . That is what was done on a lot of commodities. Mr. K U N K E L . D O you have any way of handling the problem of the new store, or the new business, to which I cannot see how your highest-price line or your maximum average price line can apply? Mr. A I L E S . That is an extremely difficult problem, sir, and one we have spent a great deal of time on. We have worked out standards for handling that situation. Briefly, if the manufacturer has ownership experience in the base period, we give him the highest price line limitation, or the maximum average price which the business that he owned in the base period would have. Other than that, we bring new manufacturers in at a level a little below the average. In some instances, they come in at the exemption level, where the exemption levels are pretty high. Mr. K U N K E L . IS there any way in which you can use your allocations program to control that? Mr. P O T T E R . That is the thing I am going to talk about next, allocations program. An effective program has been that under which the War Production Board, or the Civilian Price Administration, has allocated materials for the production of clothing of specified types to be sold at prices fixed by the Office of Price Administration. Fifty percent of the 90 essential clothing items has been covered by this program. The retail value of goods produced under it is estimated to have an annual value of $3,000,000,000. At present, all clothing produced under the program bears a price tag, attached by the manufacturer, clearly showing the retail price to the consumer. Insofar as it has gone, that has been a very effective program. Mr. W O L C O T T . Mr. Potter, why are we not getting white shirts? Mr. P O T T E R . D O you want to answer that, Mr. Baker, the white shirt problem? .94 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . We have just issued, about 6 weeks ago, a regulation on men's shirts, shorts, and pajamas, which takes these items out of general maximum, and in our opinion gives them prices which will make the production of these garments as profitable as the use of the same fabrics would be in other garments. Mr. W O L C O T T . Why was it necessary to exempt them from the maximum price regulation? Mr. B A K E R . Our whole process, sir, of operation, since the issuance of the general maximum price regulation, has been to bring items out from under it and to put them under regulations which recognize increases in cost, and so forth, and which are peculiarly suited to the needs of those items. # Mr. W O L C O T T . Y O U mean your policy in those respects has been to increase prices to obtain a maximum amount of production? Mr. B A K E R . I think we can say this: That with respect to low-end items of that sort, we have established arbitrary increases in percent for the lowest end items, which are calculated to encourage production of those items. In addition, we have recently also increased the allowance for the average price of shirts, and I will have to ask Mr. Ailes for the exact figures on it. Was the increase in the exemption level on shirts, Mr. Ailes, amounting to about 34 cents, per shirt, about 3 weeks ago? M r . AILES. Y e s . Mr. B A K E R . An increase from $17.50 to $21.50, roughly, per dozen in the lower price which must be used by the manufacturer in calculating his maximum. To take away the technical parts, this has in effect increased the profitabilitv of low-priced men's shirts. Mr. W O L C O T T . SO that a $ 1 . 6 5 shirt should be sold for $ 2 . That still does not answer my question, however. Why are we not getting them? Mr. B A K E R . The first question goes back to Mr. Brown's point, sir, about the fact that we are not getting the fabrics. Mr. W O L C O T T . Why are you not getting the fabrics? Can you not allocate the fabrics? Mr. B A K E R . Well, we have what we consider to be a reasonably satisfactory plan for channeling the fabrics. The problem now is to get them manufactured, and that problem is largely one of labor supply, as I said to Mr. Brown. We are beginning to get the fabrics, sir. Mr. W O L C O T T . I remember that, in the early part of October, Mr. Small was before the House Committee on Postwar Economic Policy and Planning, and we had up housing at that time, and I asked him, preliminarily to asking him if he did not have the authority to channel building materials into low-cost construction, I asked him whether he did not have the authority to channel fabric into the manufacture of men's shirts. He readily admitted at that time that he did have. Now why the lag between October and now? Mr. B A K E R . The principle lag, sir, has been in the lack of yarn and fabrics to be channeled into these garments. That, however, has improved substantially. Mr. W O L C O T T . Well, now, wait a minute; I called his attention, at that time, to the fact that if we could afford to buy an $8 shirt, or a $10 shirt, or a $15 shirt, that we could buy them. They took .95 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 tliis cloth, put an extra button on the sleeve, a half inch on the collar, and called it a sport shirt and charged us $12 or $15 for it. There was no question of fabric. At that time, and I suppose the situation still prevails, the shirt shops were full—and they are full today—of white shirts called sport shirts, which you can buy for from $8 to $15. Why are they manufacturing the $8 to $15 shirts and not manufacturing the $3 shirts? Mr. B A K E R . That is the product, sir, of the situation that existed prior to the effectiveness of this program. Our present regulation, we believe, now makes it as profitable to produce a regular white shirt—not a sport shirt—as a fancy sport shirt. On the other hand, the total lack of yarn has meant that although we have a program which theoretically is workable, and will work, it is a shell which waits for the production of fabric to go into it. That production is only just starting, with the gradual return of workers to these somewhat low-paid operations, the textile mills. That return has been substantial, but I think you will realize that it is a long time from the return of a worker to a yarn factory and the arrival of a shirt in a retail store here in Washington. It is regrettably long, and longer than we contemplated at the time this program was initiated. Mr. B R O W N . Are you not giving a little more preference to rayon than you are to cotton or wool? Mr. B A K E R . We do not think so, sir. Mr. P O T T E R . Shall I proceed? Mr. G A M B L E . Y O U told us about this alloctaions plan last June, when we had price control up for consideration; you told us that it would settle everything. Instead of that, here we are, 8 or 10 months from that time, and we still do not have shirts and cannot buy clothes. Mr. B A K E R . Mr. Gamble, most of these controls were discontinued at the conclusion of the war. The final result of discussions with the Civilian Production Administration was the issuance of order 328-B, which did most of what was desirable at that time. It is quite possible that some more controls will be necessary, and I understand from Mr. Bowles that he plans to review at once the need for that. I also know that a committee of our people and Civilian Production Administration people are meeting this afternoon to make final plans for additional activity in connection with textiles, cotton textiles in general, which we think will be helpful. I cannot say how quickly they will be helpful. Mr. G A M B L E . Some of those controls were taken off, you say, last summer? Mr. B A K E R . Yes, sir; at the conclusion of the war. The C H A I R M A N . D O I understnad you are about half through, Mr. Potter? Mr. P O T T E R . About two-thirds through, Mr. Chairman. The C H A I R M A N . We will adjourn until tomorrow at 10:30. A. M. (At 4:30 P. M. the committee adjourned to the following day.) 1946 EXTENSION OF THE EMERGENCY PRICE CONTROL AND STABILIZATION ACTS OE 1942, AS AMENDED TUESDAY, FEBRUARY 19, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee reconvened at 10:30 a. m., Hon. Brent Spence, chairman, presiding. The CHAIRMAN. The committee will be in order. Mr. Bowles has returned this morning to subject himself to interrogation. I understand that he would like Mr. Potter to proceed with the charts, and he will be here to answer any questions that arise, in order that the presentation of the charts may be completed before he subjects himself to interrogation. Mr. PATMAN. Mr. Chairman, I would like to ask Mr. Bowles one question, by reason of the developments here in the last 24 hours, concerning certain organizations which want all price controls taken off manufactured goods, and the Ford Motor Co. Now, I know the Ford Motor Co. has been accusing the Office of Price Administration of holding up production and stating that all price control should be taken off cars. I think it is a matter of tremendous public interest to know what the prices of cars would be in the event price controls is taken off them and if Mr. Bowles has any information about what the Ford Motor Co. wants to charge for cars if price control is taken off them. STATEMENT OF CHESTER BOWLES, DIRECTOR OF STABILIZATION—Resumed Mr. BOWLES. Well, Mr. Patman, Mr. Ford made the statement, I believe, that he was losing $300 on each car. He also made a statement that the reason he was in difficulties was because of the high ceilings the Office of Price Administration had placed on parts. I think it is important to understand, first of all, that Mr. Ford was in difficulty and losing $300 on each car in November. In November I do not know what his production was, but I know it was only a thousand cars a day in January, which is about a third of his 1941 production. I assume it was considerably less than that in November. I do not think any intelligent industrialist that I know would ask anyone to allow pricing on a basis of such small volume as that. What would the first typewriters cost, or the first few hundred bicycles, or vacuum cleaners? They would probably cost hundreds and hundreds of dollars; perfectly ridiculous prices. 97 .98 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Of course, on any such small volume as that, you lose money. That is what tax adjustments were arranged to help pay for. Obviously, at any such small volume he does not make money. In the second place, it is inconceivable to me that Mr. Ford did not know that the Office of Price Administration removed all parts from price control, automobile parts, except those sold through dealers, back in September or late August. In other words, the Office of Price Administration does not price those. They are priced by the manufacturers, who take the bids in the normal way, and those are out from under control. We did that because there were so very many of them, and the field was so complicated that we simply removed controls and left it to the bargaining of the manufacturers. Most important of all, I think the facts should be known— although normally I would not make them known, as to the prices Mr. Ford asked be placed on his cars last summer; they should be known because of the many statements that Mr. Ford has made, which I think could be termed fairly irresponsible statements. Of course, he may not have had the facts himself ; he is not an old hand at that. At any rate, the Ford Co. requested the Office of Price Administration to increase its price 55 percent last summer. They requested a 55-percent increase. I think that figure gives everyone a little better understanding of what would happen were price control abandoned and why Mr. Ford is anxious to get rid of price control on cars. I think it also serves as a pretty good answer to those who say that the automobile industry would compete and hold prices down of their own accord. A 55-percent increase is, I think, an outrageous increase even to ask, much less to charge, yet that was the request we received from Mr. Ford last July. Mr. P A T M A N . If you were to take the price control off, you would take the price control off with the knowledge there would be an immediate 55-percent increase on Ford cars? Mr. B O W L E S . Mr. Ford has it on record saying he would like a 55-percent increase under price control. I have no idea what he would ask for if there were no price control. Mr. C R A W F O R D . Mr. Chairman, a while ago you asked me about procedure. I did not know this Ford proposition was coming up, and when I came in I stated to the men on this side of the committee that I was going to submit a request to the committee today for the committee to invite Mr. Ford to appear in these hearings. I now submit that request, because I think it is going pretty far when the President of the United States gets up and attacks an American industry, or a company, as he did General Motors, and when the machinery of government, through the Office of Price Administration, is directed in an attack against Henry Ford II. The reputation of that company has always been to make a better product at a lower price, and this issue is so far-reaching that I think the committee should invite Mr. Ford here to present his case in the interests of the consumers of the United States. Mr. P A T M A N . I am very much in favor of that myself. Mr. B O W L E S . Mr. Chairman, I would be very much in favor of that, although it is not my affair, obviously. I would like to point out that Mr. Ford has made several statements which I think are rather misleading. I do not believe he intended them to be that way, .99 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 but I think they have left an impression which is not quite accurate. I think it is time those were corrected. I have waited a long time to have him correct them, and only when these statements have been repeated over and over again have I been willing to make the statement I have made this m.orning. Ordinarily we do not print or publish what anybody's requests are for price increase. It is only in view of the public confusion that has arisen over this that I have made the facts public. I would like to say another thing: That I do not think Mr. Ford's action in requesting a 55-percent increase is in line with the traditions of the Ford Co. You are quite correct in saying that the Ford Co. has always been a company that believed in high wages and low prices, Mr. Crawford. I think they have been a leader in selling that idea to American industry. I am only sorry to see that young Mr. Ford seems to have departed from it. Mr. C R A W F O R D . It is so fundamental, Mr. Bowles, that we should get him down here to clear it up. The C H A I R M A N . We will invite Mr. Ford to appear before the committee. Mr. B U F F E T T . Mr. Chairman. The C H A I R M A N . Mr. Buffett. Mr. B U F F E T T . Mr. Bowles, last Saturday the Office of Price Administration issued a publicity release attacking Henry Ford II. I am interested in knowing under what provision of the Price Control Act Congress gives you the authority to issue that kind of a formal attack villifying Mr. Ford. Mr. B O W L E S . The statement on Saturday, if I read it right, and I read it in the newspaper myself, was in answer to a statement which he made. It corrected a false or misleading statement which had been made. I think that Congress, certainly, when they set up these agencies, did not expect them to sit idly by when misleading statements were made, without correction. Certainly, I think you would want to correct it if it was said about you, and very properly. Mr. B U F F E T T . D O you think, then, that Congress gave you the authority to issue public statements, formal statements, under the Office of Price Administration, to attack an individual like Henry Ford, and to either undermine public confidence in his company, or browbeat him personally into keeping still? Mr. B O W L E S . I think you had better go back and look at the record. If you do you will find that these statements have been going on for quite a while, these statements by Mr. Ford. I know nothing in the statute that states that it is illegal to have those corrected. If Congress wants to make it illegal to have false and misleading statements corrected, naturally, that is another matter. I do not think it is illegal today. Mr. B U F F E T T . Of course, your statement went beyond that. Your statement said that Henry Ford was representing a group of selfish people. Mr. P A T M A N . D O you have the exact statement, Mr. Buffett? Mr. B O W L E S . I do not have it here. Mr. P A T M A N . I think Congress has the right to use its franking privilege to answer attacks. Mr. B U F F E T T . Congress is in an entirely different position from a governmental agency. . 1 0 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The C H A I R M A N . We are going to have Mr. Ford here if he wishes to come. Mr. B O W L E S . I have made my statement. Mr. Ford can answer it in the way he sees fit. The C H A I R M A N . Mr. Bowles, the head of the building industry this morning made a statement to me. He said that the production of building materials is about one-fifth of normal, if I recollect his statement correctly, and that it was due largely to the pricing policies of the Office of Price Administration. What do you say about that? Mr. B O W L E S . One-fifth of normal? The C H A I R M A N . One-fifth of normal, is my recollection of his statement to me. Mr. B O W L E S . Well, I have here some figures. First of all, lumber, I believe, is about 9 percent down from 1939, before the war. Brick is about 60 percent of previous volume and going up each week. Clay sewer pipe is roughly 80 percent—75 to 80 percent of prewar volume and going up each week. Mr. C R A W F O R D . Y O U say clay, Mr. Bowles? Mr. B O W L E S . 1,380,000 tons in 1941, and 930,000 tons now. Mr. C R A W F O R D . Y O U said clay sewer pipe, not cast iron sewer pipe? M r . BOWLES. Yes. Mr. B R O W N . Did I understand you to say these items are lower than in 1941? Mr. B O W L E S . Some of them are coming up. Cast iron sewer pipe, 550,000 tons in 1941; 400,000 tons now, and going up rapidly. Mr. B R O W N . That is production you are speaking of? Mr. B O W L E S . Yes. Now, all those industries in the building industries, most of them, were practically out of business during the war. They just were not war industries. The manpower in those industries was always at rather low wage rates. The manpower, naturally, drifted away during the war, and the process is now on of getting that manpower back, in some cases raising wages in the substandard areas or just above substandard levels to get manpower. As I pointed out yesterday there have been 36 different building materials on which price increases have been granted since VJ-day to help along as far as the Office of Price Administration can in bringing this production up, and I think, however, Mr. Chairman, the statement of production being only one-fifth of normal will not stand up under an examination of the facts. It is just not accurate. The C H A I R M A N . What effect did the pricing policy of the Office of Price Administration have in causing the scarcity of these materials? Mr. B O W L E S . Well, I would not say it had any effect at all. Of course, when YJ-day came, many of these things were out of production entirely, or practically out of production, and the Office of Price Administration immediately began to increase prices to get price out of the way of resumption of production. As I pointed out yesterday, there is the Bottleneck Committee, so-called, that studies all bottlenecks where there is lack of production, and tries to find out what is the reason for it. There have been six requests of that Bottleneck Committee, in the building field, for an increase in price, to get production. Each of these requests has been granted. We will work very closely with Wilson Wyatt on building materials, and either through subsidies, if Congress grants them, or through whatever means we can, we will see beyond question that .101 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 price does not stand in the way of production of needed building materials. I believe we were asked yesterday to put a statement in the record on each of those items, as to what increases were granted and when they were granted. That, we are doing. The C H A I R M A N . We will now proceed with the charts and then you may subject yourself to interrogation. S T A T E M E N T S OF P A U L PORTER, A D M I N I S T R A T O R OF THE OFFICE OF PRICE ADMINISTRATION, ZENAS L. POTTER, DIRECTOR, OFFICE OF C O N G R E S S I O N A L I N F O R M A T I O N , GEOFFREY DEPUTY ADMINISTRATOR, STEPHEN AILES, BAKER, ASSISTANT ERAL COUNSEL, S A M LEVITTES, DIRECTOR, CONSUMER GENGOODS DIVISION Mr. P O T T E R . I would like to say we have eliminated a lot of these charts, so you will get an opportunity to spend more time with Mr. Bowles. NATIONAL RETAIL DRY GOODS ASSOCIATION HORROR EXHIBIT The National Retail Dry Goods Association recently prepared and displayed in both House and Senate Office Buildings a horror exhibit intended to prove that the Office of Price Administration pricing policies have driven low-priced good-quality merchandise off the market. Displays usually consisted of two articles of a kind. One was of good quality and the second decidedly shoddy. The first presumably had been forced out of production by established manufacturers through the Office of Price Administration's refusal to grant price increases. The shoddy article, made by a new manufacturer, bore a high price. If the Office of Price Administration would give established manufacturers moderate price increases, it was inferred, the public would be able to buy better goods at lower prices. A typical display was that showing men's shorts. In this case three pairs were displayed with these descriptions: The Office of Price Administration expects an established manufacturer to market fine printed sanforized cloth shorts at $3.55 a dozen. A second manufacturer is allowed to market shorts made of 80 by 60 broadcloth for $3.50 a dozen. But a third manufacturer is permitted to market shorts made of white sheeting of the type commonly used in chenille bedspreads at a charge of $7.35 a dozen. What are the facts? The National Retail Dry Goods Association has repeatedly been asked to supply the names of the manufacturers whose goods were shown in the exhibit, so that the statements might be checked. To date, no name has been supplied to the Office of Price Administration. In the case of six displays, however, the Office of Price Administration was able to trace the names of one or both producers. Investigation proved the Office of Price Administration wrong in one case; in the other five, the National Retail Dry Goods Association statements were misrepresentations. Here is the truth about men's shorts: Jack Goldfarb, president of the Union Underwear Co., of New York, who made the fine printed sanforized-cloth shorts, testified before the Senate Small Business . 1 0 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Committee that he is making one and a half million shorts a week. One-quarter of them are selling at 39 cents retail. He is selling these shorts at $3.55 a dozen, below his approved ceiling price of $4. His output is above his prewar production. And I would like at this point to have entered in the record a statement regarding all six of those cases. The CHAIRMAN. That may be placed in the record. (The document above referred to is as follows:) STATEMENTS AND F A C T S R E G A R D I N G S I X D I S P L A Y S IN N A T I O N A L GOODS ASSOCIATION " H O R R O R S E X H I B I T " RETAIL DRY The National Retail Dry Goods Association has repeatedly, on request both of OPA and of the Senate Small Business Committee, failed to provide the names of the manufacturers whose goods were shown in the "horrors exhibit." In the case of six displays, however, the names of one or both producers were discovered. Here are reports on the six cases: I. M E N ' S SHORTS The exhibit stated, "The OPA expects an established manufacturer to market fine-printed cloth shorts at $3.55 a dozen." Facts.—The manufacturer is producing half a million pairs of shorts a week. A fourth of his production is in shorts to sell at 39 cents retail. These are 1942 prices and his production is higher in units than it was prewar. He is selling his low-priced shorts at below-ceiling price. II. CHILDREN'S SCOOTERS The exhibit stated, "The scooter in the foreground is made of scrap material. Its manufacturer is permitted a ceiling of $3.75 on his product. The big, sturdy scooter in the background with good rubber tires, brake, and stand is limited to a ceiling of $1.92 by OPA. Its manufacturer cannot afford full production at that price. He is making only 20 percent of his capacity." Facts.—The manufacturer of the "scrap" material scooter does not today have a $3.75 price. He had that price for the 1944 Christmas season only to cover the h igh cost of making the scooter out of aluminum. The next cheapest scooter on the market that Christmas was a wooden one at $10. The manufacturer of the "big, sturdy" scooter has made 250,000 of these scooters in 1945 and is in full production. He has not even taken the 14 percent price adjustment granted manufacturers of metal toys. III. TOY BLOCKS The exhibit stated, "Established manufacturer A has an OPA ceiling of 25 cents for a box of 24 blocks. He can't produce at this ceiling. He needs a ceiline: of 9ft cents. OPA says 'No.' " Facts.—The manufacturer tells us he never has applied for a price increase. He has been out of production since 1942 on these blocks because he could not obtain ponderosa pine. He is making dominos and checkers at his 1942 ceilings. iv. MEDICINE CABINET The exhibit stated, " O P A restricts established manufacturer A to a ceiling of $1.47 for a medicine cabinet with mirror. He neess an increase of 22 cents. OPA says ' N o . ' " Facts.—The manufacturer tells us he never has applied for a price increase. He is out of production today because he cannot yet obtain a fabricated part he needs. Manufacturer B in this comparison was showrn with a legal ceiling of $2.15. It turns out that he is not a manufacturer but a jobber. The validity of his jobbing price has not yet been determined. V . 80 S Q U A R E PERCALE The exhibit stated it was not being made because of unfavorable ceilings. Broadcloth fabrics wTere said to be out of production for the same reason. The .103 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 price discrepancies are falsified by the showing of finished piece goods rather than grey goods. Thus an inferior fabric is made to appear to have a higher price. Facts.—Eighty square percale and standard broadcloth still are being produced in large volume. The decline in their production is about the same as the decline in all cotton textiles. The reason for this over-all decline has been the shift to a 40-hour week, some strikes, and long-standing inability to obtain an adequate force of experienced workers. VI. ELECTRIC IRONS The manufacturer of the " g o o d " electric iron has been out of production because of an inadequate price. We gave him a 40-percent increase last January. We recently gave him an over-all adjustment on all his products; but it did not raise his iron price because his 40-percent iron-price increase exceeded his over-all increase. We are working on a low-end order which should cover irons. This is the case of the sixth where the exhibit charge of impeding low-end production was justified. Another similar charge was made by a retailer before the Senate Small Business Committee. Investigation revealed these facts: CHILDREN'S WHEELBARROWS It was stated that a manufacturer used to produce wheelbarrows to sell for $9.53 a dozen. Refused a price increase by OPA he dropped the item. Another producer, however, was given a price of $14.40 for an inferior item. Facts.—The firm supposed to have discontinued production is making 30,000 wheelbarrows a month, working three shifts—to the limit of his ability to produce. Up to the first of the year he was selling at his 1942 price of $9.53. Then he was given a 14-percent increase. This wTheelbarrow is shipped unassembled. The "inferior" one is shipped assembled. The wheelbarrow supposedly out of production weighs pounds. The "inferior" one weighs 7% pounds. Mr. PATMAN. Has the National Retail Dry Goods Association made an application to appear, Mr. Chairman, against the continuation of the Office of Price Administration? T h e CHAIRMAN. Yes. Mr. PATMAN. When do they expect to be here? The C H A I R M A N . We have not set any date for them as yet. Mr. P O T T E R . I hope, if they appear, they will be asked to present the names and addresses of all the manufacturers in that exhibit. Mr. G A M B L E . What is the purpose of that, sir? Mr. P O T T E R . SO that it may be known whether those exhibits told the truth or distorted the truth. So that the truth will be known to Members of Congress. Mr. G A M B L E . Will they not speak for themselves? Mr. POTTER. But the information in them, as in the case of these shorts, is misinformation. Mr. G A M B L E . Y O U want the names so you can crack down on them? Mr. P O I T E R . We want the names so we can determine the facts and tell Congress the truth about those situations. Mr. K U N K E L . Can you not track them down without the names? Mr. POTTER. We cannot. We have got 6 names out of perhaps 4 0 . And we think that if their exhibit tells the truth, they should be willing to provide the names and addresses of the manufacturers producing the goods shown. In six cases we found the facts, in five of them they were completely misrepresentations. Mr. BOWLES. Mr. Chairman, I would like to say one thing. I think it is obvious that the average department store carries a hundred thousand items, the average good-sized department store, priced by the Office of Price Administration. Obviously all those prices cannot be right. Some of them, must be wrong, and there must be some that are careless or wrong in some way. . 1 0 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 I would be amazed if you could not go into a whole lot of prices and find some errors in pricing. We try to correct those naturally wherever we can. The point of this exhibit was that a large group of those comparisons were made. I am sure that some of the cases there—maybe a majority of the cases—w^ere correct. I think it is quite possible that they were. The point is that they would not submit them to a survey by people in our own staff. Jerry Nye, who is a retailer and owns a department store himself, is the one I would have appointed to look into it very carefully. If the six that we did investigate—and we stumbled on them by accident—five of them were incorrect. In one case we were incorrect. Now, I, for one, do not think that they were wrong in five cases out of six. I would question whether that percentage carried for all of them. I think probably they were wrong in more of that group than we discovered. That would be a normal assumption. I am not for one minute saying that all those cases are wrong. I just say I do feel that we ought to be able to take the same kind of look at them that we are able to take at those men's shorts, where the manufacturer himself came down and stated the National Retail Dry Goods Association statements were, in his case, simply misrepresentations. He said that. We did not say it. Mr. C R A W F O R D . Mr. Chairman. The C H A I R M A N . Mr. Crawford. Mr. C R A W F O R D . Mr. Potter, I think your difficulty is illustrated by your statement on page 11 of your formal statement, where you refer to Jack Goldfarb, of New York. Now, you would not expect us to sit here and accept your brief analysis and statement of the facts on that particular case? Mr. P O T T E R . Mr. Crawford, Mr. Goldfarb appeared before the Senate Small Business Committee and testified on the facts. Mr. B O W L E S . All you have to do is look into the transcript of that committee. Mr. C R A W F O R D . Oh, no; we do not run this committee that way. Mr. P O T T E R . Y O U are at liberty to call Mr. Goldfarb. Mr. C R A W F O R D . Y O U s^poke about the names being given so you could inform us as to the facts. Now, here is an illustration of the information. I would not want to be a juryman on that kind of a case, with only one side presented. Now, let me ask you this: In the exhibit which you presented over in the Souse Office Building, and I went over and studied that with as much interest as the one which you call the horror exhibit, did you have the names of all those manufacturers posted up there? Mr. P O T T E R . Mr. Crawford, the Office of Price Administration presented no exhibit. Mr. C R A W F O R D . Well, it was certainly portrayed to me, as a Member of Congress, as the Office of Price Administration exhibit and the lady in charge told me she was representing the Office of Price Administration and I am prepared to take an oath to that effect. Mr. P O T T E R . The Office of Price Administration put on no exhibits. There was a group of consumers who put on an exhibit. Mr. C R A W F O R D . Well, I do not know anything about that, but it shows you how difficult it is to get this information properly, and I had quite a discussion with her, and I asked her, I said, " H o w long have you been here in charge?" . And, without wanting to embarrass .105 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 anyone, she told me that she was in charge while Mrs. Woodhouse was away, and she strictly led me to believe that it was an Office of Price Administration exhibit, and I assumed it was. Now, I am not charging you with it. I am simply telling you what the lady said. Mr. W O O D H O U S E . Mr. Chairman. The C H A I R M A N . Mr. Woodhouse. Mr. W O O D H O U S E . It was a group of consumers who sponsored that exhibit. We had the assistance of the Consumers Advisory Committee. Mr. P O T T E R . Those are not paid employees. Mr. C R A W F O R D . Were the names of the manufacturers of those articles portrayed in that exhibit? Mr. P O T T E R . I do not know, Mr. Crawford. Mr. C R A W F O R D . Y O U do not know about that? Mr. P O T T E R . That was not our exhibit, therefore, I have no responsibility for it. Mr. C R A W F O R D . V^ell, I think it would be just as important to have those names as it would be to have the others. Mr. P O T T E R . Question No. 6: Are the Office of Price Administration's policies creating business and landlord hardships? I want to go thiough these very rapidly because you gentlemen are familiar with them. The profits of the corporations of the country before and after taxes are far above what they were in the prewar period. Industrial manufacturing profits, in 1944—we do not have the 1945 figures because of the tax adjustment situation—were 450 percent above '36-39. Retail profits also run very high. Department-store profits are the only ones I call particular attention to. Small department stores' profits are up 1,102 percent; medium stores' profits are up 617 percent; large stores' profits are up 362 percent; the average profits of all are up 609 percent. Mr. G A M B L E . D O you mean that you are taking credit for all these things? Are they all due to the Office of Price Administration? Mr. P O T T E R . N O ; this is due to the war economy, and these earnings were achieved in spite of price control. M r . GAMBLE. I see. Mr. P O T T E R . Price control did not prevent them from being achieved. Mr. G A M B L E . In other words, price control did not make it, but— Mr. B O W L E S . Mr. Chairman, if I might add something I would go a little further than that. I have heard many businessmen say that one of the reasons why production did not go up substantially during the inflation of 1919 and 1920, and one reason that production increased so very little during the last World War, only about 25 percent, was due to the fact that the costs of operating businesses were in such a terrific state of flux all during the war, with increasing costs all the time. Steel, for instance, went up something like 500*percent, or steel plate did, during the war. And some of those items were going up so fast that it was difficult to plan production ahead. To that extent—and only to that extent—I do think that stable prices are a help in allowing business firms to know where they stand. And the less stable costs are, the more difficulties you have. I think it is a contributing factor, but we certainly are taking credit for it, obviously. . 1 0 6 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. SMITH. Mr. Chairman. The CHAIRMAN. Mr. Smith. Mr. SMITH. Right at that point, Mr. Bowles, let me ask you this question: You say that the producers of war supplies that involved steel, were hampered because of fluctuating steel prices. Mr. BOWLES. They went up. They did not fluctuate. They went up. Mr. SMITH. Now, let me ask you this question: Was the desired production of steel achieved? Mr. BOWLES. During the first war? M r . SMITH. Y e s . Mr. BOWLES. Production in 1918 actually dropped, which is the last year of the war, industrial production went down 1 percent. Mr. SMITH. I thought you said during the war. Mr. BOWLES. N O ; during the last war, the First World War, production increased only 25 percent, as against, in this war, about 120 percent. Mr. SMITH. All right. But you say that the difference is due to the fact that we have not got fluctuating prices now? M r . BOWLES. NO. Mr. SMITH. I misunderstood you, then. Mr. BOWLES. I do not think anybody would ever say that, but do say that many businessmen I have talked to have said: I Thank Heaven for the fact we have fairly stable costs. W e do not have to go out and gamble and accumulate inventories, hoard raw materials, and, in effect, speculate on our inventories all the time. We know that prices are going to be reasonably stable. Mr. SMITH. Well, the question I want to ask you at this point is this, Mr. Bowles: Did that situation hamper the production of ships and other war supplies? Mr. BOWLES. In the First World War? M r . SMITH. Y e s . Mr. BOWLES. I would say it was a factor. Mr. SMITH. Well, now, wait a minute. You have got to prove that. It is my understanding that they achieved every goal that was aimed at. Mr. BOWLES. Well, I will be surprised if the goal was to have production go down 1 percent at the height of the war effort. Mr. SMITH. That was after the war; was it not? A i r . BOWLES. N O ; i t w a s 1 9 1 8 . Mr. SMITH. That was after the war. Mr. BOWLES. The war ended in November 1 9 1 8 . Mr. SMITH. That is right. Mr. BOWLES. The last year the fighting took place, at the time of the German drive and all the crises of the First World War, industrial production dropped 1 percent. Mr. SMI^H. Well, of course, that 1 percent would hardly be Mr. BOWLES. N O ; but it did not go up, sir. I am not saying it did not go up because of that. But my statement was only that some business and economists have said and do say that the unstable prices we had in the last World War were an unsettling factor; to the extent to which they were unsettling, production was hampered, obviously nobody knows. Mr. POTTER. I just happen to have a chart on this very thing that .107 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. Bowles is talking about. This is the fluctuation of pig-iron prices in World War I, running from 1914 through 1920. [Large fluctuation shown.] This is the price of pig iron through the present war. [Steady prices shown.] Mr. SMITH. What do you prove by that? Mr. P O T T E R . I prove only this, by that: That forward planning of business and costs, and the scheduling of production and prices, is an exceedingly difficult thing in the face of a tremendous variation in the prices of raw materials out of which products are made. Whereas here [referring to chart showing steady prices in World War II] a man can concentrate on production and not worry about speculating on buying his raw materials all the time. Mr. SMITH. Did you have contracts in the other war that involved these fluctuating steel prices you are talking about now? Mr. P O T T E R . N O , sir; but I was on Mr. Baruch's staff, watching all production in the last war, and I can state that we did not get an airplane to France until the war was over. Mr. SMITH. Because of the fluctuating steel prices? Mr. P O T T E R . Because of difficulties of production. I think we did a very much better production job in this war. Mr. B U F F E T T . Mr. Potter, that chart is ancient history since last week; is it not? Mr. P O T T E R . Prices shown on this chart unquestionably will show some increases, but we still will maintain a steady level of prices. They have got to go up a little. Mr. B O W L E S . It is 7 percent; that is all it amounts to It is too much, and I do not like it, but Mr. P O T T E R . I will hurry through wholesale profits. This chart shows small business profits. Manufacturers doubled their profits through the period; retailers the same, and wholesalers the same. Mr. SMITH. What is your base period there? Mr. P O T T E R . Here is 1 9 2 9 . This is 1 9 3 9 . There is 1 9 4 0 . There is 1 9 4 4 . Mr. SMITH. In terms of the depreciated dollar? Mr. P O T T E R . These are profits before taxes Mr. SMITH. I know, but in terms of the depreciated dollar? Let us keep that in mind. Mr. B O W L E S . Not depreciated over 1 9 2 9 . Mr. SMITH. Y O U mean the dollar has not depreciated over 1 9 2 9 ? Mr. B O W L E S . It is about the same. Mr. W O L C O T T . Mr. Bowles, you do not mean that, do you? Mr. B O W L E S . I think you will find that price levels today are about the same as they were between 1 9 2 6 - 2 9 . That is a matter of fact. Mr. Riley is here. Perhaps he can give you the exact figure on that. Mr. R I L E Y . I do not have the exact figure but that is approximately correct. Mr. B O W L E S . Mr. Riley, the head of our Research Department, says that is approximately correct. Mr. W O L C O T T . Is that based upon the study of the seven-hundredand-some-odd commodities which were used by the Bureau of Labor Statistics in determining the cost of living? Mr. B O W L E S . It is based on the indexes of industrial wholesale 83512—46—vol. 1 8 . 1 0 8 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 prices, industrial prices, wholesale prices, consumer items. But the same index was used in 1929 and at present. Whatever imperfections there may be in it were in it in both periods. Mr. P O T T E R . While we are on this question of index Mr. W O L C O T T . Y O U could not possibly have used the same index, because you did not have the same type of goods. It is true, is it not, that the Bureau of Labor Statistics used seven-hundred-some-odd commodities in determining the cost of living index? Mr. B O W L E S . Well, it is not merely a matter of cost of living, it is your industrial price indices and your wholesale price indices. I think you will find that any economist who studies this will tell you that the price levels in 1 9 2 6 - 2 8 and 1 9 2 9 are not too far different from the price levels you have today. Mr. W O L C O T T . In 1 9 2 9 they took into consideration refrigerators, automobiles, and electric irons and everything else, and they surely could not have taken those into consideration in determining the cost-of-living index in 1945, because we did not have them. Mr. B O W L E S . Wholesale prices are 9 5 in the index against 1 0 7 in December; a gap of 95 to 107. That is about 7 or 8 percent. It fluctuates a little bit aTl the time, but it is not too different. Mr. P O T T E R . I would like to say, while we are on this question of indexes, that I have checked on the Federal Reserve Board Industrial Production Index, and it is an index of volume of production and not of prices charged. Mr. Eccles, I understand, will be a witness before this committee at a later date. It is his index. I am sure he would be glad to provide information about it. Mr. F O L G E R . Mr. Chairman, I do not want to break the rule, but I would like to break in here to ask a question, if I may. The C H A I R M A N . Mr. Folger is recognized. Mr. F O L G E R . Mr. Bowles, I believe you are proposing to proceed now upon the prewar-profit basis. What years does that contemplate? Mr. B O W L E S . The base period? M r . FOLGER. Y e s . Mr. B O W L E S . Well, that is the same base period we have had right along through the war, the average of 1936 to 1939. That is how the Price Control Act has been interpreted ever since I have had anything to do with it, and I guess it goes back to 1942. When Congress said that an industry shall have prices which are generally fair and equitable, that was interpreted by the Office of Price Administration and later confirmed by the courts, and discussed at great length here in Congress, as meaning that any industry would have at least its prewar earnings, 1 9 3 6 - 3 9 . Mr. F O L G E R . N O W , I would like to ask you in that connection: What provision has the Office of Price Administration made or does it propose to make to insure fair and adequate ceiling prices on manufactured articles made from a farm product on which there is no ceiling, when this farm product represents Irom 60 to 80 percent of the cost of the manufactured article, as in the case of cotton yarn? I have been having a lot of trouble with that. Mr. B O W L E S . Well, I think we reflect it. Mr. Baker can answer that. .109 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A K E R . Mr. Folger, in the case of carded yarn, there seems to be no doubt that it is necessary to preserve our earning standard to reflect the actual cost of the raw material that went into the production of the yarn. Mr. F O L G E R . Well, do you have somebody in your department, Mr. Bowles, who is acquainted with those things? I am not throwing rocks at you. I am with you, I think, but I would like to discuss it with someone in your department. You have had experience in these things, have you? Mr. B A K E R . We have, sir. Here is Mr. Sam Levittes, Director of Consumer Goods Division, and carded yarn is in that division. Mr. Levittes is a garment manufacturer. We also have in that Division manufacturers of textiles and manufacturers of garments working on our items. Mr. F O L G E R . N O W , we have had, for a year, I think, the example of the very unfortunate experiences of manufacturers of brick. I remember the testimony of Mr. Eric Johnston, who said he manufactured brick and lost $2.50 a thousand on them, but he made that up because he had an industry-wide base, and he could stand the loss. Mr. B O W L E S . When was that, Mr. Folger? Mr. F O L G E R . About a year ago. Mr. B O W L E S . Since then there have been a great many price increases on brick. Mr. F O L G E R . Y O U understand I am talking about policy now. Here is a question: Does the Office of Price Administration permit a division of an industry into groups and segments and consider them on a group basis in determining ceiling prices ol their products, rather than treating them as part of an over-all industry? I am thinking about small manufacturers now. Mr. B O W L E S . We would certainly call the brick industry an industry by itself, even though bricks may be just a small item for one manufacturer. We view the brick industry generally. A big manufacturer who has bricks as a side line, would get the same increase the others got. Mr. F O L G E R . I am referring to that, Mr. Bowles, as an example only. Now, if,you take an industry-wide operation, are ceiling prices based upon that and not taking into consideration the small manufacturer who may not manufacture some of the things that other people do, and you will find one company making a great big profit and another about ready to go out of business. Mr. B O W L E S . Well, where there is a substantial single-line item—• shirts, for instance—we look at that and see that, separate from all the rest, it is in good shape. Also, we have had, since YJ-day, an entirely new program, as far as individual adjustments are concerned, and we have made a good many thousand individual adjustments since VJ-day, taking care of excatly the kind of problems you are talking about. Mr. F O L G E R . I am thinking this, Mr. Bowles. That since the war is over, and the Government surely is not going to purchase 30 or 40 or 60 percent of the output of this country, then, we have got to look to some flexibility, to which I think you referred in your testimony yesterday. Mr. B O W L E S . Y O U definitely have to, and I think that the changes in . 1 1 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 the basic price policy since VJ-day have been very numerous. One of them, for instance, is the so-called general rescue clause, which covers practically every firm not under dollars-and-cents ceilings which make it administratively a little difficult, and which practically guarantees them against loss. Now, when you think that a very high percentage of business, before the war, operated in a low position, in 1 year or another, you will see that this provision is liberal. That particular standard allows an individual firm relief, even though the rest of the industry is in good shape, and that individual firms is the only one having difficulty. We make a lot of individual adjustments we did not use to. Mr. F O L G E R . Y O U are saying the policy now will be to employ a legitimate flexibility that will allow these people to live. Mr. B O W L E S . A great many of those adjustments have been made since YJ-day, and all those regulations, practically all of them, have individual adjustments. Mr. F O L G E R . Thank you. The C H A I R M A N . I wish to say that the committee will have to appear before the Rules Committee to obtain a rule on the housing bill this afternoon, so there will be no session this afternoon; and also we will meet in executive session after adjournment this morning, to consider some amendments that have been proposed to the housing* bill, so we will have to adjourn at about 10 minutes to 12. All right. Proceed, Mr. Potter. Mr. P O T T E R . I will pass over this very rapidly. Mr. SMITH. Mr. Chairman, before we close with this point, will Mr. Bowles be back? The C H A I R M A N . Oh, yes, Mr. Bowles, I understand, will come back. I am not the custodian of Mr. Bowles, but I think he will be back. Mr. B O W L E S . I will be here as much as you want me to. I know that every member of this committee has individual questions on individual items. You accumulate a good many during a year. I know also that you will get some more questions you will want to ask as you listen to witnesses during the next 2 or 3 weeks. At least, you will if this year is like the past years, and I assume it will be. I would like to say that if you will accumulate those questions until the end of those hearings, so that all questions on individual items may be answered at that time, we will get our staff over here and answer them all fully. I think we could then give you much more sensible and complete answers and save a lot of time. Obviously we are at your service. Mr. K U N K E L . Mr. Bowles, this is rather restful after what you have been doing for the last 3 weeks; is it not? Mr. B O W L E S . Extremely. Mr. SMITH. Mr. Chairman, are we going to have Mr. Bowles back tomorrow morning? The C H A I R M A N . Well, now, I have not complete custody of Mr. Bowles. He is winding up the Office of Price Administration as far as he is concerned, and he has a new and very important position. I do not know whether he can come back tomorrow or not. Can you come back tomorrow, Mr. Bowles? Mr. B O W L E S . Yes; I can. I just make the suggestion for whatever it is worth, and the committee obviously may do what it wants to, that, I think you will get a much more intelligent picture of individual questions on individual companies and products, than if you wait .111 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 until the end of the hearings and then ask us back for as long as you want us. The C H A I R M A N . I think we can accede to your request. Mr. SMITH. That does not mean that he is not coming back tomorrow, though? T h e CHAIRMAN. O h , n o . Mr. F O L G E R . Mr. Chairman, I think Mr. Bowles' suggestion is a good one. The C H A I R M A N . I do not think it is so essential that he come back tomorrow. If he comes back and subjects himself to interrogation at a proper time, as he says, he might be able to give you more information. What is the disposition of the committee: Do you want Mr. Bowles to come back tomorrow? Mr. W O L C O T T . Mr. Chairman, of course, we want Mr. Bowles back. The C H A I R M A N . Of course we do. Mr. W O L C O T T . Of course, these are not individual complaints that we are making, Mr. Bowles. As we examine the witnesses, we use these only as examples. Mr. B O W L E S . That is right. Mr. W O L C O T T . In the development and crystalization of these issues. Mr. B O W L E S . That is right. Mr. W O L C O T T . We must do that as we go along, otherwise we will not have a clear understanding of the issues. I do not think you have in mind that the members of this committee are merely using this as a sounding board to clear up some of their own correspondence. Mr. B O W L E S . Of course not. Mr. W O L C O T T . We are merely using these examples as typical examples in developing the issues. Mr. B O W L E S . That is right. The only point is that many of them involved technical questions affecting various products that only an expert working on them all the time can answer. I do not know all the facts. All I or Mr. Baker or %lr. Porter can do Mr. W O L C O T T . Well, what we want you to do, before the committee, is to discuss policy, relating to individual cases only insofar as they relate to policy. Mr. B O W L E S . Yes. All I was suggesting was the same procedure that we had last year, that the questions stemming from all the individual items came in to one group. We were here 2 or 3 days and covered all of them. But we will handle it in any way you want us to. The C H A I R M A N . I think it is essential that you should hear the complaints. Mr. G A M B L E . Some of those questions were helpful to you, too. You and Mr. Brownlee, I know, took on a number of those questions that you afterward settled in one way or another and cleared them up. Mr. B O W L E S . If you will remember, Mr. Gamble, that was so very true that I wrote to this committee and to the Banking and Currency Committee of the Senate and asked them for permission to come before them every 2 months, or every month, to go through the same kind of interrogation, so that we could get your help and advice here on the individual cases that brought forth and illustrated policy questions, and I would welcome doing this each month. I think that is quite a strain on your time and ours, but I think every other month; it would be the healthiest thing in the world to get agencies working closely with committees of this kind. . 1 1 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. G A M B L E . I think it helps when we get the bill on the floor to have these problems explained in the hearing. Mr. B O W L E S . That is right. The C H A I R M A N . The people who have complaints are going to be invited to appear and we want you, Mr. Bowles, and members of your staff to hear them. Mr. B U F F E T T . Mr. Chairman, I think one error should be corrected there. Last year we never got down this far on the committee with questions to Mr. Bowles. We finished up in a hurry. The C H A I R M A N . Well, I think members of the committee have always been able to take care of themselves. Miss SUMNER. We very seldom get this far on the committee. The C H A I R M A N . Y O U may proceed. Mr. P O T T E R . I just call attention to this chart, that business failures were, last year, 810, the lowest in the history of the country, whereas in 1939 they were 14,700 and in 1929, 22,000. Mr. B A R R Y . Mr. Chairman. The C H A I R M A N . Mr. Barry. Mr. B A R R Y . What is that top one? Mr. P O T T E R . That is 1932: 31,800. Mr. B A R R Y . 31,800? M r . POTTER. Y e s ; i n 1932. Mr. F O L G E R . May I ask a question in that connection? The C H A I R M A N . Let us have some little order. Miss SUMNER. I thought it was every man for himself. Mr. F O L G E R . Mr. Potter, the 810 figure that you speak of is for 1945? M r . POTTER. Yes. Mr. F O L G E R . D O you have a list of those failures, in order to determine what character of businesses have failed during that time? Mr. P O T T E R . I have a complete break-down, which I will be glad to enter in the record. Mr. F O L G E R . I would like to see'that. Mr. P O T T E R . There were 280 which were engaged in manufacturing and mining. M r . FOLGER. Y e s . M r . POTTER. O u t of t h e 8 1 0 . Mr. F O L G E R . Y O U say you can enter it in the record? Mr. P O T T E R . Yes; we will enter it in the record. These Bradstreet figures. (The document above referred to is as follows:) OFFICE are Dun & OF P R I C E A D M I N I S T R A T I O N , D I V I S I O N OF R E S E A R C H , January Business failures, by industrial groups, 1939 Total . Source: D u n ' s Statistical Review, January 1946. 1946. 1939, 1944, and 1945 Groups Mining and manufacturing.., Wholesale trade . . Retail trade _ _. . . . . . . Construction . _ ._ . . Commercial service . ... 29, 1944 1945 14,768 1, 222 810 2,919 1, 534 9. 050 646 619 352 94 493 164 119 280 61 290 92 87 .113 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Miss SUMNER. Mr. Chairman. The CHAIRMAN. Miss Sumner. Miss SUMNER. I have not noticed the^failures, but I have noticed little businesses, when they hit the ceiling and cannot get any consideration from the Office of Price Administration, and the delay, and low price ceilings, and they wait and wait until they have to sell out to somebody else. And here comes a carpetbagger always ready to take them over, who buys the factory and then gets a high ceiling and then produces the product at a higher price, perhaps a substandard product, but useful for the same purpose. Now, that is the kind of industry that is being taken out. We want to^know how many industries were taken over that were forced to sell out by the Office of Price Administration's lack of consideration in that manner. That is the big complaint. I would like to know how many figures you have on that. (The letter above referred to is as follows:) OFFICE OF P R I C E ADMINISTRATION, Washington, D. C., March 8, 1946; The Honorable B R E N T S P E N C E , Chairman, Banking and Currency Committee, House of Representatives, Washington, D. C. D E A R M R . S P E N C E : We were asked by Congresswoman Jessie Sumner to enter in the record of the Banking and Currency Committee a statement of the number of business failures and firms going out of business annually since 1924. I find on investigation that there is no record of firms going out of business prior to 1940. That record and the record of new firms began in 1940. I am, therefore, sending you herewith the information requested, insofar as it is available. Business failures since 1924 (Source, D u n & Bradstreet) Year Number of failures 192 4 192 5 192 6 192 7 192 8 192 9 193 0 193 1 193 2 193 3 193 4 20,615 21,214 21,773 23, 146 23,842 22, 909 26, 355 28,285 31, 822 20, 307 12,091 Year Number of failures 193 5 193 6 193 7 193 8 193 9 194 0 1941_ 1942_ 1943_ 1944_ 1945_ 12,244 9,607 9, 490 12, 836 14, 768 13,619 11, 848 9, 405 3, 221 1, 222 810 Below is the record of new businesses and business discontinuances from all causes since 1940. Figures are in thousands. Year 194 0 194 1 194 2 194 3 194 4 194 5 First quarter... Second quarter. Third quarter.. Fourth quarter 1 2 Annual estimate based on % figures. Not available. Total firms N e w busioperating nesses at start of period 3,307. 4 3, 304. 4 3, 341.0 3, 071.0 2,849. 3 3, 090. 6 3, 090. G 3, 136. 5 3. 186. 4 3, 236. 3 431. 2 516.9 408.3 163.4 340. 1 421.4 134.2 88.2 93.7 (2) Businesses discontinued 434 2 480.1 678.0 394.8 172.6 i 182. 9 51.0 42.4 43.8 (2) . 1 1 4 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 The significant thing about these figures seems to be a large excess of firms going out of business in 1942 and 1943 over new firms entering business; and a sudden reversal in 1944 and 1945, when new firms entering business considerably exceeded firms going out of business. Taken with the business-failure figures, these data stronglv suggest that there is less business hardship today than there has been since statistics on failures and data on firms entering and going out of business have been kept. No doubt you will wish to enter these facts in the record of the hearings. Sincerely, ZENAS L. POTTER, Special Assistant to the Administrator. Mr. POTTER. I have no figures. If you have figures, I would like to know what they are, but I think that the record of failures also is a pretty good indication or gage of the record of hardship. Miss SUMNER. Well, now, just a minute. Your figures on failures do not include that class of person, do they? Mr. POTTER. N O ; they do not. They only include those who go broke. Mr. BOWLES. Miss Sumner, those figures on failures in 1945 do not include firms that went out of business without bankruptcy. Neither did any of the figures of other years include them. Obviously in 1929 or in any year when you had a great many business failures, you had a secondary group which was in difficulty and sold out. Proportionately they probably run pretty well together each year. Miss SUMNER. Well, obviously, we could not have any figures previous to your figures to include that class of person because this is an Office of Price Administration category. Mr. BOWLES. Well Mr. PATMAN. Mr. Chairman, being chairman of the committee that has just investigated this very question, I would like to make this observation: It is true that a lot of these small businesses are selling out; they are not closing up. They are selling out because these large concerns are buying their sources of supply. There are two brothers, we will say, who built up the business. They have this alternative; they can stay in and, if they make profits, they will have to pay a large percentage of that in taxes. They can sell out and their taxes will not be over 25 percent capital gains, and for that reason there is a great inducement for small businesses to sell out to big businesses now. They are not closing out. They are just selling out. Big concerns are buying the sources of supply. It is a very dangerous situation, and the trend is a very bad one. Mr. KUNKEL. D O you have any figures you could put in the record, Mr. Patman, showing the variation in fluctuation in the number ol firms during the past 5 years? Mr. PATMAN. Dun & Bradstreet furnishes that. Miss SUMNER. YOU mean changing hands? Mr. KUNKEL. NO. I mean whether the number of small businesses in the country has increased or decreased. Mr. PATMAN. Small businesses have not been hurt during the war. One-man grocery stores have been making $10,000 a year net profit in many places. Mr. BOWLES. The number of firms has decreased substantially. Miss SUMNER. The business goes on, in the type of cases I mentioned. The little business goes on. Say he is a packing company, or a little textile man, or a stocking manufacturer. He sells to the .115 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 carpetbagger. The carpetbagger gets a higher ceiling price; he can make money under it, and the business goes on. So you cannot say that the little business is failing. It is just the old established man who built it up who has failed under this form of government. Mr. B O W L E S . N O W , just a minute. Nobody gets a higher price because he has bought out somebody else. There just is no regulation that allows that. The only place where you might get new firms having higher prices than old firms is under what we call in-line pricing. We try to give a new item the same price as a similar item already on the market. Well, that is obviously subject to a lot of rough justice. Mistakes occur and sometimes those prices have been set too high, which has caused justified ill feeling. But the point is this: The number of firms in business went down during the war. A lot of your small businessmen w^ent to war. They were drafted. I do not know how many thousands of gas stations closed up. Others closed because they couldn't get goods to sell. Gas for instance was only 50 percent of what it was prewar in volume. An awful lot of local stores closed up when the men went to war, or closed up because they could not get materials. In my home town there were probably 25 stores, and I would gamble that eight closed during the war. They were small stores. The boys went to war or went into defense plants. A very heavy proportion of small stores, during the war, only had a sales volume of $f5,000 or so in a year. They made a pathetically small amount of money. Their owners could go into a defense plant and make $50 or $60 a week, and a great many of them did. They never heard of that kind of money out of retailing. Now, a lot of people are coming back into these small businesses. You are having a tremendous and rapid increase in new businesses, and people are setting up stores and going back into retailing— veterans, and so on—a reversal of the trend. Now, there is one thing about these figures that does not show a fair picture. I pointed it out yesterday and I think the committee ought to understand it. One reason why there were so very few failures in 1945 is because very few small businesses started in 1945. At least, during the early part of the year, the war period, and what happens is that the casualty list of small business is chiefly among the new small business. A very high percentage of them always go out of business in the first 2 or 3 years. Someone takes a chance and borrows some money from his Uncle Joe. He does not know how to operate or run a business very well, or tries to make or sell something that nobody wants, so he goes out. That happens in peacetime. .One reason why you have this extremely low figure of failures here—and I think we ought always to temper that chart by explaining this—is the fact that during the war you had so very few new businesses starting. Nineteen twenty-nine was obviously a prosperous year, yet you had 22,000 failures. One reason for that is because you had so many new firms beginning. Miss S U M N E R . Well, let us face it. The reason you do not get the failures is because no matter what you have, there are plenty of people around with money in their pockets and you can sell it even though it is a bankrupt business. Mr. B O W L E S . Well, I am only trying to be very fair on that chart and not give a false picture of it. . 1 1 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Miss S U M N E R . I am trying to help you to be fair. Mr. SUNDSTROM. Mr. Bowles, what I am trying to find out is what are you trying to prove by all these charts on business failures, retailing, wholesaling, showing that everybody is successful? We are not trving to blame the American businessman for being successful, are we? Mr. B O W L E S . Of course, we are not. Mr. SUNDSTROM. IS it not a perfently obvious thing that we are going to have less failures and better business when the Government is doing deficit financing? Therefore, if you people in the Government today do that, how are we going to balance the Budget? And if we do not, we are not going to be able to keep those people from failing. They are going to rest on their own competition. Mr. B O W L E S . That is right. I hope that from the production lessons we have learned during the war we can create greater production on the farms and in factories after the war, so we will have greater prosperity than we have ever had before in peacetime. The only point of these charts—and I think it is important—is that many times people are misled from hearing some story over the lunch table about the.troubles of a few firms and get the impression that American business generally is having a pretty hard time. Now, generally, tha£ is certainly not so. Mr. SUNDSTROM. They are going to have a lot tougher time now that the war is over and the Government is not going to go to deficit spending? Mr. B O W L E S . Not necessarily, if we handle this thing right. I think you can go into the greatest period of prosperity this country has ever seen. Mr. SUNDSTROM. I agree with you. Mr. B O W L E S . And I think it can be maintained. There is no reason why the $200,000,000,000 gross national product that we had during the war cannot be maintained in peacetime, which will mean 50 percent higher standard of living than we have ever had in this country before, with plenty of profit for business, high wages in your factories and plants, a minimum of unemployment, and very high farm income. That obviously is what we are all shooting at. Mr. B A R R Y . Mr. Bowles, one of the main criticisms directed at the Office of Price Administration is that it is putting businesses out of existence. It is a common criticism. Mr. B O W L E S . That is one of the reasons for these charts. Mr. B A R R Y . If that chart is correct, that criticism is totally unfounded. • Mr. B O W L E S . All I can say is that the dividends for the last quarter of last year were as high as they have ever been in history. Mr. B A R R Y . That is a Dun & Bradstreet Mr. G A M B L E . Will you The C H A I R M A N . Just a minute. We got along pretty well in this committee when we adopted some rules, and I think we ought to adhere to them. Miss S U M N E R . May I ask a question? I think I had the floor. The C H A I R M A N . We certainly cannot proceed in an orderly fashion with everybody talking at once. Miss S U M N E R . I have a point to cover. I do not see how you can expect an established man to operate under your ceilings in view of .117 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 the way you interpret that provision on accounting, subsection 2 of section 8, or subsection 8 of section 2, I guess it is. You have adopted an interpretation, according to your counsel, that was given by Senator Wagner in a report on the conference bill in 1944, and under that interpretation, your costs, the way you consider them, with business from Illinois, at least, does not include the following items, which were an established part of accounting procedure, an established part of costs, prior to the Office of Price Administration regime, and those costs, I—I would like to hear the committee listen to these because you all know these are established costs of a business—include: increases in administrative and general selling costs; any increases like that, they cannot get consideration for. They include increases in factory overhead; retroactive wage increases; increased costs due to reduced inefficiency of employees—perhaps they do not want to work or they do not want to work so hard—increased pay-roll-tax deductions; increased cost from buying from new sources of supply, where the old source of supply at the old price can no longer sell an adequate amount; increased costs where you have a change in a wage rate, where it goes from 80 to 90 cents, for example, and the Office of Price Administration insists on using the 85-cent rate, in other words, it just takes an average of that instead of using your actual increased wage rate. You do not include the in-grade increases where they move up from one grade to another. If they move from 80 to 90 cents, you take the 80 cents. You do not include items of increased cost, there are paid vacations, or bonuses to workers, or wage-incentive plans. You do not include shift differentials for night work; increases for overtime. A great many workers have come, during the war, to expect time and overtime, and the employer wants to pay them, and he cannot get an allowance for that from the Office of Price Administration. Tou do not include increased cost of employment benefits of miscellaneous kinds. These are notes. I am taking these from notes made from various businesses. Mr. B O W L E S . Miss Sumner, what you refer to is the reconversion formula, which covers a limited part of the economy in its shift from war production to peace production. That is your reconversion formula, so-called. Miss SUMNER. What do you mean "reconversion formula"? Those are costs that are added to a business. There is no reconversion about it. It is just a change Mr. B O W L E S . Well, let me try to explain it. You have a washingmachine manufacturer who, during the war, has been making tanks or machine guns, or something of that kind. He has not made washing machines since back in 1941 or 1942. Or it may be an automobile manufacturer, a vacuum-cleaner man, any item such as that, which has been out of production during the war. You do not know what his actual costs are going to be. It is not like the food industry or the apparel industry or any other industry which has operated continuously and, by going in and taking current accounting studies, you can determine what are his actual costs. In the case of any reconversion industry you are guessing and the owners are guessing and you are doing your best to arrive at a reasonable estimate of what the costs are going to be after the industry shifts from war production to washing-machine production. . 1 1 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 In order to arrive at that, we developed a formula, which had some elements in it that might be called tight, and some elements in it that might be called loose. I think they balanced out pretty well. The price is set by that formula temporarily. When current costs are discovered by renewed operations the formula is then scrapped, and he comes under the regular pricing standards. All elements of cost, once they are shown to be real, lasting, and continuous, are accepted by the Office of Price Administration as part of their pricing. In other words, it is for a temporary period that the reconversion formula applies. For instance, in that formula, we assume 1941 volume. Well, obviously, the washing-machine companies are going way beyond 1941 volume, just as fast as they can get their production built up. So are automobiles, vacuum cleaners, radios, and so on. Miss SUMNER. Well, I do not see that what you are saying has any relation to what I am saying, because I am telling you definite costs that the man has, for which he comes down to the Office of Price Administration today, and you say you do not consider. He knows exactly what he is going to have to pay the new supplier, for a part for his motor, and you refuse it to him. He knows exactly what his increased tax deductions for pay roll are, and you do not take that into consideration. Now, who is doing the reconverting: you or the man? I do not get it. Mr. B O W L E S . There are a great many reconversion costs that are temporary costs. If they turn out to be permanent costs, they are included in fixing prices. But as long as they are of a temporary nature, you are quite right in saying they are not included. That reconversion formula was discussed with you last spring in great detail. We went over it before this committee and showed you exactly how it worked. That is the same formula we discussed last spring with you. Miss SUMNER. Did you ever tell our committee that the provision that was first put into this thing by Dr. Smith, on accounting, which provided that you should not interfere with traditional methods of accounting—you know the words of the statutes that I refer to—did you ever tell him or any of us that there was no limitation in that provision on you which would prevent your using absolute discretion in deciding what the elements of cost were? Mr. B O W L E S . Well Miss SUMNER. N O W , that is your counsel's provision. He takes it from a conference report stated on the floor of the Senate in 1944 by Senator Wagner. Mr. B O W L E S . I do not think there is any question of the legality of it. If there were, it would have been in the courts a long time ago. If it were, you would long since have had a court case on it, which you have not had. At least, I know of none. Now, Mr. Brownlee, last spring, as a part of his presentation gave a careful exposition of that formula, which would be used for a temporary period to provide some kind of rough justice. There would be some elements which I say would be a little tight. You mentioned some. There would be others which would be a little loose. For instance, if there was down-grading of workers Miss S U M N E R . Those are enough to break a man. Mr. B O W L E S . If there is down-grading of workers, which obviously .119 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 there is in many cases, that was not put in as a deduction. What we did was to take legal increase in material costs, the legal increase in basic hourly rates, and add prewar profit on sales. In addition of those elements to 1941 costs put the industry above the 1942 price, it got the new price. If, on the other hand, the 1942 price is higher than that, he kept the higher 1942 price. Miss SUMNER. By the way, how did you happen to pick 1 9 3 6 - 3 9 ? That was the worst depression period since 1932. Mr. B O W L E S . The Internal Revenue picked it. We have discussed it with you for 3 years. Congress has discussed it, debated it at length, and it seems to me that question has been settled in the past. Miss SUMNER. I was just curious. I did not recall the reason for it. Mr. B O W L E S . The Bureau of Internal Revenue uses it. It is considered the latest typical prewar period. Miss SUMNER. 1 9 3 7 , that was the year of the recession that worried the administration to death, I thought. Mr. B O W L E S . Well, it is just a typical prewar period. It would not be right to take all bad years, nor would it be right to take all perfect years. You take a typical average period. Now, when a business lost money in those years, we obviously raise it up to zero. But 1 9 3 6 - 3 9 is accepted not only by us but everybody that I know of who has gone into the question, as the best—not as perfect, however—of the typical prewar periods. Now, if for any industry that is a very untypical period—and obviously unfair—we change and give that industry another base period. We might take 1939 and 1940 or some other. Miss SUMNER. Y O U are not going on the idea that just because a man does not go to court, it proves that he does not think he has any legal rights, do you? Mr. B O W L E S . N O ; but in 4 years of this policy somebody, somewhere in the United States, were it illegal, would have challenged its legality in the court. Miss SUMNER. I would not advise any man to go into court to try to fight the Office of Price Administration. Mr. B O W L E S . Why is that? That seems to me an indictment of your courts. The court record has been pretty good. Miss SUMNER. Whatever it is, I would not advise him, no matter how much legal right he had. Mr. B O W L E S . I have got great respect for the courts. I think they hav e done a pretty good, honest job. Air. SMITH. Mr. Chairman, I ask unanimous consent that Mr. Bowles revise the chart we are looking at so as to include columns beginning with 1932, corresponding columns to the ones that follow those columns, showing the annual increase in the Federal debt. The C H A I R M A N . IS that a request? Mr. B O W L E S . I would be glad to do it, Mr. Smith. What is the point? Mr. SMITH. I would like to have you show the increase in the Federal debt from 1932 in columns corresponding to the columns you have there in red. Mr. B O W L E S . Y O U mean as the debt went up, failures went down? Is that the point?' The C H A I R M A N . I do not know whether that would be a proper request of Mr. Bowles. . 1 2 0 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. P A T M A N . Mr. Eccles will be here. The C H A I R M A N . Yes, Mr. Eccles will be here. Mr. S M I T H . But this only shows one-half of the picture. We want the rest of the picture. Mr. B A R R Y . Well, those are business failures, and I do not see the relationship Between the public debt and failures. Mr. S M I T H . The relationship is that we spent all this money, and we do not expect the failures that took place during the depression. Mr. B A R R Y . Y O U did not spend the money in private enterprises except for war plants. Mr. S M I T H . Pardon me? Mr. . B A R R Y . Y O U did not spend the money in private enterprise except for war plants. Mr. S M I T H . But it went into private enterprise. The C H A I R M A N . What is the necessity of putting it in a chart? Mr. Eccles will be here and will be able to give us the statistics, which is just as good. Mr. B O W L E S . I will be glad to do it. The statement above referred to is as follows: Federal debt and business failures, 191 Gross Federal debt Business failures 1914. 1915. 1916. 191719181919. 19201921. 1922. 1923. 1924 1925. 1926. 1927. 1928. 1929. 1930. 1931. 1932. 1933. 1934. 1935 1936. 1937. 1938. 1939. 1940. 1941. 1942. 19431944. 1945. 18, 280 22,156 16, 993 13,855 9, 982 6, 451 8,881 19, 652 23, 676 18, 718 20.615 21, 214 21, 773 23, 146 23, 842 22, 909 26, 355 28, 285 31, 822 20. 307 12, 091 12, 244 9, 607 9,490 12, 836 14, 768 13, 619 11, 848 9, 405 3, 221 1,222 810 Total $1,188, 000,000 1,191, 000,000 1, 225, 000, 000 2, 976, 000,000 12, 455, 000, 000 25, 484, 000, 000 24, 299, 000,000 23,977, 000,000 22, 963, 000,000 22, 350, 000,000 21, 251, 000,000 20, 516, 000,000 19, 643, 000,000 18, 512, 000,000 17, 604, 000,000 16,931, 000,000 16,185, 000, 000 16,801, 000,000 19, 487, 000, 000 22, 539, 000, 000 27,053, 000, 000 28, 701, 000,000 33, 779, 000,000 36, 425, 000, 000 37,165, 000,000 40,440, 000,000 42, 968, 000, 000 48,961, 000, 000 72,422, 000, 000 136, 696, 000,000 201, 003, 000, 000 258, 682, 000,000 Source: D e b t (direct obligations only), U. #S. Treasury Department. Bradstreet. Office of Price Administration, Division of Research, Mar, 11,1946. Mr. SMITH. M r . BOWLES. Mr. Mr. in YOU PATMAN. BOWLES. 1929? Business failures—Dun & do not see any objection to it, do you, Mr. Bowles? NO, sir. Well, start in 1 9 3 0 . Or 1 9 2 9 . Would you mind, Mr. Smitl}, if we started .121 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. S M I T H . It does not make any difference where you start, just so you include Miss S U M N E R . Start in 1924 and you will see what happens when you do not have a debt. Mr. B U F F E T T . Mr. Bowles, a chart like that, in my judgment, to be worth while, should be a double chart, showing the number of new businesses started and the number of businesses closed. The C H A I R M A N . I recognized Mr. Talle. Mr. Talle. Mr. B U F F E T T . I am sorry. Mr. T A L L E . Mr. Bowles, data concerning business failures have been brought before the committee recurrently every time this matter has come up, and I have always contended that those data arp of no account, they are meaningless, under the present circumstances, for the reasons which I stated the first time they were brought in here, and for the reasons which you repeated today. Mr. B O W L E S . The fact that we have not got so many new firms starting? Mr. T A L L E . That is right. Now, may I ask one thing? You have just repeated that the reason is that new firms do not start, and the high mortality rate is among them? Mr. B O W L E S . Largely. Mr. T A L L E . N O W , is it the purpose of this chart to prove that if business continues to enjoy the help of the Office of Price Administration, there will be no business failures? Mr. B O W L E S . N O ; although I would say, though, that if the benefits of the Office of Price Administration were removed too soon, you might repeat the spectacle that you had following the last war when price control was removed and you had over a hundred thousand business failures in a very short period of time. I think in the meantime you would have probably no business failures for a while. But the collapse that came before, and that I think would inevitably come again, if you let the lid off here, is certainly going to result in more business hardship than this country perhaps has ever seen, and I am including 1929 and 1932. Because if this thing blows up and if we really get the inflation that I think a great many people toy with, the number of business failures and business hardships, and disasters, in my opinion, is going to be one of the most frightful chapters in the history of this country. Mr. T A L L E . Y O U said some time back that if we do this thing right, then, great prosperity lies ahead. What did you have in mind when you said that? Mr. B O W L E S . By doing this thing right, I mean simply this: As long as we do not have a competitive condition, which we do not have yet, we shall need price control but, however, to get rid of controls as rapidly as production builds up and get us on a supplyand-demand basis. When ceilings begin to be meaningless and we do not need them, we will pull off price control. At that time obviously some prices will go up a bit here and there. Slight rises, however, will come no matter if production is at a high level and war accumulated shortages have been met. I definitely feel that you ought to put some end to price controls at a reasonable point, and assume that at that time supply and demand generally are in good balance, production is there, the price controls can be safely removed. If you wait until then, you are not going to get this inflationary . 1 2 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 spiral that feeds back into wages and farm prices and food prices and everything else, leading you to a very high price peak, and then bringing about a collapse that will, caust widespread business failures. You will have to make this line representing business failures far higher, I think, to get in the number of businesses that will fail if we take the controls off too soon. I would like to point out another thing: In the past your inflationary spiral of rising prices has tended to check itself at a certain point, because wages and income generally have not kept pace with the increase in prices. There has been a lag. Prices have gone up and up, but purchasing power has gone up less rapidly. Finally, a gap between the two become so great that at that point people cannot afford to buy. Their savings have been, to a degree, exhausted. The whole market slows down, and you get a collapse. Very strong labor organizations have been built up since the last depression, or since 1919 and 1920. They are determined, and I think quite properly, that if cost of living moves up, to see that wages move up, too. Escalator clauses are being written into numerous contracts. Increased purchasing power will not lag therefore so far behind increases in price as it did in the past. This will tend to force that higher. When the collapse comes, you will, I think find that it would be even more violent. No one knows quite how important that factor is, but it may make whatever happens, if we lose our grip, more severe by far than past situations of this kind. That is something nobody knows. Mr. T A L L E . D O I understand, then, that you are watching the clock for the right hour to discontinue the Office of Price Administration? Mr. B O W L E S . That is correct, of course. Mr. T A L L E . I yield to Mr. Sundstrom. Mr. SUNDSTROM. I was going to follow Mr. B O W L E S . I am watching not the clock but economic conditions. Mr. SUNDSTROM. What is your estimate, under present conditions, when the Office of Price Administration should be removed entirely? Mr. B O W L E S . Well, last fall our estimates were pretty wrong. We assumed, as I pointed out in my testimony yesterday, that a drop in farm prices would be quite substantial by Christmas, and we assumed that that drop would continue on through this period. That was based on an assumption of considerably more unemployment than has developed and also a considerable drop in purchasing power that has not materialized to the extent that we all expected. We assumed that we would be out of 15 or 20 percent of our food price ceiling by Christmas. We thought we would be out of all food price control by May or June. As I remember it, our estimates on apparel made us feel that we could get out of those mostly by summer. Consumer durables, building materials, and so on would hang along. As to rent control, we were looking forward to getting rid of about 150 rental areas, or about 10 percent of the total areas covered, by July. Actually pressures have been so much greater that we have had to go into certain rent areas. We are under great criticism today because we do not get into som.e of these university towns where a lot of married soldiers are coming back to live, where rents are going up, but which we are not able to get into there because of lack of funds. It is nobody's fault save that we underestimated our needs. .123 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Now, I certainly would hesitate to guess on any timetable of dates for decontrol here, but my feeling is that if this bill, is renewed for a year from this June 30, it will see us over the bulk of our difficulty, with probably the exception of perhaps building materials in some areas, and perhaps rent—I am pretty sure about rent control needing to last longer. Mr. SUNDSTROM. What I am trying to get is: Even under the worst conditions, when do you think all controls ought to be removed? Mr. B O W L E S . I think that you can safely get rid of almost all price controls in a year from June 30. I think you can get rid of many of them between now and then. Mr. G A M B L E . Y O U intend to do that, do you not, as production allows you to? Mr. B O W L E S . Oh, yes. We have had a very serious set-back in our decontrol program, but I am looking forward to the fact that as production moves up, this summer and spring, and in the summer months and fall months and winter months of next year, we will have a progressive decontrol. After June 30, of the following year—1947— you will certainly have the rent problem. But I think that you will have mainly odds and ends as far as the rest of control is concerned. I will go further than that and say this: To hold price controls in place to the last technical point would be a mistake. What we are trying to do is avoid inflation. We are trying to avoid a blow-up in our economy. We are not trying to get out on a sliderule basis, so that nothing moves up in prices after the Office of Price Administration moves out. We are trying to get the explosive elements out. Right now they are at their peak. I would say a year from June 30, unless I am very, very surprised, we will be on our way out of controls, save for remnants, plus rent control. Mr. G A M B L E . That does not mean total decontrol during that period. The C H A I R M A N . The committee will now have to go into executive session, and we will adjourn to meet tomorrow at 10:30. Mr. T A L L E . Mr. Chairman, I had the floor and lost it. May I be assured that I will have an opportunity to question Mr. Bowles further? The C H A I R M A N . Yes. We will give you the opportunity. The committee will now adjourn. (Whereupon, at 12:10 p. m., the committee recessed, to reconvene at 10:30 a. m., Wednesday, February 20, 1946.) 83512—46—vol. 1 9 1946 EXTENSION OF THE EMERGENCY PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED WEDNESDAY, FEBRUARY 20, 1946 H O U S E OF R E P R E S E N T A T I V E S , C O M M I T T E E ON B A N K I N G AND C U R R E N C Y , Washington, D. C. The committee reconvened at 10:30 a. m., Brent Spence, chairman, presiding. The C H A I R M A N . The committee will be in order. Mr. Bowles and Mr. Potter may proceed. You may proceed with your presentation of the charts, Mr. Potter. Mr. C R A W F O R D . Mr. Chairman, while we are waiting for Mr. Potter, may I ask the committee a question? Mr. Bowles has these two responsibilities: Moving out of the Office of Price Administration into War Mobilization and Reconversion, and I wonder if it would be satisfactory all the way around for Mr. Bowles to be permitted to appear before the committee at a subsequent date, so that during the next several days he can devote his time and energies to getting the new job started, and let us go ahead with some of his other people? The C H A I R M A N . I think that would be a very sensible solution. Mr. B O W L E S . I appreciate that, Mr. Crawford, very much. I thought if I could appear here today, I would. But I am trying to handle two jobs, and I think I can speed things up a bit if I can get on with them. Mr. C R A W F O R D . I think it would be a great thing for the country as a whole if Mr. Bowles could proceed to get himself established in his new work and thus speed this whole readjustment along. The C H A I R M A N . I am sure the committee wants to cooperate with Mr. Bowles. Mr. B O W L E S . I appreciate that. The wage-price policy has to be defined in many areas, many groups do not know just what it means, and my job is to get that clarified with public statements so that everyone knows where we stand so we can get started to get the production out, so I appreciate that. The C H A I R M A N . Mrs. Woodhouse. Mrs. W O O D H O U S E . Mr. Bowles, the women, of course, are very interested in the clothing and textile program, and I wonder if you would be good enough to tell us briefly just what effect this new policy will have on clothing, and particularly low-priced clothing? STATEMENT OF CHESTER BOWLES, DIRECTOR OF STABILIZATION—Resumed Mr. B O W L E S . I am very glad to answer that. During the war, by directive of the War Production Board, certain of their looms wer& 125 . 1 2 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 frozen to certain kinds of construction. For instance, the work shirts going out to Navy people, uniforms, shirts for men in the Army and Navy, the items of cloth going into that type of production were frozen. After VJ-day, those controls were dropped. At that time we had a system of priorities, and any garment manufacturer could get a priority which would allow him to go back to the mill to get certain kinds of cloth, if he wanted to do so, which could go into low-priced garments. And that was the low-priced garment program we had at that time. However, what has happened is that the mills shifted away from the textiles and cloth that they made for the Navy to a large degree into higher-priced materials which were not helping to get our shirt problem solved, and the other problems that needed solving so badly. So what we are planning to do now is to establish priorities to the garment manufacturer, which he must manufacture, based on a certain percentage of his base period volume. The result will be that he will take them to the mill and the mill must produce certain types of that cloth. It is not just a request or a priority or an opportunity but it will be directed to produce it. The Office of Price Administration, in turn, will make pric,e adjustments to the mills to more or less bring it up for them and to give them more incentive to go into those, low-cost items, including certain price increases going back to their 1941 volume, the same proportion of these various cloths that they made in 1941, and it will affect about 40 percent of all the cotton garments. We hope to see that 40 percent increased to about 50 percent through that program. All these garments will be dollar-and-cent priced, just as they have been before, but we feel the production of them will be stepped up very sharply and very rapidly as that program gets under way. In other words, the old priority was more or less of a hunting license to go and try to find the cloth if you could. We are now assuring all levels that the garments will be produced and putting enough profit incentive in there so that they will be. The prices will be reasonable and the quality will be better and we expect to get at least a 50 percent increase in volume. Mrs. WOODHOUSE. That is very encouraging. Mr. BOWLES. That is baing discussed today and will go into effect very soon. The CHAIRMAN. Mr. Bowles, we have invited Mr. Ford to appear before the committee to testify if he desires to do so. He sent me a Ions: telegram, which I will ask the clerk to read. The C L E R K (reading): Hon. BRENT SPENCE, Chairman of the House Banking and Currency Committee: I have been informed that your committee is prepared to invite me to appear before von to comment on price controls as they affect the Ford Motor Co. I shall, of course, be happy to appear before the committee, if there is really any public interest to be served. However, my opinions on this subject have already been expressed publicly in a telegram to the Director of War Mobilization and Reconversion on Januarv 29 and ap-ain in an address in San Francisco on February 8. Copies of both of these are beinp- mailed you. I am sure that everyone who has the best interests of this Nation at heart is doing what we are doing—everything we can to stop the present trend toward inflation. .127 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 There are differences of opinion on how this can best be done. Our part, as we see it, is to produce motorcars and trucks—as many as we can and as fast as we can. That has been our purpose since VJ-day. Our employees have cooperated. There have been no strikes at the Ford Motor Co. We have been forced to curtail production time and again because of strikes and shut-downs in the plants of our suppliers. Shortages of steel, caused by a dispute over both wages and prices, finally forced us to stop assembly lines completely. Of course, we know that price ceilings on most finished parts for new automobiles were removed last fall. But the statement of Mr. Bowles in this respect does not reflect all the facts. He does not make it clear that the manufacturers who supply our suppliers with parts do have price ceilings. He also ignores the fact that parts for trucks and all automotive replacement parts are still subject to ceiling prices. The Office of Price Administration supplementary order of August 29, 1945, to which Mr. Bowles referred, exempts passenger-car original equipment from price ceilings, but specifically excepts tires, batteries, radios, ferrous and nonferrous castings. The regulation also states examples under which such items as glass, electrical wiring, forgings, upholstery, and similar items are not classified as parts unless they are at least partially fabricated. As I said in San Francisco, a foundry which has supplied us for many years with gray iron castings told us they lost $330,000 during 1945 because the cost to them of producing the castings we needed was above the price at which they were allowed to sell to us. They stopped supplying. i Another supplier had been making thousands of small but vital truck parts for us for 50 cents each. His material prices had gone up so much after VJ-day that he asked the Office of Price Administration for permission to charge us 61 cents. The Office of Price Administration said " N o . " They were willing to go as high as 54 cents; the supplier could not produce parts at that figure, and so he stopped manufacturing. | We finally got two new suppliers. One is now furnishing us with the necessary parts at 82 cents, and one at 84 cents each, both with Office of Price Administration approval. In making public our estimate of last summer, that motorcars would cost 55 percent more to make during the first postwar year than they cost in 1941, Mr. Bowles failed to make it clear that these estimates were submitted to the Office of Price Administration before the Office of Price Administration had announced any price regulations on new cars. More than a month before the Office of Price Administration had given us even the basis on which price ceilings were to be calculated. What Mr. Bowles had to say on this point, and the manner in which he chose to say it, left the impression that we had secretly applied for a 55-percent increase in existing price ceilings. Actually, we have applied for no price relief on any of our cars since the Office of Price Administration ceilings were established. Incidentally, those estimates of last July turned out to be pretty accurate. We estimated, for example, that our most popular model, which cost $512 to make in 1941, would cost us, under postwar conditions, about $935. These figures do not include the cost of advertising and selling or any profit. We found in November, before we reached scheduled production, that it was costing us $963 to make this model. Since then we have cut that cost somewhat by increased production efficiency, but in the meantime, we have added about $41,000,000 to our annual bill for wages, and have still to absorb increased cost to us and our suppliers, due to the new price of steel. Our Office of Price Administration price to dealers on this model is $728. We do not want to get into public arguments with the Office of Price Administration or any other Government agency at this time, especially since the President late last week announced a new wage-price policy. However, I have stated publicly my opinion that inflation is based on scarcity, and that the way to prevent inflationary prices of manufactured products is to produce goods for people to buy with the^ money they have to spend. We at the Ford Motor Co. are going to continue to act in that belief. Our job at Ford Motor Co. has always been to make more and more products at lower and lower prices, so that more and more people can afford them. We look forward to the time when American industry can get back to this job under the constant stimulus of free competition. (Signed) H E N R Y F O R D I I . . 1 2 8 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 The CHAIRMAN. I thought you might want to comment on that, Mr. Bowles. Mr. BOWLES. Well, it appears that on many areas Mr. Ford and I would be in full agreement and in some others we would not. 1 As far as the parts are concerned, I stated the other day that there were certain parts that were under price control. I think the figure would be roughly 80 to 85 percent of the number of material value going into a car, which is not under price control. He is quite right that some is. I pointed that out in my testimony, but I do not think it was fully reported that way. So Mr. Ford was probably quite right as he read it in the paper, in missing that statement that I added to it. I naturally would like to know who the gray-iron-castings manufacturer was; I would like to know who all those parts people are, and, with your approval, I would like to write Mr. Ford, as to who they are, look into it, and see if we can learn anything from it, and see if there is any correction we should make, and find out just who they are and what their problem is. It may be that there is a problem there and I would like to know about it if there really is. I agree. I do not see any sense of carrying on an argument of that kind. I will be glad to put a statement in the record, with all the dates attached, as to exactly what happened to the pricing of Ford cars, if anyone wants to see it. The CHAIRMAN. Well, you can ask him for that information. Mr. BOWLES. I will be glad to do it. Mr. SMITH. May I ask a question, Mr. Chairman. The CHAIRMAN. Mr. Smith. Mr. SMITH. You made the statement yesterday, Mr. Bowles, that the Ford Motor Co. requested the Office of Price Administration to increase their price 55 percent last summer. Now, Mr. Ford says in his statement that he did not make any application to the Office of Price Administration for a price increase. Mr. BOWLES. Well, no; he said that he did not apply for a price increase after the ceiling was set, Mr. Smith, if I heard that right. The ceiling was not set until November. Mr. SMITH. Did he ask for a price increase before that? Mr. BOWLES. He asked for a price increase in July. Mr. SMITH. Can you furnish a copy of that request to the committee? Mr. BOWLES. Yes, we can. We will be glad to do that. Mr. SMITH. He flatly asked that he be granted such a price increase? Mr. BOWLES. Last July. We will be glad to furnish you with the document. Mr. SMITH. 55 percent? Mr. BOWLES. That is correct. We will put it in the record. Mr. SMITH. I would like to have that put in the record. The CHAIRMAN. It will be inserted. (The document above referred to is as follows:) OFFICE OF E C O N O M I C STABILIZATION 12, 1946. The Honorable B R E N T S P E N C E , Chairman, Banking and Currency Committee, House of Representatives, Washington, D. C. D E A R M R . S P E N C E : At the hearing of your committee on February 2 0 on the extension of the Stabilization Act, it was suggested that a statement be placed in the record dealing with some of the topics discussed at the committee hear- Washington, D. CMarch .129 E X T E N D PRICE C O N T R O L A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 ing relating to the contentions of Mr. Henry Ford II, in his telegram addressed to your committee on February 20. I am glad to do this, since I feel that your committee should have in its possession a more nearly complete statement of the facts than has heretofore been presented. My views on the vital necessity of continuing price controls during the present emergency have already been fully presented to your committee. As you know, I cannot subscribe to the basic philosophy expressed by Mr. Ford of removing price controls in the hope that it would stimulate industrial output. It is my firm conviction that the adoption of such a course could lead only to unbridled inflation resulting eventually in an abrupt industrial collapse similar to that which we expeiienced following the last wTar. In this letter I should like to record with your committee my comments on some of the detailed points in Mr. Ford's telegram particularly those concerning OPA's position on automobile parts and the adequacy of present ceilings on Mrf Ford's products. But first, in order that the committee may have the background of this controversy, I should like to relate the steps which were taken by OPA in the pricing of passenger cars, with special reference to OPA's experience with the Ford Motor Co. 1. OPA's ACTION IN PRICING PASSENGER CARS In the late fall of 1944, OPA called a meeting in "Washington of all automobile producers in the interests of developing a sound approach to the price problems which would arise when production of new cars was again resumed. The military reverses which came in December of that year made it apparent that our efforts were somewhat premature, although further discussions were subsequently held with representatives of individual companies. On May 11, 1945, our basic plans for review of the old ceilings on reconversion products were publicly announced in a statement which received widespread attention. It related to automobiles as well as to other consumer durables, referring specifically to them at one point. After quotas for automobiles had been worked out by the War Production Board, a second series of meetings was held by OPA with individual automobile companies in Detroit in July 1945 at which automobile pricing was the subject of discussion. In August, OPA representatives went again to Detroit and presented a proposed program of automobile pricing to the automobile companies individually in some considerable detail. At the end of the month, after some modifi ations to reflect industry views on particular points, the necessary regulations, including the order suspending the ceilings on original equipment automotive parts, were issued. I might say that throughout this 9 months' period, the initiative in automobile pricing was consistently taken by OPA rather than by the automobile industry. In the course of his visit to Detroit in July, Mr. John S. Clement, Director of the Industrial Materials and Manufacturing Price Divisions of OPA, learned that the Ford Motor Co. had prepared for submission to OPA a formal application under the general maximum price regulation for price increases on automobiles averaging 55 percent over March 1942 ceilings. This was duly filed with the Office of Price Administration with an accompanying letter dated July 20, 1945. This formal application for higher ceilings, signed by Mr. H. L. Moekle, secretary of the Ford Motor Co., was referred to by Mr. Ford in his telegram to the committee, as "an estimate of last summer that cars would cost more to make during the first postwar year than they cost in 1941." A copy of the Ford application, with certain confidential cost data deleted, is submitted herewith. In a telegram which I received on February 22, Mr. Ford first explicitly acknowledged the fact that his company had applied for a 55 percent price increase over March 1942 levels. A copy of this wire is attached. In it Mr. Ford complained that I either did not know or refused to reveal to the committee the fact that his application was made in wartime and covered the limited number of cars which the Ford Co. was then permitted to produce. This charge w^as reported in a number of radio broadcasts. Little as I wish to continue a controversy with Mr. Ford, I think you will agree that it is essential for the record to be straight on this point. In my testimony before your committee, I made it clear that the Ford Co.'s application was made before the end of the Japanese War. I stated accurately that it was made "last July." I think it a matter of common knowledge that the war with Japan was still continuing in July arid that the wartime controls on the production of automobiles were also continuing. Since the only new automobiles . 1 3 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 to which the Ford application could apply were the autr mobiles which it was then allowed to produce, I see no special significance in the fact that the application was directed to the pricing of those cars. Apparently the Ford Co. also did not readily detect any special significance in this fact for Mr. Ford's telegram to the committee of February 19 failed to make the point. Furthermore, I do no see why the fact that the Ford Co.'s desire to increase its 1942 ceilings by 55 percent was expressed in wartime invalidates either my characterization of the proposal as "outrageous" or my inference as to what would happen to Ford prices if price controls were removed from new cars. The idea underlying the Ford Co.'s application and Mr. Ford's subsequent telegrams seems to be that the Ford Co. should be able to impose on the purchasers of new automobiles the full burden of the extra costs of producing cars before volume production is attained, plus a percentage of profit on those inflated costs. If anything, this view seems to me to be less excusable in wartime than in peacetime. Moreover, the Ford Co.'s application was made with full knowledge that the reconversion pricing standards of this Office were designed to protect the American consumer from just that kind of pricing. As I had said in my May 1945 statement, "Of course we all know that there will be a temporary bulge in production costs at the beginning of the reconversion period as a result of low volume and change-over problems. Most business leaders have advised us not to base prices on these early, artificial costs. They realize that from every point of view business and the country would be hurt if we allowed such a temporary bulge in costs to be reflected in high prices." Subsequent meetings with the automobile manufacturers both here and in Detroit had made it clear that no special exception from this rule could be accorded the automobile industry. After the issuance at the end of August of the new regulation for pricing new cars, which carried out the policy previously stated in some detail, this Office authorized a substantial increase factor to be applied to the prices of 1941 model Ford cars, plus additional allowances a veraging about 3.5 percent for specification changes between the 1941 and the 1946 models. The use of this factor has resulted in new Ford ceilings averaging about 4 percent above the 1942 ceilings, disregarding the specification changes. We experienced some delay in issuing these prices because the Ford Co. had submitted inadequate information on our pricing forms. (Other companies gave us exact and carefully worked out data.) However, to speed action, OPA sent several of the principal officials of its Automotive Branch to Detroit to iron out the difficulties with the company. A final delay in price action occurred when OPA was requested by the House Small Business Committee to defer action on retail prices in order to permit further consideration of objections which had been raised by the National Automobile Dealers Association. Subsequently, Mr. Ford made several public statements attacking OPA's automobile pricing. In those statements, he failed, in my judgment, to disclose the efforts which OPA had made to facilitate automobile pricing by suspending price control with respect to most automobile parts. This matter, which I touched on in my testimony, is discussed at greater length below. Very recently, the Ford Motor Co. has filed another application for increased ceilings. Under the new wage-price policy, OPA is now in a position to take approved wage increases into account in adjusting ceiling prices. On Thursday, March 8, OPA was notified that the Wage Stabilization Board had approved the new Ford schedule of wage rates, and on Monday, March 12, OPA authorized the company and its dealers to sell on an adjustable pricing basis pending a reexamination of the Ford ceilings. 2. THE SUSPENSION OF A U T O M O B I L E PARTS FROM PRICE CONTROL As I stated above, in late August of last year OPA suspended the price ceilings on most original equipment automotive parts. This action was taken on the recommendation of the parts industry and most of the automobile manufacturers. The suspension order, a copy of which is attached, applies generally to parts, subassemblies and accessories originally designed for use in passenger automobiles, and includes sales of such parts to manufacturers of related products, such as trucks, tractors, stationary and marine engines. It also applies to sales made to parts and subassembly manufacturers. It is clear, therefore, that the suspension order does cover a great many parts and subassemblies going into the manufacture of finished parts and completed .131 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 parts assemblies. Indeed, we estimate that, depending on the degree of integration of the producing company, from 75 to 90 percent of the material value of passenger automobiles is as a result free of price ceilings. Moreover, there are no price ceilings on those identical parts when sold for assembly on other types of vehicles. To be sure, we did not then feel it desirable, nor do we now consider it practicable, to suspend price ceilings on basic materials such as steel, forgings, stampings, glass, and upholstery fabrics unless specifically designed, cut to size, or otherwise fabricated as to be clearly identifiable as automotive parts, whether sold directly to an automobile company or to a parts fabricator. In suspending ceilings on automotive parts, we were frankly counting on the purchasing power of the automobile companies to help keep parts prices from reaching exorbitant levels. In the case of the basic materials, which have many possible end uses and in the sale of which there is often unequal bargaining power between the buyer and the seller, we felt that the same considerations were not present and that the possibility of unwarranted price increases and diversion of output was quite serious. As to those materials which both automobile manufacturers and other manufacturers use, a suspension of ceilings on sales to the former alone would have been grossly unfair to the latter since it would have enabled the automobile manufacturers to bid the materials away from the other industrial users. If, to avoid this, we had suspended these ceilings on sales to all manufacturers, the result would have been highly inflationary since the other manufacturers lack the bargaining power which, in the case of the automobile manufacturer, can keep prices in line. It is true that the general stringency of supply of basic materials is a limiting factor on the production of many end products. We have had no reason to feel, however, that the production of automobiles in particular has been hampered by the continuance of price ceilings on basic materials. Indeed, you may be interested to know that one of the reasons that price ceilings were retained on ferrous castings for automotive use was the specific suggestion to that effect made by Mr. Charles Carroll, director of purchasing of the Ford Motor Co., who kindly made available to us late last summer the results of a survey which his company had completed on the supply outlook for these castings. For some time OPA has had under consideration the amendment of its suspension order to include truck parts, feeling that the same reasons which led us to suspend price ceilings on oiiginal equipment automotive parts were in general present in the case of truck parts. Action has been delayed for three principal reasons. In the first place, while OPA's experience in the suspension of automotive parts has generally been quite satisfactory, a number of cases have come to its attention in which parts suppliers were seeking price increases of such size as to require further investigation. Secondly, while the production of passenger automobiles is concentrated in less than a dozen companies, there are 50 or 60 small truck companies whose position in the market might possibly be imperiled were price ceilings lifted on the parts they buy. Finally, it has been necessary for OPA to examine the suspension of truck parts ceilings in the light of the new wage-price policy recently announced by the President. I might add that OPA expects to announce its decision on the matter within the next few days. In his telegram to the committee, Mr. Ford mentions two instances in which parts suppliers claim losses under present ceilings. One of these concerns a supplier of grey-iron castings. The other instance concerns a similarly unidentified manufacturer of certain truck parts. The price regulations on both grey-iron castings and truck parts make provision for individual company adjustments in cases of hardship, and I am somewhat at a loss to comment on these two instances without further information. As your committee suggested, we have telegraphed Mr. Ford, asking for full details on these cases so that OPA might make an immediate investigation. Copies of that telegram and Mr. Ford's cooperative reply are submitted herewith. Although presumably not in connection with the production of new cars, Mr. Ford also mentions the fact that price ceilings continue in effect on automotive replacement parts. Since these parts are usually sold directly to consumers, either alone or in conjunction with repair services, we felt it unwise to lift the price ceilings in view of the direct impact of anticipated price increases on consumer expenditures. The question of price adjustments in this field has been thoroughly canvassed with OPA's industry advisory committee, however, and certain changes in the present individual company adjustment provisions are being made. . 1 3 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 This letter has told the story of our problems and our progress in pricing automobiles and of our incidental disagreements with the Ford Motor Co. I have expressed my views plainly and so has Mr. Ford. The record has been spread before the committee and I hope there need be no occasion for further controversy. Instead, may I reiterate our desire to work with the company tbward the solution of the problems which still confront it. I know that this has been a trying time for Mr. Ford, marked by a succession of perplexing difficulties. He has my cordial good wishes for success in his efforts to get his production lines rolling despite the manpower, and the resulting materials, shortages. But I think that if he had gone through the aftermath to the First World War, he would realize that there are difficulties and dangers far more serious than those ne has lately been experiencing. I think, too, that he would be far less willing now to listen to those advisers who seem to have been counseling him to take his chances with inflation. If, by the exercise of patience and restraint for a time longer, the Nation can escape the calamitous experience of an inflationary spiial followed by a protracted slump, I foresee a period of a high prosperity for the Ford Motor Co. Under Mr. Ford's leadership I hope it will continue to symbolize for the entire world the American way to prosperity through high wages, low prices, and high production. Sincerely, C H E S T E R B O W L E S , Director. Enclosures: (1) Copy of letter from G. J. Crimmins, Government contract department, Ford Motor Co., dated July 20, 1945, submitting 5 copies of application for adjustment. (2) Copy of application for adjustment to the general maximum price regulation. (3) Copy of telegram from Henry Ford II to Chester Bowles as Price Administrator, dated February 22 (sent from Hollywood, Calif.). (4) Copy of telegram from Chester Bowles, Price Administrator, to Henrv Ford II, dated February 21, 1946. (5) Copy of telegram from Henry Ford II to Chester Bowles, Director, Office of Economic Stabilization, dated February 25, 1946. (6) Amendment 1, supplement order 129 (suspension from price control of automotive parts). ENCLOSURE 1 Copy FORD MOTOR Co., Dearborn, Mich., July 20, 1945. O F F I C E OF P R I C E ADMINISTRATION, Federal Office Building, Washington, D. C. (Attention: Mr. Fred Holder.) G E N T L E M E N : Submitted herewith are five copies of an application for adjustment in maximum prices on Ford passenger automobiles. In accordance with the suggestions of Messrs. Clement and Kelly at the time of their recent visit to this office, these are being submitted to your attention. Since a number of the body types covered by this application are already in production, it is requested that the enclosed application receive your prompt attention. Yours very truly, FORD MOTOR CO. G . J. CRIMMINS, Government Contract Department. ENCLOSURE 2 A P P L I C A T I O N FOR A D J U S T M E N T TO GENERAL MAXIMUM PRICE REGULATION BY FORD MOTOR CO., DEARBORN, MICH., APPLICANT Ford Motor Co. herewith makes application pursuant to provisions of revised procedural regulation No. 1 for an adjustment to the general maximum price regulation, and as a basis therefor alleges as follows: .133 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 1. Applicant, the Ford Motor Co., is a corporation organized under the laws of the State of Delaware, with principal offices at 3000 Schaefer Road, Dearborn, Mich. Applicant is subject to the provisions of the general maximum price regulation, which determines its maximum prices for the sale of passenger automobiles, produced in 1945, as the highest prices charged for such items by the applicant during the month of March 1942. 2. This application is filed pursuant to section 18 (c) of the general maximum price regulation. The information required by the terms of section 18 (c) of the general maximum price regulation is as follows: (a) An adequate supply of passenger automobiles for essential transportation in the Detroit area, and other areas in the United States is considered necessary to the war program and essential to a standard of living consistent with the prosecution of the war. The War Production Board has authorized production by applicant of approximately 39,910 passenger automobiles by December 31, 1945, production to commence at any time after July 1, 1945, which total will include approximately 32,750 Ford units. The production of less than the number authorized by the War Production Board would undoubtedly result in a shortage in the Detroit area, as well as other localities where they may be required, as no passenger automobiles have been produced for civilian use since February 1942. The maximum prices for the sale of Ford automobiles produced by the Ford Motor Co., F. O. B., Rouge Plant, Dearborn, Mich., are as follows: Suggested retail price Ford: Super de luxe Tudor Super de luxe Fordor Super de luxe sedan coupe Super de luxe convertible club coupe_ Super de luxe station wagon De luxe Tudor De luxe Fordor._. De luxe coupe __ - „ - $895 930 920 1, 090 1,125 850 885 815 Net wholesale price $671. 25 697. 50 690.00 817. 50 843. 75 637. 50 663. 75 611. 25 These are the highest prices at which such units were sold in March 1942. Estimated cost for the purchase of necessary materials at present market prices and production of other necessary materials in the Ford plants, and for the production of such automobiles, including commercial expense, are shown on the attached sheet labeled "Exhibit A." The adjustment of prices herein requested is to cover cost increases on the models as last manufactured during 1942, together with refinements and changes made in engine, chassis, and body since 1942. (b) Adjustments of the maximum prices for the sales of the passenger units referred to by applicant will enable applicant to purchase materials and promptly produce the units in question, and will substantially reduce the possibility of a shortage of passenger automobile units in the Detroit area, and also in other localities where they may be required. (c) Such a price adjustment will not create or tend to create a shortage, or a need for increase in prices in another locality, as it has been indicated that automobiles authorized by the War Production Board at this time will be rationed only to qualified purchasers and therefore, regardless of locality, the ability of the purchaser to qualify under the rationing program will determine his eligibility as a purchaser. 3. Section 18(c) of the general maximum price regulation is the only provision in the price regulation at the present time which is applicable to the circumstances of applicant in attempting to secure ceiling prices on these new passenger automobiles. Inasmuch as the Administrator has not seen fit, up to the present time, to provide other means of seeking relief for such passenger automobiles, applicant is now proceeding under this section 18(c) as the time to produce these units, and make them available to the public is very limited. Such adjustment will effectuate the purpose of the Emergency Price Control Act of 1942 in that it will relieve the present shortage of transportation essential to the prosecution of the war and the maintenance of a satisfactory civilian economy. 4. Applicant requests prompt action on this petition as it expects to produce and sell passenger unit& during July of 1945, and it requires an adjustment in its maximum prices in order to accomplish that end. Therefore, applicant requests the adjustment of its ceiling prices on the said new passenger automobilies manufactured in 1945 in the amounts shown on exhibit A under "Total wholesale price/' and that adjustment also be made in . 1 3 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 the retail ceiling prices of such automobiles in the amount shown in exhibit A under "Total retail price, f. o. b., Rouge," and that— (a) Applicant be allowed to add items of special equipment to the units mentioned in its selling prices in effect in March 1942. (b) Applicant be permitted to use its March 1942 distribution and handling charges in connection with the sale of the units in question. FORD By H. L. EXHIBIT MOTOR CO., M O E K L E , Secretary. A Material 1 Labor 1 Burden 1 Total 8-cylinder 114-inch wheel base Ford super de luxe Tudor: Estimated manufacturing costCommercial expense 1 Total estimated costProfit i Total wholesale p r i c e Dealer's discount Total retail f. o. b. R o u g e . $1,041.15 347.05 1, 388. 20 8-cylinder 114-inch wheel base Ford super de luxe Ford or: Estimated manufacturing cost Commercial expense 1 Total estimated cost_ Profit i Total wholesale p r i c e Dealer's discount Total retail f. o. b. R o u g e . 1,071.97 357. 32 1,429. 29 Ford super de luxe sedan 8-cylinder 114-inch wheel coupe: Estimated manufacturing cost Commercial expense 1 Total estimated costProfit K Total wholesale price.. Dealer's discount Total retail f. o. b. R o u g e . 1,047. 68 349.23 1,396. 91 8-cylinder 114-inch wheel base Ford super de luxe convertible club coupe: Estimated manufacturing cost Commercial expense 1 Total estimated costProfit.. Total wholesale priceDealer's discount Total retail f. o. b. R o u g e . 1, 285.48 428.49 1, 713.97 8-cylinder 114-inch wheel base Ford super de luxe station wagon: Estimated manufacturing cost Commercial expense 1 Total estimated cost. Profit i Total wholesale price.. Dealer's discount Total retail f. o. b. R o u g e . i Omitted confidential information. 1, 308. 37 436.12 .135 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 EXHIBIT A—Continued Material 1 Labor1 Burden * Total 8-cylinder 114-inch wheel base Ford de luxe Tudor: Profit 1 - - Dealer's discount $1,004. 50 334.83 - 1,339. 83 Total retail f. o. b. Rouge 8-cylinder 114-inch wheel base Ford de luxe Fordor: Estimated manufacturing cost Commercial expense 1 -- -- Total estimated cost profit1 _ 1,033. 58 344. 53 Total wholesale price Dealer's discount 1,378.11 Total retail f. o. b. Rouge 8-cylinder 114-inch wheel base Ford de luxe coupe: Estimated manufacturing cost Commercial expense 1 Total estimated cost Profit 1 Total wholesale price Dealer's discount -- - - 958.17 319. 39 - 1,277.56 Total retail f. o. b. Rouge i Omitted confidential information. ENCLOSURE 3 HOLLYWOOD, CALIF., CHESTER BOWLES, February 22, 1946. OPA, Washington, D. C.; Your public statement of today leaves me no other course but to make public certain facts which you either do not know or refuse to reveal. Our application to OPA on last July 20 was made while we were still at war with Japan. Since fighting had stopped in Europe, the War Production Board decided that limited production of automobiles was in the public interest. A total of 39,910 was fixed by WPB as the maximum number of passenger cars the Ford Motor Co. could produce during the last 6 months of 1945. Obviously, you cannot make 39,910 cars in 6 months in a plant designed to produce more than 100,000 every month without greatly increasing production costs per unit. Low costs depend on volume production, as everyone knows, so when the United States Government, not the Ford Motor Co., fixed production volume, it thus determined cost and selling price. Let me give a specific example. We decided that 32,750 of the 39,910 automobiles should be Fords. The rest were to be Mercuries and Lincolns. The limitation on quantity fixed our estimated cost on the most popular Ford model at $991.57. The f. o. b. sales price, which included the 5 percent profit and the usual dealer's commission, thus became $1,388.20. This turned out to be 55 percent more than our last peacetime selling price of $895. We immediately filed application on prices for these low-volume, high-cost wartime cars under OPA's wartime general maximum price regulation. This action had nothing whatever to do with peacetime price ceilings. It was not until early in September, after the end of the Japanese war, that OPA first issued any regulations having to do with peacetime price ceilings on automobiles. These facts illustrate the point I have been trying to make in my public statements that high costs and high prices of automobiles are caused by low-volume production. . 1 3 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Our one aim since VJ-day has been to get into maximum production as quickly as possible. We have spared no cost. We have paid higher prices for materials. We have used propane gas when we could not get coal, and we have agreed to add $41,000,000 to our annual bill for labor. But our assembly lines have run by fits and starts, because we could not get parts and materials. Actually, we were able during 1945 to produce only 34,439 Ford cars. Our cost per unit on this production has been almost exactly what we estimated for that small volume. Have.no fear that the Ford Motor Co. will charge the American people one penny more than it has to for cars. If we did, competition would take care of such a situation very quickly. For your information, Mr. Bowles, to meet competition we are now selling one of our truck models at $100 below OPA ceilings. We would like to sell all Ford cars below OPA ceiling prices, not above, but low cost and low prices depend on large-scale production. That, in turn, depends upon an uninterrupted flow of parts and materials to our assembly lines. Wrhen you say that only some 10 to 25 percent of our parts are under OPA price control, you miss the point. Shortage of only a few parts can stop the whole assembly line. That, in fact, is what has happened time and again since VJ-day. May I add that I question the propriety of Government officials calling " o u t rageous" actions taken in strict accordance with wartime Government regulations. HENRY ENCLOSURE FORD 4 FEBRUARY 21, Mr. H E N R Y FORD 2. 1946. II, Ford Motor Co., Dearborn, Mich. I have read with considerable interest your telegram of February 20 to the Honorable Brent Spence, chairman of the House Banking and Currency Committee, particularly your mention of a supplier of gray-iron castings who lost $330,000 on sales to you during 1945, and a supplier of truck parts who is unwilling to produce at present ceilings. Our regulations on both gray-iron castings and truck parts permit price adjustments in the case of individual companies suffering hardship. In order to investigate these two cases further, therefore, as well as any other similar specific instances, I should appreciate the names of these suppliers and any further details which you can give which would aid us in making such an investigation. C H E S T E R B O W L E S , Administrator. ENCLOSURE 5 DEARBORN, MICH., CHESTER February 25, 1946. BOWLES, Director, Office of Economic Stabilization, Federal Reserve Building, Washington, D. C.: I returned from a west coast business trip this morning to find your wire of February 21 on my desk. I welcome the opportunity to describe the situations which ha ve time and again impeded production in our plants. To that end I have asked that a full accounting- be prepared of our difficulties in obtaining necessary supplies. This statement will be as complete and specific as possible, and will be sent to you as soon as possible. Meanwhile, I am sending a copy of your wire to those suppliers whom I h° ve already cited as typical examples, and also to other suppliers and vendors who have reported having difficulties because of Government regulations, so that they may tP.ke their problems up directly with you. Now that we have settled our immediate postwar problems with our employees, our big objective is maximum production. An uninterrupted flow of material and supply to our assembly line is absolutely necessary if we are to achieve that objective. V e are hopeful that with the help you offer and with proper application of the new wage-price policy that maximum production will be possible in the very near future. Sincerely yours, HENRY FORD II. .137 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 ENCLOSURE 6 SO 129 AMDT. 1 AUG. 29, 1945 (Document No. 49140) OFFICE OF PRICE ADMINISTRATION PART 1305—ADMINISTRATION [Supp. Order 129, Amdt. 1] SUSPENSION FROM PRICE CONTROL OF CERTAIN COMMODITIES A statement to accompany this amendment to Supplementary Order 129 has been issued simultaneously herewith and filed with the Division of the Federal Register. Supplementary Order 129 is amended in the following respects: 1. Section 14 is added to Article II, to read as follows: SEC. 14. Motor vehicles and equipment.—(a) Passenger automobile parts, certain sales. (1) Passenger automobile parts are suspended from price control. (1) When sold to passenger automobile manufacturers for use as passenger automobile original equipment; (ii) When sold to parts or subassembly manufacturers for use in the production of parts or subassemblies to be sold to manufacturers of passenger automobiles or other complete assemblies for use as original equipment; (iii) When sold to manufacturers of complete assemblies other than passenger automobiles for use as onginal equipment in such assemblies, except that pri es for sales undei this subdivision (iii) shall not be higher dollarwise in relation to the seilei's geneial level of prices for sales under subdivision (i) than was the case in March, 1942. For example, a parts manufacturer sold a certain part to automobile manufacturers in March, 1942, for $5.00, and he sold the same part to a farm machinery manufacturer for $6.00, or $1.00 more. If he now raises his price to the automobile manufacturers to $5.10, he may not charge more than $6.10 to the farm machinery manufacturer, that figure being $1.00 greater than the price to the automobile manufacturer. If the seller wab not in •business of selling automotive parts in March, 1942, he shall be guided by the March 1942 price differential of his most closely competitive seller of the same class. (2) Notification from purchasers of original equipment requirements. Before delivery, a purchaser of automotive parts to be used as described in subdivisions (i), (ii) or (iii) shall notify the seller in writing of the quantity of the part required for use as original equipment in passenger automobiles or other complete assemblies or for use in the production of parts or subassemblies to be used as original equipment in passenger automobiles or other complete assemblies. The seller may rely upon the buyer's notification and treat as suspended from price control the sale and delivery of the number of parts stated by the purchaser. (3) Definitions. As used in this supplementary order (i) "Complete assembly" means an assembly in its final form and which will not be later incorporated in another product. Examples are commercial vehicles and farm tractors. (ii) "Passenger automobile part" means any specific part, subassembly or accessory, except as excluded below, originally designed for use in a passenger automobile and fabricated to such an extent that it may be identified as to its ultimate use in a passenger automobile. # "Passenger automobile parts" do not include tires; batteries; radios; or ferrous and nonferrous castings covered by regulations 41, 125, 214, 235, 241 and 244. Examples: Glass is not a passenger automobile part unless cut to size to be incorporated m an automobile. Electrical wire is not a "part" within the meaning of the definition unless sufficiently fabricated so that it may be identified with its ultimate use in automobiles, as in the form of wire harness assemblies. Forgings are not "parts" unless they can be identified as to their ultimate use in a passenger automobile. Among such identifiable forgings are spindle bolts, axle shafts, and crankshafts. Examples of stampings that are passenger automobile parts are fenders, bodies, bumpers and brackets. Automobile fabrics in general are not parts, but when the fabric is cut to size and made part of a seat, the seat is a "part." Upholstery tacks are not "parts," since they were not originally designed for use in a passenger automobile. Automobile jacks are "parts," as they are accessories meeting the requirements of the definition. . 1 3 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 There follows a general but not exclusive list of passenger automobile parts: Automotive gears Automotive transmissions Automotive steering assemblies Automotive oil filters Automotive knee action front ends Automotive coils and electrical parts Automotive conventional type front Automotive heaters and defrosters axles Automotive brake parts Automotive suspension springs Automotive engine assemblies Automotive wheels and hub and drum Automotive radiators assemblies Automotive horns or warning signaling Automotive bearings devices Automotive connecting rods Automotive drag links Automotive valves Automotive mouldings Automotive valve springs Automotive oil and water pumps Automotive shock absorbers Automotive propeller shafts Automotive body hardware Automotive window regulators Automotive fan belts Automotive rear axle shafts Automotive armatures (motor and gen- Automotive ring and pinion gears erator and wiper motors) Automotive cylinder sleeves Automotive brake systems Automotive speedometers 2. Section 18 (b) is amended by the addition of the following subparagraph (1): (1) Passenger automobile parts—(i) Industry questionnaires. Each manufacturer who has been requested to furnish the Office of Price Administration financial information on the form bearing Bureau of the Budget No. 08-45104 shall furnish such information not later than ten days from September 8, 1945. (ii) Reports of increased prices. Each seller of passenger automobile parts shall mail to the Automotive Branch,1 Office of Price Administration, Washington, D. C., within five days of the agreement to sell, the following information regarding every price charged for the sale of a passenger automobile part suspended by this supplementary order which is higher than the maximum price prior to suspension: (a) Description of the part. (b) Name and address of buyer. (c) Selling price. (d) Former maximum price (not required where maximum price would have been established under section 8 of Maximum Price Regulation 452). Once the above information has been reported as to a new price, reports need not be made for later sales at or below that price. This amendment shall become effective August 31, 1945. Issued this 29th day of August 1945. CHESTER BOWLES, Administrator. S T A T E M E N T OF C O N S I D E R A T I O N S I N V O L V E D IN THE I S S U A N C E OF A M E N D M E N T TO S U P P L E M E N T A R Y O R D E R 1 2 9 1 This amendment to Supplementary Order 129 suspends from price control certain sales of passenger automobile parts. Passenger automobile parts are parts, subassemblies, or accessories originally designed for use in passenger cars and fabricated to such an extent that tfiey can be identified as to their ultimate use in passenger cars. This amendment specifically excludes from the coverage of the order tires, batteries and radios and ferrous and nonferrous castings. The amendment relates only to original equipment and not to replacement parts. Farts, as described above, are suspended from control when sold to passenger car manufacturers for use as original equipment, when sold to manufacturers of other complete assemblies for use as original equipment, and when sold to parts or subassembly manufacturers for use in the production of parts or subassemblies to be sold to manufacturers of passenger cars or other complete assemblies for use as original equipment. The suspension of control over parts prices is desirable because continuation of control would mean a difficult and time consuming job for the industry at a time when swift action is essential to the establishment of automobile ceilings. Reconversion pricing for the parts industry, while subject to price control, would raise a nun ber of problems. That industry is more properly considered as a i Sellers oi pa. ts subject to M P R 149 shall mail these reports to the Rubber, Drugs and Chemicals Branch. .139 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 group of industries because of the variation in product lines made by different groups of manufacturers. As a result, no single reconversion factor could properly be used in order to measure the appropriate increase in ceilings under this Office's reconversion formula. The work of preparing and processing the necessary data would have been great both for manufacturers and this Office. Also, the variety of automotive parts would have made it difficult to separate the groups of commodities that should be considered as constituting distinct products or product lines for purposes of the reconversion formula. Apart from the tremendous job of establishing a series of reconversion factors, it would have been necessary to process a number of individual applications for further increases, such as are allowed under Supplementary Orders 118 and 119 for reconversion products. Another advantage of price control suspension is freedom of individual sellers to adjust the relationship of prices for particular items and lines. The application of the reconversion formula to individual sellers or groups would result in continuation of pricing inconsistencies. V ith price control suspended, appropriate adjustment may be effected. It is probable that cost-price relationship varies from item to item more with original equipment automotive parts than with most industries because of circumstances peculiar to the original equipment business. Suspension affords both to parts manufacturers and to automobile manufacturers the needed flexibility to cope with such situations without necessitating an increase in the general level of parts prices. In view of the above circumstances ana the importance of expediting passenger automobile production to the greatest possible extent consistent with sound price control, there is no doubt in the Administrator's mind that control of automotive parts should be suspended if that can be done without endangering the stabilization program. The soundness of this action depends in large measure upon whether parts manufacturers will increase their prices excessively, thereby exerting pressure upon car manufacturers and in turn upon passenger car ceilings. The Price Administrator has great assurance that suspension of parts prices from control will not have that result. Car manufacturers have been able to exercise a great deal of influence upon the price level for parts for a number of reasons. Car manufacturers have made their own parts in varying degrees, and have frequently found it advantageous to produce a part whenever suppliers' prices for that part appeared unduly high. The large volume of original equipment sales has made that type of business attractive to parts manufacturers who also make the same part for replacement sales. In general, there has been a degree of interdependence between the industries that militates against parts manufacturers using suspension from price control to squeeze car manufacturers. It is important to note that almost all car manufacturers have expressed their approval of the suspension of control on original equipment parts, indicating their confidence that they will not be unduly squeezed as a result of such action. This Office will require notification of price increases so that it will have up-todate knowledge as to going prices, and it will intervene by restoring control at the first indication of inflationary consequence^. Continued control over passenger automobiles and other complete assemblies containing automobile parts makes possible effective, though indirect, control over the parts prkes. This suspension of paits prices is a companion action to the new passenger automobile regulation, to be issued shortly. Under that regulation manufacturers may sell cars similar to their 1942 models at 1942 prices adjusted for cost differences due to spe- ification changes, or they may use an optional method of pricing, which embodies the reconversion pricing principles developed by this Office, that may result in higher prices in individual cases. This optional pricing formula include an adjustment for increased costs for materials such as automotive parts. However, under the passenger car regulation, if it appears that the prices being paid for parts are inflationary in that they reflect temporary and artificially high elements of cost or profit margins materially greater than were prevailing in a representative peacetime period, the Administrator may establish materials cost increase factors applicable to particular parts or groups of parts. These factors, so far as may be reasonable and practicable, shall be in line with the price increases which would be permitted if OPA's reconversion pricing policy were applied to adjust the maximum prices for the parts. Where a materials cost increase factor is established, OPA will apply it in place of the increase reported by car manufacturers in passing on manufacturers' requests for approval of higher prices upon the individual pricing method. Thus, it will be seen that the effect of increased parts prices upon passenger car prices has been anticipated, and that appropriate action has been taken to preclude 83512—46—vol. 1 10 . 1 4 0 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 undesirable consequences. It is the opinion of the Administrator that, coupled with the economic factors noted above, the control of prices for passenger cars and other products may be relied upon to prevent an increase in the general level of p?rts prices beyond that which would have been allowed if the reconversion pricing formula, which has been approved by the Economic Stabilization Director, had been applied to such price. If, therefore, an increase in parts prices in line with that allowed by the reconversion pricing formula should result in higher prices for any automobile manufacturer sufficient to cause an increase in the cost of living that increase would be within the range authorized by the Economic Stabilization Director in approving the reconversion formula as in accordance with Executive Order No. 9599. It does not appear at this time that automobile batteries and radios should be included in the suspended items. Those items differ from automotive parts in general as to the nature of price control problems, relation to other items made by the same manufacturers for non-automotive use, and the problems that might arise from suspension. W hile automobile tires are not included within this suspension action, they are being given further consideration by the Price Administrator. The amendment contains a limiting condition which will keep rrices for parts sold for use in complete assemblies other than passenger automobiles in their normal relationship to prices for sales to automobile manufacturers. Manufacturers of some of the complete assemblies do not have the same bargaining power as car manufacturers and it was thought that unduly high prices to such purchasers might result from the suspension in the absence of such a condition. It is the opinion of the Administrator that it would not be feasible to suspend original equipment parts sold for use in automobiles while keeping under control the same part when sold as original equipment for use in other complete assemblies. Hence, both are suspended from control. This Office has requested a number of parts manufacturers to file information on a form prepared by this Office. Such information is necessary in order to process car manufacturers' price applications. A number of sellers have not yet returned the report. In view of the importance of this information to the agency's automobile program, speedy f ling of the report is made compulsory by the amendment. Having the reouired data is so vital at this time that failure of a large number of persons to file as required may result in revocation of this suspension action and the restoration of price control. Issued this 29th day of August 1945. C H E S T E R B O W L E S , Administrator. The C H A I R M A N . D O you intend to go on with the charts, Mr. Bowles? Mr. B O W L E S . What I would like to do is cover some points that apply to this whole program. We have cut down the number of charts. We had many additional ones which we have cut out because I know you wanted to get along with this, and we all would. But I have maintained here the charts on subsidies, because that is something on which we would like to see the facts—and at least, I would like to state our point of view. I said the other day that it is my opinion that the continuation of consumer subsidies, into the next fiscal year, was essential to the stabilization of our economy. I also stated that I appreciated very well the reason why farmers do not like subsidies. They would not be anyone's choice, I am sure, if we could avoid using them. The point is not the amount of money that subsidies actually save. You spend a billion and a half dollars and your direct saving to the consumer is only $2,100,000,000, or something like that. But what subsidies do is to provide stable living costs which keep you from getting into a further spiral of wage increases. If the cost of living moves up sharply during the next few months, I think it is clear that there will be further adjustments in wages, wage rates, salaries, and everything of that nature, which will further increase costs and further push you into another round of spiral. .141 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Here is the way consumer prices have risen. According to the Bureau of Labor Statistics Index, since the beginning of the war period, this big block here, representing 13.6 points, is a rise from August 1939 to January 1942, when the Price Control Act was passed. In other words, you had that much inflation in the cost of living before the Price Control Act. Now, here is a rise from January 1942 to May 1943. This was a period when price control was getting started. The Stabilization Act, I think, very properly had in it various provisions protecting agriculture's position. As I pointed out in my testimony the other day agriculture started from a very low point in 1939. Many people point to the fact that farmers have had a more than 200-percent increase since 1939 in their net operating income per farm. However, they usually fail to add the fact that agriculture started from an extraordinarily low point. It was much more depressed even than other sections of the economy. I do not think anybody begrudges the farmers the increases they have had. Nevertheless, under the act, as we were operating, there were certain farm products which were not under price control, because they had not reached parity, and there were certain others on which no feasible means of price control had yet been devised. For instance, fruits and vegetables were a very difficult product to get under control. The British had a great difficulty in getting fruits and vegetables under control. The Canadians did. We did. Every country that stabilized its economy found more difficulty in that field of food pricing than perhaps in any other. So you had this rise, even after the act was passed, up to May 1943. Of course, other elements are in here besides food. I am talking about food, but this is also clothing, rent, and other things that go into the cost-of-living index. The rise from May 1943, through December 1945, from the type of the hold-the-line order, at the time when your firmer controls were established all along, and from the time when food was first begun to be subsidized in order to hold down its cost, it has been 4.8 points in the index or 3.8 percent. In other words, this is 31 months, before the war even began, and this is 31 months at the height of the war, and directly after it, and this is 16 months in the middle. Now, here are your subsidy price costs: Canned and frozen vegetables—the cost is $39,000,000; dairy production payments, $534,000,000; dried edible beans, $4,600,CC0; flour production payments, $190,000,000; livestock slaughter, $535,000,000; beef cattle productioD $40,000,000; sheep and lambs, $36,000,000; peanut oil, $10,000,000; raisins and prunes, $21,500,000; regional fluid milk subsidv that goes to 21 kev industrial areas, $13,000,000; soybeans, $48,000,000; sugar, $107,000,000. Total $1,579,000,000. That is, roughly, a billion and a half dollars, which is a lot of money, and, as a taxpayer, I would never state that that money was money that should be spent if I did not think it was r.ot only desirable but absolutely and completely essential to the success of our stabilization efforts during the next 12 to 18 months. Mr. B R O W N . That included all the subsidies up to what date? . 1 4 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . Covering food products. It is a 12-month budget. That is the current amount that is being spent in this fiscal year. Mr. S M I T H . What did you say that figure is? M r . BOWLES. $1,600,000,000. Here is what has happened to food prices since the hold-the-line order. Mr. W O L C O T T . That is the total amount of subsidies paid? Mr. B O W L E S . Total amount of food consumer subsidies. I think it is the total amount on food designed to hold down prices. Mr. W O L C O T T . May we have that chart back again? Mr. B O W L E S . Yes. Of course, you have other metal subsidies, petroleum subsidies, and so forth, but this is food. Mr. W O L C O T T . Have you added to that chart subsidies for the Reconstruction Finance Corporation? Mr. B O W L E S . Yes; that is in here, such as dairy production payments. Mr. W O L C O T T . What about the butter subsidies? Mr. B O W L E S . Part of the butter subsidy is out. That was abandoned last August. Mr. W O L C O T T . I S that included? Mr. B O W L E S . N O , this is the current amount that is being spent on the current basis. Mr. K U N K E L . That is the year 1945? Mr. B O W L E S . Right, it is the annual rate during these months 1 9 4 5 to 1946—as it stands today. Mr. P A T M A N . What about petroleum subsidies? How much are you paying on petroleum? Mr. B O W L E S . I do not know. Mr. P A T M A N . Why would you continue to have price control on oil? It seems like there is no scarcity of oil. Mr. B O W L E S . Well, that was probably trying to get production out. I would like to go into that a little more myself. Mr. P A T M A N . We have a large surplus of gasoline now. Mr. B O W L E S . I know. Mr. P A T M A N . And a surplus of crude petroleum. Mr. B O W L E S . That has come up in the last 3 weeks, and I am ashamed to say I am not up to date on it. Mr. P A T M A N . I am going to urge you to give it consideration until you know. Mr. B O W L E S . I would like to know more about it before I discuss it. I should know, but the last 3 weeks have been very hectic ones. Mr. M O N R O N E Y . The subsidy program, excepting for the stripper well production, is all off, is it not? That is, the transportation subsidy is off? M r . BOWLES. Y e s . Mr. M O N R O N E Y . And there is just a small amount for small-well production? Mr. B O W L E S . Right. Mr. K U N K E L . Mr. Bowles, could you make an estimate that would translate the subsidies into the cost-of-living index? Mr. B O W L E S . I am coming to that in a moment, Mr. Kunkel, and if this does not cover your point, we will get one that does. Here is what has happened to food prices since the hold-the-line order. Food prices of May 1 9 4 3 , the index showed 1 5 2 . 9 . That is> .143 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 the hold-the-line period. At that point, the different price control programs, including subsidies, really took hold and went into effect. From that time on the weakness in the program has been clothing. W e did not, in the early stages of the war, do the proper things on :apparel to get it really under proper control. We have been struggling ever since on a sort of a half-baked job, where we did not really meet some of the fundamental issues early enough, and we have been trying to make up the lost ground, and the new program that I have just told you about today is a long step in that direction. But food is 40 percent of your cost-of-living index, and clothing is about 13 percent. You can see the different weighting of the two. Now, here is what happened to food. Food prices went down a bit, continued on down, turned up, then down, then up again, and they are today about 1.7 points below where they were in May of 1943. That would be roughly 1 percent. In other words, they are roughly where they were in May of 1943. We had a chart—I do not know whether it is here or not—showing the actual prices in the stores as they are today. Everyone who looks at that is always a little skeptical. I always suggest when they are that they go to a newspaper office and get out the chain store advertisements of May 1943, and compare them item by item with the same advertisements that ran last week. 1 think you will begin to see that the prices run right along at about the same level. Here is what would happen to the index if, on July 1, all these subsidies were pulled out on foods and we put in corresponding adjustments in price, which I think, with perhaps some very rare exceptions, we certainly would want to do. Your food prices, which have been very stable, would suddenly shoot up 12.3 points on this index—which is a little over 8 percent. You would get that kind of an impact right away. I could give you specific figures this way: Meat prices would rise 3 to 5 cents a pound; milk would go up 2 cents a quart; bread would go up a cent or more a loaf; canned fruits and vegetables, a cent or 2 a can for the so-called big four canned vegetables: beans, peas, corn, and tomatoes, which are 80 percent of all the production of canned vegetables; cheese, 7 cents a pound; butter, 12 cents a pound. Mr. B A R R Y . Mr. Bowles, would that be an increase right along the line, from the farmer to the finished product? Mr. B O W L E S . Yes; you could not absorb that in the retail-wholesale area to any degree. In other words, it would go right through to the consumer. Now, that kind of an increase, affecting our whole economy, with that kind of a shooting up of food prices at that time, I believe, would make the success of this stabilization program absolutely impossible. Mr. M O N R O N E Y . Mr. Bowles, Mr. Barry's question would not mean, though, that the farmer would get 3 or 5 cents more for his meat because you would magnify the small amount that the farmer would get all the way through the process? Mr. B O W L E S . The farmer's return would not be affected. And, except under removal of the feeder subsidy, his price would remain the same. But with the removal of the subsidy he would, of course, gamble on whether he could always get the full benefit of the higher consumer price. Take milk. Let us say you dropped the milk subsidy in June. That is a flush period of milk production. Let us say . 1 4 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 we raise the price generally 2 cents a quart. Is the dairy farmer able to get that 2 cents a quart at the flush season of the year, with milk production at a high point, with all the wholesalers and other people trying to beat him down all along and trying to increase their margins? There are a lot of experts who say he will not get the 2 cents. Now, the dairy farmer's point of view, if you pull off the dairy subsidy at a time when he can get the 2 cents, in the more scarce period of the year referred to, between November and April, in that period he is pretty certain of getting the increase. But the farmers obviously speak for themselves. I cannot speak for them. The ones I have talked to are concerned about the fact that when you pull subsidies out, if you wait too long, you pull them out in a period of a soft market, you give them the ceiling price that they would like to have, but they cannot get the ceiling price, and their concern is that as a result their income will drop. That places a heavy responsibility on the Government to make sure that when those subsidies are pulled out they are pulled out in a way and in manner which will allow the farmer to get that price and to maintain his income. Farmers are always worried on that point, and I think they are justified in being worried. I can say that we understand that problem and certainly take it dominantly into consideration to get the job done in a way that will not hurt him. At the same time, an up of 12.3 points in the index—remember that is not 12 percent, the percentage would be 8 percent—but the impact on the cost of living would be about percent The C H A I R M A N . What would , the increased cost of living be, in money? What would it cost the American people in excess of the amount they now pay? Mr. B O W L E S . It would be something over $2,000,000,000, Mr. Spence," directly—2.1 billion dollars. But what you are doing in a sense is transferring that cost to the consumer and away from the Government, and obviously, many people argue that the consumer can afford to pay it, that you work out your debt structure, and get your budget in better balance, and so forth. The point is that is not the end of it. That is only the beginning of it. Because off you go again on a whole new spiral of increasing wages, increasing salaries, increasing everything, to catch up with your tail you are chasing around the tree. And at that point I do not think you are going to be holding rents down. Mr. B R O W N . Mr. Bowles, in the winter months, the dairyman does not get the same ceiling prices? Mr. B O W L E S . N O . I said he is much more apt to get it in the winter, because production of milk is down in the winter and it is more out of line with demand. Mr. B R O W N . I know, but that production is down because he cannot get as much feed in the winter months as he can in the other months. Mr. B O W L E S . That is right. Therefore, if you pull your milk subsidy out in December, January, February, or March, he has an assurance then that he can get that price, and once he gets it, he is pretty sure to continue to get it. If you pull it out in the first period, he does not get it and he is at the mercy of a lot of middlemen distributors whom he has to bargain with, and he may get a cent, a cent and a half, or maybe the 2 cents, but I think he is taking a great deal more risk. .145 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. KUNKEL. Mr. Bowles, that 12.3 points is made up by taking the amount that you pay in subsidies and adding that to the sales price? Mr. BOWLES. N O ; it is made by taking each individual product that has a subsidy on it, and taking the subsidy out, and seeing what would happen to the price of that product as a result of taking the subsidy out, and seeing what that, in turn, would do to the index. Mr. KUNKEL. Then, it is not taking the exact amount of the subsidy and adding it to the cost price of the product? Mr. BOWLES. N O ; in the retail prices of food, the volume at retail is roughly $30,000,000,000, I think. Food prices would go a little over 2 billion dollars. In the B. L. S. retail food price index that comes out at something over 8 percent. Mr. KUNKEL. Gould you give us the figure the way I suggested? Mr. BOWLES. Yes. The total annual cost of the subsidy is, of course, the $1,500,000,000 I mentioned. This is about three-quarters of the cost that consumers would pay if subsidies were removed. The other $500,000,000 or $600,000,000 results from distributor's mark-ups. Mr. KUNKEL. And could you add to that the administrative cost of the subsidy program? Mr. BOWLES. Yes. We will be very glad to do that. Mr. KUNKEL. Would you put that in the record? M r . BOWLES. Y e s , sir. (The document above referred to is as follows:) (Mr. Bowles later supplied the following statement:) The following estimates of the annual administrative costs of the food subsidy programs have been furnished by the paying agencies: Reconstruction Finance Corporation Commodity Credit Corporation Total administrative costs Total subsidy payments $3, 000, 000 25, 000, 000 - Total program costs including administration 28, 000, 000 1, 579, 000, 000 1, 607, 0003 000 It will be seen from the above that the administrative costs are so low in proportion to total costs that their inclusion does not affect the rounded figure of $1.6 billion. Mr. BOWLES. I only hope I have made my point clear. I think you have a necessary evil here. It has some very bad characteristics to it, which you do not want in your economy over a period of time, but you are caught in a position where if you move it out, it is not the moving it out or the extent of the raising of those prices that is going to hurt so much, although it is bad, but it starts your spiral going again, and I think, under those circumstances, your chances of holding down prices on rents and other products is nil. Mr. TALLE. Mr. Bowles, what you really advocate there is a spiral of another sort? Mr. BOWLES. I do not understand, Mr. Talle. Mr. TALLE. When you pay your subsidy, and you borrow money to pay it, and as you borrow money to pay it, you manufacture credit through the commercial banking system., you have another spiral started that is just as inflationary as anything can be. . 1 4 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . Well, that is true. But remember that if you put your prices up, you are not only putting those prices up, you are putting wages up, salaries up, costs up, and the whole business starts moving. Mr. T A L L E . It does the same thing in the other spiral. Mr. B O W L E S . Y O U get much more money, you amplify that $2,000,000,000 much further. Mr. T A L L E . The other spiral is more vicious because through the manufacture of credit in the commercial banking system, you get a greater expansion of media of payments than you do the other way? Mr. B O W L E S . Well, I will argue that point with you. I am just for getting a balanced budget as fast as we can, but I do not think we ought to worship it as a god, because we had a balanced budget in 1929, we were retiring our debt, and we had plenty of inflation in the stock markets and other areas of our economy and we ended up in an awful jam. So I am all for getting back to a balanced budget and when we do, this job will be easier. I am fully in agreement with you on that. Still I do not think that is by any means the answer. I think the answer here, a lot of it, is psychological, a lot of it is bidding up, is hoarding, is fear that prices are going to be higher, is the effort of every group to try to protect himself against what seems inevitable, that gets you into a panicky state of mind that I think leads to entirely explosive proportions. Then, this vast amount of savings that you have, all your credit facilities, that you worry very properly about, your credit expansion, moves in and then you really explode. Mr. T A L L E . I realize that the psychological aspect of the business cycle is exceedingly important. That is why it was very unwise the other day, so far as the President of the United States was concerned, to talk about the shortage of white flour. Now, it is being bought up so that in many localities it cannot be had. There was a psychological effect that I* think could have been foreseen. Mr. K U N K E L . Mr. Bowles, there is a potential credit expansion there on the borrowing of 10 for 1. Mr. B O W L E S . Yes. Now, please do not think I underestimate what you are talking about. There are many ways in which we can get inflation. But this subject, I think, is very important, too. Mr. K U N K E L . I am not disputing what you say, I think what you say is sound, too, but I think the credit inflation angle is one that has been completely neglected in the public eye and it should be emphasized. That is the reason I feel that Dr. Talle is doing a great service in bringing it forward, particularly as it has that current effect which is not evidenced now purely because there is no demand for the money. Mr. B O W L E S . I am very glad there is beginning to be a worry that the Office of Price Administration cannot stop inflation by itself. Mr. K U N K E L . We have argued that for 4 years. Mr. B A R R Y . A S Mr. Talle pointed out, to increase the public debt is undesirable, and it is inflation. At the same time, if food prices go sky high, there is a great class of white-collar Americans whose income has not increased at all during this war, who would be unable to buy food. And when it comes to a choice of evils, it is far better to subsidize to keep the prices down for that great group of people at the expense of putting up the public debt. .147 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . That is right. I did not bring that point out. I merely brought out the spiraling effect of those who would get the higher wages and the effect it would have on anything else, but for the sake of common fairness, I think the millions of white-collar workers, and the millions of people living on savings, insured policies, pensions, and all that, who are, I would say, about the most unrepresented people in America, have a terrific stake in what I am talking about here. Mr. B A R R Y . It seems to me from your charts, so far, that the farmers have increased their production 25 percent. Their prices, since 1941, have increased about 40 percent. Manufacturers have made money. Organized labor has increased its wages. Everybody has made money but that big mass of Americans you have just described, and they are the real sufferers—during the war—and will be terrible sufferers if we have inflation. Mr. B O W L E S . And they are getting very impatient about it. Mr. K U N K E L . Along that line, Mr. Bowles, are you planning anything, going over to the wage side, anything to contribute to raising salaries throughout industry—I mean the salaries paid to white-collar workers? Labor generally has gotten a 16% percent increase. Is there going to be any step taken to see that that is reflected in the salaries of the white-collar workers also? Mr. B O W L E S . Well, of course, the Government is not setting wages under the new program. It is approving wages that have been established by collective bargaining. Mr. K U N K E L . I know, theoretically. Miss SUMNER. Why, your organization, in that formula that you have been using for 10 months, your so-called reconversion formula, absolutely prevents industry giving increases to white-collar workers. Mr. B O W L E S . Well, an awful lot of firms have given them. Miss SUMNER. A man cannot get a price increase on his product, if his costs increased due to raises of pay to white-collar workers. Mr. B O W L E S . A great many manufacturers, however, have given those wage increases. Miss SUMNER. Well, they have had to take it out of their pockets, if they did. You do not permit them a wage increase. The C H A I R M A N . Mr. Bowles, I understand that you will not be back this afternoon. I suggest you go along with the charts. Mr. B O W L E S . All right. I will get the amplification of that chart for you. Mr. SMITH. Mr. Chairman, is Mr. Bowles not coming back? Mr. B O W L E S . I have just a few more things to touch upon. There is a disturbing willingness at present on the part of various groups in our economy to sacrifice economic stability, if they can, in the initial stages gain some advantage for themselves. Every group is trying to see who got what out of whom, and it is natural and human, and I understand it, but it is going to lead us into chaos, and, I think, disaster, if we do not keep it in check. . I would like to run through this very quickly. Mr. B U F F E T T . D O you contend that that has not already happened in the metalworking industries? Mr. B O W L E S . Well, there is your crisis again. That is exactly what I am talking about. I say there never was perfect fairness in an economic system that kept our average farm income at $500 a . 1 4 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 year, or whatever it #as before the war, that left many people unable to pay for a doctor or a dentist, or to get good schooling, and so forth, and so forth. You could go to work and find unfairness to almost unlimited degrees, if you go looking for it in any period of our history up to now. The point is today you have probably got less unfairness than you ever had between various groups. Everybody is better off. But the trouble is today, because you have price control, everyone says, "Well, the Government is at fault/' or "Somebody is at fault," for any unfairness that exists. When this thing is over and we get rid of price control, we can turn the unfairnesses back for everyone to work out in some other way. Now, they all go to price control for it. There is less unfairness now, however, not because of price control, although you do not get much fairness in an inflated boom and bust sort of situation—but all I say is if you go to work to fix all the unfairnesses in the economic system today, you are going to assure disaster. It is a tempting thing to try to do, but I think it is the road to disaster. I may be wrong. Here is the farmer. World War I. He has exactly the same increase in prices that he pays. I am getting for Mr. Barry some figures to explain just how that works against parity. Mr. B A R R Y . Does that 1 1 3 percent mean 13 percent above parity? Mr. B O W L E S . NO. He was below parity. Do you want to explain that, Mr. Riley? Mr. R . H. R I L E Y . All right. Mr. B O W L E S . Mr. Riley is the head of our Division of Research Department. Mr. R. H. R I L E Y . It means that prices received by farmers have risen 113 percent since 1939. Mr. B A R R Y . Well, last year Judge Jones testified that the average price to the farmer, of agricultural products, was 117, or 17 percent above parity. Mr. B O W L E S . That is right. Mr. B A R R Y . He testified that in 1 9 4 1 , with the average price, it was 194 above parity. Mr. B O W L E S . This is a statistical situation here that I do not have clear in my own head, and I was getting a memorandum to you on it to explain the discrepancy between those figures. Mr, B A R R Y . I misunderstood you there. Of course, it may have fallen that much in a year. I do not know. Mr. B O W L E S . NO, it has not. It has gone up. If you like, I will get a memorandum explaining that. Mr. R . H. R I L E Y . If I may just say this: The comparison between these two sets of prices—prices received and prices paid—is what determines the level with respect to parity, and the increase in the parity rights is shown here at the bottom of the chart. Mr. P A T M A N . Suppose you indicate what you are talking about. Mr. R . H . R I L E Y . This bar here shows the increase in the parity index during this war. Mr. B A R R Y . From 1 0 to 1 5 percent? Mr. R . H . R I L E Y . Yes; 10 percent during World War I and 5 2 percent during World War II. Mr. B O W L E S . Parity is computed each month. It is reported by the Bureau of Agricultural Economics. .149 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B A R R Y . SO there is a 4 2 percent increase? Mr. B O W L E S . Fifty-two percent increase. Mr. B A R R Y . What is that 10 percent, then? Mr. B O W L E S . That is what it was during World War I . The farmer has had 113 percent increase generally in income, and the things he bought in the last war went up 94 percent. In this war it went up 40 percent. For instance, farm machinery went up 68 percent in the last war, and 14 percent in this one. I would like to say this: The story of the economics professor who asked how deep the stream was and was told it had an average depth of 3 feet and tried to walk across it and was drowned in an 8-foot spot applies here. Averages can get you into a lot of trouble. This does not apply to all farmers. There are some farmers who have not shared this, have not had this kind of income increase. However, these are averages and the inequities in them apply to both periods. Mr. SMITH. Mr. Bowles, I would like to know from the gentleman who made up that index whether he took into consideration increased cost of machinery, fencing, and other farm supplies, which the farmer has not been able to acquire during this war because of shortages, but which he has to bu;y in the future. Have you put that in there? Mr. B O W L E S . Let me just say this: For instance, lumber and building materials which, of course, have been scarce during this war, of which he could get some during the last war, but not too much, went up 130 percent during the last war inflationary period. So far they are up about 45 percent in this one, and we are trying to stabilize them at that point. Mr. SMITH. What I want to know is: Have you got that 45 percent in this index? Mr. B O W L E S . Well, it is in this 94 Mr. SMITH. N O . I mean your parity index. If you have not, then, you might as well throw that out, because it does not mean a thing. Mr. B O W L E S . Well, I think the Bureau of Agricultural Economics works out those parity figures and it is a very intricate job. I would like to have somebody explain it to you. It is very complicated. Mr. SMITH. Let me ask the gentleman who made up this index why it was not included. Mr. BOWLES. I did not make up the index. Mr. M O N R O N E Y . He did not say it was not included. Mr. B A R R Y . In the parity calculation, I understand, you figured everything the farmer has to buy. Mr. SMITH. But not which he has been unable to buy and has to buy in the future. Is that in that index? If not, it is no index and does not mean anything. Mr. B O W L E S . Then, there was no index during the First World War. Miss SUMNER. It was not being used during the First World War. Mr. B O W L E S . Well, the B . A . E . has gone back and figured what these indexes for those war years are, so we do not know how they behaved during that war. If we are going to try to get every group on a slide-rule basis, it is going to be hopeless. I am just trying to point out some general situations here which I think are true. Now, in the First World War your farmer got an increase in farm production of 5 percent. In this war, because he has worked endless . 1 5 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 long hours, because his mother and grandmother and all the kids got out and worked under the most difficult conditions in the world— I said the other day a record that I do not think is appreciated thoroughly enough—he got out 25 percent more production. So that is where his income went up more, because he got more production through his own efforts, plus a much better break in the price things cost him and the prices he received. Miss S U M N E R . Mr. Bowles, has it ever occurred to you that if you would raise your prices on your milk, that he could expand his production and he could produce more milk, and he could be giving you butter? Mr. B O W L E S . 'Well, that would be quite a feat, because in order to expand milk production, you have got to get more cows. Miss S U M N E R . N O , you are wrong. You just do not know. Mr. B O W L E S . I have got a cow. I do know. Miss S U M N E R . Well, we have a dairy, with a capacity, before this war, for milking 65 cows. It is absolutely closed today. Why? We sell our calves. There is no money in selling milk or selling butter, so we do not produce. Mr. B O W L E S . I think you will find that dairy farmers are enjoying incomes 3 and 4 times what they had before the war. Miss S U M N E R . And Mr. Barry wants the price held down. If he would let it up a little bit, he would get the butter and chances are soon the supply would be such that you could keep your prices. Mr. B O W L E S . It would take a couple of years before the calf is giving milk. Miss S U M N E R . If you do not take that loss, sooner or later you are going to get to the place where you do not have half the milk. Mr. B O W L E S . Where would you get the feed right now to feed the calves? Miss S U M N E R . Why, we are plowing under the ensilage that we used to feed cattle. We are plowing it under the ground. Mr. B O W L E S . There is a terrific feed shortage in the country, and I believe you will find there are more cows in the country than there have been in history. Miss S U M N E R . That does not mean that there are enough. Mr. B O W L E S . That is right, but it takes 2 years to grow one. Am I not correct? Is not the price of a good dairy cow about double what it was before the war? Miss S U M N E R . I could not tell you the price of them. Mr. B O W L E S . I think you will find they are about double in price, and somebody must be getting some income out of it. Mr. G A M B L E . Put a ceiling on it. Mr. C R A W F O R D . Will you yield, Miss Sumner? Miss S U M N E R . Yes. Mr. C R A W F O R D . Mr. Bowles, if a dairyman bought a herd of 5 0 or 100 cows for beef purposes, I mean so that the offspring will go into beef, and shifts them from milk production to the production of beef, WT>uld that not have a material effect on the production of fluid milk? Mr. B O W L E S . Y O U mean if we could raise more of them as heifers, that you would have more M r . CRAWFORD. O h , n o S U M N E R . Just not Miss butcher them. .151 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. C R A W F O R D . Y O U are not raising milking animals. You are raising beef animals. And when you shift to the breeding process, and the feeding of the creature, from the production of fluid milk to the production of a beef animal, you are not shifting your breeding to produce future milk producers, but to produce future beef on the hoof. Now, would not such a change in policy on the part of an individual dairyman have a material effect on the production of fluid milk? Mr. B O W L E S . Yes; I should think that is right. Mr. C R A W F O R D . Quickly? M r . BOWLES. Y e s . Mr. C R A W F O R D . N O W , the dairymen tell me that is exactly what they are being forced to do, and that it will result in a material reduction in the production of fluid milk, of which there is, we will say, a shortage at the present time. In other words, they inform me that as against 123,000,000,000 pounds of fluid milk produced, say, in the year 1945, that the consuming public faces a very material reduction in 1946 and 1947 because of this changed method of breeding. In other words, if you go out here to my farm, and if I am feeding a cow to produce milk, I certainly feed her in a different manner from that in which I would feed her if I were feeding her to produce a beef creature. I was wondering if you could give us any light on that, because it is a hot issue among the dairy people at the particular moment. Mr. B O W L E S . Well, I think, first of all, you have right now a very serious feed shortage, as we all know. Up in New England it is very dangerous and very bad, and they are scrambling for feed. I think milk production during the war has gone up 20 percent or 22 percent, something of that kind. You have had some big increases, and you have more cows in the*country. I do not say for one minute that you could not get more, or might not, by some other way in the past, have gotten more, or cannot get more in the future, but I do feel that we must get more in the future. I think milk is one thing we want to get much more production of in the period of the next 5 years. We have never had nearly enough of it, but it is a long-range problem. I want to get back to the point that if you go to work to try to eliminate every angle that has been caused by this trouble we have been through, a world war of terrific proportions, you are going to end up by fixing some of the problems, but getting inflation, which will create a lot more. Miss S U M N E R . D O you not think the time to take your loss on this is now? It is just like having a tooth pulled. Do you not think— and, by loss, I mean the increase in the butter and milk—is at the time when the housewife could not get the butter, anyway? In other words, it is an academic question with her to a great extent, whether the butter goes a cent or two higher right at the present, and if this process is going on and she cannot get it, anyway, it is not going to hurt her very much, is it? Mr. B O W L E S . Well, Miss Sumner, if you could see the letters that poured in to us when we raised the butter prices, when the subsidies came off in November—by the thousands and thousands. Miss S U M N E R . I am surprised you do not get millions when you consider the kind of propaganda you put out. You have men like Mr. Barry, not understanding the milk situation, for instance. I . 1 5 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 would write you, too, if I could not look out the window and see this thing happening right under my eyes in the pasture. Mr. B O W L E S . All I can say is, the dairy farmer is doing better today than he did in 1939. Miss S U M N E R . I am not worrying about the dairy farmer; I am worried about the babies who are not getting milk, the people who are losing their teeth because they cannot get butter. They tell me that if you do not get butter you have dental trouble. The dentists all know that. Those are the people you are supposed to take care of, and the only way to take care of them is to take your loss now while it is easy and not wait until it is going to be so hard for us to find dairy cattle that we will not be able to open our dairy barn. Mr. B A R R Y . We still need more cows. Miss S U M N E R . If you wait until 2 years from now, you will have an awful time getting herds together. It takes about a year or so to get a good dairy herd together. You have to cull them out and all that sort of thing. Mr. M O N R O N E Y . Mr. Bowles, do you think that we could have gotten a 20 or 22 percent increase in production if the price ceilings and controls on dairy products had been as devastating as alleged here today? Mr. B O W L E S . Well, no; I certainly do not. Moreover, where would you have gotten the men to milk all these mythical cows? Miss S U M N E R . D O you not know we use electric milkers? Mr. B O W L E S . What percent of dairy farms have electric milkers in the country? Miss SUMNER. There is another one of the mistakes the Government made during this program. The Government went out and bought good dairy cattle, gave it to the Farm Security people, many of them from WPA, who did not understand milking, and, as a result, a cow which ordinarily, in the hands of a man who understood the dairy business, would be giving surplus to the market, went into a family-sized farm, where she only produced enough milk for the farmer, because the dairy business is a very technical business. There is one of the reasons we do not have milk. Mr. B O W L E S . Well, we have had a feed shortage ever since the war started. We have had great feed production, bigger than we have ever had before, but if you had a great percentage increase in dairy, you would have taken it out of cattle, we would have taken it out of poultry, and other areas. But we had just so much feed. Where would you have gotten your extra feed? Miss SUMNER. The stalks and the corn sitting on the farm that the corn pickers do not get were plowed under every year, and that was the kind of food we have been putting up in our silos and feeding to our dairy cattle. The C H A I R M A N . Mr. Bowles, how many more charts have you to display? Mr. B O W L E S . About three. To get back to a major point, we have fought the biggest war in history, we have put half our energies into it. We won it. In winning it, we had more consumer production, including more food, that we have ever had before, including more milk, more citrus fruits, more of everything, and we have not had inflation, and there undoubtedly have been some things we might have adjusted here or there that would have .153 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 been better, but I, personally, do not think everybody—I am not saying the Office of Price Administration only, but the Congress, the country, and everything else—has done too bad a job. I think we have all done pretty well financially. We have eaten pretty well. We have managed to get 12,000,000 men into the armed services and we won the war. I do not think the record is really as bad as some people think. Miss SUMNER. Just one more point, Mr. Bowles. When you talk that way, you ignore the production phase. Everywhere you look, where you got production, you got a high price. Now, you mentioned your farm production. You said yourself you gave the farmers a higher price. You go into 3^0ur war production. Everything connected with the War Department, there was a terrible fight between Patterson and Henderson when Henderson wanted to put price control in the War Department in April of 1941. They put in renegotiation, but they refused to let Henderson and his price-control boys go into it. And we got production. In other words, you are trying to put price control in the reconversion program when it was lack of price control that got the only production we got. We did not get production in the consumer goods where you had price control. Mr. B O W L E S . Well, I think the record again is against you. During the First World War we had just the kind of conditions that you seem to advocate, which is an inflationary condition, no control over anybodv or anything, to any degree. Miss SUMNER. Was it not after the war that you got the inflation? Mr. B O W L E S . Most of the inflation came before the armistice, and you only got a 25-percent increase in industrial production. In this war industrial output expanded nearly five times that much. All farm products were under price control in this past war. You got a 25-percent increase in farm production, again, five times the increase achieved in the World War I. There was an increase in price, but your whole program of price control and production control were exactly reversed. In the last war you got not too big an increase in production and a terrific increase in price. In industrial production you had the same thing, but even more striking. Miss SUMNER. But you did not have your price control on any of these things that were produced for war, where we got the tremendous production—the airplanes, the tanks, the tractors, all those things which we are bragging about, the 50,000 airplanes. Mr. B O W L E S . Steel, copper, glass, rubber. Of course you had price control. Miss SUMNER. Not for the thing that went to the War Department. Mr. Patterson would not let Mr. Henderson operate in the War Department. Mr. B O W L E S . Well, Miss Sumner, I am afraid you are very wrong and the record shows you are wrong. How about steel which is your basic commodity and from which all war goods are made? Was that or was that not under price control? The CHAIRMAN. Mr. Bowles, what is the sugar situation? I would like to go into the sugar question for a moment. Just recently we passed, in the House, a bill providing that the Commodity Credit Corporation purchase the Puerto Rican and the Hawaiian sugar crop, which I thought might relieve the situation. I would like to know . 1 5 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 what the future of sugar may be. This is not something in the past. This is something that concerns us all in the future. Mr. B O W L E S . I understand that the situation on sugar will improve through this period of months ahead. It is our last lagging farm product, that we have kept under rationing, of course, and my understanding is that if the crop is what everybody expects, we will be getting out of the woods later in the year on it. I do not know that. I would prefer to get a memorandum on sugar for you. I might point out that sugar, in the last war, went to 30 cents a pound, and then dropped to 6 cents a pound or less. Mr. C R A W F O R D . What do you mean now by "during the last war"? Mr. B O W L E S . The period of inflation following the war. Mr. C R A W F O R D . That is a different story. Mr. P A T M A N . It was during the war. Mr. C R A W F O R D . That occurred subsequent to the end of hostilities, which you testified as in November 1918, only yesterday. It came in 1920, a year and a half after the war. Miss SUMNER. It came at a time when we were giving billions of dollars in foreign loans and creating inflation just as we are going to do during the next few months. Mr. B A R R Y . Well, if that is the point, there is more danger now, because this war is over, too. Mr. B O W L E S . That is exactly the thing we are trying to avoid now, and I hope we will avoid it. Mr. K U N K E L . What is the dollar size of inflation pressure today? Mr. B O W L E S . I have heard that the total of liquid assets is something about $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 . Mr. K U N K E L . Y O U say that is the inflationary pressure and it is to guard against that that you want to continue the Office of Price Administration; is that right? Mr. B O W L E S . Until we get production in balance with demand. Mr. K U N K E L . IS it not true that the next 12 months' production will automatically create its own buying power? Mr. B O W L E S . Well, it will automatically create buying power, but on top of that, you have $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 of liquid assets on top of it, which, if they get frightened, go into commodity markets and into goods. Mr. K U N K E L . Then, if this $ 1 5 0 , 0 0 0 , 0 0 0 , 0 0 0 of new buying power as created in the next 12 months is exercised, there will be no chance to use the $300,000,000,000 of buying power that today exists; is that not right? Mr. B O W L E S . Well, there will be a chance by bidding up the price. What you do is start out with some thing at a dollar and if it becomes $3, the cost is three times as much, and you use up three times as much money to buy it. Mr. K U N K E L . Suppose we continue price control and it is successful. M r . BOWLES. Y e s . Mr. K U N K E L . That $ 1 5 0 , 0 0 0 , 0 0 0 , 0 0 0 of newly created buying power in the next year will use up all the goods in the next year, will it not? Mr. B O W L E S . That is right. Mr. K U N K E L . Y O U will still have your $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 . Mr. B O W L E S . That is right, but at that point, though—I see your point, and it is a very proper one—you have got your production rolling, you have got the whole psychological difference. Goods will .155 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 be in the stores. In some goods competition moves in and prices drop a bit. There is no longer the feeling that you have got to go into the stock market or real-estate market to protect yourself. You settle down. You hold onto those savings for your old age or to buy a new home, or for sickness. Mr. K U N K E L . Mr. Bowles, you still have the $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 at the end of the year? M r . BOWLES. Y e s , sir. Mr. K U N K E L . Plus the addition of all new purchasing power created by governmental deficit, plus the additional purchasing power created by foreign loans which are spent for goods in this country; isn't that right? Mr. P A T M A N . Are you not presuming you will freeze certain dollars and certain other dollars? Air. B U F F E T T . Mr. Chairman, can I keep the floor? Then, your inflationary pressures at the end of the year will be fully as large or larger by the amount of the deficit than they are today; is that not right? Mr. B O W L E S . N O , I cannot agree. Your basic problem, production, will be rolling at prices that people can afford to pay. People tend to calm down. They will not feel this speculative urge to the extent that they do today and you will begin to get out of this on a real basis. Even before the war we had a sizable total of liquid assets, but we didn't get inflation from them because production was up to demand and there was no speculative incentive. Mr. B U F F E T T . H O W are you going to calm them down when you raised the great metal working industry to the tune of hundreds of millions of dollars in wages already? Mr. B O W L E S . Y O U calm them down by getting production of the things that they want and need, and can afford to pay for out of current income plus a little savings, perhaps. Mr. B U F F E T T . Yes, but you still have that purchasing power with no outlet. Mr. B O W L E S . That is correct. But it is a great cushion against possible deflation. Mr. B U F F E T T . And you add to it by the amount of the deficit. Mr. B O W L E S . Y O U have outlets for it. You are going to build new plants, new factories. New machines are going to equip new factories. You are going to build new homes, equip those homes. If you have got goods to begin to satisfy demand, you have still got the possible danger, but, for instance, you could have what you had in 1929, we will agree, a lot of that money going into the stock market, and going into night clubs and one thing or another. There was plenty of excess there, even under different circumstances, and that led to a collapse, but the price levels did not go up. You look at your price levels from 1925 to 1929, and they actually declined slightly during that period. Mr. B U F F E T T . Yes; but you did not have a deficit financing creating purchasing power not matched. Mr. B O W L E S . N O ; but you had huge purchasing power going into profits of corporations and dividends which could not get reinvested. A lot of money going in there that could find no place to invest, and, therefore, moved into your Florida land booms and your stock market, and so on. 83512—46—vol. 1 11 . 1 5 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B U F F E T T . We expanded our credit facilities, and we are doing the same thing now, are we not? Mr. B O W L E S . They have expanded, I will say. Mr: B U F F E T T . They are still doing it. Mr. B O W L E S . The quicker we can get our budget into reasonable balance, the happier I will be and the easier my job will be. Mr. B U F F E T T . D O not the inflationary pressures continue to mount as long as we have deficit spending and foreign loans? Mr. B O W L E S . T O a degree, that is correct. You have to balance some of those moves that you want to make against the risk. Mr. B U F F E T T . Then, we have that big amount of excess purchasing power, and that is being added to by foreign loans and deficit financing. The C H A I R M A N . Let us let Mr. Bowles finish with his charts, please. Mr. B O W L E S . I just have two more and then I will be through. The C H A I R M A N . Proceed. Mr. B O W L E S . Here are the percentage gains in take-home pay of factory workers during the 6-year period of the World War influence. That is, from 1914 to 1920, and in 6 years following the outbreak of World War II, that is, 1939 up to the present. You had 140 percent increase in take home pay of factory workers during World War I. You have 75 percent in World War II, roughly only about 55 percent or 45 percent as much. On the basis of this showing it would appear that labor did much better during World War I. Actually, however, the buying power of the dollars the workers received measured the true gain of labor. This is what happened to living costs during the 6 years of World War II and the 6 years following the outbreak of World War I. You had the 108 percent increase in your living costs, against 31 percent. Mr. SMITH. May I ask Mr. Bowles a question? Mr. P A T M A N . He just had one more chart. Let us let him continue. Mr. B O W L E S . I am sorry. I shall have a couple more here. The C H A I R M A N . I would suggest you let Mr. Bowles get through with the charts first. Mr. B O W L E S . Here is the measurement of what earnings buy. Labor did far better under price control in World War II. Here is the gain in real take-home pay measured against the cost of things they got. They got a gain of 15 percent in World War I, and they got 34 percent in this World War. Now, here is one of those figures that I always question. Perhaps I should not show it. If your consumer prices rose as much between now and next spring—that is, a year from this spring, 1947—as they did in the inflationary period following World War I, your total bill on the consumer would be 30 billions of dollars. Mr. P A T M A N . Y O U mean the increase? Mr. B O W L E S . The increase. They would have to pay 30 billion dollars more for goods. Mr. G A M B L E . That would be increased cost of living? Mr. B O W L E S . Yes; it would be up $ 3 0 , 0 0 0 , 0 0 0 , 0 0 0 . That is one of those "if" questions. If something happens, something else happens. I like to stay away from them, but I thought it was interesting. So, on the same basis, taking this chart as the value of the dollar today, if you had the same increases in prices and rents that you had .157 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 in the same period following the last World War, you would have that kind of a nick out of the dollar, or 22 cents. In other words, the dollar would be worth 78 cents of what it is today at that point. After the last war, as we remember, we had profits, corporation profits after taxes of six billion and a half dollars in 1919, four and a half billion dollars in 1920. There was an actual $55,000,000 loss in the next year. Business as a whole was actually in the red in 1921. I believe that these are the only 3 years in modern history when that kind of sharp drop has occurred. During the 5 years following the war you had more than 100,000 failures. Mr. W O L C O T T . Mr. Chairman, I would like a question. You have been comparing conditions in World War II to World War I. We have not in the record yet any information as to when they put on price controls, during or right after World War I. When was that? Mr. B O W L E S . Well, your price controls, of course, were of a very different nature. Mr. W O L C O T T . When did they put them on? Let us not go into detail. Mr. B O W L E S . They took them off, if that is your question, in 1 9 1 8 . Mr. W O L C O T T . Let us not go into the details of the program. When did they start their program of price controls? Mr. B O W L E S . What controls they had, I believe, started about the time we got into the war. Mr. P A T M A N . They were very limited, were they not? Mr. B O W L E S . 1 9 1 7 . They were taken off in November and December, 1918. Right after the armistice. There was then an effort to reconstitute them and to put some of them back in. They went back and tried to pull some of the controls back in, but it was too late to pull the organization together and get them going. Mr. W O L C O T T . When did they try to put controls back in? Mr. B O W L E S . There were various efforts; I think in petroleum and steel they made some efforts. Mr. Chairman, if I might suggest it, Mr. Baruch had that whole period very clearly in mind, and was in charge of it more or less, and if I might suggest, I think the committee might be interested in hearing his views on this whole thing. They will think I am a little conservative when they get through listening to Mr. Baruch. Mr. W O L C O T T . I thought you might tell us the dates when the controls went on and went off. Mr. B O W L E S . I cannot tell you exactly, but practically all price controls went off 6 weeks after the war was over. I know they tried to get some of them back in but it was impossible. They were pretty loose controls even at the peak. Mr. B A R R Y . Mr. Bowles, you have, through your prosecuting agencies, caught up with a number of black marketeers, have you not? Mr. B O W L E S . Yes; 5 2 , 0 0 0 last year. Mr. B A R R Y . I was just wondering if you could ever compile these statistics to show what the average prices were in the black market. Mr. B O W L E S . It is pretty hard to do. For instance, take poultry. The worst black market that we ever had was in poultry last June, and it was extremely bad. No one knows fully how bad. There have been various estimates made on food, when it was at its peak, which . 1 5 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 was last summer and spring, as running as high as three quarters of a billion dollars. I do not know how anyone knew that. I do not even know where those estimates came from. The Bureau of Labor Statistics figures are not the price ceilings, as you probably know. The Department of Labor cost of living index figures are the prices that are quoted to a stranger walking into a store. In other words, if they are over ceiling, they are put down as over ceiling. Now, remember, it is a stranger, and to someone they know, they might charge something extra. But they do not just simply take the ceiling price and add all that up to make the index. The shoppers find out what is actually being charged. It is expected that will frequently average a little higher than the ceiling. Mr. B A R R Y . If it is possible to get that together, it might give some indication of what a free market might be, a market without price control. Mr. B O W L E S . Well, on gasoline, for instance, during the period of shortage, you had gasoline black market, gasoline selling as high as 75 cents a gallon, which was, roughly, three or four times the ceiling price. That gasoline black market was pretty well eliminated by VJ-day. It was very bad about a year and a half ago, but we finally learned how to get it under control. Miss SUMNER. Mr. Chairman. The C H A I R M A N . Mr. Monroney is recognized. Mr. M O N R O N E J . The President states wages will be stabilized according to a pattern of wages established since VJ-day. Just what does that mean? Mr. B O W L E S . Well, the pattern of wages since VJ-day, in some industries, might be 7, 10, 12, 15, 17, 1S% cents, depending on the industry, it has varied all the way through the economy. By pattern, the President meant just exactly that. Industry by industry, what had already been established in free collective bargaining since VJ-day. He did not necessarily mean 18% cents. There has been some confusion on that. Mr. M O N R O N E Y . It is not a new Little Steel formula? Mr. B O W L E S . N O ; it is not a limit. It is whatever has been established through collective bargaining, industry by industry. Now, what, we have to do, in the new Wage Stabilization Board is to work our criteria and standards which will allow exemptions in some cases of hardship and explain the whole operation, exactly where it is. Hopefully, we will get those out so that both labor and management will know where they stand, in the next few days. I am glad to be able to say that, to explain what was meant by pattern. It did not mean 18% cents, but whatever had been established since VJ-day, industry by industry. A new industry, where no wages had been established, perhaps by the fact that the contract was already in existence, that would be fitted into some other similar type of industry very likely. Mr. P A T M A N . Mr. Chairman, I want to make a suggestion, that, in view of what has come up here this morning, and in view of Mr. Baruch's knowledge of this situation, we invite him to appear to testify before the committee. The C H A I R M A N . We will be very glad to invite Mr. Baruch to testify. .159 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B R O W N . Mr. Bowles, you are quoted as saying that steel would only be raised 7 or 8 percent. My understanding is that steel would be raised $5 per ton. If steel was selling for $36 per ton, $5 would be about 15 percent. Mr. B O W L E S . We do not raise each ton. Mr. B R O W N . I know, but I am talking about average. That is a 15-percent average instead of 7 or 8 percent. Mr. B O W L E S . Well, your 7 or 8 percent is figured on the total value of all steel production, I assume, with the total Mr. B R O W N . I know, but you said that $ 5 per ton would be 7 or 8 percent. I cannot figure how it would be anything but 15 percent. If it sold for $36 per ton and now sells for $41 per ton, that is 15 percent. Mr. B O W L E S . I think steel average price per ton is closer to $60 per ton. Mr. B R O W N . I understood that it was $36. Mr. B O W L E S . It may be a different type of steel. The average is closer to 60. The C H A I R M A N . That is $5 a ton on a great number of items? Mr. B O W L E S . It will be $5 per ton on some, $2 on some, more on others. The C H A I R M A N . It is not $ 5 per ton on an item of $ 1 5 0 per ton and $5 on an item selling for $30 per ton? Mr. B O W L E S . N O , it is average; it will vary. Mr. B R O W N . Some of it sells for $30 a ton? Mr. B O W L E S . Some sells for $ 1 , 8 0 0 a ton. Mr. B R O W N . I am talking about average. Mr. B O W L E S . He says it is $30 a ton. Mr. B R O W N . Then, my expert is wrong. Mr. B O W L E S . My guess was $ 4 0 , so I was in between. Mr. C R A W F O R D . Mr. Chairman, I would like to ask Mr. Bowles a question on the charts. Mr. Bowles, has there been calculated by your department, at any time, a comparable figure on take-home pay of farmers, as related to the take-home pay of factory workers, as indicated by your charts? Mr. B O W L E S . N O , but I think it would be a very interesting figure to get. I think it is inherent in that statement of the prices that farmers received against the farmers that pay. Increases. Mr. C R A W F O R D . I do not believe that covers it. Mr. B O W L E S . N O , I do not think it does, either, but I say I think it was inherent in that, and I would like to get it for you, I think it would be interesting to see what his actual take-home pay would be after he has paid his living expenses, his food, apparel. Mr. C R A W F O R D . And taxes. Mr. B O W L E S . And taxes. Mr. C R A W F O R D . And Farmers Union fees, National Grange'fees— because that is his protection as is union for organized labor. Mr. B O W L E S . Mr. Riley says that that figure is really what the Bureau of Agricultural Economics calls farm operators' net income. It is after taxes and other costs. Mr. C R A W F O R D . Does the Bureau of Labor Statistics net farm income—is that a figure after he pays his taxes? Mr. B O W L E S . Yes, net farm income after taxes and interest. Mr. C R A W F O R D . All I am talking about are income taxes. . 1 6 0 E X T E N D PRICE C O N T R O L A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. R . H . R I L E Y . N O , it is not after income taxes. Mr. C R A W F O R D . Not at all. Nor the take-home pay of the factory worker. The take-home pay of the factory worker is not net income after the employer deducts the taxes. Mr. R . H. R I L E Y . I am afraid there is some misunderstanding, sir. Mr. C R A W F O R D . Well, what is take-home pay? Mr. R . H. R I L E Y . "Take-home pay" is a term which traces back to the time when there were no pay-roll deductions. It is inaccurate today. The term "take-home pay" is still used to mean exactly what it meant before there were pay-roll deductions, namely, the total amount of earnings in the course of a week. It does not reflect simply the hourly earnings, but it is what the man is able to earn by the end of the week. Before pay-roll deductions were begun, that was the amount he took home on Saturday night. That is what it used to mean. It still means the week's earnings, although what he takes home is not that full amount. He does not have that in his pocket, because taxes and other deductions have been taken out. The figure we have used is the average of these weekly earnings before taxes. Mr. C R A W F O R D . N O W , do his average weekly earnings, as you have defined them, provide for that savings evidenced on the deduction on the pay roll for investment in savings bonds? Mr. B O W L E S . They show the amount earned, before any deductions of any sort. Mr. C R A W F O R D . See what I am getting to? Now, what I would like to have—and I am not asking you to prepare it, because it might take a lot of work—but if such a thing is prepared, I would like to see a comparison of the take-home pay of the farmer and those who perform productive labor on the farm, involved in that farm figure, whether it is his wife or child or whatever it is, the take-home pay of those productive labor producers compared with the take-home pay of the factory workers as the term is used. Mr. R. H . R I L E Y . D O you mean take-home pay after taxes? Mr. CRAWFORD. NO. (The following tables were supplied later:) Earnings in manufacturing and in agriculture, 1989—45 MANUFACTURING AVERAGE WEEKLY 1940 1941 1942 1943 1944 23. 86 100 25. 20 106 29. 58 124 36. 65 154 43.14 181 46. 08 193 44.42 186 26. 50 100 28.44 107 34.04 129 42. 73 161 49. 30 186 52.07 197 49.08 185 21. 78 100 22. 27 102 24. 92 114 29.13 134 34.12 157 37.12 170 38.30 176 1945 EARNINGS All manufacturing: Dollars Indexes: 1939=100 Durable goods manufacturing: Dollars Indexes: 1939=100 Nondurable goods manufacturing: Dollars Indexes: 1939=100 1939 .161 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Earnings in manufacturing and in agriculture, 1939-45—Continued AGRICULTURAL 1939 1940 1941 1942 1943 1944 1945 A V E R A G E ANNUAL EARNINGS * Hired farm workers: Dollars Indexes: 1939=100 Farm family workers: 2 Dollars: assuming 5 percent return on farm equity Indexes: 1939=100 Dollars: assuming 6 percent return on farm equity.__ . . . Indexes: 1939=100 1 2 378 100 390 103 473 125 616 163 803 212 940 249 1,040 275 408 100 443 109 728 178 1,170 287 1,447 355 1,366 335 1,451 356 366 100 411 112 676 185 1,120 306 1,387 379 1, 298 355 1, 375 376 Cash earnings plus allowance for value of board and room. See following table, "Returns to farm labor and investment, 1939-45." Source: Weekly earnings—Bureau of Labor Statistics, U. S. Department of Labor. Annual earnings—Calculated from data of the Bureau of Agricultural Economics, U. S. Department of Agriculture. NOTE.—There is no wholly satisfactory comparison of "take-home" pay in manufacturing and agriculture, because the factory data, being weekly, take no account of weeks not worked during the year. In addition, there is no satisfactory comparison of urban and rural costs of maintaining comparable standards Of living. Returns to farm labor and on farm investment, 1939-45 1939 (1) Net farm income millions of dollars. _ 4, 566 (2) Net rent to landlords not on farms_do 440 (3) Income of farmers and farm landlords millions of dollars.. 5,006 (4) Farmer's and landlord's equity___do 33,700 (5) 5 percent of farmer's and landlord's equity millions of dollars._ 1,685 (6) 6 percent of farmer's and landlord's equity millions of dollars.. 2,022 Balance to farm family workers: (7) Assuming (5) millions of dollars. _ 3,321 (8) Assuming (6) do 2,984 (9) Number of farm family workers__thous__ 8,145 Labor income per farm family worker: 408 (10) Assuming (5) dollars. _ 366 (11) Assuming (6) do... (12) Annual income per hired farm worker 2 378 dollars. _ (13) Profit on farmer's and landlord's equity assuming paying family workers as 1,914 hired workers millions of dollars._ (14) Percent return on farmer's and land5.7 lord's equity in (13) 1940 1941 1942 1943 19441 4,767 459 6,753 654 10,197 961 12,571 1,130 12,159 1,189 12, 900 1,225 5,226 33,536 7,407 34,131 11,158 39,303 13,701 46,682 13,330 53,235 14,125 58,331 19451 1,677 1,707 1,965 2,334 2,662 2,917 2,012 2,048 2,358 2,801 3,194 3,500 3,549 3, 214 7, 829 5, 700 5,359 7, 924 9,193 8,800 7,855 11,367 10,900 7,857 10,668 10,136 7,810 11,208 10,625 7,725 443 411 728 676 1,170 1,120 1,447 1,387 1,366 1,298 1,451 1,375 390 473 616 803 940 1,040 2,088 3,699 6,306 7,373 6,010 6,092 6.2 10.8 16.0 15.8 11.3 10.5 1 Preliminary. 2 Based on lst-of-the-month average employment. Source: Bureau of Agricultural Economics, U. S. Department of Agriculture. Mr. Mr. R . H. RILEY. That comparison is available. BOWLES. The way we did it for labor? M r . CRAWFORD. Y e s . Miss SUMNER. D O you mean for the tenant farmer or farm owner? It makes a difference. Because if he is a farm owner, there is a difference. Mr. CRAWFORD. When the thing is presented, we will take the bugs out of it, I can tell you that. Now, one other question, Mr. Bowles, which concerns me and a great many people with whom I have contact. It was partly developed here awhile ago in your prior testimony. If we accept the philosophy . 1 6 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 that the Office of Price Administration, as now administered, and as now authorized, is sound procedure, and a sound Government policy, good for everybody in general, until the supply of goods catches up with the demand, and at that time to eliminate controls, that is one thing. But if we accept the philosophy that the Office of Price Administration or a similar control shall govern so long as the people of this country are thrifty and have a great backlog of buying power, as you stated here this morning, that is entirely a different proposition. Mr. B O W L E S . I agree with you. Mr. C R A W F O R D . NOW, if you do not mind, I would like to ask you this question. I am not asking you to embarrass you, but I think it is a very fundamental thing. So long as you are Administrator, do you take the position that these controls should go off as we bring supply in balance with demand, or do you take the position that the controls should continue as long as there is a great backlog of pent-up buying power, which, in the absence of control, can be exercised by the citizen at his will? Mr. B O W L E S . Well, I will agree that is a very fundamental question. Yesterday, to work backward, I stated that in my opinion you should be out of price controls on all products except rents—and in addition some remnants, possibly building materials or something else that is in extremely short supply, and I do not know what it would be at that point—a year from this June 30. I also stated that at that time, whatever you get out of price control, you are going to have some ups of prices here and there. I do not think that is what we are worried about. If you do get a jump at that time in one item or another item, you have got production going, you are going to have other items going down, you are going to have competition driving this down, and better methods lowering that cost, and you are going to get balance in there through some things going up and others going down, but even though that does not balance out and the net result a somewhat higher general level of prices, that again does not concern me. What I am concerned about is a jump in prices now, as, for instance, when you withdraw subsidies, setting off a whole spiral in the midst of all these shortages. It leads you not to 5- or 10-percent higher prices, but 50-, 75- or 100-percent higher prices, followed by wThat is bound to be a collapse. Now, I feel this: That part of our problem is economic and part is psychological. Let me take oranges as an example. Economically, there was no reason in the world why price control should not be removed from oranges last fall. It is true that there was a slow-up, in that week or two, of freight. It is true that they had some rainy weather in there that added to it. But that should have wiped itself out in 3 weeks. The oranges were there. The supply was there. The industry, and ourselves, going over it very carefully, felt that it was safe to do. It was, in a sense, a risky product because oranges have a big impact on the cost-of-living index. However, we moved out. But because of the general tight situation in the markets, apparently, regardless of the big supply of oranges against demand, prices went up in many areas where there was no apparent economic reason for it. A lot of people cooperated, the industry cooperated very well with us. A lot of stores cooperated very well with us, also associations. Others, however, charged more. In other words, the economic reasons were right to move out, there was something in the .163 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 atmosphere, inflationary psychology and all, that allowed that price to jump. Now, my feeling is that potatoes, however, worked the other way. In some places they went a little above ceilings, but it was all right, and we have no intention of going back in there, and it looks as though we are in good balance. I think that, starting next summer, next fall, next winter, you are going to find, as production moves up, a very rapid ability to get out of these things. Sure, you will get some jumps here and there. Practically everything we moved out of was jumped up. I do not think that at that point you are going to begin to worry very much, provided your indexes are kept reasonably level and we begin to rid ourselves of this psychology. "I have got to get into stock," or real estate or commodities, or whatever it is, to get protection. And we will get production, it is obvious there is not going to be any sense in going out and scrambling for radios, because there will be plenty of radios. In other words, I do not think you have to wait until you wash out your $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 . Otherwise, we will be here forever. Mr. C R A W F O R D . That is what I wanted to bring out. Then, would you care to go on record—and I am not going to press this, but I am going to give you an opportunity to answer it because most of my correspondence revolves around this proposition—would you care to go on record before the committee that insofar as you are personally concerned, your philosophy is that when supply reaches balance with demand, that you feel there would no longer be a material necessity for the Office of Price Administration? Mr. B O W L E S . Generally, when supply and demand is in balance, I believe that is correct. Mr. C R A W F O R D . Remove controls at that time? Mr. B O W L E S . Yes; and I think that point will certainly come, area by area, at different periods, but in my opinion, as I say, you will have only remnants left by a year from next June. Mr. C R A W F O R D . That is the least I would like to see us do. Now, then, if we, through discussing the disaster of inflation so much, condition the minds of our citizens for the acceptance of a continuation of these controls, so long as there is thrift, so long as there is a great excess buying power, then, it seems to me we are conditioning our minds to accept perpetual economic controls in our economy. Mr. B O W L E S . Under which system your free-enterprise system would be ended at that point. Mr. C R A W F O R D . That is right. I was hopeful that you would take the position that you have, namely, that when supply reaches balance with demand, that that is the time to remove controls. Mr. B O W L E S . Generally speaking. M r . CRAWFORD. Y e s . Mr. SMITH. Mr. Bowles, your figure here of $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 of liquid assets: What do you include in that? Mr. B O W L E S . I probably should not have used the figure, Mr. Smith. I have heard the figure, I thought, from the Federal Reserve Board, but I had better get you their figure. I do not know what it includes. It probably includes savings, increases in currency, increase in savings, cash, bank balances, and all that, and bonds that can be cashed. . 1 6 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 (The following table was supplied later:) Private liquid asset holdings as of the end of June 1945 [Billions of dollars] Item Holdings Holdings Accumulation as of end 1940—first as of end of June of 1939 half 1945 1945 Individuals:1 Liquid assets: Currency and deposits Savings and loan association accountsFederal securities State and local government securities.. Corporate and other securities ( 2 )i - 2 104 7 8 91 110 Total, above assets.. Current liabilities: Consumer short-term debt 3_. Farm short-term debt 4 (2) Total, above liabilities.. Net liquid assets 60 2 49 - 2 148 112 United States corporations:« Liquid assets: Currency and deposits U. S. Government securities Receivables from U . S . Government. Other notes and accounts receivable.. Other current assets • 24 22 4 22 1 74 Total, above assets.. Current liabilities: Advances and prepayments, U. S. GovernmentOther notes and accounts payable— Federal income tax liabilities Other current liabilities 7 2 25 16 9 Total, above liabilities.. Net liquid assetsTotal net private liquid assets: Individual Corporate 148 7 112 15 260 23 Total. 1 Including farm and nonfarm unincorporated business, and private educational, eleemosynary, and other institutions. 2 Less than $500,000,000. 3 Federal Reserve System series. Excludes interindividual debts. 4 Bureau of Agricultural Economics series. Excludes Commodity Credit Corporation loans, which are treated as an income item. »Excludes private banks and insurance companies which are treated in effect as associations of individuals. • Includes chiefly holdings of State and local government securities. 7 Includes renegotiation reserves, withholding tax receipts not yet turned over to the U.S. Treasury, other tax liabilities, and miscellaneous payables including chiefly interest and dividends due. 8 Of this total, $209,000,000,000 represents holdings of currency, deposits, and Federal securities (with no offset for current liabilities) and corresponds to the Federal Reserve Board figure for these categories in June 1945. B y December 1945, the Federal Reserve indicates this total had grown to $225,000,000,000. (Federal Reserve Bull. February 1946, p. 123.) Source: Adapted from data of Securities and Exchange Commission, Federal Reserve Board, and Bureau of Agricultural Economics. OPA, Division of Research, March 11,1946 Mr. SMITH. Assuming this is $ 3 0 0 , 0 0 0 , 0 0 0 , 0 0 0 , that would be your volume of inflation, would it not? Mr. B O W L E S . Yes. That is right. Mr. S M I T H . That is the inflation. Now, then, what you are really doing here is fighting the effects of inflation and not inflation itself; is that not true? .165 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. B O W L E S . I do not know what we are fighting, if you want to define it that way. But I know we are keeping people's food, rent, and so on, from costing a lot more in a blow-up. I know what your point is. People refer to this as the thermometer that I am talking about. But inflation, as it affects human beings, the tremendous credit sitting in the bank in Connecticut does not bother me as much as some consumer living there, working on a farm, or in a factory, unless it reflects itself in a blow-up of prices on rents, commodities, food, and everything I buy. So, whether it is the hen or the egg, I think is an argument you can get into at quite some length. But I know what it means as a citizen. Mr. SMITH. What I am getting at is this: There can be no question that this is the inflation, this excess purchasing power, whatever you want to call it—media, I think is better than power—but that is your real inflation, and what you are doing is fighting the effects of . the inflation. You are advocating, on the one hand, holding down the effects, and, on the other, you are asking for more Government spending, which is inflation. Mr. BOWLES. If you are saying, Mr. Smith, so that we should triple all prices, so that we would absorb this practical money out there, so everything would be in balance at a vastly higher-price level Mr. SMITH. I am not saying that. I am just asking you, Mr. Bowles. Mr. B O W L E S . Well, that would put all your money in balance with goods. You would then have $450,000,000,000, including the $150,000,000,000 we will create this year, $450,000,000,000 worth of goods, and $450,000,000,000 worth of money to buy them. I don't know what kind of balance that would be. We would have an awful mess. The C H A I R M A N . There is a roll call. The committee will now adjourn to meet tomorrow at 10:30 a. m. (Whereupon, at 12:30 p. m., the committee adjourned, to reconvene at 10:30 a. m., Thursday, February 21, 1946.) (The following was submitted for the record:) PROGRESS REPORT ON DECONTROL Since VJ-day price controls have been removed or suspended on thousands of items which do not enter significantly into business or living costs, or of which , supplies have reached or are approaching a safe margin of demand. The broad areas in which most significant progress has been made are: INDUSTRIAL MATERIALS AND PRODUCTS (1) Basic metals and metal products.—Aluminum and magnesium ingots, castings, mill products and scrap; all nonferrous forgings; tool-steel scrap; nickel, monelmetal, and stainless-steel scrap; stainless steel; and drawn steel wire. (2) Motor vehicles and transportation eauipment.—Sales to manufacturers of all automobile parts, except tires, batteries, radios, and some castings; all marine vehicles and equipment; aircraft and aircraft parts; and used automobiles of model year 1925 or earlier and all foreign makes except Canadian and Mexican. (3) Building materials and eauipment.—Prefabricated nondwelling structures, such as garages, barns, and sheds; numerous structural and ornamental iron products, such as tie rods, balustrades, fences, gates, brackets, cornices, etc.; cast-iron pressure pipe and fittings; and practically all types of pipe fittings and valves. . 1 6 6 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 (4) Electrical eauipment.— Custom-built and designed lighting fixtures; radio tubes and wet-cell storage batteries sold to a brand owner; X-ray equipment, except tubes; and electrical measuring and testing instruments for laboratory use. (5) Miscellaneous industrial machinery and eauipment.— All textile machinery accessories and parts made primarily of wood; spring-winding and spring-forming machinery; broom-sewing machines and parts; optical-processing machinery; steam engines, except locomotives; laboratory and industrial-control instruments, parts, and accessories; ingot molds used in the steel industry. CONSUMER GOODS (6) Personal and household accessories.—Most jewelry and practically all novelty and decorative household accessories, such as bookends, serving trays, pictures and picture frames, shoe and tie racks, etc. (7) Housewares.—Food dehydrators, portable fireplaces and ornamental mantlepieces, shopping carts, bird and dog houses, carpet and rug beaters, clothespins, garden-hose reels, etc. (8) Sporting goods.—Practically all sporting goods and accessories, except apparel, shoes, and equipment requiring frequent replacement. (9) Household furniture and floor coverings.—Custom-made wood furniture and rugs; all glass furniture; and such other articles as folding screens, footstools and hassocks, magazine racks, portable bars, tea wagons, unbrella stands, and wooden radiator enclosures. (10) Professional goods.—Dental, surgical, watch repair and scientific instruments for professional use; exercise machines and devices; and laboratory instruments built to purchasers' specifications. (11) Commercial equipment and supplies.—Advertising novelties and signs; coin-operated machines and parts; commercial and institutional kitchen appliances and fixtures; except refrigerators, freezers, and cooking utensils; and custombuilt commercial furniture and fixtures. (12) Textiles, furs, and apparel.—All of the more expensive furs and peltries and garments made therefrom; nonelastic narrow fabrics; raw silk and raw silk waste; cotton threads; and decorative fabrics. (13) All toys, except wheel goods of the more expensive types. FOODS AND RELATED PRODUCTS (14) Fresh and processed fruits and vegetables.—About one-half of all frozen and dried fruits and vegetables; fruit juices and other processed citrus products; white potatoes and fresh cucumbers, eggplant, lettuce, peppers, etc. (15) Cigar tobaccos, and imported cigars and snuff. (16) All imported distilled spirits and wines, except imported whiskies. All domestic wines. (17) Processed fish and sea foods including canned and frozen oysters; fresh, frozen and canned crab meat; and fresh Canadian lake fish. (18) Practically all of the common prepared spices and condiments except black pepper; and numerous other miscellaneous imported and domestic grocery items. TITLE CHAPTER 32—NATIONAL XVIII—OFFICE DEFENSE OF E C O N O M I C STABILIZATION (Directive No. 68) Part Price Stabilization 4004 EXEMPTION OF CERTAIN COMMODITIES AND TRANSACTIONS FROM PRICE CONTROL Pursuant to the authority vested in me by the Act of October 2, 1942, entitled " A n Act to Amend the Emergency Price Control Act of 1942, to Aid in Preventing Inflation, and for Other Purposes," and bv Executive Order No. 9 2 8 0 of October 3 , 1 9 4 2 , and Executive Order No. 9 3 2 8 of April 8 , 1 9 4 3 , It is Ordered: SEC. 1. The Price Administrator is authorized to suspend price control with respect to any commodity, upon such terms and conditions as he deems appropriate, whenever in his judgment such action will not result in an increase in prices above the general level of existing ceilings for the commodity. If after .167 E X T E N D P R I C E C O N T R O L A N D S T A B I L I Z A T I O N A C T S OF 1 9 4 2 such suspension, prices for the commodity rise or threaten to rise above the level of preexisting ceilings, the suspension shall be terminated and such ceilings reinstated. If after a reasonable period of suspension, prices for the commodity do not rise or threaten to rise and the Price Administrator is satisfied that they will not do so, he may exempt the commodity from price control. Any proposed action by the Price Administrator under this section suspending or exempting a commodity which enters significantly into the cost of living shall be submitted to the Director of Economic Stabilization five days in advance of issuance in order that the Director may examine the relationship of the proposed action to other elements in the stabilization program; such action may be issued by the Price Administrator upon expiration of the five-day period unless previously disapproved by the Director. SEC. 2. The Price Administrator is authorized to suspend price control with respect to any commodity or transaction, or in his discretion to exempt the commodity or transaction from price control, in the following classes of cases not falling within section 1 of this directive: (a) In the case of any commodity if in the judgment of the Price Administrator: (1) The commodity does not enter significantly into the cost of living or into business costs ; and (2) Control of the commodity involves administrative difficulties which are disproportionate in relation to the effectiveness of the control or the contribution to stabilization; and (3) Suspension of control with respect to the commodity, or exemption from control, presents no threat of diversion of materials, facilities or manpower from war production or any substantial diversion from the production of other commodities, and does not impair effective price control with respect to other commodities; or (b) In the case of any special type of transaction if in the judgment of the Price Administrator the sales involved are in the aggregate insignificant in the economy and their control involves administrative difficulties which are disproportionate in relation to the effectiveness of the control or the contribution to stabilization. SEC. 3. The Price Administrator may recommend to the Economic Stabilization Director the suspension of price control with respect to any commodity or transaction, or the exemption of a commodity or transaction from price control, in any specific case, not falling within section 1 or section 2 of this directive, in which in his judgment such action is not inconsistent with the purposes of the stabilization laws. SEC. 4. Nothing in this directive shall be construed to impair the authority of the Price Administrator to reduce ceiling prices for any commodity or transaction in any case in which, prior to the issuance of this directive, such action was authorized by the stabilization laws and the executive orders issued thereunder. Nothing in this directive shall be construed to dispense with the requirement of approval by the Secretary of Agriculture in any case in which such approval is required by law. This Directive shall become effective July 25, 1945. Issued this 25th day of July, 1945. [s] W I L L I A M H . D A V I S , Director. Certified to be a true copy of the original. TITLE 32—NATIONAL CHAPTER X V I I I — O F F I C E DEFENSE OF E C O N O M I C STABILIZATION (Directive No. 68—Amendment No. 1) Part 4004 EXEMPTION Price Stabilization OF C E R T A I N COMMODITIES AND TRANSACTIONS FROM PRICE CONTROL Pursuant to the authority vested in me by the Act of Congress of October 2, 1942, entitled "An Act to Amend the Emergency Price Control Act of 1942, to Aid in Preventing Inflation and Other Purposes/' and by Executive Order 9250 . 1 6 8 E X T E N D P R I C E C O N T R O L A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 of October 3, 1942, Executive Order 9328 of April 8, 1943, and Executive Order 9599 of August 18, 1945, it is ordered: Directive 68, Exemption of Certain Commodities and Transactions from Price Control, issued July 25, 1945, is hereby amended in the following respects: Section 2 (a) (3) is amended to read as follows: Suspension of control with respect to the commodity, or exemption from control, presents no substantial threat of diversion of materials, facilities, or manpower from production which is essential to the effective transition to a peace time economy, and does not impair effective price control with respect to other commodities. (E. O. 9250 and E. O. 9328, 3 CFR. Cum. Supp. pp. 1213, 1267, E. O. 9599 (10 F. R. 10155.) Issued and effective this 30th day of August 1945. /s/ William H. Davis, WILLIAM H . Certified to be a true copy of the original. DAVIS, Economic Stabilization /s/ BARBARA Director. DUVALL, Secretary to Director. TITLE 32—NATIONAL DEFENSE C H A P T E R X V I I I — O F F I C E OF E C O N O M I C S T A B I L I Z A T I O N (Directive 68, Amendment No. 2) Part 4004—Price Stabilization EXEMPTION OF C E R T A I N COMMODITIES A N D TRANSACTIONS FROM PRICE CONTROL Directive No. 68, Exemption of Certain Commodities and Transactions from Price Control, issued July 25, 1945 (10 F. R. 9338) is hereby amended in the following respects: Section 1 is amended to read as follows: "The Price Administrator is authorized to suspend price control with respect to any commodity, upon such terms and conditions as he deems appropriate, whenever in his judgment such action will not result in an increase in prices above the general level of existing ceilings for the commodity. If after such suspension, prices for the commodity rise or threaten to rise above the level of preexisting ceilings, the suspension shall be terminated and such ceilings reinstated. If after a reasonable period of suspension, prices for the commodity do not rise or threaten to rise and the Price Administrator is satisfied that they will not do so, he may exempt the commodity from price control. Any proposed action by the Price Administrator under this section suspending or exempting a commodity which enters significantly into the cost of living shall be submitted to the Director of Economic Stabilization four days in advance of issuance in order that the Director may examine the relationship of the proposed action to other elements in the stabilization program; such action may be issued by the Price Administrator upon expiration of the four day period unless previously disapproved b}r the Director. (E. O. 9250, E. O. 9328, 3 CFR, Cum. Supp. pp. 1213, 1267; E. O. 9599 (10 F. R. 10155.) Issued and effective this 18th day of September, 1945. (Signed) William H. Davis WILLIAM H . DAVIS, Economic Stabilization Director. 1946 EXTENSION OF THE EMERGENCY PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED M O N D A Y , FEBRUARY 25, 1946 H O U S E OF R E P R E S E N T A T I V E S , C O M M I T T E E ON B A N K I N G AND C U R R E N C Y , Washington, D. C. The committee reconvened at 10:30 a. m., Brent Spence, chairman, presiding. The C H A I R M A N . The committee will be in order. Chairman Eccles, of the Federal Reserve Board, is our witness this morning. We are always glad to hear from you, Mr. Eccles. Have you a prepared statement? Mr. E C C L E S . I have a short prepared statement, Mr. Chairman, but I finished it only this morning, and I have not had time to have it mimeographed. I hope to have the mimeographed copies up here later. The C H A I R M A N . Would you like to conclude the reading of that without interruption and then subject yourself to interrogation? M r . ECCLES. Y e s , sir. The C H A I R M A N . All right. You may read your statement without interruption, and then subject yourself to questioning. STATEMENT OF M A R R I N E R S. E C C I E S , RESERVE CHAIRMAN, FEDERAL BOARD Mr. ECCLES. This committee would agree, I think, that inflationary dangers exist when the supply of money in the hands of people who wish to spend it far exceeds the volume of goods and services available. The more this money supply exceeds the supply of goods, the greater the inflationary pressures are certain to be. It is beyond dispute that the money supply today is at an all-time high level, that there is a greater backlog of demand for all kinds of goods than ever before, and that while reconversion has proceeded more rapidly than had been expected, in many important categories goods available to meet domestic, let alone foreign, needs are and will continue, for an indefinite time, to be far short of demands. Accordingly, there can be no doubt that the Emergency Price Control Act of 1942 should be extended for a sufficiently long period to enable production to become reasonably correlated with demand. Price controls, however irksome and difficult to administer and adjust, are virtually our last bulwark against increasing costs of living. This is so because of the extent to which we have removed, reduced,or avoided other wartime control mechanisms. We did away with the 169 . 1 7 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 War Production Board and its allocations of scarce material, and its construction permits. We discarded the War Labor Board and its wage controls. Rationing has been largely abandoned. The excessprofits tax has been eliminated altogether, and individual taxes have been reduced. The workweek has been sharply cut. We have avoided adequate measures to curb speculation in capital assets, particularly in the real-estate field. Because we have discarded, diminished, or avoided other controls, while incomes have remained very high, it is all the more urgent to retain the Price Control Act until this country's immense capacity to produce, so amazingly demonstrated during the war, brings about an equilibrium between the income and savings which people have to spend and the availability of the goods and services they wish to buy. What is the money supply today? Measured by demand deposits— that is, checking accounts and currency—the general public, excluding banks, insurance companies, and so forth, but including Treasury deposits—has available in demand deposits and currency over $125,000,000,000, or more than three times as much as in June of 1940. In addition, the public holds another hundred billion dollars of Government securities, or eight times as much as in June 1940, and nearly $50,000,000,000 of savings deposits, or nearly twice as much as in June 1940. To the extent that dollars borrowed by our people, or foreignowned or borrowed dollars, are added to these resources, the inflation potential will become all the greater. Even allowing for a larger postwar national income, there can be no doubt that on the money supply side of the equation, the total today is nearly five times the amount prior to the war, and is at present vastly in excess of available goods and services. It is important to understand how such a tremendous increase in the money supply came about, because the process should be stopped, and if possible reversed now that the war is over. Necessary as it is to retain price and other essential controls for a while and to clear away obstacles, particularly wage and price disputes that prevent or reduce vitally needed production, these objectives need to be accompanied by an equally strong determination that the Government shall not add further to the money supply. There is not a sufficiently widespread realization of the fact that our money supply expands through borrowing, whether by private interests or by the Government, from a commercial banking system, and that, conversely, the money-supply contracts when bank loans are paid off or their Government bond holdings are reduced. To the extent that we failed to cover the cost of the war by taxation, or by borrowing from the general public, we relied on the banking system to furnish the money. Thus, between June 30, 1940, on the eve of our defense program, and the end of 1945, the Government raised over $380,000,000,000. Of this, $153,000,000,000 came from taxes, or only 40 percent; $228,000,000,000, or 60 percent, came from borrowing and of this, $133,000,000,000, or about 60 percent, came from selling Government securities to others than commercial banks and the Federal Reserve banks, while $95,000,000,000, or 40 percent was raised by selling Government securities to the commercial banking system and to the Federal Reserve banks—a process which created an equivalent amount of new money. .171 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 This tremendous expansion of bank credit, which has so greatly swollen our money supply, is a primary source of inflationary pressures at this time, and will continue to be until goods and services are available in sufficient quantity to balance more evenly the factors of supply and demand. It is evident, therefore, that on the money side of the inflation problem, the Government should stop and, if possible, reverse the process whereby it creates bank credit. It can stop further creation of bank credit by bringing about a balanced budget. It could reduce the existing supply of money in two ways: One would be by paying down the public debt. The other would be by having the commercial banks sell some of their Government securities to nonbank investors. Since this should be accomplished without any increase in interest rates, which would, in turn, increase the cost of carrying the Federal debt, it would be desirable to have the commercial banks sell some of their long-term holdings to nonbank investors and to have commercial bank holdings more concentrated in shorter term securities bearing a lower rate of interest. Stopping further monetization of public debt in the banking system will tend also to stabilize interest rates so that they will reflect the volume of savings and investment funds in relation to demand, instead of reflecting an increasing volume of bank credit. This, in turn, will help to reduce the inflationary effect that a combination of increasing bank credit and decreasing interest rates has on all capital assets. Policies dealing with the money side of the inflation equation need to be accompanied by wage and price policies on the other side of the equation that will make for rapid achievement of a high level of production on a permanently sustainable basis. Wage increases can only be justified when they can be met out of increased productivity and profits, without increasing prices. Clearly, wage increases that result in price increases to the consumer are inflationary. It has been contended that all price controls should be removed now in order to insure full production. Where price ceilings do not, in fact, afford a sufficient margin of profit to call forth production, they can and doubtless will be adjusted, but these instances are not general. To argue against all price controls is like arguing against vaccination on the ground that it is better to contract smallpox in the hope that you may recover from the disease than it is to take necessary precautions against contracting it while efforts are being made to eradicate the sources of the infection. To the extent that we can deal effectively with the money supply and production factors, we will be getting at the root causes of the inflationary problems confronting the country today. Price controls, rationing, curbs on consumer credit or on stockmarket credit, and similar devices, admittedly deal only with effects and not with basic causes of inflationary pressures. In brief, prudent policy at this time calls for measures to get at the fundamental inflationary causes by curbing or reducing the money supply, on the one hand, and by increasing available goods and services, on the other hand, and meanwhile, retaining price controls, reinforced where necessary by other restraints, until the factors of demand and supply can be brought into a better balanced relationship. Unless we pursue such a policy, we run immeasurable risks in view of the inflation potential existing today. If we were to permit a sharp 83512—46—vol. 1 12 . 1 7 2 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 rise in prices to occur, the holders of liquid assets might lose faith in the purchasing power of their holdings. The consequences could be disastrous. I should like to quote just a very short statement that I made approximately two years ago when I appeared before the Senate committee in connection with renewal of the Price Control Act, because it bears so directly upon this question. At that time, I made this statement: Inflations seldom get out of hand during wartime, but the danger carries over after peace comes and a war-weary people, tired of wartime controls and restraints, are eager to throw them off. That is just the time when it may be fatal to relax prematurely the controls of war-engendered inflationary forces. That is why it is so important to extend the life of this legislation for a sufficient period after the war to enable the country to convert its enormous productive capacity to turning out, for peacetime consumption, a supply of goods comparable to what it has shown itself capable of turning out for war purposes. If the public is led to believe, however, that the price, wage, and rationing controls are going to be weakened, or not continued as long as may be necessary, confidence cannot be maintained in the purchasing power of our money. Without that confidence, not only would the successful prosecution of the war be jeopardized, but an orderly transition to a peacetime basis would be out of the question. That still applies today. That, Mr. Chairman, completes my statement. The C H A I R M A N . Mr. Eccles, I judge from your very excellent statement that you think that the economic pressures that make for inflation are as strong now as they have been at any time? Mr. E C C L E S . I think they are stronger, Mr. Chairman. The C H A I R M A N . H O W long do you think the controls should be continued? Mr. E C C L E S . Well, I would say the act should be extended for at least a year. I suggested, a year ago, that the controls be continued 2 years after the war so that the public would not be waiting for the controls to go off, and would adjust itself and learn to live with them, realizing that they would be discontinued as soon as the various factors came into balance—that the controls would automatically work themselves out. Certainly, at this time, any less than a year's extension would be a very great mistake, because there would likely be considerable waiting until the controls went off, in order to get higher prices. Instead of getting goods into consumption, you would likely find many instances where they were held back in the form of excessive stocks of raw materials, semifinished products, and finished products. That, of course, would greatly add to the pressures. The C H A I R M A N . Mr. Brown, do you have any questions? Mr. B R O W N . Yes, Mr. Chairman. Mr. Eccles, do you agree with me that full production is the best weapon against inflation? "Mr. E C C L E S . Yes, it seems'to me it is the only effective weapon. I do not mean by that that we must not stop the expansion of the means of payment. Mr. B R O W N . I understand. Now, do you agree with me that we should encourage those engaged in production and not discourage them? Mr. E C C L E S . I think they should be encouraged. I think they are being encouraged. .173 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. BROWN. Well, I am just asking you whether you think they should be. Then, it strikes me that we should get together on the best w a ^ of encouraging production. Mr. ECCLES. That is right. The CHAIRMAN. But, Mr. Eccles, production itself will not eliminate the danger of inflation until production has supplied the necessary goods and services which the people demand; is that not true? I mean the commencement of production, even full production, would have no effect on the inflationary conditions until production has produced what the people desire to buy? Mr. ECCLES. That is correct. The CHAIRMAN. And we ought to retain these controls, as I understand it, until we have produced the goods that would eliminate the dangers of inflation. It would be hazardous to discontinue them just because you are in production, when production has not yet produced what the people desire. Mr.-ECCLES. We must retain, in my opinion, the controls until we greatly increase the supply of goods and services that the people want to buy and until there has been some opportunity to catch up with the backlog. But while we are doing that, we must not undo the benefits of it by further expanding our money supply. The CHAIRMAN. Mr. Crawford. Mr. CRAWFORD. Mr. Eccles, I think that last sentence of yours should be added to your direct reply to Mr. Brown's question with respect to production. If the answer to inflation is through production primarily, we must discontinue these inflationary forces as you have pointed out, along with the stepping up of production. Mr. ECCLES. That is correct. Mr. CRAWFORD. In other words, we might step up production very, very materially, and if we still continue to broadcast inflationary forces, we will certainly be operating in opposite directions. Air. ECCLES. We would be trying to go in two opposite directions at the same time. Mr. CRAWFORD. Yes, sir. Now, I have three or four more questions. Along the same lines, the other day I submitted this question to Mr. Bowles. I would like to get your answer on it, as direct as you can make it. And I will read from the official transcript so that the language I submit to you will be exactly that which was submitted to Mr. Bowles. So long as you are Administrator, do you take the position that these controls should go off as we bring supply in balance with demand, or do you take the position that the controls should continue as long as there is a great backlog of pentup buying power, which, in the absence of control, can be exercised by the citizen at his will? Now, that is the question I submitted to Mr. Bowles. What prompted that question primarily in my mind was his numerous statements about the forces of inflation and the disasters that would come to us if those forces were not somewhat modified or controlled. I think you have given us the finest direct statement as to the volume of these inflationary forces which we have presented to the committee. So I would like to submit this question to you now, in line with what you have already stated. Do you take the position that the controls should be continued until supply comes into balance . 1 7 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 with demand—I mean, practically speaking—or do you take the position that these controls should be continued as long as we have that pent-up buying power which constitutes these inflationary forces, as you have defined them? Mr. ECCLES. I think we should maintain controls until the supply comes into balance, or reasonable balance, with the demand. What we term the pent-up inflationary forces or the inflation potential, as measured by deposits, currency, and Government securities, are not likely to create inflationary problems if the supply of goods is in reasonable balance with the desire of the people to purchase. When supply and demand for goods are in reasonable balance, people will hold their money in Government securites, or in savings deposits, or in currency, or they will invest it, possibly, in additional Government securities. If we have a balanced budget—which we should have—or a surplus, then, the bank holdings should diminish as the public invest their currency and deposits in Government securities. If the Government is not requiring additional deficit financing, we should see to it that bank holdings of Government securities are reduced, and that holdings of the public are increased. We would have been very much better off if we had been able to accomplish much more along this line during the war. To the extent that we can shift holdings from the banks to the public we may be able to keep a large volume of potential purchasing power without it having any inflationary effect. Mr. C R A W F O R D . N O W , you mentioned extending the act for 1 year. Based upon the information which is available to you as Chairman of the Board of Governors of the Federal Reserve Board, do you think it is reasonable for us to assume that that supply of goods will be in balance with demand by July 1, 1947? That is, to the practical degree that is necessary in connection with this legislation? Mr. E C C L E S . Well, that, of course, will depend on the extent to which this wage-price policy is effective in bringing about production. Certainly we have demonstrated that we have the capacity to produce enormously. If we can take the civilian production during the war, and convert the capacity devoted to war to production of civilian goods it would seem to me that, with some exceptions, we should be able to meet, pretty largely, the demand, so that the public would not be likely or willing to follow prices up. In the construction field, there is no question but what, for some time, there will be a great shortage, and I think that building permits to determine what may be built may have to be kept on for some considerable time. Prices of scarce building materials will likewise have to be controlled. It may be that there will be excessive demand for some other items—automobiles, for instance. I cannot imagine that the supply-demand situation in the automobile field can be brought into balance within a year from this time. But, generally speaking, in the clothing field and in food supply— if we get good crops this year—there should be an adequate supply. Mr. C R A W F O R D . What would you say about household appliances? Mr. ECCLES. I think that will be pretty largely met. The capacity to produce is simply enormous in that field. Mr. C R A W F O R D . Then, would it be fair to summarize your thought something like this: that in the event that within 12 to 18 months we .175 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 do bring these products which people must have, and so greatly desire, largely into balance as regards production, supply and demand, and if we do some of these constructive things with respect to stopping the spread of inflationary forces which you have' recommended that within 12 to 18 months we might reach a point where these controls could be very generally removed? Mr. ECCLES. Yes; I think we can do just that. Mr. CRAWFORD. That that is the procedure to be followed, although we may have, within the hands of the people, a very large pent-up backlog of buying power of perhaps 100 or 200 billiou dollars, but which would not be crowding into the market by reason of the things you point out? Mr. ECCLES. I certainly think that is true. That, however, as I say, is dependent upon the price-wage policy. Mr. CRAWFORD. Very much so. Mr. ECCLES. Upon that policy succeeding, and likewise certainly upon a balanced budget, and, if possible, a surplus. Now, that cannot be accomplished if we are going to start reducing taxes at this time, and it does not seem to me to make very much sense to maintain price controls, and other controls, while, at the same time, we increase purchasing power by reducing taxes. Mr. CRAWFORD. I think that is a very sound statement. Now, I have two other questions on that same subject, but which are tied to your statement issued on January 17, when the Board of Governors of the Federal Reserve System increased margin requirements to 100 percent, in order to dampen speculative activity of the stock market. And I want to read two very brief paragraphs which appeared in your statement as published in the February 1946 issue of the Bulletin: In addition, it is important to point out that so long as the public debt continues to be monetized through the purchase of Government securities by the banking system, the supply of money will continue to increase, thus tending further to reduce the interest rate on savings and investment funds. The resultant pressure of an increasing money supply and of lower interest rates is bound to have a further inflationary effect upon all capital assets, and to increase the difficulty of holding down the cost of living. It is, therefore, imperative that the process of further monetizing of the public debt through the banking system be ended, so that the rate of return on investments would be stabilized and would reflect the supply of savings and investment funds in relation to the demand instead of reflecting an increasing amount of bank credits. This process needs to be stopped, not only by bringing about a balanced budget, but also through measures to check further unnecessary expansion of commercial bank holdings of Government securities. I think that conforms very much to what you have said this morning. Now, my two questions on that point are these: First, what has been done since this statement was issued to keep the interest rates from going still lower? Mr. ECCLES. Well, there has not been anything done. Mr. CRAWFORD. In other words, we are still marking time on that? Mr. ECCLES. That is correct. I would say that the announcement of the Treasury to pay off, out of their balances, $1,000,000,000 on March 1, of Treasury certificates, and 1.3 billion dollars of 1-percent notes, and $500,000,000 of 3%-percent bonds, on March 15—a total of 2.8 billion dollars—is in the right direction. The Treasury raised, in the Victory drive, far more money than it needed, and it is, therefore, likely to find that it will be able to reduce substantially the debt . 1 7 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 during the next year—as indicated in this first step. The Federal Reserve agreed fully with this first step of the program. It is a mild step in the right direction. Mr. C R A W F O R D . The general fund is now about 2 4 } i or 2 5 billion dollars, is it not? Mr. ECCLES. That is correct. Mr. C R A W F O R D . N O W , the other question I have on this same thought is this—and this gets into matters of high policy and you may not want to answer it. Is the Board, or are you likely to eliminate the preferential rate of one-half percent on advances by the Federal member banks secured by the Government with maturity of less than 1 year? Mr. E C C L E S . Well, the initiation of that, of course, comes from the 12 Reserve banks. They must propose the elimination of that preferential rate, and then it is up to the Board to approve. Of course, it would be rather premature for me to speak for the 12 banks and the Board members, as to what should be or would be done in that regard. I can say this, however, that the rate was put into effect as a war measure, to help finance the war. It was established in 1942 to make it easy for commercial banks to get reserve credit, so that they could purchase such Government bonds as were necessary to assure the financing of the war at the low interest rates on which it was determined the war should be financed. We were undertaking an unprecedented financing operation, and nobody ever dreamed before of having to raise $60,000,000,000 in 1 year, which we did, as I recall, in 1943 and 1944. We had to assure the Treasury that their financing would be eminently successful, and the door to the Reserve banks was opened so that commercial banks could create reserves at a favorable rate. In my opinion, the need for that rate ceased to exist atv the end of hostilities, and it only serves to indicate to the banking system that they can get funds from the Federal Reserve with great ease, and this enables them to buy more securities in the market. As you know, for each dollar of Federal Reserve funds that are furnished the banks, they can buy $5 worth of securities in the market. It tends, in other words, to encourage rather than discourage the creation of more bank credit. Eliminating the rate would in no way increase the cost of Treasury financing. The preferential rate is not necessary to maintain the rates which the Treasury now pays for money. Those rates would be maintained by open-market operations. I would like to point out, however, that the banks have used, to quite a limited extent, the discount privilege on the preferential rate. I think at the present time there is only about $400,000,000 of credit extended to the banks on the basis of that rate. Mr. C R A W F O R D . Dr. Smith wants me to ask you what the rate is. Mr. ECCLES. What it is? Mr. C R A W F O R D . What rate you speak of? One-half of 1 percent? Mr. SMITH. What is this rate? Mr. ECCLES. One-half of 1 percent. On Government securities callable or maturing in less than 1 year—1 year or less. Mr. SMITH. Is that the rate that the Federal Reserve pays the banks? .177 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. E C C L E S . N O ; the banks can borrow from the Federal Reserve on Government securities that mature in 1 year or less at one-half of 1 percent. Mr. SMITH. That is the figure I wanted. M r . ECCLES. Y e s . Mr. C R A W F O R D . Mr. Chairman Eccles, did I pick up from your statement which you read there, some reference to the inflationary effect that would follow should we, in making loans to foreign countries, carry the transactions through the Treasury, selling the bonds to our people, or to the banks? What did you say on that? Mr. E C C L E S . Well, I made this point: To the extent that credit is created through the banking system—either an expansion of domestic credit or foreign credit Mr. C R A W F O R D . That was my point. Mr. E C C L E S . Either of them will add to the supply of money, and that, to the extent that foreign credit may be extended by the banking system, or domestic credits are extended by the banking system, or to the extent that the Government extends foreign credits, and, in turn, finances those credits through the banking system, it creates money. Mr. C R A W F O R D . Would you care to briefly comment on whether or not there is any other practical method of financing we will say, the British loan, other than through Treasury transactions? Mr. E C C L E S . I do not think there is any possible way of meeting it except in that way. However, I would like to say this, in connection with the British loan: It is something that will extend over a period of years. The impact of that does not come all at once, by any means. Mr. C R A W F O R D . All right. Thank you. The C H A I R M A N . Mr. Patman. Mr. P A T M A N . Mr. Eccles, in giving the different amounts of money now in the hands of the public, or liquid assets, you took into consideration, I guess, the amount of money in actual circulation today? Mr. E C C L E S . That is right. I took it as of the end of the 37ear. It was as of December 31. Mr. P A T M A N . About how much was it then; about $ 2 8 , 0 0 0 , 0 0 0 , 0 0 0 ? Mr. E C C L E S . Y O U mean in circulation? M r . PATMAN. Y e s , sir. Mr. E C C L E S . About $ 2 8 , 0 0 0 , 0 0 0 , 0 0 0 . Mr. P A T M A N . H O W do you account for that large amount of money being in circulation? That is about four times as much as we ever had in circulation up until this war. Mr. E C C L E S . That is right. Mr. P A T M A N . H O W do you account for that? Why would people draw out so much money in actual cash? Mr. E C C L E S . Well, there are several combinations of reasons. 1 f First, prices are higher. It takes more money to do business. Mr. P A T M A N . N O W , which prices? Mr. E C C L E S . Consumer prices as compared with 1 9 4 0 are possibly—• oh, I do not know, some estimate 30, 35, or 40 percent higher than they were then. Mr. P A T M A N . Well, that is bound to be on certain prices. Mr. E C C L E S . I am speaking of the average. Some are 6 0 percent higher, some are 20. I mean the average increase in the cost of living is estimated to be between 30 and 40 percent. . 1 7 8 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 194 2 Mr. P A T M A N . All right. Well, that would account, say, for a 4 0 percent increase? Mr. E C C L E S . That is right. Mr. P A T M A N . Which would be very small in comparison with the large amount in circulation. Mr. E C C L E S . Well, that would be maybe $ 3 , 0 0 0 , 0 0 0 , 0 0 0 from that source. M r . PATMAN. Mr. E C C L E S . Y e s , sir. Then, the pay rolls are very much larger than they were prior to the war. You have 5 2 , 0 0 0 , 0 0 0 employed, and the wages they get are higher. We have substantially more employed and the weekly pay is substantially greater. Together these would account for—I have not estimated the exact amount, but it would account for a good many billion dollars. Mr. P A T M A N . All right. Mr. E C C L E S . Another factor in the increase is that more people are away from home, especially war workers and persons in the armed forces. There was a great shifting and moving of people from their home communities, where they had banking connections and carried their savings and other accounts. As a result these people carried more money—a good deal more money—in their pockets than they would have had they not been moving around. We figure that is an important factor. Another factor is that the bank service charges, I think, increased the amount of currency used rather than checking accounts. I think that is to the good. To the extent that these bank accounts were small and the number of checks issued was considerable, the accounts were carried at a very substantial loss. With the increased cost of doing business, with the great labor shortage, to the extent that the total amount of small checks was reduced it was a sound banking development. That was, no doubt, a very substantial factor in increasing the use of currency and took the place of a great many small checks. Then, there are two other important factors. The black-market operations carried on in currency—-which are harder to follow—and those, of course, during the war, have been quite substantial. And tax evasion is another factor that accounts for a substantial increase in currency. Then, I think there is some—I do not know what amount—that is held by foreigners, who have great confidence in America and the American dollar. Where it is impossible to get gold, they felt that this was the best currency, and wherever they have been able to get hold of it, I think there are some foreign funds carried in currency. The amount outstanding, taking into account all of these factors, is not at all alarming. The upward trend of currency expansion seems to have ended, and for the first time it appears to have turned downward. Mr. P A T M A N . I notice in one period some $ 5 0 0 , 0 0 0 , 0 0 0 . Mr. E C C L E S . Well, it is down about $ 7 0 0 , 0 0 0 , 0 0 0 since the end of the }^ear. That is a normal seasonal trend. Even last year, for the first 2 weeks, there was a downward trend, because during the holiday period, when shopping is great, there is always an expansion of currency, but after the first of the year currency flows back into the banks, out of circulation. But this year the downward trend has continued. .179 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 It has not turned upward in the middle of January as it did a year ago. It is our feeling that if we hold this line, and prevent inflationary developments, there is not likely to be any material further expansion of currency. Mr. P A T M A N . N O W , you mentioned two things there: Tax evasion was one of them, and the other, black-market operations. Both will contribute toward inflation. I believe you will admit that? Mr. E C C L E S . That is right. Mr. P A T M A N . Have you given consideration to any plan by which you might minimize these two operations? Mr. E C C L E S . Well, the responsibility for that, of course, is in the tax field, and is up to the Treasury. Mr. P A T M A N . I have an idea, though, that you have personally given it some consideration, have you not, Mr. Eccles? Mr. E C C L E S . Well, I have, yes; but I think it would be inadvisable to discuss either of those questions. Mr. P A T M A N . Well, suppose, just for the benefit of the committee, you would tell us just what you think could be done that would be helpful in that direction? Mr. E C C L E S . I do not feel that I am qualified, Mr. Patman, to express views on that subject, because there are a good many aspects to it. Mr. P A T M A N . Well, I will not press you. Mr. E C C L E S . I believe that the Treasury, on this question of tax evasion, is making quite a drive. One of the difficulties, of course, during the war, was that it was practically impossible to add to the number of competent people in the Internal Revenue Bureau. So many men were taken out by the draft, and the volume of work of the Bureau was tremendously increased, so that the job of inspection and the job of supervising the tax-collection work was terrifically handicapped. But with the end of the war, and an adequate supply of personnel available—and I understand Congress has furnished the Treasury with such funds as they need to employ extra inspectors— I think without question they can do a great deal in stopping the tax evasion, and in collecting some of the past taxes that should have been paid. Mr. P A T M A N . I notice where you raised the requirements to purchase stock, you eliminated the margins; in other words, in stock purchases? Mr. ECCLES. Correct. Mr. P A T M A N . IS there anything else you could do toward retarding the stock market? Mr. ECCLES. There is practically nothing else we can do. Mr. P A T M A N . Have you made any recommendation or any plan that you would care to discuss that would be helpful along that line? Mr. ECCLES. I made a recommendation concerning capital-gains taxation a year ago last January. Mr. P A T M A N . That is right. Mr. ECCLES. I mentioned it when I was questioned before the Senate Banking and Currency Committee and this question came up. I have made the same recommendation upon several occasions in connection with the work of the Economic Stabilization Board, of which I am a member. In the statement that was released to the . 1 8 0 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 press at that time—I happened to bring a copy of it along, thinking this question might come up—this is what was said: The most effective way that I know of to curb speculation in capital assets would be to increase substantially the rate of the capital-gains tax, or the holding period, or a combination of both. For a long time I have advocated enactment of legislation to this end as a temporary protective measure applicable to all future purchases. This would not deter the selling of assets held at the time that the measure was introduced in Congress, but it would greatly deter buying for the speculative rise after that date. It would not affect the purchase of capital assets of any kind which have been or are being bought for personal use or a long-term investment, rather than for the speculative rise. Mr. P A T M A N . I recall that testimony, and I think you are right about it. I think one of the greatest mistakes we have made was reducing taxes so soon and so much, and I think we should have gotten more as we went along, and I think we should have increased the capital-gains tax for the reasons which you have suggested there. It would have been helpful. Now, one other thing and then I will be through, Mr. Eccles. You mentioned that if we did not curb inflation, that there would be a flight of the dollar. That people would use their liquid assets to buy things. What do you suggest they would buy? Stocks, real estate, and things like that? Things that might increase in value along with the decrease in value of the dollar? Mr. E C C L E S . That is right. Money, or debt forms, such as mortgages, Government and other bonds are, of course, like money, and their value diminishes if there is a decline in the purchasing power of money. I do not mean their price declines, but the value of the dollars they are payable in declines. People are always looking for a hedge against inflation, and stocks—preferred and common—real estate of all kinds—farms, homes, business properties—and commodities, of course, are a way to hedge against inflation. The records in Europe, where there has been ar excess supply of money and a scarcity of goods available, such as is the condition today in most of the European countries, show that there is a great pressure for prices to go up. I think that our stock market, our real estate, and even commodities that can be bought, would skyrocket if this Price Control Act were not extended, and vigorously enforced, and unless we maintain taxes, balance the budget, and maybe pay off some of the debt and unless we stop the banks from creating additional money. Those are, I think, the things we must do to stop this potential from being effective in its inflationary effect, and to cause the public to maintain the confidence that they have today, and justifiably so, in our money. The public has money in savings accounts, Government bonds, insurance policies, retirement funds, and so forth. It seems to me that we have a terrific responsibility—this Government has— to see that the purchasing power of those funds, those investments in insurance, and in savings, and in Goevrnment bonds, are protected, T Mr. P A T M A N . What do you consider the value of the dollar to be today compared with the period immediately preceding our entrance into the war? Mr. E C C L E S . Well, of course, there is a good deal of argument as to what our inflation has been. Measured by the increase in the cost of living, I think the Office of Price Administration figures that it is about 30 percent or so inflated—which is about as good a job as any country has done. I think maybe Canada has done, if anything, a .181 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 little better job than we have. But with most other countries; there has been a greater inflation than that. I would expect that with increased wages and prices resulting from the new wage-price policy, we will get some further increase. It is estimated that there is a possibility of it reaching as high as a maximum of 40 percent. I would think, if the cost of living can be held to 40 percent above the prewar level, that we will have done a fairly good job considering the size of the public financing that has been undertaken. Mr. P A T M A N . Y O U were not here when we were considering the housing bill, which is considered an anti-inflationary bill. Have you given consideration to the fixing of prices on existing homes? Mr. ECCLES. Yes. I have been in a discussion or two where that matter has developed. In that particular field the job of enforcement is exceedingly difficult. Theoretically, I think the proposal is fine, if it could be made to work. But the job of enforcement is going to be a particularly formidable one. Of course, as I understand the proposal, it is to freeze the price of a home after its first sale. Mr. P A T M A N . The first sale after the law passes. Mr. ECCLES. That is right. That is the price. From then on, it is frozen at that price. Mr. P A T M A N , During the emergency. Mr. ECCLES. That is right. Of course, that would keep the home from being sold a second and a third and a fourth time for speculative profit, but, of course, it would not keep it from selling at an inflated price the first time. Mr. B R O W N . Mr. Patman, will you yield? M r . PATMAN. Yes. Mr. B R O W N . N O W , I do not know a home anywhere that you could get as much for as it would cost you to buy the lot, to byy all the materials, and pay the high cost to carpenters, that you could not rebuild the same house for what you can get for it today. I do not know of any anywhere in my section of the country that would bring as much as it would cost to construct the same house. Therefore, building materials and the construction of new houses will absolutely control the sale price of old houses. Mr. B U F F E T T . Would you yield, Mr. Patman? Mr. P A T M A N . Well, I am going to give up the witness. The C H A I R M A N . We will call the committee in order. Proceed, Mr. Patman. Mr. P A T M A N . Y O U mentioned these sales. Was not the second, third, and fourth sale the principal cause of inflation during the last war, Mr. Eccles? That a real-estate dealer would sell the home to the family, and the family would hardly get located until the dealer would go back to him and say, "Now, get your thousand dollars profit on this," and they would keep on pyramiding them that way. Was that not one of the main reasons and one of the principal causes for inflation in housing after the last war? Mr. ECCLES. I think it was a factor, and I think it is a factor now, and will continue to be a factor, and, therefore, the proposal, to the extent that it does stop the multiple sale of the same house, is of some value and effect. Mr. P A T M A N . Y O U do not know of any better plan, do you, Mr. Eccles? . 1 8 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 M r : ECCLES. Well, I think that the capital-gains tax might be a good plan. M r . PATMAN. Mr. E C C L E S . Yes. In other words, I do not see any reason why we should discriminate against homes in favor of stocks, business properties, and farms. They are all capital assets. Mr. P A T M A N . That is right. Mr. ECCLES. To the extent that you shut the door to inflation in one field, you may tend to stimulate it in another. It would seem to me that the most practical way to get at the inflation of homes as well as farms, business properties, and stocks, is to take out this speculative profit. People who are in the high-income brackets are buying for the rise, because after holding for 6 months, they can sell and pay only a 25-percent tax. Mr. P A T M A N . I realize that. Mr. E C C L E S . We have left the door wide open in that field, and there have been simply millions and millions of dollars made by speculators. We are encouraging speculation in capital assets. We have done absolutely nothing to stop the speculation. Mr. P A T M A N . Well, I do not agree with you. We are not doing everything we can. We are not doing anything to encourage it. We are just failing to act to stop it. Mr. E C C L E S . Well, possibly that is a better way to put it. In other words, we have done nothing to stop inflation in capital assets. Mr. B R O W N . Then, you say that if they put a ceiling on existing homes, they ought to put it on stocks, farms, bonds, and have everything treated alike? Mr. E C C L E S . Well, as a practical matter, you cannot solve it by putting a, ceiling, it seems to me, on stocks or bonds, or farms. It would be even more difficult than it would be with homes. What I am saying is that they are all capital assets, and we should stop speculation by extending the holding period, and putting a special tax on the speculative gains. The C H A I R M A N . Governor Eccles, would you be able to return this afternoon? There are several members who still have to interrogate you and you will not be able to conclude your testimony now. Mr. E C C L E S . I will be able to return. I would like to get through today if I can. The C H A I R M A N . Well, if you will return at 2 o'clock, that will be all right. The committee will adjourn until 2 o'clock. (Whereupon, at 12 noon, the committee adjourned, to reconvene at 2 p. m.) AFTERNOON SESSION (Whereupon, the committee reconvened at 2 p. m., pursuant to the recess.) The C H A I R M A N . The committee will be in order. Mr. P A T M A N . Mr. Chairman, I just want to ask one or two short questions. The C H A I R M A N . Mr. Patman. Mr. P A T M A N . Mr. Eccles, I do not want to press you for an answer on these things, but it occurs to me that the Federal Reserve Board is really an agency of Congress, is it not? Is that the way you view it? .183 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. E C C L E S . That is the way I read the statute. We are required to make reports to you every year. Mr. P A T M A N . Well, being an agency of Congress, do you not think that we would be within our rights in insisting on you giving us the benefit of your views and suggestions, which would be helpful in answering the situation as it now exists or might exist in the future as regards inflation? Mr. ECCLES. Well, I think that it is certainly the right of Congress to request the Board, as its agent, for any information and advice that we are able to give. Mr. P A T M A N . I asked you about these reserve requirements this morning. I wonder if you would mind, in view of that premise elaborating a little more fully on what the answer would be in regard to changing the reserve requirements of banks? Mr. ECCLES. The Board has used practically all of the power it has to increase the reserve requirements of the banks. In the case of the central Reserve cities, namely, Chicago and New York, only, the Board does have authority to increase the reserve requirements against demand deposits by 6 percent. That is the limit to which our present statutory authority would enable us to go. Mr. P A T M A N . Well, if we were to press you for your views on any stand you might have, do you have any views that you would care to express or would be willing to express, which you believe would be helpful if carried out by Congress in combating inflation? Mr. ECCLES. Well, I feel that the Federal Reserve Board has practically no power to deal with the monetary aspect of inflation that it has not already used, with the exception of increasing interest rates. To the extent that the Reserve System, or the Open Market Committee, we will say, permitted the short-term rate on Government securities to go up, that would be a deflationary factor. To the extent that the discount rate, that is, the regular discount rate, which is now 1 percent, increased, the psychological effect of that, I have no doubt would be a deflationary factor. However, it would be quite unsatisfactory, it seems to me, to try to meet the present problem by what was considered the usual or the orthodox way of dealing with inflationary forces, which was through increasing the discount rate, raising interest rates. Now, the reason for not following this course is that it would increase the cost of carrying the public debt, which is already very high, and it would likewise increase the earnings of the banking system, which are also high. Such a policy would be a very unsatisfactory way to deal with this problem. I am sure that the Treasury would have considerable objection, as Congress and the public would, to increasing the interest burden on the Federal debt for the benefit of the banking system. Therefore, the means that could be used to deal with this problem, when the Federal debt was a very small part of the total debt, cannot be used today when the Federal debt is about two times the entire private debt. It used to be about one-tenth of the private debt along in 1929, whereas today it is nearly two times the private debt. The means of dealing with the problem that would apply in a period when the [public debt was small, cannot be used to deal with the problem when the public debt is as great as it is. Mr. P A T M A N . In other words, you do not have the power to deal with the problem adequately? . 1 8 4 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. E C C L E S . I do not think we have the power to deal with the problem at all—that is, I do not think that we have a power that we would be justified in using to deal with the problem. Mr. P A T M A N . Well, can you state any power or powers which, if given you by Congress, you could exercise, which would be helpful in this emergency? Mr. E C C L E S . It would take legislation to give to the Federal Reserve Board adequate powers to deal with the situation. There are various ways, I think, in which the matter can be dealt with. I should like to cover that matter carefully inasmuch as it is of such great importance, and could be misconstrued or misinterpreted. I should like to see it covered in a report or in a special hearing set aside for the purpose, when I might have adequate time to prepare a statement. Mr. P A T M A N . Would that require say, a week or 1 0 days, Mr. Eccles? The reason I ask if you can do it within that time, or within say 2 weeks, I would like to ask for consent that you get up your statement and file it in this particular record. Then, if any members of the committee wish to interrogate you about it, they could ask you to come up for that purpose. Would you rather do it that way? Mr. E C C L E S . Well, this is a matter that the entire Open Market Committee and the Federal Reserve Board are as interested in as I am, and I would think that a report, such as you have indicated as being desirable, should be an exnression of the views of those in the Reserve System responsible for the policy. M r . PATMAN. Y e s , sir. Mr. E C C L E S . I would think that that should come up here as a report of the Board, as a part of the report which we send to Congress, or as a special report. We have sent special reports before. If it comes in that way, 1 imagine the report to Congress would be referred to this committee and could be put either in this record or could be used as a basis for legislation or as a basis for a hearing in connection with consideration of legislation. Mr. P A T M A N . Well, I want to make a request that you prepare a report to the chairman of this committee, to go in the hearings on this bill, if you will and if that is not unreasonable. Do you not think that would be in order and should be prepared, Mr. Chairman? The C H A I R M A N . If Mr. Eccles wishes to do it, yes. Mr. E C C L E S . D O you mean to have the Board do it? Mr. P A T M A N . Any way you want to do it. Either yourself, after consultation with the Board, or the Open Market Committee, or as an expression from the Board and the Open Market Committee. Mr. E C C L E S . Well, I will be very glad to report to the Board and the Committee this request, and I should think they would be glad to respond. Mr. P A T M A N . T O embody any and all the suggestions which you have to make which would be helpful in dealing with the present emergency, and that is asking for legislation, if necessary, and what kind. That is all, Mr. Chairman. The C H A I R M A N . Mr. Wolcott. Mr. W O L C O T T . I have no questions at this time. The C H A I R M A N . Mr. Folger. Mr. F O L G E R . Mr. Eccles, what you have just been talking about would hardly be apropos of this legislation that we are investigating now, would it? .185 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 Mr. ECCLES. "Well, certainly I would not feel that it should be tied in with it or made part of it in any way. It is my opinion that this legislation should be extended without amendments, because if the door is open to amendments, it would be difficult to get the legislation passed in time. I would think that this matter of dealing with the monetary questions which Congressman Patman raises is something which should be covered by special legislation, because it certainly would be a very controversial question. The C H A I R M A N . I do not think it would be essential to have your report in these hearings. Mr. P A T M A N . Well, Mr. Chairman, if he will prepare it, I presume you would be willing to give the members an opportunity to hear Mr. Eccles on it. The C H A I R M A N . This committee is open for Mr. Eccles any time he wishes to come before us. But I do not think it should be incorporated in this bill. Mr. ECCLES. No. It would seem to me, as I suggested to the Congressman, that it might be well if the Board and the Open Market Committee are willing to make a report on this question to the Congress, then, this committee could consider such a report and could hold hearings in connection with the report, as they have done in the past with reference to our recommendations. The CHAIRMAN. We will be very glad to hear you. Mr. G A M B L E . But it would have no relation to this bill as far as legislation is concerned. Mr. PATMAN. That is right. It is not contemplated that it should have. Mr. FOLGER. Mr. Eccles, on the matter of control of prices, the necessity for it comes about, as we see every day, in large measure from the fact that our purchasing po^er is so great and the things to buy are so few, and we are in a position where we have the necessity of price control; is that not right? Mr. ECCLES. That is correct. Mr. FOLGER. Are there not other considerations that should enter into this, such as adequate tax legislation aimed at balancing the budget, and not forgiving too many taxes by reductions such as we had in the Ruml plan and others? Mr. ECCLES. The statement that I have prepared this morning, and upon which I was interrogated, brought out the fact that this legislation is not dealing with basic causes. It is merely dealing with the effects, and that we must deal with the causes as well as with the effects. The causes were recognized as being first, one of inadequate production, which is of prime importance—that is, to get greater production. The second cause is the unbalanced budget and the need of balancing the budget and if possible getting a surplus, and maintaining taxes as they are. 'I he third was stopping monetization of the public debt by preventing the banks from further increasing their holdings of Government securities. A fourth one was dealing with the inflation in capital assets, such as stocks, homes, farms, and business properties, by a capital gains tax applying to future purchases. I meant a special capital gains tax and extension of the holding period. Those were the four factors that seem to me to be necessary considerations in connection with this price control legislation. . 1 8 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. F O L G E R . What I was intending to follow that up with was this: that you might, by the neglect of these other factors, place on price control too great a burden in the matter of doing what we call stopping inflation. Mr. E C C L E S . There is no question but what price control could not possibly succeed very long if we do not get increased production on a large scale, and if we do not stop increasing altogether, the supply of money. In the months of November and December, our banking system created more than 11 billions of dollars of new money. They increased their holdings of Government securities better than 7 billion dollars. Mr. SMITH. Which month was that? Mr. E C C L E S . In the months of November and December. They increased during tne Victory bond drive their loans on Government securities—which is just the same as buying them directly, because that credit creates money Mr. G A M B L E . Who did that, Mr. Eccles? Pardon me. Mr. ECCLES. Our commercial banking system—close to something like 3 billion dollars, and they made other loans and investments of about a billion dollars. Those are just rough figures. Now, to get some idea of what that means in an inflationary picture, 11 billion dollars is fully 40 percent of the total demand deposits that we had in 1929, and it is more than 40 percent of what we had in 1933, 1934, and 1935. So we created in 2 months, in new money, a volume of 11 billion dollars. That is pretty fantastic. Now, I do not see, of course, how there is any likelihood of any such expansion even approaching that in the future, because that was due to the Victory drive. In order to subscribe to the new issues, the short-term securities that were eligible to the banks were sold to the banking system by corporations, individuals, insurance companies, and others, and they, in turn, subscribed very heavily for the Government 2%'s. Those 2}£'s and 2%'s were subscribed in the amount of nearly 13 billion dollars. The result is the Treasury got twice as much money in this drive as the quota it had fixed. Those 2%'s are now selling at a premium of over 5 percent. There is already a premium on those 2%'s and 2%'s of 500 million dollars, from which the Government gets no benefit. Mr. F O L G E R . IS there any method or machinery that we might employ for encouraging individual ownership of Government securities? To have people buy them and hold them instead of having money in the bank? They have to have money to buy them with. Mr. ECCLES. Well, of course, I think an effort is being made to get the people to hold them. The E, F, and G bonds, the nonmarket bonds, are the kind of securities that should be offered to the public, and not the market bonds, which they can speculate in. The E, F, and G bonds are now available for public subscription, and I understand the public are buying more of the E, F, and G bonds than are being cashed in, of the same E, F, and G bonds. They are increasing their holdings on balance. It is true that a great many more Government bonds could be bought with the deposits that are being held idle today. There is a lot of money that is not being used, which, of course, could be invested in Government securities. If that should happen, it would mean that the banks would have to sell the Government bonds they hold and individuals and corporations .187 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 would buy them. That would reduce deposits, on the one hand, and reduce Government bond holdings, on the other. That would be reversing the process that has been going on during the war, which is a desirable thing to bring about. Mr. F O L G E R . Maybe that is the psychology we ought to get the people to understand, that this surplus money that they are not able to spend ought to be invested in these bonds which are salable to the public. Mr. ECCLES. Well, if we can assure them there is going to be no inflation, and that we can hold prices, that is the first essential for getting people to invest money in Government bonds instead of real estate and stocks. Mr. F O L G E R . Would that not help us in holding down inflation? That is, money which we call hot money would be invested in bonds and not in high-priced commodities or real estate or other things of that sort? Mr. ECCLES. It would be very helpful, of course. If we had been able to do all of the war financing outside of the banks, that would have been still better. Mr. F O L G E R . That is all. The C H A I R M A N . Mr. Gamble. Mr. G A M B L E . Governor Eccles, in your statement, you talk about getting commercial banks to sell part of their bonds, and get those bought by the public. It is a matter of persuasion, largely, is it not? Mr. ECCLES. I do not think you are going to persuade them. Mr. G A M B L E . Well, I have been wondering if it would not act as a little persuasion if we could stop our deficit financing and get out of the red. You speak here of balancing the budget. It seems to me that we are going to be in the red $4,000,000,000 as contemplated under the budget program. I very much wish that Congress could save that $4,000,000,000, so that we could just be on an even keel. I think that in itself would hearten the American people and they would be more willing perhaps to buy bonds in peacetime than they have been. Mr. ECCLES. There is no question but what a balanced budget would be helpful in preventing inflationary developments, and would tend to give the public increased confidence in the public debt. Of course, although there is in the budget report a deficit contemplated for the next fiscal year, there will be a reduction in the public debt due to the fact that more money was raised in the Victory Loan drive than was necessary or contemplated. That leaves the Treasury balances, of course, abnormally large, and some of those balances, without question, will be used to pay off some of the maturing debt, so that the volume of outstanding Government obligations, over the next year, should decline, I would think, in the neighborhood of 7 or 8 or 9 or 10 billion dollars, depending upon two factors: First, the amount of Government expenditures, and, secondly, the amount of tax revenue. As to what it will be in the next fiscal year, will depend a good deal to the extent Congress further reduces taxes, or to the extent that Congress further appropriates money. But it would appear at this time that there will be some substantial reduction in the public debt. Mr. G A M B L E . Some people say that that reduction that is conterrmlated is more or less of a bookkeeping transaction, but it seems 83512—46—vol. 1 13 . 1 8 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 to me you have got the money, and you have paid off your bonds, so you have reduced your debt. Secondly, by doing that, using that money for that purpose, it cannot be used for something else. Mr. E C C L E S . Well, it is a bookkeeping transaction, but it is the same kind of a bookkeeping transaction that a corporation or an individual has when they have a cash balance, and they have a debt, and they use their balance to pay the debt. The Treasury has a balance here which it got through borrowing beyond what was needed, and now they are using it to pay off some maturing debts. Mr. G A M B L E . I would like to see it used for that purpose before somebody gets an idea of how to spend $4,000,000,000, and says, "There is the money." Mr. ECCLES. Well, I agree with you fully. Mr. G A M B L E . D O you consider when FHA's capacity is increased, with regard to the housing bill, for instance, that that is inflationary? Some people seem to think it is and others think it is not. It provides a means by which some people can spend their own money to build a house, they say. Mr. ECCLES. Well, it is only inflationary to the extent that those Federal Housing Administration mortgages are financed through the banks. What I think we all favor, of course, is the banking system making private loans—such as Federal Housing Administration mortgage loans and corporate and other loans—and reducing the amount of Government loans. In other words, if the banks could make a few billion dollars of Federal Housing Administration and other private loans, and reduce their holdings of Government securities by that amount, it would be a desirable thing, and the banks would be coming more into the function of private lending institutions than has been the case during the war period. The Federal Housing Administration mortgage lending will, of course, be offset by new houses, so that the^e is an expenditure that is inflationary, we might say, on the one side, but it is also deflationary to the extent that if facilities production of more houses. The only way in which you can overcome finally the inflationary pressure in the housing field is to get enough houses, and I do not object to the kind of credit that produces more goods, and more services, where there is a short supply. Mr. G A M B L E . And housing is one of those items that you refer to. You said that we will not be able to produce enough automobiles in the next year. I do not think we will be able to produce enough houses in the next 4 or 5 years. Mr. ECCLES. Building materials are going to be in short supply for some time, of course. They must be controlled. The C H A I R M A N . Mr. Hays. Mr. H A Y S . N O questions. The C H A I R M A N . Dr. Smith. Mr. SMITH. Mr. Eccles, I appreciate very much your bringing this inflationary problem out into the open. It is encouraging. Mr. ECCLES. Well, this is not the first time. Dr. Smith. Mr. SMITH. N O , that is very true, Mr. Eccles, and I have always appreciated your frankness. You have been one Government official who has always been very brave in this matter. Mr. Crawford left a question here for me to ask you: you spoke about raising the reserve requirements, and at the same time having the banks make an effort .189 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 to dispose of their Government securities and holdings to the public. Mr. Crawford raised the question as to whether those two proposals or procedures might not be in conflict with each other. Mr. E C C L E S . Will you ask that question again? I did not get the significance of it. Mr. SMITH. Well, if you raise the reserve requirements, and at the same time put in motion a policy urging the banks to dispose of their Government holdings to the public, do not those two conflict with each other? Mr. E C C L E S . N O ; it would work exactly in the opposite way. If reserve requirements of the banks were increased—and, by the way, as I stated earlier, there is practically no authority in the Reserve Board to increase reserve requirements, so the question is purely academic Mr. S M I T H . Yes; I understand that. Mr. E C C L E S . The banks, to meet the increased reserve requirements, would sell Government securities, because they would have to get the cash that is in the Government securities to meet the increaspd reserve balances with the Federal Reserve banks. Now, if the public bought the securities they would reduce their accounts by drawing them out, and if they buy something from the bank—if they draw the money out of the bank, and buy something— then, the deposit goes down on one side of the bank's statement, which is a liability, and the Government bond, on the other side, goes down so it is a complete offset. To the extent that individuals draw their deposits out of the banks and buy Government securities held by the banks one offsets the other. Mr. SMITH. In other words, the newly created credit established by the process of financing the bond in the first place by the Treasury Mr. E C C L E S . It is just reversed. Mr. SMITH. That credit, when the nonbank holder buys a bond, the newly created bank credit is reduced by that amount; is that not so? Mr. E C C L E S . That is right. Mr. SMITH. N O W , I am interested, Mr. Eccles, particularly in your urging that the Federal Budget be balanced. When did the Treasury first begin to finance Government obligations through the banking system? They started that during World War I, did they not? Mr. E C C L E S . They did it in World War I, but in a different manner. At that time they had no open-market operation or open-market committee. They knew little about that mechanism. In World War I, the banks loaned to individuals and corporations, and the individuals and corporations bought the bonds, by paying possibly 10 percent down. That is, they borrowed the money from the banks with which to buy the bonds. So the banks created the money for the individuals and the corporations to buy the bonds, instead of buying the bonds directly as they have during this period. And the banks, in turn, borrowed the money from the Reserve banks on a rediscount, or bills-payable basis. Mr. SMITH. SO that if one bought a bond from a bank, and borrowed the money to pay for the bond, by the amount that one actually paid on the bond, there would be a reduction in the inflationary potential; is that correct? . 1 9 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. E C C L E S . T O the extent the bonds were paid for, that is correct. Mr. SMITH. Well, now, I notice—and I got this from your agency— at the close of the first war, the commercial banks held roundly $ 5 , 0 0 0 , 0 0 0 , 0 0 0 in Government securities, so all of those securities, then, as I understand it, had been purchased by individuals and were held by the banks, the nonbank holders having borrowed money to purchase those bonds. All of that money, that whole figure, represents bonds of that character; is that correct? Mr. E C C L E S . Oh, I could not say. The banks bought some Government securities, mainly short-term issues, during the First War. At that time, as during this war, every effort was made to do the financing by getting individuals to buy securities directly but there was this difference that to the extent they did not have the cash to buy, they were encouraged to use bank credit. And then, to the extent that they wanted to pay off their loans, they sold their bonds and the banks bought the bonds in the market, as they have bought them in the market during this year. There have been very few Government bonds offered directly to the banks. I think there were some in 1942 and 1943. But in 1944 and 1945, I do not believe there was any direct offering to the commercial banks, during any of the drives that were made. The banks acquired their Government securities as secondary holders, through purchasing them in the market, from the public who subscribed and sold the securities in the market. Now, that is true with the exception of Treasury bills. The banks can buy directly Treasury bills. That is a %'s bill. The C H A I R M A N . D O you have the figure as to the amount that the banks bought, of Treasury bills? Mr. E C C L E S , . Yes; there is a total outstanding of Treasury bills of approximately $17,000,000,000. And of that amount the Federal Reserve holds about $13,000,000,000. The banks only hold about $2,000,000,000 of those Treasury bills. The rest is held by corporations and others. Mr. S M I T H . And the remainder of the bonds held by the banks now were actually acquired by them from nonbank holders? Mr. E C C L E S . Well, they have acquired them since the Treasury began its drive M r . SMITH. I n 1 9 4 1 ? M r . ECCLES. 1 9 4 2 . Mr. SMITH. N O W , what amount of newly created bank credit is in existence at the present time? Can you tell me? I have a figure here from the Treasury as of December 31, 1945, which shows a total of $114,000,000,000 held by the commercial banks and the Federal Reserve bank. Does that figure check with you? Mr. E C C L E S . What date is that? Mr. SMITH. December 3 1 , 1 9 4 5 . Mr. E C C L E S . That is a total of what, you say? Mr. SMITH. A total of Government obligations held by the commercial banks and the Federal Reserve bank. Mr. E C C L E S . Our figure is less than that—considerably. Mr. B R O W N . Y O U stated $ 9 5 , 0 0 0 , 0 0 0 , 0 0 0 this morning. Mr. E C C L E S . Yes, 114 may include savings banks. Mr. S M I T H . This says commercial banks and Federal Reserve banks. Mr. E C C L E S . The Federal Reserve has a total of around $ 2 3 , 000,000,000, and the commercial banks around $72,000,000,000. .191 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 Mr. SMITH. I have the figure for commercial banks, $ 9 0 , 0 0 0 , 0 0 0 , 0 0 0 from the Treasury, and $ 2 4 7 0 0 0 , 0 0 0 , 0 0 0 for the Federal Reserve banks. Mr. E C C L E S . t h a t is correct. The $ 9 5 , 0 0 0 , 0 0 0 , 0 0 0 figure that I gave you was the increase in holdings from 1940. You see, I was giving the growth in deposits from 1940. Your figures show the $ 9 5 , 0 0 0 , 0 0 0 , 0 0 0 plus the holdings of the Federal Reserve and the commercial banks, as of 1940. I think your figures are about right. The C H A I R M A N . I do not think the stenographer understood you this morning. You said $95,000,000,000. Mr. ECCLES. Increase since 1 9 4 0 . It was in my statement. I was giving the growth, and the growth was $ 9 5 , 0 0 0 , 0 0 0 , 0 0 0 since 1 9 4 0 . This is the total. So you would have to take what was held in 1940, plus the $ 9 5 , 0 0 0 , 0 0 0 , 0 0 0 . Mr. SMITH. This $ 1 1 4 , 0 0 0 , 0 0 0 , 0 0 0 represents, then, the newly created credit in the commercial banks and in the Federal Reserve banks at the present time; is that correct? Mr. ECCLES. What is that you say? Mr. SMITH. This figure of $114,000,000,000 represents the newly created bank credit? Mr. ECCLES. N O , not newly created. Mr. SMITH. Why not? Mr. E C C L E S . Because there was around $20,000,000,000 of it in existence in 1940. Mr. SMITH. Yes. Well, I meant to include what was created before 1940, because the character and nature of it is the same since 1940 as it was before that; is that not correct? Mr. ECCLES. Yes, but you asked me if this $ 1 1 4 , 0 0 0 , 0 0 0 , 0 0 0 did not represent the newly created credit. Mr. SMITH. What I meant by newly created credit was to include all of the credit created in that manner by the banking system for the total time this process of financing has been carried on. Mr. E C C L E S . This $114,000,000,000 represents the total amount of bank credit that has been created by the commercial banking system, and the Federal Reserve System, over the period—I do not know how long it is—since they have been purchasing Government securities. It would go over a good many years. Even in the twenties there were holdings of Government securities by the banking system, and this amount would be part of the amount that existed in the twenties or during the last war. Mr. SMITH. Under what authority do the banks purchase these Government securities when they purchase them directly from the Government? Mr. E C C L E S . Y O U mean the commercial banks? Mr. SMITH. Yes. I know as to the Federal Reserve banks we passed some acts since this war began, but I am thinking about the commercial banks in particular. Could you give me the statutes, or cite to me the statutes that authorize the Treasury, or permit the banks to purchase Government securities from the Government. Mr. E C C L E S . I do not know that there is any special statute. The Treasury offers its securities, and it determines from whom it will accept subscriptions. In the drives the Treasury accepted subscriptions only from nonbank investors. It excluded the banks. Now, it could have included the banks had it chosen to do so. Although the Treasury excluded the banks from buying directly from it there . 1 9 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 was nothing to prevent the dealers and the public from subscribing for securities and, in turn, selling them to the banks at a profit. In fact this was done and as a result it created a lot of speculation in Government securities. Mr. SMITH. The reason I am asking this question is because I am greatly confused. I had the Law Library of Congress look this up for me, and they cited one or two statutes, under which this financing is done, and then I telephoned to the assistant general counsel of the Treasury, and asked him about it, and he replied that there was no specific statute relating to it. But after I had cited to him the two that had been cited to me by the Law Library of Congress, he seemed to change his mind somewhat and pointed out three or four additional statutes which he thought had to do with this matter. I was wondering whether you would care to look that up for me and put in the record a statement showing just what the statutes are which bear upon this subject. Would you care to do that? Mr. ECCLES. Well, now, I would like to have our lawyers go into it, since it is purely a legal question and I am not a lawyer. If you would give me the exact question, I will be very glad to have our Legal Division answer it if they can. Mr. SMITH. The exact question is this: Do the banks have legal authority, or are there any particular acts, which especially authorize banks to acquire Government securities of any kind directly from the United States Treasury. That is the question. And, if so, what are those statutes? I would like to have them cited. Now, Mr. Eccles, I was not here this morning, and apparently from some of the questions that I heard after I came here and some of your statements, I suppose you stated the total amount of liquid assets that are in the possession of our people at the present time. (The following memorandum was later received for the record:) BANK PURCHASES OF S E C U R I T I E S DIRECTLY FROM UNITED STATES TREASURY [Memorandum prepared b y Federal Reserve Board Legal Division] The authority of banks to purchase securities directly from the United States Treasury is a part of their general authority to purchase securities. There being no specific prohibition, the general authority includes the specific authority. The authority of the Treasury to sell securities directly to banks is, similarly, a part of the general authority to issue securities. The specific statutes involved are discussed in more detail below. Section 5136 of the Revised Statutes (U. S. C., title 12, sec. 24) states, among other things, that a national bank "may purchase for its own account investment securities." Purchases of certain kinds of securities are subject to certain limitations. However, the statute makes no distinction between purchasing securities from the issuer and purchasing them from someone else. This is true whether the security is issued by the United States or by some other borrower. State banks obtain their authority from State laws, which contain similar provisions. United States Code, title 31, chapter 12, sets forth generally the authority of the Treasury to issue securities. Section 752 of the chapter provides in part that the Secretary of the Treasury "may reject or reduce allotments upon applications from incorporated banks and trust companies for their own account and make allotment in full or larger allotments to others.'' This recognizes the authority to sell directly to banks. In the absence of any specific prohibition, however, this authority exists anyway as a part of the general authority to issue securities. Mr. ECCLES. The possession of whom? Mr. SMITH. The total amount of assets that are now in existence or in the possession of our people. Liquid assets. .193 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 Mr. ECCLES. Well, I stated what I termed potential inflation which represented the bank deposits—demand deposits and savings deposits—currency, and Government securities. Mr. SMITH. YOU mean marketable Government securities? Mr. ECCLES. NO. All Government securities are liquid in that if they are E, F, and G bonds, they can be turned into the Treasury any day. They are cashable on demand. Mr. SMITH. Well, are the Government bonds held by Federal agencies marketable? Mr. ECCLES. Well, I was going to say that I excluded from this figure all of the Government securities held by the Federal Reserve banks, the commercial banks, the savings banks, the insurance companies, and the Government agencies. Mr. SMITH. YOU mean you excluded those? Mr. ECCLES. I excluded those in determining the potential inflation. Mr. SMITH. Would that be the same as the liquid assets? Mr. ECCLES. Well, these exclusions left the bank deposits, and currency, and the Government securities in the hands of individuals and corporations. That is where the potential inflation is. There is not much potential inflation in the Government securities held by an insurance company or a commercial bank or a Federal Reserve bank because they cannot sell the securities and go out and buy real estate or buy stocks or buy commodities. There is no way in which they can convert those into things, as individuals or corporations can. Mr. SMITH. What was your figure, then, for liquid assets? Mr. ECCLES. I do not recall it now. It is in my prepared statement which I gave here. Mr. SMITH. Well, if it is in there, that is perfectly all right. Mr. ECCLES. Yes, it is in that statement, Dr. Smith. Mr. SMITH. Could you tell me, Mr. Eccles Mr. CRAWFORD. Will you yield, Mr. Smith? Mr. SMITH. I yield to Mr. Crawford. Mr. ECCLES. According to my statement, that figure is about $275,000,000,000, Dr. Smith. It is about five times the amount that existed prior to the war, in 1940. Mr. SMITH. HOW much more is it, Mr. Eccles, than we had following the conclusion of World War I? Can you tell me that? Mr. ECCLES. N O ; I cannot. Mr. SMITH. Would you care to have that looked up and inserted in the record? Mr. ECCLES. All rightr. (The document above referred to is as follows:) LIQUID ASSETS For June 1920, demand deposits adjusted amounted to 19.6 billion and United States Government deposits to 300 million, giving a total of 19.9 billion. Currency in circulation amounted to 4.1 billion, making a total money supply of 24 billion as against 125 billion for December 31, 1945. Time deposits for June 1920 amounted to 15.8 billion and holdings of Government securities by the public (excluding holdings by banks and insurance companies) amounted to 18.9 billion, as compared to 50 billion dollars of time deposits and 100 billion dollars of security holdings for December 31, 1945. Total "liquid assets" thus amounted to 58.7 billion for June -1920 as against 275 billion for December 31, 1945. In making this comparison, however, allowance must also be made for the fact that the economy's output (gross national product) was valued at only 86 billion in 1920 as against around 200 billion in 1945. . 1 9 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. SMITH. I yield. Mr. C R A W F O R D . Mr. Eccles, there, of course, would be no conflict whatsoever between the Board raising the Reserve requirements and having the banks sell bonds to the public in order to acquire the funds with which to deposit, in the Reserve banks, to meet the increased requirements, there would be no conflict there. Now, what I think would be appropriate for us to ask on this particular study would be this: Would the Board require any further statutory authority to increase those requirements above what they are at the present time? Mr. E C C L E S . That question was asked me, I think, by Congressman Folger, and I pointed out that we have used all of the authority that we have in the statute, with the exception of the authority to increase the Reserve requirements against demand deposits on central Reserve cities from 20 to 26 percent. That is the only authority that is left us. Mr. C R A W F O R D . If we wanted to materially assist the Board in moving bonds from bank portfolios into the hands of the public, we could well do so by giving you that additional authority; could we not? Mr. E C C L E S . That would require the banks to sell some securities all right. I do not know how fast the public would take them. It would be up to the Federal Reserve to support that market, of course, until such time as they were absorbed. M r . CRAWFORD. Yes. Mr. ECCLES. In other words, the Federal Reserve is in a position to provide for an orderly transition and maintain stability in the market while that process is going on. Mr. SMITH. Right in that connection, Mr. Eccles, when the bank sells its holdings of Government securities to the public, it converts illiquid assets into liquid assets; is that not true? Mr. ECCLES. Well, no. When the banking system sells the bonds to the public, the banking system, as a whole—you see, if you had one bank, it would be easy to follow, but you have 14,000—but as the banks, as a whole, sell Government securities in the market, the deposits held by the purchasers of Government securities are canceled. Mr. SMITH. Yes; I understand that. Mr. ECCLES. SO that one offsets the other. Mr. SMITH. That was not the question I asked. You might have an equal amount of inflation; but my question was that when a bank sells this bond to the public—to me, for example, if I go to the bank to buy a bond, I now have something which I cannot convert into things; is that not true? Mr. ECCLES. That is right, as long as you hold that bond, your money is tied up in that bond, and people are much less likely to use bonds than currency or bank deposits. Mr. SMITH. Well, I suppose you read the article by Benjamin M. Anderson, where he recommended that the interest rate be raised on bonds so as to make them attractive for the public? From your statements here today, it seems to me that you would be in favor of raising that rate, or maybe I am mistaken. Mr. E C C L E S . Yes; you are. I certainly would not be in favor of raising the rate that the Treasury is now paying. The Treasury is paying 2ti percent on its market bonds, and those are noneligible to banks until they get within 10 years of maturity. Mr. SMITH, just what do you mean by that statement? .195 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. E C C L E S . Well, I mean these 2% percent bonds, the bank cannot own them or buy them until they get within 10 years of maturity. They are 22-27 year bonds, callable in 22 years—and when they get within 10 years of maturity, banks can buy them. I think the rates that the Treasury pays on its E, F, and G bonds are quite adequate. Mr. SMITH. Attractive enough so that they will be held by the public? Mr. ECCLES. The public do hold them in a very large amount and are buying them today. Mr. SMITH. Of course, you cannot tell what the psychology is going to be in the future; I realize that. Mr. E C C L E S . What is it? Mr. SMITH. I say we cannot tell what the psychology is going to be in the future but Mr. E C C L E S . I do not think you can raise the long-term rate above what the Treasury is now paying. The complaint that is being made today is not that the rate the Treasury is paying is not high enough; the complaint is that the rate that the Treasury is paying is not being maintained—that that rate is rapidly falling. For instance, the bonds that were put out in the November and December drives, the 2}ipercent bonds, are selling today at more than 105. They are selling on a yield basis of not 2%, which is what the Treasury is paying, but they are selling on a yield basis of 2.2. Mr. SMITH. D O you think, then, that Dr. Anderson was wrong in his views? Mr. E C C L E S . Well, I would be very much surprised if Dr. Anderson and I agreed, because he and I have never agreed on anything, as far as I can remember, in about 10 years. Mr. SMITH. Just a few more questions, Mr. Eccles. You made the statement that foreigners are holding some of our currency, Federal Reserve notes, I take it. Can those people convert their Federal Reserve notes into gold? Can they buy gold with those notes? Mr. E C C L E S . I do not know where. They cannot buy it in this country. Mr. SMITH. Why? Mr. E C C L E S . Because gold is not in circulation. Mr. SMITH. Well, did you mean foreigners living in this country or—— Mr. ECCLES. I do not care where they are living. Those who own Federal Reserve notes cannot convert them into gold, whether they are foreigners or citizens. Mr. SMITH. Why? Mr. ECCLES. Because the law does not permit it. It prohibits it. Mr. SMITH. What specific law? Mr. ECCLES. Oh, I do not know as to that. The Federal Reserve, as a matter of fact, does not own any gold. The gold was all taken out by the Gold Act that was passed by Congress, which turned all the gold over to the Treasury, and that gold is still held by the Treasury. Any gold that comes into the Federal Reserve must be immediately turned over to the Treasury, and all the Federal Reserve gets are gold receipts, or gold certificates. Mr. SMITH. SO there is no danger at all of foreigners who hold these notes converting them into gold? . 1 9 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. ECCLES. There is no danger of any individual converting his holdings into gold. There is this possibility: A foreign central bank or a foreign central government can get gold for its dollar balances. Mr. SMITH. That is exactly the point that I am coming to. These notes, held by foreigners, can find their way into these central banks, and in that round-about manner, become converted into American gold; is that not true? Mr. E C C L E S . That is correct. If a Frencheman, for instance, has American dollars he may turn them into a French bank and get francs for the dollars. Those dollars would go into the Bank of France. The Bank of France would send that currency to this country, and would get credit in the Federal Reserve bank. The Bank of France would, in that situation, have dollars to its credit at the Federal Reserve Bank of New York, let us say. Now, if the Bank of France wants those dollars converted into gold, either for export or earmark, it can make such a request. Up to now such requests have been granted, with one or two exceptions. Mr. SMITH. N O W , Mr. Eccles, you recommend balancing the budget, and we certainly cannot continue to pay subsidies and expect to balance the budget; is that not correct? Mr. E C C L E S . Well, it depends on how large the subsidies are. Mr. SMITH. Well, we will be asked to vote an amendment providing $600,000,000 of subsidies for the housing program, the Wyatt housing program. Where is the Government going to get that money, except through bank financing? Mr. E C C L E S . Of course, the Government already has the balances. It would mean that to the extent that the Congress appropriates more money, the Government would be able to pay off less of its outstanding debt, because there will not be any more Government financing required. It will merely mean that the present Treasury balances would be used for a housing subsidy to the extent of $600,000,000 instead of paying $600,000,000 on the public debt. Mr. SMITH. D O you think, then, that President Truman's budget message on the state of the Union is correct? Mr. E C C L E S . Well, I could not say. I am not an authority on the budget. I would assume that it was correct. I cannot imagine the Budget Bureau sending up a budget that would not be factual. Mr. SMITH. I have gone over that pretty carefully, and when I saw, for example, that, included in one of his tables, was something like $48,000,000,000 of income by the Government, which included the income by financing of Government obligations through the banks, I could not help but feci that there was something unbalanced in his balanced budget. I do not believe it is quite correct to say that Government printing-press money is actual income. Mr. E C C L E S . Well, it is a question of definition. Of course, in the broad sense, whether the Government gets its money from taxation or borrowing, it is all income. The income can be divided, of course, into the sources of income, just as expenditures can be taken to include all expenditures, even though some of them may be money that the Government loans. Mr. SMITH. Well, maybe we would have a better understanding of it if you would refer to it as income derived from production. There is quite a difference between income derived from production and income derived by the financing of Government obligations through the banks. .197 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. E C C L E S . The taxes, of course, would be income. The Government derives practically no income from production, because it is not engaged in the business of production. The Government could not classify much of its income as income from production. Mr. SMITH. Well, Mr. Eccles, I think you probably misunderstand me a little bit there. I mean that the taxes themselves were created by production, and were an expression of production. They would not exist if people had not produced. That is my point, Mr. E C C L E S . There are a lot of taxes collected that do not come from production. There are a lot of taxes collected that come from speculation. People make money without producing a thing. Look at the stock market trading and other operations. People make a profit and they do not always render a service, and they do not always produce something. Mr. SMITH. Weil, of course, that is more or less of an abnormal situation. It is not really a part of the question that I asked. We are talking rather loosely of bringing production up to the point where it will balance with "purchasing power." I think "purchasing powerless would be a better expression. But let us call it purchasing power since that is the common way of putting it. I would like to know whether you have any idea as to the amount or volume that must be produced to bring about that balance? Mr. E C C L E S . N O ; I have no idea as to the figures. Mr. SMITH. Have you ever seen any study of it? Mr. E C C L E S . No; I do not know that I have. Mr. SMITH. N O one has risked projecting any ideas on that point? Mr. ECCLES. A S a result of our war experience, I think that we can feel reasonably safe in saying that if in addition to the wartime civilian production we can bring into the production of civilian goods most of the production capacity and labor devoted to war—nearly half of our production capacity was producing goods that were not available for civilian use, and nearly half of our labor was either in the armed services or engaged in war production—the supply of goods, with some exceptions, of course—and I pointed out those exceptions this morning—the supply of goods would be sufficient to Mr. SMITH. Bring it into balance. Mr. E C C L E S . Meet the demand at least to the point where people would not follow prices up. If people felt that production was on an expanding scale, that they had a chance to purchase goods even at a current price, or at a lesser price by waiting, they would not be inclined to bid prices up. I think that with a year's extension of this legislation, given full production, there would be surpluses of a good man}7 things. And I think that in most categories, with the exception of the construction field and automobiles, there would be sufficient production so as to take off the inflationary pressures. Mr. SMITH. Was there a shortage of goods in the twenties? Mr. E C C L E S . There was no rise in prices in the twenties. Prices fell from an index figure of 101 in 1923 to 95 in 1929. Mr. SMITH. That is true, but how was the index compared with 1914? Mr. E C C L E S . Well, it was higher. You never went back to the 1914 level of prices. Mr. SMITH. Let us go a step further with that. If we are going to use the formula for peacetime production, what part of that formula . 1 9 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 are we going to use? All of it? Or just part of it? In other words, are we going to continue deficit financing? That is part of the formula we used to carry on the war. Mr. E C C L E S . Well, I certainly do not think that there would be any need of undertaking to maintain price controls unless we are going to get a great increase in production and unless we are going to stop creating money through deficit financing. In other words, while we are dealing with the effects of inflation, through price control, we must also undertake to deal with the causes of inflation. Mr. SMITH. The inflation itself? Mr. E C C L E S . That is right, we must deal with the causes that have created the inflation. Mr. SMITH. That is a fine statement. Mr. E C C L E S . And if we do not, of course, we cannot lick inflation. Mr. SMITH. The reason I bring this up is because tomorrow we begin debate on the first attempt to put into operation the war formula of production in peacetime. The Patman housing bill represents that attempt. The Patman housing bill provided for subsidies. That provision was stricken out by the committee but an amendment will be offered to restore it. Mr. E C C L E S . Well, a subsidy is not always inflationary. A subsidy may be deflationary in effect. I think subsidies can often be used to a very beneficial effect in preventing inflation. Mr. SMITH. Preventing the effects, you mean, of inflation? Mr. E C C L E S . N O ; in preventing inflation. Mr. SMITH. Well, suppose that Mr. E C C L E S . But the way you prevent inflation is to get production, and if certain subsidies are necessary in order to get production, it may well be that the subsidy is very much less inflationary than the production is anti-inflationary. Mr. SMITH. But if the money for the subsidy is raised by deficit financing, or Government printing press money, you certainly do not believe the effect can be other than deleterious. Mr. E C C L E S . Well, as I say, it depends on the extent of the subsidy. I have in mind, for instance, this: During the war, we needed all the copper we could get and still do need it. There are certain very highcost producers which, at the ceiling price of copper, could not afford to produce copper. Now, to raise the ceiling price enough to induce the high-cost producer to produce copper, would give an abnormal profit to the great bulk of low-cost producers. Therefore, it was very much to the public interest to keep the price of copper, which I think was 12 cents, and in order to get the extra 10 or 15 percent of highcost production, to give them a subsidy of 3 or 4 cents. That was very much cheaper than raising the price of all copper produced sufficiently high to keep the high-cost producer in production. Now, I can see similar situations during this period of shortage of supply in which you may need to keep the high-cost producer in production. It may be cheaper to give him a subsidy—cheaper for the public—than to raise the price to all producers, especially if the highcost producer represents a small part of the total production. In this housing situation—I am not thoroughly familiar with the details of Mr. Wyatt's proposal—it may very well be that to overcome the inflation in the housing field, and to get mass production of housing, a certain amount of Government help or subsidy is necessary. That, of course, is a debatable question. .199 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Mr. SMITH. Well, Mr. Eccles, what about the principle? The Revolutionary War was financed largely by Government printingpress money. But the moment the war ended, the statesmen did away with bills of credit, Government printing-press money. They did not set up Government-spending programs here and there and say, "Now, we can still print bills of credit to take care of these particular costs." They did away with the whole business, and I am wondering if there was justification for paying subsidies to those high-cost producers during wartime, whether there is any possible justification for this at the present time. What I am afraid of, Mr. Eccles, is this: If you have them here, you are going to have them elsewhere. We saw an illustration of this just a few weeks ago when one of the Government agencies came in here at the time the employees of the meatpacking industry were striking, asking this committee to authorize subsidies for that packing industry. If those subsidies had been granted, it would have meant nothing less than that we were subsidizing the wages paid by that industry. I merely cite this illustration to show you where we are going. Mr. ECCLES. Well, I can say this: In principle, I do not like subsidies. I recognize that you could avoid any increase whatever in prices by giving subsidies. For instance, in the price of steel, the Government could have given a subsidy to the steel companies of $5 a ton instead of increasing the price. You could go all down the line and refuse any price increase and grant subsidies, and it would be just as you say, it would merely mean that the Government would be subsidizing the increased wages. Now, certainly you would not get anywhere with that kind of a program in peacetime. You would solve nothing. I think in principle we should get away from subsidies just as quickly as we can. But I still say there may well be certain cases where it is cheaper to have subsidies, so far as the public is concerned, than it is to raise prices. In general, of course, as I said this morning—and I would like to emphasize it—increased wages should come and must come, if we are to avoid inflationary developments, out of increased productivity per hour of labor, or out of profits. Now, there are a great many industries whose profits will permit them to pay increased wages. The higher wages should come out of those profits instead of out of higher prices. There are other instances where advances in productivity make it possible to pay higher wages without reducing profits or raising prices. There are other cases where some increase in prices is going to be necessary, but certainly if we are going to hold the line, after we get to this new level, we simply cannot increase wages by a process of continuing to increase prices. Because then you have the vicious circle of increased wages and increased prices. Labor along with everybody else, should understand that any further increases, after the adjustments brought about by this new wage-price policy have been worked out, must come out of increased productivity or out of profits that industry can afford to pay, and not out of the public through increased prices. Mr. SMITH. What worries me, Mr. Eccles, is that the laboring people now are up against the hardest proposition they have ever had to face, and which they always face when the Government prints money: That is, a depreciating currency. And I deeply sympathize with the . 2 0 0 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 rank and file of labor today because of that situation. That is all, Mr. Chairman. Mr. B R O W N . Mr. Talle. Mr. T A L L E . Chairman Eccles, I thought you presented a very good statement this morning. Mr. ECCLES. Thank you. Mr. T A L L E . Last June I tried to point out that price control deals merely with effect. I tried to point out that the cause we should consider was our oversupply of money, including bank deposits, in relation to goods and services. I was really delighted to hear your statement. We have talked a good deal about holding the line. Do you have in mind that that should be a firm line? The reason I ask is that the other day certain officials of the Office of Price Administration referred to the recent alterations in the wage situation as a bulge. Is the price line with a bulge in it the kind of line that you think of when holding the line? Mr. ECCLES. Well, I do not think it is possible to hold the price line, or what we call the cost of living, rigidly. I do not know that it is necessary. Certain items in the cost of living are going to fluctuate. Certainly, there are many items, of course, that are in such short supply they will be pressing right up against the price ceiling. And some of those price ceilings are going to have to be broken to get production. As I understand the order under which the Office of Price Administration now operates, it is permitted to take into account, as a part of the cost, any increased wages that are approved by the Wage Stabilization Board, as a basis for granting increases in prices, if the earnings of the corporation are below its base period earnings. That might well require some granting of increased prices. You may find that the profits of corporations in many instances will be able to absorb those increases and still be equal to the base period earnings. There will be certain items on which increases will be permitted. On the other hand, there will be other items that will be in adequate supply, or in abundance. Some may actually need a floor to keep them from going down too far. I think that is likely to be true in certain food items. Mr. T A L L E . It would be reasonable to say that if subsidies are paid, they would represent another bulge in the line, would they not? Mr. ECCLES. Well, if subsidies are paid, it tends to prevent a bulge in the line. Without subsidies, prices in certain categories would go up and that would tend to put the cost of living up. Mr. T A L L E . The price paid in the market and the price paid by the Government, in the form of subsidy, added together, would represent a bulge, would they not? Mr. ECCLES. Well, the price paid by the Government to the extent that it can come out of taxes, would not. Mr. T A L L E . That would be a happy day if we could pay them from that source. Mr. ECCLES. But, as I said awhile ago, it may be even better for the Government to pay a small subsidy in order to get an adequate supply than to raise the whole price level for many producers that need no subsidy. Mr. T A L L E . Oh, I think in the case of the metals that you mentioned, there is no question about the truth of that. .201 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. E C C L E S . Well, there may be cases in the packing industry. I understand there are a lot of the smaller packing houses who cannot possibly operate, whereas the big ones can. Mr. T A L L E . Well, the big ones can make money out of cosmetics and athletic goods. Mr. E C C L E S . They make money out of a lot of byproducts and can get by, whereas the small packers cannot possibly do it. Now, the question is Should we increase the price of meat straight across the board for the consumer and give certain packers a greater profit than they heed to equal their base-period earnings? Now, the excessprofits tax is out, and the Government can not recapture such earnings. If the excess-profits tax were still in effect, it would not make so much difference. Mr. T A L L E . We run into the differences between integrated and nonintegrated industries in that situation. Would it be fair to say that that black-market operations represent another bulge? Mr. E C C L E S . Well, I suppose that is a bulge that is pretty hard to figure. It is a bulge, all right. If we could determine the amount of goods that are purchased in the black market, but neither the seller nor the buyer advertises that fact. Statistics on that are pretty difficult to get. Mr. T A L L E . Some people have said the black market represents the price you would pay if you had no price control. With that I disagree, because an operation outside of the law is entirely a different matter, it seems to me, from a free market. It might be either higher or lower. Mr. E C C L E S . I rather agree with you on that. I do not think you could prove that the black market is the price you would pay if you had no price control. It may be higher or it may be lower. It would more likely be lower, I would think. Mr. T A L L E . Yes; I think so. I wonder, too, about Mr. Wyatt's recommendation that we introduce accelerated depreciation. I think he calls it accelerated tax amortization. But I think that would be the same as accelerated depreciation. Mr. ECCLES. That is right. That is what it would do. It would permit new plants and machinery to be charged off more rapidly than is now permitted by the Bureau of Internal Revenue. That is, plants and machinery that were provided for the purpose of meeting this housing problem. That same thing was done during the war. Industry was permitted to get a certificate of necessity in the cases where they desired to build a war plant, and so long as they had contracts for producing war material, they could not get a certificate of nonnecessity. When their business was over, they got a certificate of nonnecessity, and they were then permitted to charge off, during the period in which the plant operated on war business, the entire cost of the plant. Mr. T A L L E . Might have charged it off in 5 years instead of 4? Mr. ECCLES. Some of them would. They started out at 20 percent, but they were permitted to make an amended return if they did not operate for 5 years. If they only operated 2 years, and they had taken 20 percent the first year, then, they would be permitted, as I understand it, to go back and take 50 percent the first and 50 percent the second. That, of course, was largely paid for by the Government . 2 0 2 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 because those plants were largely in the excess-profits bracket and,, therefore, they got back what they otherwise would have paid to the Government for excess profits, t h e Government really paid for the plants, and the industry owned them. Mr. T A L L E . Actually, that is a hidden subsidy, is it not? Mr. E C C L E S . It is a form of subsidy, but I think it is a form that is preferable to the direct subsidy. Mr. T A L L E . Correct. Mr. E C C L E S . Mr. Wyatt talked to me about some of these matters, and I made that very suggestion. To encourage the production of prefabricated housing and other developments that he seemed to feel were necessary to get mass production, that if it could be done by providing that any investment made for that purpose could be charged off over a short period of time—that is, over the period of time in which the industry was engaged in the production of housing for the emergency—that it would be easier to administer, it seemed to me, than to determine which concern would get a direct cash subsidy, and which one would not. A direct subsidy would be a much more difficult administrative job. Mr. T A L L E . Well, I have listened to your testimony with great interest. These bulges really do concern me a great deal. I realize that what we are doing here is dealing with the effects, and that is why I appreciate your original statement, in which you make those points about production, about balancing the budget and stopping the monetizing of our Federal debt. Doubtless those points are the proper attack. Thank you. Mr. B R O W N . Mr. Buffett. Mr. B U F F E T T . Mr. Eccles, I listened this morning with a good deal of enthusiasm to your statement, and I approved of it quite generally. I only wish that the Office of Price Administration, with their vast facilities for influencing public opinion and public sentiment, were canying your message to the people of this country, because I think it would do a great deal of good as the honest approach to this problem. Mr. E C C L E S . I do not believe that I would find myself in any difference with Chester Bowles. I am sure that he would fully concur in what I have said with reference to dealing with the causes. Mr. B U F F E T T . Well, all the public information about the Office of Price Administration that I have seen in their brochures, folders, and propaganda that I have seen, we will say less than 10 percent of the information contained therein related to the causes of inflation as compared with the effects of inflation. I think that is a grave error. Mr. E C C L E S . Well, I suppose their role is one of controlling prices and rationing wrhich is dealing with the effects. It is their statutory responsibility to deal with the effects. Mr. B U F F E T . Of course, they go a great deal further when they explain to people all about inflation, or, at least, make believe they are explaining all about inflation. In that respect I think they have "done the country a serious disservice, because they have not carried to the minds of the people the serious impression about the dangers of deficit spending. If they did, it would be reflected in the votes of their Congressmen, I believe. You have pointed out, I believe, that inflationary pressures continue to increase as long as deficit spending continues ; is that not right? Mr. E C C L E S . Well, I would not say that. They certainly would insofar as conditions exist now. But I certainly did not feel that .203 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 deficit expenditures in the period from 1933 up to 1940 created any inflationary danger. I was a very strong advocate of deficit spending on a much larger scale than was undertaken. I do not feel that deficit spending, as such, necessarily will create inflation. But what I do say is that deficit spending during a period of short supply of goods and services, when there is already a supply of purchasing power such as we have now, that we do not want to add to it, and we cannot add to it without increasing the inflationary pressures. Mr. B U F F E T . That is what our discussion revolves around, the present situation. Mr. E C C L E S . That is right. Now, what it might be in an indefinite future, I cannot predict. Mr. B U F F E T T . NO. We are talking about the situation as it exists now. Mr. E C C L E S . That is right. Insofar as we can see it now, we certainly need a balanced budget and it would be helpful to pay something off on the public debt, if that were possible. Now, we cannot reduce taxes and do these things at the same time. Mr. B U F F E T T . D O you observe anything in the legislative behavior of the majority in Congress to indicate that that body is making a determined effort to balance the budget now? Mr. E C C L E S . Well, I think they will all agree that it should be done, but when it comes to voting a tax bill, it is pretty difficult, I suppose, to refuse to reduce taxes. Everybody wants the budget balanced and everybody wants his taxes reduced. Mr. B U F F E T T . D O you think Congress will act to bring that budget into balance until forced to do so, either by a very strongly expressed public opinion or by some unfortunate development in the economic scene? Mr. E C C L E S . I think the budget may well come into balance this next year. If this wage-price policy is effective, and the line is held on the new basis, and we get full production, we will have a very large tax income during the fiscal year 1947. Our expenditures certainly should not increase beyond the budget requirements, and they may even be less. On the other hand, if prices should go up more, that increases the cost of everything the Government has to buy, the Army, the Navy, and everything else, and we might even get a budget that is more unbalanced than is contemplated. But, as I say, that all depends upon the extent to which we can hold prices. This legislation must be passed to enable the Office of Price Administration to do just that. We must undertake to hold this wage-price policy in line now and get mass production. That is the solution and without it we are in a pretty difficult situation. Mr. B U F F E T T . IS not getting the full production equally important with that? Mr. ECCLES. Oh, well, of course, if you just do the thing theoretically, it is not with anything. I mean there is no good in holding prices on something that is not produced. Mr. B U F F E T T . Well, I noticed in a late report of the Department of Commerce that their business statistics on production, every item of production was lower than it was the same week a year ago. Mr. ECCLES. Well, production is not equal today to what it was a year ago. A year ago we were at the very peak of production. We 83512—46—vol. 1 14 . 2 0 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 were in a war on both fronts, and we were producing on the basis of a $200,000,000,000-a-year national product, which is as high as we have ever reached. We hardly expect in the near future to equal a $200,000,000,000 national product at the level of prices prevailing a year ago. Mr. B U F F E T T . N O , but when all the production indicators are downward, that might be cause for concern, might it not? I can see where durable goods would be down from when we] were producing tanks, but the production of cotton mills should not be down. M r . ECCLES. N O . Mr. B U F F E T T . And Mr. E C C L E S . Well, the production of food should not be down. of course, as you know, we have had some devastating strikes, which have curtailed production, and it still is being curtailed. But it is to be hoped that this is going to be rectified within the next few weeks, so that we ought to be getting a civilian production that exceeds anything we have ever had in peacetime. Mr. B U F F E T T . Well, there are a lot of people who feel that the Office of Price Administration pricing procedures are seriously discouraging full production now. If that should be the case, would it not be true that the Office of Price Administration could be bringing about the very economic crisis they claim they are striving to avert? Air. E C C L E S . Well, it would be true if that is the case, but I certainly do not believe that that is the case. To take off price controls on the goods—and nearly everything today is in short supply—would cause a rise here that would shock the country. It would upset any possible wage-price relationship, and you would no more than get one wage dispute settled than prices would go up all along the line, and you would run right into another wage dispute. It would be an endless inflationary cycle, I am perfectly sure, under the conditions that exist today, with this huge volume of purchasing power. I do not think there is the slightest question about it. I do not believe that the Office of Price Administration is retarding production. I know that a great many producers claim that they have got to have more profits to encourage production. I would like you to consider what happened in the 1930's, when business operated, a lot of them, at a loss. They did not quit producing because there was no profit or a low profit. When business operates at a loss, usually it goes broke, trying to get more and more efficient, trying as best it can to meet the pressure of a loss. Sometimes an easy, big profit makes business careless about expenditures. Mr. B U F F E T T . There is no question that there has been a large area in which that has occurred during the war. Mr. ECCLES. That is right. I think the idea that large profits are essential to stimulate production is quite a myth. I think that if a business has a good profit, with a small production, there is not the same pressure to increase their production so as to reduce the unit cost. If there is little or no profit, on a certain volume, there is great pressure to increase that volume of production, so as to reduce the cost. Everyone knows the greater the volume of production, the lower the cost. Mr. B U F F E T T . Yes, but there is also a stage to be reached where the greater the volume, the more you lose. Mr. E C C L E S . Well, that is correct, if your loss is great. Of course, if there is no way of overcoming the loss, no matter what volume you produce, you may then find that it is cheaper to shut down and absorb .205 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 the loss of a closed concern than to try to operate at capacity. That is possible, but to shut down is an expensive operation. A concern not only loses its market, but it has an overhead of depreciation, taxes, insurance, maintenance, and an overhead of taxes—not profit taxes, but business property taxes—as well as the officials of the company to be paid. Mr. B U F F E T T . Yes; but certainly in the brick industry last year, for example, a great many firms closed down in preference to making brick, and for 6 months the brick industry was almost dormant. Mr. ECCLES. I think that there are some cases where you would lose less by closing. I think there are such cases, and I think a brickyard would be an example where it would not cost an awful lot to close down. There are many firms, smaller ones, that might find it cheaper to close than to operate, and certainly in those cases there must be adjustment of prices. I am not advocating that we should take the profit out of industry. All I am saying is that we should not be too ready to raise prices on the assumption that that is the only way we are going to get production, if there is a reasonable assurance that there is going to be a fair profit when they get volume production. Industry, as a whole, has made fabulous profits during the war period, • as evidenced by the cash and Government securities that they own now as compared with what they owned in 1940. Mr. B U F F E T T . Well, are not those cash and Government securities somewhat misleading in that they represent money that would normally go back for plant replacement in some cases? Mr. ECCLES. Well, some of it. But a great many plants are in better condition today than they were in 1940, because they were able to maintain their plant at a high level, while they were in the excessprofits-tax bracket, and make the Government pay it. It was to the interest of every industry, to the fullest extent that they could, to maintain the property and to charge it to expense. Now, there was some limitation of labor and material so that it could not be done entirely, but the condition of plant and facilities, I think, is much better than many people would have us think. On the other hand, a lot of the machinery and facilities has become obsolete due to technological changes, and in order to get cheaper production, large expenditures need to be made to modernize plant facilities. I think there are a good many cases of that sort. You cannot lay down any rule in this matter. Mr. B U F F E T T . N O ; every business is different. Now, getting back to the balanced budget, how would you answer this question: If deficit spending continues, can we prevent inflation without the use of totalitarian methods of control? Mr. ECCLES. Well, it depends on the extent of the deficit spending. It depends on how it is financed. And it depends on what the deficit is spent for. If the deficit were spent for production, it certainly would not be as inflationary as if it was not expended for production. If deficit spending were financed out of public savings and not by the banks, it would not be particularly inflationary. Then, again, it would depend on the amount of deficit spending. Mr. B U F F E T T . Certainly, if there appears a very real effort to bring the Budget into balance, genuinely into balance, the public confidence is going to increase. . 2 0 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. E C C L E S . I am in favor of that. I think that certainly if we cannot balance it under conditions such as we will have during the next few years we never can. Mr. B U F F E T T . There is one aspect of this problem on which I would like to get your views, because it is one that has puzzled me a great deal. We have, say, $275,000,000,000 of inflationary pressure. We will produce in the next,year, say, $150,000,000,000 of new goods. That automatically creates $150,000,000,000 of new purchasing power. How do we ever catch up with this backlog of purchasing power? Mr. E C C L E S . Well, the two-hundred-and-some-odd billion dollars is not all going to be spent. Many people are going to hold their Government securities. They do not intend to spend them. They are going to keep them indefinitely, and when one group sells, somebody else buys. So the public, as a whole, is not likely to reduce its holdings of Government securities on balance. Mr. B U F F E T T . If we do not do too much deficit spending. Mr. E C C L E S . If they do not lose confidence in the Government credit, in the purchasing power of the dollar; that is right. We talk about that amount as being inflationary. I would say it is potential. M r . BUFFETT. Mr. ECCLES. Yes. The savings deposits that the people have in the mutual savings barks and in savings departments of commercial banks should not diminish. They may increase. The commercial bank deposits and currency can be spent a good many times within a year. It is a question of velocity. It is a question of turn-over. You could get inflation with an amount of deposits and currency that is very much less than our national income. Mr. B U F F E T T . Yes; there is no question about that. Mr. E C C L E S . And less than it is now, much less than it is now, if you get a sufficiently rapid turn-over. That is the danger today, of course, the rapid turn-over of those deposits, such as are going into the stock market and the real-estate markets. It is the capital assets field where the inflationary danger is greatest today, and that, of course, has an effect upon the whole structure. We have done nothing, we have no mechanism, to control that. Mr. B U F F E T T . But still in that field, if the Budget comes into balance, you are going to discourage a great deal of that. Mr. ECCLES. Psychologically, that would be helpful, certainly, but it is not a very potent factor to deal with the present situation. Mr. T A L L E . Will you yield? Mr. B U F F E T T . I yield. Mr. T A L L E . In the event we do not balance our budget, Chairman Eccles, and in the event that we adopt controls on properties which people buy for hedging purposes, to protect their savings, in the event that we do adopt such controls, such as, say, price ceilings on homes, or a capital-gains tax, is it not conceivable that we might have a flight of dollars from our country to other countries where those controls do not exist? Mr. E C C L E S . I do not think so, because they do not have the assets that our dollars want to buy. Neither do they have any stability. The inflationary danger is worse in nearly every other part of the world than it is here. We have the thing in control here better than possibly every other country, unless it is Canada and England. .207 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 They have done a good job, particularly England, when you consider the very short supply they have of everything. Canada has done an exceptionally good job. Mr. T A L L E . I had Canada in mind and also Mexico. Mr. E C C L E S . Well, you have an inflationary situation in Mexico that is much worse than it is here. I would not be afraid of dollars going from here to Mexico. The reverse is more likely to be true. What we have now is a flight of currency, to the extent they can get out of other countries into this country. Now, of course, they cannot leave most other countries, because those countries exercise exchange control, and a citizen of those countries has no way to transfer his money into dollars, or we would have a flight out of most of the countries of the world into dollars, if there was any way they could get them over here. Mr. T A L L E . What I had in mind there was, in the event of that happening, which I referred to, our next step would probably be Mr. E C C L E S . Exchange control. Mr. T A L L E . That is right. Mr. E C C L E S . Yes, sir; we would have to put on exchange control if that happened on a large scale. If there were any large flight of capital from here, that is exactly what we would have to do. Mr. B U F F E T T . Mr. Eccles, was not the steel wage increase highly discouraging to public confidence in holding of the line, as it were, by substantially strong-arm methods? Mr. E C C L E S . It was not discouraging to me. It was encouraging, because I felt there was no point in holding the line if we did not get any steel production. Mr. B U F F E T T . Y O U mean after they went on strike? Mr. E C C L E S . That is right. I felt—and I think a good many other people did—that what was known as the Little Steel formula was not going to be able to be held after the war. It was difficult enough to hold it for the last year of the war, and it was quite apparent when the war was over that there had to be some adjustment in that particular field. I was only concerned because the adjustment was not made soon enough to prevent the strikes. Mr. B U F F E T T . Well, now, out in the Middle West today, and in the South, transactions in grain and cottonseed cake and similar protein products have been reduced to a large extent, or altogether, to a barter or black market. Do you not think that the Office of Price Administration is taking a dangerous chance with public confidence when they ignore a situation like that, and do not make realistic adjustments? Mr. E C C L E S . Well, I do not know anything about that situation, so I do not feel that I could comment upon it. I am not familiar with the black-market situation that you refer to. Certainly, anything that is necessary to eliminate the black market should be done. We have got to control black markets, stop black markets. There are various ways of doing it. I suppose it is largely a policing job, or possibly some price adjustment is necessary. As I say, I do not know, in that situation, just how the problem should be dealt with. Mr. B U F F E T T . I suggested to a Member from Texas that perhaps 80 percent of the cotton cake was changing hands in the black market, and he said, " Y o u are wrong; it is 100 percent." Well, when conditions in an industry get to that point, certainly it would seem that some . 2 0 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 adjustment would be appropriate. I want to thank you for your testimony. I think you have contributed a great deal to the understanding of this committee of the basic causes of inflation. Mr. ECCLES. Thank you, Mr. Buffett. Mr. B R O W N . Thank you very much for your testimony, Governor Eccles. The committee will now adjourn to meet tomorrow morning in executive session. The hearing on the Office of Price Administration will be resumed Wednesday morning at 10:30. (Whereupon, at 4:30 p. m., the committee adjourned, to reconvene at 10:30 a. m., Wednesday, February 27, 1946.) 1946 EXTENSION OF THE EMERGENCY PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED WEDNESDAY, FEBRUARY 27, 1946 H O U S E OF R E P R E S E N T A T I V E S , COMMITTEE ON B A N K I N G AND C U R R E N C Y , Washington, D. C. The committee reconvened at 10:30 a. m., Brent Spence (chairman) presiding. The C H A I R M A N . The committee will come to order. We have with us this morning Mr. John Snyder, Director of War Mobilization and Reconversion. Have you a prepared statement, Mr. Snyder? M r . SNYDER. Y e s , sir. The C H A I R M A N . Y O U may read it without interruption and then you will be interrogated. Mr. S N Y D E R . Very well, sir. S T A T E M E N T OF JOHN W. S N Y D E R , D I R E C T O R OF W A R TION AND MOBILIZA- RECONVERSION Mr. S N Y D E R . Mr. Chairman and members of the committee, in scheduling these early hearings on the extension of the Emergency Price Control Act of 1942, as amended, and the Stabilization Act of 1942, as amended, your committee is performing a very real service to the American people. We must come to grips at once with the problem of keeping inflation in bounds. It is not a threat that may materialize in the future. It is a very dangerous present condition. There is every likelihood that keeping inflation in check is going to be the most crucial domestic question before us for many months to come. That is why I consider it so important to take steps now for continuing price-stabilization measures for a full year beyond June 30, 1946. I am glad that your committee has offered me this opportunity to discuss the problem with you. American businessmen and consumers rightly fear the effect of inflation upon our economy. And they should know now that their Government is prepared to safeguard their earnings and savings by stabilizing prices. And they should know now that the Government is prepared to remain on the price-stabilization job until economic equilibrium is within reach. As you know, I am on record as having said many times that I believe production, in the last practical analysis, is the only real solution to the problem of inflation. I want to take this opportunity to reaffirm that statement. At the same time, I want to say, with equal firmness, that I believe we cannot drop our defenses against inflation before supply begins to approach demand. 209 . 2 1 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Price stabilization is a measure we are using to safeguard our economy against the disaster of rising prices and costs. We need that safeguard until production is sufficient, and the volume steady enough, to begin balancing with demand. Demands at present are very heavy. They have been built up during the war, and there are new demands at present for many things. It will take time to manufacture consumer durables, components, materials needed by business, and construction materials—and this alone is a big, time-consuming job which requires changing over and adjusting the Nation's complex business machinery from war to peace production. It will also take time to get these things to the markets. The channels of distribution, wholesale and retail, for business and consumers have to be filled up again. Anywhere from a few weeks to many months are necessary for this. And that supply, once volume production has been reached, will have to be maintained for more weeks and months in order to approach demand. We should ask ourselves what would happen to production prospects if price stabilization were to end before we had allowed enough time for the practical tasks of reconversion. Suppose we entered a period of spiraling prices and costs, as happened after the last war. If it happened again, industry would certainly be obliged to stock up with materials for manufacture before prices went higher. It would be natural for consumers to rush to buy what they needed before the cost of living climbed further. It would be natural, too, for business to withhold finished goods from market, because it would be facing a loss to sell when prices were sure to go higher. This situation would, for a time, inevitably increase, not lessen, the shortages of both producer and consumer goods. A disordered price structure, with prices and costs bolting outTof control, would give business in general a poor chance to expand its output of goods and services. Many of the industries producing to fill the most troublesome shortages would run into further difficulties. It is not reasonable to expect that all production would increase if all price ceilings were removed. In specific cases, where lack of production is retarding reconversion, we can divert labor and materials from other uses, by granting measured price increases, in order to step up output. This can be done effectively only under the stabilization framework. With all prices rising, that advantage would be lost. At this stage in reconversion there are still a number of obstacles to be overcome before a larger volume of finished goods can flow to market. Shortages of labor, of components, and raw materials, still have to be met. Properly trained workers must be where they are needed and at the right times. Industrial plants and distributors have to reorganize for peacetime trade. Technical changes are still being completed. And labor and management must settle down again into normal bargaining. These factors must be taken into account when we talk about achieving the kind of substantial production that will eventually smother inflation. But even so, even with practical problems still to be solved, our total civilian production is increasing. There has been noticeable progress in the production and shipment of finished consumer durable goods to market from the reconversion industries. December shipments of vacuum cleaners, electric irons, refrigerators, electric ranges, washing machines, sewing machines, and radios .211 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 ran 10 to 30 percent above November shipments. And industry expects shipments of those and other consumer durables to reach at least prewar rates of shipment by June of this year. Goods from reconverting industries are coming to market in larger and larger quantities. This new production is coming in addition to over-all production for civilian use that already stands at the highest level in our history. During the war years production for civilian use, in addition to our unsurpassed war manufacture, outreached any previous peacetime period. And on December 31 production for civilian uses was higher than it had ever been before in peacetime. During 1945, for example, food production in this country was 35 percent above the average for 1935-38, a peak up to then. An indication of today's volume of production is the amount of goods moving through department stores to consumers. It stands at an all-time peak. Balance of supply and demand is an eventuality on which we can rely. But it has not yet materialized. It will require time. One reason that it will require time is that present demand for goods is so swollen that even better than ordinary production is not going to be enough to meet it immediately. This factor is one of the inflationary pressures that we have to watch. Like many other inflationary pressures that have been developing since VJ-day, heavy demand is not itself a bad thing. On the contrary, it provides a bridge which we can use to reach a period of good jobs, stable markets, and better times for all of us. We can reach this period if we take action now to prevent unaway inflation. But if heavy demand, and great purchasing power are allowed to dissipate themselves in a boom that can end only in a depression, we will not be able to build a sound economy in the future. There are other inflationary pressures that have been building up since last August. Prices continue to press hard against their ceilings. Wholesale prices have been inching higher and higher. Since last September, wholesale prices have risen faster than during any similar period since 1943. Consumer spending continues to be heavy. Department-store, chain-store, - and mail-order sales were higher during the whole of 1945, and higher during the last month of the year than during comparable periods in 1944. Consumer buying in the last quarter of 1945 was at the highest rate in our history. Retail sales were at their all-time peak as the new year began. * All of these evidences of the trend toward inflation must be considered along with another one. And this is the psychology of inflation that is becoming more and more apparent. Trade and business journals frankly cite the probability that prices will go up. We know that both public and private purchasing agents have frequently been unable to contract for future deliveries of goods except by agreeing to "escape clauses" providing for the possibility of a higher price. The assumption that prices are going up gives business an irresistible motive to withhold finished goods from market in expectation of higher prices and higher profits. We have not yet been able to judge how much this fact accounts for a number of shortages. But we must reckon with it. It is a practice that adds an artificial scarcity to the very real shortage of goods that already exists. . 2 1 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 This fear or anticipation that inflation is on the way, the assumption that prices are going up, could very well be translated into disastrous action. And the action would be a rush to buy that would accentuate the already strong demand for goods and services. There is sufficient buying power available among both business and consumers to give considerable impetus to a buying rush. It is obvious that we will continue to need safeguards against such growing inflationary tendencies. It would appear that, to safeguard consumers against increased living costs, it would be necessary to control only the prices of food, clothing, rents, and housing. This view has been advanced by those who sincerely want to avoid the development of serious inflation. I very much wish that this were all that was necessary. It would greatly simplify the task of the Congress and the Administration. Unfortunately, while inflationary pressures remain as great and as general as they are today, this proposal simply would not work. It would not accomplish our objective of stabilizing the cost of living, because price increases are contagious. If prices in the uncontrolled sectors boomed—as under present conditions they certainly would—no price administrator could hold back prices in the controlled sector. Just suppose, for instance, that the prices of all durables—autos, refrigerators, radios, furniture, farm machinery—and all services also, increased materially. And this is not in the least unlikely if all price controls were removed. Could anyone seriously suppose, to cite one example, that the prices of agricultural products could be held down while the price of durables the farmer has to buy soared? Another type of argument, also advanced by those who do not want to see a runaway inflation, is the contention that continued general price control is really restricting production, and thus contributing to inflation. One main reason for this contention, I think, is that each businessman knows that if his own prices went up, without any change in other prices, he himself could produce more. This is certainly true. If any single price were raised, while all other prices remained under ceilings, the producer in that line could raise both the wages he pays his workers and the price he offers for materials. He could then attract more labor, get more materials, and produce more. We have taken advantage of this under price control in increased output of materials and products which are bottlenecks in reconversion. But it does not follow that removal of all controls would have the same effect. Instead, it would destroy the advantage and create disordered markets. Today's high demands can be filled only by many months and, in some cases, years of sizable, steady production. Certainly, lifting price controls would not help us complete certain necessary reconversion tasks that industry still is working on. The same practical and technical operations would still have to be finished. It would still be necessary to allow time for distributors to reorganize their sales outlets. Workers would still be relocating themselves. Collective bargaining wold still have to operate. If continued price stabilization were actually restricting all production, we would have been undergoing a different sort of transition period since VJ-day. Instead of our present rapid progress, we would .213 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 have had a limping reconversion. Unemployment would have increased much more sharply and quickly than it has J However, relying on continued effective price stabilization to keep our economic house in order until production begins to approach balance with demand does not mean that we are determined on rigid and inflexible'control of prices. Existing stabilization powers provide sufficient room for necessary flexibility in price control. The development of a revised wage-price policy by the Government during the last fortnight illustrates this point. Since VJ-day there has been a fairly narrow category of wage increases that could be used by industry as the basis of request for price relief. We have been depending mainly on free collective bargaining fty industry and labor to settle the wage issues, without resulting price increases. Industry, of course, could come in after 6 months and ask for price relief on the basis of wage increases that had been granted and that had increased production costs. Now we have revised those ground rules. By dropping the 6-months rule, we have expanded considerably the category of wage increases that may be approved and used immediately as the basis for price relief for industry. Collective bargaining still remains the open avenue for wage settlement where no price increases are involved. At the same time we have put a deterrent on excessive wage increases that would serve to promote a spiral of inflation. Both the new wage policy and the new price policy put an even heavier requirement for speedy action on the Government. This will mean that the operating stabilization agencies—the Office of Price Administration and the Wage Stabilization Board—must accelerate their actions. And I know they are doing everything humanly possible to speed them up. They will need adequate personnel to assure prompt action. • The revised wage-price policy means that industry in general during the coming year will be assured of at least its minimum peacetime earnings. It means that labor in general will be able to soften the shock of reduced take-home pay that has followed the end of wartime pay rates. And it means that agriculture has a better income outlook for the very reason that labor is able to maintain wage levels and so continue to buy farm products. This stabilization program can be adjusted to meet the changes of the transition period. It is not a formula for rigid control of the economy. We have already dropped the bulk of the wartime economic controls. The few still effective, in particular price control, must remain for a time. We will lift these few remaining controls just as soon as conditions permit. As I have said many times before, conditions will themselves determine the timing. The time will come when price controls over many more products can be dropped. They should be dropped on each product as soon as supply is in reasonable balance with demand. This may very well result in price control becoming highly selective before the need for it comes finally to an end. But in the meantime we must maintain the machinery for general price stabilization. During this war we kept prices and the cost of living from getting out of hand. The real battle is at hand. The pressures toward inflation are heavier now, as they always have been following a war. And at present, when we are fighting heavier pressures, our weapons . 2 1 4 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 of defense are fewer. The main one aside from public opinion has now come to be price control. Subsidies have also played an essential role in stabilizing the cost of living during the last 3 years. They provided certain producers with sufficient returns to enable them to produce adequately without raising prices to the consumer. This was an important factor during the war in limiting demands for increased wages to meet increased living costs. Farmers, along with consumers in general, have a stake in keeping the cost of living in line. Stabilization has kept the prices of tilings farmers had to buy from soaring at the same time that farm income has remained good. The drop expected during the last 6 months has failed to materialize. The December cash income of farmers was higher than the August level, with seasonable adjustments. Nevertheless, even though the subsidy helps keep the cost of living in line, farmers do not like subsidies, and I sympathize with that view. Nobody likes subsidies. The Government recognizes that it is desirable to get rid of all subsidies as quickly as possible and intends to do so. The Stabilization Administrator has announced that the remaining food subsidies will be terminated as soon as prices of the nonsubsidized elements in costs of living decline enough so that it will be safe to allow the cost of the subsidized elements to go up. At the same time, farm incomes will be protected. Here again, as in price stabilization, it is a matter of keeping a balance. But because subsidies continue necessary for cost-of-living stabilization, it will be necessary to retain the authority to use subsidies, along with price control, during the 1947 fiscal year. Important considerations of national welfare, as I have shown, make it imperative to extend the Emergency Price Control Act of 1942 as amended and the Stabilization Act of 1942 as amended. I havediscussed a number of these considerations in some detail because each of them is important. It is vital to prevent inflationary trends from developing into a real inflation that will hamper business in its effort to produce. It is vital to keep the cost of living in line so that labor need not press for higher wages. It is vital to keep the cost of major raw materials in line so that production can go forward. i urge your committee to act promptly so that the two acts on which the stabilization program rests may be extended for 12 months beyond June 30. The CHAIRMAN. Mr. Snyder, it is my recollection that Chairman Eccles said that the wage-price policy of the administration would increase the cost of living by 10 percent. What is your opinion on that point? Mr. SNYDER. Well, I do not know what figures he used to arrive at the 10 percent increase. If we have the full cooperation of management, labor, and Government in administering the wage-price program as set out last week, I see no real reason for a material increase in the cost of living. There has been no definite figure set for either a wage raise nor for a price raise. There has been no percentage set forth. It has been very definitely stated that the pattern of wage increases would be followed. By that pattern, it means that whatever wage increases were necessary in the various industries or companies to meet their particular demand. .215 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 The President has repeated time after time that these settlements must be company by company, and in some cases industry by industry, and that one pattern does not cover the whole field. There have been some industries in which wage increases have moved right along during the war. There have been others where they have lagged behind, and it takes real collective bargaining to face the facts in each case to determine the necessary wage increase required to meet the pattern of increased cost of living and adjustments between wartime and peacetime wage balance. I can see no real reason for a runaway increase in cost of living at all, if, as I say, we get that cooperation and understanding between management, labor, and the Government agencies who are administering the stabilization controls. The C H A I R M A N . Well, the wage-price policy does not establish any definite figures. It merely is a relationship, as I understand it. Mr. S N Y D E R . That is right, sir. The C H A I R M A N . H O W effective do you think subsidies are in increasing production? Mr. S N Y D E R . Well, in a number of cases they have been very effective. In the nonfood area, it saved us from many cost increases that would have set probably a trend in other industries. We have had incentives in lead, copper, and things of that sort, in order to get people into those mining industries and those activities, which required some adjustment there, where, if the prices had gone up and the wages had gone up, it would have caused a general trend in that direction in that and all other industries. By making certain subsidy incentive there, we were permitted to hold a better control on general prices. In the food situation, of course, during the war and during this transition period, it will have to hold down the general cost of living so as not to bring pressure for further wage increases until we get our production picture better in balance. The C H A I R M A N . Well, by that method a good many of the high cost producers were kept in production; is that true? Mr. S N Y D F R . That is correct, sir. The C H A I R M A N . D O you know of any other effective measures which might be applied which would answer that purpose? Mr. S N Y D E R . Right during this period, I do not, sir. You might get into premium prices, which is all the same thing, as subsidies. Until we can actually get production moving along, we are going to have to fill certain weak spots, high cost spots, with price incentives through subsidies for a period of time. The C H A I R M A N . Mr. Brown, do you have any questions? Mr. B R O W N . Mr. Snyder, your testimony indicates that you made a thorough study of the inflation picture. Do you agree with me that the best cure for inflation is full production? Mr. S N Y D E R . I am sorry, Congressman, I could not hear you. Mr. B R O W N . D O you agree with me that the best weapon against inflation is full production? M r . SNYDER. Y e s , sir. Mr. B R O W N . N O W , if Mr. Eccles is correct, that the new wageprice policy will raise the consumer's price 10 percent, it is going to take a lot of subsidies to hold the line. Should we raise it again a few months from now? . 2 1 6 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. P A T M A N . Are you sure Mr. Eccles said that? I did not understand that. Mr. B R O W N . I said if he said that. I am just making the statement that if Mr. Eccles is correct, that the new wage-price policy will raise the cost of living 10 percent, it is going to take a lot of subsidies to hold the line. And then, if we have to raise it again 6 months from now, it will take more subsidies. The C H A I R M A N . I do not recollect Mr. Eccles making that statement, but it has been generally reported that he made it. Mr. P A T M A N . I just do not recollect it that way. I know he said something like that, but I do not quite recall him saying it that way. Is the transcript available? Mr. C R A W F O R D . Yes. We do not have to have any doubt about what he said. We have his testimony right here. The C H A I R M A N . That is my recollection, at any rate. Mr. B R O W N . I want to compliment you on your statement, Mr. Snyder. That is all, Mr. Chairman. The C H A I R M A N . Mr. Wolcott. Mr. W O L C O T T . I have no questions at present. The C H A I R M A N . Mr. Patman. Mr. P A T M A N . Mr. Snyder, I think you have presented a fine argument here in favor of the extension of both acts. I commend you for it. It is a very comprehensive and enlightening statement. I would like to ask you one question about the subsidies on farm products. You state here that the " Stabilization Administrator has announced that the remaining food subsidies will be terminated as soon as the prices of the nonsubsidized elements in the cost of living decline enough so that it will be safe to allow the cost of the subsidized elements to go up; at the same time farm income will be protected." Now, I assume from that that you contemplate permitting the prices of farm products to go up as the subsidy is taken off. In order to protect the farm income. Mr. S N Y D E R . There is no doubt but what that will take place. Mr. P A T M A N . There is no doubt about that at all? Mr. S N Y D E R . That is right, sir. That has been a part of the discussion whenever that was brought up. Mr. P A T M A N That applies to livestock, beef, and all other farm commodities? Mr. S N Y D E R . That was always given consideration, that if the price level went down in certain areas, it would be allowed to go up in others. Mr. P A T M A N . In order to make up for that? Mr. S Y N D E R . That is right. Mr. P A T M A N . In order to at all times protect the farm income? M r . SNYDER. Y e s . Mr. P A T M A N . That is all I have, Mr. Chairman. Mr. B R O W N . Mr. Crawford. Mr. C R A W F O R D . Mr. Snyder, our colleague here, Mr. Brown, put a question to Mr. Eccles almost identical to the one he asked you awhile ago. Mr. Brown said this to Mr. Eccles: Do you agree with me that full production is the best weapon against inflation? Mr. Eccles replied: Yes, it seems to me it is the only effective weapon. I do not mean by that we must not stop the expansion of the means of payment. .217 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. Eccles had been discussing the fiscal policies of the Government, monetizing of the debt, so he is there referring to the expansion of the means of payment. Then, Mr. Eccles continued: We must retain, in my opinion, the controls until we greatly increase the supply of goods and services that the people want to buy, and until there has been some opportunity to catch up with the backlog, but while we are doing that, we must not undo the benefits of it by further expanding our money supply. Now, you have had experience in banking, and you know something about the Government's fiscal policy, and I want to ask you the straightforward question: In your opinion, do you believe this extension of the Office of Price Administration for another 12 months, will be efficacious and highly beneficial if the Government, the Congress, and the Administration, continue to monetize the debt, continue deficit financing, and continue to expand these means of payment to which Mr. Eccles has referred? Mr. S N Y D E R . Well, the payments that he is talking about expanding, I do not quite understand, unless that is debt reduction. Is that what he was referring to there? Mr. C R A W F O R D . N O . Mr. Eccles gave us quite a good deal of information on what the Government and the Congress have been doing with respect to monetizing the debt, expanding the inflationary base, causing people to move into this zone of fear psychology which I think is mentioned in your statement, the runaway irom the ownership of money to the ownership of things, and specifically points out that, in his opinion, merely extending price controls through the Office of Price Administration is not going to do the job. And he says, and I quote him again: "But while we are doing that—" that is, extending price controls— "we must not undo the benefits of it by further expanding our money supply." Now, going back to my question, I think the country is entitled to have your views as to how efficacious and beneficial you think the Office of Price Administration will be during the next 12 months if we continue to do these disastrous things which Mr. Eccles has cautioned us against, and which he is pleading with us to discontinue. Mr. S N Y D E R . Well, I suppose I can answer that by stating that my personal opinion is that we must aim toward a balance of our budget. Does that answer your question? Mr. C R A W F O R D . N O ; that does not answer my question, because I am going to ask another one later on. The people in my district, a great many of them, think that the Office of Price Administration is economics' sole salvation for this country. I had a letter this morning from a very poor man. He said the statements coming out of Washington are so confusing that he does not know what to believe. He says one day one Administrator says one thing, and another day another one double-crosses him and says something else, all in the name of continuing the Office of Price Administration as a means of holding down the cost of living, and preventing inflation. Mr. Eccles comes up here and testifies that these other operations of Government will undo the work we expect the Office of Price Administration to do if we do not discontinue those operations. I am trying to find out if you agree with Mr. Eccles on that observation, ot do you contend that the Office of Price Administration can do this job in the face of the Congress and the Administration doing these other things, against which Mr. Eccles complained? . 2 1 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. S N Y D E R . Well, I would really like to see what Mr. Eccles said and study it. You are asking me a question now Mr. C R A W F O R D . Well, let us forget Mr. Eccles for a moment. Mr. S N Y D E R . All right, let us do that. Mr. C R A W F O R D . Let me ask you point-blank. Mr. S N Y D E R . All right. Mr. C R A W F O R D . D O you believe that the Office of Price Administration can do this job if the Government—meaning by that, the administration and Congress—continues to inflate and monetize the debt and deficit financing the way we are doing now? Mr. S N Y D E R . Well, that is why I made the statement that I personally believe that we must balance the budget. The deficit financing, the deficit position today, according to the Budget, is about $14,000,000,000. Of course, over 5 0 percent of the present output is still for wartime things. That, of course,, will be materially curtailed. I have never advocated deficit financing except in extreme emergencies, and I certainly think that it is the administration's general feeling toward the same goal. I certainly do not think that we can go along in a headlong program of spending and be saved by the Office of Price Administration, if that is what you mean Mr. C R A W F O R D . D O you think the Office of Price Administration will be efficacious if we continue to do what we are doing now? Mr. S N Y D E R . Again, I do not know exactly what—if we continue to have to spend this war money, and that sort of thing, why, it would be a tough job, of course, but that is going to be steadily diminishing during the coming year. Mr. C R A W F O R D . Let us try to get at it in this way: The radios this morning were crowded with the message that the Office of Price Administration estimates the increase in meat will be 1% percent per capita per annum, which would be about 81 cents per capita, to the people. What do you estimate the present population to be? Mr. S N Y D E R . Around 1 3 5 , 0 0 0 , 0 0 0 , I think, somewhere between 135,000,000 and 140,000,000. Mr. C R A W F O R D . Well, if we increase would be $ 1 1 3 , 4 0 0 , 0 0 0 take the figure of 1 4 0 , 0 0 0 , 0 0 0 , that increase in the cost of living, as a result of increase in the cost of meat alone. Now, I assume that is a part of this 10-percent increase which Mr. Eccles referred to the other day. Today it is $ 1 1 3 , 0 0 0 , 0 0 0 on the meat bill, and next week it is clothing, 25, 50, or 100 million dollars, and some other week it is some other item of that kind, steel products, household equipment, automobiles, farm machinery, and everything else. It seems to me we can pile up a billion dollars increase in the cost of living pretty fast. In other words, I do not want to think in terms of 81 cents increase of the cost of living. Let us multiply it by the total population and find out what the cost of the bill is, and then we are getting down to something. If the administration creates an increase, they talk in terms of 5 or 10 percent per capita. If a farmer wants an increase in his wages, they talk in terms of great disastrous inflation. That is the point I want to bring out. I think you know what I mean. Now, in your fifth report to the President, at page 36, under the heading "Rationing and Price Controls," you make this statement: Price ceilings have been r e m o v e d f r o m several thousand items, and the elimination of controls is going ahead on items relatively insignificant in the cost of living. T h o s e already d r o p p e d represent only a small percentage of the total. T h e c o n - .219 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 tinuation of heavy, general inflationary pressures had made the retention of most price ceilings necessary to the maintenance of a stable economy. They will be lifted as quickly as supply approaches balance,with demand. Now, I want to ask you two or three questions on that point. First, you referred to general inflationary pressures. Briefly, what do you have in mind? Mr. SNYDER. Well, it is the amount of money and savings in bonds and cash that we have on hand right now, ready to buy goods, with a lack of goods to buy. That creates the pressure. Mr. CRAWFORD. Well, now, I think you have answered the question which I submitted to you first, with respect to deficit financing and monetizing of the debt. From your combined statement, I would draw the conclusion—and I hope it is fair—that these general inflationary pressures—deficit financing, excess amount of money, and otherwise—make the retention of most price ceilings necessary. Would that be a fair conclusion? Mr. SNYDER. Well, there is no plan this year to increase the debt; rather there is a plan to reduce it. And so there is a general trend there toward reducing that deficit situation, which will reduce the pressure of increasing the monetary position. Mr. CRAWFORD. All right. Along that same line of thought, on page 9 at the top, you say: The time will come when price controls over many war products can be dropped. Then you say: They should be dropped on each product as soon as supply is in reasonable balance with demand. I want to make a comparison there between your fifth annual report and your statement this morning. Again in your fifth annual report, you say: "They will be lifted." In your statement, you say: "They should be dropped." Mr. SNYDER. Well, change it to "should." Change the "should" to "which will," as far as I have anything to do with it. Mr. CRAWFORD. All right. Would you have any objection to the committee writing language in this bill, as setting up a formula, in that language, which would make it mandatory on the part of the Office of Price Administration to drop those controls, when according to that formula, the supply came into reasonable balance with demand? Mr. SNYDER. It would be the only problem brought out by such a mandatory position. We have a number of times suspended controls. Then, when it did not work just the way we expected, or conditions changed, they have had to be reinstituted for a time. Mr. CRAWFORD. I do not think there would be any difficulty about that at all. I think if you talk with some of the good drafting people we have—as a matter of fact, some amendments have already been drawn along this line, which certainly fit in with the general procedure of the Office of Price Administration, and whereby I think you could have a satisfactory formula of mandatory removing of these controls, and letting the Office of Price Administration put them back, according to that formula, if it became necessary to put them back. Mr. SNYDER. Does that not pretty well fit in with the present policy? Mr. CRAWFORD. Except you take these general inflationary pressures, if they are to determine, there is nothing in the law which 83512—46—vol. 1 15 . 2 2 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 mandates the Office of Price Administration to remove the controls when supply comes into reasonable balance with demand. I think our people all over this country—certainly a great many of them in my district, on both sides of this question, which is a hot issue, and I have left nothing undone that I know of to prevent it from being a hot issue, I have encouraged them to make it as hot as possible—they want to know when these controls are coming off and they want to know the answer to this other question that I will submit to you. Mr. S N Y D E R . Before you leave that, let me make a statement at this point. I think that sofar as my Office is concerned, we have definitely demonstrated the desire to remove every control that it was possible to remove. I committed myself to such a program when I came down here, and I will continue. Mr. C R A W F O R D . I think you have done that. Mr. S N Y D E R . T O get to the question that you raised a while ago, I would like to sit down with the administrators of those agencies and talk about the administrative problems that might be brought about by such language in the bill. Mr. C R A W F O R D . With respect to the amendment? M r . SNYDER. Y e s . Mr. C R A W F O R D . I would certainly appreciate it, because it is going to come up here, I know, by reason of what I have been told, and I wanted to get your views on it. I did not raise it with Mr Bowles, because I did not get an opportunity. The other question is this, and it is a part of the general procedure. I submitted this question to Mr. Bowles and also to Mr. Eccles. Do you feel like saying to the people of this country at the present time that insofar as your part of the game is concerned that you feel these controls should be removed, generally speaking, when supply comes into balance with demand, generally speaking, reasonably, so, regardless of the pent-up bu}7ing power, with a backlog measured in $200,000,000,000 or $300,000,000,000, or $275,000,000,000, as Mr. Eccles gave it to us? Shall the controls go off when supply comes into balance with demand, or shall those controls be continued as long as that backlog of buying power is present? Mr. S N Y D E R . When supply comes into balance MATH demand, or approaches balance with demand, I think competition will take care of the pricing, and certainly I would think we should remove the controls at that period. Mr. C R A W F O R D . Regardless of the backlog of buying power? Mr. SNYDER. I think that we may find other areas that we will have to look to at that time, but certainly so far as products are concerned, whenever the supply approches demand, I see no reason for continuing control on those products. Mr. C R A W F O R D . N O W , at the bottom of page 9 of your statement, you referred to nonsubsidized elements in the cost of living. Would you mind, very briefly, enlarging on that? Mr. S N Y D E R . Well, that is any item that is not under subsidy. There are only a very few items that are being subsidized. So it is easier to mention the subsidized ones than it is to mention those that are not being subsidized. Mr. C R A W F O R D . In other words, any item covered in the cost-ofliving index, on which we are not paying subsidies, that is what you mean by nonsubsidized elements? .221 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. SNYDER. That is correct. Mr. C R A W F O R D . On page 1 of your statement, where you are referring to "the American people should know now that their Government is prepared to safeguard their earnings and savings by stabilizing prices," I had in mind asking you to enlarge on how you propose to do that. Mr. Eccles pointed out these forces now at work which tend to cause people to shift from the ownership of money to the ownership of things. You have something in your statement about it. Do you know of any way in which Congress can further implement the administration so as to help you safeguard the earnings of the people, their savings, and make them believe they will be safeguarded, so as to dampen down, or diminish this psychology? Is there anything we can do other than extending this law? Mr. SNYDER. Well, I think a very careful study of your tax program, and a careful study of the general expenditures of the Government show that those elements can be used to break down the general backlog of buying power. Mr. C R A W F O R D . In that respect, you can certainly go along with Mr. Eccles, then, can you not? M r . SNYDER. Y e s , sir. Mr. C R A W F O R D . Then, on page 4 of your statement, in the fourth paragraph, you referred to "like many other inflationary pressures that have been developed since VJ-day, heavy demand is not, in itself, a bad thing." I think there again your statement throws out a red signal to us that we must think in terms of something beyond mere price control. Mr. SNYDER. Well, by that statement I meant that that demand is fine if we spread it out over a period of years, so that we can build up and maintain a level of production and not have everybody rush out and try to buy up things today, and spend a great deal of money for them. Mr. C R A W F O R D . I have two or three other questions relating to banking, which were touched upon by Mr. Eccles. The day before yesterday he told us that any further decline in interest rates would be inflationary. Based upon your banking experience, and your experience here in the Government, would you give us your thoughts on that? Mr. SNYDER. Well, I am, of course, immediately presuming, on the statement that has just been made there—frankly, I believe that. Let us take real-estate mortgages, for instance, on apartment houses, and things of that sort. If you reduce the interest rate any lower, you are going to make financing there—you will be getting to an interest rate where you talk about earning three times or four times the interest rate. Why, you are going to make the earnings so small on the apartment—and the price will go up accordingly in your financing—so you are going to add to your cost price of the property or your selling price, you might say, and it just steadily mounts— that the carrying charges are so'low that they can go higher in the principal payment. Mr. C R A W F O R D . And would this not also follow: That if we put out new issues at a lower rate of interest, those issues previously outstanding advance in market value, by reason of the fact they carried a higher interest rate? Mr. SNYDER. That would necessarily follow. . 2 2 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. C R A W F O R D . SO that tends to encourage people to bid up and they see bonds going up, and they start bidding up on stocks, and you would have a general inflationary movement? Mr. S N Y D E R . It would drive more people into the stock market, I am sure. Mr. C R A W F O R D . This is somewhat out of your field, but by reason of your position with the Government, I would like to have your views on it, and it is something we may have to deal with here in this committee before very long. That is, do you think we should give the Federal Reserve Board the authority to increase the reserve requirements? Mr. S N Y D E R . In banks? M r . CRAWFORD. Yes. Mr. S N Y D E R . Well Mr. C R A W F O R D . The reason I raise this question is: I contend this has to do with inflation and price control, even if it is in some other phase of banking. Because, taking your testimony and Mr. Eccles , testimony, there is no way you can separate the facts. Mr. S N Y D E R . I will be glad to submit an answer to that, if you give me a chance to study it. Mr. C R A W F O R D . 1 was not directing my remarks to you. Mr. S N Y D E R . I would like to have an opportunity to study it. That is a financial problem, and one that takes some real study. Mr. C R A W F O R D . Yes. Of course, if the Board does raise those reserve requirements, it will tend to arrest the monetization of the debt, will it not? Mr. S N Y D E R . If the requirements are raised, of course, it makes their investment probably in bonds—I do not know, I would have to study it—it would make their buying power of Government bonds less, they may have to cut down their portfolios, they may have to cut down a number of very important loans to industry, which will bring about production, they may have to stop financing a number of small businessmen, and things of that sort, that were really the crux of our whole future. I look to the little businessman always to come through in the long run, because big business has always grown out of the little business. So it is a pretty difficult question that you asked, and I would have to study all phases of the effects of raising the reserve requirements any higher. Mr. M O N R O N E Y . Could I ask you a question? M R . Crawford, is it not the fact that the banks have more than doubled their present Reserve requirements? Mr. C R A W F O R D . Yes; but those excess reserves could be dissipated in about 15 minutes after the Board issues the order, if the Board has the authority to do it, and, as Mr. Snyder says, it is an extremely powerful element that goes to work when the Board makes that call. But we face the cold-blooded proposition—and I think we now have sufficient expert testimony to sustain the observation I am about to make—and that is that the Office of Price Administration cannot and will not—and we have no reason to assume that it can do this job alone. We have got to do some other things along with it. And if giving the Board the authority to increase Reserve requirements, and then if they call for additional Reserve requirements, and that sets in motion a liquidating procedure and arrests the monetization of the debt then, you are giving the Office of Price Administration .223 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 some assistance here which it does not get otherwise, because the monetization of the debt continues. Mr. B R O W N . Mr. Crawford, did Mr. Eccles testify to that? M r . CRAWFORD. O h , y e s . Mr. B R O W N . I S he in favor Mr. C R A W F O R D . Well, you of raising the reserves? had better read his testimony and see what Mr. Eccles said. I do not know how he could not be in favor of it after what he said. That is all I have, Mr. Chairman. The C H A I R M A N . I am going to recognize Mrs. Woodhouse. Mrs. W O O D H O U S E . Mr. Snyder, you prefaced some of your testimony by saying that you believe the removal of price controls now would rather hinder production rather than further it as certain groups have argued. Mr. S N Y D E R . Yes, I really believe that. We are talking about the broad picture. M r s . WOODHOUSE. Yes. Mr. S N Y D E R . That is correct. Mrs. W O O D H O U S E . In special cases you believe we should have price relief or subsidies to help overcome the immediate situation? Mr. S N Y D E R . That is correct. Mrs. W O O D H O U S E . I think that was all that I had, Mr. Chairman. Thank you. The C H A I R M A N . Mr. Barry. Mr. B A R R Y . Under the President's new wage-price policies, if increases in wages are permitted, such as to steel, and General Motors, and so on, and if that increase in wages justifies an increase in prices, that occurs, too, does it not? Mr. S N Y D E R . If the increase in wage puts the company in a nonprofit position? M r . BARRY. Yes. Mr. S N Y D E R . That gives them an opportunity to apply for price adjustment; yes. Mr. B A R R Y . Well, now, would that not naturally increase the price to the consumer who is not directly affected by the increase in wages, and by that I mean the great white-collar class of people, or those who have fixed incomes such as pension or civil-service incomes? Would not their cost of living be increased by such an operation? Mr. S N Y D E R . It could, if there was a general scramble for wide wage and price increases. That is why we must keep some price-control balance here, to keep that from just running away. Mr. B A R R Y . Well, what do you mean by a general scramble? Where organized labor in steel, in motors, and what not, gets an increase in wages, and as a result of that, there must be price increases in some of those industries? Mr. S N Y D E R . In some of them it is necessary and in others it is not. Mr. B A R R Y . Well, if the price increase would be substantial, why, then, it would affect the cost of living, would it not? Mr. S N Y D E R . If it turns out in the long run to be a substantial amount all the way across, why, it naturally would affect the cost of living. Mr. B A R R Y . I S it your opinion that it will not turn out to be a substantial increase? Mr. SNYDER. I do not see why it should. The steel situation was an unusual one, and does not necessarily reflect others. There will be . 2 2 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 many cases where hardship will be the outcome of a wage increase, and they, of course, ought to be given consideration. We have got to always put an incentive, both in industry and manufacturing, as well as in labor. The take-home pay of the industry is something we must give consideration to as well as the take-home pay of labor. Mr. B A R R Y . Will not the steel industry affect any other industry that has anything to do with steel or steel products? Mr. S N Y D E R . T O a degree, yes; but not in any exceptional degree. For instance, the amount of steel that goes into an automobile is certainly less than a ton. So it would not be much over $4 per automobile. That is not going to materially increase the cost of an automobile. In the case of a refrigerator, it is less than around 35 to 40 cents. And you must remember this that the basic steel prices have not been raised during the war. They were at a lower rate, before this increase was allowed them than they were in 1937. All during the war, except for one raise that was allowed them to meet these fringe costs and shift differential and vacation with pay—they were allowed an increase to meet those base costs—except for that, basic steel has had no price raises during the war, and they have made their profits in the specialties—ships, guns, shells, and things that were for war purposes, upon which there were no price ceilings, and where the Government negotiated directly for those items without any price control. That is where the profits of the steel industry came about. Operating on a full production scale—around 80 percent of capacity—• which is considered pretty normal full production for the steel industry—they have been operating in red figures for the last quarter of 1945, which is evident that their basic prices had been too low during the war period, considering all other mounting costs. That is not necessarily true in many, many other products. Mr. B A R R Y . How about the automobile industry? Mr. S N Y D E R . Well, I do not know about this wage increase, although I am being given to understand that that was not necessarily a price problem. It may develop now, with other prices—I have not seen the latest figure on them—but when they get into production, I do not know whether they are going to ask for further price increases or not. Mr. B A R R Y . Is there any fixed ceiling, percentagewise or otherwise, on the amount of wage increase that will be permitted under the new formula? Mr. S N Y D E R . There are no percentages, or cents, or any prices mentioned in the wage-price policy, and that was intentionally not mentioned for the reason that we do not want to establish any particular across-the-board price or wage increases because they are not justified. Each industry should be studied to see what the situation is. In some industries wages have gone up 40 to 60 percent during the war, and they are still operating at just about as full capacity, with as much overtime, and with as many hours put in, as during the war. Certainly, there is no immediate reason for increasing wages in that area. There are a number of industries who have no price problems right now. It is the key ones, the important ones, that we have got to be ready to meet, and that is the reason we have to have a little broader base, and about all the price change we have made here is that we have moved back from 6 months the privilege of using wages for considera- .225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 tion of a price increase, to allow it to be done immediately. That is about the only change in the price situation that has been made from the policy that we have been following since last August. Mr. B A R R Y . Did I understand you to say that if subsidies are removed, ceilings will be upped on agricultural products? Mr. S N Y D E R . I did not necessarily say that. I said there will be certain areas when subsidies are taken off where prices might go up. Yes. It will depend on supply and demand. Mr. B A R R Y . I understood you to say that farmers are against subsidies. Mr. S N Y D E R . Well, they normally are. Mr. B A R R Y . I cannot help but remember that in the years before the war, we had many fights in the House when farm prices were low, and they fought to support prices and subsidy payments. Mr. S N Y D E R . Well, they make a broad differential between support prices and subsidy payments. Mr. B A R R Y . IS not a support payment a subsidy? There is no recourse and it comes out of the taxpayers? Mr. S N Y D E R . For some reason the farm group put a different interpretation on the two terms. Mr. B A R R Y . I know, but it is. actually tweedledee and tweedledum? Mr. B R O W N . Mr. Barry, you know very little about agriculture. Mr. B A R R Y . Even today, Mr. Brown, you have a guarantee that if prices fall through increased production, the farmers will be guaranteed 90 percent of parity. Two years after the end of the war. Mr. B R O W N . The Government would not pay it. Mr. B A R R Y . Where does it come from? Mr. B R O W N . Parity is just a formula where you guarantee so much. The Government does not pay anything. Mr. B A R R Y . If the price goes below parity. We have been voting for years for hand-outs of parity payments running into millions of dollars, and I do not think the farmers are any different from anyone else. I do not want to belittle the farmer, because I think he is the backbone of the country. Mr. B R O W N . Y O U folks in New York are a little hard on the farmer. Mr. B A R R Y . The farmer sees an opportunity now when his prices have gone from 15 percent below parity, which is a low price level, before the war, to now 17 above parity or more, a 52 percent increase, according to the Office of Price Administration, and naturally the farmersgwant to see the price ceilings go up as much as they can. That is human nature. But both you and Mr, Bowles approach the farmer as though he is a different segment of this country, as though he is different from the manufacturer and anyone else. Mr. SNYDER. I certainly do not, Mr. Barry. Mr. B A R R Y . It is a tender touch when the farmer is discussed before the committee. And I think lie is in the same category as anyone else, and I cannot see any justification for lifting ceilings off farm prices even though subsidies may be taken away, because if the Office of Price Administration is correct, there has been a 52-percent increase. When this law was first passed, if you will recall, this committee established, and the House supported, a floor under farm prices at 10 percent above parity. Then the President called us back and we . 2 2 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 came back in a hurry, because the country clamored about that, and we reduced the floor to 100 percent of parity, so that no ceiling could be established below 100 percent of parity. Well, through the Office of Price Administration, the prices last year—I do not have the figures this year—but the average agricultural price was 17 percent above parity, which is to a degree inflationary, because parity has been, for years, the desirable price that the farmer was to get, in order to make an excellent living during a period we picked out. The whole point of this is: I do not want to bear down on the farmer, but I do not want to see him put in an unselfish light. Mr. S N Y D E R . Let me make one point clear. There was no idea of lifting the ceiling on farm products completely. But there might be some price adjustments to them if we remove the subsidy, there might be some price adjustments necessary. Not the lifting of the ceiling, but just as in any other industry. Mr. B A R R Y . Well, some on agricultural products, I think, have never reached the general average ceiling. Mr. S N Y D E R . That is right. Mr. B A R R Y . I think Mr. Brown has something in mind about that. Mr. B R O W N . What I have in mind as far as parity is concerned, is that the Government does not pay anything. The Government does not pay anything. The price goes up, but that is the price to the consumer. Now, we could not get food to feed these New York people unless we could get quite a good price. We could not produce it. On account of that, I think the gentleman ought to go along with us, because we certainly ought to give them a little profit so they can feed these people from New York. Mr. B A R R Y . All I say is that we could get along without lawyers, Congressmen, and many others, but we could not get along without farmers. Mr. B R O W N . Well, I am glad for that concession. Mr. B A R R Y . That is all. The C H A I R M A N . Mr. Gamble. Mr. G A M B L E . Mr. Snyder, I am delighted that you think production is one of the great things to get us out of this difficulty. You say in your statement here "where lack of production is retarding reconversion, we can divert labor and material from other uses by granting measured price increases in order to step up output." I agree with that in that, too, sir, but will the Office of Price Administration do that? They have not, to date, in any large measure. Mr. S N Y D E R . Well, we have in a number of instances done that. On brick, for instance, and things of that sort, in the housing area. And there is no reason why that could not be done in other areas, where it is a high cost producer that needs that stimulus to get into production, where it is creating a bottleneck. It has been done, and, therefore, I feel that there is no question but what it can be done again. Mr. G A M B L E . For instance, on this bill we have before us today on housing, the one important thing on housing is production. But prices have not been stepped up to any extent along housing lines, and housing people and the contractors claim that it what is retarding their production. I know you have stepped up the price on brick, because we had that up last summer, but the increase did not come along until 6 or 8 months after that. Mr. S N Y D E R . Well, there have been some recent adjustments in lumber prices, and there are quite a number of those. .227 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. G A M B L E . That is on the groove and tongue flooring. Mr. S N Y D E R . N O ; I think it goes much further than that. Mr. G A M B L E . I knew that had been stepped up since the housing bill left this committee. Mr. S N Y D E R . There have been quite a number of areas in which there have been some price reconsiderations. Mr. G A M B L E . Would you give us a list of those building commodities on which pricing has been raised? Mr. S N Y D E R . We will supply that to you, sir. Mr. Bowles put that in the record the first day, I am told. Mr. G A M B L E . I do not recall that. T h e CHAIRMAN. Y e s ; h e d i d . Mr. S N Y D E R . We will see to it that that is definitely in the record, but we understand that it is already in. That is on page 46 of Mr. Bowies' testimony, Mr. Gamble. Mr. G A M B L E . On page 9 you speak of maintaining machinery for general price stabilization in the way of a formula, by production increases to drop controls. Now, I do not think there is any question in the world but what we are going to be faced, when we get on the floor with this bill, with certain amendments along certain lines, to drop these things that people think are retarding production. I wish we could have something from your office, or from the Office of Price Administration, to look over along those lines, that we might use if necessary to combat some bad amendments we are liable to get. Mr. S N Y D E R . My office will consult with the Office of Price Administration and furnish you with the administrative problems that might develop in case any direct restrictions or formulas were worked out. Mr. G A M B L E . IT is a difficult problem to handle legislatively. Mr. S N Y D E R . I am sure it would be, and requires a tremendous amount of study. Mr. G A M B L E . I just have one other thing. The motto of this committee has been "hold the line" for about 4 years. It has been the motto of the House and Senate. And people write us and say, "Hold the line and extend price control." So far as the "battle of the bulge" is concerned, I do not think any price increase should be pinned on Congress. They ought to stay down with the executive departments, if the prices do go up. That is just an observation. You need not answer it. Mr. S N Y D E R . Well, of course, if you take off price control, that may switch the deck, you know. Mr. G A M B L E . That is all, Mr. Chairman. Mr. M O N R O N E Y . Mr. Chairman. The C H A I R M A N . Mr. Monroney. Mr. M O N R O N E Y . Mr. Snyder, certain big business interests in this country are spending hundreds of thousands of dollars to sell to this country the idea that all of the shortages and lack of production we are undergoing are due solely to restrictive price controls. I can readily understand their desire for quick postwar profit. But the point that you made awhile ago in your statement that they could profit only if they were the sole, little lamb that was let out through the gate, and kept all the rest of them bunched back in the pricecontrol field; is that not true? Mr. S N Y D E R . That is definitely true, and I have discussed that at great length with business, and have asked them the pointed question: "Could you, as a business group, or as an individual, guarantee to . 2 2 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 us that if we took price controls off and turned you loose, that you would not have pyramiding of prices?"' And the answer has been silence every time. I just know, because we went through the last after-war period in a bank, and I know the problems we had with our customers, our loans, I saw many companies go into bankruptcy, I saw many farms foreclosed and many homes lost, simply because of that tremendous rise in cost immediately following the war, and it was a long time coming out of the recession So that is a condition that I have lived through and not some theorizing. I know what actually happened, and I do believe that we can level this price situation off on a plateau much below the peak, if we are able to continue some controls on prices. Mr. M O N R O N E Y . In fact, your statement which says that we have increased the food production of the country by 35 percent above prewar supply, under price control, is indicative of the fact that you can get increased production, although you have to have price controls in the process. D o you have any estimate of how much production this country has, aside from food, at the present time, compared with prewar production? Mr. S N Y D E R . Civilian production, you are talking about? M r . MONRONEY. Yes. M r . MONRONEY. "Yes. Mr. S N Y D E R . I could get you that figure. Mr. M O N R O N E Y . I think it would be interesting, because, realizing that the cost of food represents about 40 percent of the cost of living index Mr. S N Y D E R . We could give you a figure as of December, possibly. We have had an unusual situation develop with the strikes, and so forth, which have set us back in that civilian production. Mr. M O N R O N E Y . I think it would be very interesting in the light of the hundreds of thousands of dollars that have been spent in this— every paper in the country almost—to sell this phoney to the people, to have a definite schedule of how our production is coming on. Mr. S N Y D E R . Well, our reconversion had progressed at a tremendous rate up until the strike situation started. We were well ahead of any anticipated condition that we had looked at prior to VJ-day. Mr. M O N R O N E Y . But you never hear anything about the shutdowns and the lack of production that occurred while they were waiting for the excess-profits tax to disappear. You never heard anything about the loss of production from the manufacturers particularly, as they adamantly refused to try to settle strikes until after the excess profits period was over, and now they turn, with all the money that they can spend, to sell this country on the idea that the Office of Price Administration and price controls alone are stifling the production in this country. Mr. B A R R Y . Will you yield? Mr. B A R R Y . Was not the general shortage of labor itself during the war proof that there could not have been much of an over-all production? WThere would the labor come from? Mr. S N Y D E R . Well, of course, labor and materials both retarded civilian production during the war. Mr. B A R R Y . That is true, but I mean the labor shortage itself. We just could not produce much more, even if we had the materials. .229 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. S N Y D E R . Civilian production during the war was at the peak allowable; there is no question about that. Mr. B A R R Y . Despite the Office of Price Administration. Mr. M O N R O N E Y . And it was far greater than anybody ever anticipated it would be. Mr. S N Y D E R . That is correct. Mr. M O N R O N E Y . They were estimated it would drop down to forty or fifty billion and during the war it stayed up to around seventy or eighty billion dollars in civilian goods ; is that not a fact? Mr. SNYDER. It stayed up materially higher. Mr. M O N R O N E Y . Even with rigid price controls? M r . SNYDER. Yes. Mr. M O N R O N E Y . And you would say that there is no lessening of civilian production today compared with the civilian production we had while the war was on, is there? Mr. S N Y D E R . Up to December 31; yes. We have the figures as of that time. Mr. M O N R O N E Y . N O W , von are saying $ 5 per ton increase in the price to steel might mean only $4 increase on the price of a car. Is it your idea that we can freeze this steel raise all the way through the varying processes, a sort of dollar pass through, so that you Will not have to increase percentagewise, the normal fabrication profits that an automobile fender maker might be able to add onto this $5 per ton raise and finally bring it out to the consumer at $100 per ton? Mr. S N Y D E R . We have got to look at both sides of the thing. We have to look at the wage increases which would have to go all the way through, which would have a greater bearing than the price increase. But with the balanced wage-price program we have now, if we get the cooperation of management, labor, and Government, in a program of holding this thing in line in the proper way, I think it can greatly lessen the effects it would have on the cost-of-living index. Mr. M O N R O N E Y . One other point on this wage question. If an automobile manufacturer or a steel mill or anybody else has been paying $1 an hour for their labor and working that labor 48 hours a week, the going rate per hour, that they would be paying for that labor would be $1.08 and a fraction per hour. In other words, they would drop back to a 40-hour week, and they could still absorb an 8-pius cents per hour raise, without having the per hour rate of their labor increased in any way from their prewar performance. Mr. S N Y D E R . If their rate of profit was at the same rate it was during the war; yes. Mr. M O N R O N E Y . In other words, about an 8% cents per hour raise on a $1 per hour rate would not run their labor cost a single bit above what it was during the war? Would it? Mr. S N Y D E R . But I say, provided that their profits were at the same level as they were during the war. If they dropped into a red position—you see, the renegotiation was to prevent excess profits during the war, but at least it assured them a profit of a pretty good size. But if all those profits were taken out, with the wartime products, which had no ceilings, and you drop back to a ceiling situation which puts you in the red, you cannot say that their labor—maybe in dollars and cents it costs them no more, but their ability to pay it is completely changed. That is why you cannot just put a broad . 2 3 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 tape down and say this is the measure and this is the formula. It has got to be studied, as everybody agrees, with collective bargaining in each instance, to see just how much can be paid and how much they are entitled to get in pay, and what price rise might be necessary in order to enable a company to pay a proper wage rate. Mr. M O N R O N E Y . But the point I am making is that a 15 or 18 cents per hour increase does not necessarily reflect a full 15 or 18 cents added cost to the manufacturer, because the chances are Mr. S N Y D E R . We agree on that. But as to whether it can be absorbed or not is another question; do you see? Mr. M O N R O N E Y . He might be able to absorb the whole thing or he might not be able to absorb any of it. Mr. S N Y D E R . That is correct. If the profit level should go on at the rate it was, they would be able to absorb it, but if their profit position dropped off, and they got into red figures, no business can be expected to continue too long at less-than-cost operation. Mr. M O N R O N E Y . But it is also important, then, where he is making 50,000 units or a million units? Mr. S N Y D E R . N O doubt, a full production line certainly brings down the overhead cost. Mr. M O N R O N E Y . That is all. Mr. SUNDSTROM. Mr. Chairman. The C H A I R M A N . Mr. Sundstrom. Mr. SUNDSTROM. I am glad to hear your statement, Mr. Snyder, but I am very interested in the statement you make on page 4 in which you say one of the big dangers of inflation is psychology. I agree that is one of the greatest dangers we must face, the psychological effect. That is why I am so disturbed when certain men in high office make statements that we are now on the verge of the highest explosions we have ever had on inflation, and we are going to set them off, and in this past week, up in Jersey, every radio station I know has gotten a transcription, which runs about once an hour, telling the people all about the Office of Price Administration and ending up with a catch phrase that "unless you save the Office of Price Administration, you do not save yourself, and you do not save the country." To me that is the greatest fear psychology you could possibly give the American people. If we want to give them freedom from fear, we had better free them from some of those radio broadcasts. What do you think of those as one of your psychological effects? Mr. S N Y D E R . I would rather not discuss that. The C H A I R M A N . The House is in session. Thank you for your statement, Mr. Snyder, and your very fine testimony. We are always glad to have you come before the committee. The committee will adjourn to reconvene tomorrow morning at 10:30. (Whereupon, at 12 noon, the committee adjourned, to reconvene at 10:30 a. m., Thursday, February 28, 1946.) 1946 EXTENSION OF THE EMERGrENCY|PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED THURSDAY, FEBRUARY 28, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. O. The committee reconvened at 10:30 a. m., Brent Spence (chairman) presiding. The CHAIRMAN. The committee will be in order. I regret very much, Mr. Flanders, that the House will be in session at 11 o'clock and the committee has a bill coming up as soon as the House convenes, hence we will have to adjourn at 11 o'clock. I wish to say that we had you and Mr. Sherman as witnesses on the Bretton Woods bill that we were so pleased with your testimony we have invited you back to give us what information you could on the continuation of price control and the Stabilization Act. Mr. FLANDERS. Thank you, Mr. Chairman. The CHAIRMAN. YOU may proceed. STATEMENT OF RALPH E. FLANDERS, PRESIDENT, FEDERAL RESERVE BANK OF BOSTON, CHAIRMAN OF JONES & LAMSON MACHINE CO., OF SPRINGFIELD, V T „ AND CHAIRMAN OF THE RESEARCH COMMITTEE OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT. Mr. FLANDERS. For the record, I am Ralph E. Flanders, president of the Federal Reserve Bank of Boston; chairman of Jones & Lamson Machine Co., of Springfield, Yt.; and Chairman of the Research Committee of the Committee for Economic Development. In the last-named capacity my associates and I have been working for more than a year studying the problem of how to restore an economy free of direct price and production controls, which will at the same time be safeguarded against both inflation and depression. Last April the Committee for Economic Development Research Committee published a statement of national policy on the subject of the removal of wartime controls. We were fortunate enough at that time to foresee some of the problems which we are now facing. I should like to read a few short paragraphs from that statement. The CHAIRMAN. Do you come as a representative of the Committee for Economic Development, Mr. Flanders? M r . FLANDERS. Y e s , sir. The CHAIRMAN. Thank you. You may proceed. Mr. FLANDERS. I shall not discuss the specific recommendations. 231 . 2 3 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 That statement reads in parts as follows: As the Committee for Economic Development has stated, the objectives are high consumption, high production and high employment. It is assumed, also, that our objective is to attain these within the framework of a vigorous and expanding economy in which the great volume of jobs will be provided by free private enterprise The committee believes that these objectives will best be served by the ending of all wartime controls as soon as the emergency needs for them have ended. At the same time, it must be very clear that no control should be removed at a time when its removal would jeopardize * * * the successful transition to a healthy peacetime economy. * * * On some controls—production controls for example—action must not wiait beyond [the period of need for war production] if high civilian production and employment are to be reached at the earliest possible moment. Other controls, notably those affecting prices, may have even an increased importance for a period after production controls are ended. They will be our chief protection against inflationary pressures in the transition period while production is being expanded, inventory pipelines filled, and excess demand induced by wartime savings is being worked off. Since it will be wise to remove some controls promptly after war production needs are satisfied, there is sure to be a demand for the unwise early removal of others which can perhaps serve their greatest usefulness actual fighting has stopped. I shall not discuss the specific recommendations made last spring, as they have already been presented to your committee by another member of the Committee for Economic Development Research Committee. That was Ray Rubicam, who appeared before your committee, when the same question was up for consideration, that is, the renewal of the office of extension of price control. I shall be happy to supply you with copies of the recommendations in full, however, if you wish them. More recently the research staff of the Committee for Economic Development has been preparing a report entitled "Jobs and Markets," addressed to tlie problem which your committee is now considering— how to restore free markets in the transition while preventing inflation and depression. The recommendations of this report are the independent findings of the economists who make up our staff. They do not necessarily represent the views of the businessmen on the Committee for Economic Development Research Committee or its board of trustees. I do recommend the report, however, as a thoughtful and balanced analysis, worthy of your careful attention. The report will be publicly released tomorrow and copies have been distributed to the members of your committee. The report urges the need for a comprehensive program to achieve three objectives: (а) To expand rapidly to a high level of production and employment; (б) To prevent a major rise in the general level of prices; (ic) To eliminate price control as soon as it ceases to be essential for the achievement of high employment and stable prices. It is the conclusion of the research staff: 1. That price control authority should be extended to June 30, 1947, and terminated on that date, except in the field of rents; 2. That, for the period of its extension, administrative operations of the price control authority should be speeded up, price control standards should be raised moderately, and a vigorous policy should be followed in suspending controls; .233 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 3. That a policy which consists merely of the extension of price control authority is not enough. The staff urges the prompt adoption of fiscal and monetary policies which will bring demand into balance with supply at high levels of employment and which will permit the termination of price control at an early date without inflation. Specific proposals for carrying out this program are presented in the research report which has been distributed to you. I shall not go into them further but shall turn instead to my personal observations. In my view, two issues about price control are easily disposed of: First, price-control authority will be needed beyond June 30, 1946. Second, price control must not be permanently or indefinitely continued. Its definite and early termination must be assured. We now see on every hand the evidence of extreme inflationary pressure. Incomes are high, the public has an enormous amount of money and the demands pent up during the war are great. Although supplies for civilians are increasing, the public still wants to buy more of almost everything than is now being produced. Without price ceilings, the prices of many commodities would now be skyrocketing under the pressure of excess demand. We look forward to a further expansion of production, and we must do everything we can to hasten this expansion. But it is not at all clear that foreseeable production increases will eliminate, or even appreciably narrow, the excess of demand. Expanding production will bring higher incomes, increased bank credit, and general optimism. It might conceivably increase, rather than decrease, inflationary pressure, particularly for goods in scant supply and under price control. I need not elaborate before this committee the evils of inflation Certainly every group in this Nation—including the business community—would reap irreparable loss from such a price increase as followed the last war, to say nothing of more extreme possibilities. For some months price control will be an indispensable protection against runaway price. We must not abandon it prematurely. But the evils of indefinitely continuing price control would be even greater than the evils of eliminating it too soon. Our economy runs on prices. Prices determine who produces what and how much he earns for producing it. The authority to control prices cannot be centrally administered for any sustained period without inefficiency, inequity, break-down of respect for law and, most important, serious danger to our personal and political freedoms. I think there is no likelihood that the American people will embrace regimentation willingly. But there is a risk that in default of proper policy we will reluctantly accept more and more controls as the only alternative to real economic ills. We do not want to be confronted a year from now with the choice which faces us today—inflation or price control. It will take positive action to escape that dilemma. I shall return later in this statement to the question of getting rid of price control rapidly without inflation. First, I wish to make certain recommendations about the kind of price control that should and can be continued for a limited period. Price control at present is unworkable and often unfair. We must look for legislative standards and administrative procedures which will operate quickly, without impeding production or creating major inequities and at the same time will prevent a serious increase in the general level of prices. Perfection cannot be expected in any of these regards. But I believe . 2 3 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 that some changes can be made that will greatly improve the transition functioning of price control. M y recommendations are not intended as a reflection on the OPA staff. The members of that staff with whom I have come in contact have been conscientious and hard-working. For 4 years they administered a wartime law under wartime conditions with great success. Since VJ-day numerous steps have been taken to reconvert price control to transition needs. Congress should hasten that reconversion process by restating in new terms the objectives, standards, and general procedures of price control. The major goal of my recommendations is to speed up and simplify price control. The most common and most serious criticism of OPA is that it acts too slowly to meet the needs of a rapidly changing peacetime economy. The pace of reconversion has been rapid; it would have been even faster if price determinations could have been obtained from OPA more quickly. It seems probable that the stabilization order recently announced by the President will result in a greatly increased number of applications for price adjustment, thus materially increasing delay. The following are the proposals: First, automatic pricing The establishment of ceiling prices would be speeded and simplified if the responsibility for price determination were shifted as far as practicable to the individual businesses concerned. A business would compute its own ceilings, pursuant to legislative standards and OPA regulations, and subject to review and enforcement by the OPA. The prices so computed would automatically become effective unless disapproved by OPA within a specified short-time period and OPA would retain the right of revising these prices subsequently. I realize that there are many cases where this procedure will not work— for instance where uniform prices must be set for the product of numerous sellers. But a similar procedure is being used now in certain fields—notably for small and new firms in the reconversion industries. What I propose is the extension of a device already found practicable. Such self-pricing procedures could safely be applied now to firms seeking price relief under the "general rescue" provisions, which authorize price increases to a break-even level. They could also be made available to most, if not all, reconverting firms. I suggest that the use of self-pricing procedures be extended by legislation over as broad an area as now seems practicable and that OPA be directed to apply the system elsewhere as rapidly as it becomes feasible to do so. There is an instructive precedent for this course in our experience with contract settlement. In order to avoid interminable delays in settling $50,000,000,000 of contracts by the usual method of checks and counter checks the Congress authorized a streamlined procedure. A large part of the work is done by the contractors themselves under a uniform formula and subject to prompt review and final settlement. The speedy settlement of contracts has been a major aid to reconversion. I am certain that the cases of fraud or evasion are infinitesimal and the great gain has been well worth the slight risk on this score. Second, use of actual costs. In one respect the President's recent stabilization order appears to me to represent a backward step. Section 2 (b) of Executive Order .235 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 9697, setting forth the new policy, provides, in essence, that price adjustments shall be such as in the judgment of the Price Administrator will be sufficient to enable the industry, unless operating at temporary low volume, to earn an average rate of profit during the ensuing 12 months equal to the rate of return on net worth during its base period. In other words the Price Administration is to estimate for a full year ahead, how such rapidly varying factors as changing labor and materials costs, changes in productivity and changes in volume of operations will combine to yield a return on net worth equal to that d-f the prewar period 1936-39. I submit that this is an impossible task. As chairman of an established company with good operating records, I have had some personal experience with the problems of estimating future costs. I know from my own experience of the many pitfalls and errors inherent in any such estimating process, particularly when applied to a period as uncertain as the year immediately ahead. The danger is only partly that the OPA estimates may be wrong. Any procedure will involve some errors. But the forecasting procedure is certain to involve a maximum of delay and interminable, unresolvable disputes. I urge that the legislation now being considered provide that price determination be placed on the basis of actual operating experience at the earliest practicable date. To escape the influence of low operating volume upon costs—in other words, to eliminate the so-called "bulge" costs—costs of the highly abnormal early change-over period should be disregarded. Our research staff has suggested that for all industries other than reconversion industries the first quarter of 1946 and all subsequent quarters should be considered to be quarters of "normal" operating experience, and that for reconversion industries the second quarter of 1946 and all subsequent quarters should be so considered. This seems to me a reasonable recommendation and I suggest it for consideration by your committee. Exceptions to the use of first quarter experience might be permitted where costs were distorted by strikes or other impediments to production. It should be remembered that price so established are subject to review in case they should subsequently be found inappropriate. Third, a vigorous policy of suspension of price ceilings and decontrol. Price control should be trimmed down progressively to those critical areas that would otherwise threaten pri^e increases of over-all significance. This is important as a way of freeing the economy from unnecessary controls as quickly as possible. But I should like particularly to emphasize the importance of sloughing off controls as a means of permitting OPA to concentrate on doing a quicker and better job in the essential areas. To control the prices of every one of the millions of commodities at every stage of production in the American economy was a herculean task even in wartime. To do this at all successfully during the next year will be an impossible task." And in my view such all-inclusive control is unnecessary, if our objective is to prevent a major increase in the general level of prices and particularly those cost-of-living prices most likely to set off or rather to perpetuate an already existing price-wage spiral. The administrative capacities of the OPA, however great, are not infinite. They should be focused on the crucial problems. Progress in suspending ceilings has been less than I had hoped. Production delays resulting from labor-management disputes, and the 83512—46—vol. 1——16 . 2 3 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 development of a pervasive excess of demand has, of course, limited the opportunities for suspension of ceilings thus far. As we proceed into 1946, however, and if we limit the general excess of demand, there will be a growing number of areas in which supply is in near balance with demand. Price ceilings should be suspended promptly when such a near balance is achieved.' Ceilings should also be suspended on commodities which do not materially affect living costs and which do not threaten seriously to divert manpower or materials required for essential production—particularly if these areas present complex administrative problems, as many of them do. A considerable number of "dime store" items and luxury goods have already been decontrolled. I think that with a realistic notion of what is a necessity, the area of luxury goods eligible for decontrol could be significantly widened. Also we need to go further in suspending ceilings on components used in the manufacture of end products still under control. This would do much to remove bottlenecks which are insignificant pricewise but serious from the standpoint of production. I know that a dozen plausible arguments can be made against any specific proposal for suspending ceilings. The concept of universal, precise and efficient control of prices has much theoretical appeal. But in fact universal control and efficient control can not be achieved together. There is never a perfectly safe time to remove a ceiling. Every decontrol action involves risks of a crisis of one kind or another. However, those who look at each case as an isolated problem may not appreciate the risks of not decontrolling—the danger that the whole price-control system will collapse of its own weight or that production will be strangled by inflexible controls. We need a policy of "calculated risks"—of balancing the risks of decontrolling too soon in particular cases against the general risks of holding all controls too long\ It is extremely difficult to establish a legislative formula for decontrol, in view of the numerous, varied, and rapidly changing situations which we shall face during the coming months. I believe that it is possible and desirable, however, to write into the pending legislation general standards, such as those set forth above, for the guidance and direction of the Price Administrator. I believe it would be helpful also to establish a responsible official within the price control agency, acting under the general direction of the Administrator, whose primary responsibility it would be to conduct a continuous review to select ceilings for suspension and to plan the simplification and liquidation of price control generally. A similar device apparently worked effectively in the case of the War Production Board. Basically, the speed and scope of decontrol will depend upon our success in creating conditions which permit the suspension of ceilings. If we allow inflationary demand to continue and if production continues to be retarded, the scope of decontrol will be narrow. But with vigorous measures to control excess demand and price and other policies to stimulate production we can create a wide area in which ceilings can safely be suspended. Fourth, liberalized standards for price relief. The general standards used by OPA in considering applications for price increases, while not inappropriate for wartime, are not appropriate for peace. The present base period, ordinarily the rate of .237 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 earnings before taxes to net worth during 1936-39, includes at least two definitely depressed years, and even the best years were not good. Moreover, corporation taxes are now much higher than in the base period, so that the present standard implies profits after taxes considerably below the 1936-39 ratio to net worth. Today, with profitable war business gone, with business risks increased, and with wage rates rising, many industries may be forced to profit levels which are unfairly low and which will not provide adequate incentives to enterprise—especially new enterprise. I suggest that the earnings standard—now, generally speaking, the rate earned on net worth before taxes during 1936-39—be raised by about one-third. Any one of several devices could be used to achieve this purpose. I suggest also that the product standard now employed by OPA—which now permits particular product prices of industries producing more than one product to be raised whenever average ceiling prices fail to cover average manufacturing costs—be changed to cover average total costs (including overhead). These liberalizations would not guarantee to each firm the profits which it might expect in normal prosperity. They are minimum standards. They will protect firms against being squeezed far below the level of profits which the great bulk of firms might reasonably expect to exceed in normally prosperous times. Modifications along lines I have suggested should make it possible to live with price control during the period of its continuation. Even with the changes suggested, however, we must still rid ourselves of price control as soon as it is practicable to do so. The question is not whether price control should be abolished, but when. After careful consideration I believe that we should extend price control authority, simplified and streamlined, as earlier suggested, until the spring of 1947. It should then be terminated finally and completely, except for rent controls. Rent control, because of the time required to provide an adequate supply of housing, may need to be continued for a somewhat longer period. In all candor I would not object to any termination date between March 31, 1947, and June 1, 1947. The important thing is that we fix now and with certainty the date of final termination. I believe that extension of price control authority until March 31, 1947, is necessary to allow a reasonable time for high employment to be reached and a near balance between supply and demand to be achieved. If we should reach this point earlier price control can and should be terminated by Executive order. I believe, further, that the terminal date should be set some time before June 30, 1947, in order to make clear to all that what has been done is not merely to extend controls for another year but to set once and for all the date for its elimination. The point I make here is mainly psychological, but it is important. The final termination of price-control authority must not be made contingent on prior achievement of balance between supply and demand at high employment. Such a policy would be an invitation to drift into a position where we are always confronted with a choice between price control and runaway inflation. We must accept responsibility for preventing inflation without price control. . 2 3 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The time to begin to act on this responsibility is now. Price control must first be supplemented and then supplanted by anti-inflation measures which do not restrict the full and free operation of the American productive system. In the traditional governmental functions of taxation, public expenditure, and monetary control we can find the necessary tools. But we must focus policies in these fields on preventing inflation and depression if we are to emerge from the transition with an expanding and unregimented economy. More specifically, the Congress and the Administration should plan to balance the Federal budget in the fiscal year 1946-47 and if possible run a budget surplus. This is the time to eliminate every Federal expenditure that is not absolutely necessary and to postpone every project that is postponable. Any unnecessary expenditure today is a reckless addition of fuel co the inflationary fire. The Government should be prepared to generate a substantial budget surplus if inflationary pressure continues strong at high employment levels. We should give up all thought of further tax reductions as long as the present excess of demand continues. Now is no time to lower taxes, much as we should all like to do so. Moreover, we should remember that tax revision is not a one-way street. If present inflationary forces strengthen, taxes may have to be raised. Finally, we must act promptly to restrain excessive credit expansion. We should be careful, of course, that adequate credit is available to meet the needs of new and expanding business. But we are sitting on a powder keg. Existing machinery and policy cannot prevent a great expansion of our already huge cash supply. As matters stand, the limits to monetary expansion are hopelessly remote. Both the existing large money supply and the possibility of great expansion flow from the sale of Government bonds to the banks during war. Bank deposits, the public's money, increased step by step with the increase in bank holdings of governments. And under present policy the banks can obtain the reserve basis for further credit expansion by selling their Government securities to the Federal Reserve. The process of money expansion via bank purchase of governments can still go on, although the total Government debt is decreasing. It is imperative that measures be taken to bring this expansion under control. Monetary policy must be enlisted in the battle against inflation. In brief summary, then, I urge both the temporary extension and the definite termination of price control. These are equally important—the temporary extension to avoid inflation, the prompt and definite termination to restore free markets. Neither is simply a matter of renewing or not renewing the act which is now on the statute books. I do not think that business can live with price control in its present form for another year. We must modify it so that it can live and be lived with. It should be liberalized and streamlined to reduce delays, inequities, and obstacles to production. Four changes are needed: (1) Extend the area of automatic, self-assigned OPA review. (2) Base prices on actual costs, not forecasts. (3) Vigorously and positively seek out the areas in which ceilings may be suspended. (4) Raise the standards for price relief to prevent squeezes which deter production and discriminate against enterprise. .239 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 To terminate price control we should start now to remove the conditions which make price control indispensable today. I have recommended that price control should be continued until the spring of 1947 and that there should be no renewal, except for rents. With that as the cut-off period, we should use monetary and fiscal measures to achieve a balance of demand and supply. We cannot simultaneously and consistently be against inflation, against price control and in favor of low taxes, Government deficits, and easy money. When stable prices and free markets are the objective, strict Government economy, steep taxes, and monetary restriction are not too high a price. The C H A I R M A N . Mr. Flanders, I gather from your statement that your opinion and the opinion of the Committee on Economic Development that it would be advisable to extend the Price Control and Stabilization Acts a year from June 30. Mr. F L A N D E R S . N O . I would stop it short of June 30, just to serve notice that you are stopping. If you extend it to June 30, you give an invitation to have it renewed again. It should be stopped before June 30, 1947 ; The C H A I R M A N . Well, how long would you recommend that it be extended? Mr. F L A N D E R S . In my own mind I have set the date for March 3 1 . There are some good reasons for that. The C H A I R M A N . March 3 1 , 1 9 4 7 . Mr. F L A N D E R S . Yes. You are bound to have the thing disintegrate in the last 2 or 3 months before whatever date you set. It would be advisable to have that disintegration take place perhaps after the Christmas buying rather than in the middle of it. That is just one reason for setting a date somewhere about that time. Another one, which I rather hesitate to suggest, is that it would bo undesirable to have it disintegrating during the fall political campaign. I say that in a lower voice. But March 31 would leave the situation normal and under control during the heavy Christmas buying and you probably would not run into much difficulty after that was over. The C H A I R M A N . Well, it is your opinion that it will commence to disintegrate sometime before the date of expiration? Mr. F L A N D E R S . That is inevitable. The C H A I R M A N . H O W long before the date of expiration do you think that process would begin? Mr. F L A N D E R S . Oh, it would start probably 2 or 3 months before that. The C H A I R M E N . There is danger of losing personnel Mr. F L A N D E R S . Personnel moving out, and people beginning to disregard the provisions, policing becoming an impossible job—there is going to be a period of confusion just prior to the expiration date. The C H A I R M A N . Do you not consider the economic pressures that make for inflation as strong now as they have been? Mr. F L A N D E R S . They are very strong, indeed, but likewise, they are becoming more difficult to control. A prime point that I have been trying to make is that owing to the increasing difficulty of control, the Office of Price Administration, to do a satisfactory job, must diminish the area which it endeavors to control. Its job is fast becoming impossible, and, to my mind, will only be administratively . 2 4 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 possible if they reduce the area of their control the greatest possible degree. Mr. C H A I R M A N . Mr. Brown. Mr. C R A W F O R D . H O W are we going to run this interrogation, Mr. Chairman? The C H A I R M A N . H O W are we going to run it? Mr. C R A W F O R D . Yes. Who does the witness go to next? The C H A I R M A N . I thought he went to Mr. Brown next. Mr. C R A W F O R D . That is all right. I just wanted to make sure that the committee is not going to adjourn in 2 or 3 minutes. Mr. B R O W N . I yield to Mr. Crawford. Mr. C R A W F O R D . Oh, no, that is perfectly all right. Mr. B R O W N . I will be very brief. I remember the fine statement you made to this committee on Bretton Woods, Mr. Flanders. You were exceedingly helpful and we appreciate your appearing on this bill today. But from your viewpoint, it would be necessary to amend the bill. I wonder if you would be good enough to prepare these amendments and submit them to the committee so that we can study them? I say that because we have confidence in you. Mr. F L A N D E R S . Mr. Brown, on various occasions in appearing beforelegislative committees in which we were suggesting changes in the bill, it has been suggested that I should prepare the amendments themselves. I have always had to admit that it was easier to suggest content than it is to embody it in form. Mr. B R O W N . I know, but you have been so extremely helpful heretofore that I thought you might go a little further and give us a little more of your time. Now, you referred to the fact that it might be necessary in some areas to have control, and in others not. Just what do you mean by areas? Mr. F L A N D E R S . Classes of goods. Mr. B R O W N . Oh, you mean classes of goods, and not areas of the country? Mr. F L A N D E R S . NO. Although geographical areas are pertinent to the discussion on rents, but aside from rents and housing problems, I mean classes of goods rather than geographical areas. Mr. B R O W N . That is all. The C H A I R M A N . H O W long do you think that the ceilings on rents should be continued under control? Mr. F L A N D E R S . Well, I think that is a geographical question that might be raised in some areas now. I do not happen to be familiar with many areas in which that can be done, but rents are certainly going to be with us as a problem for 2 or 3 years, at least. I had a suggestion there, which I throw in, though I did not put it in my statement—that is, that there might be a progressive raising of rents, possibly 5 percent a year, or maybe even as much as 5 percent in 6 months, until they gradually come into balance with the increasing supply of housing, because there are some factors on which the landlord deserves a little consideration. His houses are getting out of repair, repairs cost more than they did in preceding months, and I think we might well give him at least a 5 percent a year continuous increase. The C H A I R M A N . Does not that vary largely in geographical areas? Mr. F L A N D E R S . Yes; I suppose it does. I throw that suggestion in without very much study or consideration. .241 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The C H A I R M A N . Mr. Crawford. Mr. C R A W F O R D . Mr. Flanders, I want to compliment you for what I think is the most constructive statement that has been made by anyone who has appeared before this committee on this proposal to renew the Office of Price Administration. I think your statement greatly supports a portion of the statement made by Mr. Eccles of the Federal Reserve Board. Now, you have associated with you, in the Research Committee, James F. Brownlee of Fairfield, Conn. M r . FLANDERS. Y e s . Mr. C R A W F O R D . IS that assistant to Mr. Bowles? M r . FLANDERS. I t is. Mr. C R A W F O R D . Did the James F. Brownlee who was former our friend Jim have access to this report before you submitted it? Mr. F L A N D E R S . He had access to the research report but has not seen my statement. He is currently engaged in writing a policy statement on the subject. Mr. C R A W F O R D . I am very much interested in seeing Jim's name on this Research Committee, because I understand a tremendous effort will be made to bring him back to the Office of Price Administration. Mr. F L A N D E R S . He went to Florida instead. Mr. C R A W F O R D . Probably better for him physically. Now, you have a statement here, on page 12, which I think is pretty much the crux of this situation. " I do not think that business can live with price control in its present form for another year." In other words, you are not recommending that the Office of Price Administration be continued until March 31, 1947, in its present form, are you? Mr. F L A N D E R S . N O , I am not. Business looks at that problem from an entirely different viewpoint from the Administrator, simply because it has to live with complications that are almost unbelievable. I am not going to talk about my own industr}', because I might be accused of putting in a word for myself. There is a publication I think called the Federal Register which gives all the orders and amendments, and so on, of all the governmental bodies. I think it might interest any of you to buy that some day instead of the Sunday paper, and spend a Sunday with it. I am not saying this in criticism of the Office of Price Administration, because the point I am making is that their task is impossible. But one of the amusing things I picked out of one of those issues a short time ago—I say amusing, but it is tragic from the standpoint of the Office of Price Administration administration—was the price of ready-mixed, cement for the area surrounding Columbus, Ohio. Now, they had a basing point just as they used to for steel, and instead of the basing point being Pittsburgh, as it used to be for steel, it was the corner of Broad and State Streets in Columbus. It did not specify with sufficient detail whether it is the northeast or the northwest, or the southeast or the southwest corner, so I assume it was the intersection of the centers of those streets. Then, there was a table giving the price of ready-mixed cement, in circular zones out from that basing point area, for some 15 or 16 different kinds of cements and 12 or 15 different zones, with supplementary increases for anti-freeze cement and quick-setting cement— altogether 250 or 300 different prices—maybe it is only 180, I am a little vague on that—for ready-mixed cement in that are around Columbus, Ohio. . 2 4 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 I have no doubt whatever but what that device was made up to meet a difficult administrative problem, but it is to my mind an excellent illustration of the difficulties you get into in attempting to administer the details of a complex economy like our own. So the thing I am trying to emphasize most strongly is that in view of this tremendous difficulty, the Office of Price Administration should start to work reducing the areas of its operations to a manageable basis just as fast as it can. Mr. C R A W F O R D . On that point, may I ask you this: Do you believe it is physically and administratively possible, and from the standpoint of congressional appropriations, possible for the Office of Price Administration to continue a whole area administration as we move into a full economy in the United States? Mr. F L A N D E R S . NO, it would put brakes on our moving into it. Mr. C R A W F O R D . That is right. Now, going to page 5 , your first recommendation there, automatic pricing. I agree with that proposition. Would you have the reviewing of these prices by the Office of Price Administration the subsequent reviewing, and the decision of the Office of Price Administration, made retroactive? That would not work, would it? Mr. F L A N D E R S . Well, you cannot bill a customer an additional amount on goods shipped. I would say that it should be made effective from the time the Office of Price Administration renders its decision. Mr. C R A W F O R D . I think that would be very practicable. Mr. F L A N D E R S . That would also put a little pressure on speeding up the decision. Mr. C R A W F O R D . Yes, sir. Because you know and I know that we have big basic companies in this country who have waited as long as 5 months for the Office of Price Administration to put a price on their product, and there is no price yet and no production yet, and I have the cases to present here, if the committee wants them. Mr. K U N K E L . I had an interesting experience on that just this morning. A company at home was promised wage increase on the 1st of March, back in the latter part of December or January. I said I would take the question up then, thinking that this would be all ironed out, so I have been talking to all three of these agencies all morning. It finally develops that what he has to do is put that wage increase into effect and file it with the Wage Stabilization and Regional Board in Philadelphia. He does not know whether he is going to have it granted or not, presumptively, he will, and then simultaneously he has to file an application for price rise with the Office of Price Administration and he cannot tell in advance whether he will have that granted or even when they will take action on it. So he is completely at a loss. He does not know what to do. And I think this automatic pricing idea has a great deal of merit, because it would obviate situations such as the one I mentioned. Mr. C R A W F O R D . On your No. 2 , "Use of Actual Cost," I think that statement is very clear. Now, your third suggestion. This brings up a proposition which I submitted to Mr. Snyder yesterday morning. That is, making the law mandatory, that when certain situations developed, based upon a practical formula which could be written into the law, that the suspension of price ceilings and control must occur without any .243 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 quibbling about it. And I simply want to ask you whether or not you consider your third suggestion as one of the most important that you make here—if not the most important. Mr. F L A N D E R S . The mandatory ending, at the date set in the act, is an essential part of a proper bill for extension of the Office of Price Administration, to my mind. The mandatory ending at the given date, if that is the question you are raising. Mr. C R A W F O R D . NO, I did not make myself clear. Mr, Flanders. Your No. 3 there is decontrol with respect to certain areas so that the energy of the Administrator and his staff can concentrate on remaining essential areas. My point is: Should we not put into the law a mandatory provision based on some particular formula that might be worked out, that these price ceilings, and the control, shall be removed, moving towards March 31, 1947. Mr. F L A N D E R S . Y O U are suggesting putting into the bill and specifying the areas and types of commodities and services on which it should be mandatory to remove control? Mr. C R A W F O R D . In general, making it flexible. For instance, suppose they took the price of nonferrous castings. There is such a thing, is there not? Mr. F L A N D E R S . There is such a thing; yes, sir. Mr. C R A W F O R D . And by the mandatory provision in the law, and then 6 months later—well, we eould not have 6 months from March 31, but 2 months later they finally decided to put it back on, the formula would determine the necessity to put it back on as the [formula determined the necessity to take it off. In other words, suppose your industrial committee found that, for all practical purposes, supply was in balance with demand. Well, certainly it should come off at that point, should it not? M r . FLANDERS. Y e s . Mr. C R A W F O R D . If there is no mandatory provision and the Office of Price Administration refuses to take it off, what are we going to do about it? That is the question I raise. Should we not put a mandatory provision in the law? Mr. F L A N D E R S . It is possible, I suppose, to write a "provision into the law to the effect that when supply gets within 90 percent of the demand, or something of that sort, you will remove the controls. There are difficulties in actually measuring effective supply and effective demand. Mr. C R A W F O R D . That is right. Mr. F L A N D E R S . It would seem to me, Mr. Crawford, that if you state policies as simply and vigorously as possible, if you demand the concentration of effort of the Office of Price Administration on the significant parts of the problem, and if you set a termination date, which must be met, if you indicate that the relinquishment of controls must be gradual and continuous, as you approach that date, instead of having one grand crisis at the end of that period, then, it is safe to leave the details in the hands of intelligent men as an administrative problem. If you state those conditions under which you are extending the Office of Price Administration, that is. Mr. C R A W F O R D . I have just one other question. To me you have made it very clear in your statement—I did not know you were going to appear here until a telephone call from the chairman told . 2 4 4 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 me that you were going to appear—can we accomplish very much through the extension of the Office of Price Administration to March 31, 1947, or to June 30, 1947, or to June 30, 1950, unless some of these other steps to which you refer are taken; namely, suppose the budget is balanced, and as the maturing issues of the Treasury outstanding come up for reissue, and those refunding issues are sold to the banks, spreading the inflationary base, where do we get with respect to price control? Mr. FLANDERS. This extension of the Office of Price Administration control gives us breathing space to put these other necessary moves into effect. Mr. C R A W F O R D . And unless we do put these other necessary moves into effect Mr. FLANDERS. We are still going to be in trouble. Mr. C R A W F O R D . Beg pardon? Mr. FLANDERS. We are still going to be in trouble. Mr. C R A W F O R D . That is all I have. The C H A I R M A N . Mr. Monroney. Mr. M O N R O N E Y . Mr. Flanders, as other members of the committee, I am deeply appreciative of the contributions you and the Committee of Economic Development have made to the various great and important questions this committee has had before it. I am a little bit worried about your statement, however, and I am wondering if you were Price Administrator Mr. FLANDERS. Which God forbid. Mr. M O N R O N E Y . I think we can all concur in that none of us wants that unhappy job, but if you were Price Administrator, how much increase would you expect to see in the cost of living, under the plan which you have outlined? Mr. FLANDERS. Well, that is attempting to solve an algebraic equation involving six unknown quantities with only one equation. Mr. M O N R O N E Y . Well, to simplify it, would you say it would be insignificant, minor, or substantial? Mr. FLANDERS. I am afraid it is not going to be insignificant, and the major unknown quantity is the wage-price spiral in which we are now involved. And, in part, therefore, the rate of rise which we will be faced with depends on something completely outside this area. It is not completely outside, but, in large measure, it is outside this area we are describing this morning. If, however, during these next few months, we can perfect our fiscal and monetary controls, we can slow up, and if we have good Office of Price Administration administration —particularly in the areas which affect the cost of living, and if we can slow up thereby the price rises, then, the pressure for wage rises will perhaps be somewhat diminished and they can be more easily brought under control. Mr. M O N R O N E Y . I am very fearful that I cannot agree with you, because I happen to be one who feels that even the present wage-price bulge is extremely dangerous, to cause a secondary round of labor difficulties, which I think, in the long run, to my way of thinking, slow up production, and the volume of consumer goods, far more than restricting price increases has done. Mr. FLANDERS. There is certainly danger there, Mr. Monroney. I wonder if I might just put in a word with regard to the effect of the wage-price policy, and the demand and supply matter on prices. .245 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 As to the wage-price policy, the cost sets the floor of prices. No one is going to sell goods for less than it costs to make them. That sets your floor price. Now, the demand and supply sets your ceiling price. No one is going to be able to sell anything if the demand at the price given is less than the supply. So the supply and demand sets the ceiling of prices, and the cost of production sets the floor. In between those two is the area in which you can establish a price. The endeavor to establish a price below the floor will stop production. The endeavor to set a price too close to the floor will tend toward black markets, and will tend also to slow up production. It is a matter of good judgment—and if you set it too near the ceiling, you are liable to raise the cost of living, if it is in the area of elements that go into the cost of living. Now, one of the administrative problems of the Office of Price Administration is to set that price at the proper point between that floor and that ceiling, and that is their job, as well as in administering that price after they have set it. Mr. M O N R O N E Y . But, Mr. Flanders, is it not true that if your wages step up 15 percent, it is like two decks on a ship, they both float up together, so you reach a higher level both in your floor, or cost of production, and in your ceiling on prices, so that you are faced with what I say are the last two minutes of the football game, with the ball on the half-yard line, with a loss of a 4-year struggle that this Nation, and its industry and its business have patriotically put up to avert inflation, and then come here with our eagerness to get away from controls which is natural and understandable and desirable, we lose the whole football game right in the closing minutes of the game. Mr. FLANDERS. I am afraid that I am not convinced that the pressures behind inflation, in the event of a continuous strengthening of the wage-price-cost of living spiral, that those pressures can be met in control purely by price control. I think those pressures are strong, and the Office of Price Administration is not strong enough, by itself, to control it. Mr. M O N R O N E Y . I think you are probably right. But I think you do have a few brakes on the machine to keep it from rolling out of control and down hill. But at this point, to go deliberately into increasing price areas, which you admit would not be insignificant, do you not feel you would have your second round of wage demands to where within 2 or 3 months your present 15- or 18-percent formula would be obsolete and we would face another 10 or 15-percent round of disrupted production, labor trouble, shut-downs, and loss of production? Mr. FLANDERS. Essentially, Mr. Monroney, I am suggesting that the Office of Price Administration drop everything else and just focus its attention on this troubled area. There are a lot of other things that they are worried about now that I think they might well forget, and pay their most serious attention to tl^e elements that go into the cost-of-living area of that spiral. Mr. M O N R O N E Y . But you say, for example, in your statement, that we should base the new pricing of automobiles, say, on actual cost. M r . FLANDERS. Yes. . 2 4 6 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. M O N R O N E Y . Y O U take a very low base of maybe 1 5 0 , 0 0 0 or 100,000 ears; you take unskilled labor, that is just trying to reconvert to the manufacture of cars; you take difficulties of inventory, adequate inventory not being available; you take all of those highcost figures which reason will tell you will be overcome when you get volume production, and then you suggest that we add to that one-third above the 1 9 3 6 - 3 9 level, and so we take two sets of highcost factors to reach a point in our new pricing formula that you advocate, right at a time when everyone familiar with inflation controls is praying not to have a second round of wage demands and pushing up of the cost of production of these things. Mr. F L A N D E R S . Well, in my suggestions here there is no suggestion that an industry in the so-called bulge can demand that its prices be set on that cost bulge. There are a number of things to be said about that automobile pricing situation, anyway. For one thing, no automobile company is going to risk putting an absurd cost on its cars. Black-market salesmen may. But no automobile company will, because they will not run the risk of discrediting themselves with possible future customers. They will not put an outrageous price on an automobile. I would say that with a whole lot of confidence. They are too good businessmen to do that; they are too smart. But I would guess, for instance, that every automobile manufacturer except General Motors, which is now still under strike, would be able, as a result of the second quarter's operations, to present to the Office of Price Administration a valid request, or a valid estimate of its costs, and a valid request for a price which the Office of Price Administration should be able to consider, feeling that it has most of the elements of the situation known and in hand. That second period will be a period of practically normal operation for most of the automobile companies. Mr. M O N R O N E Y . I sincerely hope that you are right. I am a little bit skeptical that we will anywhere near reach the volume of production that industry will under normal operations finally reach in that period. Mr. F L A N D E R S . And there is nothing in here that says that if that is the wrong quarter, that it should not be reviewed for the third quarter, or the fourth quarter. Mr. M O N R O N E Y . Well, of course, I have not had a chance to read your full report, but as I listened to the reading of your statement, and in the summary, the base price on actual costs and not forecast, I would guess that that would mean that you are going to base it on whatever production they happen to have for that month or that quarter. Mr. F L A N D E R S . The forecast is even more troublesome than the actual costs at an early period, because the forecasts almost inevitably will tend to stop production, or limit production, and under this proposal, the production goes right ahead with possibilities of review. Mr. C R A W F O R D . Will you yield, Mr. Monroney? M r . MONRONEY* Y e s . Mr. C R A W F O R D . Let us take the Ford Co. as an illustration. Next Monday morning, Ford Motor Co. starts practically on full production. Now, there is a reconverted industry. January, February, March, the first quarter. April, May, June, second quarter. As I understand your statement, you feel that it is reasonable to assume that by the end of the second quarter, or, for purposes here stated, the second quarter, that it would be reasonable to go in there and determine what the costs are. .247 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. F L A N D E R S . That is the point you are making. Mr. C R A W F O R D . That is the point you are making? Mr. F L A N D E R S . Yes; the point I am making is that the Ford Co., as a result of its second-quarter operations, can give a far more valid judgment as to what the price ought to be and submit the basis of its judgment to the Office of Price Administration, than the Office of Price Administration can do, in determining what the price of Ford's product ought to be 12 months from now. Mr. C R A W F O R D . And the first quarter should be eliminated? Mr. F L A N D E R S . In any of those cases where strikes or other things have held up production, the first quarter should be out. Mr. M O N R O N E Y . It is no use to argue the case here, but I am fearful that you have no inventory backlog with Ford or Studebaker or anybody else, because the General Motors strike has shut off all their parts practically to where they are just operating from hand to mouth and I am very doubtful that you would get any kind of a true picture of a normal year's operation even by the second quarter. Mr. F L A N D E R S . Ordinarily an automobile company runs practically without inventory. But they have had to build up inventories. For instance, they have built up quite an inventory of ball bearings in anticipation of the General Motors strike. Ordinarily they have no inventory at all. It is on incoming freight cars, and it is on the transmission lines, and the size of the inventory in automobile factories under normal conditions is pretty near zero. It is astonishing. Mr. M O N R O N E Y . But there must be inventory back in the parts supplier, l o u must have your pipe line field and it has been shut off at the source. Mr. F L A N D E R S . Yes; the inventory back there is necessary. Mr. M O N R O N E Y . And do you not feel that under your formula, with the one-third up on the base period of 36-39, and basing on actual costs, instead of a reasonable forecast, that you will permit abnormal profits in 1946 and even greater profits in 1947 to industry at the same time you are moving the price line up and causing an increase in the cost of living right at the most critical period that we face in inflation control? Mr. F L A N D E R S . I do not think you are going to find abnormal profits resulting from that process, Mr. Monroney. Most of the companies making the products whose production has been most disrupted are the type of company with long experience and long viewpoint. I mentioned the automobile company. The same thing applies to most of the household-equipment companies—electric refrigerators, and so on. No one of them is going to risk his future market by putting an excessively high price on present production. Mr. M O N R O N E Y . What would you say, Mr. Flanders, was the percentage of our civilian production today as compared with our prewar production of civilian goods? Mr. F L A N D E R S . I have no figures on that. Mr. M O N R O N E Y . Did your economists study that figure at all to see how near we are coming, even under price control, to meeting the normal production that this country is capable of? I know that food production is pretty generally agreed to be above normal production. That represents 40 percent of your cost of living index. I do not know what clothing runs. I have a guess that although it is in short supply, that if the figures were available, you would probably find that it is not far off from normal production. Durable goods, because . 2 4 8 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 of strikes and reconversion problems, I imagine are in an extremely bad position. But I think that is the answer that we ought to seek, to find out if price control, if all of these disruptive things that business says price control is guilty of creating, if maybe the answer does not disprove that. Mr. F L A N D E R S . Well, I have no study available along the lines you suggest. I only know of certain individual instances as they are told me by manufacturers in those lines. I might mention briefly the situation with regard to radios, for instance. I judge that it will be possible to operate with reasonable satisfaction under the present ceiling prices for radios, but unfortunately the control of prices goes clear down through the line. The suppliers of semifinished parts, the suppliers of finished components, and so on up, and the production of radios, I am told, has been very much hindered by the price set on, well, let us say, condensers or something of that sort. That is an illustration of the type of Office of Price Administration control that I think ought to be discontinued. It is too much complication without result and possibly the ceiling price on the finished product ought to be retained. I am not passing judgment on that. But it is an impossible task to set ceilings on all the components and materials all the way down the line. Mr. M O N R O N E Y . I quite agree with you on that portion of your statement in which you said it was absolutely essential that the Office of Price Administration search out these bottlenecks and remove them as lapidly as they are discovered. I tried to talk that up to have a sort of all-American team added to the Office of Price Administration to search out those specific points which would make only 10 or 20 cents differential on the price of a radio, for example, a condenser, and remove that bottleneck, but I do think they can be selectively removed instead of moving up into a broad base and getting yourself into a secondary cycle which starts new wage demands with wages and prices going up. Mr. F L A N D E R S . I believe, Mr. Monroney, that the Office of Price Administration could exercise its necessary controls for its part of the wage-price spiral responsibility. Even under the somewhat liberalized standards, which, after all, do not add greatly to the cost of the goods produced, by concentrating on the essential areas, by being assisted, by having the companies in this so-called automatic pricing doing all the clerical work, and relieving the Office of Price Administration of that mass of calculation and guesswork on a necessarily inexperienced basis, so that they could pass on the end result, the same as the Treasury does with our incom etax statements, just as a rough example. 1 believe that with all this relief to the back-breaking problem that the Office of Price Administration has, that it can concentrate on the essential areas and do a swell job, and that relaxation of profit limitation, in percentage of increased cost permitted, will be small. I believe, however, that its effect on increased production may be very great, and that the increased production will be far more important than the comparatively small increase in price allowed. Now, that is the basis of the judgment which led me to make these recommendations. Mr. M O N R O N E Y . That the profit represents only about a 2 or 3 percent factor in the total annual production? .249 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. F L A N D E R S . That is right. Mr. M O N R O N E Y . And that a third of that would be only a fraction of 1 percent? M r . FLANDERS. Y e s . Mr. M O N R O N E Y . N O W , one more point. Do you think, as a producer, and as a man familiar with the economy, that our volume of production will be great enough by January, we will say, to remove the excessive threat and pressure of scarcity from the inflation picture? Mr. F L A N D E R S . We should see the end, barring further complications, by this wage-price spiral we are talking about, resulting strikes and so on, we should see the end of disturbing scarcity in sight. We will see that production is moving at such a rate that it is approaching demand, and we will see where they are coming together. Mr. M O N R O N E Y . The reason I mentioned January is because I think, for the 3 months between the time that you start cutting off price control and the time you formally end it, if there is still a scarcity demand in the market or panic demand, I would call it, in the market, that you not only run the risk of higher prices because of scarcity, but you will also run a risk of losing your production shipments and your normal flow of goods to the market for 3 months waiting for the speculative rise. Mr. B U F F E T T . Will the gentleman yield? M r . MONRONEY. Y e s . Mr. B U F F E T T . I S it not possible that the very reverse of that will happen? Knowing that price control was going to end, every manufacturer making that product will hustle to supply that market before the other man, who is holding off his supply? Mr. F L A N D E R S . Both of you are describing possibilities in that disintegration of price control which I said was inevitable and that gives point to the suggestion that insofar as possible these price controls should not be left on and ended in a lump at a given time, but that they should be courageously spaced along all the intervening periods. So that you would have met just as large a part of those things as possible over an extended time. You are going to have difficulties of the kind both of you gentlemen described in any given product under any different conditions. Mr. M O N R O N E Y . That is all. The C H A I R M A N . H O W long before the discontinuance of price control is definitely set do you think the process of disintegration will be materially felt? Mr. F L A N D E R S . A S somebody in the Bible said, I am neither a prophet nor the son of a prophet. I am a guesser. M y guess would be somewhere around 3 months, where it would begin to be apparent. And perhaps not serious for the 2 months at the end, or thereabouts. But it is better to have a small number of things with price raises continuously recurring than to have the whole in one grand smash. The C H A I R M A N . H O W long do you think it would be before the supply will equal demand generally? Mr. F L A N D E R S . Of course, that depends on what price level—I imagine it will be difficult in all sorts of commodities. We are all going under the assumption, for instance, that the meeting of the housing demand by supply will not take place except over a period of years. That is the extreme example. T h e CHAIRMAN. Yes. . 2 5 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. F L A N D E R S . Automobiles, 2 years, perhaps; electric refrigerators, I do not know. Perhaps a year and a half or something of that sort. Nylon stockings, I think we will have to ask our wives. Tires, probably 6 or 8 months. I am just picking these things out of the air from general information, and it may be wrong. But there is no one time you can set that will apply to the whole range of commodities. Cotton textiles—a year. I am more interested in knowing when I can get some new B. V. D.'s than anything else, and if anyone can make me any valid prophesies on that, I will discontinue my present project of having my wife cut up some of our sheets. Mr. B U F F E T T . Mr. Spence, may I ask one question? The C H A I R M A N . Mr. Buffett. Mr. B U F F E T T . Y O U spoke of electric refrigerators. A friend of mine up in the Metropolitan New York area tells me about an acquaintance of his who had a big backlog of orders for electric refrigerators. He got in a few electric refrigerators and started through his order book calling the first 50 people who had put in reservations for refrigerators and without exception they had changed their mind, so he threw his book away and now is trying to sell the refrigerators They wanted them as long as they could not get them. Mr. F L A N D E R S . I have an automobile on order. M y friend, the automobile dealer, has the ingenuous scheme of requiring a $25 deposit by each customer on these orders. And he figures he can make a living on those $25 apiece on an order while he is waiting or his automobiles. And if your friend has required a deposit, he might have made a good interim living, too. Mr. B U F F E T T . Probably he would not have had as many orders. Mr. F L A N D E R S . That is right. The C H A I R M A N . Mr. Flanders has said that he has an engagement at 12 o'clock. Does any other member desire to interrogate the witness? Mr. G A M B L E . I desire to ask one question, Mr. Chairman. The C H A I R M A N . Mr. Gamble. Mr. G A M B L E . The Ford Motor Co. is going back into production. They have got enough business experience to not start up production unless they knew where these supplies were coming from, do you not think? Mr. F L A N D E R S . I would think so. Mr. G A M B L E . They have had pretty good business experience over the period of years. Mr. F L A N D E R S . Yes, they would have to stop awhile back when their supplies did start, and in starting up, I assume they knew where their supplies were coming from. Mr. G A M B L E . I assume, too, the end of the steel strike puts them back into business. There is one other thing. The excuse we get all the time from the Office of Price Administration on these scarce materials, such as B. V. D.'s and so forth, is that suppliers are holding them off the market, hoping that the Office of Price Administration will not be extended. Under your theory of dropping these different items from time to time so that the rise does not come all at once, will not the fact that they are in production prohibit that? In other words, if they are in large production, they will not have capacity to do it, they will not have [warehousing 'space for it? Will that not answer itself, say, at the end of the 31st of March? .251 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. F L A N D E R S . I hope so. Mr. K U N K E L . Mr. Chairman. The C H A I R M A N . Mr. Kunkel. Mr. K U N K E L . Mr. Flanders, as I get the general drift of what you are driving at, the chief thing is to try to get the Office of Price Administration to the point where it discards and dispenses with all unnecessary administrative detail so that it can get its decisions quickly and in a limited field? M r . FLANDERS. Y e s . Mr. K U N K E L . I think I Mr. F L A N D E R S . Yes, we agree with that. I think that would help. are here to help the Office of Price Administration. That is the way I feel about it. Mr. K U N K E L . That is all. The C H A I R M A N . Mr. Flanders, again I thank you on behalf of the committee. We are very glad to have had your statement, and we are always glad to hear you. The committee will adjourn until 10:30 tomorrow morning. (Whereupon, at 12 m. the committee adjourned, to reconvene at 10:-30 a. m., Friday, March 1, 1946.) 63512—46—vol. 1 17 1946 EXTENSION OF THE EMERGENCY PRICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED FRIDAY, MARCH 1, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee reconvened at 10:30 a. m., Brent Spence (chairman) presiding. The CHAIRMAN. Before we proceed, I want the clerk to read two telegrams that I have received, one from Mr. Brownlee and one from Mr. Flanders. There seems to be a little disagreement between these gentlemen. I think they are both very capable and sincere men, and they both asked that their telegrams be put into the record. The clerk will read them. The Clerk (reading). To the Honorable B R E N T S P E N C E , Chairman, Banking and Currency Committee, House of Representatives: While I have not had an opportunity to study the testimony of Ralph Flanders lor the Committee on Economic Development, I am concerned over recommended broad automatic pricing and increase in industry earning standard by one-third. Stop. I am more concerned lest there be any misunderstanding that I am not in favor of extension of a strong price control, nor impressed with the [necessity for such action, on the contrary because inflationary situation appears to me so critical I have accepted invitation of Chester Bowles to return to Washington next Monday as Deputy^Director of Economic Stabilization. (Signed) James F. B R O W N L E E . T o the Honorable B R E N T S P E N C E , Chairman, Banking and Currency Committee, House of Representatives. I regret that in presenting my personal observations on price control before the House Banking and Currency Committee I gave the impression that Mr. James F. Brownlee had been consulted and concurred in all the specific views expressed. I am sure that Mr. Brownlee and I agree fully as to the necessity for the temporary continuation of effective price control, and the extent of the present inflationary danger. I am delighted to hear that Mr. Brownlee has agreed to serve as Mr. Bowies' deputy. (Signed) R A L P H E. F L A N D E R S . Mr. PATMAN. I am very glad to know he is coming back, Mr* Chairman. The CHAIRMAN. I think everybody is familiar with the services Mr. Brownlee gave to the Government when he was connected with the Office of Price Administration. Mr. CRAWFORD. Mr. Chairman, may I make a statement? The CHAIRMAN. Mr. Crawford. Mr. CRAWFORD. It was my great privilege to be indirectly and almost directly associated with Mr. Brownlee for a number of years before either of us became members of the Government. He happened to be sales manager of one company, I was sales manager for 253 . 2 5 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 another company, and those two companies were under the same financial control and ownership. Therefore, I had a chance to appraise him, and I consider him one of the outstanding junior executives of the United States. He has wide experience in industry, and in marketing and transportation, and perhaps in finance. And the other day 1 told Mr. Bowles that I hoped he would be able to obtain Mr. Brownlee's services to continue whatever program Congress designates on the Office of Price Administration. The C H A I R M A N . I have no doubt he is coming back at a great sacrifice to himself. We have as our witness today Mr. Henry Kaiser, who has earned a very deserved reputation as a great industrialist and as a great producer during the war when we needed production. We still need production to fight the battle of inflation and I have no doubt he can give us some views that will be helpful to us on the subject. We are very glad that you were able to come, Mr. Kaiser, and we want to thank you for coming. You may proceed as you desire. Have you a prepared statement? Mr. K A I S E R . I have a prepared statement, Mr. Chairman. The C H A I R M A N . Y O U may read it without interruption and then you may be interrogated. Mr. K A I S E R . Regardless of what they may be, I hope the committee will feel free to ask me any questions, personal or otherwise. The C H A I R M A N . We usually reserve that privilege. STATEMENT OF HENRY J. KAISER Mr. K A I S E R . M y response to your invitation to testify today stems from a deep sense of duty as an employer to my employees, as a seller to my customers, and as an industrialist to my colleagues in the business world. The subject before us is of such momentous importance to America and to the civilized world that it calls for a clear and uncompromising statement of position. In requesting my presence here, it may be assumed that your committee believed we could speak from the experience of operating 25 industries, including steel, aluminum, chemicals, ships, home construction, household appliances, cement, concrete, and many other construction materials. It is not generally known that certain of these industries were in successful operation for many years before the outbreak of the war, and that for 30 years we have been marketing products to the public, direct and through dealers. These 25 enterprises operate today at least 50 plants, grouped at five major regional centers: Southern California, northern California, the Northwest, the Midwest, and the East. They produce more than 130 different items, marketed as individual products, some of which are listed here. Now, the 25 industries are: Agriculture, aircraft, aluminum, automobiles, cement, chemical, concrete, contracting of major proportions, having done, before the war, some $400,000,000 worth of work. Engineering. We have a tremendous engineering service. Ferroalloys, gypsum, household appliances—many products. Housing— we are on a program now of 10,000 houses for this year alone. Insurance, iron and steel, lime, machinery, magnesium, medical—we .255 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 have three hospitals. Mining, refractories, sftnd and gravel, shipbuilding, ship repairs, steamship. In southern California we have materials which we sell as pig iron, coke, chemicals, creosote, slag, pipe stock, steel plate, tar, ammonium sulphate, xylol, flake pitch, steel merchant bars and shapes, steel piling and specialties, phenol, light and fuel oils, benzol, solvents, sodium carbonate, reinforcing steel, and fertilizers. At the Long Beach plant, automobiles. In northern California we are operating the four Richmond shipyards. Including the Portland-Vancouver area, we are operating a total of seven shipyards, and we are filling contracts for private industries. We are constructing vessels for Alcoa and we have been building Victory ships, coastal vessels, cargo vessels, and all forms of repair work at the present time, having in one yard as many as 45 ships in one yard for repairs right now. Our Permanente industrial center at Palo Alto, we manufacture Portland cement, rock products, lime, magnesium, light metal alloys, sand castings, magnesia, magnesium hydroxide, oxygen, brick, periclase, volitalized silica, raw dolomite, calcined dolomite, hydrated and processed lime, doubled burned dolomite, ramix, ferro-alloys, fluxes, and miscellaneous chemical specialties. At the building materials plants we probably furnish perhaps 50 percent of all the products that go into northern California, with approximately 25 plants in building materials alone, and we supply washed gravel, crushed gravel, crushed rock screenings, railroad ballast, crusher-run base, slurry base, concrete sands, plaster sands, asphalt sands, stock-car sand, asphaltic concrete, plant mix, oil mixes, stabilized base, and ready-mixed concrete, slag, hundreds of trucks delivering direct to-the-door mixed concrete. In the Northwest, our yards are filled with repair work on Victory ships, coastal vessels, and cargo vessels, in addition to new ship construction. At Spokane we are now taking on the operation of two aluminum plants. In the Midwest we run the Willow Run plant. And in the East we have two aircraft plants where we manufacture military aircraft, hydraulic valves, aircraft subassemblies, stainless steel specialties, personal aircraft, and housing appliances. In general, that is a very rough idea of the products we are dealing with. The inflation which we are called upon to fight today is dueln major part to the trmendous demand for goods of all kinds throughout the world. The unsatisfied needs of mankind, not only in America, but in every land, exert the greatest pressure on the price structure. Our huge wartime national income has swelled the demand for ample food, new clothing, and adequate shelter. The price of these necessities is our first concern. They must not be priced beyond the people's reach. The people of America are hungry, besides, for all of the other manufactured products that industry can produce. Let me give you a dramatic example from our own experience in the automobile market in New York City. Men and women stood for hours in a blinding snowstorm, in a line four deep and four blocks long, hoping to see and to place orders for the transportation they so sorely needed. It was finally necessary for us on the last day to bring in machines to take the orders. . 2 5 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Similar demonstrations appear daily on every Main Street in America where lines form to purchase the limited supplies of certain staple foods and certain luxuries, such as nylon stockings and other products, which are considered essential to a high standard of living. There is grave danger in the common argument that this tremendous demand could be met by so simple a device as removing price controls. Such an expedient would spell ruin for the great mass of mankind which has only limited purchasing power. The long years of war all but exhausted the basic supplies in the markets of the world. This tragic circumstance has created a scarcity without parallel. The situation calls for the utmost cooperation between all branches of industry, labor and Government to maintain sound price levels, and thus protect the dollars that will convert wants and needs into purchases until production can satisfy demand. The enterprises for which I am responsible are business organizations. For more than 30 years we have been engaged in these fields of free enterprise which are the most highly competitive. In the hard school of experience, we have faced the problems of production. We know the problems of selling. We know the importance of costs and the survival value of efficiency. We know the importance of looking ahead and in that foresight we have confirmed our belief in the future of this country. We know that sound business is not out to make a quick killing. From all this experience, we are today ready to testify that the surest cure for inflation is production—the highest possible level of production at the earliest possible moment. Production, not price control, is the problem that we must solve. The Office of Stabilization can and will help us to increase production, and I am certain that the Office of Price Administration will handle its pricing power to the end that maximum production will be achieved. I cannot agree with those who profess to be able to estimate the extent to which the new wage price policy will increase the cost of production. Thus far, generalities about future costs are too vague to be convincing, and no one will deny that we are still a long way from potential peacetime production levels. As a matter of fact we can cite instances from our own experience only recently where increased wages have actually lowered costs through increases in production. I hear no dissent from the principle that increased production is the true solution to the problem of inflation. If this principle is# sound, then the best way to increase production will be to stop bickering and go to worb, with all sides ready to give and take in the all-important effort to raise production to the level of demand. As a people trained in the democratic tradition, we cherish the right to criticize our Government in all its branches, but the best criticism stems from experience. In managing 25 industries, which we are doing today, we have come to learn how the Office of Price Administration works. In all of our enterprises, throughout the war and since, we do not know of a single instance in our dealings with the Office of Price Administration where, after the facts were presented, we were not accorded a fair and equitable treatment by this agency. This statement covers our total experience with the Office of Price Administration as a seller and producer in the market. As a buyer under the Office of Price Administration for our various industries, we can again report satisfactory treatment. We, too, .257 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 are faced with a shortage of essentials. Our experience indicates that the supply of basic materials is equal to about half of the demand. As buyers, we would be greatly concerned if suddenly all restrictions on the seller were removed and we were compelled to bid at auction for vital supplies. To illustrate the point, this committee may be interested to know that as buyers we recently faced new situations wherein we found ourselves unable to purchase steel. In the first instance, the Kaiser Co. tried for 4 months to place orders for sheet steel for the production of a low-priced dishwasher; that is, deep-drawn steel. Our inability to satisfy this requirement from any supplier forced us to adopt an aluminum tub for this household appliance, and we have lost 4 months in the production of that item. The Kaiser-Frazer Corp. encountered exactly the same experience in regard to steel for automobile bodies. Until this week we were unable to secure a commitment on any specified tonnage of steel for the manufacture of automobiles. Some suppliers said that no tonnage was available. Others promised to advise us later on how much tonnage we can have and when. The Kaiser interests are taking four steps to remedy this alarming situation: 1. We have expressed our belief that a failure on the part of industry to cooperate in this critical emergency will necessitate action on the part of the Stabilization Director. 2. We have approached Mr. Bowles with the request that he study such allocation of steel as would be fair and equitable for all producers. This would preserve that competitive force which is so indispensable to the life of American industry. 3. We have been obliged to lease from the Government and to operate an aluminum ingot plant and an aluminum rolling mill in order to produce our own raw materials. In the aluminum industry we will welcome regulation from the Office of Price Administration in our pricing of this light metal which is also in critical shortage. Only recently we were advised that the earliest delivery of aluminum which we could expect from other operators was 48 weeks, which comes dangerously close to being a year. 4. Finally, the shortage of steel sheet is so critical that in addition to leasing the aluminum plants, we are also studying available defense Plant Corporation steel plants. At South Chicago, for example, there is a Government-owned, war-built $93,000,000 steel plant for which competitive bids are to be received April 1 by the War Assets Corporation. We are investigating this plant with the thought in mind and the purpose that there may be ample floor space to increase its facilities and to install a strip mill for the rolling of steel sheets. If our studies show it is economically sound, we will be among the bidders making a proposal to the War Assets Corporation. In our opinion, the consumer demand for products requiring sheet steel is so great that it will require the operation, for at least 3 years, of all of the steel capacity of the United States, including the additional capacity installed during the war. Again I want to say, the only way to reduce Government controls is to use all of our existing facilities for production, and to build, where necessary, new facilities to give us increased production and meet the demand. Congress has already done its part in proving the Surplus Property Amdinistrator with . 2 5 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 ample authority to make these plants quickly available to industry, after a check by the Attorney General to ensure they are so allocated that competition is encouraged. I have thus spoken from experience because I do not wish to generalize. In facing the actualities of inadequate supply, we have learned that price control is vital to the health of our country through this emergency, and that inflation will finally be brought into balance by production. It is now altogether clear that the Office of Stabilization is necessary at this critical juncture in order to protect buyers, sellers, and the public both as to pricing and as to allocation; for these two are kindred necessities in a market where demand so far exceeds supply. In this transition period from war to peace, when the barrel holds so much less than the customers want, the customers will either fight for it or overbid for it. When industry produces enough barrels full of the things that people want, then we will not need allocation and price control. The National Association of Manufacturers has recently taken fullpage advertisements in the Nation's press to urge the abandonment of Office of Price Administration. In this campaign, National Association of Manufacturers has given no indication of how this procedure would remedy the present emergency. I cannot believe that this is the unanimous verdict of its members. Outside of National Association of Manufacturers there are thousands of manufacturers whose opinions are certainly nonrepresented in National Association of Manufacturers' advertisements. I know that the National] Association of Manufacturers has not approached us for our viewpoint. The vast majority of American businessmen in trade and production, who are not members of National Association of Manufacturers, are a force to be reckoned with, and should be heard. With this knowledge, it appears to me that the National Association of Manufacturers—before taking a position in which it presumes to represent American industry—should take a poll, and furnish this committee with its results. In preparing a questionnaire for such a poll of American industry, the facts for and against inflation should be presented. If the National Association of Manufacturers prefers to poll only its own members, we may hope that it will make some attempt to find out what the employees of its members are thinking, because, after all, it is the people who will have to pay the price for inflation. I notice a tendency today to use the phrase "the little man." I presume this means the plain citizen whose voice is too seldom heard. If this is a proper definition, "the little man" is industry's biggest customer. He is the one who needs protection. The savings of the worker, the widow, and the dependent would suffer most if we permit the United States to stage a general auction in which the price of everything will be bid up until only the few can satisfy their needs. America's huge financial reserves, born of war and represented by the earnings and savings of our people, must now have that fair and equitable protection wihch is afforded by agencies such as the Office of Price Administration and the Office of Stabilization. One look back into history should be enough to convince us that we must not open the road to uncontrolled inflation. We had the experience—after the abandonment of price control—of the soaring boom of 1919. And we had the experience of a total bust in 1920. Does experience teach us nothing? .259 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 There is no more brilliant chapter in the history of American economics than the story of price controls throughout the Second World War. The necessity for those controls will not be past until full production has been achieved. There is, as yet, no convincing argument that full production must await removal of price controls. The answer would be an inflation of disastrous proportions, in the financial markets, the commodity markets, and throughout the whole field of production and distribution, and, as always, laying its heaviest toll on those who are the least able to bear it. In concluding this statement, the committee should understand that I do not believe that the Office of Price Administration is perfect— there is no such thing as perfection anywhere. It is easy to criticize, easy to say what should have been done, or what should be done, as one watches from the sideline. It is a real responsibility, however, to initiate a program such as the Office of Price Administration, to coordinate it, to guide it, and to keep it free from those who may unwittingly hurt it with criticism. This is not a time when we need criticism. We need to work together for the common good, which is increased production. The Office of Price Administration needs help from everyone—from Congress, from the people—and we must all •join in the use of this agency* and make it stronger by giving it our confidence. Now, there is one thing I particularly want to say: Someone asked me this morning: "What would you do with these 25 industries, Mr. Kaiser, if suddenly the Office of Price Administration were removed ?" and it is worthy of a great deal of thought. What would we do? And I could see only one thing that we could do, and that would be immediately what everyone else does, and every individual does: ihat is, immediately to raise the price as high as we could raise it on every one of our commodities, for a short period of time, in order to make it while the going was good, and then, in a few months, retrench completely in order to protect our industries—and by retrenching, I mean removing probably two-thirds of our employees, because we would no longer be willing to take the hazards of inflationary prices in the knowledge of when they would bust. And that, in substance, gives you my earnest and sincere feeling. The C H A I R M A N . Mr. Kaiser-, you were a great wartime producer. What percentage of your wartime production has been converted to peacetime production? How long will it take you to get into peacetime production? Mr. K A I S E R . Well, in some cases, in some of the plants—well, let me answer that specifically. In the steel plant, we are attempting now, and are having quite a problem getting the materials to reconvert so that we can furnish all of the steel requirements that we understand we need. The Fontana plant, you understand, was equipped to produce only those materials which were necessary for war. It will probably take us a year and a half to get into peace production at Fontana. But nevertheless, today Fontana is operating at full capacity, and can barely take any more business this year. Practically all of its capacity is taken for this year. The C H A I R M A N . Many of those industries were not reconverted industries at all; they are entirely new industries? Mr. K A I S E R . That is right. . 2 6 0 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Now, if you talk about the shipbuilding—many people ask about that—we have taken over and leased from the Government one of the plants at Portland. We have made an offer to the Maritime Commission for all four shipbuilding yards at Richmond—I think we made it yesterday—a cash offer for all four yards. We plan to convert those plants to the task of filling important housing requirements. There is tremendous shortage of certain materials in housing, particularly gypsum board. We intend to put up a gypsum-board plant at Richmond, of tremendous size, if we can acquire the yards on a reasonable basis. In addition to that, we will probably open up one of those plants into an automobile assembly plant. I would say it would take 6 months there. But in the meantime we do have 7,500 employees there and are building and doing all kinds of work regularly. The C H A I R M A N . Are you engaged in the construction of prefabricated houses? Mr. K A I S E R . We do not call them prefabricated houses. We are engaged in the construction of communities. We have a corporation known as the Kaiser—I think I had first better point out to you that all these 25 industries are different corporations. They are not pyramided. They all operate independently. In our operations with the Office of Price Administration, unless there is some fundamental principles, we never see the Office of Price Administration. That independent industry goes to the Office of Price Administration with its costs and figures and demonstrates what its costs are and what its needs are. Now, in housing we have what we call the Kaiser community homes. It has a program of |10,000 homes and is building now 3 a day. In 4 months it expects to be up to 30 a day. It does both prefabrication of parts of those houses and it does what we call site prefabrication, and then some general construction on the site. But they build the community. They build all the facilities for the community. For instance, it might be interesting to you to know that we consider that the house is not the whole problem, by any means. In Los Angeles, it is necessary to lay out and pave 150 miles of streets to build these 10,000 houses, and 150 miles of sewers. Now, we are operating up in the East with a company called the Kaiser-Walsh Community Homes Corp. We have acquired 400 acres from Ford, and we are starting to build a community around Willow Run, and I expect that that corporation will then develop in the East, and it is our purpose to continue to develop more corporations to build communities on this housing program. It is our hope to be up, in 1947, to at least 50,000 houses a year. The C H A I R M A N . Tell us something about those houses. Mr. K A I S E R . Well, we are aiming at a house that will cost between five and six thousand dollars. At the present time—this will be interesting to this committee—Fritz B. Burns, president of Kaiser Community Homes, sold the same home in 1940 for around $3,300 that we are now selling for around $8,000. It is our purpose, with our plans to achieve reduced costs, to build a home with two bedrooms, and to be in production of that home in large quantities, at between five and six thousand dollars. Mr. G A M B L E . That is prefabricated? .261 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. K A I S E R . They have prefabricated windows, and sashes and doors, and the units in the bathroom are prefabricated. In other words, the components are manufactured and then put together, at the site. We prefabricate certain units, but not the whole house. W7e are doing everything to reduce the cost so that we can get that home down to between five and six thousand dollars, because we recognize that the earning power of the individual, the mass buyer, cannot pay more than five or six thousand dollars. If we are going to make a contribution, we have got to get a house down to that cost. We are aiming, furthermore, to produce that house fully equipped and fully carpeted, so that it has no problems for its new owner. We are aiming to produce a quality house. We aim to achieve individuality and variety in the houses by curving the streets, by locatioo of the houses on the lots, so that there is nothing checkerboard about them. Thus, though the floor plan is the same and the houses can be mass-produced, vet they look totally different as you drive down the street. Miss SUMMER. Are they round, those houses? Mr. K A I S E R . Round? Oh, no. Miss S U M N E R . I notice Mr. Patman said the houses were round. Mr. K A I S E R . Oh, I did not say that. Mr. S U M N E R . You did not say Kaiser houses, but you said some houses were round. Mr. P A T M A N . No; I said a plant out in WTichita, Kans., is making round houses. Mr. K A I S E R . There is a round house made of aluminum, designed by Buckminster Fuller, who proposes to make a totally different type of house. The C H A I R M A N . Are these houses set up by local labor? M r . K A I S E R . Y e s , sir. The C H A I R M A N . H O W long do you think it will be before we can supply the housing shortages as they now exist? Mr. K A I S E R . Well, as we see it, we are very strongly supporting Mr. Wyatt's program, because he is going to make the materials available, which is the important thing, and as we see it, under private enterprise, I believe that you can build. If Mr. Wyatt is given full freedom to go ahead, with his energy, I believe that you can build, under private enterprise, more than the 1,200,000 houses he is talking about this year, and I think you can go to 2,000,000 next year. Now, that is fantastic but it is not beyond my conception at all. If you do that, I think you will be out in the open by the end of next year, so that you will have the competition that you need to get more homes. When it is proved that they can be produced in quantity, there are a hundred thousand contractors in the United States who want to do the same thing. The C H A I R M A N . D O you think the Wyatt program is a constructive program and will produce results? Air. K A I S E R . I think it is an excellent program. I think that it is not perfect. None of us want subsidies. But sometimes subsidies are necessary to get certain materials. Mr. B R O W N . Mr. Chairman, I understood we were hearing Mr. Kaiser on the extension of price control. The C H A I R M A N . Yes. That point of order against the chairman does not come with very good grace from this committee because we explore all these fields, and we always welcome information. I . 2 6 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 thought we had a witness here who could give us information, so I thought I would ask him about it. Mr. B R O W N . I beg the chairman's pardon. I thought we were holding hearings on this bill. The C H A I R M A N . Well, that is all right. Well, I will recognize Mr. Brown. Mr. B R O W N . I have just one question. Mr. Kaiser, are you engaged in the production; of |building. materials and homes? Are you producing building materials? M r . KAISER. O h , yes. Mr. B R O W N . Well, in asking for help, do you expect to ask for subsidies? Mr. K A I S E R . Well, let us be specific about that. We have the largest cement plant in the world. We are selling cement below the ceiling price today. We do not expect to ask for subsidies ourselves on anything. Mr. B R O W N . Well, of course, if you make cement at a loss? Mr. K A I S E R . We are not making it at a loss. We are making a satisfactory profit and still below the ceiling. Mr. B R O W N . Well, you do not need subsidies? M r . KAISER. NO; we do not. Mr. B R O W N . Y O U do not expect to ask for them? Mr. K A I S E R . We do not expect to ask for subsidies. Mr. B R O W N . That is fine. I am through. Mr. K A I S E R . It may be necessary, though, I can say this, it may befnecessary to use Wyatt's program, which you used in the war, for Defense Plant Corporation facilities, Government facilities for production of materials, because it may not be necessary to have that many facilities after the emergency requirements are met. But even the Defense Plant Corporation facilities, if demand increases as I think it will, will be sold, as they have been, in many cases, at more than it cost the Government. Mr. B R O W N . That is fine. The C H A I R M A N . Mr. WTolcott. Mr. W O L C O T T . I have no questions. The C H A I R M A N . Mr. Patman. Mr. P A T M A N . Mr. Kaiser, do you know Mr. R . G. LeTourneau? M r . KAISER. O h , yes. Mr. P A T M A N . Y O U W re associated with him, were you, at one time? Mr. K A I S E R . Well, I financed Mr. LeTourneau for a whole year in his original enterprise. Mr. P A T M A N . Well, that is fine. He is a big builder like yourself, though not quite so big. He has recently constructed a machine to make a concrete house. Have you seen it? Mr. K A I S E R . I have only seen pictures of it. Mr. P A T M A N . Have you given consideration to the steel mill down in Texas? Mr. K A I S E R . We are making studies of it. Mr. P A T M A N . Y O U are making studies of it now? M r . KAISER. Y e s , sir. Mr. P A T M A N . Y O U have if it fits into your plans? in mind submitting a bid at the right time, .263 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. K A I S E R . If it fits into our plans and we can get materials. I earnestly believe there are insufficient materials everywhere, and part of the national program should be to increase the basic materials. Mr. P A T M A N . Did you happen to see that article in December Fortune about the Mesaba Range, to the effect that so much of the high-class ore is playing out up there, and that they should look to other places? Mr. K A I S E R . I did not study it. Mr. P A T M A N . It is an excellent article. It adds to what you are saying, to the effect that we should look for other sources of materials. Mr. K A I S E R . If your question is whether we have ample ore reserves M r . PATMAN. Mr. K A I S E R . Yes. I do not think that our ore reserves have been fully developed yet. There are tremendous reserves throughout the' whole country, and I am one of those who believes that our plants should be decentralized, and that we should use the various ores throughout the United States in order to protect our economy. Mr. P A T M A N . I thoroughly agree with you. The community housing project you have, do you buy a plot of land like 400 acres and then set aside a certain part of it for commercial buildings, stores, and theaters? M r . KAISER. W e d o . Mr. P A T M A N . And you have a whole unit, a Mr. K A I S E R . A small community. Mr. P A T M A N . About what size do you whole city within itself? contemplate? About 10,000 houses? Mr. K A I S E R . Well, in Los Angeles we have one section with about 2,000 houses. We have another 400. We have another 800. In San Jose we will run about 800 houses there; 2,000 at Willow Run, approximately, according to what the present demands appear to be, and it can be done by all the home builders of America. It will be done just as soon as they are sure they will get materials. They will not go into this thing unless they are sure of getting materials. Mr. P A T M A N . If the building codes are not relaxed in the different cities, do you think that consideration will be given to building cities outside of these cities that have restrictive ordinances? Mr. K A I S E R . That is true. Mr. P A T M A N . SO if they do not relax ordinances, they might run up against that situation? Mr. K A I S E R . The cities themselves will lose a lot of taxing capacity. Mr. P A T M A N . Mr. Kaiser, I appreciate your statement very much. It is an excellent statement, just as fine as it can be. But I want to express myself as seeing a real danger of the Office of Price Administration law not being extended if the Office of Price Administration is not extended or if extended with crippling amendments. So many people in the country are just mad about maybe one little thing—out of 8,000,000 prices, they are probably mad about 1—and I can see that reflected here in Congress. And anything that comes up about any kind of regimentation or rule, even if it is for the protection of the different classes and groups, there are large numbers of Congressmen against it just on that account. Mr. K A I S E R . Well, Mr. Patman, you ought to see our 2 5 industries. It is not uncommon, each day, to find one of them mad at the Office of Price Administration, in our own organization. . 2 6 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 M r . PATMAN. Y e s , sir. Mr. K A I S E R . But when I dig down into finding out what they are mad about, it is usually very easily corrected if they will really work at it. The whole question is that we, as a nation, have a wonderful possibility, and we have got to recognize that we must go to work at this thing and do something about it. We were 6 or 8 months postponing this housing question, because we ran into these shortages, and we knew we could not get certain materials. But finally we said, after meeting after meeting after meeting for months, we said, "Here we will take that hazard. We will start these houses, and we will do it somehow." That is what we did during the war. If we had brought up all these questions and these little bickerings during the war, we would not have won the war. W7e knew that it was necesssary to do it, when we started out, and we knew that we would have bottlenecks. Bottlenecks are prospects, possibilities. They are not problems, if we just go about it and work together to do it and stop bickering. I can find trouble every day with the Office of Price Administration if I want to, but the thing to do is to work out every problem and make it a real possibility. Mr. B R O W N . Will you yield, Mr. Patman? Mr. P A T M A N . Certainly, Mr. Brown. Mr. B R O W N . Y O U spoke about Mr. LeTourneau a while ago. I know him. His largest plant is located in my State. He has done more to help the needy people and given more to charity than anybody I know. He is a fine Christian gentleman, and one of the finest characters I have ever known. Mr. K A I S E R . He worked for me for years. I owned the patents, and they were released to him, and we went ahead with his work because I took on at that time a $20,000,000 project of 500 bridges in Cuba. And he is all that you say he is, and he is resourceful in addition to all that, and deserves credit for what he has done. He has done a great deal to win the war with the implements that he has produced. Mr. P A T M A N . Heavy machinery all over the world? Mr. K A I S E R . That is right, and those were all originally produced in the early days. I do not know how long ago it is that Bob and I worked together—I guess it is 15 years ago. Mr. P A T M A N . I had a minor part in getting the steel mill established in my district, and Mr. LeTourneau just recently moved down there and established a plant. I am sorry Georgia is going to lose him. Mr. B R O W N . He is still in Georgia; do not worry about that. Mr. K A I S E R . It is always good to fight over a good man. Mr. P A T M A N . Well, you did a good turn in helping him out, and I agree with you that we cannot expect perfection, Mr. Kaiser. Even in law, we do not have exact justice, we only have equal justice. Mr. O U T L A N D . Along with the statement that has been made about personalities, may I say that those in California are pretty glad that Mr. Kaiser is still there and hope he will not move to Florida or any other place. Mr. G A M B L E . He has an office in New York, however. Mr. O U T L A N D . Oh, but his headquarters are in California. Mr. W O L C O T T . Mr. Kaiser, you said the bottlenecks were not problems, but were opportunities, as I understood you. .265 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. K A I S E R . Well, I like to think I am a citizen of America and I love it and I love our democracy, and I recognize we are all muddling, but we can get out of this muddle and get into the clear and really make the grade. Mr. W O L C O T T . That does not answer my question. Mr. K A I S E R . I beg your pardon? Mr. W O L C O T T . That is not your answer to my question, is it? Mr. K A I S E R . What was your question? Mr. W O L C O T T . I said, as I understood you, you said that these bottlenecks were not problems, they were opportunities. Mr. K A I S E R . That is right. Mr. W O L C O T T . We must dig in and solve them, in the good oldfashioned American style. Mr. K A I S E R . That is right. Mr. W O L C O T T . N O W , realizing, of course, that the bottleneck, if we may use the term, or the opportunity, as you put it, lies in the field of getting building materials, and that if we get building materials we are going to be able to build sufficient homes, what would you suggest as the most direct approach to break the bottleneck, and to take full advantage of the opportunity that presents itself to get sufficient lumber, for instance? Mr. K A I S E R . Well, of course, I believe the greatest force to accomplish anything is the competitive force. For instance, the thing to do is to provide a substitute for lumber. We have an experimental department in California. We are manufacturing all kinds of substitutes. For instance, let us take siding and roofing, roofing sheeting. We are making a roofing sheeting out of waste lumber, covered either with aluminum or covered with glass plastic, and it comes very close to the present lumber prices. Mr. W O L C O T T . The immediate problem is lumber. We have not developed these substitutes. Mr. K A I S E R . Oh, yes; they are all developed. Mr. W O L C O T T . Y O U mean we have developed substitutes for lumber sufficiently that we can get 2,700,000 homes without lumber? Mr. K A I S E R . Not without lumber. Mr. W O L C O T T . Well, we still have to have lumber? Mr. K A I S E R . W7ith less lumber. Mr. W O L C O T T . But we still have to have the lumber? Mr. K A I S E R . That is right. Mr. W O L C O T T . They are not felling the trees and getting lumber. What would you suggest to get the lumber? Mr. K A I S E R . The people who own the trees and the people who are working in the lumber areas, when they discover that their lumber prospects are fading, the competitive force takes hold and they will say, "Well, wait a minute. We had better do something about this." We are buying lumber now. We are not having any real difficulty at this moment. Mr. W O L C O T T . Y O U are not having any difficulty getting lumber? M r . KAISER. NO. Mr. W O L C O T T . D O builder? you get priority different than any M r . KAISER. NO. Mr. W O L C O T T . Well, other the bottleneck in the building trade, as we have had it here for months now, before this committee, seems to be 266 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OP 1 9 4 2 in the acquisition of lumber. Do you mean to tell us that builders in general throughout the country can buy all the lumber they want? Mr. K A I S E R . A S of this day. I cannot tell you what the bottleneck will be tomorrow. We are not having difficulty with lumber. We have our own lumber mills in some cases. We are producing some of our own lumber. That is, the Kaiser Community Homes is associated Mr. W O L C O T T . All right. Then, you are in a little different position than the man who is going out in the open market and buying his lumber. You do not mean to say that the builder who has to go out and compete in the open market for his lumber does not have any trouble getting lumber, do you? Mr. K A I S E R . Well, there are some people who always have trouble getting anything. I really believe that you can get the lumber. Mr. W O L C O T T . Mr. Kaiser, your statements here, I think, are amazing this committee. At least, you amaze me when you say that they can get all the lumber they want now. Mr. K A I S E R . N O , I do not say they can get all the lumber they want now. Mr. W O L C O T T . Y O U say you can get all the lumber you want, but you are developing these substitutes. Mr. K A I S E R . N O . I say that we can provide substitutes for lumber, not wholly, not all the lumber. Mr. W O L C O T T . But you can get all the lumber you need? Mr. K A I S E R . We are getting, as of today, all the lumber we need. Mr. W O L C O T T . H O W are you getting it? Because of your own forests, your own mills? Mr. K A I S E R . Both ways. Mr. W O L C O T T . Y O U are getting it in the open market? M r . KAISER. Y e s , sir. Mr. W O L C O T T . All the lumber you need? Mr. K A I S E R . Lots of lumber; not all we need. Mr. W O L C O T T . Then, the bottleneck still exists. There is the opportunity, the bottleneck still exists. Mr. K A I S E R . Y O U bet; that is exactly why we are building Mr. W 7 OLCOTT. Again, I ask you the question: How can we take full advantage of this opportunity that you present to get a full production of lumber? Mr. K A I S E R . H O W can you take advantage of it? Mr. W O L C O T T . Y O U call it an opportunity, and we call it a bottleneck. Mr. K A I S E R . The opportunity is to provide substitutes. Mr. W O L C O T T . Well, we want to build these homes immediately. Mr. K A I S E R . Well, you can build this immediately. You can use waste wood Mr. W O L C O T T . Where do you get the waste wood? Mr. K A I S E R . I am sorry I do not have it with me. You would be fascinated with it. Mr. W O L C O T T . Wrhere is the waste wood, if you do not get the lumber? Mr. K A I S E R . Y O U know there are plenty of forests. Mr. W O L C O T T . There are plenty of forests, but we cannot get the lumber. If we can get the waste wood, we can get the good timber. Now, how do we correct this bottleneck? How do we correct this .267 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 condition? That is our problem. And I think you are in a position probably to throw some light on it. Mr. K A I S E R . Well, I have answered that. You cannot get all the lumber that is needed if you are going to make all the houses out of wood. Mr. W O L C O T T . What would you make them of? Mr. K A I S E R . I just said that we now have developed a substitute for lumber. Mr. W O L C O T T . Have you developed a substitute for 2 by 4's? Mr. K A I S E R . We can make a 2 by 4 without lumber, absolutely. Mr. W^OLCOTT. Out of what do you make it? Mr. K A I S E R . We make it out of waste wood, out of gypsum, covered with a stressed skin of plastic, or a stressed skin of aluminum, definitely. Mr. W O L C O T T . Then, the answer to our housing problem is substitutes for lumber? Mr. K A I S E R . Today it is. The lumber industry is like every other industry. It feels the force of competition. And I believe the force of competition is the answer to it all. Mr. W O L C O T T . Well, I want to buy some lumber to build some bookcases. What do I do? Go to a dealer and say: " D o you have the lumber, and if you do not have it, what have you that I can use as a substitute?" Mr. K A I S E R . Well, if all you need is a little lumber for bookcases, I can show you how to get it. Mr. W O L C O T T . I wish you would tell me where I could buy some lumber. Mr. K A I S E R . Y O U just tell me what it is, and I will have the lumber delivered tomorrow. Mr. W O L C O T T . Will you do that? Mr. K A I S E R . I will do it some way. I do not know how I can do it this minute. Mr. W O L C O T T . Would you do that for my neighbor? Mr. K A I S E R . Well, I cannot take on the supply Mr. W O L C O T T . N O ; that is it. Mr. K A I S E R . For all the people of the United States. Mr. W O L C O T T . I am not asking for any special favors. You would not do it for my neighbor. I think if I could go out here and bulldoze a lumber dealer into the thought that I am coming down here to raise the devil with the lumber industry if I do not get a few feet of lumber to build some bookcases, I could probably get it. But I do not want to put myself in a position any different than my neighbor. How can my neighbor get the lumber to build his bookcases? Mr. K A I S E R . When I went into this first 10,000-house program and went to the banker, he asked me the same question that you did. I said, " W e will need $7,000,000 to build these houses in financing alone." Well, he said, "Henry, how are you going to get the materials now?" I said, "Well, I do not know. I am just going to get them." Apparently he had enough confidence we could, and we have not had any trouble yet. Mr. W O L C O T T . He had confidence in you personally. Mr. K A I S E R . That is a question of faith. Mr. W O L C O T T . That could be qualified as a character loan. Miss S U M N E R . D O you not think he has anything more than his character, with 30 companies? 83512—46—vol. 1 18 . 2 6 8 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. W O L C O T T . Yes; he had faith and confidence in your ability. Mr. K A I S E R . I can tell you, if we get the lumber, what our competitor will say about it. I would not dare to say what he will call me if we get the lumber. And he will say, "If that fellow can get it, believe me, I can get it," and the old force of competition, and the old force of thinking, and our American enterprise comes back into action. Mr. W O L C O T T . Well, take a project out in Michigan. They want to build 50 homes. They go to their regular suppliers and they say, " W e want so many board feet of lumber to build 50 homes. We want so many cement blocks, and so forth." Now, their suppliers tell them, " W e are sorry. We do not have the lumber. We do not have the cement blocks, but Mr. Kaiser is pointing the way toward some substitutes for these materials." Mr. K A I S E R . Not Mr. Kaiser. That happens to be Mr. Wyatt's job. Mr. W O L C O T T . N O ; Mr. Wyatt has not offered any substitutes yet, except what the industry has offered him. "So we are waiting now for Mr. Kaiser to develop a substitute for lumber, and when he develops that sufficiently, and gets it onto the market, he is going to sell these substitutes to his competitors. Therefore, if Mr. Kaiser puts his substitutes on the market, we will be able to get material in substitution for these cement blocks to build those 50 houses." Now, when is that time going to come? Mr. K A I S E R . In the next month or so. Because we are going to furnish materials. That is our business. Mr. W O L C O T T . And within the next month, then, we may be assured that there will be enough substitutes? Mr. K A I S E R . Oh, no; not enough. Wait a moment now. This is a miracle, all of a sudden. Mr. W O L C O T T . We are down out of the clouds now. We are down here hammering home a realistic approach to our housing problem. Mr. K A I S E R . Oh, well, you have got it. The Wyatt program will provide materials for those men you are talking about. That is what his business is, and he has^a program for doing it. And he is not going to depend on Mr. Kaiser alone because that would be ridiculous. He is going to depend on the American enterprise to do it. Mr. W O L C O T T . Mr. Wyatt seems to think that one of the bottlenecks, or one of the opportunities, lies in the field Mr. K A I S E R . I love to have you calling it opportunity. Mr. W O L C O T T . Of obtaining lumber. Mr. K A I S E R . Sure it is. Mr. W O L C O T T . Y O U say you are developing a substitute for lumber, so that is not an important bottleneck any more. Mr. K A I S E R . Well, now, our present program will be expanded continuously. It may become a bottleneck. I wish you would see these things be bottlenecks and then Mr. W O L C O T T . I know. Wre have seen them. We have been looking for them for the last 3 or 4 months, and that is what we are trying to develop here, some opportunities to break these bottlenecks. Mr. K A I S E R . Well, I think you are very fortunate that Mr. W O L C O T T . N O W , I am going to come back to the original question now. What do you suggest we do to take full advantage of this opportunity that presents itself? Mr. K A I S E R . I have got an answer for that. Support Mr. Wyatt in his program. And you will get it. .269 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. W O L C O T T . The whole program? Mr. K A I S E R . His whole program. Mr. W O L C O T T . The Wagner-Ellender-Taft bill? Mr. K A I S E R . I do not know about that bill. Mr. P A T M A N . It is not before the House. Mr. W O L C O T T . That is a part of his program. Mr. K A I S E R . I do not know what that bill is. But he has a program on getting materials, which is the problem that is worrying you, and I think the President is to be complimented on Mr. W O L C O T T . Just a minute, now. The request that Mr. Wyatt makes is perfectly logical—I do not contest it at all—to build $ 2 5 0 , 0 0 0 , 0 0 0 worth of Government homes. Now, how does that help to get materials? Mr. K A I S E R . Government homes? M r . WOLCOTT. Yes. Mr. K A I S E R . Y O U mean Mr. W O L C O T T . Government-owned homes; $ 2 5 0 , 0 0 0 , 0 0 0 worth of homes. How does that help to get the materials? Mr. K A I S E R . That is not all of his program. Mr. W O L C O T T . H O W does that particular part of it help the program? Mr. K A I S E R . That just helps the veteran temporarily and I think we had better help him, do you not? Mr. P A T M A N . I did not understand your reply. Mr. K A I S E R . I think he is referring to temporary homes. Mr. W O L C O T T . Yes, I am; but it is part of the program. Now, through a process of elimination, Mr. Kaiser, what I seek to do is to get down to what you consider the real need of the Wyatt program is, insofar as it will result in breaking these bottlenecks and getting materials. Now, would you think that the making of funds available to the extent necessary to stimulate technical research of new construction methods and materials by private research groups wTill absorb certain developmental costs involved in devising new materials and new methods? Mr. K A I S E R . Definitely; yes. Mr. W O L C O T T . All right. Mr. Wyatt is not asking for that. We will eliminate that. M r . K A I S E R . O h y e s ; h e is. Mr. W O L C O T T . H E is not asking for that in this legislation. Mr. K A I S E R . I think it is in his memorandum. Mr. W O L C O T T . Well, he is not asking for it. Mr. K A I S E R . Well, I believe in it, anyhow. Mr. P A T M A N . Mr. Chairman, Mr. Wolcott is mistaken. Mr. W O L C O T T . I am not mistaken. Mr. P A T M A N . I know what Mr. Wyatt'is asking for. Mr. W T OLCOTT. SO do I. We were at the same conference. Are you going to offer an amendment to this bill and include it? No; because you know that Mr. Wyatt has not asked for that authority. Now, going on to the next: Meet the rapid taxes and new facilities for producing materials in manufactured homes. Do you think that might help a little bit? Mr. K A I S E R . Y O U know it will help. . 2 7 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. W O L C O T T . I do not know Mr. K A I S E R . And that is merely a postponement of the tax. Mr. W O L C O T T . I am not quite as familiar with that as you are. Mr. K A I S E R . WTe}l, listen, if you are not familiar with it, and let me make you familiar with it, then. Because this is a good time to learn about that. Miss SUMNER. That what? Mr. K A I S E R . That is accelerated depreciation to encourage investment. Miss SUMNER. Y O U mean rapid tax amortization? Mr. K A I S E R . Yes; and it is not evading the tax. It is a postponement of the tax. Miss SUMNER. Y O U caii get a free factory? M r . KAISER. O h , n o . Miss SUMNER. All the meat-packing industries in this country have gotten their factories during war.' Mr. K A I S E R . Well, now, what do you think they are doing now, if they are going to continue them? Miss SUMNER. What is that? Mr. K A I S E R . They have already—let me see if I can make this plain to you—they now have factories, and they have been amortizing by taxes. The 5-year amortization has amortized those plants. That is your point. The depreciation is all taken up. But now they cannot take depreciation any longer. Let us assume that that depreciation is taken over the next 5 years, under the Wyatt program. And a man is able to depreciate a plant in 5 years, where ordinarily, it would be 20 years', or 10 years' depreciation. It is merely a postponement of taxes. If he continues to make money and use that plant, be will have to pay taxes without any credit for depreciation, because it is already depreciated. Miss SUMNER. When you have the Government guaranteeing your market, as you had in the war, in war production, and as you do under Wryatt's program, you, at the end of the 5 years, get a free factory, and you know it, Mr. Kaiser. Mr. K A I S E R . All right, but what happens after the five years? Miss SUMNER. The factory is yours. The C H A I R M A N . I am going to call the committee in order. Mr. Wolcott has the floor. Mr. W O L C O T T . After the 5 years you can abandon the factory and you have not lost any capital investment; is that nor right? Mr. K A I S E R . That is right, but would you abandon a factory if you could still continue to run it? Mr. W O L C O T T . If I could continue to run it profitably, I would not. But I would if I could not continue to run it profitably. I would not have to consider that I would lose the capital I put into that factory if the Government paid for that, and that might be the turning point as to whether I would continue in business or abandon it. Mr. K A I S E R . I am glad you bring that up, because you are finding out how you are going to get these materials. By encouraging this man to build that plant, you will get the short materials that vou need for these houses for the veterans. Mr. W I L C O T T . All right. Now Mr. K A I S E R . That is an encouragement. Now, if he does not use the plant, after the end of the 5 years, then, the plant is of no value .271 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 after the 5 years, it has only one value, it has helped correct the shortage of materials that we need. Mr. W O L C O T T . And if you happened to be that individual who has had the Government build his plant for him, you can liquidate that plant, you can sell that plant, and every dollar you get out of it is profit, is it not? Mr. K A I S E R . N O ; not according to my understanding of the revenue tax. Mr. W T OLCOTT. With the exception of the tax? Mr. K A I S E R . Well, now, wait a moment. I did not know that you could get profits without being taxed on them. That is where the shoe fits right there. Mr. W O L C O T T . All right. We get the profit. Mr. K A I S E R . If you sell that plant at the end of that time, for its full value, the Government takes 60 percent away from you. Mr. W O L C O T T . But you can organize a new corporation, of course, to take care of that situation? Mr. K A I S E R . N O ; we cannot. I want to get you as my tax counsel, if you can do that. I never knew you could do that. Mr. W 7 OLCOTT. I know a fellow who built a plant 2 0 year ago, and I have been in this business about 20 years, I have taken my depreciation and all those things, but I cannot rapidly amortize my taxes as you who build the new plant, and, therefore, I am stuck with that plant, and I cannot liquidate. You pay less taxes or more taxes in the earlier years, but you pay the same taxes over the balance of the years as I do. It averages itself out. That is the point. I think we understand all about that. Mr. K A I S E R . N O ; you do not understand it. Mr. W 7 OLCOTT. And we do not blame you for it. I think it is smart business. Mr. K A I S E R . N O ; no. That is an inference that there is something wrong about it. Mr. W O L C O T T . N O ; there is nothing wrong at all about it. Mr. K A I S E R . Well, it is not good. I can prove to you that it is good. Mr. W O L C O T T . Of course, it is not good if the Government buys you a plant out of taxes for the first 5 years and then gives it to you; of course, it is not good. Mr. K A I S E R . That is a wrong statement. Mr. W O L C O T T . Well, Mr. Kaiser, I should not have said "you." I am talking generally. Mr. K A I S E R . SO am I . I am talking generally, too. Mr. W O L C O T T . There is no reflection on you. Mr. K A I S E R . I do not know what administration you belong to, but it has been advocated seriously in the administration that you have a standard of accelerated depreciation, and it will come some day to encourage this economy of ours. Mr. W O L C O T T . I am not a part of this present administration, I am really one of the loyal opposition, and I dig into these things and try to pick out Mr. K A I S E R . Well, I will tell you, if you look into this, you will be for it. I really think you will. Mr. W O L C O T T . If, after digging into it, I find there is an advantage to our economy, I will be for it? . 2 7 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. K A I S E R . I think you will. Mr. W O L C O T T . But if I find that it is to the advantage of somebody to whom the administration is showing favoritism in preference to the industry as a whole, then, I will be against it. Mr. K A I S E R . Then I will be against it with you. Mr. W O L C O T T . Because I agree with Thomas Jefferson: "Special privileges to none and equal rights to all." Mr. K A I S E R . I believe in the same thing. I am having difficulty myself with that problem. Mr. W O L C O T T . I think I have taken up enough time. The C H A I R M A N . Mr. Riley. Mr. R I L E Y . Mr. Kaiser, how long do you think that this housing business will last? How long do you think the industry will last? How many years? Mr. K A I S E R . Well, 3TOU are asking an optimist. I think the industry will go on and on and on, myself, because I think that the home building has only been scratched. I think the building of communities is the solution to our whole American problem, and I think it will last for many, many years. I cannot tell you how long. We have built these homes now, and we have seen the result of them, these communities, and it is a tremendous thing. It builds better citizens; it does everything for them; and anything that is an improvement will go on. Mr. R I L E Y . I agree with you fully on that, sir. I think that this housing program is a long-term program, and that every citizen that owns a home is a better citizen and encouraged more to fight to maintain liberty. Mr. K A I S E R . I think in 2 years the allocations will be off, and we will be back to the competitive system. If we get 3,000,000 homes in 2 years, we are off to the races then. That will take care of your problem. Mr. R I L E Y . I had this thought on it, and I wanted to have your comments. Possibly there are enough finances now to take care of all these things, enough initiative among the American people, and the incentive a long-time pull. I am wondering just why we need subsidies to promote these things, if we have a long-time pull and sufficient initiative and sufficient financing among the private interests. Mr. K A I S E R . Fear. Mr. R I L E Y . What is that? Mr. K A I S E R . Fear. Mr. R I L E Y . Fear? M r . KAISER. Yes. Mr. R I L E Y . Y O U think that we have to remove fear? Mr. K A I S E R . We have to remove fear. We are all afraid of inflation. Mr. R I L E Y . Well, would you care to comment as to whether or not you think that subsidies would contribute to inflation and fear9 Mr. K A I S E R . W O ; subsidies could not contribute. They will decrease inflation. Mr. R I L E Y . We have had some testimony to that effect, and I know that you have had considerable manufacturing experience, and "that is the reason I asked you that question. Mr. K A I S E R . The reason we are not going forward faster is because of fear. .273 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. O U T L A N D . Will M r . RILEY. Y e s . Mr. O U T L A N D . Y O U you yield? were talking a few moments ago, Mr. Kaiser, about development of certain substitutes for lumber. M r . KAISER. Y e s . Mr. O U T L A N D . At the present time you have a plant for a rather large housing project in Los Angeles? Mr. K A I S E R . Yes. That is right. Mr. O U T L A N D . In that project are you using substitute materials? Mr. K A I S E R . N O ; we are now getting ample materials. Mr. O U T L A N D . Y O U are getting ample lumber? Mr. K A I S E R . But we do see shortages, and we are even anticipating shortages of glass, for instance. We will make a substitute for glass if necessary. Mr. O U T L A N D . When I was in Los Angeles a few months ago I talked to one of the men who was associated with your organization, and he told me at that time that it was his hope—and I believe yours—that it would be possible to put upon the market rather lowpriced houses, rather in contrast to what we hear as to how much it is going to cost to build new houses. I wonder if you will tell the committee just what you hope to s*ell those houses for in the Los Angeles area. M r . KAISER. $5,000. M r . OUTLAND. $ 5 , 0 0 0 ? Mr. K A I S E R . Between five and six thousand dollars. Mr. O U T L A N D . And you will make a profit on those houses? M r . KAISER. O h , yes. Mr. O U T L A N D . Does that include the lot? Mr. K A I S E R . That includes everything; streets, sewers, lot, household appliances. Mr. O U T L A N D . The reason I ask that question is that frequently before this committee we have heard, either directly or indirectly, that one of the things that might possibly act as a bottleneck is the attempt to channel priorities for materials into lower-cost housing, and there has been a great deal of talk about $10,000 ceilings, and so forth. Mr. K A I S E R . I think that would be wrong. Mr. O U T L A N D . It seemed to me that it would be of value to the committee if you could explain how your company obtained the lumber and the materials and the other things, so that, including all costs, you can build $ 5 , 0 0 0 houses at a profit. I think it is a very valuable thing and ought to be brought out before this committee. Mr. K A I S E R . Well, I would not have any possibilities, if I could solve all the problems right here. Because they are coming up daily. But our estimates show that we in Los Angeles can build 3 months from now a house that you and I would be glad to take, for around five or six thousand dollars. Mr. B R O W N . Mr. Outland, does he use any lumber at all? Mr. K A I S E R . Oh,, yes, we are using lumber all the time right now. We are building a conventional house now. Mr. B R O W N . I mean you use a particular type of lumber? You use some lumber in all of them? Mr. K A I S E R . Oh, yes; we cannot get away from lumber. We are going to build houses, regardless. . 2 7 4 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. B R O W N . Y O U do not want to run the southern pine producers out of business? That is why I asked the question. Mr. K A I S E R . I do not think you need to, if the southern pine producers will get on their toes "and find some of the business that is going elsewhere. The C H A I R M A N . Are you through, Mr. Riley? Mr. R I L E Y . Just one other question. What industries do you think, Mr. Kaiser, need to be subsidized and how would that eliminate fear? Mr. K A I S E R . Well, of course, I am not an advocate of subsidies, except in an emergency. I think it is all dead wrong. I think we ought to have that authority, and I think it will be—I have a great deal of confidence in Mr. Wyatt. Mr. R I L E Y . I think he is a very good man, and a go-getter. Mr. K A I S E R . I think the Government is very fortunate to have such a man, and the United States should appreciate it. And I do not think he will use subsidies. From my talking to him, I do not think that he will use subsidy except in an emergency. He wants to do what Mr. Wolcott here is talking about. He wants to get the little fellow encouraged to go ahead. Mr. R I L E Y . The trouble with'that, Mr. Kaiser, is that I find that the smaller man does not get the benefit of the subsidies as he should. He is, rather Mr. K A I S E R . I do not think he will give them unless . Mr. R I L E Y . H E is befuddled by the red tape he has to go through, and I have been told at least that a good many of them pass them up subsidy claims or turn them over to some attorney. Mr. K A I S E R . If Mr. Wyatt gives a subsidy on materials he is going to control those materials. He has got to control them. That is the purpose of getting them, to get the materials where they are needed and the way to get housing in this country is to get 100,000 home builders going. They can do it. There are ample contractors. Let us just take the fear out of their souls. Mr. R I L E Y . How would that remove the fear? Mr. K A I S E R ; Because he knows he can get the materials and go ahead. I talked to thousands—not thousands, but hundreds—who say, " W e cannot get the material." Just like Mr. Wolcott. " Y o u can get it, but we cannot get it." That is not true. Mr. R I L E Y . D O you not think that the country can be sold on the fact that we have got a long-term pull, and that there is sufficient money and initiative in private enterprise to go ahead with it, if they find that they can make just a reasonable profit? Mr. K A I S E R . Yes; but they cannot be sold on it unless the Government and industry and labor work together on it. Mr. R I L E Y . I agree with you on that. Mr. K A I S E R . And they are not working together on it now. There is no place you can go to to find that you can be assured of materials. It is just a matter of doing what we did in the war. I think that subsidy thing will be used very cautiously. Mr. R I L E Y . Well, do you not think that the offer of a subsidy would create fear instead of allaying it? That is what I am afraid of. Mr. K A I S E R . N O , the subsidy is not going to be used that way. If he uses it that way, it will be ruined. But he is not going to use it that way. He has not got enough money, anyhow. What money he has for subsidies is not much. .275 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. R I L E Y . What materials do you think need to be subsidized? Mr. K A I S E R . Well, I do not know of any right now, myself. I am not thinking of subsidies. Mr. R I L E Y . I am not, either. That is the reason I asked you that question. Mr. K A I S E R . I will tell you one of them. For instance Mr. K U N K E L . Mr. Chairman, I make the point of order that the Committee is not in ordr. The C H A I R M A N . Let us have some order. Mr. K A I S E R . For instance, soil pipe. The C H A I R M A N . I would like to say to the committee that we have to be on the floor shortly after 12 o'clock, because the Housing bill is coming up, and we will have to adjourn the committee. Mr. R I L E Y . I will ask one more question. The C H A I R M A N . Five minutes after 12, at the latest. Mr. R I L E Y . D O you not think it is more a matter of adjusting our economy back to a peacetime economy, from the wartime economy that we had, than it is to need subsidies? Mr. K A I S E R . I will give you an illustration of subsidies. I said I did not know of any materials requiring subsidy. Soil pipe. We could not get any. So we decided we would produce that soil pipe ourselves at a loss in order to get the houses built? All of a sudden someone knew we were going into the soil pipe business, someone who had been in it a long time, and he decided to furnish us the soil pipe. We would have subsidized soil pipe to get it, ourselves. Mr. R I L E Y . There was also, as I understand, an adjustment by the Office of Price Administration which created an incentive for it. Mr. K A I S E R . Y O U can do it either through the Office of Price Administration or through subsidy. Miss S U M N E R . I S Mr. Kaiser coming back, Mr. Chairman, so that the real opposition will get a chance to ask questions? The C H A I R M A N . I suppose he is a busy man. Mr. K A I S E R . We are going to work together on it, not oppose each other. Miss S U M N E R . I would like very much to question you, because you talked about fear and the worst fear in the building industry is of people like you. You have the edge down here in Government, and can get the priorities. Mr. K A I S E R . If you think I have any "in" in Government, "I wish you would find it for me. Miss S U M N E R . I think you have done a good job of finding it, if you get lumber and all these things. Mr. K A I S E R . I do not get it from the Government. Miss S U M N E R . Y O U have to have a priority, do you not? M r . KAISER. NO. The C H A I R M A N . Mr. Crawford has asked for the floor, ^ou may proceed, Mr. Crawford. Mr. K A I S E R . Y O U are wrong about thinking that I have any ins. Miss S U M N E R . Well, everybody else has to have a priority. Mr. K A I S E R . N O ; that is something that is going to occur, not that is occurring. That is under the bill. Miss S U M N E R . What about all this testimony by Mr. Small here about priorities? Mr. K A I S E R . But did you find out I had an in? I would like to know that. I would like to use it. . 2 7 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. C R A W F O R D . Mr. Kaiser, I would like to ask you one question on the major part of this oral testimony and then I want to get back to the Office of Price Administration. As the head of your 25 corporations, you certainly know what competitive forces are. Mr. K A I S E R . Certainly. Mr. C R A W F O R D . If you own a plant which has been completely amortized under your 5-year plan, and I own a plant which has not been amortized, and on which I must take into account depreciation in calculating my costs, in arriving at the prices I quote, under keen competition between you and me, which of us is in position to hold the trade? Mr. K A I S E R . I think that is a good question, and the answer is the one whose plant is completely amortized. Mr. C R A W F O R D . That answers that whole argument. Now, let us go back Mr. K A I S E R . Because I am facing that with the steel companies now. Most of their plants are amortized; ours are not. Mr. C R A W F O R D . Exactly. Now, taking your testimony, you made one or two statements which confused me a little bit, and I think you can straighten it out. You spoke about how you would raise your prices in the absence of price control. Is it not a fact that you would be controlled by two propositions: One, the price the customers would pay? Mr. K A I S E R . That is right. Mr. C R A W F O R D . In other words, you cannot raise your price above what the customers will pay? Mr. K A I S E R . That is right. Mr. C F A W F O R D . You force yourself and your product out of the market? Mr. K A I S E R . That is right. Mr. C R A W F O R D . SO that would be a controlling factor? Mr. K A I S E R . That is right. Mr. C R A W F O R D . Or, in the absence of price controls, if you tried to run away with your price structure, would it not? Mr. K A I S E R . That is right. Mr. C R A W F O R D . N O W , the other was illustrated by your statement with respect to your cement. You said you are selling cement below the ceiling, and making a profit at it. Mr. K A I S E R . That is correct. Mr. C R A W F O P D . That is good business on the part of any manufacturer? Mr. K A I S E R . That is right. Mr. C R A W F O R D . SO when you say that, at the present time, you sell cement below ceiling, because you make a profit and because you believe in taking care of your trade Mr. K A I S E R . That is right. Mr. C R A W F O R D . Then, you confuse me when you say that in the absence of price controls you would raise the prices just as high as you could. I think your statements are contradictory. Mr. K A I S E R . N O , they are not. I will give it to you. I think the question is an excellent one, but there is a beautiful answer for it. Mr. C R A W F O R D . All right. Mr. K A I S E R . And the answer is this: that when we go to buy materials which are not controlled, they would immediately raise the .277 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 cost of that cement tremendously. In the first place, labor would come in as soon as we raised the price and demand twice as much. Then, all the suppliers for all the materials that go to make up cement would come in, and I would not know where it would end. Mr. C R A W F O R D . I understand that. But if you stick to your cement philosophy—and it is certainly the philosophy of the Ford Motor Car Co.—you will always sell the product at a lower price regardless of what competitive conditions are, and that seems to be your policy with respect to cement. And I would bet on Kaiser and his operations, that he would continue to follow that policy, regardless of what competitive forces were. Mr. K A I S E R . That is right, but Kaiser has to pay for the materials he purchases, and he would have to go in at auction and bid for the materials to make the cement. Mr. C R A W F O R D . Just like you always do, unless it is a seller's market. Mr. K A I S E R . That is right. Now, at the present time, I am told—Mr. C R A W F O R D . I should say like you always do when it is a seller's market. In the buyer's market, you do not have to bid, do you? Mr. K A I S E R . I am glad you brought up Ford. I am told that the price on new Fords in Los Angeles is around $2,000. Mr. C R A W F O R D . But we are under Government control now, are we not? Mr. K A I S E R . What would it be if we were not? Mr. C R A W F O R D . Well, we have the history of the Ford Motor Car Co. Now, let me ask you another question. You speak here, in your press release—I am very much interested in this press release—about your inability to acquire sheet steel. Mr. K A I S E R . That is right. Mr. C R A W F O R D . Y O U want that for automobiles, do you not? Mr. K A I S E R . That is right. Mr. C R A W F O R D . It is still difficult for all other companies to get sheet steel, is it not? Mr. K A I S E R . I think so. Mr. C R A W F O R D . Have you ever before produced automobiles? M r . KAISER. NO. Mr. C R A W F O R D . All right. Now, if you were a manufacturer of sheet steel, and I was an old customer of yours, and my friend Wolcott came into the picture as a new customer, would you take care of my needs—not completely, but quite substantially, in preference to putting in a business in competition with me? Mr. K A I S E R . I would follow the law that Congress imposed, and I would divide the business equally amongst everyone that needed steel, rather than favoring a few old customers. Mr. C R A W F O R D . What law is that? Mr. K A I S E R . The OWMR. vS Mr. C R A W F O R D . What do you call that? Mr. P A T M A N . The Office of War Mobilization and Reconversion. Mr. C R A W F O R D . Well, again, that is control. The C H A I R M A N . Mr. Crawford, I have just been informed that they want us to proceed with the bill as soon as the House convenes, and we will have to adjourn. I regret it very, very much, t Mr. C R A W F O R D . Mr. Chairman, may I make this very brief statement? These hearings are being conducted in a manner—this is not . 2 7 8 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 194 2 criticism now, but it is a statement of fact, as I see it—are being conducted in a manner where time is passing rapidly, and the so-called Government witnesses have full time to develop their side of the case; those of us who want to develop the other side of the case, regardless of our position on this bill, have not, up to date—and I fear will not The C H A I R M A N . Oh, yes; you will have an opportunity. Mr. C R A W F O R D . They cause, witnesses to appear here and they disappear before I have a chance to question the witness. The C H A I R M A N . The man is making an outcry before he is hit. We will have the other side. Mr. C R A W F O R D . Will Mr. Kaiser be permitted to come back? The C H A I R M A N . The door is open. Mr. C R A W F O R D . Will you come back, Mr. Kaiser, to this hearing? Mr. K A I S E R . I am very much interested in this subject. I would like to come back and convince you that everything is right that I am thinking about, and I will even come and see you personally. Mr. C R A W F O R D . I simply want to develop the case in the record for the benefit of the people. Mr. K A I S E R . I will be delighted to come back. M r . C R A W F O R D . And it may be necessary to make a call of quorum in this committee every time a quorum is not present to get some of these things straightened out. Mr. K A I S E R . I would love to come back. The C H A I R M A N . Well, now, I want to make a statement. I have endeavored to hold these hearings, to have them held with the utmost fairness and I think everybody connected with them, every witness and every member, knows that. I am going to give all of them an opportunity to be heard, and these apprehensions the gentleman expresses are not based on fact or reason. They are apparitions. Mr. C R A W F O R D . Mr. Chairman. I am not talking about an opportunity for the witness to be heard; I am talking about a chance for the cross examination, and I shall insist on that. Mr. P A T M A N . The record will show the minority members have used twice as much time as the majority members. The C H A I R M A N . The gentleman makes the point that he does not have time to interrogate the witness. Mr. C R A W F O R D . It is a fact. The C H A I R M A N . Y O U know very well that we have to go into the House to take care of the bill. It is a matter over which I have no control, and I do not think the gentleman ought to make any such statement. Mr. C R A W F O R D . I am agreeable with that, but will the witness be brought back? That is the question? The C H A I R M A N . I will just pursue the course that I think is fair. Mr. C R A W F O R D . I will use my authority under the No. 4 rule. The C H A I R M A N . Mr. Kaiser, I want to thank you for the splendid statement you made, and I am sure we will be glad to have you come back and answer any further questions that may be asked you. (Whereupon, at 12 o'clock M, the committee adjourned.) 1946 EXTENSION. OF THE EMERGENCY PEICE CONTROL AND STABILIZATION ACTS OF 1942, AS AMENDED TUESDAY, MARCH 5, 1946 H O U S E OF R E P R E S E N T A T I V E S , COMMITTEE ON B A N K I N G AND C U R R E N C Y , Washington, D. C. The committee reconvened at 10:30 a. m., Brent Spence, chairman, presiding. The C H A I R M A N . The committee will be in order. Mr. Small, Civilian Production Administrator is our witness this morning. We are always glad to hear from you, Mr. Small. Have you a prepared statement? Mr. SMALL. Yes, Mr. Chairman, I ha*re a prepared statement. The C H A I R M A N . I suggest that we allow the witness to read his prepared statement and interrogate him later. You may proceed, Mr. Small. STATEMENT OF JOHN D. SMALL, ADMINISTRATOR, PRODUCTION ADMINISTRATION CIVILIAN Mr. SMALL. Today, as we cope with the after effects of the war and try to solve the many difficult problems that confront us, I am glad to have the opportunity to tell you my views on the continuance of price control. I believe that the fight against inflation is one of the most important we are waging today. Right at the outset I want to make it clear that I continue to stand with those who believe it would be disastrous to our economy to let prices run wild during this period of scarcity, as I fear they would if controls were removed at this time. Last December I testified at considerable length before the Senate Small Business Committee on the need for a continuation of price control. I am of the same opinion today. The situation is explosive. Enormous demands far exceeding supplies have created great pressures which, if unchecked, would lead to skyrocketing prices. I believe that most thinking people, including both those in industry and out of industry, are convinced that these pressures must be checked. I believe it is equally clear that we must not only hold prices within bounds, but at the same time, and just as importantly, we must get production up because that is our only chance to stop inflation. Production, all-out, sustained maximum production, is the only real cure for inflation, just as it is for unemployment. Our country stands today at an extremely critical juncture. The public welfare and the future prosperity of the Nation depend upon 279 . 2 8 0 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 (1) prompt settlement of the strikes, (2) prompt resumption and expansion of production, and (3) avoidance of additional major work stoppages. Let us look at the record of the past. Inflationary conditions today are comparable to, but far more powerful than, those existing at the end of World War I. Our experiences after World War I were disastrous. As we look back, the causes and effects of the violent inflation and subsequent deflation that followed the last war seem very clear. To lift price control now would, in my opinion, inevitably create the same cycle of inflation and deflation that we had in 1919-1920— disaster and ruin for thousands upon thousands of businesses—the majority of them small firms. I would like to refer you to two charts which are attached to the statement, taken from a report to the Senate Committee on Banking and Currency and dated September 1, 1945. These charts show quite clearly what happened after the last war, and what can easily happen again unless we have learned our lesson and unless we, as a country, are determined not to let it happen again. Now, the inflationary factors which make it necessary for us to control prices. In my opinion, the most important inflationary factors present in our economy which require that we control prices are the following: (1) The enormous volume of liquid assets currently held by business units and by the consuming public, a part of which is the enormous volume of money in circulation; and the volume is now greater than the total public debt at its peak in 1919. (2) The increasing wage scales which means increasing buying power in the public's hands. (3) The large volume of deferred demand for housing, non-Federal public works, consumers' durable goods, clothing, and other items and the related demand for industrial plant and equipment. (4) The heavy foreign demand for American products for relief and rehabilitation and for commerce. The latter would be increased by proposed foreign loans. (5) Industry's requirements for replenishment of inventories to get into civilian production; the urgent need to fill up with goods all distributing channels—the pipe lines from factory to consumers. (6) The continuing budgetary deficit of the Federal Government. All of these six factors create demands but on the supply side we have: (7) A volume of production now far below demands and even under the best of circumstances unable to catch up with demands for many months. All of the above factors were present after World War I, and help to explain the speculative boom of 1919-20, but owing to the greater length, and more productive effort required in World War II, they are now potentially much more explosive than in 1919-20. It seems to me that in the face of these inflationary factors, we must, for the immediate future, continue to control prices in those areas where demand greatly exceeds current supply. But we must, at the same time, recognize that price control does not eliminate inflationary pressures, it merely holds them in check. Balancing the budget would eliminate one important inflationary .281 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 pressure, but all-out sustained production is the only way that most of the pressure can be removed, and inflationary pressures must be removed if we are to get back to a stable economy. Now, what are our prospects of getting production? I believe that they are excellent. Obviously we cannot do it overnight, but in a few short months we can make a tremendous lot of progress. Probably the best indication of our productive possibilities is given by our actual production during the war. That story is too well known to warrant repetition here. I think I should point out that between 1939 and 1944 we expanded manufacturing capacity by over one-third, even after allowance for the fact that some proportion of the additional plant will turn out to be of little peacetime value. And when it is recalled that we were not operating our industrial plant at capacity in 1939, it is evident that we have the plant and equipment to form the basis for a very sizable increase in production. In addition, the war has necessitated the training in industrial methods of millions of previously unskilled workers. It also forced the adoption of many revolutionary technical advances, many of which can be adapted to peacetime production. Any doubts that have been expressed as to our ability to achieve as high a level of production in peacetime as we achieved during the war because of the inflationary elements that were inherent to war activity is, to my mind, more than offset by the fact that during the war almost 13,000,000 of our youngest and most productive workers— almost one-quarter of our labor force—and tens of billions of dollars of plant and equipment were withdrawn from productive activity and devoted to destructive purposes. The return to productive activity of the men in the services and the conversion to peacetime use of the plant devoted to war production can more than offset the inflationary factors that existed during the war. If we then find that our plant is still inadequate, we can build more. If the labor supply is short, we can increase the efficiency of the labor we have through improved technology and mass production. In short, we have the plant, the raw materials, the labor, and the industrial know-how necessary to regain and eventually exceed the record levels of war production. Production, immediate all-out production, is the principal need at the present time. The more goods we get on the shelves, the sooner the dangers of inflation will be overcome. All-out sustained production means that a maximum number of workers will be employed and that the dangers of widespread unemployment and of consequent needless human suffering will be dissipated. But production of this scale can be attained only if we have a substantial measure of industrial peace; if both management and labor have the will to work to produce in volume; and if all of us are guided by common sense, rather than by emotions, in dealing with the industrial problems that confront us individually and from day to day. I recommend that action be taken by the Congress at an early date extending the price-control legislation for a year beyond June 30, 1946. I believe that the psychological effect of knowing that the act is going to be extended is of utmost importance to our economy. Undoubtedly the possibilities of the removal of price controls, or of priority and allocation controls, as of some fixed pre-announced future . 2 8 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 date, all contribute to the pressures that encourage producers and manufacturers to accumulate materials and supplies and hold them until that date arrives, rather than to release them at this time for the civilian market, where they are greatly needed to facilitate speedy and orderly reconversion. I believe, therefore, that one of the greatest contributions that Congress can now make toward the speeding of reconversion and the improvement of supplies available to civilians is to announce well in advance of the expiration date of current laws, the policy that these laws will be continued for the critical months of the transition period. I might add, Mr. Chairman, that I believe that the effect of the terminal date on these powers goes back at least 3 months and probably 4 months, that you begin to get the effect 3 to 4 months ahead of the terminal date, and that we will begin to get the effects of the possibility of the removal of the price-control law certainly in March, and definitely in April. Therefore, the sooner we can possibly get this over the dam, so that people know what is to come, the better it will be for our country and the less chance there will be of this withholding. Only a day or two ago I was talking to one of the mills about textiles. And they said, "Well, Mr. Bowles was up before the House Banking and Currency Committee about 2 weeks ago or more, and he said he anticipated giving a price raise because of wage changes, cotton changes and so on. For that reason," they said, "we are not shipping anything. We are waiting until the price raise occurs." That is a typical thing, and they will be waiting if they think price control is to be lifted, they will be withholding all along the line. Thank you. The C H A I R M A N . I understand you to say that the period of disintegration and weakening of price control will start probably 3 or 4 months before it is finally concluded? Mr. S M A L L . That is correct. That is exactly right; yes, sir. The C H A I R M A N . And during that period you do not think that the administration of it would be very effective? Mr. S M A L L . It will grow increasingly less effective week by week as you go through that period, and will probably be destroyed long before the terminal date. The C H A I R M A N . Have you compared the economic pressures that exist now with the economic pressures which produced inflation after the last war? Are not the economic pressures now, which tend to produce inflation, as great and greater than they were at any time during the war? Mr. S M A L L . In my opinion, Mr. Chairman, they are far greater. The C H A I R M A N . Mr. Brown, do you have any questions? Mr. B R O W N . I have no questions at this time. The C H A I R M A N . Mr. Crawford. Mr. C R A W F O R D . Mr. Small, I think you have made a pretty strong contribution here with respect to the inflationary forces which are outside the control of the Office of Price Administration. In other words, you refer to deficit financing, unbalanced budget, and the expansion of the base for inflation. Do you sincerely believe that the Office of Price Administration can prevent the spread of black markets and change the rules and regulations so that it will not bo giving special favors to special people and industries—and I have .283 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 some specific cases I am going to ask you about—as related to Civilian Production Administration doing the same thing? Do you believe that the Office of Price Administration can prevent a considerable advance in the cost of living, and, in general, price level rises, unless we take these other steps to which you have referred? Mr. SMALL. I think you are quite right, Mr. Congressman. I believe that we must move ahead on all these fronts if we are to check inflation. But of all these steps, the one that has the most immediate effect is prom.pt resumption and expansion of production. Everybody going ahead as fast as they can possibly go. But we must go into those other things and do those things as well. Mr. C R A W F O R D . Well, I think your prepared statement here is the strongest one that has been made by any administration official, in that respect. Mr. S M A L L . Thank you, sir. Mr. C R A W F O R D . And I congratulate you for your boldness and aggressiveness in taking that position. Now, it seems to me that if we are to do any kind of a job that these other things will have to be lined up parallel with the Office of Price Administration's efforts. Now, in connection with your closing sentence, I am not too clear, even after the chairman asked his question, and I would like to have that very clear for the record. The current law to which you refer, I assume, is the June 30, 1946, expiration. Mr. SMALL. That is right, sir. Mr. C R A W F O R D . Now, would you mind enlarging just a little bit on just what you think we should do with respect to that closing sentence? Mr. SMALL. I said last December, in talking to one of the committees of the Congress, that I believed that the sooner they made this decision the better it would be for our country. I felt that if they could have made it then that would have been grand. They could not, and the Congress is going into the subject now, and I think that every day's delay from here on out will make the job more difficult. If we wait to extend the Price Control Act for another couple of months, you will find conditions far worse than they are today and the chances of avoiding inflation much decreased. Mr. C R A W F O R D . In other words, what you are telling us is that in your opinion, and, based on your many contacts, that before the final date, a disintegration takes place? M r . SMALL. Y e s , s i r . Mr. C R A W F O R D . And if we are going to extend this law from time to time, and do not state considerably in advance that we propose to extend it again, that your disintegration spreads throughout all industry? Mr. SMALL. That is right. Mr. C R A W F O R D . In other words, if we are going to extend it beyond June 30 for another 12 months, let that extension come as quickly as possible? Mr. SMALL. Right. Mr. C R A W F O R D . And then let such disintegration as may come, develop, say, in the second quarter of 1947? Mr. SMALL. That is right. Mr. Crawford. That is the point you make? 83512—46—vol. 1 19 . 2 8 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 M r . SMALL. Y e s , s i r . Mr. C R A W F O R D . I think I understand that. Now, going back to your testimony, on page 3, down at the bottom, under "Recommendations": I r e c o m m e n d that action be taken b y the Congress at an early date extending price control f o r a year b e y o n d June 30, 1946. Based on your knowledge of our chances of getting back into production on a large scale, and having in mind the interferences which are now operating, do you think that is a point beyond which it should not be extended? Mr. SMALL. I certainly would not advocate extending it beyond that date, beyond June 30, 1947, at this time. Mr. C R A W F O R D . In other words, if we are going to pay any attention, and clean house on those seven points you have put forth on page 2 of your statement, between now and June 30, 1947, gives us sufficient time to get into operation? M r . SMALL. Y e s , sir. Mr. C R A W F O R D . D O you feel that, based on our economy as you can now see it and appraise it, that June 30, 1947, is a point beyond which we should not go with price control? Mr. SMALL. N O . I say, Air. Congressman, that I see no proof that we need to go beyond that date as of this time. We may well find, by September, that we should go beyond it. Because remember the terminal date of June 30, 1947, is not, in fact, a terminal date. The terminal date is about the 1st of March 1947, when your compliance ceases, in great degree. Mr. C R A W F O R D . In other words, if we come back here after the general election, and in November or December this thing is not straightening itself out pretty well, you feel that at that time the Office of Price Administration should again be extended beyond June 30, 1947, to prevent that disintegration which will begin, as you estimate, around March 1? M r . SMALL. Y e s , sir. Mr. C R A W F O R D . I think that makes it very clear. Taking what you have just said, and adding to what I asked you previously with respect to the power of the Office of Price Administration to deal with this situation, would it be reasonable for me to assume, from your testimony, that unless the other departments of Government, including the Congress, take a number of these steps which you recommend, that you assume that by December of this year the situation will be so bad that we will probably have to extend price control beyond June 30, 1947? I am not asldng you these questions to pin you down. I am asking you these questions to develop this whole proposition before the members of this committee and the President and the people of this country so they will get a better idea of what we are up against on this proposition. Mr. SMALL. Well, as someone said before me, Mr. Congressman, I have no radar to penetrate the fog of the future, but I think we have got proceed on all these anti-inflationary lines if we are going to prevent inflation, and if we have inflation, it means disaster—far worse than we had in 1919-20. Mr. C R A W F O R D . I agree with you there, too. I think from what you said orally, plus your statement, we certainly know your stand on this proposition. .285 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Now, Mr. Small, going down to some of the operations of the Civilian Production Administration, I would like to ask you some questions about the clothing proposition that seems to be bothering the country, the allocation of materials, yardage goods for making suits, and the allocations of materials for making what I would call extra pants, that is, pants without vests and coats. Are you familiar with M-328(b) of the Civilian Production Administration? Mr. SMALL. Yes, sir, I am familiar with it. Mr. C R A W F O R D . Why was 8 5 percent of the so-called pantings, up to $1.85 per yard, allocated for separate trousers? Mr. SMALL. The pantings—we are getting into a question where a specialist can probably give you a far more accurate answer than I on that. Mr. C R A W F O R D . That is the reason I asked if you were familiar with it. Mr. SMALL. I am familiar with the order. We set aside 8 5 percent of the pantings and suitings under $3 for use in making men's suits and men's pants and boys' pants, under a price cut-off point, which, on suits, happened to be $ 2 2 . 5 0 wholesale, because we believed that there were not any low-priced suits on the market, and that is what GI Joe needed. And we figured that we had to have that amount of that material in that price range flow into that lowend suiting and panting program, if we were to give the returning veteran what he is entitled to. We found out after the returns came in that the figure of 85 percent was wrong, it was too high, and 70 percent would reach our goals. So we adjusted it to 70 percent in time for the mills to make the sales to the other people outside of the program. Now, we have a problem which is very serious. We have a need, in calendar year 1 9 4 6 , for somewhere around 4 0 , 0 0 0 , 0 0 0 suits of clothes for men. I doubt very much if we are going to get more than 28 to 30 million suits. The production currently is running around 20,000,000. But we have got to get more suits and we certainly have got to get more suits in the lower price ranges. Mr. C R A W F O R D . I was going to ask you about the suitings after we had cleared up some of this apparent trouble on pantings. Originally, your order called for suitings up to $2.75 per yard to go into suits selling for $21.50. Mr. SMALL. That is right. Mr. C R A W F O R D . That would be 85 percent of that material? M r . SMALL. Y e s . Mr. C R A W F O R D . And 8 5 percent of your panting material of $ 1 . 8 5 per yard, wholesaling at a maximum of $ 5 . 5 0 per pair. Then later that was revised up to $3 per yard on the suitings, was it not? Mr. SMALL. Yes, sir. The reason for that is that the break Mr. C R A W F O R D . And the prices of suits moved to $22.50? Mr. SMALL. That is right. The reason for that was that we found or we were advised by the people who know most about it in industry that we would get more suits for the veteran in the lower-price range if we went up to $22.50 than we would at $21.50—$21.50 was not a natural break point, but $22.50 was. Now, going up to the $3 range, we figured we would not have enough cloth below the $2.75, so that even though some of the cloth between $2.75 and $3 was used in higher-priced suitings, there still was a substantial proportion that . 2 8 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 could be used in the lower-priced suitings. Therefore, we raised it up to $3, giving us a broader base and making the thing more flexible and helping industry throughout by so doing. Mr. C R A W F O R D . N O W , do you know to what extent the Civilian Production Administration has channeled the suitings away from manufacturers of the price range, and quality and sizes and lot numbers of suits for men, into the hands of retailers—this is retailers, now—of suits, who, in turn, take that yardage and job it out and have it made up by that part of the trade which specializes in cutting and manufacturing the suits for specific sales of the retailer? Mr. SMALL. I do not have the figure in mind of the yardage that is devoted to piece goods, which you are talking about, going to the merchant tailor. Mr. C R A W F O R D . I am talking about the retailer, away from the manufacturer of suits. In other words, let me make it as clear as I can, because I think this is very important. If I am running a retail store—that is, a big store, in a city like Chicago, or in New York or Philadelphia—or if I am running a group of retail stores in several big cities, I will do one thing with a hundred thousand yards of cloth that may be assigned to me for making of suits by the Civilian Production Administration, but if I am manufacturing suits as a suit manufacturer, and selling to a number of wholesalers, I will operate on a dissimilar basis to that on which I would operate if I were manufacturing and selling in my own stores only. Now, my question is: Why did the Civilian Production Administration allocate this yardage to retail merchants, and away from the manufacturers of suits, who sell to the wholesale trade, and thus bring about, as a net result, a reduction in the production of suits for the trade over the entire country? In other words, to the extent that was done, I contend that the Civilian Production Administration is playing special facorite to a given retailer. Now, I want you to answer that for me. Mr. SMALL. All right, Congressman. Mr. C R A W F O R D . If I am wrong, why, show it. Mr. SMALL. We have allocated piece goods to the retail stores, but I am fairly confident—I am not completely positive, but I am fairly confident—that we have not allocated piece goods suitings to retail stores. The piece goods we are allocating to retail stores is for sale as piece goods to be made up by the housewife, to be sewed at home by the housewife, which is particularly important in the case of cottons, where they make their children's clothes and their own dresses at a lower cost than they can possibly buy them at on the market. Now, I do not believe—I would like to be able to correct the record on this if I am wrong—but I do not believe we have allocated suitings to retailers for sale as piece goods. We have allocated suitings to merchant tailors to be made up as suits by the merchant tailors, as well as to the suit manufacturers. In the case of cotton, it is entirely different. Mr. C R A W F O R D . Well, you check that, and see what happened in the case of William Filene's Sons, and let us get their records. M r . SMALL. Y e s , s i r . Mr. C R A W F O R D . And then inform us whether or not you consider him a merchant tailor in the same class with a manufacturer of suits. Now, if you have some technical ruling down there, wherein you contend that a retail store is a merchant tailor and, therefore, he is .287 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 entitled to yardage the same as a manufacturer of a line of suits, then, you have a rule which can place your organization in a position to play favorites to Filene's and the big chain-store combinations and take the goods away from the manufacturers. But I am not saying you are doing that. I am asking you to check this, because I think you will find the record shows that Filene's is getting yardage away from the legitimate manufacturer and that, in turn, Filene's is jobbing that stuff out to that portion of the trade which is known as the men who run the cut, make, and trim business. Now, to the extent that these allegations that I am making are true, I think we will have to admit that to that extent we are preventing the production of suits by reason of rules and regulations of the Civilian Production Administration. That is something you can check, because I did not assume that you would be familiar with all these matters. Now, I would also say that to the extent that Filene's, and men similarly situated, are receiving those favors, if they are in position to get suits on their retail counters to sell under your $22.50 maximum price, on a basis which gives them a wider margin of profit than the man who is not able to get those special favors on this proposition of pantings. I am old enough so that I can remember back when the odd pants were quite an item in retail stores. Was that a new term to the trade? Mr. SMALL. That is not my understanding. Mr. C R A W F O R D . In other words, was the word "panting" generally understood among the trade when this order went out? Mr. SMALL. I asked the same question of our technical people when I first saw the word, and they said it was a word that had been used for many, many years, and was not an invention of the bureaucrats. Mr. C R A W F O R D . Had it been used in the trade during the past 25 years, did they say? Mr. SMALL. I was not in the trade, sir, so I do not know. Mr. C R A W F O R D . But they had a way of finding that out now, did they not? Mr. SMALL. Yes, they had a way of finding it out. Mr. C R A W F O R D . Sure they did. The trade tells me that when the order came out that it was a foreign word to them, that back in the 1850's and 1870's it was a word common in the trade. Did one of the young ladies in the organization draw this order? Mr. SMALL. These orders are drawn not by a young lady, but by a group of people. They are discussed over and over with industry, with a specialist we get down here, and we try to make them as simple and clear as we can possibly make them. They go through a pretty rigorous course of revision at a good many places before they are issued. Probably a hundred people would have a shot at it. Mr. C R A W F O R D . Well, I wish you would inquire of one of the ladies who is responsible for this order to see if she got this out of the United States census report, going back for half a century. Mr. SMALL. All right, sir. Mr. C R A W F O R D . T O the extent that this yardage goods is being channeled to the retailer, would that not interfere with the manufacturer, who produces suits in a wide price range? Mr. SMALL. It would interfere with a manufacturer who is producing suits in higher price ranges because it reduces the free supply 288 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OP 1 9 4 2 available to him to make high-priced suits. Obviously, by directing it into this low-price range, you are reducing the free supply available to the people who want to work in the higher brackets. That is the purpose of the order, that is what we are trying to do, to get low-priced suits. Mr. C R A W F O R D . If you channel 85 percent of the suiting at $2.75jto $3, and 85 percent of the panting at $1.75, can the manufacturer take that $ 3 yardage and $2.75 yardage and make a suit that sells for $ 2 2 ? Mr. SMALL. Y O U mean the extra 1 5 percent? Mr. C R A W F O R D . N O W , I am talking about the 8 5 percent. Suppose you give me a hundred thousand yards out of the 85 percent, as a manufacturer of suits, in the $ 2 . 7 5 to $ 3 price range. Is the'situation so that I can take this yardage—and you make allocation to me on the grounds that I will sell the suit at the maximum price of $22.50 —is your argument to the effect that I can take that yardage and weight it up and sell $30 suits? Mr. SMALL. Not unless you break the law. You make a contract with this man. Mr. C R A W F O R D . Sure. Mr. SMALL. And you say, " I f you will produce suits costing $22.50 or less, we allocate to you the yardage." That is the contract between the man and his Government. Mr. C R A W F O R D . That is what I understood. Mr. S M A L L . If he breaks the contract, he is breaking the law. Mr. C R A W F O R D . That is the reason that your argument to the effect that, if the yardage went to the manufacturer of suits, he could produce higher-priced suits, confuses me. In other words, suppose you send a manufacturer a million yards of the $2.75 to $3 suiting, to go into suits at $22.50 maximum price, and you send a million yards to Filene's, for instance, which he jobs out and has manufactured for his retail store into suits, where the suits retail at his counter at $22.50 or whatever the price might be that you allow the retailer. Now, my question awhile ago was: Does not that million yards allocated to Filene & Co. force the manufacturers of suits who produce suits in a wide price range for the American people, into a corner, economically speaking? Mr. SMALL. I do not think so, Congressman. Mr. C R A W F O R D . Well, let me ask you this, then: Is it the intent of the Civilian Production Administration order to channel this material to the retailers or to the manufacturers of suits? I think that will shortcut the whole proposition. Mr. SMALL. The purpose of the order is to get suits, low-priced suits, in this price range, on the retail shelves, available for sale to the veterans. Mr. C R A W F O R D . Well, to the extent it goes to the retail jobber, then, it eliminates the manufacturer, does it not? Mr. SMALL. Unless, as you pointed out, unless that retailer happens to be a merchant tailor. Unless he is integrated; there is nothing in our rule to prevent a man from integrating. Mr. C R A W F O R D . That was not my question. I say, to the extent that you channel the yardage to the retailer, or jobber, if you wish to call him that, you reduce the production in the manufacturing plant which turns out suits and clothes for men in a wide price range. .289 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. S M A L L . Well, Congressman, I am a little confused about what you mean by a wide price range. If you mean prices above $22.50? Mr. C R A W F O R D . N O . I am assuming that the manufacturer is doing a legitimate business with you, and that he will use the $2.75 to $3 yardage in suits selling at not to exceed $22.50. Mr. SMALL. Right. Mr. C R A W F O R D . But if he is accustomed to making suits running from $22.50 up to $75 or $125 per suit, if you channel the goods away from him, and build up the retailer as a manufacturer, do you not, to that extent, reduce the operations of the manufacturer of suits for men across the country? Mr. SMALL. Congress has passed a law, called the George Act, which says that newcomers shall be allowed to go into the manufacturing business, and if a man who happens to be a retailer also wants to be a manufacturer, he certainly, under the law, is entitled to that right, even though the total amount available to all manufacturers is thereby reduced a fraction. Mr. C R A W F O R D . That is not an answer to my question. However, I will let it go. If, under Government control, goods are channeled away from a manufacturer to a retailer, to that extent, that reduces the operations of the manufacturer, does it not? I am not arguing the goodness or badness of the law, now. If you have a million yards to allocate to manufacturers and retailers, and you give 800,000 to the retailers, it leaves the manufacturer without the goods, does it not? Mr. SMALL. If we allocated any suitings to a retailer, it was because he was a merchant tailor to make suits. He is a manufacturer the same as any other manufacturer. Therefore, he is entitled to a manufacturer's share, even though, with his other hand, he is a retailer. It does not reduce the total amount going into the hands of manufacturers. I think that is the question you are asking. And the answer is no, it does not reduce it. Mr. C R A W F O R D . W7ell, I think you are wrong in that statement, if you understood my question. Mr. SMALL. Well, if, on reading over the testimony, I am wrong, I shall certainly correct it, sir. Mr. C R A W F O R D . All right. Because if, under an allocating system, you withdraw goods from one person and channel to it another, you certainly reduce the first person's operations; there is no question about that at all. Mr. SMALL. That is correct. Mr. C R A W F O R D . That is what I said. Mr. SMALL. But under the George Act we have to do that for newcomers. Mr. M O N R O N E Y . What you are protesting against is any new manufacturer or merchant tailor who is classified as a manufacturer getting any goods at all, is it not? Mr. C R A W F O R D . I am not protesting against anybody getting any goods. I am trying to find out how we run -this operation. The Office of Price Administration comes along here and says to a new manufacturer: " Y o u may sell a certain type and grade and quality at $22.50 per suit. But by reason of the fact that you used to sell it at $15 apiece, you shall not sell it 1 cent above $15. You are in the business established as a going concern." If you ask a $1 step-up or . 2 9 0 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 $16, you are denied that. The new man can sell it at $22.50 and the consumer has to pay that rap. That is what I am protesting against. I am protesting against Government extending its arm and destroying one branch of an established industry to build,up a younger branch who may have an in or special favors from the Government, and there are a lot of people who will join me in that protest. * I use that as an illustration. We have case after case, and if the committee gives me time, I am going to develop the cases by reference to specific items, to shew where old manufacturers are denied the right to step up the price by maybe $1 or $2 per unit and get the production, while the new manufacturer can come in without a historical background, and who is not circumscribed by the MAP if you know what I mean by that, and he can sell it for a four or five dollar higher price per unit and the American public have to pay it. And apparently this George Act, to which Mr. Small refers, is at the bottom of the whole thing. Mr. SMALL. May I make a comment, Mr. Chairman? T h e CHAIRMAN. Mr. SMALL. SO Y e s , sir. far as I know, from an experience of about 4 3^ears, with the W7ar Production Board, our predecessor agency and the Civilian Production Administration, there are no favors, there are no discriminations, and nobody has a favored position with us. We endeavor to do equity to all. Mr. C R A W F O R D . N O W , under the operations of, say, a man like Filene, can he turn out two-pants suits? M r . SMALL. N O , s i r . Mr. C R A W F O R D . Under pants suits? M r . SMALL. N O , s i r . Mr. C R A W F O R D . D O your rulings can anybody turn out two- you know of any greater economic benefit that can go to a person whose income is low, and who purchases suits, by reason of his income, in the $22.50 class, where you can give him a greater benefit than to let him have two pairs of pants with the same coat and vest? Mr. SMALL. Congressman, in this difficult transition period, there were two orders to which I personally objected violently. One was the short-tailed shirt and the other one was the two-pants suit. I managed to get the short-tailed shirt order abandoned, but I lost on the battle of the two-pants suit. Mr. C R A W F O R D . Well, I want to thank you for trying to get it through, anyway. Now, where the retailer or the manufacturer purchases the suit material for $1.75 a yard, is he limited in his production of single pants under that allocation? Mr. S M A L L . He is obligated to use the allocation for pants selling under that price. Mr. C R A W F O R D . In other words, while you lost in your contest, this panting operation comes into the picture, and does let yardage go to those who manufacture pants, limited only by the amount of yardage allocated? Mr. SMALL. That is right. Mr. C R A W F O R D . While the man who produces the suits, whether it be the old manufacturer or the new manufacturer, or the retail store, cannot produce that extra pair of pants? .291 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. S M A L L . That is right. Mr. C R A W F O R D . Who made that order, did you say, over your head? Mr. S M A L L . Well, the order was in effect as a fabric-saving device during the war years, probably well justified, and I felt that we would gain more by lifting the order and permitting the sale of the low-priced suit with two pants, but I was overruled on it because it was felt that many people would buy two-pants suits who otherwise did not really need them, and that a lot of people who only needed a pair of pants would not be able to get the pair of pants. Mr. C R A W F O R D . Well, would you mind telling the committee which particular branch of Government has control over that ruling? Mr. SMALL. Yes. That happened to be appealed. There was a controversy, or a difference of opinion, let me say, between the Office of Price Administration and ourselves on that particular one, and that was appealed to the Economic Stabilizer. Mr. T A L L E . Will you yield? M r . CRAWFORD. Y e s , sir. Mr. T A L L E . Mr. Small, has an estimate been made of the quantity of cloth saved during the war b}^ denying people cuffs on their trousers? Mr. SMALL. None that I would consider meant anything. I think they have made estimates of it, but it was negligible. Mr. T A L L E . D O you think the target was worth the powder? M r . SMALL. N O , s i r . Mr. T A L L E . That is all. Mr. C R A W F O R D . Have you any record where any trade, involved in the chain of operations, and who had orders on the books with yardage manufacturers, had the specifications changed so that those orders would read panting, so that as that yardage was shipped, it could be worked up by those who had the orders on the books, and thus get into black-market operations? Do I make myself clear to you? Mr. SMALL. If I understand you correctly, you are saying that a man had an order on the books for cloth, for fabric, suitable for pantings, which comes within this class. M r . CRAWFORD. Y e s , sir. SMALL. And that he changed the order M r . CRAWFORD. Y e s , sir. Mr. SMALL. If he did that, and said he had Mr. to read "pantings"? an allocation, to which he was not entitled—in other words, if he did not have an allocation, he probably would not get the pantings except out of the 15 percent of free supply. If he said he had vn allocation, he broke the law. If he had an allocation and got the cloth on the allocation and sold it into the black market, he broke the law. Mr. C R A W F O R D . Sure, if he participated in black market operations, he broke the law, but M r . SMALL. NO. Mr. C R A W F O R D . Beg your pardon? Mr. SMALL. If he used the priority power, or the priority authority to get fabric, and did not use that fabric, in fact, in making the pants at $1.85, he broke the law. Mr. C R A W F O R D . Oh, no; I am talking about yardage above $ 1 . 8 5 . Suppose Mr. A had an order on the books with Manufacturer B for 50,000 yards of material above $1.85 per yard. And after this order . 2 9 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 comes out, Mr. A writes Manufacturer B and says, "Change that order to read 'pantings,' and send it out to me." Mr. SMALL. Above $ 1 . 8 5 ? M r . CRAWFORD. Mr. SMALL. We Mr. C R A W F O R D . Yes. are not channeling that at all. That is the point I am making. In other words, that cloth is all free, is it not? Mr. S M A L L . That is right. Mr. C R A W F O R D . I cannot imagine any sweeter thing than that for a fellow who wants to participate in the black-market operations and cut you all the way across the board. Mr. SMALL. He will not even need to change the name to pantings to do what you say. He could get the cloth and use it for what he wanted to as long as he stayed in the Office of Price Administration regulations. It is not in violation of our regulations, if he buys cloth above the set aside, free goods. Mr. C R A W F O R D . He is not caught by your ruling at all, is he? Mr. SMALL. That does not come under our jurisdiction. That comes under the Office of Price Administration. Mr. C R A W F O R D . Have you a Mr. Mariner in your organization? Mr. SMALL. Mr. Mariner was with us for some years. He is now back in industry. Mr. C R A W F O R D . He opposed this order to which I refer, did he not? M-328? Mr. SMALL. Yes, sir, Mr. Mariner believes, as a great many of us believe, that we want to get back to a free economy, free of Government control, just as quickly as we safely can. He felt that it was safe to do it. There was a difference in judgment. I do not believe that it was safe, or that it is yet safe, to abandon the control whereby we are getting the low-priced clothes on the market. I think anyone who went into a store six months ago, and who goes in today, will find a lot of low-cost clothing, shirts and shorts and dresses and everything that you can think of, on the shelves that were not there six months ago, due almost wholly to this flowing of fabric through M-328 (b). Mr. C R A W F O R D . Can you give the committee the rate of production of yardage of the American wool and textile industry today? Mr. SMALL. I can supply you with those figures, yes, sir. Mr. C R A W F O R D . I will tell you what I would like to have you put in the record. Mr. S M A L L . It is something over 3 2 0 , 0 0 0 , 0 0 0 yards, I think. Mr. C R A W F O R D . I am quite reliably informed that it is around 4 5 0 , 0 0 0 , 0 0 0 yards per annum, and more than ever before in recent years, counting our high production to get 1 5 , 0 0 0 , 0 0 0 men in the services clothed, and if you find that it is true that that yardage is being turned out, and you can put it in the record, I would like you to show us what is happening to the yardage. Mr. SMALL. I can give you the exact figure month by month of what production is. Production has been going up since VJ-day, since the cancellation of military contracts, and the production is in excess of 3 0 0 , 0 0 0 , 0 0 0 . I think it is going at the rate of about 3 2 0 , 0 0 0 , 0 0 0 yards. But that is memory. I will put the exact figures in the record. Mr. C R A W F O R D . In other words, I will give you the figures I have as I have them. In 1 9 4 6 , the industry expects to produce 4 5 0 , 0 0 0 , 0 0 0 .293 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 yards, which is 7 0 , 0 0 0 , 0 0 0 yards more than was produced in the highest civilian production year in more than 20 years, and running close to our highest production to get our Army properly clothed. If that is true, somebody is responsible for this shortage of goods— I mean manufactured suits, for the GI and all the rest of the people. Mr. SMALL. Even if your production did go up to 4 0 0 , 0 0 0 , 0 0 0 yards—and I hope and pray that it will—your demand has gone far higher than it was prewar. We have a demand this year for 4 0 , 0 0 0 , 0 0 0 suits, against a prewar average, I would say, of around 18,000,000. Mr. C R A W F O R D . The wool trade also informs me that 1 1 , 0 0 0 , 0 0 0 yards more would have been produced—enough for 3 , 5 0 0 , 0 0 0 suits of clothes—had it not been for the MAP within which they have to operate. That is all I have, Mr. Chairman. The C H A I R M A N . Mr. Patman. Mr. P A T M A N , Mr. Crawford asked you about the termination date next year. I understood you to warn us about the delay in getting the bill through this year. M r . SMALL. Y e s , s i r . Mr. P A T M A N . That every day's delay means a weakening of the law? Mr. SMALL. That is right. Mr. P A T M A N . That now a lot of people are beginning to feel, "Oh, well, it will not be extended, and I will just withhold my goods and get a high price for them when the Office of Price Administration law expires." Mr. SMALL. That is right. Mr. P A T M A N . I thoroughly agree with you that something should be done to let the people know as early as possible and definitely that this law will be extended, a year ago, it will be recalled, that we delayed it and delayed it until the law was extended just 10 hours before it expired—just ten hours. What would be the effect if we were to delay it so long this year? Mr. S M A L L . Y O U would have a very, very adverse effect on production. People would drag their heels, people who hoard, we would have widespread hoarding and speculative buying across the country. It would be impossible, in my opinion, to enforce compliance if we delayed until 10 hours before June 30. I do not know whether we would ever regain the ground. I do not think we could. We would have lost this fight. Mr. P A T M A N . Y O U do not think we could regain the lost ground? Mr. SMALL. N O , sir. We would have lost the fight. Mr. P A T M A N . We would have lost the fight if we delayed it that long? M r . SMALL. Y e s , s i r . Mr. P A T M A N . Well, personally, I hope that we can get these hearings over with rather soon and get this bill reported out and passed. You mentioned that textiles were being held off the market. Are you acquainted with the efforts of the farmers in the tomato-growing sections of the country to get cotton sheeting for their tomato beds? M r . SMALL. Y e s , s i r . Mr. P A T M A N . N O W , it occurs to me that there is something wrong somewhere there, Mr. Small. I believe that you have done your best on it. You asked 14 mills, I believe, to make that cotton sheet- . 2 9 4 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 ing. However, two of those mills do not make sheeting at all, it was discovered, and that left 12. And those 12 mills have not been making an adequate amount of sheeting. To what is that due, do you know? Mr. SMALL. A good deal of it is due to the—it is an unfortunate thing, Congressman, that when you say you are going to do something, everybody just stops until you do it. Now, Mr. Bowles testified that he was going to give a price increase to cotton textiles—the basic cotton textiles. We have not done it yet, so the mills have stopped shipping. Mr. P A T M A N . D O you think that is really the bottleneck, then? Mr. SMALL. I am convinced of it. The C H A I R M A N . That same condition existed with respect to tobacco canvas, I understand. What has been done with regard to that? Have they received an essential supply? It is absolutely essential to receive that in order to make the cloth. The tobacco is paying a billion dollars into the National Treasury. Yet, if you cannot raise the tobacco, you will not get the income. And it is absolutely essential to have the tobacco canvas to cover the beds that protect the young plants and there was a great shortage of tobacco canvas this year. We have endeavored to get an adequate supply. I do not know whether we have gotten it yet or not. Do you know the condition with regard to that? Mr. SMALL. I have been sweating over it, trying to cure it. The C H A I R M A N . SO have I . Mr. SMALL. Y O U have the same situation there that I just spoke to Congressman Patman about. I had the vice president of the biggest mill in my office yesterday and laid down the law to him, that we have got to get that canvas down there. I think that, over-all, considering all of the Southern States—the Carolinas and Georgia and Kentucky—that we are probably short three or four hundred thousand yards of the regular tobacco canvas. We are using emergency measures on it, and using the full powers of the Second War Powers Act to force it to come out, and to come out quickly, but there are other factors at work that we may as well recognize, too; that is, the pyramiding of orders. Down in Carolina, I think they are all right, in the main, but a great many cancellations have come in during the last 2 or 3 weeks by people who had placed orders with more than one wholesaler for the same yardage. One wholesaler I happen to know of has orders for about three and a half million yards of tobacco canvas, whereas in his sales, to the same farmers, he is only short about a million yards at the most. The C H A I R M A N . IS there not a tendency by the manufacturers to go into more profitable fields? Would you not have to use a little pressure oil them to get them to make this necessary fabric? Mr. SMALL. We have done that. WTe have directed them to do it. But we do not direct them to make a fabric at a loss. The C H A I R M A N . Well, I understand one of the reasons it was not distributed was because of the wholesalers. They stated they could make no profit under the present ceiling of prices and, therefore, they would not dispose of what they had on hand. Is that true? Mr. SMALL. Not that I know of. I had not heard that. The wholesalers are the ones who are on my neck trying to get it so that they can distribute, so I do not believe that is widely true. .295 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 The C H A I R M A N . Well, you know there are sections of the country that are absolutely dependent on that. Tobacco is their sole means of subsistence, and when the tobacco is good, there is prosperity and happiness, and when tobacco fails, they are in serious difficulties. I hope you will use every effort you can to get them to manufacture enough of it to cover the needs of the tobacco growers. Mr. S M A L L . I can assure you, Mr. Chairman, that I will, and I will continue to do it. But I will not guarantee that we will have enough for all. But I believe we are going to be fairly close to it. Mr. C R A W F O R D . Mr. Patman, will you yield for a question? Mr. P A T M A N . I yield. Mr. C R A W F O R D . Mr. Small, would you care to state to the committee whether or not Mr. Bowles offered an increase in price to the manufacturers of clothing, or stated he would give an increase, and which increase has not yet come through, and whether or not, to your knowledge, manufacturers are storing stuff which is waiting up for that increase in price that Mr. Bowles promised? Mr. SMALL. I am not positive on that one, Congressman. It should appear from your record. I know that he did, in testifying before this committee, say he was going to give one to the fabric people. Whether he said he was going to give one to the garment people or not, I do not know\ It would seem that an increase to the garment people might qualify under the new wage-price policy, because they had a wage increase up there which he could not previously take into account. He can take it into account now so it may be in the wind. But I do not know that he said he was going to give one. Mr. P A T M A N . Mr. Small, the most logical answer that I .can see in this whole thing is what you said a while ago that Mr. Bowles said, namely, that they would get a price increase, and the price increase has not been granted, so these people are reluctant to sell these goods until they get the increase. I am going after Mr. Bowles. I think he is the man holding this thing up. Mr. SMALL. I think Mr. Bowles is working hard on that particular one. I have talked to both him and Paul Porter about it practically every day, and I think; they are doing their utmost to get it settled. Mr. P A T M A N . Y O U mean to get the price increase out? M r . SMALL. Y e s . Mr. P A T M A N . I wish it would be done. Tomatoes are like tobacco. You have to have it at the right time or you lose the entire crop. It is very urgent. Mr. SMALL. We are very clear on that one, and if we do not get that tobacco cloth down there to them—— Mr. P A T M A N . And to make bad matters worse, they are printing statements all over the South to the effect—and I think it is coming from these manufacturers—that they have been instructed to furnish Canada so much of this sheeting that they are having to hold back down there on tomato and tobacco, to take care of Canada. Mr. SMALL. That is not true. Mr. P A T M A N . Well, it is being published. Have you seen any stories about it? Mr. SMALL. NO, I have not, and it is not true. Mr. P A T M A N . I am not claiming that it is true, but it shows that these manufacturers are dodgers and they want to have some excuse other than just the actual excuse that they are holding back on account of the price. . 2 9 6 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. F O L G E R . Mr. Patman, I do not believe in my State of North Carolina that they are dodgers. Some of them are manufacturing this cloth at 2 or 3 cents loss because they like the farmers and they want them to have tomato sheeting and tobacco canvas. Mr. SMALL. I think it is recognized that with the increases in wages that have been made and the increases in the cost of raw cotton, and other cost increases that they have had, that on these basic fabrics they are entitled to a price increase. Mr. Bowles has said so, and he intends to give it to them. But how much it is, is a matter of judgment. Mr. P A T M A N . Those are all the questions I have, Mr. Chairman. The C H A I R M A N . Mr. Wolcott. Mr. W O L C O T T . I have no questions. The C H A I R M A N . Mr. Monroney. Mr. M O N R O N E Y . Mr. Crawford said, Mr. Small, that the production of wool textiles will be up 70,000,000 yards above prewar production. When you put these figures in the record, which you are going to put in for him, will you include those figures for cotton textiles, also, and if you can, I would like to have all the figures for civilian production on some of our principal lines measured, in order to find out if there is really any legitimate truth to the widely and extensively advertised claim of the National Association of Manufacturers that the Office of Price Administration has completely stifled civilian production. Mr. SMALL. We get out a series of reports, Congressman, once a month, on the progress of civilian production, and I will be glad to give the members of this committee copies of those reports. They give you a pretty clear story of what has happened in the individual lines of industry. Now, a great deal of production has gone ahead very rapidly, particularly on capital goods, where we are away above prewar level in production now, except for the strikes, such as steel strike, and steel shortage, and so on. But consumer goods is where production is halted. Mr. M O N R O N E Y . That is what I am interested in, but I am also interested in the prewar figure and the figure now, because I know that food is up 35 percent above prewar production. Does that not agree pretty largely with your figures? It is a widely published statement. Mr. SMALL. Food? M r . MONRONEY. Y e s , sir. Mr. SMALL. Y O U have the figures in the charts that I gave you with this statement, on the last page, giving you your wholesale prices on foods and farm products. Mr. M O N R O N E Y . That is prices. I am interested in production. Mr. SMALL. Well, production of food is well up, certainly. Above any prewar peaks. Mr. M O N R O N E Y . That is about 40 percent of the cost of living index, is it not? Mr. SMALL. Just about. Mr. M O N R O N E Y . It would represent about 40 percent of the average civilian demands? Mr. SMALL. That is right. Mr. M O N R O N E Y . Your textiles apparently are very well up, if Mr. Crawford's statement on wool textiles is borne out by other textiles. .297 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. SMALL. It is not borne out in cotton. We are short about a hundred thousand people in the cotton mills. We are down below around 400,000 workers in the cotton mills. Mr. B R O W N . They are not .running a third shift now. Mr. SMALL. We can get production if we get the workers, and if management and the workers have the will to work and produce at full speed, we can get back up to the peaks that we previously achieved. We have the cotton. There is some improvement in production and labor supply since January 1, 1946. Mr. M O N R O N E Y . I would say that in that field the labor and supply problem and industrial relations problem is as important as the pricing problem. Mr. SMALL. Yes, I think they are about coequal. Price and labor are about coequal in that particular problem. Mr. M O N R O N E Y . In your lumber and building materials, I believe the labor difficulty would be far in excess of the price problem, would it not? Mr. SMALL. Well, on the over-all, I think you are probably right. Just to give you an example, we had, prewar, 52 foundries producing cast iron soil pipe, producing about 50,000 tons a month—a fraction less than that. In June and July of this year we were down to 28 foundries producing about 12,000—12,500 tons. That is about onequarter capacity of the industry. Why were those foundries down? Why were they not producing? They were down for a variety of reasons. Price being probably the most important one. But even after you gave them a price increase, they still were unable to get the workers in the volume that they needed. Others were down for other reasons that have nothing to do with price or wage. Joe Doakes had gone to war and had not come back yet. Or his widow did not know what to do. Or he had financial difficulties. All of which are curable locally and which we are trying to get cured locally. Government cannot do all these things. We must have as many of these problems as possible solved at home, on the ground. Nevertheless, we are up now to about 27,000 tons a month. I think 37 or 38 of the foundries are operating-—not all of them at full speed—but there are some that are still down. We have got to get 50,000 tons a month. We have got to get more production. We have got to cure the problem in the individual plant. Mostly cure it by local action, back home, in the community. But if it is a price problem or a wage problem, then Washington will have to take a hand on the individual case. You have the same thing in brick. You have 185 brickyards down, and not running. Many others not running at capacity. Again wage and price come into it. The hard, dirty, low-paid industries are the ones where we need the most at the moment. Mr. M O N R O N E Y . But to oversimplify the question, by making a national whipping boy out of the Office of Price Administration, because we are not getting a flow of production, is a misstatement of fact, is it not? Mr. SMALL. It is certainly an exaggeration, very definitely. Mr. M O N R O N E Y . I would appreciate it if you would place in the record the total civilian consumer goods production now as compared with prewar. Mr. SMALL. We will give you that item by item. . 2 9 8 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Mr. M O N R O N E Y . Thank you, sir. (The documents above referred to are as follows:) SERIES OF TOTAL CIVILIAN GOODS PRODUCTION NOW AS COMPARED WITH PREWAR Changes in total production, Government and private, during 1945 (A) IN BILLIONS OF C U R R E N T D O L L A R S Quarlierly ann ual rates , 1945 First quarter Second quarter Third quarter Fourth quarter First quarter 1946, preliminary 88.6 204.5 206.3 195.7 182.8 172.0 16.0 1.4 95.6 82.2 99.2 85.3 79.5 65.2 57.7 43.3 42.0 27.0 Year 1939 Gross national product 1. Government expenditures,. a. War _ .. b. Other _ 2. Private expenditures a. Capital formation b. Consumers' goods and services .. 14. 6 13. 4 13.8 14.3 14.5 15.0 72.6 108.9 107.1 116.2 125.1 130. 0 10.9 61.7 3.9 105.0 7.1 100.0 12.5 103.7 14.2 110.9 15.0 115.0 (B) IN BILLIONS OF P R E W A R D O L L A R S OF C O N S T A N T P U R C H A S I N G P O W E R 2. Private expenditures a. Capital formation.. b. Consumers' goods and services 72.6 76.3 75.5 83.0 89.3 92.5 10.9 61.7 2.8 73.5 5.5 70.0 10.5 72.5 11.8 77.5 12. 5 80.0 NOTE.—Data in current dollars through 1945 from Department of Commerce. Preliminary estimate for first quarter 1946 and conversion to prewar dollars for both 1946 and 1947 by Review and Analysis Staff, CPA Production of cotton broad-woven fabrics, 1989-46 [Thousands of linear yards] Period 193 9 1940 1941. 1942 194 3 1944 _ . 1945 1 First quarter Annual total 8, 303,124 9, 050, 000 10, 321,992 11,179, 220 10, 607, 408 9, 595,397 8, 791, 757 Quarterly total 2,376,840 Period Annual total 1945: Second quarter Third quarter.. . . . . . Fourth quarter . 1946: First quarter 2 __ Second quarter 2 i Preliminary. * Estimated. Source: Review and Analysis Staff, Civilian Production Administration, Mar. 12, 1946. Quarterly total 2,301, 760 2,013,157 2,100,000 2, 244, 000 2, 400,000 .299 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 Production of wool-woven fabrics—J(939-46 [Thousands of linear yards] Annual totalwool woven fabrics Period 372,000 365,000 522,000 528,000 536,000 530, 000 494, 217 134, 948 127, 786 107, 718 123, 765 1939 1940 1941 1942. 1943._ 1944 .. . 1945First quarter. _ Second quarter.. Third quarter Fourth quarter 1946:i First quarter Second quarter _ Apparel fabrics Nonapparel Woolens Worsteds Blankets 154,000 141,000 218,000 221,000 202,000 183,000 161, 486 46, 634 45,094 33, 970 35, 788 167,000 152,000 217, 000 236,000 238,000 250,000 240, 273 62, 704 53, 406 53,556 70,607 20,000 25,000 40,000 64,000 89,000 79,000 80,807 23,617 27, 696 18,024 11,470 Other nonapparel 31,000 47,000 47,000 7,000 7,000 18,000 11,651 1,993 1, 590 2,168 5, 900 125,000 125,000 i Estimated. Source: Review and Analysis Staff, Civilian Production Administration Mar. 12, 1946. Shipments of consumer durable goods End product Automobiles 1 Trucks 1 (except military) — Tires: i Passenger carTruck and bus-- Vacuum cleaners (domesticsLaundry equipment (domestic). Mechanical refrigerators Alarm clocks _ __ Radio receivers ._ Electric ranges - Electric irons Sewing machines-.Enamel ware Flatware __ Bicycles - Unit of measure Units —do— Base period: average monthly October November December 1941 1941 358,071 86,839 16,839 40, 900 34,612 53,103 30,022 28, 792 58, 575 54, 791 4.2 1.0 156 158 3.7 1.1 26 40 3.7 1.0 82 60 3.9 1.0 89 99 4.8 1.3 309 85 1,147 600 1,078 Negative 47 15 380 210 4 48 $1.6 $2.5 $3.3 $2.7 26.5 21.9 115 660 50 27 308 4 $2.3 $2.9 23.0 125 713 200 29 348 9 $1.5 $3.4 27.6 2 100 97 86 1941 Millions _ _ 1941 .--do Thousands 1940-41 1940-41 ...do ...do ...do ---do do __ do --_do Millions— do Millions of pieces. Thousands 1945 Prewar date 1940-41 1936-41 1940-41 1940-41 1940 1940-41 1940-41 1940-41 1940-41 1941 155 68 1946, January 2 500 2 12 1 Production. Estimated. 2 Source: Review and Analysis Staff, Civilian Production Administration, Mar. 12, 1946. The CHAIRMAN. Mr. Gamble. Mr. GAMBLE. I will pass. The CHAIRMAN. Mr. Folger. Mr. FOLGER. N O questions. The CHAIRMAN. Mr. Smith. Mr. SMITH. Mr. Small, the thing that puzzles me a great deal is the policy adopted by the Government which arbitrarily holds prices of commodities down. I am just wondering how you can reconcile those two acts. After all, prices of commodities, in the end, represent 83512—46—vol. 1 20 . 3 0 0 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2 the sum of wages paid in the production of those commodities. I am just wondering how you can reconcile those two ideas. Mr. SMALL. If I understand your question correctly, Mr. Congressman, you say that you cannot let wages run free and hold ceilings on prices. I agree with you. There are three wheels to this production problem. One is materials, which happens to fall in my jurisdiction. One is wages, and one is prices. They must all work in unison. Now, it is not always necessary, if you raise a wage, to raise commodity price, but it frequently is necessary for you to adjust your price to the going wage. Under the new wage-price policy, wages are held to the present pattern, and prices need to be adjusted, must be adjusted, to that pattern. I said in the beginning of this testimony that there were three things that had to be done: one is the prompt resolution of the strikes, which means negotiating a wage agreement and having it approved. Another is the prompt resumption of production, and expansion of production, which means that the manufacturer wants to work and wants to produce. Third is the avoidance of additional strikes. Now, the administration of prices and of wages must accomplish those three things. If it does not, then, we do not get production, and we are going to get inflation. I have been assured by Mr. Bowles and by Mr. Porter, and by Mr. Wirts, that they are going to see to it that those three things are done, but that is a matter of administration and not of law. They can do it within the framework of the law. It can be done, and it must be done. Mr. SMITH. Well, what you are saying, then, is that those two acts are contradictory, or that they are incompatible? Mr. SMALL. NO; I am saying that they must be geared in together. Mr. SMITH. Well, you raise a rather important question there, Mr. Small, about strikes. Do you mean to say, then, that the Government has definitely decided upon a policy of wage fixing? Fixing of wages? Mr. SMALL. NO; I do not think so. Mr. SMITH. Well, how, then, can you prevent strikes? All the working people are up against perhaps the most precarious condition they have ever experienced. With a depreciating currency, they are fighting to maintain their purchasing power and that pressure is being exerted all along the price line. In other words, there is no such thing as a bulge in the price line, the whole price line has deteriorated. So I am just wondering what you are going to do now to bring prices back up to a place where they are somewhat in line with wages. Mr. S M A L L . They have to do that by the administration within the Office of Price Administration, which, as they presently plan it, is the administration of specific cases to bring a man back up, if he has to give a wage increase which falls within the existing pattern, to give him such relief as is necessary to enable him to produce. In other words, we have got to get fair and equitable price adjustments fast. Mr. S M I T H . I am glad to hear you say that, because I do not see any other way. That is the only way that I see this problem has any possible chance of being solved. Mr. S M A L L . That is right. .301 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2 Mr. SMITH. However, you still have not answered the question. What are these working people going to do about this depreciating currency? They are a powerful group, and I have sympathy with them in their efforts to maintain their purchasing power. It seems to me that to say that the Office of Price Administration is going to do thus and so Mr. SMALL. I say they have assured me that they are going to do it, and they realize the seriousness of the problem and the necessity for speed and for fair and equitable treatment. Mr. SMITH. N O W , a philosophy, a very false philosophy, has developed in this country, to the effect that somehow wages can be raised independently of prices. I think that is a pretty prevalent idea among working people especially, and the Government has done much to encourage that sort of thinking. What wage earners do when they go into a store to buy a pair of shoes is simply to buy back their own wages, certainly to a large extent. Mr. SMALL. If you raise wages, Mr. Congressman, without raising prices to whatever appropriate point is necessary, because the labor cost per unit varies with the individual product, if you raise wages without adjusting prices, one of two things must happen if it is to succeed: The productivity of labor must increase enough to compensate for that wage increase, or you must squeeze it out of profits. One or the other of those things must occur. Or the man goes bankrupt. Mr. SMITH. Well, of course, profits are limited, and you can squeeze only so much out of them. You speak about what the Office of Price Administration will do, but can these things be done by the Office of Price Administration? Do you think they can be done, except by free competition? Mr. SMALL. I say this in all sincerity, Congressman: I think it can be done. It is an enormously difficult task, but I think it can be done. But in order to it, we have to give rough justice, rather than precise, accurate justice, accounting justice, if you like. We have got to give rough justice and be 90 percent right, instead of striving for the last 10 percent of accuracy, in the interests of speed. Because this thing must be done very, very quickly. The C H A I R M A N . I want to thank you, Mr. Small, for the splendid statement you have made. I know I express the view of the committee when I say that I think your statement has been very constructive and very helpful to the committee. Mr. T A L L E . Mr. Chairman, may I make one request? I have not had an opportunity to question the witness. I would like to make one request. The C H A I R M A N . Oh, we are going to continue. I am going to call Mr. Monroney to the chair. The House is in session and I have to got to the floor, but you may continue. Mr. T A L L E . I am sorry. Mr. SMITH. Mr. Small, have you ever thought of the possibility of that sort of theory also being self-defeating? Suppose, for example, you were given control over my physiology, and you neglected 10 percent of it. What would happen? Mr. SMALL. Control over what? . 3 0 2 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. SMITH. Suppose you were given control over the physiology of my body. What would happen if you neglected 10 percent of that physiology? Mr. SMALL. Well, obviously, you would be a pretty sick man. But I do not think that we have to go to that extreme in a situation of this kind. You do not have to control everything in the country, or every detail of our economy in order to accomplish the results we want. In other words, we have had control in this country ever since the beginning—and in every country, ever since the beginning—your police powers, your fire departments, your postal controls, and so on. But that does not mean that you have to go ahead and control industry because you control postage. Mr. S M I T H . What do you mean, then, by neglecting 10 percent? The expression has been made here quite a few times that some people have to suffer under the regime under which we are now living. It has been put in this language, that we must strive to attain the greatest good for the greatest number. And I just raised the question as to the merit of that sort of proposition. In other words, by neglecting, I take it that you mean to say that you do not supply the needs of 10 percent of the people in industry. I am wondering about the relationship. When you destroy a segment of the physiology you disturb in general the bodily functions. Mr. SMALL. YOU have a broad subject there, which is not susceptible of a "yes" or " n o " answer, of course. But we have, and have had, all through our history, segments of our economy that were growing and segments of our economy that were dying. For example, the whaling industry. You could not keep them going, no matter what you did. But the dying of that particular segment of the industrial economy did not harm the life of the whole economy. • Mr. SMITH. But, Mr. Small, in the one case, it was the result of natural causes. Mr. S M A L L . Natural causes. Mr. SMITH. In the other, it is the result of artificial causes. Are the two comparable? What would a biologist say about this? Mr. S M A L L . I think the only answer that I can make, Congressman is that in your physical make-up it is essential that every part be constantly under the same control, but in our economy that same thing does not hold true. Broadly speaking, yes, because this is such a complex thing now that we are all interdependent to a degree, but not to the degree that you have in the human body. When I stated that it was better to be only 90 percent accurate in these matters rather than to strive for perfection, I assumed that the remaining 10 percent of price increases might be too high rather than too low. I thought, therefore, it was better to let 10 percent of the areas of price control receive overly generous treatment in the interest of prompt action for all cases. I do not take the negative point of view that we can afford to neglect 10 percent of the economy by refusing needed price rises in those cases. .303 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2 Mr. SMITH. Well, Mr. Small, students of the social organism will tell you that it is not less necessary that society be allowed to develop in its natural way than is the case with the human body. Artificial interference with any part of the social organism is going to have deleterious effects upon it. Mr. SMALL. Well, if I understand you correctly, I think the philosophy that you are talking about, I agree with wholeheartedly, that Government ought to get out of these things as soon as it safely can. There are a few areas where it would be chaotic if we did. I can name them for you. I have named them before this committee before and can name them again. But I agree that the less we interfere Government-wise, under normal conditions, the better off the economy is. It is like a rubber bag of water. If you press in one place, it is going to bulge, but you do not know where. No human mind, sitting down here in Washington, can possibly encompass all of the complexities of this economy or realize the impact of any one action. I talked to one of the committees yesterday, and I might repeat it to you, as an example of what we do not know, we bureaucrats, and I do not concede myself to be a bureaucrat. I am only temporarily here. Back in the early days of the war, I was then in the Navy—I still am in the Navy, but WPB came over to me and wanted me to act on behalf of the Navy—they had an order, a War Production Board order, prohibiting the manufacture of a whole long list of things out of metal, and they said, "We would like you to clear this for the Navy, that you do not object to stopping the production of this long list of things." I said, "No I cannot do that, because I would have to get the advice and counsel of the Bureaus of the Navy who are the ones who know what the impact would be on them." Well, they were very anxious to get the thing out quickly, and they said, "Jack, look, here are three items on this list that you certainly cannot take any exception to: BB shot, bird cages, cocktail shakers. Do you object to our prohibiting the manufacture of those three things out of metal?" I said, "Yes, I do until I consult with the bureaus. I want to find out whether they consider it so or not, because I am not all-wise." I finally got them to agree to 48 hours delay. We sent this out to the bureaus. The first three violent objections that came in were on BB shot, bird cages, and cocktail shakers. I was amazed, and I said, "What is wrong with these fellows? Why could they possibly object to BB shot?" Well, the Marine Corps' objection to the elimination of BB shot was that their whole subcaliber gunnery training is based on BB shot, and they could not train their people. The Medical Department objected to the cocktail shakers, because they use them on these mechanical mixers for eggnog on board ships and they do not want to run chances of chipped glass going into the stuff they gave to the sick. The bird cages, it was the Air Corps that carried pigeons on their planes and they did not want any wood. That is why they objected, and I think probably they were right. . 3 0 4 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2 Mr. S M I T H . Mr. Small, I do not believe you are going to control inflation. I appreciate your sincere efforts in that direction, but I do not believe that you are going to be able to control the strong pressure that is being exerted by the working people to maintain the purchasing power of their money. It has never been done in the past though it has been tried time and again. It has failed where the inflationary pressure was much smaller than it is in our economy at the present time. I think that the policy ought to be to, instead of fixing your eye on trying to control inflation, that you should fix your eye on trying to get out production, to raise these prices enough to allow this material to get out, and at least you can say this for that sort of policy: That it has the prospect of getting production, it has the merit of producing homes and the things that we need to live by. M r . SMALL. Y e s , sir. Mr. M O N R O N E Y . I S that all, Mr. Smith? Mr. SMITH. That is all. Mr. M O N R O N E Y . Mr. Riley. Mr. R I L E Y . Mr. Small, I want to thank }^ou, sir, for this very fine and practical statement which you made. Mr. S M A L L . Thank you, sir. Mr. R I L E Y . I am wondering if, based on the experience that you have had during the past several years, whether or not you think that the Price Control Act needs any additions or amendments, or do you think it can operate pretty much as it is now? Mr. SMALL. I think that to try to amend it, to put in checks and balances, would be so difficult that you would never get the act through. I think the act is workable as it is, and the legislative history of the act, if it indicates that we must get fair and equitable and fast action, we will get it, as the act now stands, that is, without amendment. Mr. R I L E Y . Y O U think that the matter can be handled administratively? M r . SMALL. Y e s , sir. Mr. R I L E Y . Thank you, sir. Mr. M O N R O N E Y . Dr. Talle. Mr. T A L L E . Mr. Small, a good many people write to me and ask me why they cannot get any white shirts. Mr. S M A L L . The white shirts are beginning to appear on the market. I walked into a store about 2 weeks ago and saw shelves filled with them, so I know that some of them are coming on the market, at any rate. We have the problem, of course, of shortage of textiles, over-all shortage of textiles, and a diversion of textiles into many things, women's wear, particularly, away from shirts. But an increase in supply of shirts is coming week by week, I feel sure. Certainly when we get this other thing settled, when Mr. Bowles or Mr. Porter come out with this price adjustment on textiles, I believe that we ought to go ahead pretty fast from there and get more shirts. But you are getting more shirts today than you got 6 months ago, due to this low-end program of flowing cloth in to them. Mr. T A L L E . I got a telegram yesterday from an old firm which deals in women's dress goods, which you just mentioned. The proprietor is in genuine distress. He says the customers are becoming .305 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 almost abusive because he has to tell them he does not have anything, and he wants me to make a statement that he may use, publicly, to quiet the sentiment. Would you be willing to write such a statement, if I send you the telegram? Mr. SMALL. I will do my best to write one. I do not know whether it will calm down the public, but I will write one. Mr. TALLE. Well, these are the two items, white shirts and women's dress goods. Of course, last summer people could not get underwear, men's underwear in particular. Last fall they could not get canvas gloves. Now, your agency is the successor to the War Production Board, is it not? Mr. SMALL. That is right. Mr. TALLE. Have your functions been outlined in these hearings anywhere? Mr. SMALL. Yes, sir; they have been outlined in an Executive order. I made a statement to the House Judiciary yesterday which quoted the Executive order and I would be glad to put it in the record, if you like. Mr. TALLE. I would like it, for information, so that if somebody asks about your functions, I will be able to tell them what they are. Mr. SMALL. Yes, sir; I will put it in the record. (The document above referred to is as follows:) Executive Order 9638, dated October 4, 1945, created the Civilian Production Administration and transferred to it the functions and powers of the War Production Board. The Executive order directed a swift and orderly transition from wartime production to a maximum peacetime production in industry free from wartime Government controls, with due regard for the stability of prices and costs; and, more specifically, it directed the CPA to: (1) expand production of materials which are in short supply; (2) limit the manufacture of products for which materials or facilities are insufficient: (3) control the accumulation of inventories so as to avoid speculative hoarding and unbalanced distribution which would curtail total production; (4) grant priority assistance to break bottlenecks which would impede the reconversion process; (5) facilitate the fulfillment of relief and other essential export programs; and (6) allocate scarce materials or facilities necessary for the production of low-priced items essential to the continued success of the stabilization program of the Federal Government. The Civilian Production Administration is presently concentrating on the above functions in addition to the housing program. Mr. MONRONEY. Mr. Buffett. Mr. BUFFETT. Mr. Small, generally speaking, I think your testimony has been very helpful and I am very glad you were able to appear before this committee on this problem. I wanted to ascertain a little further information on several points. The first question is: Is there any shortage of production capacity in this country? Mr. SMALL. Over all, no. Mr. BUFFETT. That is what I mean, on a general basis. Mr. SMALL. Over all, no. Mr. BUFFETT. What would be a fair estimate of the time required for* fan* and complete reconversion to peacetime production if the price problems and the labor problems were solved? Mr. SMALL. We sent out a questionnaire to the manufacturers last August, right after VJ-day, and asked them that question, and we . 3 0 6 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 194 2 asked them what did they think their production would be by December, and by June of 1946, and the responses that came in from the manufacturers themselves indicated that by December we would have made pretty rapid progress, back up toward the 1939 level—or close to it—and by June of next year, we would be well above it. Now, the work stoppages, the price-wage problems that have intervened, the coal strike, and now the steel strike, have set us back. I would say that the goals that we had hoped to achieve by June of 1948, if every tiling ran smoothly, from this date on, would probably be achieved by October or November of 1946. Mr. B U F F E T T . I see. If we had not bad these problems, we would have made it bv June? M r . SMALL. Y e s . Mr. B U F F E T T . Do you think that now we can still make it by October or November? Mr. SMALL. Tes; we can still make it if everything runs smoothly. Mr. B U F F E T T . Yes; we can. We may not, but we can? Mr. SMALL. Yes; it is possible. Mr. B U F F E T T . Yes. Now, tell me: If business bad profitable prices, and we had full production from this point on, plus a balanced budget, do you not think we would have created the best machinery on earth to dissipate the inflationary measures, and the only psychological machinery, we will call it, to dissipate those pressures? Mr. SMALL. Yes; if I understand you rightly, I think I agree. If we could get into full production of the kind I am talking about, 90 percent of our problems would just dissolve like the mist in the morning sun. We would not have any necessity for a lot of these controls. You could wipe them all out overnight. If that happened. Mr. G A M B L E . They would wipe themselves out, would they not? Mr. SMALL. They would wipe themselves out. Mr. B U F F E T T . But then, if that job were achieved, do you not think it entirely possible if not probable that the extension of price controls for 1 year, if we do our job right in the meantime, would create the psychological and practical conditions necessary for its complete elimination next J
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