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PRODUCTION MOVES AHEAD

o
o

IIPORT
TO THE PRESIDENT, THE SENATE
& THE HOUSE OF REPRESENTATIVES
By the Director of

WAR MOBILIZATION
AND RECONVERSION




April 1, 1946

PRODUCTION MOVES AHEAD

SIXTH
REPORT

TO THE P R E S I D E N T , THE SENATE
& THE HOUSE OF REPRESENTATIVES

By the Director of

WA R MOBILIZATION
AND RECONVERSION
April 1,1946

U. S. GOVERNMENT PRINTING OFFICE • WASHINGTON • 1946







LETTER OF TRANSMITTAL
OFFICE OF WAR MOBILIZATION AND RECONVERSION,

Washington, D. C, March 31,1946.
The President.
The Honorable the President of the Senate.
The Honorable the Speaker of the House of Representatives.
SIRS: AS Director of War Mobilization and Reconversion I hereby submit my quarterly report in accordance with the requirements of the Congress as set forth
in the War Mobilization and Reconversion Act.
This, the sixth of the quarterly reports of this Office,
I have called "Production Moves Ahead."
Respectfully,




Director.

m




CONTENTS
PART ONE
T H E ECONOMIC SITUATION

Page
1

Progress in Production
Danger of Inflation
Industrial Relations and Wage-Price Policy
Looking Ahead

1
7
11
17

PART TWO
SPECIAL PROBLEMS OF TRANSITION

Veterans
Housing
Food and Famine
Textiles and Clothing

19

19
23
31
37
PART THREE

LIQUIDATING THE WAR

47

Contract Settlement
Surplus Disposal

47
49

SCIENCE
OPERATIONS OF THE ADVISORY BOARD

54
55

CHARTS AND DIAGRAMS

Production Goes Civilian
Employment in Transition
The Eager Market for Goods
Strikes in War and Peace
Services to Veterans
Housing Program: The Need, and the Size of the Task
The World's Food Deficits, 1945-46
Why Europe Needs Our^Help
Low Cost—Low Output
Cost of Wearing Apparel
Profits vs. Production in Textile Mills
Shift in Suit Production




vi
3
5
13
20
24
32
34
38
40
41
44

Government war buying shrinks by three quarters in less than a year;
civilian share of national output is now over 8 5 % .
220

220

NATIONAL OUTPUT OF GOODS AND SERVICES

ESTIMATED
low

high

TO PRIVATE
PURCHASERS

<
UJ

3rd quarter
1944




4th

1st

2nd

3rd

1945

4th

1st

2nd

1946 Estimated

PART ONE
THE ECONOMIC SITUATION
I
PROGRESS IX PRODUCTION
In the first 3 months of 1946 the Nation met and surmounted many
difficult obstacles on its road to full civilian production. The quarter
ends with industry producing at a volume unprecedented in our peacetime history.
As the year began, Phase I of reconversion—the physical changeover of plants to peacetime use—had been virtually completed. The
more complex adjustments of Phase II—the period in which men,
materials and components must be brought into harmonious balance
for full production—were just beginning to be felt.
In meeting the turbulent economic problems inevitable in any such
period of major readjustment, the Nation made solid gains:
Major issues of wage and price adjustment have been met
in a way to stimulate production without losing vital ground
to the force of inflation.
Labor-management contracts established in many major industries under collective bargaining should assure uninterrupted production.
Vigorous programs have been formulated to meet the most
critical shortages, most notably in textiles and housing.
The measure of the Nation's success is that, while it has been meeting these problems—even while it has been beset with temporary stoppages of production in vital areas—production for the civilian market
continued steadily to increase.
Total civilian production now stands at the highest level
ever reached by the Nation, in war or in peace: an annual rate
of more than $150 billion.
Nonagricultural employment is higher now than before VJ-day:
Total employment, exclusive of those employed on farms, was 44,700,000 in February.




Private wage and salary payments, which dropped to an annual
rate of $75 billion after VJ-day, have now returned almost to the preVJ-day level of $82 billion.
But the difficulties of the quarter have also taken their toll. While
production has been good, it would have been even better if labormanagement disputes had not put out the fires in steel furnaces,
stopped some automobile assembly lines, curtailed production of electric equipment and other vital components. These losses slowed down
the flow of consumer goods to the market and increased the inflationary pressures whieh stem from shortages in the face of huge demand.
The quarter has been sobering and difficult, but tremendous gains
have been made and, as a result, we are moving steadily and swiftly
toward our goal of an ever rising standard of living, creating hundreds of thousands of new jobs as we move. (See frontispiece chart,
Production Goes Civilian.)
F O U R T H CgUARTER,

1945
.
During the last 6 months of 1945, Government purchases of goods
and services for war use, including the pay rolls of the armed services and war agencies, were reduced by three-fifths—$50 billion. Almost 5 million veterans were demobilized during the fourth quarter
alone.
As war production fell and demobilization poured men and women
into civilian life, it was feared that unemployment would rise sharply.
Perhaps the most striking development of the fast-moving events of
the fourth quarter was that this sharp rise in unemployment did not
occur.
There were two reasons. One was the withdrawal of some 3 million
women and youths from the labor force during the last 6 months of
1945, together with the temporary withdrawal of some 2 million veterans, who were resting, reestablishing homes, or attending to personal
affairs before looking for jobs.
The second reason was the extremely rapid upturn in industrial
employment. Nonagricultural employment had fallen by only about
2 million after VJ-day. During the fourth quarter it rose so rapidly
that early in January it was above the VJ-day level. (See chart,
Employment in Transition.)
FIRST QUARTER,

1946

By the first quarter,, the shift out of war production was largely
completed. War pay rolls and Federal purchases were down more
than one-third from the already sharply curtailed fourth quarter, to a
rate of $26 billion or less. Rapid demobilization continued. Most of
the newly discharged veterans, and some of those formerly discharged,




EMPLOYMENT IN TRANSITION
60

Labor force fell rapidly after VJ; employment rose
from September on, topping its war level in 1946.

A8C.

SEPT.
194S

OCT.

NOV.

DEC.

MR.

FEB.
MERME
1845
APRIL THRD JOKE

•tr Includes persons temporarily idle on account of strikes, Illness, temporary layoffs, etc.

194S

joined the civilian labor force. This inflow of more than 3 million
veterans from the fourth quarter to the first was balanced only in
part by the Withdrawal of 800,000 wartime workers. As a result,
about 2,500,000 were added to the civilian labor force.
But civilian output and employment also rose rapidly. The
size of the civilian market, the need for increased inventories
and added equipment, and the need of foreign countries for
our products all stimulated output. Ordinarily, the rate of
consumer and business purchases together would have fallen
by $10 to $12 billion after a Christmas boom as large as that of
1945.
But this year the upsurge in demand and in output was
such that private expenditures in the first quarter actually
equalled those of the Christmas boom, according to preliminary data now available. Consumer purchases fell, but those
by business enterprises rose. Exports rose sharply; construction, though still very low, showed an important gain; and
business purchases both of equipment and of goods for inventories increased.
This rise in nonwar production absorbed almost all of the readily
available labor. Total nonngricultural employment increased by
approximately 1,500,000 between the fourth quarter and the first—a
bigger rise in employment than any we experienced even during the
war in a comparable period. The number of persons without jobs and
actively seeking them—although continuing to rise during thecapidly
shifting conditions of the transition—was still below 3 million in
687742°—4G-




February. In addition, a substantial number of persons with jobs
were temporarily idle, because of illness, layoffs, labor disputes, etc.
Output attained its high level in spite of labor-management disputes
in important industries. During January the number of man-days
lost because of these disputes slightly exceeded 3 percent of total mandays worked by employees in private establishments—the equivalent
of more than a day's time lost by every nonagricultural worker in the
country. Labor-management disputes affected steel production and
the production of consumer durable goods most heavily. The upswing in the production ef some of these goods will be delayed by
many weeks.
Tfie significance of the work stoppages lies not only in the direct
loss of output, but also in the danger of creating shortages of important materials or components. The 4-week shutdown in basic
steel is having repercussions on production in many industries. The
steel shortage would be even more acute if strikes in steel-processing
industries and at General Motors had not reduced demand.
PROSPECTS FOR THE COMIXG QUARTER
During the coming quarter, Federal expenditures wHl continue to
decline. Nonwar output and employment will continue to rise. And
while the increase in supplies will somewhat relieve,the pressures of
excess demand, heavy inflationary pressures will continue.
Federal war pay rolls plus purchases of goods and services from
private business for military use will probably fall by a fifth, to
an annual rate of $20 billion. Approximately 1,500,000 additional
members of the armed forces will be demobilized during the quarter
but the net decline of the armed forces will be somewhat less, since
inductions are continuing.
No longer will demobilization be counterbalanced in large part by
the withdrawal of war workers from the labor force and by the temporary withdrawal of veterans. Each decrease in the armed forces
will be accompanied by a substantial increase in the civilian labor
force.
Barring further serious work stoppages, however, production should rise rapidly during the second quarter of 1946,
and jobs should be available for most of the added workers.
There were 2,700,000 active jobseekers early in February;
there may be 3,600,000 now. The number may increase within
the next 3 months, but the average for the coming quarter
will probably not be above 3,500,000.
The prospect of increased output has been greatly improved by
the collective bargaining agreements reached in many' industries during the first quarter of the year, and the special steps that have been




taken to put price policy on a flexible basis and remove or prevent
bottlenecks in production and distribution.
The supply of goods and services available to consumers, therefore,
should continue to increase during the coming quarter. Exports will
continue, construction activity will increase, and so in all probability will business purchases of equipment and of goods for inventory. As a result, the total output of goods and services in the Nation,
although it may fluctuate over short periods, will continue at a high
level. It is quite possible that the increases in civilian output may
more than offset reductions in Federal pay rolls and purchases, and
result in a total national output several billion dollars above the level
of the quarter just ended.
It is important not only that output rise, but that output of certain
types of goods and services rise with especial speed. Most important,
every feasible device must be used to accelerate housing construction.
The increase in supplies available to civilians will reduce inflationary pressures which now are very serious. Only the vigorous
efforts of the Federal agencies concerned, and the cooperation of businessmen and consumers, have kept prices from rising rapidly.
The reduction in the Federal deficit is aiding in the campaign against inflationary pressures. The high level of national income and output is holding Federal tax receipts above
expectations, and war expenditures are being cut faster than
had been anticipated. As a result, the deficit for the fiscal
year ending June 30, 1946, will be several billion dollars less

THE EAGER MARKET FOR GOODS
Consumer expenditures rise, savings drop,
as more goods become available.




than was anticipated when the President delivered his budget
message. During February and March, when heavy tax payments are made, revenues exceeded total expenditures. They
will again fall below expenditures in later months; but as
expenditures continue to decline, the amount of the current
deficit will steadily shrink.
This wrill reduce inflationary pressures, since the excess of public
expenditures over receipts augments private incomes and hence private
demand. But even with the shrinking deficit, the heavy excess of
private demand over available supplies will continue.
The largest component of private demand—consumer demand—
depends mainly upon the level of consumer income. In spite of the
reduction in the take-home pay of wage earners, total income of the
individuals and families of the country, after they had paid their
taxes, was only slightly lower in the first quarter of 1946 than before
VJ-dny. Reduction of Federal income-tax rates contributed to this
high level of consumers' spendable income. Special Federal payments, notably mustering-out pay and to a lesser extent unemployment compensation payments and veterans' readjustment unemployment allowances, increased sharply. Before VJ-day the three types
of payments together were running at a rate of only $700 million per
year. During the last quarter of last year and the first quarter of
this year, that rate was up to $6 billion per year. Mustering-out
pay alone in the first quarter of 1946 was at a rate of over $4 billion
per year.
During the coming quarter, total consumer income will be no higher
than the first quarter level and probably slightly below. For while
production for private use, and therefore the income derived from it,
will rise, the decline in mustering-out pay, Federal salary payments,
and Federal purchases of goods and services will be at least as great.
(See chart, The Eager Market for Goods.)
However, the supply of goods available to consumers will continue
to increase. This rise in supply without an increase in income promises well for the future relief of inflationary forces, but for the present
the maximum rise in supply relative to demand which is possible
will be far from sufficient to eliminate the upward pressures upon
prices.




.

DANGER OF INFLATION
The pressure toward inflation will remain for months to come the
single most serious threat to successful completion of reconversion.
1. The upward pressure against price ceilings lias not relaxed.
During the first quarter of 1916, food and commodity prices continued
to inch higher. The wholesale cost of food went up during the quarter
so that on March 15 food prices were 1.6 percent higher than those on
December 15,1945, and 3.1 percent above those a year previously. The
index of prices for all commodities other than farm products and.food
was higher on March 15 than on any preceding date this year, and was
2.5 percent above the corresponding period in 1915.
2. Huge deferred demands, added to normal demands, have created a market bigger than ever before. These include the needs of
individuals who had to postpone buying essentials during the war and
business needs for plant and equipment. With the removal of wartime
restrictions and motives for "doing without", demand has jumped to
a new high. Overseas, there are commercial markets and enormous
requirements for relief and rehabilitation supplies.
3. Business and individuals have unprecedented purchasing
power.—Income payments have held up well and at the year's end
business held $80 billion in liquid assets, and individuals $145 billion,
a total of $225 billion in liquid assets (i. e., currency, demand deposits,
time deposits, and U. S. Government securities). This compares with
the total liquid assets held by business and individuals of $ >5 billion at
the end of 1939, and of $81 billion at the end of 1941, and is the largest
reserve ever accumulated in this country.
The element of speculative activity, apparent immediately after
VJ-day, instead of months later as after World War I, must be recognized as having played a part in the continued up movement of such
commodity markets as those in rye and cotton. The wholesale price
of cotton has risen 4.1 cents per pound in the last year, 3.4 cents since
VJ-day.
4. Consumer and business buying continues at a high level.—
Consumer buying has continued high during the quarter and stands at
the highest point in our history. Expenditures by business likewise
remain high. While buying continues heavy, it has not so far been




unrestrained. With prices uncontrolled, it might become so. Business and consumers might use their reserves to outbid each other for
scarce goods, and to beat rising costs. This is the danger inherent in
the widespread shortages coupled with excessive demand and high
available purchasing power. The Government must attack the problem with all available means, including fiscal measures, but continued
price control must be a fundamental safeguard for consumers and
business alike against inflation.
WEAPONS AGAINST INFLATION
To combat the inflationary pressures that lie ahead while production
is increasing to meet demand, the first prerequisite is prompt renewal
of the stabilization legislation itself. The necessity for promptness
can hardly be overstressed. Delay promotes uncertainty. The mere
possibility that the stabilization powers will be weakened can undermine the program in several ways. It gives every seller an incentive
to hold his product off the market in order to take advantage of possible price increases and it gives every buyer a strong incentive
to buy as far ahead as he can. Thus, anticipation of higher prices
creates shortages that would not exist if people knew that stability
would be maintained.
These artificially induced shortages, moreover, are likely to create
such pressure to obtain materia-ls as to break down c«mpliance. If
hoarders secure goods which ought to be flowing into normal trade
channels, business firms deprived of goods which they wish to use
for actual manufacture and sale may be tempted to pay more than
ceiling prices rather than curtail their activities and operate at a loss.
Speedy action to renew stabilization authority will give business
and the consumer the assurance they are entitled to have that conditions will be kept stable.
SEJRSIUIES
In addition to the stabilization legislation itself, supplementary
action by the Congress is required to continue the powers that were
needed during hostilities and are still needed to reinforce the stabilization program. Authorization to pay subsidies during the fiscal
year 1947, so as to make sure that high production can be sustained
at stable prices, has been requested by the President. He has also
requested that payment of food and non-food subsidies together be
authorized up to a total of $2,051 million for the fiscal year 1947, as
compared to an authorization of $2,416 million for the current fiscal
year.




8

The subsidy program will be terminated as rapidly as possible, but
it is important that this major weapon in the stabilization arsenal
be kept standing by, ready for immediate use.
WAR POWERS ACT NEEDED
The Second War Powers Act is now due to expire on June 30, 1946.
Its extension until June 30, 1947, has been requested by the Administration. The House has approved and sent to the Senate a bill which
would extend the act until March 31, 1947. The Second War Powers
Act is the statutory basis of present controls over inventories, exports and for the priority and allocation powers which permit the
channeling of scarce materials into such basic and important consumer needs as low-cost clothing and housing.
The power to break bottlenecks by guiding scarce materials into
essential uses so that lack of them need not impede production is
solely dependent upon this law. Such authority is essential to rapid
expansion of production in many important areas and to insuring
that the goods thus produced will flow to the consumer markets instead
of being hoarded. Thus it is vital to the relief of inflationary pressure.
Finally, the Agencies that administer these laws, primarily the
Office of Price Administration, the Civilian Production Administration, and the National Wage Stabilization Board, must be given
adequate funds to do their jobs. A control administered inefficiently because of lack of funds is hampered in carrying out its
purpose. Delay in making decisions, laxity in enforcement, and
all the other consequences of understaffing and overburdening
the agencies can only threaten the success of our reconversion
and relax these important barriers against inflation.
PRICES AND PRODUCTION
Since VJ-day, civilian production as a whole has increased by
$20 billion, annual rate, and now has reached the highest peacetime
peak in our history. Total non-agricultural employment is higher
than before VJ-day. If general price control were actually holding
back production and stemming the flood of civilian goods which we
have the potential capacity to produce, as some persons have argued,
developments since VJ-day would have followed a far different pattern.
The expansion of production possible since VJ-day has, however,
been limited by practical problems. Workers were not always available where needed; some materials were scarce. Tasks of organization
and physical reconversion were time-consuming and necessary, not only
where plants were changing over from war to peace output but also
where substantially the same article was manufactured for peace as for




war. Many smaller companies, construction firms in particular, which
were restricted in their business by the war economy, were preparing to
start up in business again. Labor was being retrained and equipment
rearranged in different assembly lines. Channels of distribution, more
various in peacetime than in war when the Government provided a
single vast market, were being filled again after weeks, often months,
of effort.
Business concerns would be hindered rather than helped by
uncontrolled prices. Rising prices have a disruptive effect on
the economy. When all prices are rising, business is inevitably
thrown into a competitive scramble for supplies; hoarding
is general. It is important to the businessman, faced by such
a situation, that he buy raw materials and inventories before
prices advance further. On the other hand, if prices are rising, producers are inclined to hold back finished goods from
the market in the expectation of higher and higher profits.
Real shortages are thus aggravated by artificial shortages.
It is true that as conditions change, output of a particular commodity may be threatened unless its price ceiling is raised. In recognition of this, price increases have been granted specifically to break
production bottlenecks that were holding back reconversion, and where
price was the basic difficulty. The fact that price increases helped to
step up output in these cases does not mean that a general price increase would increase all production.
Hotv Soaring Prices Operate
The record of the past shows that soaring prices do not
stimulate sustained, steadily increasing production—the only
kind of production that will fill the present gap between supply
and demand; the only production that can take us forward to
the expanding economy we are beginning to build. Under
inflationary conditions, uncontrolled prices rise far faster than
production, and actually cause production to fall off.
The factors limiting the expansion of civilian production since VJday—physical reconversion, manpower and materials shortages, problems of organization and labor-management disputes—are beginning
to diminish in importance. During the rest of the year, civilian production should be able to expand fast, for the job of physical reconversion is virtually completed, the manpower situation is improving
and will continue t© improve with the net release of 2 million more
persons by the armed services, and many materials shortages have
eased. Gradually, supply will begin to approach balance with demand. At that time, it will be possible to remove price controls,
since runaway inflation no longer will threaten.




10

INDUSTRIAL RELATIONS AND WAGE-PRICE POLICY
Policies on wages, prices, and industrial relations are of major
importance to reconversion. Whether we have extreme peaks and
valleys of business, or move steadily toward higher levels of production and employment will be determined in large measure by their
adequacy.
The three—wages, prices, and industrial relations—are intimately
intertwined. Relations between management and labor develop within
a wage-price framework and the results of collective bargaining ordinarily lead to changes in wages, or prices, or both.
The situation which confronted the Nation on VJ-day was a difricult one. Wages and prices had been closely controlled for more than
3 years. During the war period there had been no normal collective
bargaining, and pressures were built up which ordinarily would have
found expression through this channel. With VJ-day, dislocations
occurred in the labor force. Many hundreds of thousands of war workers were displaced, millions of others found their weekly earnings
sharply reduced. The readjustment to a peacetime life was bound to
be difficult.
A large part of that readjustment is now behind us and it has been
accomplished without a disastrous set-back for our economy. This is
particularly gratifying when we consider the magnitude of the undertaking. There have been industrial disputes, as there always are
under our American system. But, with a few exceptions, the major
ones have been settled with surprising speed. We are in a position
to square away now for a rapid expansion in production.
The broad objectives of the wage-price policies adopted since VJ-day
are clear. We have sought to avoid price inflation while permitting,
as far as possible, the operations of collective bargaining to determine
wage rates that are consistent with stabilized prices. Such an undertaking was necessarily complex and difficult. But it had to be done,
both to provide an adequate basis for industrial relations and to bring
about a wage-price relationship that would stimulate and sustain highlevel production.
G8T742"— 46—




11

Viewed more specifically, our wage and price policies have been
directed to the accomplishment of three related objectives:
(1) To hold the price line and thus avoid a runaway price
inflation.—This has been done. Price increases have been granted
and are to be expected in a dynamic economy. But the line in
general has been held.
(2 ) To permit increases in wage rates through the operations
of collective bargaining.—This has been done. The extent of
the accomplishment has been obscured by the concentration of
public attention on the relatively few difficult and highly publicized cases. But upward revisions of wage scales have been
voluntarily agreed upon by management and labor in literally
thousands of cases since VJ-day. More than 9 million workers
have received wage increases since VJ-day.
There are, to be sure, other wage adjustments yet to be made
during the reconversion period. But in many industries and
areas, management and labor working together have already
developed new wage patterns more nearly consistent with a
postwar high production economy. Wage rates are now being
approved at these voluntarily established levels; and this adjustment, so difficult and yet so necessary for a successful transition,
has been accomplished without serious dislocation of the economy.
(3) Within the framework thus established, to minimize the
extent and duration of industrial disputes which inevitably follow in the wake of war.—Industrial unrest is inescapably associated with the vast dislocation of the labor force and the business
uncertainty that accompany the return to a peacetime economy.
In the present instance, this understandable ferment was increased
by pressures which had been built up under the strict wage-price
controls of the war years. (See chart, Strikes in War and Peace.)
It is difficult to measure the degree to which we have succeeded
in minimizing the economic consequences of industrial unrest.
Major disputes in such basic industries as oil, steel and meat packing have been settled with reasonable promptness on terms recommended by fact-finding boards, or by the President. Hundreds
of others have been resolved through the efforts of the Conciliation Service of the Department of Labor. Most major industries
have new completed bargaining and are in production. During
January, more than half as many man-days were lost as a result of
labor-management disputes as were lost throughout the entire war,
but in March the losses had declined and were almost negligible.
Without doubt, work stoppages have delayed our reconversion
program. In a few instances, parties to wage-price disputes have
revealed a shocking disregard for the public interest. These




12

STRIKES IN WAR AND PEACE
Industrial disputes have cost more man hours
since v-J Day than in all the war years.
MAN

DAYS LOST BECAUSE OF STRIKES AND

LOCKOUTS

O 20

10

SEPT.

OCT.

NOV.

DEC.

1945

have, however, been the exceptions. Improved labor-management
cooperation is essential if we are to achieve the high level of
prosperity almost within our grasp, and there is every reason to
believe we shall have it.
EESIBXD T H E W A G E AND P R I C E P O L I C I E S
Wage-price relationships have a primary influence upon the behavior of our whole economic system. If prices are too high in relation to wages, consumers cannot buy the products turned out. by our
farms and factories; the economic machine stalls for want of customers. If wages are too high in relation to prices, employers cannot
realize a fair return upon their investments and the economic machine
stalls for want of active enterprisers.
The particular relationship between wages and prices that will stimulate maximum output and employment changes constantly as improved techniques increase productivity. As productivity increases,
the gains in terms of goods and services can be passed on to the consumer either through lowrer prices or through higher incomes or by a
combination of the two.
Because it directly affects policy determination, it is important to
note what happened to these wage-price relationships during the war.
Throughout the war years, both wages and prices moved slowly upward under strict control by the Government. It is a fundamental
fact, however, that wage rates did not advance during the war as




13

rapidly as did prices. This was due essentially to the operation of
the Government Wage Stabilization program.
The War Labor Board, during its existence, permitted relatively
few upward revisions in general wage rates. Instead, it encouraged
necessary adjustments in the wartime earnings of workers through
special incentive payments, shift premiums, overtime pay, and wartime upgrading. As a result of these adjustments, wage earners' incomes, in contrast to wage rates, went up more than did prices.
But many of these adjustments were purely wartime phenomena,
rather than permanent changes in the wage structure. The effects of
some of them ended with VJ-day; those of many others will terminate
as labor supply catches up with demand.
In the field of wage policy, the broad alternatives with whieh
we were confronted on VJ-day were (a) to return to a basic
wage structure which had risen during the war appreciably less
than prices, or (b) to move forward to a higher level of wage
rates. Adoption of the first alternative, with prices at their
postwar level, would have meant the reduction of real wages
below their prewar level. This would have been unfair to
workers and dangerously disruptive to peaceful industrial relations. It would also have perpetrated a wage-price relationship which would have impeded the operation of the whole
economy in the future.
A new wage level more nearly in keeping with the new price level
obviously had to be established. Moreover, the profit position of industry as a whole was, with some exceptions, sufficiently high to permit wage increases during the transition period with the least possible
economic dislocation.
In view of this general situation, the post-VJ-day wage-price policy,
enunciated in Executive Orders 9599 and 9651, undertook to hold
prices relatively stable and to permit collective bargaining to determine a level of wages consistent with them. Since there were wide
variations in the financial positions of various industries and companies, as well as in the historic wage patterns of various communities,
the Government clearly could not etablish a uniform wage pattern for
the country as a whole. What it could do and what it did do in the
period from VJ-day to February 14, was to control the rise in the
level of prices while freeing wages of control so long as wage increases
had no price consequences. By this means, a more normal balance
between prices and wage rates was achieved through collective
bargaining.
An adjustment of this magnitude and importance could not be accomplished without some difficulty. Not all companies, nor all industries, were in the same financial positio». Wage-price relation-




14

ships also varied. I t was therefore inevitable that in some instances
the establishment of a new wage pattern would put serious pressure
upon some prices. In a few cases, notably in that of steel, price increases had to be granted.
It is clear that the decision to hold the price line placed a ceiling
upon the new level to which wages could rise. However, it was an open
question how long the price line could be held without more direct
wage controls. Once a more satisfactory wage-price relationship had
been achieved, it was necessary to stabilize the new situation.
PRESEXT WAGE-PRICE POLICIES
The present wage and price policies, as outlined in Executive Order
9697 on February 14, are designed to deal with a situation in which
collective bargaining in important sections of the economy has established wage levels appropriate to current prices. The policies are,
therefore, based upon the principle of accepting as a pattern for guidance in approving wage adjustments in a given industry or locality,
those which have already been voluntarily worked out. There are
parallel pro visions dealing with inequities.
More specifically, the policy provides that the National Wage Stabilization Board shall approve any future wage increase which conforms with these established patterns, and that OPA shall grant price
relief when approved wage increases cause hardship to an employer.
To expedite the administration of this policy, the Office of Economic
Stabilization has been reestablished and both the National Wage
Stabilization Board and the Office of Price Administration have
adopted streamlined procedures. The Wage Stabilization Board will
give pre-approval of wage adjustments to the maximum extent possible.
As the Board is able to identify industries and areas where wage patterns have been established, it will issue orders giving prior approval
to any wage increase conforming to the indicated pattern. By this
means, both management and labor will be informed in advance of the
limits to which their wage bargaining can go and the number of individual cases that come to the Board will be reduced.
The Office of Price Administration has also streamlined its procedures in line with the new policy. Priority is given to industry-wide
adjustments, this being the most efficient and expeditious way of handling large numbers of individual cases at once. Similar priority
is being given to acute supply emergencies, both industry-wide and
in individual firms, and to actions to stimulate larger output of low
priced goods. Methods have been developed for quickly adjusting
data already on hand to reflect current operating conditions, and simplified forms for telegraphic response have been designed for use
where additional data are indispensable.




15

In the case of some products of lesser importance in the economy,
simple formulas have been adopted for interim price action covering
industries or groups of firms where adequate information for final
action is lacking.
As a means of concentrating its limited manpower on the more important cases, OPA is also endeavoring to work out a program to
exempt from price control additional commodities which are not significant in the cost of living or in business costs, and to provide for
some extension of automatic self-pricing by business in commodity
fields where uniform pricing was not the rule and where looser pricing
methods would not substantially threaten general economic stability.
The results of such streamlining were illustrated by the rapid handling of price adjustments in basic steel and the steel processing and
fabricating industries. Price increases covering the whole field of
basic steel products were issued within 2 weeks after adoption of the
new wrage-price policy and the settlement of the steel wage issue. By
the third week in March, additional price adjustments had been made
for 10 major branches of steel processing and fabrication and for miscellaneous machinery products in which steel was a large element of
cost.
This wage-price policy is designed to meet the needs of the
country while inflationary pressures continue. The adoption
of the "pattern" standard for wage adjustments should provide sufficient flexibility to enable employers and employees to
bargain more effectively over wages. Granting price relief to
industries and firms who are experiencing hardship will
enable them to produce needed goods at a reasonable profit.
The effect of the revised policy on living costs as a whole
should be small. If work stoppages and plant shut-downs
are at a minimum in the months ahead, supply will gradually
begin to approach demand in industry after industry. As this
occurs, controls can be removed.




16

IV
In meeting the crucial problems of the quarter just past, the Government, has held firmly to its two chief goals of the transition period,
(1) to increase and'sustain production, (2) to restrain inflationary
pressures until as a result of rising output supply begins to approach
balance with demand.
Definite progress has been made under the wage-price policies which
are the key to the program. We have provided a flexible framework
within which labor and management can resolve their differences and
can work together to achieve that increased output which alone can.
place our economy on a basis of sound expansion.
We have reason to be optimistic about the future. The
stresses and strains to which our economy has been subjected
since VJ-day have proved it is healthy and resilient. Behind
the headlines about the more dramatic work stoppages, sleady
progress has been made; mass production of many peacetime
goods has been attained. As we continue to go forward we
must keep our goals firmly in mind and settle our future problems, as we have those of the past quarter, in the light of the
objectives the Nation has set—high production, a sustained
high level of employment, and increased opportunity for business, workers, and farmers to derive the benefits of a steadily
rising standard of living.
We have some of the tools we need. On February 20 the President
signed the Employment Act of 1946, which establishas a long-range
national policy of promoting maximum employment, production, and
purchasing power. Before this policy became law, it was discussed
thoroughly in committee and on the floor of the Senate and the House
of Representatives, as well as by industry, labor, agriculture, State and
local governments, and individual citizens. Under this act, the Nation
now has an effective implement to foster the free and efficient functioning of our competitive system.
The Employment Act directs the establishment in the Executive
Office of the President of a Council of three economic advisers whose
responsibility it will be to analyze and interpret economic develop-




17

ments, to appraise programs and activities of the Government in the
light of the declared national policy, and to formulate and recommend
national economic policy. The President will make an annual economic report to the Congress. A Joint Committee of both Houses will
consider the recommendations of the report.
In this way, the Executive and Legislative branches of our Government will have at their joint disposal timely and authoritative information on economic developments and economic trends, on the basis
of which careful plans can be laid to meet changing needs of production and employment.
The Employment Act of 1946 will be of great help in the long run,
but for the short run we need other tools. The previous portions of the
report have discussed the powers we need to prevent inflation and
stimulate total production. There are certain special problems which
must be dealt with individually. Given the tools, we shall obtain the
production necessary to meet such grave shortages as houses for returning veterans and an increasing flow of reasonably priced textile
products. We shall export the food necessary to lessen starvation in
Europe and Asia. We shall continue the programs aiding veterans
as they re-enter civilian life.
In the succeeding sections of the report, the policies and programs
with whieh we are attacking these special problems are outlined.




18

PART TWO
SPECIAL PROBLEMS OF TRANSITION
VETERANS
Between VJ-day and March 31, 1946, about 8.5 million persons were
released from the armed forces—nearly 5.5 million in 1045 after VJday and almost 3 million during the first quarter of 1040. During the
first half of 1046, the problems of readjustment for veterans will be
most acute.
Veterans are faced by the same problems that confront all citizens—
finding a job, finding a place to live and the attainment of reasonable
security. Their welfare depends basically upon the general health of
the economy.
These veterans, together with those demobilized earlier and these
still to return, are one of our most valuable national assets. They
are young, active, and self-reliant. As a group, they will be the core
of the wTork force which we need to attain high levels of production.
During the period of demobilization—and particularly dujring the next few months—a major task facing the country is
to turn this potential asset into an actual one. If jobs are
available for all of the veterans who want to work, the task
will be well done. The Federal Government is doing its share
by setting policies designed to stimulate the rapid expansion
of production and employment in private industry, but it is
up to the community to help the veterans find the right niche.
But readjustment of veterans means more than creation of job
opportunities. Many of them have never had a job and need advice;
others had their education interrupted. Many have handcaps that
make the entire process of readjustment difficult. Some veterans need
hospital care to heal physical and mental wounds incurred in service.
Hundreds of thousands of veterans cannot find a place to live. Federal, State, and local governments have therefore established an array

687742°—40-




19

SERVICES TO VETERANS
Here ii the percentage Increase
in the number of veterans
since VJ Day {to March I ) .

1262%:

Here Is the increase, during
the same period, In the number
of veterans receiving r

353%'

loans with Federal guarantee.

Education and training with
Federal aid.

'83O\

Vocational rehabilitation;

Care In Veterans' Hospitals

4 32%

-.
Readjustment (Unemployment)
allowances.

of services, rights and benefits designed to help veterans in the readjustment process. (See chart, Services to Veterans.)
JOBS FOR VETERANS
Unemployment among veterans rose rapidly as men and women
returned from service at the rate of over 1 million per month. While
a large number of veterans took time out, many others began to look
for work almost immediately. Not all of them were successful. About
500,000 veterans were paid a readjustment allowance for unemployment in the first week of 1946. By the middle of March, well over
1.6 million veterans were drawing these payments. Even though the
average veteran has remained ©n the readjustment rolls for a relatively short period, the task of finding suitable civilian work has proved
to be difficult for a large proportion of those released from service.
Veterans have been helped in finding work by Federal, State, and
local agencies. The United States Employment Service has carried
the heaviest part of the load. Between VJ-day and March 31, 1946,
about 4.4 million applications for work were filed by World War I I
veterans at local employment offices. Jobs were found for 850,000
of them.




20

EDUCATION
The war interfered with the educational plans of a large proportion
of those in the armed forces. This was foreseen, and the "G. I. Bill
of Eights"—the Servicemen's Readjustment Act—provides subsistence
and other payments to veterans who wish to undertake courses of instruction. Special benefits are provided, under Public Law 16, to
physically handicapped veterans who wish additional education or
training. In December 1945, the educational provisions of the "G. I.
Bill" were liberalized.
The number of veterans who are taking advantage of these educational opportunities has increased rapidly. On VJ-day, about 40,000
veterans—able-bodied and disabled—were in training either in schools
or on the job. By the end of February, 167,000 veterans had returned
to school and 39,000 more were in training on the job. In addition,
52,000 disabled veterans were receiving training assistance under Public Law 16—35,000 in schools and 17,000 on the job.
During the remainder of 1946, these numbers will continue to increase. Educational institutions will be crowded to capacity. The
already acute shortages of teachers, equipment, and housing will seriously limit the number of students who can be admitted unless effective
assistance is provided.
To ease the shortage of instruetors, the Army and Navy are
releasing a limited number of qualified university teachers
ahead of schedule under the point system.
To meet the housing shortage, Congress has made about
$440 million available for the dismantling and transportation
of temporary housing to new sites. Many colleges and universities have obtained additional housing under this program.
The Army and Navy have been requested to expedite the release of such items as laboratory equipment to colleges.
A directory of college and university vacancies is being
drawn up for the use of all agencies concerned with educational
counselling of veterans.
Steps to make on-the-job training programs of greater value to
veterans have been taken. Many States lack the funds and personnel
to establish effective methods for approving on-the-job training programs, a function assigned to them under the "G. I. Bill of Rights."
Steps to assist the States are now under consideration. The Retraining and Reemployment Administration, in cooperation with all
interested groups, is drawing up a set of standards^ and the Veterans'
Administration will, upon request, lend personnel to States to investigate the quality of on-the job training programs.




21

PENSIONS, INSURANCE, AND HOSPITALIZATION
Pension payments to disabled World War I I veterans are mounting
rapidly. On VJ-day, 640,000 World War I I veterans were receiving
pensions. By the end of February 1946, the number on the rolls had
risen to 1,100,000.
National Service Life Insurance claims with a maturity value of
over $3 billion have been awarded to the beneficiaries named by deceased veterans.
Twenty-seven thousand WorldWar I I veterans were receiving treatment in Veterans' Administration hospitals at the end of February.
Of these, about two-thirds were hospitalized for disabilities not
incurred in service.
HOME, FARM, AND BUSINESS LOANS
During 1944 and 1945, few veterans made farm, home and business
loans guaranteed under the "G. I. Bill." The number of guaranteed
loans totalled only about 30,000 on VJ-day. In December 1945, however, the loan guarantee provisions of the "G. I. Bill" were liberalized.
As a result, the rate at which loans are being guaranteed is rising rapidly. By the end of February, the number of loans guaranteed had
risen to 88,000. About 90 percent of all loans guaranteed are home
loans; 7 percent are business loans; only 3 percent are farm loans.




22

HOUSING
The Nation's housing shortage, already of a magnitude unparalleled
in American history, is still growing. It will become more acute in the
next few months.
In the last quarterly report of this Office, the housing emergency
was described as one of the gravest problems, and the most acute shortage, affecting the economy during the reconversion period. The Administration recognized that a problem of such proportions must be
dealt with as an emergency, with the same strength and daring that
characterized the war production program.
During the first quarter of 1946, a program of the dimensions required by the emergency was drafted by the Housing Expediter and
that part of the program which did not require new legislation was
put into operation, and request was made of Congress for additional
legislative authority. Until necessary legislation is enacted, it will
be impossible to put the program into full operation.
The goal is for 2,700,000 homes by the end of 1947. (See chart,
Housing Program.) The 1946 goal of 1,200,000 homes is five times
as high as the 1945 production record, and represents nearly 300,000
more homes than were built in our greatest construction year. But
the magnitudes are not disclosed in these statistics alone.
The achievement of the goal this year first requires the rebuilding of an industry disrupted by war; it requires the utilization of war-developed techniques in construction; and it means
adaptation of war techniques to the production of materials.
The aim is not merely to achieve the housing goals, but to
achieve them under conditions of price stability that will leave
the industry in a healthy condition, capable of supporting the
national economy by maintaining uninterrupted high levels of
construction.
THE TIME

ELEMENT

The Housing Expediter has stated that each month's delay in getting
the program started would cost 75,000 homes; each day's delay would
mean a loss this year of 3,000 homes for veterans.




23

HOUSING PROGRAM:
THE NEED, AND THE SIZE OF THE TASK
During the next two years 3,025,000 veterans and others
will be seeking homes; Government program wouTd provide
maximum of 2,700,000
W = 100,000 Home Seekors
JA = 100,000 Homes
HOME SEEKERS:

\ iiMIMHI ftitiMMiiii iffmM
%

—*

2.JS0.0OO v t T C B O S '

•

^U— TT»,0<0

HOMES WE HOPE TO BUILD:
rogrammed

a

The program calls for more home building than we have
ever done in our history,
BUILDING UKITS

but may use less labor and lumber than in previous years.
LAIOH




LUMBER

24

HOtfyHlntMi-'

The National Housing Agency has coordinated its program throughout the country with the Veterans' Emergency Housing Program.
Expediters have been appointed for each NHA region; technical research is being undertaken on methods of prefabrication and production of new materials, on expediting construction methods; special
emphasis is being given to labor recruitment, and field staffs are being
enlarged throughout the country.
Building activity also is increasing. The Department of Commerce
reports that in January residential construction started was five
times as great in dollar volume as in January 104,5; in February, residential construction started was eight times the dollar volume of the
same month in 1945. Such an increase cannot be sustained, however,
unless production of materials keeps pace; and such a rate of increase
will be imperative if the housing goals are to be met.
BUILDIXG SUPPLEES
The first big task in launching the housing program is to achieve
great expansion in the supply of building materials. Considerable
progress has already been made but much remains to be done. Residential construction in 1946 under the emergency program will require
five times as much in supplies as in 1945; in 1947 the residential building supplies needed to achieve the housing goal are eight times the
supplies used in 1945. Nevertheless, the building materials required
for the emergency program are less than wTas used in residential
construction in the previous peak years. The same is true for the
labor force, both on- and off-site. Both facts are realistic evidence of
the feasibility of the emergency program. (See chart, Housing
Program.)
The problem of translating a building program into needs for specific materials is as diflicult as the problems connected, in wartime,
with evaluating military programs in terms of specific materials. The
houses to be built will be based on the choices of a multitude of purchasers, renters, builders; but to a large extent the types of houses will
depend on the materials which are available. In prefabricating, the
problems are immense, and the types of materials that will be used are
subject to constant change until production ideas become actualities.
A few months back the supply outlook for common and face brick
and for cast iron soil pipe—two prime essentials for home construction—looked rather discouraging. Various actions by Government
and industry, however, have already stimulated a very substantial rise
in the output of brick and soil pipe. A much greater rise is needed to
meet the requirements of the housing program and other essential
construction; but we possess the necessary capacity and the outlook is
promising.




Clay sewer pipe is another basic item whose production has risen
substantially since VJ-day but must rise much further to meet requirements in connection with the housing program. Cast iron radiation requirements are within the limits of existing plant capacity but
far in excess of current production. Strenuous efforts must be made
to expand this output rapidly and drastically.
The production of gypsum board is nearing capacity as a result of
Government assistance in procuring paper liner; production of other
wall board is likewise at high levels. But the housing program creates
a tremendous demand for these materials and expansion of productive
capacity will be necessary.
The Problem of Lumber
Lumber and lumber products currently present a most complex
and difficult problem of supply. The production difficulties of the
industry are being ironed out along with problems of channeling
lumber to the most essential users. The outlook is improving, but at
best the tremendous demand for lumber in 1946 will outstrip supply
by a substantial margin.
Without premium payments and other Government assistance, production this year is not expected under the most favorable circumstances to exceed 30 billion board feet, of which 8 billion would be required for residential construction under the emergency program.
CPA's goal is for 32 billion board feet, but all lumber requirements
will call for more than 36 billion board feet. This would require an
annual rate of lumber production 50 percent higher than that which has
prevailed since VJ-day.
Every effort will be made to expand output and to insure adequate
supply for housing and other most essential needs, including a small
amount of highly important exports.
Exports Screened Down
A special inter-agency report issued by this Office on January 9
discussed in detail the lumber exports for 1945, which amounted to
only a little more than 1 percent of total production in the United
States. The exports of lumber last year had only a limited effect on
supplies available for housing. Due to the continued shortage of all
types of lumber, the careful screening being given to lumber export
requirements today will further minimize the effect of these shipments
on housing.
The total amount of lumber requested by foreign countries during
1946 is over 4 billion board feet. Civilian Production Administration
and the Department of Commerce have reduced this to 1.3 billion
board feet and further screening will be made during the year. Due to




26

the critical shortage of lumber, exports are currently far below the volume necessary to meet these screened needs. Whether exports can increase later will depend on supply. It is desirable to export a reasonable portion of supply. Such exports are necessary in exchange for a
heavier volume of essential imports, not only of high grade construction lumber but of other scarce items, such as tin and sugar. In addition, exports to Europe help to restore bridges, build docks, and assist
in other rehabilitation projects which will enable the war-torn countries
to resume international trade. Only a fraction of the lumber exported
is of the type used in residential construction, but some exports of
this type are important in providing shelter for people in bombed-out
areas of Europe.
tiOVERKMEOT ACTIONS TO INCREASE SUPPLY
Just as plant capacity was strained to produce the implements
required for war, so now, in the interest of spe«d in meeting the housing goals, it will be necessary to strain all available capacity to
produce adequate supplies of building materials. This will be true
for conventional materials, as well as for substitute and new types.
This means that in addition to bringing all plants up to a capacity
level of ©peration some plants must operate beyond the ordinary limits
of efficiency. It also means resorting to relatively high-cost production in some cases. This will involve extra shifts, longer hours, and
reactivation of idle high-cost capacity.
Operation of building materials industries under forced
draft will mean the difference between success or failure of
the program this year. Clearly these extra costs must be met
if we are to get the increased output necessary for the success
of the housing program. The Administration has proposed
meeting these extra costs of extra production through
premium payments.
The premium price plan is a device whereby the producers who incur
higher costs would be reimbursed and thus be able to operate and sell
their products at the prevailing market price. This device would
make it unnecessary to raise the market price—a method which would
involve giving an unnecessary bonus to the bulk of producers who have
incurred no extra costs.
Holding Mown Cost of Homes
Premium payments would be used sparingly, but without them the
materials going into all homes would increase in price., and consequently the prices of the finished houses would be greater. One of the
objectives of the housing program is to build houses at prices veterans
can afford—whether they intend to purchase or to rent. The use of




27

premium payments will help to achieve this purpose. Through the
use of premiums, also, submarginal producers who otherwise might
not start up business would be enabled to operate'profitably. Their
aggregate output would make a sizeable and necessary contribution to
the housing program and the rebuilding of a strong construction
industry.
The payment of premiums would be required only during a temporary period, the period of the emergency when we have to satisfy the
requirements by forced-draft operation. It is the price necessary to
pay for speed. But this is a modest price—far cheaper than the
alternatives.
Without authority to pay premiums considerable must be sacrificed
from the program: (1) In the number of houses that can be built
for veterans this year and next, and (2) in the cost of the homes that
are built.
Another Government action indicated to eliminate materials bottlenecks is that of underwriting to an extent the cost of plant expansion
for building materials. Some plants already are expanding, but in the
case of others it may sometimes be necessary to obtain special assistance
from the Government in reducing the risks involved. For this purpose,
it is necessary to have at hand other implements of assistance that were
so effective and necessary during the war.
It is to be expected that many of the new idle war plants can be
converted to the manufacture of building materials, and of prefabricated parts for housing. Every encouragement should be given to this
type of enterprise.
In addition to the proposed premium prices and financial aids for
capacity expansion, the Government will continue to provide important assistance to private industry in such forms as priorities on equipment and raw materials, recruitment of manpower and release of
surplus war property.
LIMITATIONS ON USE OF MATERIALS
Not only is it necessary to expand production of materials, but
strict regulation of the use of the materials that are available will be
necessary at least throughout 1946.
The Civilian Production Administration late in March announced
a program for limiting use of building materials and is revising its
regulation channeling materials into low cost homes and other essential construction.
The limitation order imposes certain restrictions on alterations
and repairs to existing structures, and on commercial and industrial
construction. Such a program, the Administration believes, not only
will help to preserve supplies for construction activities judged to be
appropriate under terms of the Veterans' Emergency Housing Pro-




28

gram but defines latitudes for essential repairs and upkeep of existing dwellings. At the same time it restricts use of materials in
commercial and other construction. This means a postponement
of deferrable or nonessential construction but will not eliminate the
construction of necessary industrial facilities, schools, hospitals, and
the like.
CPA Priorities Regulation 33, which went into effect on January 15,
was designed to grant priorities assistance for the building of houses
costing $10,000 and less, or renting for $80 per month or less, to which
veterans of World War I I are given preference. The regulation channels approximately 50 percent of existing building supplies into the
houses built under these priorities. The acceptance of the program
under PR 33 has been widespread, and through March 12, over 150,000
dwelling units have been granted priorities assistance. PR 33 is now
being amended to place all housing under the jurisdiction of the Housing Expediter, permitting him to provide quotas in various price
ranges, affecting various parts of the country, so that most houses will
be in ranges below $10,000.

TYPES OF HOMES IN EMERGENCY PROGRAM
Seven out of every twelve homes started under the emergency program this year will be conventional style homes. Three out of five
built next year will be conventional types.
Greater reliance than ever before, however, must be placed on prefabricated mass-produced homes. This is the area of the industry in
which the greatest expansion will be required this year, and in which
lies the greatest need for temporary Government assistance. The
Government must bo prepared to give assistance in the development of
materials that are based on resources in ample supply, expansion of
capacity for production of prefabricated units, in the development of
new types of mass-produced housing, and must be in a position to
provide a guaranteed market for a temporary period. This will remove undue risks during the initial period of output.
The Housing Expediter contemplates that within a brief period we
can create a mass-production industr.y comparable in size, in opportunity for investment and in employment, with the automobile industry
of the 1920's.
This expansion, as well as the tremendous job of conventional type
building which must get under way, is a job for private enterprise.
LEGISLATIVE PROPOSALS
To make the housing program effective and to permit the government to assist private enterprise in undertaking the biggest home building program in our history, legislation is required for several purposes:




29

To stop inflation in the prices of homes through control
over speculative resales;
To provide funds for premium payments to obtain increases
in the production of conventional and new types of building
materials—$600 million should be available for this purpose;
To make funds available to the extent necessary to stimulate
technical research into new construction methods and
materials;
To permit the construction of additional rental units and low
cost homes through insured mortgages up to 90 percent of
value and recognizing the necessary current costs;
To extend through the period of the Veterans' Emergency
Housing Program the authority for priorities and allocations.
Legislation covering these points is already pending in Congress.
The House took adverse action on some vital phases of the program.
The final form of the Administration's housing program, therefore,
will not be known until the Congress has completed action.
I urge the Congress promptly to enact the legislation that is required
to facilitate the building of moderate-priced homes for veterans, and to
stop the rising inflation in the housing field. The proposals drawn up
by the Housing Expediter and recommended by the President represent
the minimum requirements for a program designed to start 3 million
homes within the next 2 years.




30

Ill
FOOD AND FAMINE
During the war years the people of the United States ate more food,
on a per capita basis, than ever before. Since VJ-day the demand
for food in this country has continued at unprecedented levels and will
stay high as long as consumers have adequate purchasing power.
In contrast, the world food situation is more critical than at any time
since the first World War, and millions of people in devastated
countries in Europe, as well as in many other parts of the world, today
face starvation. (See chart, The World's Food Deficits.)
The President recently stated, "More people face starvation and
even actual death for want of food today than in any war year, and
perhaps more than in all the war years combined."
The situation has grown more critical in recent weeks. Harvests
are months away.
There are several reasons for the darkening »f the food situation :
1. Supplies in the destitute countries have declined throughout the war;
2. Last year's crops were poor in southeastern Europe and
in North Africa;
3. There have been crop failures in South Africa, India,
Japan, Formosa, Malaya, and elsewhere;
4. Consumption during the past winter was too rapid in
many countries in view of the limited supplies;
5. Add to this a breakdown of transportation abroad, and
it is not hard to understand why the international food situation has suddenly become more desperate.
In the face of this situation, the Government during the past month
has taken decisive steps to assure the meeting of commitments to
export 1 million tons—35 million bushels—of wheat per month during
the first half of the year. This will augment domestic supplies in the
importing countries until their grain crops are harvested this summer
and fall. Wheat and other grains are the foods most desperately




31

THE WORLD'S FOOD DEFICITS, 1945-46
Exportable supplies are short of Import requirements
for all Important commodities.
World Import need
by •/«

mtiiiiiii
nitaiM

I

I DEFICIT

raitiiE^iiiciaHEfiiesEiieiKUo

J » « 8 ' '00 Million ft

Sugar short
by '/»

FbttaOilsthort

needed—not only in Europe, but. in China. India, Japan, and the
Philippines. These are basic, inexpensive foods that can be easily
shipped and distributed.
Wheat Surplus Has Vanished
American supplies of wheat were used to produce necessary food and
livestock products. There is no longer any real wheat surplus. Only
by drastically conserving at home, therefore, will the Government be
able to meet its present export commitments, which are admittedly far
below needs. Every effort should be made not only to meet present
commitments, but to raise them if at all possible.
Some of the steps recently taken to step up wheat and flour shipments
are:
1. A vigorous campaign to inform farmers, consumers, and food
dealers of the urgency of the situation, and to ask their cooperation
in conserving food—especially wheat and bread.
2. Prohibition of the use of wheat in making alcohol and beer.
3. Requirement that millers grind more flour from each bushel
of wheat. This makes a slightly darker flour but will save 25
million bushels of wheat in the first half of 1946.
This total, however, makes up only seven-tenths of 1 month's export commitments.
4. Reduction of feeding of wheat to farm animals, in order to
save wheat for human food.




32

5. Perhaps the most important of all from the immediate standpoint, more railroad cars were made available promptly to move
wheat.
It is very important that farmers and other holders of grain ship
their supplies to market promptly. There must be no hoarding and
no holding of inventories for a speculative rise in market prices. It is
essential that all wheat supplies be made available during the next
quarter both to fill our own domestic needs and to meet our export
commitments.
The Famine Emergency Committee appointed by the President has
assisted in developing the food conservation program and during the
coming months will promote various measures necessary to achieve
the objectives of providing food relief in starvation-ridden countries.
GOALS FOR 1946
If European crops are good this year, the worst of the crisis will
pass by July or August. Yet it is now clear that the United States will
have to continue a high production of food for at least another year.
(See chart, Why Europe Needs Our Help.)
It had been feared there might be price-depressing food surpluses
after VJ-day, but we now know that in 1946-47 there will be need for
all the food that American farmers are likely to produce. Not only
will there be continuing needs for food relief abroad; there will also be
a big market at home.
The Department of Agriculture has recently announced several revisions in the 1946 farm production goals: increases of 1 million
acres of wheat, 1 million acres of corn in the Corn Belt, and additional
increases of corn and sorghums in other areas; over a million more
acres of soybeans; and 100,000 more acres of dry edible peas.
Also, farmers are being asked to market their livestock promptly.
This not only will furnish needed supplies of meat at home; it will
conserve feed that would otherwise be used to bring hogs and steers
up to heavier weights.
SUPPLIES OF IMPORTED FOODS
Domestic supplies of most foods in this country are fairly adequate
to meet present high levels of market demands. The meat shortage of
a year ago has been eliminated, as a result both of heavy marketings
during the fall and winter and reduced military takings. There is
still a need for all the dairy products, particularly butter, that can
be produced.




33

In the case of imported foods the situation is more difficult. A
threatened coffee shortage was averted last winter by the payment of
a subsidy that made it possible for importers to obtain considerable
supplies, and to maintain existing ceilings. The continuing shortages
are in sugar, fats and oils. These present difficult problems.

While U.S. eats more than ever in history, Europe has less than half
prewar supply. Without help only 3 countries have minimum for health;
at least 5 would face starvation.
PREWAR CONSUMPTION
COMPARED TO DOMESTIC SUPPLY NOW AVAILABLE

500

1000

1500

2000

CALORIES PER DAY PER PERSON
1/Excluding

USSR region




34

2500

3000

3500

Domestic production of sugar in 1945 was one-fourth greater than
in 1944, but total supplies (domestic and imported) for the first quarter
of 194G were one-third less than in the first quarter last year. This
makes it necessary t© continue the rationing of sugar to consumers and
to continue the allocation of sugar to industrial users. As the new
crop of sugar is made available from Cuba and other areas it is hoped
that supplies will somewhat increase. But it is doubtful that controls
over distribution can be dropped before some time next year.
Imports of fats and oils continue to be disappointingly small. The
domestic output has been well maintained, and an increase of 15 percent
in domestic production is expected during the first half of this year.
However, imports have always been relied upon for a substantial part
of American supplies of fats and oils—both for edible purposes and
for such inedible uses as soap and paints.
Some of these fats and oils will be imported in larger quantities
from Asia and the East Indies as trade is reestablished. In addition,
strenuous efforts are being made to step up the imports of these items
from South America and the Philippines. Some progress has already
been made. One of the chief difficulties has been the lack of transportation in Argentina and in some other parts of South America.
The United States is prepared to make trucks, tires, and gasoline available to these South American countries if there is assurance of reasonable increases in the imports of fats and oils.
FOOD PRICES AND SUBSIDIES
The control of food prices is an essential part of the reconversion
program. There are two main objectives: Price supports to farmers
to insure production, and price ceilings at wholesale and retail levels
to prevent an inflationary rise in the cost of living.
To accomplish both of these objectives at once it has been necessary
to pay subsidies to producers or to manufacturers of several important foods, including cattle, hogs, sheep, butter, cheese, milk, and
flour. These subsidies will cost the Government about $2 billion
during the fiscal year ending June 30,1946.
In normal times subsidies of this kind are undesirable. They are
not only expensive, but they also interfere with the normal processes
of supply and demand. Moreover, I appreciate and sympathize with
the desire of farmers to get awTay from subsidies as rapidly as possible,
so that they may receive their incomes from the market rather than
partly from the Government. It w7as for these reasons that this Office
in cooperation with the Office of Price Administration and the Department of Agriculture worked last fall to develop a schedule for
dropping food subsidies.
This schedule provided for eliminating nearly all food subsidies




35

by June 30,1046. By early this year, however, it became apparent that
such a program could not be carried out without running the risk of
an inflationary rise in living costs. Therefore, the Stabilization Director announced on January 23 that it would ba necessary to continue
several of the food subsidies beyond June 30.
It is, of course, desirable that all food subsidies be dropped at the
proper time. If food prices in general were almost ready to drop below
ceilings at this time—as many believed last fall would now be the case—
it would be desirable to remove subsidies at once and to allow an increase in retail prices of these particular foods. Such action would
not have meant any appreciable increase in the cost of living. But
prices have not declined, and the demand for food has remained at
extremely high levels.
When the danger of inflation is less and we have a closer approach to a balance between the supply of food and the demand
for it, we will need to draw up a new schedule for eliminating
subsidies. Pending that time, I strongly urge the Congress
to authorize the payment of food subsidies as long as they are
needed during the fiscal year 1947. It is extremely important
that this matter be dealt with promptly and that sufficient appropriations be made to continue the subsidy program at least
until we have full information concerning the 1946 crops.




36

IV
TEXTILES AND CLOTHING
One of the most acute and paradoxical dislocations in the economy
today is the shortage of low and moderately priced textile products.
Although military procurement was held to a minimum and total
textile production increased during the first quarter of 1946, civilian,
industrial, and agricultural consumers found it more difficult than
at any time during the war to buy the kinds of apparel and fabric
they most urgently needed.
The shortage is concentrated in the fabrics which the textile industry normally produces in the greatest volume—in cloth for work
clothing, men's shorts and shirts, and for house dresses, the unfinished
material used by factories and farms and in the worsteds for men's
moderately priced suits and overcoats. Supplies of these essential fabrics are in some cases less than half of normal minimum needs. (See
chart, Low Cost—Low Output.)
Diversion to Higher Price Line
When, in the effort to do away with some of the wartime restrictions,
some of the more rigid wartime controls over the textile industry were
relaxed shortly after VJ-day, the shortage of low priced fabrics became aggravated. Looms which had been "frozen" to the production
of essential cloth shifted, in many instances, to the production of
higher priced fabrics. Many looms released from military production did not return to the staple low-priced lines from which they
had been diverted originally; instead, they were switched to production of less essential but more profitable fabrics.
Efforts were made by the Civilian Production Administration to
channel adequate supplies of fabrics to the low-end clothing program
by means of priorities and "set-aside" orders, but only 71 percent of
the clothing priority orders were filled in the fourth quarter of 19-15.
The inability of end-product manufacturers to obtain low and
medium priced fabrics from the mills made it difficult for them to
expand output, and at the same time comply with OPA's Maximum
Average Price (MAP) program. Large stocks ©f men's suits, shirts,
and other urgently needed apparel backed up in warehouses while
producers awaited price adjustments.




37

LOW COST - LOW OUTPUT
Production of "low-end" materials, for shirts, housedresses, underwear, work
clothing, has dropped more than all broadwoven cotton. Increase will be slow.
All BROADWOVEN COTTON

CARDED

_____

WAIN

PRINT CLOTH

DENIMS

BROADaOTH

II 0

90
80
70
60

/

™*\

\
\

\

\

/

V

/

50

]

40
JO

^

—

— ' . ,

The situation became more acute during January and February and
was aggravated by the refusal of most cotton mills to sell goods in the
unfinished form because of the additional profits available on bleached
or printed cloth. Many industrial and agricultural users found it
difficult to obtain fabric needed to maintain operations. Producers
of friction tape, for example, were sometimes forced to use printed
fabrics because unfinished goods were not available. Electric motor
production was threatened because of the lack of fabric for insulation
material. Tomato and tobacco farmers were threatened with serious
losses because of inability to obtain cloth needed to cover seed beds.
GOVER1VMENT ACTION
To meet these problems the Office of Price Administration, the
Civilian Production Administration and the Office of Economic
Stabilization formulated a joint program of action.
OPA radically revised its fabric and apparel pricing regulations to encourage greater production. Cotton fabric manufacturers were granted new and higher ceiling prices, reflecting
the increased market price of raw cotton, wage increases, and
other added costs. As a further incentive to high volume output, a 5 percent premium price increase was granted on the
most urgently needed staple fabrics. Manufacturers of men's




33

suits were granted new cast-plus ceilings under a regulation
designed to increase profits in low-priced garments. Provisions of the Maximum Average Price program governing
men's shirts, shorts, and pajamas were liberalized to permit
fullest possible utilization of the existing fabric supply.
CPA amended the loom freeze order, L—99, to require increased production of the most urgently needed types of cotton
fabrics. Channeling regulations have been reinstated, effective in the second quarter, to establish set-asides of fabrics for
industrial uses and require mills to sell a substantial portion of
the set-asides goods in the gray, or unfinished, form. Further
CPA action is contemplated to make sure that fabrics produced under the incentive pricing program are channeled to
the most essential end-products. Inventory controls have
been tightened to prevent disproportionate accumulation of
finished goods and to force more rapid distribution of scarce
clothing items.
OES moved to check speculation in raw cotton prices by ordering uniform and higher margin requirements for trading
in cotton futures.
These steps had immediate beneficial effects. Dammed-up supplies
of fabric and apparel began movingfroconsumers in larger volume than
at any time during the quarter. Mills have started to switch back to
production of the staple fabrics which are most urgently needed. But
the textile shortage cannot be eliminated quickly. It will be eased as
rapidly as production increases, but it will be more than a year before
supply begins to overtake demand.
COTTON TEXTILES
The shortage of cotton broad-woven fabrics is the most acute in the
whole textile field because they cover the widest range of essential endproducts. Last year's production totaled 8.8 billion yards, 5 percent
greater than in 1939, but 21 percent below 1942's peak output of 11.2
billion yards.
The wartime decline in production closely paralleled the decline in
the working force at the fabric mills. In 1942 the mills had 506,000
workers, but by the last quarter of 1945 this force had shrunk to
400,000. By February, 1946, however, the working force had climbed
back to 430,000. Many mills granted wage increases which generally
involved a minimum wage of 65 cents an hour and OPA action in adjusting fabric ceilings to reflect such increases has accelerated the
recruitment of additional cotton mill'workers.
Production this year is expected to rise from the first quai>
ter annual rate of about 9 billion yards to a rate of 11 billion




39

yards in the fourth quarter with total production for the ysar
estimated at 10 billion yards.
Against this anticipated output CPA estimates that there is a
domestic and export demand for at least 14 billion yards of
cotton fabrics.
Behind the demand are terrific inflationary pressures. Mill owners
have reported offers to their salesmen of cash payments of thousands
of dollars merely to accept an order. Every yard of fabric, regardless
of its construction, can be sold.
The Wartime Industrial Set-Up
Development of this "seller's market" had contributed to far-reaching changes in the cotton textile industrial set-up. In prewar years
when production of virtually all cotton fabrics exceeded demand, the
majority of fabric mills sold the bulk of their output as "gray" or
unfinished goods. Competition forced low-unit profit margins.
Unfinished goods were sold to converters who bleached, dyed, or
printed them. The converter then sold these fabrics to apparel manufacturers or other users, assuming all the market and credit risks involved. Unit profits were greater on highly finished or designed
fabrics which sold in relatively small volume and upon which the
market risks due to changing styles were greatest.

THE COST OF WEARIKG APPAREL
Clothing prices have risen far more than general living costs.
New price adjustments may increase the spread.
150

CLOTHING PRICES

COST OF LIVING

120

eo

120

90
1939

1940

1941

1942

1943

Source Bureou of Labor Statistics




40

1944

1945

1946

PROFITS VS. PRODUCTION IN TEXTILE MILLS
Gains in profits earned, wartime and postwar, have far
outstripped gains in quantity of production.
BROADWOVEN COTTON

2 0 0

WORSTEDS

PROFITS

•

PROFITS

100 »

100

1909

1940

SOURCE- B«f«

of Internal R

m H

and OPA.

OPA price ceilings, as initially imposed in 1942, in general retained
existing price structures under which mark-ups were widest for highpriced, expensively finished goods.
During the war, as the seller's market became more pronounced, the
normal market hazards involved in selling cloth disappeared almost
entirely. As a result, many fabric mills found it more profitable to
arrange for their own finishing operations and to sell cloth directly
to apparel manufacturers and other users, bypassing the independent
converter.
This had a twofold effect. It disrupted existing market channels
and deprived many small garment manufacturers of their normal
sources of supply. In addition, since integrated mills were able to
obtain more profit on the sale of finished goods, industrial and agricultural users who needed unfinished fabrics, found it increasingly
difficult to purchase them. By the beginning of 1946, sales of goods
in the "gray" for industrial and agricultural purposes had fallen to an
extremely low level.
The Industry's Profit Position
The shift into higher profit lines was reflected in greatly increased
profits. Even though total production last year was only 5 percent
greater than in 1989, profits in the cotton textile industry were more
than 900 percent above the 193G-39 average. (See chart, Profits vs.
Production in the Textile Mills.) As low-priced end-items disappeared from the market, the consumer's clothing bill increased. (See
chart, The Cost of Wearing Apparel.)
The War Production Board relaxed its loom controls following
VJ-day, and priority assistance previously extended to industrial
users was sharply curtailed, but channeling provisions were retained
for bag manufacturers in order to ensure an adequate supply of food




41

bags. Priority assistance was continued for garment manufacturers
engaged in the low-end program. Export set-asides "were retained
to help meet the most urgent foreign demands. But as the market
became progressively tighter, the priorities often could not be filled,
primarily because of the diversion to higher-profit lines.
Diversion away from low-priced fabrics was further hastened by
rising prices of raw cotton. Early this year the market price of raw
cotton went above the parity price to which fabric ceilings were pegged.
Profit margins on highly finished fabrics were sufficient to permit
absorption of the rise, but mills began drastically to curtail production
or shipments of lower-priced fabrics in which the margin of profit
was low. By early March sales of "gray" goods had been almost entirely suspended by the producers.
Joint Action on Lower Priced Articles
The incentive premium for low-end production which OP A added
to the across-the-board fabric price increases narrowed the profit gap
between the highly finished and the low and moderately finished
fabrics. OPA also revised its regulations governing mark-ups for
finishing fabrics in the integrated mills so as to lower profit margins
which had been unduly high.
Concurrent with the OPA price adjustment, the Civilian Production
Administration tightened its loom controls by requiring looms which
had previously been engaged in the production of staple fabrics needed
for low-end apparel, work clothing and industrial and agricultural
uses, to return to the production of such fabrics. The list of fabrics
subject to this tightened control was identical with that for which the
OPA established the 5 percent incentive premium.
The CPA is also reinstating channeling regulations, effective for the
second quarter, by establishing set-asides of fabrics for industrial uses
and by requiring mills to sell a substantial part of these set-aside goods
in the gray form.
Success of the new cotton textile program depends, in large
measure, upon the control ef speculation in raw cotton. The
raw cotton prices which the current fabric ceilings reflect are
the highest in 22 years. They have advanced 175 percent
smce 1939.
There is no real shortage of domestic raw cotton to justify the booming prices. Last fall when the new crop of almost 9 million bales
started to market there was a carryover of about 11 million bales.
When the new crop comes to market this fall it is estimated there will
be a carryover of at least 7.5 million bales. A normal carryover, adequate for requirements while the new crop is being processed, would
be about 4.5 million bales.




42

In the better grades of cotton, however, the carryover, although more
than adequate for all foreseeable future needs, will be the smallest in
recent years. This, coupled with the fact that market traders are
withholding supplies as a hedge against speculation on future high
prices, has created an artificially tight market.
The Stabilization Director has pointed out that higher raw cotton
prices inevitably would result in demands for substantially higher
textile prices which the stabilization program cannot withstand.
WOOLEN FABRICS
With the return of millions of veterans from the armed services,
CPA estimates that there is a rock bottom need this year for 30 million
men's suits, and that the overall dem-and exceeds 40 million suits. In
February, only about 1.1 million winter-weight suits and about 500,000
tropical-weight suits were manufactured—an annual rate of between
18 million and 20 million. The suit shortage is being attacked by a
coordinated CPA-OPA program.
As in the case of cotton, the problem in wool is to channel available
fabric supplies away from the sources of greatest profit into the areas
of greatest need. The area of greatest profit is in women's apparel and
high priced men's suits; the area of greatest need is for men's suits
priced below $35 at retail.
About 50 percent of wool apparel fabric now goes into
women's woolen clothing as contrasted with 40 percent before
the war. ( See chart, Shift in Suit Production.) In the first
quarter of 1942, 32 million yards of fabric went into civilian
men's wear. In the first quarter of this year only about 42
million yards went into men's clothing although the demand for
suits is twice as large.
CPA is attempting to channel sufficient supplies into the men's lowend suit program without invoking the strict loom controls found necessary for cotton. In the fourth quarter of last year, 24 million yards
of cloth were "set aside" and priorities were issued sufficient for
2.2 million suits to retail at $35 and under. Not more than 1.7 million
of these suits were manufactured. Priority holders often found it impossible to place orders for delivery within the near future. In the
first quarter of 1946 similar allocations were made, sufficient to produce
3.5 million low-cost suits, half of the desired goal of 7 million suits at
all price ranges. For a variety of reasons, it now appears that not
more than 3.5 million winter-weight suits will be obtained and perhaps
another 1.5'million of tropical-weight suits. In the low-price range,
the total will probably be between 2.5 and 2.8 million suits.




43

SHIFT IN SUIT PRODUCTION
In 1945 the men's share of suiting material production was only 42%
as compared to 62% prewar; women were taking more than half.

And currently men's suit production is running less than half of
1946 minimum requirements.
Rate of production,
First Quarter 1946

H,000/00* SUITS PER YEA*

Minimum requirements
for Year 1946
CPA ESTIMATES

Incentive in New Pricing Policy
OPA is attempting to increase the relative profitability of producing
men's suits without greatly increasing prices. When prices were
frozen in 1942 no adjustment was made to compensate for the fact that,
while most standard essential fabrics such as men's suitings were
normally priced with a very small profit margin, many of the fancier
fabrics, such as women's suitings, were normally priced for a high
level of profit to offset losses due to style changes. When the warswollen demand virtually eliminated market risk, there was a shift of
woolen looms to high-profit lines. Substantially the same thing happened in the garment manufacturing field.
A new price regulation has been announced which permits manufacturers of low-profit items to raise their profit margins to the average
level of profits on all sales in 1943. Margins on high-profit items will
be lowered by the new regulations.
The revised regulation permits the use of a cost-plus basis for figuring ceilings which will eliminate many of the price inequities between
manufacturers of the same items which existed under the old base
period pricing formula.




44

The new pricing regulations are designed to assure reasonable profits
to garment makers in producing the quantities of suits that are needed
at prices veterans can afford. Continued diversion of fabrics and
facilities needed to meet the goals CPA has established in the low-end
men's suit program may require imposition of stricter production
controls. The situation is being watched carefully.
WOMEN'S HOSIERY
Sixty million women are in the market for hosiery. They bought
672 million pairs in 1940 when there was no shortage and about 500
million pairs last year when the War Production Board allocated rayon
thread for their production. By January of this year, production
had dropped to an annual rate of 408 million pairs and customer competition for the output was more vigorous than for any other product
sold at retail.
When controls over production and distribution of rayon yarn were
lifted after VJ-day, the more than 400 stocking manufacturers attempted to swing into full production of nylon stockings. Rayon yarn
manufacturers shifted their sales to weaving mills, whose production
went into apparel, house furnishings, and other end-preducts. Of the
34 million pairs of stockings produced in January, only about 7 million
were rayon.
Ninety percent of the present full capacity production of nylon yarn
is reported to be going to hosiery manufacturers. Additional productive capacity now under construction is not expected to be completed
before the end of this year. It is estimated that not more than
3G0 million pairs of nylons—about 6 to every customer if they could
be equitably distributed—will be produced in'1946.
The Civilian Production Administration has worked out with the
industry a plan for avoiding a further diversion of rayon yarn from
the hosiery industry.
EXPORT
Despite the shortages discussed earlier, the American people today
are better clad and have more textiles for household and other needs
than any other people in the world. The world shortage of textiles,
particularly cotton textiles, is exceedingly acute. The United States
has an inescapable obligation to assist friendly foreign countries to
meet the minimum requirements which are essential to ward off disease
and unrest.
In addition to our humanitarian obligations, we must export textiles
to certain areas whose exports of such important raw materials as tin,
rubber, cordage fibers, and hides and skins are vital to our own reconversion economy. The amounts of these urgently needed materials




45

which we receive can be measured, to a large extent, by the amounts of
consumer goods we send to the people who produce them.
Textile exports are tightly controlled by CPA. Requirements are
analyzed and screened in terms of the total domestic supply situation
and our own shortages of specific types of fabric. Where foreign manufacturing facilities are available, raw cotton is shipped, rather than
finished fabrics. In the first quarter of 1946 the export set-asides represent about 11 percent of total United States production of broadwoven cotton fabrics. For the second quarter, the export program will
represent a somewhat smaller percentage.




46

i

•

PART THREE
LIQUIDATING THE WAR
Government responsibility during the quarter centered increasingly
on the special problems emerging as labor and materials were shifted
to peace production. In another area of Government responsibility
for reconversion—liquidation of the war—rapid progress continued.
Gains here removed all but the last remnants of war entanglements
from the economy, and freed industry to expand output for the peacetime market.
|

CONTRACT SETTLEMENT
Settlement of war contracts met deadlines in a tight
schedule. Almost three-fifths of the canceled commitments
were settled by the end of the quarter. The great bulk of
settlements, those of smaller claimants, provided thousands
of business concerns with funds to finance peacetime ventures.
By June 1946, the larger contracts should also be settled, meeting the final deadline set for the contract settlement part of the
Government's war liquidation job.
Canceled commitments totaling $28 billion of the wartime total
of $64.3 billion awaited settlement after February 28. But 75 percent
of this total was held by 40 large companies with complicated or very
large claims to be settled. Claims of this type will test the machinery
which so far has worked efficiently in settling a mass of smaller claims
that were easier to prepare. Many of these were settled without cost
to the Government.
However, despite the larger, complicated cases coming, up for settlement, the rate of settlement did not diminish. The number of claims
filed declined during the quarter, as did the number of settlements,
but the value of the settlements increased, and the rate of settlement
continued to accelerate.
During February there were only about 7,500 claims filed, compared
to 14,000 at the peak last September. First quarter settlements totaled




47

about 15,000 a month as against 22,000 a month during the fourth
.quarter. But the January value of claims filed was four times higher
than the September value. Settlements approached $3 billion a month
during the first quarter, as compared with a monthly average of $1.65
billion during the fourth.
Entering the quarter with 09 percent of the VJ-day backlog of
terminated prime contracts settled, the contracting agencies passed
the 83 percent mark in settlement of these contracts by mid-quarter.
For the remaining 17 percent of terminated contracts awaiting settlement, about 80 percent of the subclaims involved have been settled.
Clearance of plants has been moving satisfactorily. By the end of
February, 75 percent of the plants had been cleared. So far, at least
93 percent of the requests for clearance have been met within 60 days.
More clearances were completed during January than remained on
the books at the end of the month, for the second successive month
since VJ-day. The last part of the job will be the most difficult since
storage space in specific localities may be increasingly hard to find.
The Reconstruction Finance Corporation and the various contracting agencies are to be commended for their effective job of plant
clearance and warehousing.




48

II
SURPLUS DISPOSAL
Disposal of war surpluses here and overseas was accelerating, but war
property still was coming into inventory faster than it was being merchandized. The heaviest part of the disposal job is ahead. Quick
liquidation, to facilitate reconversion at home and t© meet relief
requirements overseas, is the primary aim of the owning and disposal
agencies. Their policies and operations are directed"toward that goal.
Responsibility for the disposal of overseas surplus is now vested
mainly in the Office of the Foreign Liquidation Commissioner in the
Department of State. Domestic disposal operations have been largely
consolidated in the War Assets Administration.
The War Assets Administration is making a thorough survey of
domestic disposal activities, including the difficult and complex problems arising from the consolidation of the domestic disposal agencies.
Results of the study will be included in the forthcoming quarterly
report of this agency, which will outline some of the problems and the
steps that must be taken to solve them.
PLANT DISPOSAL POLICY
Disposal of war plants is one of the most important tasks facing the
War Assets Administration. They provide immediate manufacturing
space at a time when maximum productipn of almost all kinds of
goods is of the utmost importance to the entire economy. Employment of existing structures also will reduce the industrial use of
building materials which are vitally needed for home construction.
The overriding importance of putting surplus war plants to prompt
civilian use was stressed by the President early in the reconversion
period.
In his September 6 message to the Congress, he said, "The disposition of plants and equipment is of particular urgency. They
should be disposed of promptly by sale or lease on a basis that
is fair to the Government and to industry. Our objectives should
be to provide early and continuous employment, and through
private production to supply hungry markets and check inflationary tendencies."




49

Disposal of plants stepped up during the first quarter of the year.
Use of war plants is varied. One propeller plant is being rearranged
to produce pharmaceutical and biological products; aircraft engine
plants to turn out Diesel engines and milk coolers; a huge plane factory to automobile production. There are numerous other possibilities—airframe plants with their high ceilings have excellent
facilities for the manufacture of prefabricated housing.
Emphasis on Community iPevelopment
It is more important that surplus war plants be used to provide
employment in local communities and to produce goods than that the
Government should realize the highest possible dollar return on its
investment. Consequently, War Assets Administration is following the
policy of selling or leasing plants to local enterprise whenever possible,
even though disposal to larger concerns might give greater financial
return. This also curbs trends toward monopoly.
The movement of war plants into surplus increased markedly during the quarter. By March 31, a total of 808 plants
costing $3.8 billion of the 1,540 plants costing $8.6 billion expected eventually in surplus had been acquired for disposal by
War Assets; 368 of the 808 total during the quarter.
Sales of surplus war plants also increased. During the quarter a
total of 124 plants, costing $341 million, was sold for $182 million
in contrast to the cumulative total of 84, costing $125 million that
had been sold for $89 million up to the end of 1945. Among the plants
sold during the quarter for different output than wartime was a $9
million aviation plant at Evansville, Indiana, to be converted for production of freezers, refrigerators, and coolers. One of the lar.ger sales
of the quarter was a $30 million aircraft engine plant at Ridgewood,
N. J. This plant will employ about 6,500 workers for the production
of aircraft parts and components.
To date 208 plants, costing $466 million, have been sold for $271
million; 90 plants, valued at $600 million, have been leased; and a
total of 212 interim leases, involving $665 million in actual costs, have
been arranged.
Rubber Plants a Special Problem
The disposal of Government-owned plants producing synthetic
rubber presents a special problem directly relevant to the national
security. The Inter-Agency Policy Committee on Rubber, created by
this Office on September 7, 1945, in its first report on February 19,
1946, stated that private ownership and operation of the sy-nthetic
rubber industry should be a major objective.




50

In a supplementary report, the Committee will make proposals for
a complete disposal program for the synthetic rubber facilities now
owned by Government.
•

Bulk of Surplus Yet To Be Acquired
Domestic and overseas surpluses were moving out of inventory more
rapidly at the end of the quarter than at the year's end. About onefifth of all domestic acquisitions to date had been disposed of by March
31. About 40 percent of the property declared surplus overseas had
been sold by mid-quarter, despite the fact that about one-third of the
declarations had been made within a few weeks of that time.
Domestic acquisitions to date, however, topped foreign declarations,
and in the long run will comprise the bulk of the surplus. By the
end of the quarter less than a third of the entire surplus that eventually must be disposed of had been acquired by the disposal agencies;
approximately 40 percent of the domestic surplus, excluding nonsaleable aircraft; and approximately 15 percent abroad.
DOMESTIC OPERATIONS
A year ago surplus disposal was being handled in this country by
five major agencies. By the end of the first quarter of 194G it was
largely consolidated into one—the War Assets Administration, which
has succeeded the War Assets Corporation. Executive Order 9689,
issued January 31, created on March 25 the War Assets Administration in the Office of Emergency Management of the Executive Office
of the President. WAA is headed by an Administrator, who received
by the terms of the Executive Order all the functions of the Surplus
Property Administrator, and the surplus sales functions of the War
Assets Corporation, a subsidiary of the Reconstruction Finance
Corporation.
Attacking the sales problem even while in the process of reorganization, War Assets Administration began to provide for streamlining
paper work; decentralizing and increasing sales outlets; serving veterans with priority certificates and negotiations for purchase in a
single office. Field offices are now empowered to sell merchandise
valued up to $1 million instead of only $25,000 as previously. Selective
processing or "peeling off" items in great demand for disposal out of
the order of their declaration as surplus, was instituted. To cope
with acceleration in plant clearances, War Assets Administration
increased the number of approved dealer agency agreements in effect
so that disposal of surplus machine tools could be stepped up.
First quarter disposals of all domestic agencies, excluding
non-saleable aircraft, totaled $1.25 billion. In terms of re-




51

ported cost, sales totaled $1.2 billion, and brought in about
$500 million. Total disposals to date are estimated at $2.45
billion.
Surplus acquisitions for the quarter, however, j>gain exclusive of unsaleable aircraft, totaled about $5 billion. The total acquisitions to
date is $11.85 billion or about 40 percent of the ultimate total to come.
A Big Job Lies Ahead
Although first quarter disposals brought the total to more than onefifth of acquisitions to date, this tremendous job actually was just starting. In terms of the whole domestic disposal job, only 8.5 percent of
the total surplus already acquired, or to be acquired, by domestic disposal agencies had been merchandized. About 60 percent of the total
surplus is still to be declared and acquired by disposal agencies.
First quarter disposals of consumer goods ran to about $300 million,
second only to plants and industrial real property, for which first
quarter disposals totaled $345 million. Among consumer goods, trucks
moved rapidly, filling a portion of the motor vehicle shortage in the
civilian economy. About 124,000 surplus trucks had been disposed
of up to March; 22,735 of them during January and February, sales
running at $43,659,000 for the 2 months in term of procurement cost,
of which there was a net recovery of about 45 percent to the Government.
Surplus textiles and apparel, including everything from broadwoven cotton goods, sheets, upholstery fabrics, and WTOO1 sweaters to
men's shoes, that cost the Government $95.4 million were disposed of
during the quarter for an estimated $44.3 million.
OVERSEAS SURPLUS
During a single month, January, some $500 million in war goods
overseas came into surplus. By February 1, the Office of the Foreign
Liquidation Commissioner in the Department of State—a disposal
agency separate from WAC and WAA—had acquired $2 billion in
surplus war goods.
Transfer of about $100 million of surplus property to UNRRA is
virtually completed in the European and Mediterranean areas; and
cash reimbursable sales totaling $128,500,000 to UNRRA are being
negotiated in the Near East, Far East, the Balkans, and northwest
Europe.
UNRRA has, in fact, become our best customer for overseas surplus
goods. In addition, surpluses are moving to American private and
voluntary relief agencies. Approximately 58 of these groups, joined
in the American Council of Voluntary Agencies for Foreign Service,
Inc., are purchasing relief supplies from FLC through a merged pro-




52

curement plan. The Council has contracted for $503,000 in surplus
war stocks from the Paris Office of FLC and has placed a request for
an additional $5 million to broaden the base of American relief operations in Europe. Sales of overseas surplus goods totaling $1,100,000
have already been made to relief agencies all over the world by FLC,
and more will be made.
The overseas surplus is being moved also by sales and credit agreements with 14 nations. About 34 percent of the original investment
has been realized by disposals of property that cost $806,800,000, and
was sold in surplus for $272,800,000.
FLC is negotiating surplus disposal credit agreements to provide
dollar credit terms payable over varying periods, the maximum 3Q
years, w.ith : The USSR and France, for $100 million each; The Netherlands Indies, $65 million; Poland and Czechoslovakia, $50 million
each; the Philippines, $20 million; Finland, Hungary, Austria, Greece
and Turkey, $10 million each; Lebanon and Syria, $5 million each;
and Ethiopia, $1 million.

SCIENCE
Technical and scientific information accumulated during the war
by our own $2 billion war research program and captured from former
enemy nations now forms a huge reserve of'valuable data, useful both
in reconversion and to the peacetime economy ©f this country. The
machinery for collecting and disseminating this information is now
in full operation. During the first quarter of this year, 6,000 reports
were released, bringing the total to 8,000.
To date, 185;000 copies of released reports have been supplied to
American industries and business firms in response to specific requests.
During the quarter just past there were many requests for reports
dealing with Germany's wartime developments in manufacture of
chemicals and plastics, and for newly available information concerning
our own wartime developments in aviation.
Information from both domestic and overseas sources is placed in
depository libraries about the country. To these libraries go the technical war data of the Axis, which is now being uncovered by the Technical Industrial Intelligence Branch of the Office of Declassification
and Technical Services. This Office is operating part of the interdepartmental Publications Board, established by Executive Orders
9568 and 9604 in the Department of Commerce. The Board is responsible under authority delegated by OWMR, for reviewing information, estimating the cost of publication, and for securing the fullest
and widest dissemination/ The contents of reports, both domestic and
foreign, are abstracted weekly, and published in a "Bibliography of
Scientific and Industrial Reports." The bibliography, obtainable




53

from the Superintendent of Document;;, lists the contents of the reports, tells where they may be obtained, and at what cost.
The Congress has been asked to appropriate further funds for the
Board's work. Only by rapidly releasing this store of information to
American commerce and agriculture can we realize on our own investment of public funds in wartime research.
FEDERAL RESEARCH AGENCY
It is highly desirable to establish a Federal research agency. In his
message of last September the President urged the Congress to enact
such legislation. A Federal research agency, such as the President
envisaged, would coordinate Federal research activities, not interfering
with the separate research programs of the several agencies, but securing their effective synchronization. The fruits of research financed by
Federal funds must become the property of the United States and
should be made fully, freely, and publicly available so that American
science may be advanced. Establishment of an agency to serve this
end is essential and should be the subject of early appropriate legislation by the Congress.
ATOMIC ENERGY LEGISLATION
Legislation on atomic energy is among the most difficult and important problems under consideration by the Congress. We have the
responsibility of harnessing a formidable force so that it will serve
the national security as well as peaceful and humanitarian international and domestic ends.
The President in a statement to the Senate Special Committee on
Atomic Energy, February 1, urged that the Congress establish a commission, to be comprised exclusively of civilians, to deal with the question. It is most urgent that the law shall not stifle pure science nor
genuine freedom of independent research; but it must safeguard military security insofar as necessary. Full hearings have been held on
such legislation and I believe that it should receive early and favorable
action by the Congress.




54

OPERATIONS OF THE ADVISORY EOARD
In making each of the major policy decisions discussed in this report,
and in arriving at solutions of many special problems, my Office has
benefited by the careful study, advice, and experience of the OWMR
Advisory Board.
During the last quarter of 1945 and the first quarter of 1946, the
Board gave detailed consideration to the relationship between wages
and prices. The deliberations of the Board were of considerable assistance to the Government in formulating revisions in wage-price
policy.
In addition, the Board gave attention to special problems concerned
with employment, including the formulation of a national policy concerning production and employment, and legislative proposals leading up to the Employment Act of 1946; the question of maintenance
of the United States Employment Service as a national employment
system; and the settlement of jurisdictional labor disputes. Preliminary findings on the operations of guaranteed annual wage plans in
specific industrial plants have been received for dovetailing into the
larger study which the Board is conducting, at Presidential request, on
the usefulness of guaranteed annual wage plans in stabilizing production and employment. On March 5 the Board was represented before
the deficiency subcommittee of the House Appropriations Committee
at a hearing to discuss the appropriation which will be needed to carry
this important study forward next year.
Within a week of the arrival in Washington of the Housing Expediter, the Board met with him and discussed at length his proposed
program for meeting the veterans' housing emergency. At later meetings, the Board again discussed the housing emergency with the
Housing Expediter and members of his staff and commended him for
his splendid organizational work in developing his program. The
Board also studied pending legislation which would help translate the
veterans' housing program into reality, especially S. 1592 (WagnerEl lender-Ta ft bill) and H. R. 4761 (Patman bill).
A most valuable and constructive step was taken by the Board in
stimulating a vigorous Nation-wide effort to induce veterans to enter
apprenticeship training in the building trades under the benefits and
assistance available to them under veterans' legislation. The Board
also devoted time and study to the programs of the Veterans' Administration and to the coordination of Federal programs for veterans
lying outside the jurisdiction of the Veterans' Administration.
The related problems of agricultural price control, of Government
subsidies, and of the extension of price controls generally, were studied
by the Board with the assistance of the Secretary of Agriculture, the
Stabilization Director, and the Price Administrator. As a result of




55

these discussions, the Administration was able to arrive at a clear and
coordinated policy, on the basis of which necessary legislation could be
requested of the Congress. The question of the extension of the Second
War Powers Act through 1946 also received study and favorable action
by the Board.
The difficult problems connected with the disposal of surplus property abroad were examined in detail by the Board. As a result, steps
were taken by the State, War, and Navy Departments, in cooperation
with my Office, to investigate the feasibility of salvaging or disassembling for scrap surplus metal equipment in the Pacific.
Two recent important actions were taken by the Board to assist the
implementation of the Government's foreign policy. After careful
consideration of the world food situation, the Board conveyed to the
President its whole-hearted approval of his courageous leadership in
the world food crisis, and gave its full support to the emergency measures he has put into effect to conserve food so that this Nation can do
its share to help prevent mass starvation in war-devastated areas. By
a vote of eleven to one the Board also endorsed the United States'
financial agreement with Britain, which calls for removal of barriers
to trade between this country and the British Empire. Its statement
said, "The Advisory Board sees in the British agreement a major
opportunity, through expanded world trade, to stimulate the worldwide production, jobs and markets which are essential to stable and
prosperous post-war economic conditions, and, thus, to world peace
itself."
I wish again to express my warm gratitude to the Board for its wise
counsel during a difficult period and to each of its members for his
diligent and devoted service: Chairman O. Max Gardner, William
Green, Philip Murray, T. C. Cashen, Eric Johnston, George H. Mead,
Nathaniel Dyke, Jr., E. A. O'Neal, J. G. Patton, A. S. Goss, Mrs. Anna
Rosenberg, and Chester C. Davis. Mr. Gardner became Under Secretary of the Treasury during the quarter, but the Advisory Board
unanimously requested him to continue as Board chairman. This
request I most heartily endorse.




56

Additional copies of this report may be
obtained from the Bureau of Special
Services, Bureau of the Budget, llfiO
Pennsylvania Avenue N~W., Washington 86, D. G.