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Enclosed for your information
i s the prepared statement of
Balph E» Flanders, Chairman
of the CED Research Committee,
on price control presented t o
the Calmer Committee of the
House on December 12, 1945*

December 12f 1945
Continuation of Price Control
For the record, I am Ralph E. Flanders, President of the Federal
Reserve Bank of Boston, President (on leave) of Jones & Lamson Machine Company
of Springfield, Vermont, and Chairman of the Research Committee of the Committee
for Economic Development• In the latter capacity my associates and I have been
engaged for some months past in a study of the problem of the removal of wartime controls, and we published a report on that subject last April.
We were fortunate enough to foresee some of the problems which we are
now facing. As background, I wish to read a few paragraphs from that report:

"As the C. E. D. 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."
* "Adoption of any^ war^bprn control as a normal peacetime measure is a
question to be considered separately and legislated in the light of peacetime
conditions; no such control should be allowed to persist just because it is
there, or because it worked well during the war,"

Page Two

"For some controls the emergency may largely end with victory in
Europe (V-E Day); for others with victory over Japan (V-J Day); for others,
especially anti-inflation measures, it may extend for a considerable period

In some fields gradual steps will be necessary; for example,

control of materials should end selectively as each material is released from
war use or becomes sufficiently available for civilian use; - - - - - -


The objective should be to time and coordinate action in such a way that our
economy can land on its feet, prepared to go places*"
"The Committee endorses t^e progressive and selective relaxation and
ending of controls.

It rejects two other possible alternatives: (a) that all

controls be removed suddenly with the ending of hostilities; (b) that all controls be rigidly maintained for a given period after the war. Sudden removal
might open the door to wild price inflation, then steep deflation and heavy

Arbitrary continuation of all controls would retard the

attainment of a high level of production and employment,"
"The objective is a level of prices high enough to induce the required
expansion of production and employment, and low enough to maintain the
necessary consumption under normal conditions of demand and supply.
"The more nearly that objective can be reached the better. The
attaining of this objective under price control will depend not simply upon
price administration, but also upon materials, facilities and production
during the control period."


. f on some controls—production controls for example—action

must not wait beyond /the period of need for war production7 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

Page Three
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 after actual fighting has stopped/1

At the end of the transition period as determined by Congress,

legislative authority for the last of the wartime controls should be endedf
Action beyond that period is a question of the place of controls in a peacetime economy and is beyond the purview of this report,T!

The experience of the eight months since that report was written has
on the whole confirmed us in the views we then held.

The intervening time has

only emphasized the difficulties in the situation.
One fact of great significance which could not have been predicted with
accuracy last spring and which has only recently become clear is that we are
already in the early stages of inflation. Unemployment is low, while civilian
employment is already at the highest peacetime level in our history.
Inability to satisfy the demand for goods and services remains almost universal•
Prices are pressing hard against ceilings. Only the continuation of price
control since V-J Day has prevented a sharp rise in prices in many lines.
Speaking as an individual, it seems to me that our three main objectives
for the transition should be:

To expand to high level production and employment rapidly,


To prevent a major rise in the general level of prices,


To eliminate price control.

It is not particularly difficult to achieve any one of these objectives
singly, or even to achieve any two in combination.

But achievement of the

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three objectives in combination does present a serious difficulty, due to the
fact that a demand for goods sufficiently large to raise output and employment rapidly will very probably also operate to raise prices substantially,
unless prices are controlled.
The basic dilemma is that the continuance of price control for a time,
while difficult, is necessary if we are to prevent the present excessive
demand for goods from working itself off in a sharp rise in prices*
The necessity follows only in part the pattern of the period following
the first World War. At that time scarce materials played a larger part in
touching off inflation than is probable at the present time. Our present danger
is more strongly centered on a progressive pyramiding of wages, costs, prices
and cost of living, which will depress real wages, eat away the value of the
great savings of the American people, and in the end precipitate us into a
depression in which the real as well as the illusory gains of the previous
years will be liquidated.
Though a business man myself, I do not have too much confidence that
my fellows or myself can trust ourselves not to take the easy way out. We
will find ourselves raising prices in proportion as we raise wages, and thus
as employers and employees find ourselves conspiring together against ourselves
as consumers. Business men who feel confident of their ability to hold the
balances even under these conditions and ask for an early liquidation of
0. P. A., are taking on a heavy responsibility indeed. Personally, I would
fear to take this responsibility, and believe that continuation of some controls for a limited period is necessary.
The difficulties of extending price control are obvious. The primary
one is the complications inherent in so administering prices that production
will be stimulated where necessary, particularly in needed marginal capacity,

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without introducing inflationary pressures*

This will require a wisdom some-

what above the ordinary human level, and we may as well resign ourselves to
the prospect that this wisdom will fall short of perfection at some times
and in some cases.
The other major difficulty is a psychological one*
controls. We long for "normalcy".

We are weary of

So strong is this feeling that the black

market hovers in the background in many areas of attempted control.
These difficulties can be minimized, and the task of necessary price
control brought out of the realm of the impossible into that of the difficult
but possible.
One recourse would seem to be an acceleration of the process of freeing
large groups of goods and services from further administration. Eliminate as
soon as possible all articles which are not important elements in the cost of
living, or important materials for industry*

Furs and jewelry are a case in

They are not necessary to life and liberty, however important to the

pursuit of happiness. There is also the host of knicknacks and sundries—the
dime store stuff.

Cut down to the bone of our economic body and protect that

only. By so doing, we will simplify the problem of administration and
eradicate a thousand petty annoyances which plague the public.
In addition to reducing the area of price control as rapidly as
practicable, we should also move promptly to speed up its operation and adjust
it, for the remaining period of its life, to the different conditions of the

This involves improvements in administration — a streamlining

of price control.

It also, in my opinion, involves some liberalization of

existing standards. Even the temporary continuation of price control requires
the development of standards which do not impede production, which do not
violate common notions of equity, and which make possible the day-by-day

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administration of these standards in a prompt and efficient manner.
The principal suggestion I would be inclined to make would be that
where supply is short and could be expanded by moderate price increases this
step should be taken. Let us err a little bit on this side.
The reason for the suggestion is obvious.
unnatural practice.

Price control is an

"Sitting on the lid" does nothing to relieve the

pressures being generated below.

The real way to relieve inflationary pressure

is to bring production into a practical working balance with demand.

This is

fundamental. But we must sit on the lid while this is going on or we will be
blown sky high.
It is my personal hope and belief that price control over many—
perhaps most—goods and services can be suspended before the expiration of the
present price control act. Price control in any area should be extended
beyond that date only after careful study of the facts then available and on
clear demonstration of the necessity of such extension.

On the basis of the

facts now available, however, -^particularly in view of the strong inflationary
tendencies now apparent—it is not clear that all items can safely be removed
from price control by next June 30. The areas in which some limited further
extension of control may be necessary include a few raw materials, such as
tin and sugar, some durable goods such as automobiles and washing machines,
and especially rents and some building materials,
I do not think we need to decide now on any such extension. We can
wait and see, But I do not think we should blind ourselves to the possibility
that some extensions, sharply limited as to the items to be covered and as to
the period of the extension, may be necessary, particularly if the strong
inflationary pressures now generating in the economy continue,

Ralph E. Flanders
December 12, 1945