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BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office

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

p a te February is, i?u6
Subject; Material for Testimony on

- .

From

Richard A» Masgrave and\
Kenneth 3. Williams

OPA Extension

Attached is material for your testimony on the extension
of the Price Control Act, including:
(1) Draft of Testimony
(2) Background memo on proposed amendments, etc»
(3) Revised tables on Budget, debt, liquid assets,
national income* etc»
(ll) Copy of 0?A materials, including:
(a) Chester Bowles1 statement before the House
Banking and Currency Committee presented
today«
(b) CPA testimony before the House Banking and
Currency Committee today»
(c) Charts submitted by Chester Bowles before
the Senate Small Business Committee, December I J . •
P45

Attachments




Form F. R. 131

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE

Office Correspondence
Tb^L

Chairman Eccles

From

SYSTEM

Dflte February 18, 19k6
Subject; Material for QPA Testimony

Mchard A# 3ftîsgrav
Kenneth 3# Williams

Attached is a revised set of tables relating to the
inflation potential, including data on budget, debt, deficit,
liquid assets, and national income«

Attachments




TABLE I
FEDERAL BUDGET, WAR AND TRANSITION
Total Funds Raised
(in billions of dollars)

Period

From Taxes

1/

From Borrowing

Total

Taxes as
Percentage
of Total

Fiscal year
ending June 30
1*940

5.4

2.5

7.9

68.4

1*941

7.6

6.9

14.5

52.4

19i+2

12.8

21.8

34.6

37.0

11943

22.3

63.0

85.3

26.1

I9kk

1(4.1

61.6

105.7

41.7

1945

46.5

55.7

102.2

45.5

1946

38.6

16.1

54.7

70.6

191+7

31.5

-3.6

27.9

112.9

19)40-191+6

177.3

227.6

1+0^.9

43.8

l/ Change in interest-bearing debt, direct and guaranteed.
Note* wTotal Funds Raised* is defined to include (1) net receipts, general
and special accounts, and (2) the increase in total interest-bearing direct
and guaranteed securities. Note that for any single year expenditures may
fall short of or exceed funds raised, depending on changes in Treasury
balances.




TABLE II
THE FEDERAL DEBT
Deficits from War and Depression
(in billions of dollars)

Interest-bearing Debt
Change
Outstanding
During Period
End of Period

Period

1/
Dates

World War I

1916-1919

+ 2U.2

25.2

Reduction in «Twenties

1919-1930

-

9.3

15.9

Early Depression

1930-1933

+

5.5

21 .U

Relief and Recovery

1933-19U0

+ 26.5

¿-.
479

World War II

19^0-191*5

+211.5

256.8

I9I+5-I9I46

+ 16.1

272.9

19^6-191)7

-

269.3

3.6

l/ All figures apply to June 30 dates with the exception of 1930 which applies
to March 31»
Note?

All interest-bearing direct and guaranteed securities are included*




TABEE III
DEFICIT AND THE FÜBEIC DEBT
(in billion dollars)

Exp* s

Net
Receipts

Defioit

At End of Period
Public ®ebtj-/Cash Baiane«

1 l . Fisoal Year
9iO

9.0

5.k

3.9

1I3.O

1.9

191+5 Fiscal Year

100.1+

46.5

53.6

258.7

24.7

19^6 Fiscal Year

67.3

38.6

28.6

275.0

11.9

July-Dec. I9I+5

38.8

19.9

18.1

278.1

26.0

Jan.-June 1946

28.5

18.7

10.5

275.0

11.9

35.8

31.5

k.3

27I.O

3.2

1947

Total gross direct debt.




TABUS IY (revised)
TOTAL PUBLIC AND PRIVATE GROSS DEBT
(in billions of dollars)

End of Calendar Years
1929

1933

19U0

191^

I9ii5*

213

187

215

kl9

453

35

k5

7k

260

298

Federal

18

25

5k

Pljp

281

State and Local

17

20

20

18

16

178

li+2

HU

159

155

109

9k

91

110

107

69

1+8

50

k9

ke

Type of Debt
Total
Public

Private
Corporations
Other

l/ From "United States Debt Pattern in War and Peace* by Alvin Slater*
Purvey of Current Business3 September 1945«
*

Estimated.

Note* The table shows the gross debt, public and private. The figures for
1929 to 191+0 are from Survey of Current Business» Department of Commerce,
July I9M1-I figures for later years are estimated#




TABLE V
INFLATION POTENTIAL IN LIQUID ASSETS

^

(in billions of dollars)

June 30
I92O I 1929 1 1933 i 1940 1 I9W+ 1 19U5

Deo. 31
1945

Demand

18.6

21.4

13.2

22.8

47.8

56.3

61.4

Time

15.8

28.6

21.7

26.7

35.0

48.2

48.2

0.3

0.4

0.8

0.8

19.5

24.4

24.6

34.7

50.4

35.7

50.3

102.3

128.9

134.2

4.1

3.6

4.8

6.1

20.0

24.2

26.0

U. S. Securities

18.9

10.0

10.3

12.0

66.9

84.2

89.7

Grand Total

57.7

64.0

50.8

68.4 189.2 237.3

249.9

lype of Asset
Deposits

T . S. Gov't
J
Total
Currency

l/ Items other than U. 3, government deposits include holdings by individuals, unincorporated businesses and corporations. The figures exclude
(1) holdings by government trust funds, Federal Reserve Banks, commercial
banks, mutual savings banks, foreign governments and foreign banks. They
also exclude (2) holdings by insurance companies, building and loan associations, nonprofit associations, state and local governments, and foreign
individuals. Total deposit and currency holdings of the groups listed under
(2) amounted to 6 i . billion dollars on June 30, 1945* Por more detailed
.j
breakdown see Federal Reserve Bulletin for February I l . f p. 123«
9j6




TABLE VI
LIQUID ASSET

EQIDIMGS

BY TYPES OF HOLDERS l /

(in billions of dollars)
End of
June I I .
94O

Dec* 191^5

Corporations
10.7

2J.3

Time Deposits

0#7

0#7

Currency

0*7

1#0

U # S. Securities

2»0

23»0

1JU»1

52#0

Demand Deposits

3.3

10.5

Time Deposits

1.3

2.h

Currency

0*9

3.9

U. S. Securities

1.1

11.Q

6.6

27«8

8#8

23.6

2^*7

k5*1

Demand Deposits

Total
Unincorporated Business

Total
Individuals and Trust Ftands
Demand Deposits
Time Deposits
Currency
U. S. Securities
Total
U # S» Government
Demand Deposits
All Groups

21# 1
8>9

55.7

i|6#9

1ix5#5

0#8

2^.6

6

8

2

^

9

.

9

l/ For explanation see note to Table V# For more detailed breakdomi see
Federal Reserve Bulletin for February 19^6, p. 123*




TABLE VII
GROSS NATIONAL PRODUCT AND NATIONAL INCOME STATISTICS
(in billions of dollars)

19kk

GNP

19ij5
(seasonally adjusted annual rates)
1
2
3
4

197.6

Government purchases of goods
and services
Federal
State and local
Consumers
Gross Capital formation

y

National income

Salaries and wages
Agricultural proprietors
Non-agricultural proprietors
Interest and rents
Net corporate profits
Income payments
Personal taxes
Disposable income
Consumer expenditures
Net savings

204.5

206.3

195.7

182.8

97.1
89.5
7.7
98.5
2.0

95.6
87.8
7.8
105.0
3.9

99.2
91.3
7.8
100.0
7.1

79.5
71.6
7.9
103.7
12.5

57.7
49.8
8.0
110.9
14.2

160.7

167.6

166.2

158.4

150.7

116.0
11.8
12.3
10.6
9.9

119.6
13.3
13.0
11.4
10.4

118.3
13.2
12.6
11.7
10.4

113.0
12.2
12.9
11.9
8.4

105.7
12.1
13.9
12.2
6.8

156.8
19.4
137.4
98.5
38.9

163.7
22.1
141.7
105.0
36.7

163.2
21.7
141.6
100.0
41.6

158.6
20.6
138.0
103.7
34.3

156.9
19.7
137.3
110.9
26.4

l/ National income equals the gross national product minus business taxes,
depreciation and business reserves, and an adjustment for inventory revaluation*
2/ Income payments equals the national income (see footnote 1) plus transfer
payments (unemployment compensation, mustering-out pay, etc*) less contributions
to social insurance funds and corporate savings#




BOARD OF GOVERNORS

FEDERAL RESERVE SYSTEM

Office Correspondence
TV

Hhairman Fccles

v

TTftnneth
WilllaanswSid
Richard A. Musgrave ( f L ^
RlU

Dt mnw xe, 19^
ae

Subject: ifcteflgjon of the Price Control
Act

It is generally believed that strong pressure will not
be brought to eliminate price controls—unless OPA establishes &
ceiling on raw cotton, in which case the cotton bloc is likely to
insist upon the elimination of all price controls. The people in
OPA appear to be well aware of this and, hence, are likely to go
out of their way to find reasons for not placing a ceiling on
cotton.
Major attacks on price controls are expected to come
in the form of amendments which will cripple OPA or force it to
grant price increases of an inflationary character# Also, an
effort will be made to extend the Act for only six months instead
of one year as requested by the Administration.
The types of amendments expected to be put forth include
such things as t




(1) Requiring OPA to set prices high enough to provide
normal profits on every product, regardless of the profit
position of the firm as a whole, and to each firm, regardless
of how inefficient it is. Such an amendment would force a
sharp increase in prices.
(2) Require all wage increases to be offset automatically
by equivalent price increases whether or not higher prices
are needed to yield adequate profits.
(3) Eliminate the MAP program. This program attempts
to encourage the output of lower priced products by requiring textile and apparel companies to distribute their
output by price lines in such a way as to result in the
same average price as in the base period, usually 19k3*
Elimination of this program would make it difficult to
obtain adequate production of lower priced shirts, suits,
etc. As long as producers are able to sell all they can
produce of the higher priced goods, they arre unlikely to

Tot Chairman Eocles




-2-

produce any substantial volume of lower priced goods on
which profit margins are necessarily smaller.
(k) Require ceilings on farm products and foods to
be set high enough to cover the rise in imputed wages of
the 6 or 7 million farm operators and family workers as
well as the actual rise in wages paid the 2 million or so
hired workers. Such an amendment might increase food
prices by as much as 30 o r ¿P per cent*
(5) Require OPA to allow a flat percentage increase
in rents. If accepted, this would be almost certain to
touch off additional wage demands#
(6) Establish by law rigid rules as to the timing
of the release of specific goods from price controls.
This would tend to encourage producers to hold goods
off the market as they approached their decontrol dates#
(7) Farm groups are still opposed to subsidies and
efforts will probably be made to eliminate food subsidies
at the end of this fiscal year. Subsidies authorized for
fiscal year 19ij6 amount to about 600 million dollars for
non-food products, mostly in the form of differential
payments to obtain high cost output of metals and similar
products, and to about 1.8 billion dollars for food
products,, mostly paid in the form of flat subsidies to
all producers. The subsidy program for next year is
expected to be reduced greatly in any case, but to eliminate all subsidies would result in sharp advances in the
prices of many foods important in the cost of living*
(8) Eliminate the Emergency Court of Appeals. This
would be disastrous and open up the possibility of different
prices and pricing standards in every court district of
the country.
(9) Prohibit OPA from requiring distributors and
retailers to absorb part or all of the price increases
granted at earlier stages of production. This is aimed
at maintaining standard percentage margin mark-ups
regardless of the profit situation of distributors* For
example, OPA estimates that the nominal prewar dealer
margin on new automobiles was 2k P©r cent. Howeverf

Toj Chairman Socles

-3-

after allowance for price shading, losses on trade-ins,
and other expenses, the actual realized margin was only
ll|r per cent. Nevertheless, OPA was severely criticized
when it forced dealers to reduce their nominal margins
on I I . cars to 21-J per cent even though it seems certain
946
that realized margins will be far above prewar levels
because used cars will be a source of profit and there will
be no price shading* It also should be noted that fixed
percentage margins tend to result in the pyramiding of
price increases granted at earlier stages of production.
(10) Special groups of all kinds are expected to
ask Congress to give them special price advantages. This
would put Congress in the position of determining prices
and would tend to increase enormously the political
pressure brought to obtain similar advantages for other
groups.
(11) OPA may be required to limit price controls to
essential commodities and to free from control all luxury
or less essential items. This would be disastrous because
it would tend to shift manpower and other resources from
the production of essential goods to the production of
luxuries. The equity of such a policy is completely
backwards since it would reward handsomely the producers
of nonessential goods and hold down the producers of
essential goods. As a consequence, strong pressures would
develop to take controls off essential goods also»
OPA policies and administrative actions are more
flexible than they are usually given credit for# OPA has
already granted a great number of price increases in order to
meet higher costs of production or to encourage production of
essential goods. However, in some cases where price increases
have been granted to obtain increased production, production
has not increased.
Also, under the standards laid down by the Office of
Economic Stabilization, OPA has the authority to remove or
suspend price controls of almost anything. OPA has already
decontrolled over 1,300 products haying an estimated sales value
of around
billion dollars. In general, the products decontrolled
have been those in which supplies were fairly adequate, or those
unlikely to have significant effect upon the cost of living, or
those for which maintenance of controls involves excessive
administrative burdens.




Tot

Chairman Ecoles

The fact is that practically all commodities are pressing hard against their ceilings, either because of the high normal
demand or because demand has been increased because of speculative
influences. In several cases where price ceilings have been
suspended or eliminated, prices have advanced sharply. For example,
it is reported that clothes pins went up from 5 cents a dozen to
20 or 25 cents a dozen when controls were taken off. Similar increases,
although not so spectacular, occurred in the case of citrus fruit,
some furs, coconut, cucumbers, and other products. Whenever one
product is decontrolled pressure is intensified to suspend controls
on other products.
The rationing issue is largely dead since nothing but
sugar is being rationed to consumers.
The Civilian Production Administration still retains
most of the powers held by the War Production Board. However, CPAfs
authority stems from the Second War Powers Act which, like the
Price Control Act, expires June 30 unless renewed as recommended.
Although the authority is still there, most of the former WPB
controls have been eliminated. Only about 60 allocation, limitation,
or other orders are still in effect and only 20 or 30 important
commodities are still under control. For example, controls are
still in effect on rubber, tin, tin can containers, lead, leather,
burlap, glass, and some textiles. The military agencies still
retain their priorities, but of course they are not being used to
the same extent as during the war. CPA uses its authority
largely to break bottlenecks when persuasion or other measures fail.
CPA has special priority programs designed to channel
materials into low cost housing and low priced garments. If
Wyattfs housing program goes through, CPA probably will be forced
to reinstate L-J4I or something close to it. This would require
the allocation of the total supply of building materials and a
prohibition against all building except that for which permission
has been given. At present, priorities merely provide assistance
in obtaining building materials on the basis of individual applications*
On paper CPA has a general inventory regulation which
covers practically everything. Not much use has been made of this
regulation, but CPA is getting ready now to implement the regulation so as to break up the apparent hoarding of shirts# shorts,
nylons, men*s clothing, and other textiles. If the situation
requires it, CPA may also establish stronger controls in other
fields and institute compliance actions*
Attached is a copy of material on price control submitted by Chester Bowles to the Senate Small Business Committee
in early December. This gives an excellent factual background
of the problem and the policies followed by OPA.