View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

SDARD • F GOVERNORS
FEDERAL RESERVE

O f f i c e

SYSTEM

C o r r e s p o n d e n c e

Chairman v^ltfm
Frnm Kenneth B. Williams and
Richard A, Musgrave

Date_y*n»ry

Subject: Extension o f the Prioe Control
Act

I t i s generally believed that strong pressure w i l l not
be brought to eliminate prioe controls —unless OPA e s t a b l i s h e s a
c e i l i n g on raw c o t t o n , i n which case the c o t t o n b l o o i s l i k e l y to
i n s i s t upon the elimination o f a l l p r i c e c o n t r o l s .
The people i n
OPA appear to be w e l l aware o f t h i s and hence, are l i k e l y to go
out o f t h e i r way t o f i n d reasons f o r not placing a c e i l i n g on
cotton.
Major attacks on p r i c e controls are expeoted to oorae
i n the form o f amendments which w i l l c r i p p l e OPA or f o r c e i t t o
grant p r i c e increases o f an i n f l a t i o n a r y character. Also, an
e f f o r t w i l l be made to extend the Act f o r only s i x months instead
of one year as requested by the Administration.
The types of amendments expeoted t o be put f o r t h include
such things ast
( 1 ) Requiring OPA to set p r i c e « high enough to provide
normal p r o f i t s on every product, regardless o f the p r o f i t
p o s i t i o n o f the f i r m as a whole, and to each f i r m , regardless
o f how i n e f f i c i e n t i t i s . Suoh an amendment would f o r c e a
sharp increase in p r i c e s .
( 2 ) Require a l l wage increases to be o f f s e t automatically
by equivalent p r i c e increases whether o r not higher p r i c e s
are needed to y i e l d adequate p r o f i t s .
( 3 ) Eliminate the MAP program. This pro gram attempts
to encourage the output o f lower priced products by r e quiring t e x t i l e and apparel companies to d i s t r i b u t e t h e i r
output by p r i c e l i n e s i n suoh a way as to r e s u l t i n the
same average p r i c e as i n the base p e r i o d , usually 19jU3*
Elimination o f t h i s program irould make i t d i f f i c u l t to
obtain adequate production o f lower priced s h i r t s , s u i t s ,
e t c . As long as producers are able to s « l l a l l they can
produoe o f the higher priced goods, they are u n l i k e l y to




19&

Chairman Focles

-2-

produce any substantial volume o f lower p r i c e d goods on
which p r o f i t margins are n e c e s s a r i l y smaller.
( 4 ) Require c e i l i n g s on farm products and f o o d s t o
be s e t high enough to cover the r i s e i n imputed wages o f
the 6 o r 7 m i l l i o n farm operators and family workers as
w e l l as the actual r i s e i n wages paid the 2 B i l l i o n or so
hired workers. Such an amendment might increase food
p r i c e s by as much as 30 o r IjQ per c e n t ,
( 5 ) Require OPA to allow a f l a t percentage increase
in r e n t s . I f accepted, t h i s would be almost c e r t a i n to
touch o f f a d d i t i o n a l wage demands«
( 6 ) Establish by law r i g i d r u l e s as to the timing
o f the r e l e a s e of s p e o i f i c goods from p r i c e c o n t r o l s ,
this would tend t o encourage producers to hold goods
o f f the market as they approaohed t h e i r d e c o n t r o l d a t e s ,
( 7 ) Farm groups are s t i l l opposed to subsidies and
e f f o r t s w i l l probably be made to eliminate food subsidies
a t the end o f t h i s f i s c a l y e a r . Subsidies authorized f o r
f i s c a l year 19L£> amount to about 600 Million d o l l a r s f o r
non-food products, mostly i n the form o f d i f f e r e n t i a l
payments to obtain high c o s t output of metals and s i m i l a r
p r o d u c t s , and t o about 1.8 b i l l i o n d o l l a r s f o r food
products, mostly paid i n the form o f f l a b subsidies t o
a l l producers. The subsidy program f o r next year i s
expected to be reduced g r e a t l y i n any case, b i t to e l i m i nate a l l subsidies would r e s u l t i n sharp advances i n the
p r i c e s o f many f o o d s important i n the c o s t o f l i v i n g ,
( 8 ) Eliminate the Emergency Court o f Appeals,
this
would be disastrous and open up the p o s s i b i l i t y o f d i f f e r e n t
p r i c e s and p r i c i n g standards i n every court d i s t r i c t o f
the country,
( 9 ) p r o h i b i t OPA from requiring d i s t r i b u t o r s and
r e t a i l e r s to absorb part o r a l l o f the p r i c e increases
granted at e a r l i e r stages o f production. This i s aimed
a t maintaining standard percentage margin mark-ups
regardless o f the p r o f i t s i t u a t i o n o f d i s t r i b u t o r s . For
example, OPA estimates t h a t the nominal prsnrar dealer
margin on new automobiles was 2k per c e n t . Hovrever,




To* Chairman Eccles

-3-

a f t e r allowance f o r p r i c e shading, l o s s e s on t r a d e - i n s ,
and other expenses, the actual r e a l i s e d margin was only
ll|- per c e n t . Severtheless, OPA » « 8 severely c r i t i c i z e d
when i t f o r c e d dealers to reduce t h e i r nominal Margins
on 1946 cars to 21^ per cent even though i t seems c e r t a i n
that r e a l i z e d margins w i l l be f a r above prewar l e v e l s
because used cars w i l l be a source o f p r o f i t and there w i l l
be no p r i c e shading. I t also should be noted that f i x e d
percentage margins tend to r e s u l t in the pyramiding o f
p r i c e increases granted a t e a r l i e r stages o f production.
( 1 0 ) Special groups o f a l l kinds are expected t o
ask Congress to give them s p e c i a l p r i c e advantages. This
would put Congress i n the p o s i t i o n of determining p r i o e s
and would tend to increase enormously the p o l i t i c a l
pressure brought t o obtain similar advantages f o r other
groups.
( 1 1 ) CPA may be required to l i m i t p r i c e controls t o
e s s e n t i a l commodities and to f r e e from c o n t r o l a l l luxury
or l e s s e s s e n t i a l items. ?his would be disastrous because
i t would tend to s h i f t manpower and other resources from
the production of essential goods t o the production o f
l u x u r i e s . The equity o f such a p o l i c y i s completely
backwards since i t would reward handsomely the producers
o f nonessential goods and hold down the producers o f
e s s e n t i a l goods, AS a consequence, strong pressures would
develop t o take c o n t r o l s o f f e s s e n t i a l goods a l s o .
OPA p o l i c i e s and administrative actions are more
f l e x i b l e than they are usually given c r e d i t f o r * OPA has
already granted a great number o f p r i c e increases in order t o
meet higher eosts o f production or to encourage production o f
e s s e n t i a l goods. However, i n some cases where p r i c e increases
have been granted to obtain increased production, production
has not increased.
Also, under the standards l a i d down by the O f f i c e o f
Economic S t a b i l i z a t i o n , OPA has the authority to remove or
suspend p r i c e c o n t r o l s o f almost anything. OPA has already
d e c o n t r o l l e d over 1,300 products having an estimated s a l e s value
o f around
b i l l i o n d o l l a r s . In general, the products decontrolled
have been those i n which supplies were f a i r l y adequate, o r those
u n l i k e l y to have s i g n i f i c a n t e f f e c t upon the c o s t o f l i v i n g , o r
those f o r which maintenance o f c o n t r o l s involves excessive
administrative burdens.




lbs

Chairman Ecoles

Hie f a c t i s that p r a c t i c a l l y a l l consaodities are p r e s s ing hard against t h e i r c e i l i n g s , either because of the high normal
demand or because demand has been increased because o f speculative
influences« In several oases where p r i c e c e i l i n g s hare been
suspended o r eliminated, p r i c e s have advanced sharply. For example,
i t i s reported that clothes pins went up from 5 cents a dosen to
20 or 25 cents a dosen when controls were taken o f f . Similar i n c r e a s e s ,
although not so s p e c t a c u l a r , occurred in the case o f c i t r u s f r u i t ,
some f u r s , coconut, cucumbers, and o t h e r products. Whenever one
product i s decontrolled pressure i s i n t e n s i f i e d to suspend c o n t r o l s
on other products.
The rationing issue i s l a r g e l y dead s i n c e nothing but
sugar i s being rationed to consumers.
the C i v i l i a n Production Administration s t i l l r e t a i n s
most o f the powers held by the flar Production Board. Eowever, CPA's
authority stems fro® the Second War Powers Act whioh, l i k e the
Price Control Act, expires June JQ unless renewed as recommended.
Although the authority i s s t i l l t h e r e , raost o f the former WPB
controls have been eliminated. Only about 60 a l l o c a t i o n , l i m i t a t i o n ,
o r other orders are s t i l l in e f f e c t and only 20 o r J>0 important
comrodities are s t i l l under c o n t r o l . For example, c o n t r o l s are
s t i l l in e f f e c t on rubber, t i n , t i n can c o n t a i n e r s , l e a d , l e a t h e r ,
burlap, g l a s s , and some t e x t i l e s .
The m i l i t a r y agencies s t i l l
r e t a i n t h e i r p r i o r i t i e s , but o f course they are not being used t o
the same extent as during the war. CPA uses i t s authority
l a r g e l y to break b o t t l e n e c k s when persuasion o r other measures f a i l .
CPA has s p e c i a l p r i o r i t y programs designed t o channel
materials into low c o s t housing and low priced garments.
If
Wyatt*s housing program goes through, CPA probably w i l l be I'orced
to r e i n s t a t e L-iil o r something c l o s e to i t .
This would r e q u i r e
the a l l o c a t i o n o f the t o t a l supply of building materials and a
p r o h i b i t i o n against a l l building except that f o r which permission
has been g i v e n . At p r e s e n t , p r i o r i t i e s merely provide assistance
in obtaining building materials on the basis o f individual a p p l i c a t i o n s .
On paper CPA has a general inventory regulation whioh
covers p r a c t i c a l l y everything. Mot much use has been made o f t h i s
r e g u l a t i o n , but CPA i s g e t t i n g ready now to implement the regul a t i o n so as t o break up the apparent hoarding of s h i r t s , s h o r t s ,
nylons, men's c l o t h i n g , and other t e x t i l e s . I f the s i t u a t i o n
requires i t , CPA may also e s t a b l i s h stronger c o n t r o l s in other
f i e l d s and i n s t i t u t e compliance a c t i o n s .
Attached i s a copy o f material on p r i c e c o n t r o l submitted by Chester Bowles to the Senate Small Business Committee
i n e a r l y December. This g i v e s an e x c e l l e n t f a c t u a l background
o f the problem and the p o l i c i e s f o l l o w e d by OPA




February 1 8 , 19^6
Chal man Soolaa

Jiatarial f o r OPA Toatimony

diehard A« Jtoaprara and
Karmafch
William«

Attached l a a r e u s e d set o f taM.«« r a l a t l n r
the
i n f l a t i o n p o t e n t i a l , lnoludlnr data on budrot* d e b t , d e f i c i t 9
l i q u i d a s s e t « , and national Inooma.

Attachments
VAX! l i t




TABLE

I

PKDFRAL BUDGFT, W R ASD TRAKSITIO«
A
Total Funds Raised
( i n b i l l i o n » of d o l l a r « )

1
Period

Prom Ifcxec

tf
From Borrowing

Total

|

Taxes as
Percentage
o f Total

F i s c a l year
ending Juno 50
191*0

5M

2.5

7.9

68.1*

I9l*l

7.6

6.9

H*.5

52.1*

19&

12.6

21.8

3U.6

37.0

191*5

22.3

63.0

85.3

86.1

19U*

Mul

61.6

105.7

Ui .7

19U5

1*6.5

55.7

102.2

1*5.5

191*6

3«.6

16.1

5U.7

70.6

19U7

31.5

-3.6

27.9

112.9

1*0U.9

1*3.8

191*0-191*6

-

227.6

177.3
'«•^SS» •
• ;vf t -

l / Chan,« i n i n t e r e s t - b e a r i n g debt, d i r e e t and guaranteed.
Wetei *Total Fmmds Raised* i s defined t o include ( 1 ) net r e c e i p t s , general
and s p e c i a l a c c o u n t s , and ( 2 ) the increase in t o t a l i n t e r e s t - b e e r i n p d i r e c t
and guaranteed s e c u r i t i e s . Mote that f o r any s i n g l e year expenditures stay
f a l l short o f c r exceed fends r a i s e d , dspending on changes in Treasury
balances.




TABLE

XI

T E rF li IH AL DEBT
H
D e f i c i t « fron Bar and Depression
(la b i l l i o n s of d o l l a r « )

P«rio4

V
Dat««

I n t « r e « t - b e a r i n £ Debt
Chang«
Outstanding
During Period
fad o f Period

World *ar I

1916*1919

• 2Ü.2

25.2

Reduction i n «îwentie«

1919-1930

-

9.3

15.9

Early D*pre««ion

1930-1933

•

5.5

21M

R e l i e f and Recovery

1933-19U0

• 26.5

U7.9

World fiar IX

19UO-19U5

•211.5

256.8

19¿£-19l¿

• 16.1

272.9

19tlü6-19l47

•

269.3

5.6

l / A l l f i g u r e » apply t o Juna 30 date« with the «xeeption o f 1950 whieh a p p l i e s
to Var«h 31.
lotti

A l l i n t e r « « t - b e a r i n g d i r e c t and guaranteed s e e u r i t i e « are i ne l u d e t .




TASLF I I I
DEFICIT AIE TW PUBLIC DFBT
(in billion dollar«)

At 'ad o f Period
Publio n»bt^Ca«h Baiane

M
Receipt«

D«rielt

*Jk

3.9

lô.o

iS

100 M

l|6.5

53.6

258.7

aU.7

67.3

38.6

28.6

275.0

11.9

July-Do«.

36.8

19.9

18.1

278.1

26.0

Jan.-June

28.5

18.7

10.5

275.0

11.9

35.8

31.5

k.3

271.0

3.2

19U0 Fiseal Year
19i<5

Tear

I9Ì46 Fl«oal Yoar

Tota./




9.0

j x c/ / ' r e c é

c/et-fc.

TABLP IV ( r e v i s e d )
10TAL WBUC AXD PRIVATE « 0 8 3 iiPBT
(in billion« of dollar«)

Fnd of Calendar Year«
Type of Debt

1929

1933

I9k0

19M4

I9h5*

213

187

215

U19

U53

35

U5

7k

260

298

Federal

18

25

2k2

291

Stat« and Local

17

20

20

18

16

178

1U2

ua

159

155

109

9U

91

110

107

69

UB

50

1*9

U8

Total
Publio

Private
Corporation«
otbar

1 / Fr»B "United Stat«« Lebt Pattern in War and Pea««" by Alvin Slater,
Jurvey o f Current amines«, ¿eptenber 1945.
e

* stimateti.

Hot«i ~he table «ho«« the gross debt, public and private. The figure« for
1929 to 19I4O ara from Survey of Current Business, .apartment of Conm«ree,
Jaly 19Uil figure« for l a t « r years are «atinated.




TABLE V

INFLATIOH POTESTIAL IN LIQUID ASSETS î /
(in b i l l i o n s of dollars)
J D 30
U C
Typo Of Aaset

1 1920 1 19?9 I 1933 1 19U0 ! I9hk 1 W

19U5

Deposit«
Demand

18.6

21.1*

13.2

22.8

17.8

56.3

61M

Time

15.8

28.6

21.7

26.7

35.0

1*8.2

1*8.2

0*3

0j*

0.8

0.8

19.5

2L.U

2U.6

3^.7

50 M

35.7

50.3

102.3

123.9

13U.2

k.l

3.6

U.S

6.1

20.0

2U.2

26.0

0 . 3. S e c u r i t i e s

18.9

10.0

10.3

12.0

66.9

au.a

89.7

Grand Total

57.7

6U.0

50.8

68.4

189.2

237.3

21+9.9

U. S. Gov't
Total
Currency

L / Items other than U. S. government deposits include holdings by i n d i v i duals , unincorporated businesses and c o r p o r a t i o n s . The f i g u r e s ezolude
( 1 ) holdings by £0veraaent t r u s t funds, Federal Reserve Banks, commercial
banks, mutual savings banks, f o r e i g n governments and f o r e i g n banks. They
a l s o exclude ( ¿ ) holdings by insurance companies, b u i l d i n g and loan a s s o c i a t i o n s , n o n p r o f i t a s s o c i a t i o n s , s t a t e and l o o a l governments, and f o r e i g n
i n d i v i d u a l s . Total tepDsit and currency holdings of the groups l i s t e d under
( 2 ) amounted t o 6.1* b i l l i o n d o l l a r s on June 30, 19'5* F o r
detailed
breakdown see l edoral Reserve B u l l e t i n f o r February 191*6, p . 123.




TA8LF VI
LIQUID ASS FT M0U3IHGS B TYFFS OF KOLDrR8
Y

V

(In b i l l i o n « of d o l l a r « )
Jun« 19b0

F n of
Td

D«e. 19^5

Corporation«
D«oand Depo«it«

10.7

27,3

Time L « p o « i t «

0.7

0.7

Currency

0.7

1.0

U. S. S « o u r i t l « 8

2.0

23.0

U4.I

52.0

Demand Deposit«

3.3

10.5

Tis« Deposits

1.3

2.U

Currenoy

0.9

3.9

Ü. S. S e c u r i t i e s

1.1

11.0

6.6

27.8

8.8

23.6

21*.7

U5.1

Currenoy

4.5

21.1

ö . S. Securitie«

8.9

55*7

total
Unincorporated Busin«g«

Ibtal
Individual« and Tru«t --und«
üeaand Deposit«
Tim« Deposit«

Total

i|6.9

ü . S. GoT«rn»cnt
Demand Deposit«
A l l Croup«

0.8

2U.6

68JU

2l49.9

l / For explanation s«e not« to Table V. rt>r ®or« d e t a i l e d breakdown « « «
f e d e r a l R«««rre B u l l e t i n f o r ;> ebru*ry 19b&* P. 123.



TABLE

VII

GROSS ÄATIjSAL PRODUCT AIP 8ATI.)»AL IHCOS* 3TATISTIC8
(in billions of dollars)
191*1*

GKP

197.6

-

195.7

182.8

95.6
87.8
7.8
105.0
3.9

99.2
91.3
7.®
100.0
7.1

79.5
71.6
7.9
103.7
12.5

57.7
1*9.8
8.0
110.9
li*.2

167.6

166.2

158 U*

150.7

116.0
11.8
12.3
10.6
9.9

Salaries and wages
Agricultural p r o p r i e t o r s
Ifon-a&rleultural p r o p r i e t o r s
Interest and rents
list corporate p r o f i t s

206.3

160.7

y
National ineoste

2Ql*.5

97.1
69.5
7.7
96.5
2.0

Oovornment purchases o f goods
and s e r v i c e s
federal
State and l o e a l
Consumers
Cross Capital formation

Income payments
Personal taxes
Di«potable ineoiee
Consumer expendituros
Hot savings

19Ü5
1 (seasonally adjusted annual r a t e s )
1
2
3
I
*

119.6
13.3
13.0

113.0

llJU

118.3
13.2
12.6
11.7

105.7
12.1
13.9
12.2
6.8

156.8
19.1*
137.1*
98.5
38.9

163.7

163.2
21.7

11*1.7

11*1.6
100.0

158.6
20.6

1*1.6

103.7
3U.3

156.9
19.7
137.3
110.9
2L.U

10 J*

22.1

105.0
36.7

io JU

12.2
12.9
11.9
8.1*

138.0

\J national income equals the gross national produot sdnus business t a x e s ,
d e p r e c i a t i o n and bus nees r e s e r v e s , and an adjustment f o r inventory revaluation«
2 / Income payments equals t h e national lueoae ( s e e f o o t n o t e 1 ) plus t r a n s f e r
payments unesi "loyment compensation, jb» st« r i n g - o u t pay, e t c . ) l a s s eor.tributions
t o s o e i a l insurance funds and ctr^orato s a v i n g s .




February 18, I9I46
Material f o r Testimony on

Chai man Eooles
Richard A* M agrava and
a
Kenneth B. Williams

OPA Extension

Attached i s material f o r your testimony on the extension
o f the Prioe Control A c t , including t
(1)

D r a f t of Testimony

(2)

Background sismo on proposed amendments, etc*

(3)

Revised t a b l e s on Budget, d e b t , l i q u i d a s s e t s ,
national income, e t c ,

(I4)

Copy o f OPA materiale, including 1
(a)

(b)

SA* t i t




OPA testimony b e f o r e the House Banking and
Currency Coranittee today»

(c)

Attachments

Chester Bowles* statement b e f o r e the House
Banking and Currency Committee presented
today.

Charts submitted by Chester Bowles b e f o r e
the Senate Small Business Committee, December 191*5*

- Draft

2/w/kh

statement o f Marriner 8» B o o l « « , Chat rman o f t h « Board
o f Goto m o r s o f t h e Federal Pe serve System, b e f o r e the Banking
and Currency Coiwdttee o f t h e Bouse o f R e p r e s e n t a t i v e s , February
,

o n Extension o f the Emergency P r i o e Control A c t o f 19l^g»

I should 111» t o b e g i n b y reading from my statement on
the e x t e n s i o n o f p r i o e c o n t r o l s made b e f o r e the Senate Banking
and Currency Cormittee almost two y e a r s a g o .

At t h a t t i m e , I eaids

" I n f l a t i o n s seldom g e t o u t o f hand during wart i m e , b u t t h e danger c a r r i e s o v e r a f t e r peace comes and
a wa r—w^a fjf p e o p l e , t i r e d o f wartime c o n t r o l s and r e s t r a i n t s , « r e e a r e r to throw them, o f f »

That i s .just

the time when I t may b e f a t a l t o r e l a x prematurely the
c o n t r o l s o f war-enpendered i n f l a t i o n a r y f o r c e s «
i s why i t i s so important to extend the l i f e o f

That
this

l e g i s l a t i o n f o r a s u f f i c i e n t p e r i o d a f t e r the war to
enable t h e count l y t o c o n v e r t i t s enormous p r o d u c t i o n
c a p a c i t y t o turning c u t f o r peacetime consumption a
supply o f goods comparable t o what i t has shown i t s e l f
c a p a b l e o f turning o u t f o r war purpose«» *
I a l s o said then*
" I n f l a t i o n a r y pressures a r e s t i l l

increasing,

and w i l l continue t o i n c r e a s e u n t i l r e c o n v e r s i o n f r o »




-

2

-

•wartime production t o peacetime production has been
achieved and a balanced budget i s in p r o s p e c t .

If

the public i s assured that the Congress i s determined
t o continue t h i s l e g i s l a t i o n which has been so e f f e c t i v e , the g r e e t confidence which now e x i s t s i n the p u r chasing: power of the d o l l a r w i l l be maintained—-without
t h a t c o n f i d e n c e , not o n l y would the s u c c e s s f u l prosecut i o n o f the war b e j e o p a r d i s e d , but an o r d e r l y t r a n s i t i o n
t o a peacetime b a s i s would be out o f the q u e s t i o n . *
These statements o f two years age s t i l l h o l d , but i n
the meantime many o f our i n f l a t i o n checks have been discarded
while i n f l a t i o n a r y pressures have been augmented g r e a t l y .
The danger o f i n f l a t i o n , i n f a c t » was never so great
during- the war as i t i s today.

Two years ago i n f l a t i o n pressures

were s i s e a b l e but our defenses were s t r o n r ,

W had many checks
O

and i n f l u e n c e s t o ward o f f t r o u b l e , including d i r e c t c o n t r o l s over
the a l l o c a t i o n o f m a t e r i a l s , r a t i o n i n g , heavy excess p r o f i t s t a x e s ,
strong wage c o n t r o l s , and by no means l e a s t , the compelling urge
o f patriotism which l e d the public t o accept s a c r i f i c e s and i n e v i t a b l e i n e q u i t i e s without oomplaint.

Today, most o f t h e s e c o n t r o l s

have been abandoned and the unifying f o r c e o f p a r t i c i p a t i o n i n war
i s no l o n g e r o p e r a t i n g .
Too many o f our defenses against i n f l a t i o n already have
been d e s t r o y e d .

Once gone» they are d i f f i c u l t to r e s t o r e .

These

l o s t defenses include s the repeal o f the excess p r o f i t s t a x j the




-

3

-

abandonment of most a l l o c a t i o n c o n t r o l s and rationing o f

practically

a l l coifr?oditiesj the f a i l u r e t o f o r e s t a l l the development of a *boo» w
psychology i n real estate and security marketsj and the early r e duction i n average hours o f work b e f o r e we had achieved the mass
production o f c i v i l i a n peacetime output*
I n the meantime, i n f l a t i o n pressures have continued to
expand.

Liquid a s s e t s i n the hands of the p u b l i c now exceed 225

b i l l i o n and w i l l r i s e f u r t h e r i n the coming y e a r aa the remaining
budget d e f i c i t w i l l be financed by drawing on the Treasury* s
general balance*

Currency and damend deposits held by businesses

and individuals alone are nearly 80 b i l l i o n , o r almost 3 times the
prewar l e v e l .

A l s o , these groups hold $0 b i l l i o n d o l l a r s o f d e -

mand d e p o s i t s and nearly 100 b i l l i o n d o l l a r s of Goveiment
ties.

securi-

The p o t e n t i a l demand f o r consumers ^oods, plant and equip-

ment, t h e r e f o r e , i s not limited by current income o r by a v a i l a b l e
credit.

I t way b e g r e a t l y augmented at any time by dravinr on

these b a l a n c e s .

This s i t u a t i o n , of c o u r s e , i s the result of war

f i n a n c i n g — t h e r e s u l t o f a p o l i c y which placed e x c e s s i v e r e l i a n c e
on borrowing and inadequate r e l i a n c e on t a x a t i o n .

Thus, during

the f i s c a l years from 19^0 to 19^6 the Treasury w i l l have raised
o v e r i|00 b i l l i o n d o l l a r s , and more than 1*0 per cent of t h i s w i l l
have come from borrowing.

Of t h e t o t a l i n c r e a s e i n the d e b t , the

commercial banking system w i l l have absorbed o v e r 1+0 per cent*
In t i m e , the v a s t expansion o f l i q u i d a s s e t s brought
about by t h i s p o l i c y may be a healthy f a c t o r i n helpinr t o sustain




-u

-

ft high l e v e l o f economic a c t i v i t y .

But now—and u n t i l peacetime

production has been resumed a t a f u l l scale and the brunt o f d e layed demand has been met—the vast s t o r e of l i q u i d assets p r e sents a serious threat to economic s t a b i l i t y .

I t enormously i n -

creases the importance o f maintaining a vigorous s t a b i l i s a t i o n
p o l i c y , including p r i c e c o n t r o l s and a deteimined e f f o r t t o balance
the budget.

I f these things are not done, i f we permit the m i l -

l i o n s o f individuals and businesses who hold currency, d e p o s i t s ,
and s e c u r i t i e s t o l o s e f a i t h i n the purchasing power o f the d o l l a r , we shall i n v i t e d i s a s t e r ,
I am not c a l l i n g a t t e n t i o n t o these things because I
l i k e c o n t r o l s o r want to see them continued i n d e f i n i t e l y .

On

the c o n t r a r y , a l l c o n t r o l s should be dropped as soon as i t can
be done s a f e l y .

They must be retained, however, u n t i l the t r a n -

s i t i o n t o a s t a b l e peacetime economy has been assured and supplies
i n most l i n e s have become adequate to meet the demand.

As y e t ,

there are very f e w l i n e s i n which supplies are adequate to s a t i s f y
demand o r are l i k e l y t o be adequate soon.

Offhand, I can hardly

think o f a s i n g l e commodity i n which the supply i s adequate.
Acute s c a r c i t i e s p e r s i s t f o r most products.
Because we have scrapped nearly a l l of our other c o n t r o l s , i t i s double important that we maintain and strengthen our
control of p r i c e s .

I f we had retained the excess p r o f i t s t a x ,

we could a f f o r d to operate p r i c e c o n t r o l s more l e n i e n t l y

since

the danger o f i n f l a t i o n a r y s p i r a l s would be s u b s t a n t i a l l y l e s s




-

5

-

because incentives f o r r a i s i n g p r i c e s would be checked by high
taxes.

S i m i l a r l y , i f we had retained more d i r e c t i o n o v e r the a l -

l o c a t i o n o f m a t e r i a l s , p r i c e c o n t r o l s could have been operated
more l o o s e l y s i n c e the danger o f a serious d i s t o r t i o n of supplies
o r diversion o f poods i n t o black markets could have been met by
d i r e c t means.

I f we had continued longer hours o f work, the c r i t i -

c a l issue o f sharp advances i n wage rates t o maintain take-home
pay could have been postponed u n t i l the peak o f i n f l a t i o n pressure
was passed and the job o f p r i c e c o n t r o l would have been made
simpler.
I t has been argued that adequate supplies w i l l be f o r t h coming o n l y i f p r i c e c o n t r o l s are dropped promptly.
dangerous f a l l a c y .

This i s a

I f u l l y subscribe to the premise that a f l o o d

o f production i s the only sure way t o prevent i n f l a t i o n , but I
see no assurance whatsoever that g r e a t e r production w i l l
from g e n e r a l l y higher p r i c e s and c o s t s .

result

Of o o u r s e , there are p r o -

ducts here and there the supply o f which would i n c r e a s e i f
p a r t i c u l a r p r i c e s were r a i s e d .

their

These cases can be handled b e s t

on an administrative b a s i s and I am c o n f i d e n t that under the new
arrangement Mr. Howies and Mr. Porter w i l l make whatever a d j u s t ments are needed.

I should l i k e t o urpe that the O f f i c e o f P r i c e

Administration b s assured adequate f a c i l i t i e s to handle j u s t i f i e d
demands promptly and without d e l a y .

The general need, however,

i s not f o r a loosening o f p r i c e c o n t r o l s .

Generaly higher p r i c e s

w i l l i n t e n s i f y t h e scramble f o r scares m a t e r i a l s , the accumulation




-

6

-

o f inventories* the holding o f goods o f f the maifeet i n expectation
o f f u r t h e r p r i c e advances, the disorganisation o f production, and
the f a i l u r e t o supply those poods which consumers need most.

In

the scramble f o r scarce materials and s u p p l i e s , i t i s the small
business i n p a r t i c u l a r which i s l i k e l y to l o s e o u t .

Aa pricea

r i s e , i n d u s t r i a l discontent and s t r i f e w i l l be i n t e n s i f i e d and
production may again be a t a l l e d as workers seek higher wares t o
meet t h e i r r i s i n g c o s t s o f

living.

I t i s not t r u e , i n g e n e r a l , that production i s being
held baok by p r i c e c o n t r o l s *
than anyone expected.

fiecoversion

i s proceeding f a s t e r

Instead o f the h i $ i unemployment widely

a n t i c i p a t e d , the number unemployed remains below

million.

In

s p i t e o f the l a r g e l a y - o f f s i n munitions i n d u s t r i e s , t o t a l nona g r i c u l t u r a l employment by January had regained i t a pre-VJ Day
l e v e l and i s s t i l l i n c r e a s i n g .

The Federal "Reserve index o f

d u s t r i a l production was above i t s l ^ l

in-

l e v e l u n t i l the s t e e l

s t r i k e and w i l l soon surpass t h i s l e v e l once the s t r i k e i s s e t tled.

Income payments have declined only moderately and by sum-

mer may exceed the l e v e l reached a t the peak o f the war.

Where

oroduction i s being r e s t r i c t e d , the usual cause i s lack o f wanpower o r materials and, more r e c e n t l y , i n d u s t r i a l disputes whioh
now aopear i n t h e process o f settlement*

Only i n exceptional

s i t u a t i o n s are low p r i c e c e i l i n g s t o blame*

Although there i s

much oomnlaint about low p r i c e s , p r o f i t s are l a r g e and i t i s not
u n l i k e l y t h a t p r o f i t s a f t e r tax f o r I9U6 w i l l b e the highest on
record*




-

7

-

A l l t h i s points to the necessity f o r maintaining our
defences a?rainst i n f l a t i o n ,

The FK>st e f f e c t i v e thing that can

be done i s f o r Congress to extend without amendment the present
p r i c e c o n t r o l law f o r a t l e a s t one y e a r .

The sooner t h i s i s dene,

the sooner businessmen w i l l know how t o plan ahead and the sooner
goods w i l l come out o f h i d i n g .

I t would be unthinkable to l e t

p r i c e c o n t r o l « lapse o r t o c r i p p l e them with amendment«•

Doubt-

l e s s the Act i a not p e r f e c t and i t might b© improved by some
amendments.

However, once you open the door t o meet the c r i t i -

cisms o f one group, you cannot without d i f f i c u l t y c l o s e i t t o
o t h e r rroups.

Every exception adds to the i n f l a t i o n s p i r a l and

craates pressure f o r o t h e r e x c e p t i o n s .

Every p r i c e increase f o s -

t e r s expectations o f other p r i c e i n c r e a s e s .
Our primary need and our only sure means o f eseape from
i n f l a t i o n i s production.

We m e t go to work, stop haggling over

pennies, and have f a i t h i n our economic system.

No s i n g l e measure

b e f o r e Congress i n my opinion c a r r i e s with i t the hopes and prayer«
o f the American people as does the extension o f p r i c e c o n t r o l
legislation.

Unless thia law i s extended promptly and f o r a t

l e a s t a y e a r , I am f e a r f u l o f the consequences i n l o s t production,
i n d u s t r i a l s t r i f e , and i n f l a t i o n .

Prompt passage o f t h i s measure

w i l l do more toward d i r e c t i n g the country i n t o a period of peacetime p r o s p e r i t y and f u l l employment than anything e l s e Congress
o r the Acteirdstration oan d o .