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JOSEPH C . O ' M A H O N E Y , W Y O . , C H A I R M A N FRANCIS J. M Y E R S , PA. JOHN S P A R K M A N , A L A . P A U L H . DOUGLAS, I L L . R O B E R T A . T A F T , OHIO RALPH E. FLANDERS, V T . ARTHUR V. WATKINS, UTAH E D W A R D J. H A R T , N . J . , V I C E C H A I R M A N W R I G H T PA T M A N , T E X . W A L T E R B. HUBER, OHIO F R A N K BUCHANAN, P A . JESSE P . WOLCOTT, M I C H . ROBERT F . R I C H , P A . CHRISTIAN A. HERTER, MASS. C o n g r e s s o f tfje ® m t e b States* JOINT C O M M I T T E E ON THE ECONOMIC R E P O R T ( C R E A T E D P U R S U A N T TO S E C . 5(A) O F P U B L I C L A W 304, 79TH CONGRESS) January 19, 1951 Mr. Marriner Eccles, Board o f Governors o f the F e d e r a l Reserve System, Washington 25, D.C. Dear M r . E c c l e s : T h i s w i l l c o n f i r m our i n v i t a t i o n f o r you t o appear i n open session before t h e J o i n t Committee on the Economic Report t o discuss the P r e s i d e n t s Economic P r o gram on January 25 a t 10:00 a . m . , i n Room 362 Old House Office Building. As you know, we are p a r t i c u l a r l y going i n t o t h e problem o f c o n t r o l l i n g i n f l a t i o n . Sincerely yours, Lehman-1518 FOR A . M. RELEASE SATURDAY, JANUARY 13, 1951 CONGRESS OF THE UNITED STATES JOINT COMMITTEE ON THE ECONOMIC REPORT PRESIDENTS ECONOMIC REPORT CONTAINS APPALLING EVIDENCE OF INFLATION, SAYS CHAIRMAN JOSEPH C. OfMAHONEY Senator Joseph C, 0*Mahoney teday Issued t h e f o l l o w i n g comments on t h e P r e s i d e n t ' s Economic R e p o r t : The P r e s i d e n t s Economic Report, w i t h t h e accompanying Economic Review o f t h e C o u n c i l o f Economic A d v i s e r s , contains a p p a l l i n g evidence o f t h e progress o f i n f l a t i o n . I t p o i n t s t o t h e n e c e s s i t y o f r a i s i n g new taxes so as " t o f i n a n c e t h e cost o f n a t i o n a l defense on a *pay-as-you-go basis • f " I t discusses c r e d i t c o n t r o l s ; i t a s s e r t s t h a t d i r e c t c o n t r o l s over p r i c e s and wages must be used, as w e l l as t a x and c r e d i t measures, t o prevent i n f l a t i o n . I t discusses t h e importance o f p r o d u c t i o n , and p o i n t s t o t h e d i f f i c u l t i e s i n v o l v e d i n t h e conversion o f i n d u s t r y t o defense as compared wj.th t h e c o n d i t i o n s which e x i s t e d t e n years ago. But i t contains no r e c o r d o f any p o s i t i v e steps t a k e n as y e t t o h o l d t h e l i n e against i n f l a t i o n . I t i s n o t t n o much t o say t h a t unless t h e cost o f l i v i n g and t h e cost o f manufactured products are brought under immediate c o n t r o l , t h e problem o f meeting t h e S o v i e t t h r e a t w i l l become i n c r e a s i n g l y more d i f f i c u l t t « salve* I f i t be t r u e , as t h e Economic Report c o r r e c t l y s t a t e s , t h a t i n 19^0 " t h e r e were i d l e p l a n t s and men and materials 1 1 t o be immediately channelled i n t o t h e defense e f f o r t , and i f i t be t r u e , as t h e Report a l s o c o r r e c t l y s t a t e s , t h a t " o u r economy has r e c e n t l y been r u n n i n g a t f u l l b l a s t , " t h a t men, m a t e r i a l s and p l a n t s w i l l have t o be withdrawn f r o m peace-time uses t o t h e p r o d u c t i o n o f defense commodities; t h e n i t c l e a r l y f o l l o w s t h a t f a i l u r e t o h o l d p r i c e s now w i l l o n l y g r e a t l y magnify t h e d i f f i c u l t y t h e n a t i o n f a c e s . I n t h e Economic Review i t i s p o i n t e d out t h a t " i n t h e f o u r weeks f o l l o w i n g t h e Chinese i n t e r v e n t i o n , t h e index ( f o r t h e p r i c e s o f i n d u s t r i a i ^ r o d u c t s ) rose more t h a n i n t h e preceding e i g h t weeks, and more t h a n i n t h e f o u r weeks f o l l o w i n g t h e Korean a t t a c k . " The f a c t s are even worse. The consumer p r i c e index which a f t e r Korea had r i s e n f r o m 170.2 t o 172.5 by t h e middle o f J u l y , had reached 175,6 on November 15 l a s t , and i s now estimated t o be abcut 1 7 7 ^ f o r December 15. The s i g n i f i c a n c e o f t h i s continuous increase i n t h e cost o f l i v i n g l i e s i n t h e f a c t t h a t t h e Defense P r o d u c t i o n A c t , w i t h i t s power t o f i x c e i l i n g s on p r i c e s and wages, was enacted on September 8 , 1950. The r e c o r d shows t h a t t h e o s t o f l i v i n g from September 15, 1950 ( t h e PR-l-151* 2. approximate date o f the c o n t r o l law) t o December 15 had r i s e n j u s t as much as i t had r i s e n from June t o September. This cannot s a f e l y be p e r m i t t e d t o continue. The cost o f f o o d has r i s e n more r a p i d l y t h a n any o t h e r i t e m i n t h e cost o f l i v i n g . From a pre-Korean index o f Z0k.6 i t had r i s e n t o 209 i n August 1950. I t was 209.5 on November 15, before the Chinese i n t e r v e n t i o n i n Korea, I t i s now 216,3. I n other words, since the Communist Chinese intervention, t h e cost o f f o o d i n the U n i t e d States has reached an a l l - t i m e peak f o r the second time i n s i x months. T h i s steady increase o f the cost o f food, dragging along w i t h i t t h e cost o f house f u r n i s h i n g , o f a p p a r e l , and a l l o t h e r items, i s making i t s t e a d i l y more d i f f i c u l t t o c o n t r o l wages. F a i l u r e t o a c t p o s i t i v e l y i n the f i e l d o f p r i c e s and wages i s o n l y adding unnecessary complications t o the g r e a t t a s k we have t o perform. I f i n f l a t i o n continues t o g a i n cumulative f o r c e , i t w i l l n o t o n l y m u l t i p l y the cost o f t h e defense program, i t w i l l not o n l y undermine p r o d u c t i o n , destroy confidence,and i m p a i r the value o f the d o l l a r - i t w i l l generate new f r i c t i o n and new economic s t r i f e and w i l l become here a t home the d e s t r u c t i v e instrument t h a t made i t p o s s i b l e f o r the Communists t o take over Russia, t h e instrument t h a t prepared the way f o r Communism i n the Balkans and i n China, I t i s not s u f f i c i e n t merely t o t a l k about the problem o f i n f l a t i o n . I t i s necessary t o a c t . I t must be remembered t h a t t h e increases i n t h e cost o f l i v i n g a l r e a d y noted have been matched by i n creases i n wholesale p r i c e s as w e l l . During the l a s t h a l f o f 1950 p r i c e s o f t e x t i l e s have increased 25.2 per c e n t , chemicals 21.0 per c e n t , and a l l wholesale p r i c e s 12.3 P ^ c e n t . These increases a l l took place a t a time when Government cash expenditures were being h e l d down. During the l a s t h a l f o f 1950 t h e Federal Government n o t o n l y had a balanced cash budget, b u t a s u b s t a n t i a l surplus as w e l l . I n f l a t i o n was caused by panic buying, by business hoearding, by p u b l i c f e a r o f what l a y ahead. Business and consumer buying were so obvious t h a t Barron f s Weekly, one o f the country 1 s best k n o w n f i n a n c i a l w e e k l i e s , p u b l i s h e d i n New York, i n a f i r s t page e d i t o r i a l on January 8, 1951, used these words: "During t h e past s i x months, business and the p u b l i c have been on a w i l d buying and hoarding spjree. Fed on easy bank c r e d i t u n t i l q u i t e r e c e n t l y , i n v e n t o r i e s now are b u l g i n g the sides o f t h e i r warehouses. Out o f i t s 1950 i n come, swollen t o the h i g h e s t l e v e l i n h i s t o r y , the U,S, saved l e s s than i t d i d d u r i n g some depression years. , , . " While i n f l a t i o n has been t a k i n g i t s t o l l , corporate p r o f i t s have r i s e n t o astronomical l e v e l s , exceeding even t h e p r e d i c t i o n which I made l a s t September when I was u r g i n g the enactment o f an excess p r o f i t s t a x . I s t a t e d t h e n t h a t because o f r i s i n g p r i c e s , corporate p r o f i t s f o r the calendar year 1950 would be about kO b i l l i o n d o l l a r s . The Economic Review which accompanies the P r e s i d e n t f q Report puts the corporate p r o f i t 3. f i g u r e f o r 1950 a t i<-0#2 b i l l i o n d o l l a r s . T h i s amount exceeds t h e t o t a l n a t i o n a l income i n 1933J i t i s t h e h i g h e s t l e v e l o f corporate income ever reached* Corporate dividends are l i k e w i s e t h e h i g h e s t i n h i s t o r y , and u n d i s t r i b u t e d p r o f i t s f o r 1950 are more t h a n t w i c e as g r e a t as p r o f i t s b e f o r e t a x e s , p r i o r t o World War I I , I c i t e these f i g u r e s merely t o emphasize t h e f a c t t h a t i n f l a t i o n i s a f f e c t i n g t h e e n t i r e economy. High p r o f i t s , h i g h wages, and h i g h p r i c e s a t t h e r i s i n g l e v e l s now being recorded are an i l l u s i o n , They a l l increase the cost o f the weapons t h e government must purchase t o equip t h e A i r Force, t h e Army, and t h e Navy w i t h which we propose t o defend our l i b e r t i e s . The h i g h e r t h e y go, t h e h i g h e r must be t h e a p p r o p r i a t i o n s f o r defense and, i n t u r n , the h i g h e r must be the taxes upon which t o e s t a b l i s h t h e pay-asyou-go p o l i c y f o r which t h e P r e s i d e n t s Report c a l l s . I f i n f l a t i o n i s unchecked, t a x a t i o n i n t h e end w i l l be unable t o r a i s e the sums t h a t every observer agrees are necessary. The Report recommends new t a x i n c r e a s e s . I t c a l l s f o r h i g h e r r a t e s on c o r p o r a t i o n s and on i n d i v i d u a l s . I t c a l l s f o r excise taxes and f o r c l o s i n g a l l l o o p h o l e s , b u t i t must be p e r f e c t l y apparent t h a t u n c o n t r o l l e d i n f l a t i o n , producing a c o n s t a n t l y r i s i n g cost o f l i v i n g , w i l l make i t d i f f i c u l t i f not impossible f o r people i n t h e lower income b r a c k e t s t o pay h i g h e r t a x e s , and w i l l r e s u l t i n demands f o r wage increases. The P r e s i d e n t ' s Report p r o p e r l y p o i n t s o u t t h e p r o d i g i o u s growth o f t h e American economy, t h a t f a r m p r o d u c t i o n i s -up 25 p e r c e n t , s t e e l c a p a c i t y up 20 per c e n t , o i l r e f i n i n g c a p a c i t y up kO p e r c e n t , e l e c t r i c a l power c a p a c i t y up 70 per c e n t . F o r t u n a t e l y t h i s i s a l l t r u e . We have a g r e a t c a p a c i t y t o produce and as everybody knows, increased p r o d u c t i o n i s a p r i n c i p a l weapon a g a i n s t i n f l a t i o n . But d e l a y i n c u r b i n g p r i c e s and wages can o n l y r e s u l t i n c r i p p l i n g our power t o expand p r o d u c t i o n . Viewed from every a n g l e , immediate a c t i o n a g a i n s t i n f l a t i o n i s e s s e n t i a l . Failure t o a c t c o u l d be d i s a s t r o u s . The problem i s p r e s s i n g and t h e J o i n t Committee on the Economic Report w i l l move p r o m p t l y t o review t h e Report. An i n t e n s i v e examination o f t h e whole problem o f i n f l a t i o n i s i n d i c a t e d . Hearings w i l l be h e l d beginning on January 23d when we s h a l l i n v i t e t h e members o f t h e C o u n c i l o f Economic A d v i s e r s t o discuss t h e s i t u a t i o n . They w i l l be f o l l o w e d b y Mr. F r e d e r i c k J.Lawton, D i r e c t o r o f t h e Bureau o f t h e Budget, as w e l l as Mr. Charles E, Wilson, D i r e c t o r o f t h e O f f i c e o f Defense M o b i l i z a t i o n , D r . A l a n V a l e n t i n e , A & a i n i s t r a t c r o f t h e Economic S t a b i l i z a t i o n Agency, and Mr.Michael V. D i S a l i e , D i r e c t o r o f t h e O f f i c e o f P r i c e S t a b i l i z a t i o n . A roundtabie d i s c u s s i o n o f t h e Report and a l l c u r r e n t f a c t s w i l l f o l l o w w i t h t h e o b j e c t o f e n a b l i n g t&e Committee t o comply w i t h i t s s t a t u t o r y duty and r e p o r t t o t h e Congress a t t h e e a r l i e s t p o s s i b l e d a t e . For A.M. Release Sunday, January 21, 1951 Lehman - 1518 CONGRESS OF THE UNITED STATES JOINT COMMITTEE ON THE ECONOMIC REPORT Hearings on P r e s i d e n t s Economic Report Begin January 22 Senator Joseph C. O'Mahoney, Chairman o f t h e J o i n t Committee on t h e Economic R e p o r t , announced today the l i s t o f witnesses who \ j i l l appear i n the Committee 1 s hearings on the P r e s i d e n t 1 s Economic Report which begin January 22. D e t a i l s o f t h e proposed hearings are contained i n a memorandum t o the Committee, a copy o f which i s attached t o t h i s r e l e a s e . CONGRESS OF THE UNITED STATES J o i n t Committee on t h e Economic Report January 19 > 1951 MEMORANDUM TO: Members o f the J o i n t Committee on t h e Economic Report FROM: Joseph C. O'Mahoney, Chairman As a l l members o f the J o i n t Economic Committee are aware, the Employment A c t o f 1946 d i r e c t s t h e Committee "as a guide t o t h e s e v e r a l committees o f t h e Congress d e a l i n g v d t h l e g i s l a t i o n , n o t l a t e r than March 1 each year . . . t o f i l e a r e p o r t w i t h t h e Senate and the House o f Representatives c o n t a i n i n g i t s f i n d i n g s and recommendations w i t h r e s p e c t t o each o f t h e main recommendations made by t h e P r e s i d e n t i n t h e Economic Report . I n order t o o b t a i n more d e t a i l e d background i n f o r m a t i o n on t h e P r e s i d e n t 1 s Economic R e p o r t , the Committee on Monday, January 22, a t 10:00 a . m . , i n t h e D i s t r i c t Committee Room, P - 3 8 , Senate Wing o f t h e C a p i t o l , w i l l meet w i t h t h e C o u n c i l o f Economic A d v i s e r s i n e x e c u t i v e session. I n t h e a f t e r n o o n a t 2 o f c l o c k , l i k e w i s e i n executive session, Budget D i r e c t o r F r e d e r i c k J . Lawton w i l l d i s c u s s w i t h the Committee v a r i o u s aspects o f t h e P r e s i d e n t ' s f i s c a l program. To gather a d d i t i o n a l f a c t s and analyses o f f a c t s and i n t e r p r e t a t i o n s o f m a t e r i a l s contained i n t h e P r e s i d e n t ' s Economic Report, the J o i n t Economic Committee w i l l hold p u b l i c hearings and panel discussions. 2 <She schedule of hearings open to the public w i l l be as follows: Wednesday, January 2k — Room 318 Senate O f f i c e B u i l d i n g 10:00 a.m. . E r i c A* Johnston , A d m i n i s t r a t o r o f t h e Economic S t a b i l i z a t i o n Agency M r , Michael V. D i S a l l e , D i r e c t o r o f t h e O f f i c e o f Price Stabilization M r . Cyrus S. Ching, Chairman, Wage S t a b i l i z a t i o n Board Thursday, January 25 — Room 362 O l d House O f f i c e B u i l d i n g 10;00 a.m. M r . M a r r i n e r E c c l e s , member o f t h e Board o f Governors o f t h e F e d e r a l Reserve System w i l l present h i s views on t h e problem o f i n f l a t i o n . F r i d a y , January 26 — Room 362 Old House O f f i c e B u i l d i n g 3230 p.m. Mr. Charles E . W i l s o n , D i r e c t o r o f t h e O f f i c e o f Defense M o b i l i z a t i o n Monday, January 29 — Room 224 Senate O f f i c e B u i l d i n g 10:00 a.m. Panel d i s c u s s i o n o f t h e n a t u r e and magnitude o f t h e problem o f i n f l a t i o n . I n how f a r has t h e posi-Korea r i s e i n p r i c e s been due t o governmental procurement? Business buying? Consumer expenditures? What p r i c e s have r i s e n most? Why? What has been t h e impact on p r o d u c t i o n , n a t i o n a l defense, and r e a l Incomes? Wbat dangers l i e ahead? These and s i m i l a r questions w i l l be discussed b y t h e f o l l o w i n g : V . Lewis B a s s i e , U n i v e r s i t y o f I l l i n o i s P e r s i a Campbell, Queens C o l l e g e , F l u s h i n g , N . Y , Roy F o u l k e , Dun and B r a d s t r e e t M a r t i n Gainsbrugh, N a t i o n a l I n d u s t r i a l Conference Board S t a n l e y Ruttenberg, CIO Donald Woodward, Mutual L i f e Insurance Company o f New York Wednesday, January 31 — Room 318 Senate Office Building 10:00 a,m. Panel d i s c u s s i o n on f i s c a l p o l i c y : Where and b y how much can governmental expenditures be cut? What a d d i t i o n a l taxes and what t y p e can be l e v i e d on t h e economy w i t h o u t i m p a i r i n g p r o d u c t i o n o r i n c e n t i v e s ? Should s o c i a l s e c u r i t y taxes be stepped up now? These and s i m i l a r questions w i l l be discussed b y the following: Robert B a l l , N a t i o n a l P l a n n i n g A s s o c i a t i o n R i c h a r d Goode, U n i v e r s i t y o f Chicago A l b e r t S. H a r t , Columbia U n i v e r s i t y R i c h a r d Musgrave, U n i v e r s i t y o f Michigan L o u i s Shere, U n i v e r s i t y o f I n d i a n a A r t h u r S m i t h i e s , Harvard U n i v e r s i t y 3. Thursday, February 1 ~ 10:00 a.m. Room 318 Senate O f f i c e B u i l d i n g Panel d i s c u s s i o n on monetary, c r e d i t and debt management problems: What i s t h e r o l e o f s e l e c t e d c r e d i t c o n t r o l s ? General c r e d i t c o n t r o l s ? Debt management requirements? I n t e r e s t r a t e s ? Can segments o f p u b l i c debt be s t e r i l i z e d so t h a t Government debt w i l l n o t be used as reserves f o r p r i v a t e expansion? Such are t h e questions upon which t h e J o i n t Committee w i l l s o l i c i t t h e views o f t h e f o l l o w i n g : Howard Bowen, U n i v e r s i t y o f I l l i n o i s A l b e r t S. H a r t , Columbia U n i v e r s i t y Wesley Iiizidow, I r v i n g T r u s t Company, New York Lawrence S e l t z e r , Wayne U n i v e r s i t y W a l t e r Spahr, New York U n i v e r s i t y F r i d a y , February 2 — 318 Senate O f f i c e B u i l d i n g 10:00 a.m. Panel d i s c u s s i o n o f d i r e c t c o n t r o l s : What are t h e p o s s i b i l i t i e s and dangers o f an o v e r - a l l f r e e z e o f p r i c e s and wages? What i s t h e e f f e c t o f d i r e c t c o n t r o l s such as a l l o c a t i o n s , r a t i o n i n g , and s e l e c t i v e p r i c e measures on t h e m o b i l i z a t i o n e f f o r t , on t h e s t r u c t u r e o f American b u s i n e s s , on c o n c e n t r a t i o n , c o m p e t i t i o n , and f o r e i g n trade? The p a r t i c i p a n t s w i l l include: J . Kenneth G a l b r a i t h , Harvard U n i v e r s i t y R i c h a r d E . Heflebower, Northwestern U n i v e r s i t y Edward Mason, Harvard U n i v e r s i t y , H a r o l d Rove, Brookings I n s t i t u t i o n Donald Wallace, P r i n c e t o n U n i v e r s i t y The Committee i s a l s o seeking statements f r o m a g r i c u l t u r e , b u s i n e s s , and consumer o r g a n i z a t i o n s , have t h e b e n e f i t o f as wide as p o s s i b l e a range o f P r e s i d e n t s Economic Report and t h e many d i f f i c u l t our l a r g e l a b o r , so t h a t we may views on t h e problems i t r a i s e s . * :
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