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Form F. R. 521 B PAR D DF GOVERNORS DF THE FEDERAL RESERVE SYSTEM Attached is a summary of price control developments and three tables as follows: (1) Data for gross national product, national income, income payments, consumers* savings and disposition of consumers* savings for recent yearx and estimates for 194U* (2) Liquid holdings of individuals and business at various dates. (3) Costs and financing of the for three fiscal years ending June JO, 3-17-1& !• A. M* /w^^vncw^ mr Sum&ary of Price Control Developments Price stabilization program began May 28, 1940 when Price Stabilization Division was established as part or the Advisory Commission to the Council of Bational Defense. Rising pressure led to replacement of the Division with the Office of Price Administration and Civilian Supply in April 194l# By December 1914-1» nearly I4.G per cent of wholesale prices were under control but no important retail prices were controlled. The Emergency Price Control Act of January 30» 1942 gave CPA undisputed authority to control prices and rents, and provided specific means to punish violators; but it limited OPA 1 s power to control farm prices and prices of products processed from them* Rationing was started in the period January 27, 19k2 to April 20, 19li2 when tires, automobiles, and typewriters were rationed. On Marcn 2, 1942, OPA designated 20 "defense-rental11 areas in IJ States. In these areas residential rents were to be stabilized or reduced to levels prevailing on recent dates. April 2d, 1942 OPA issued General Maximum price Regulation, ending the period of selective controls. Prxor to GHPR selective controls had covered about 55 per cent of wholesale prices. GMPR brought an additional 28 per cent of wholesale prices under control and placed ceilings over 62 per cent of the cost of living. With stated exceptions, prices of all commodities were frozen at the highest level charged by each seller during March 1942. Most important commodities exempted were farm prices, which according to the original Price Control Act, could not be controlled until they reached levels substantially above parity. In April 19U2$ OPA named J02 additional areas subject to rent control. In May, rents reached their highest point of the war. By January 1943» rent control had been inaugurated in ¿55 areas with a population 01 about 75 JaillioEt* October 2, 1942, an act amending the Price Control Act was passed authorizing the President to issue a general order stabilizing prices, wages, and salaries affecting the cost of living. It permits establishing maximum prices for agricultural commodities at; (1) parity; (2) highest level attained between January 1 ana September 15, 19L]2; and (3) level which reflects increased labor or other costs since January 1, 1941; whichever is higher« The amendment also provided floors under certain basic farm prices for two years after the war. The President established the Office of Economic Stabilization to coordinate the price and wage control programs in October 19i|2. As a result of the amendment to the Act, OPA brought under wholesale and retail control additional food products, raising the proportion of retail foods under control to 90 per cent. Rationing was also extended during the period to several more commodities, April 8, 1943* President issued his ttHold-the-Linen order. This directed OPA and WFA to place ceiling prices on all commodities affecting the cost or living, to authorize no further increases in ceiling prices except to the minimum extent required by law, and to use all their lawful powers to reduce prices which were excessively high or inequitable» In May 1943* a community price program was started establishing specific dollar and cents prices for four classes of retail outlets on virtually all grocery items. This program simplifies the operation of price controls for both buyers and sellers and permits OPA to check compliance efficiently. Specific dollar and cents ceilings have also been established for a considerable number of items at all levels. Subsidies in operation are estimated to cost about $1.5 billion a year. Elimination of food subsidies would increase the index of food costs 7 P e r cent ana che total cost oi living about 3 P e r cent irrespective of any spiralling effects on wages and other factors. Congress is less likely to refuse to pass the Act tnan it is to cripple it by innocent-appearing amendments* £-For example, Congress is concerned about OPA court procedure. At present the district and circuit courts have authority only to decide whether a person charged with a violation is guilty or not. Tests or constitutionality of the Act or of the reasonableness of regulations go to a special ;3m.ergency Court of Appeals appointed by the Chief Justice of the Supreme Court. If necessary, from this court cases go directly to Supreme Court. 'This procedure speeds up litigation ana places interpretation of OPA law. in the hands of an experienced group of judges who provide a consistent interpretation of cases. If the emergency court is abolished, the district courts might be cluttered up with petty cases, judicial processes slowed down, ana so much disparity develop among decisions in various parts of the country that the whole price control program might become a hodge-podge of local rules, confusing to sellers as well as to buyers. - 3 Congressional representatives have also indicated interest in the requirement of the Act that prices be "generally fair and equitable". The intent is to eliminate "generally". Such a change looks unimportant but it could result in OPA being forced to set prices which are fair and equitable for each seller. This would mean the price would have to cover costs of the hignest cost selJer in every industry and to increase the price with every rise in costs or decline in efficiency. Hardly anything could be more inflationary than to follow a policy of this kind. Other issues which may be raised are: prohibition against consideration of profits in determining prices; inclusion of farm wages in calculation of parity and farm price ceilings; and elimination of sub si die s. K.B.W. 3-17-AjU March 17, TABLE I A. Gross National Product, Income Payments and Personal Savings (in billions of dollars) Gross national product - Business taxes - Depreciation, depletion and other business reserves National Income 1940 1942 i?43 97.0 151.7 I06.8 200 12.4 2k- 0 27.6 30 6.8 7-9 11.8 10 + Transfer payments 77.8 2.6 - Co rpo rate saving s 1.8 - Social insurance contributions 2.1 Income Payments to Individuals - Consumer expenditures Personal Savings 147.4 2.6 3.1 4.8 3.5 5.2 3-9 4.1 3-6 160 n a . 9 15k 6.6 17.8 21 73.2 106.8 124.1 133 65.7 8I.9 90.5 93 26.9 23.6 40.0 33-6 mk 40.0 35.0 (4jo.O) 13.6 (19.0) M Disposable Income 119.8 115.5 76.5 - Personal taxes W t 7.5 Disposition of Personal Saving s B# (in billions of dollars) 1940 f 19b2 Personal Savings (Dep t. of Commerce) 7.5 Liquid Savings, adjusted (S.E.C.) 6.7 26.9 28.e» -.1 10.1 , 1 . Applied Savings Securities Savings and loan associations Insurance and pension reserves Liquidation of debt Purchases of noniarm dwellings Total 2. Increase in currency ana bank deposits held by individuals .2 1.7 .3 2.k 3.I — 2.8 .8 1-7 -laS 1.1 3.7 I7.I 19.2 24.8 3.0 II.5 15.8 (15.2) .6 ( -7) ( 3-5) ( .5) ( l.l) - 2 l/ Figures for 19ij-0 and 19^2 from Department of Counierce Pweleases. Figures for Department of Commerce Estimates, strictly confidential» The bracketed figures for 19Uh are rounded estimates by the Division. 2/ ~~ For 19ij.O, 19^2, and 1943» slightly adjusted S.E.C. estimates of liquid savings are used» The bracketed figures for 19Ub axe reasonable guesses as to what the level of applied savings and hence the residual amount of increases in balances might be. R.A.M. TABLE II Liquid Holdings of Individuals and Businesses 1/ (In billions of dollars) Dec, 51, June JO, June JO, June Jo, June JO, 1&5 iyia 193 0 Businesses (except insurance) - total Demand deposits and currency Time deposits U . S . Government securities Individuals - total Demand deposits ana currency Time Deposits U . S . Government securities 16 2L ¿ 6 2/ 13 1 2 22 32 !& M 2 7 10 17 26 2b 7 7 (81) (10b) (11^) (M) k 20 §2 28 25 30 1/ All figures are estimated. Businesses include bo-ch incorporated and unincorporated concerns. Estimates for 19144 and 1945 assume $55 billion borrowed each fiscal year from individuals, non-insurance businesses and banks. The resulting growth in liquid assets is allocated to businesses and to individuals, roughly half ana half, on the basis of the past year's experience. 2/ ~~ On June JO, 1943» unincorporated businesses probably held around |12 billion of deposits and currency. It is extremely difficult to even guess at time deposits and government securities held by unincorporated businesses— perhaps Uj billion of time deposits and ¡>4-5 billion of government securities. R.A.M. TABLE III COST AMD FINANCING- OF 1 M (Three fiscal years ended June 30» 19Mi-) Amount (in millions of dollars) War expenditures 186, t>00 Other budget expenditures Change in cash balance, trust accounts, etc. Total funds raised Receipts from taxes 1/ Per cent of total funds raised QQ.1% 19,14-00 + 5*800 211,800 77»600 36.ó From commercial and Federal Reserve Banks 56,600 26.7 Others 77,600 36.7 Borrowings: Total receipts and borrowings 211,800 Figures for current fiscal year are partly estimated. l/ Total receipts less social security employment taxes, which are "appropriated directly to Federal old-age and survivors insurance trust fund. R.A.M.
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