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1946 EXTENSION OF THE EMERGENCY PRICE CONTROL
AND STABILIZATION ACTS OF 1942, AS AMENDED
HEARINGS
BEFORE THE
COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
S E V E N T Y - N I N T H
C O N G R E S S
SECOND SESSION
ON
H. R. 5270
A BILL TO AMEND THE EMERGENCY PRICE CONTROL ACT
OF 1942, AS AMENDED, AND THE STABILIZATION
ACT OF 1942, AS AMENDED, AND
FOR OTHER PURPOSES
VOLUME II
MARCH 20, 21, 22, 23, 25, 26, 27,1946
Printed for the use of the Committee on Banking and Currency
UNITED STATES
GOVERNMENT PRINTING
83512
OFFICE
W A S H I N G T O N : 1946
COMMITTEE ON BANKING AND CURRENCY
B R E N T SPENCE, Kentucky,
Chairman
J E S S E P. W O L C O T T , Michigan
F R E D L. C R A W F O R D , M i c h i g a n
R A L P H A. G A M B L E , New York
J E S S I E S U M N E R , Illinois
F R E D E R I C K C. S M I T H , Ohio
J O H N C. K U N K E L , P e n n s y l v a n i a
H E N R Y O. T A L L E , I o w a
F R A N K L. S U N D S T R O M , New J e r s e y
C L A R E N C E E. K I L B U R N , New York
H O W A R D H. B U F F E T T , N e b r a s k a
D. E M M E R T B R U M B A U G H , P e n n s y l v a n i a
M E R L I N H U L L , Wisconsin
P A U L BROWN, Georgia
W R I G H T PATMAtf, Texas
W I L L I A M B. BARRY, New York
A. S. M I K E MONRONEY, O k l a h o m a
J O H N H. F O L G E R , N o r t h C a r o l i n a
H. S T R E E T T B A L D W I N , M a r y l a n d
B R O O K S HAYS, A r k a n s a s
D A N I E L K. H O C H , P e n n s y l v a n i a
G E O R G E E . OUTLAND, C a l i f o r n i a
W I L L I A M R. T H O M , Ohio
P E T E R A. QUINN, New York
C H A S E GOING W O O D H O U S E , C o n n e c t i c u t
J O H N J. RILEY, South Carolina #
A L B E R T RAINS, Alabama
WILLIAM
J . HALLAHAN,
MARGARET H . SMITH, Assistant
II
Clerk
Clerk
C O N T E N T S
Statement of—
Bailey, Cleveland M., Congressman of West Virginia
Baruch, Hon. Bernard M
Bile, F. K., vice president, Home Owned Grocers Association, Louisville, Ky
Benoit, Henri A., National Association of Retail Clothiers and Furnishers
J'
i_
Bing, Louis S., past president of the National Retail Furniture Association
Blake, William Rhea, executive vice president of the National Cotton
Council of America
Blalock, E. J., president, United Fresh Fruit and Vegetable association, Fort Worth, Tex
Boren, Hon. Lyle H., Representative from the State of Oklahoma
Bowles, Chester, Director, Economic Stabilization
Brooks, Hon. Overton, Representative from the State of Louisiana
Brown, Russell B., general counsel, Independent Petroleum Association of America
Bruce, Arthur, president, National Lumber Manufacturers Association
Carper, Emery, Artesia, N. Mex
Colgan, Richard A., Jr., executive vice president, National Lumber
Manufacturers Association
Cook, T. G., managing director, Twin Cities Apparel Industries Association
Dirksen, Hon. Everett M., Representative from the State of Illinois. _
Dondero, Hon. George A., Representative from the State of Michigan.
Dosker, C. D., president, Gamble Bros., Louisville, Ky
Downs, James C., Jr., president, Real Estate Research Corp., Chicago,
111
Ferry, Robert E., general manager, the Institute of Boiler and Radiator Manufacturers
Folsom, Marion B., director of the staff of the Special Committee on
Postwar Economic Policy and Planning
Fox, Abbott, Iron Mountain, Mich
Gossett, Hon. Ed, Representative from the State of Texas
Gray, Howard L., president of Meadow River Lumber Co., West
Virginia
Green, William, president of the American Federation of Labor
Griswold, W. E. S., Jr., vice president at large, National Retail
Furniture Association
Hallanan, Walter S., chairman of American Petroleum Institute
Hardenbaugh, Wesley, president, the American Meat Institute,
Chicago, 111
Hardey, B. A., president, Independent Petroleum Association of
America
Haynes, Eldridge, publisher of Modern Can Industry
Hendricks, Joe, Congressman, Fifth District, Florida
Hochberg, David R., on behalf of the southern Fur Farmers and
Collectors
Kerr, Hon. Robert S., Governor of the State of Oklahoma
Kitchen, C. W., executive vice president, United Fresh Fruit and
Vegetable Association
La Roe, Wilbur, Jr., general counsel for the National Independent
Meat Packers Association
HI
Pa e
^
1382
1343
1180
1554
1084
1614
1006
1278
1807
1655
1157
1068
1156
1044
1021
1246
-1277
1057
988
1190
1221
1063
1281
1061
1459
1090
1126
1203
1104
1656.
1381
1336.
138(>
999
1526
IV
CONTENTS
Statement of—Continued
Page
Linder, Tom. commissioner of agriculture for the State of Georgia
1027
Lewis, Hon. Earl R., Representative from the State of Ohio
1264
Loos, Karl D., California Fruit Growers Exchange
1009
Lowe, Mrs. C. D., National Congress of Parents and Teachers
1454
Mahon,r G. Heyward, Jr., of Greenville, S. C
1558
Majew ski, B. L., vice president, Deep Rock Oil Corp., Chicago, Til
1110
Mallon, W. L., president, National Automobile Dealers Association,
Newark, N. J
1482
Margetts, Walter, chairman of New Jersey State Board of Mediation. 1184
Mason, Mrs. Vivian, National Council of Negro Women
1450
McClure, H. M., president, National Stripper Wrell Association,
Alma, Mich
1116
McCubbins, S. B., chairman, brokers division, United Fresh Fruit and
Vegetable Association
1005
Miller, Hon. A. L., Representative from the State of Nebraska
1261
Miller, O. D., past president, United ..Fresh Fruit and Vegetable
Association with headquarters in Washington, D. C., presented
by Lamonte Graw
1003
Morse, H. M., oil and gas supervisor of the State of Mississippi
1115
Mundt, Hon. Karl E., representative from the state of South D a k o t a , _ 1274
Murchison, Dr. C. T., president. Cotton Textile Institute
1546
Murphy, Mrs. Doris, National Council of Negro Women
1452
Murray, Hon. Reid F., Representative from the State of Wisconsin__ 1267
Murray, W. L., Lexington, Ky., State president of Kentucky Food
Dealers' Association
1176
Oak, Donald P., manager, Lynde, Walter & Darby, of Tulsa, Okla__ 1120
Pace, Murl E., general manager, United Growers and Shippers Association
1285
Paterson, Chat, national legislative representative of the American
Veterans' Committee
1408
Pew, J. Howard, president, Sun Oil Co
1144
Porter, Frank M., president, General Mid-Continent Oil and Gas
Association; Tulsa, Okla
1152
Porter, Paul, Office of Price Administration, Administrator
1663, 1785
Quinn, Hon. Peter A., Representative from the State of New York_ _ 1260
Raibert, R. H., executive secretary, Kentucky Retail Food Dealers
Association.
1173
Reed, Mrs. James A., president, Donnellv Garment Co., Kansas City,
Mo
I
1304
Reitz, J. Wayne, economic counsel, United Growers and Shippers
Association^ Orlando, Fla
1288
Rohr, Miss Elizabeth G., Washington representative, Consumers
Union of United States
• 1455
Sheahan, Thomas D., commissioner of markets, Kansas City, Mo
1008
Silberman, J. D., American Fur Manufacturers' Association
1323
Simpson, H. V., executive vice president, West Coast Lumbermen's
Association, Seattle, Wash
1066
Snyder, Calvin K., National Association of Real Estate Boards
985
Stephany, B. Charles, on behalf of National Association of Retail
Clothiers and Furnishers
1551, 1562
Stom, Mrs. Harold A., director, National League of Women Voters. _ 1447
r
Summers, Hon. Hatton W ., Representative from the State of Texas. _ 1244
Taylor, Tyre, general counsel, National Association of Retail Grocers. 1632
Thompson, Ernest O., commissioner, Railroad Commission of Texas. 1376
Vinson, Fred M., Secretary of the Treasury
1565
Vinson, Hon. Carl, chairman of the Naval Affairs Committee of the
House of Representatives
1297
Voorhis, Hon. Jerry, Representative from the State of California
1252
Walker, Harry W., secretary-manager of the Independent Retail Food
Distributors of Maryland
1627
Ware, Caroline F., on behalf of American Association of University
Women
1421
Warren, C. J., production manager, Southwest Lumber Mills, McNary,
Ariz
:
1052
Wechsler, Leo, attorney for the American Fur Merchants Association _ 1331
CONTENTS
V
Pa e
Statement of—Continued
s
White, Hon. Compton I., Representative of the State of Idaho
1265
Whitlock, Douglas, chairman, advisorv board, the Producers' Council,
Inc
1
1097
Williams, S. Clay, chairman of the board of R. J. Reynolds Tobacco
Co
1508
Wilson, Robert E., chairman of the board, Standard Oil Co. of
Indiana
1136
Worley, Hon. Eugene, Representative, State of Texas
1217
Briefs, letters, statements, etc., "submitted for the record:
Act of July 2, 1940, c. 508, 54 Stat. 714, as amended, etc
1589
Administrator's statement regarding subpena of bank records
1780
American Cotton Manufacturers Association on wage rates in the
cotton industry
1189
American Fur Merchants' Association, Inc., brief and amendment
1331
American Home Economic Association
1446
Bank credit expansion coincident with the Victory Loan drive
1583
Benoit, Henri A., prepared statement
1556
Bohart, Phil H., statement on price versus reserves
1165
Boner, J. Russell, letter to Mr. Zenas Potter
1753
Bonner County Democratic Central Committee letter to Hon.
Compton I. White
1267
Brownlee, James F., statement to Hon. Brent Spence
1787
Carson, Ivan D., statement
1793
Charts, three in number furnished with testimony of Robert E. Wilson- 1142
Comparing the increase in the public debt financed by commercial
bank audit during World Wars I and I I
1583
Composition of the gross national product for 1944 and 1945
1587
Cravey, Zack B., letter to Hon. Tom Linder on OP A ceilings
1027
Davies, Ralph K., statement on oil control
1164
Distribution of Treasury borrowing between bank eligible and bank
ineligible issues
1582
Eccles, Marriner S., written statement
1817
Effect on price of cotton goods of an increase of 1 cent per pound in
price of raw cotton
1625
General Federation of Women's Clubs
1445
House Special Committee on Postwar Economic Policy and Planning,. 1218
Kingan & Co., letter to Hon. Forest A. Harness
1283
League of Women Shoppers, Inc
1446
Legislative-Federal relations division, National Education Association
1444
Lumber condition in Wisconsin and Michigan
1064
Monsanto Chemical Co., letter to the committee
1859
National Council of Catholic Women, letter to Hon. Brent Spence
1443
National Council of Jewish Women, New York 23, N. Y
1445
National debt cut, April 1
1481
National Federation of Settlements, statement on OPA extension
1444
National Retail Furniture Association, statement to House Banking
and Currency Committee
1087
National Women's Trade Union League of America, letter to Hon.
Brent Spence
1443
Nob del Manufacturing Co., telegram to Mr. Ernest H. Hillman
1756
On-tree prices of oranges, charts 1, 2, 3, and 4
1294
OPA community ceiling prices effective February 21, 1946
1628
OPA statement in regard to suspension of maximum prices from citrus
fruit
1805
OPA statement on orange price decontrol
1576
Porter, Paul, letter to Hon. Scott W. Lucas, as referred by Representative Dirksen
1674
Potlatch Forests, Inc., letter to Hon. Charles C. Gossett
1266
Powers of the Administrator to regulate transactions in futures in the
various commodity markets
1790
Price Administrator Bowles lands N A R C F stand
1553
Product standard statement to Hon. Brent Spence, chairman, House
Banking and Currency Committee
1785
Proposed amendments to H. R. 5270
1231
VI
CONTENTS
Briefs, letters, statements, etc.—Continued
Proposed amendment to Price Control Act
Reitz, J. Wayne, statement before the House Banking and Currency
Committee
Report on OPA by Hon. John Phillips as a member of the Republican
Congressional Food Study Committee
Robinson, Dr. Claude, survey of small manufacturing enterprises
South Florida Canners statement
Southern Pine case
Table showing average prices in relation to the ceiling price on citrus
during period November 19, 1945, to January 3, 1946
Ten auction average prices on citrus fruits
Testimony of Congressman Jerry Voorhis before the Banking and
Currency Committee on bill to extend the OPA
Textile Manufacturers Association of Philadelphia, letter and statement to the committee in 1946
Thomas Woodlief, letter to Hon. Brent Spruce
Weekly average prices on 10 auctions of California oranges and lemons _
Wood Office Furniture Institute, letter and statement
Page986
1285
1604
1151
1791
1047
1011
1015
1254
1602
1788
1015
1397
APPENDIX
Bernard K. Johnpoll, director of public information, Veterans League of
America
Florence Barnes, chairman of legislation, Women's Trade Union League
of the District of Columbia
William M. Blaisdell, president, Eastern Cooperative Wholesale, Inc
Mrs. Henry A. Ingraham, president, the national board of the Y. W. C. A_
George P. Hitchcock, field representative, Western Cooperative Dairymen's Union
A. E. Lyon, executive secretary, Railway Labor Executives' Association.E. G. Lindemann, of Green River Chair Co., Livermore, Ky
George R. LeSauvage, president, National Restaurant Association
Dairv Institute of California
F. Bowie Smith, F. Bowie Smith & Son Lumber Co., Baltimore, Md
Roy A. Cheney, president, Underwear Institute
Lawrence S. Martin, secretary-manager, National Association of Frozen
Food Packers
W. H. Suttenfield, vice president and sales manager, American Yarn &
Processing Co
Capt. William M. Johnson, Washington, D. C
Chamber of Commerce of the United States of America
H. E. Foreman, managing director, the Associated General Contractors
of America, Inc
Wesley E. Disney, Western Oil & Gas Association of California
William J. Kellev, president, Machinery & Allied Products Institute
T. B. Saunders, president, Miller Manufacturing Co., Richmond, Va
W. Kerr Scott, Commissioner of Agriculture of North Carolina
Sidnev H. Posner, Mount Vernon, N. Y
J. M. Wells, Homer Loughlin China Co., Newell, W. Va
Charles D. Barr, Imperial Casket Co., Leesville, S. C
C. L. Skinner, Tri-State Packers' Assn. Easton, Md
Fred H. Abbott, California Creamery Operators' Assn., Davis, Calif
1861
1862
1863
1864
1865
1865
1867
1870
1874
1878
1880
1882
1885
1886
1892
1904
1905
1907
1909
1910
1911
1915
1917
1918
1919
1946 EXTENSION OF THE EMERGENCY PRICE CONTROL
AND STABILIZATION ACTS OF 1942, AS AMENDED
WEDNESDAY, MARCH 20, 1946
H O U S E OF R E P R E S E N T A T I V E S ,
C O M M I T T E E ON B A N K I N G A N D C U R R E N C Y ,
Washington, D. C.
The committee reconvened at 10 a. m., Brent Spence, chairman,
presiding.
The C H A I R M A N . The committee will be in order.
We will hear this morning from the National Association of Real
Estate Boards.
The witness will identify himself before proceeding.
STATEMENT
OF CALVIN
K. SNYDER,
REAL
ESTATE
NATIONAL
ASSOCIATION
OF
BOARDS
Mr. S N Y D E R . Mr. Chairman and members of the committee. My
name is Calvin K. Snyder. I am appearing today on behalf of the
National Association of Real Estate Boards. Our headquarters are
located in Chicago.
In appearing before your committee on H. R. 5270, I seek to speak
for the real-estate business throughout the country, which is organized into 784 real-estate boards which are a part of our national
organization.
Our members manage some 4,000,000 tenant units for owners and
are, therefore, interested in behalf of owners and tenants alike. Many
believe that we represent owners only. This is wrong. The tenants
are also our customers.
Some 10,000 of our 30,000 firms build houses. An equal number
are interested in mortgage finance as a part of their business. The
whole housing picture is, therefore, an intimate part of our daily
lives and of our thinking.
We are not, as many would have you believe, the representatives
of greedy landlords who are seeking to take advantage of a shortage
of housing. We are daily the recipients of thousands of applications
from veterans and other worthy citizens for accommodations which
clear through our offices. We get the first and greatest impact of the
shortage. We receive the greatest amount of cussing out. We know
how tough the problem is.
We are in entire sympathy with the difficult situation that confronts
Government and especially Congress at this time. Consequently, you
may be sure that the suggestions we have to offer are brought forward
in good faith and with a desire to do the best for everyone concerned.
985
986
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
I come before this committee to pray for relief and justice. We are
fully aware of the situation and do not want to add to the burdens
of government or the public.
The National Association of Real Estate Boards has always recognized the need for wartime control. Our plea has always been, and
continues to be, for justice, fairness, and decent treatment in its administration. This we do not always have.
The cost of operating properties has increased greatly since 1941
and 1942, when rents were frozen. Since 1939 rents have advanced
only 4 percent, but all the elements of property operation—wages,
taxes, and maintenance—have increased consistently. This we will
show you in chart form a little later. There are many property owners
who are in serious distress because of the rigid controls.
We are aware that the National Apartment Owners Association
and the Metropolitan Fair Rent Committee has appeared before this
committee and requested a 15 percent across-the-board increase in
rentals. We believe this is justified as it represents no more than the
proper recognition of increased costs.
If, however, the Congress is not disposed to accept such a recommendation, we have an interim amendment which we believe is a fair
proposition.
We are submitting this amendment to the Price Control Act concerning rents. It can be summarized as follows:
This amendment will permit a property owner to file a schedule
with the Office of Price Administration showing his increased monthly
operating costs, including taxes, as of the present compared with his
freeze date.
The property owner would file with this statement a schedule showing increased rents to cover dollar for dollar these increased operating
costs; provided, however, that the increase in rents does not exceed
10 percent.
After 60 days the new schedule of rents would become effective
unless in the meantime the Office of Price Administration could show
that the property owner's statement about his increased costs was
untrue.
This plan would permit fair adjustment in hardship cases. I t
would not mean a general horizontal rent increase throughout the
country. Owners which do not have increased costs would not be
entitled to increased rents.
It was the clear intent of the Price Control Act to direct the Office
of Price Administration to make just such changes in rents. This
amendment will compel the Office of Price Administration to treat
owners fairly and as Congress intended.
Mr. Chairman, with your permission, I would like to introduce
in the record at this point the phraseology of the amendment which
is attached to the statement that has been passed around.
The C H A I R M A N . Without objection, it may be inserted.
(The document above referred to is as follows:)
PROPOSED A M E N D M E N T TO P R I C E CONTROL
ACT
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That subsection (c) of section 2 of the
Emergency Price Control Act of 1942, as amended, is amended to read as follows:
987
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
"(c) Any regulation or order under this section may be established in such
form and manner, may contain such classifications and differentiations, and may
provide for such adpjustments and reasonable exceptions, as in the judgment
of the Administrator are necessary or proper in order to effectuate the purposes
of this Act. Under regulations to be prescribed by the Administrator," he shall
provide for the making of individual adjustments in those classes of cases
where the rent on the maximum rent date for any housing accomodations is,
due to peculiar circumstances, substantially higher or lower than the rents
generally prevailing in the defense-rental area for comparable housing accommodations, and in those classes of cases where substantial hardship has resulted
since the maximum rent date from a substantial and unavoidable increase in
property taxes or operating costs. Any regulation or order under this section
which establishes a maximum price or maximum rent may provide for a maximum
price or maximum rent below the price or prices prevailing for the commodity
or commodities, or below the rent or rents prevailing for the defense-area housing
accommodations, at the time of the issuance of such regulation or order. The
owner of any housing accommodations with respect to which a maximum price or
maximum rent has been established by any regulation or order under this section
may, at any time after the date of approval of this amendment, file with the
Office of Price Administration a statement of the property taxes and operating
costs in connection with such housing accommodations, showing the actual amount
of increase, if any, in such taxes and costs, between the maximum rent date
for such housing accommodations and the date of filing such statement, on a
monthly basis, and may file at the same time or at any time thereafter a new
rent schedule for such housing accommodations, to become effective at the
beginning of the first rental period following the expiration of 60 days from the
time of its filing, which new rent schedule may provide for rent increases not
exceeding in amount the increase in property taxes and operating costs shown
by such statement, and not exceeding in percentage 10 per centum of the maximum
rents for such housing accommodations in effect at the time of filing such new
rent schedule. Statements or property taxes and operating costs filed hereunder
shall be supported by oath or affirmation of the property owner filing same. Any
new rent schedule filed pursaunt to this subsection shall become effective according to its terms unless, prior to the expiration of 60 days from the date of filing
of such new rent schedule, the Administrator shall issue an order suspending
the effectiveness of such new rent schedule on the ground that the statement upon
which it is based is false or in error in one or more major particulars."
Mr. SNYDER. A word of comment on the proposed amendment. The
registration of increased costs by the owner who desires to increase
his rents will not be cumbersome. The Office of Price Administration
has the machinery established for this operation. All of the existing
rental units are already registered, together with their rents. The
Office of Price Administration also has ample data in its files to
check the owner's statement of costs. I t has been collecting this
material for years.
The Office of Price Administration already functions in the way
suggested with respect to many manufacturing operations. Manufacturers are permitted to file a schedule of increased prices based
on increased costs and to go ahead unless the Office of .Price Administration imposes a veto. This has been done in the shoe industry
and several others.
The-recognition of increased costs as a factor in determining prices
has long been observed by the Office of Price Administration. In
fact, the increase in the general level of the price of other factors
in the cost of living has been due principally to adjustments which
have been allowed by the Office of Price Administration because of
increased costs. It is only just, therefore, that the same recognition
be given to such increased costs in connection with shelter as is given
in every other field.
I t is true that the Office of Price Administration has long been
under direction of Congress to do this. I t has not done so. We,
988
E X T E N D P R I C E CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
.therefore, feel it essential that Congress should adopt a specific amendment which will spell out in the law exactly what the OfG.ce of Price
Administration must do in fairness to 8,000,000 small property owners.
When a law is made it should apply to everyone. A public policy
should apply to all. I t is true that the only economic front which
has been held by the Office of Price Administration is that of rents.
When law and administration are administered against one group and
in favor of others this is in itself a grave injustice.
Our amendment simply seeks a partial parity for rents. If the
costs have increased even more than 10 percent, we, nevertheless,
suggest that for the moment the allowable increase in rents be held to
10 percent. If the operating costs have increased 5 percent in any
individual case, then, the increase in rents would be dollar for dollar
in the same amount. Owners that do not have increased costs would
not receive any increased rents. This certainly seems eminently fair
and reasonable. In fact, it is leaning over backward in order to
assist Congress in its difficult problem.
Mr. James C. Downs, Jr., of Chicago, is a specialist in research in
the real-estate field. He has been an adviser to the Office of Price
Administration on rents. He is the manager of properties in Chicago.
He is president of the Real Estate Research Corp., Chicago. Mr.
Downs will show you some charts which demonstrate the present injustice suffered by most of the small-property owners in the Nation.
May we show those charts at this time, Mr. Chairman ?
M r . BARRY.
Yes.
Mr. Downs, will you give your full name and state whom you
represent ?
STATEMENT
O F J A M E S C. D O W N S , J R . , P R E S I D E N T ,
RESEARCH
CORP., CHICAGO,
REAL
ESTATE
ILL.
Mr. D O W N S . My name is James C. Downs, Jr., I live in Park Ridgey
111. I am president of Real Estate Research Corp., of Chicago, Ill.y
which does research for banks, insurance companies, housing authorities, and real-estate boards.
Whereas other groups have appeared before this committee and have
asked for a horizontal rent raise which would impose a 15-percent
blanket increase on the entire Nation, we have sought to come before
you with a solution to the problenfr of rents which we believe is practical of attainment, and a practical job for the people of this country
who own the Nation's properties.
Since the passage of the Price Control Act, the typical landlord
in the United States has had no relief under rent control—of any
kind or character. Whereas in Mr. Bowles' testimony he points out
that a substantial number acted upon favorably, those petitions for
grants of increase in rent were all petitions filed under the regulation,
and under the regulation there are specific manners in which one can
petition for an increase in rent, but those increases in rent can only
result from the proof on the part of the landlord that he has either
altered the premises or has suffered a hardship, or has had a property
which was in peculiar circumstance, or several other remedies under
the regulation.
989 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
However, unless there was a real right, under the regulation, for
that petition to be filed, there is no chance for relief on the basis of
increased cost, or of increased pay rolls, or of increased materials.
Now, we would like to point out a chart wThich shows the difference
between the increases in rent and increases in the cost of living. These
figures are all well known to members of this committee, and the
4-percent increase in rent and the over 30-percent increase in the cost
of living are figures of the Bureau of Labor Statistics.
There is indication now that the cost of living will go a little higher.
Mr. Bowles has estimated that it will go up 5 percent. Mr. Eccles
has said that he believes it will go up 10 percent. Yet, under the present law, there is no possible relief for the real-estate owner, and none
envisaged except under this amendment.
Now, there are certain things that I would like to point out about
the condition which results from these wide factors:
1. The cost of living at 30 percent up is not a true statement of
the hold-the-line by the Office of Price Administration, because if
it were not for subsidy to the cost of living which is given by this
4-percent increase in rents only, that is, if rents were up a proportionate amount, the cost of living would be a great deal higher. One
of the reasons why the cost of living has been held to that level is
because rents, which were originally figured, at 19 percent of the cost
of living, have subsidized the cost of living by themselves being up
only 4 percent.
Another interesting fact about this chart is that the very low level
of rents in the economy is responsible for the tremendous sale of
houses, and the great removal, from the rental market, of these houses
by thousands of cases each month. The reason is that the houses are
at such low levels of rent that many hundreds of landlords—thousands—have found it inequitable, in the light of their greatly reduced
purchasing power in the economy, as a result of the rent being held at
this level, while their expenses are at a higher level, that they have
concluded to sell their houses because it is uneconomic to hold them.
Another interesting situation which has developed from the fact that
rent is out of balance in the economy is that it has, strangely enough,
been one of the reasons for the housing shortage. One fact that we
all know is that when wages go up, as they have in both white-collar
And labor groups, and rentals remain the same, great classes of people
wTho never before in the history of our economy have been able to
live alone, thus using up one rental unit for themselves, are now finding it possible to do so.
One of our affiliate companies operates a large number of apartment
hotels. We, like other people, are doing everything possible to make
those units available for veterans. We made a survey, in our building, last month, and we found that 39 percent of our apartments in
this category are occupied by people living alone—girls who work in
offices and who, for all the previous history of this economy, were
forced to double up and live together, because that was the way they
could get an apartment, because their salaries have increased substantially, and because rent is down at the low levels, find it now possible
to use an apartment for themselves. A good thing for them; a bad
thing for the use of apartments.
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
More than that, the price of articles is a great stimulation for production, as we heard in these hearings yesterday.
The fact that rentals are at their present low levels is a deterrent
to the creation of rental housing, and all of our sources of information
lead us to believe that one of the real needs in the economy at the
moment is rental housing.
We would like to point out, for your consideration of this amendment, that the housing of the Nation is a national asset. The Government has, for a long period of time, believed that the farms of the
Nation were a national asset. We have followed a policy whereunder
we are trying to keep our farm lands in productive position. Yet when
we look at the national asset which is presented by our housing, by our
urban housing, we find that, under this rent regulation, owners are
deliberately allowing this national asset to deteriorate, because they
are not paid for keeping it up, they can rent their house without any
care whatsoever, and there is no way, if they spent money on it, for
them to get that money back.
We are dissipating, gentlemen, our national asset in urban housing,
at a time when more people are interested in urban housing by a larger
percentage than have ever been interested in it in the history of our
country since a higher and higher percentage of our people are using
urban housing, and yet at that time when we are worried over the entire problem of getting housing up, we are accelerating the depreciation
of the housing plan of the Nation, by making it impossible for the
owner to spend money to keep its property up, and get that money
back.
Under our amendment, under the amendment proposed by Mr.
Snyder, we are seeking merely to get back for the people who keep up
these homes, the money which they put in it at least up to 10 percent
of the rent. Many people will not be eligible to apply under this
amendment for an increase in rent. Those not eligible will, of course,
not apply.
Now, one of the general beliefs of the public is that the rented dwellings of the Nation are represented by large apartment buildings, that
they are owned by large operators. They think in terms of apartment
buildings which stand out, in New York, in Chicago, in Washington,
in a few of our major cities. But this chart, which shows how the
rental units of the United States are made up, is interesting in that
41.4 percent of all the units are in the single-family houses. 21.6 percent of all the units are two flats, 15.1 percent of all the rented units
are in three and four flats. So that more than three-quarters of all
the rented units in the United States are in four flats or less. There
is no large operator in that group.
We might point out that there is no concentrated ownership of
houses today in the United States. In the 1933-35 period, insurance
companies, banks, trust companies, and others owned hundreds of
houses. But if you were to make inquiry of Metropolitan Life or
Prudential Life or any of the large life insurance companies engaged
in the mortgage business who, in 1934, owned large bulks of houses,
you will find that those houses have gone back into individual ownership.
Therefore, we believe that under our amendment, these people who
are having increases in costs, which we shall discuss somewhat later,
991 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
can recover those costs, and in so doing, more than three-quarters of
all the owners of this property will be the small property owners in
the four flat and less category.
Now, one of the stereotype arguments with respect to the rentcontrol law is that the average property owner is making more money
today than he ever made. There are some statistics applying to a
small segment of the chart which we have just reviewed which indicate that gains in occupancy alone accounted for substantial amounts
of net increases to the landlords. I would like to review that with
you for just a minute.
In 1940, when the census was taken, in the early part of the year,
the four-family and smaller homes in the United States had a vacancy
of 7.86 percent. The buildings of larger than four families had a vatcancy of 9.67 percent. That is always true, that the larger buildings
have the higher vacancy. The smaller buildings have the lower.
Now, you gentlemen are familiar with what happened in our housing economy between 1940 and the time when you undertook to pass
the 1942 Price Control Act. Between 1940 and that date, there was a
sharp increase in urban occupancy, all over the United States. And
that sharp increase probably resulted—nobody knows, but at least
when area rent directors felt it was necessary to impose rent control,
there was a presumption of an existing emergency and shortage.
Therefore, I believe we can assume that the occupancy in four-family
and smaller units had gone from 93-odd percent, where it was, up to
about, let us say, 97 or 98 percent.
Now, suppose that is true. Here is the situation of the single-family
home operator. Ninety-eight of these fellows have 100 percent occupancy. Two of them have. 100 percent vacancy. To speak of the
benefit to this man, for this .man's renting of his house does not make
sense. The fact is that in the small units, the average small unit, or
more than 95 percent, in any event, of all the small property, with
100 percent occupied on the rent freeze date have since had no
increase of any form in rental, for occupancy or otherwise.
We find that, in the rent, you have the only universally applied
ceiling where no element of cost has been considered. I t was a real
freeze of the existing status on the date of the freeze, and since that
time there has been no way for any increase to come to these people.
Now, turning our attention to factors of cost in the operation of
rented dwelling units, I assume that many of you members of this
committee live in houses which you own, and if you do, if you have
had any decorating work done lately, as I did last month, where my
bill for the identical same job that I had done in 1940 was 110 percent
higher than it was in 1940,1 assume that you have had the experience
of the larger-than-average increase for isolated operations. By that
I mean that these figures which we show here show that paint and
paint materials are up 29 percent. That is a figure furnished to us
by the Bureau of Labor Statistics. But the fact is that isolated jobs
done by Joe Home-Owner, who must call a plumber, who may call
a decorator in to do three rooms, are substantially more than the
source industry pricing.
But as we look at this thing* and see what the owners are up against,
we find that in the repairs classification, plumbing and heating is up
18 percent; soft coal, which all of our northern buildings must use,
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
is up 23 percent; paint and painting materials and paint, 29 percent;
general building materials, 80 percent: building trade wage rights, up
34 percent; and so on. Now, these costs which have increased, are in
addition to other costs which all of you are certainly more familiar
with.
Those costs of local taxes: There is no recognized compendium up
to date of the trend of local taxes, but I think that our general experience will indicate to us that these things are true. Since YJ-day
almost every one of our cities has added substantially to its police
force.
Since the imposition of rent control, every one of our major cities
has had substantial increases in municipal employees pay roll. The
school program is seeing just at the moment, and has seen for the past
2 years, a very rapid rise in the salaries paid to teachers, maintenance
employees, the costs of operating the school system.
In many cities our local governments are taking over local transportation systems and are putting additional revenues into them. They
are all engaged, or will be, in veterans' housing programs of a temporary nature which are going to be borne out of the budgets of the cities.
Postwar planning is taking an increasing amount of city budgets,
and is accounting for raises in taxes.
Airport bond issues are being floated all over the United States and
airports are being installed. The net result is that local taxes in
Chicago, in Detroit, in Utah, in little towns and big towns, are all increasing at a tremendously rapid rate, and have all increased already
under rent control very substantially.
Now, we have presented before data with respect to the comparative
condition of real estate under this law. -We have shown that rents are
the only single segment of our national economy where the original
freeze principle was used, and has never been changed. That is the
reason, gentlemen, why rents are up 4 percent during this period,
whereas the cost of living is now up over 30 percent, and the anticipation is it will go from 5 to 10 percent higher.
Let us just take a look, briefly, at what has happened with wages
as compared with rent in several of our major employment classifications. In all manufacturing classifications, the take-home pay was
up 200 percent, dropped off at the end of'the year under strikes clown
to about 160 percent, and we have reason to believe that now that the
strikes are settled and that the wages are even higher, that this takehome pay will not recede a great deal from its wartime peak.
In anthracite coal, we have this situation: 225 percent as compared
with 4.
In bituminous coal, over 150 percent as compared with 4.
In wholesale trade, 150 percent as compared with 4.
In retail trade, about 30 percent as compared with 4.
In hotels, 175 percent as compared with 4.
Insurance, 26 percent as compared with 4.
And in building construction, approximately 200 percent as compared with 4.
Mr. BARRY. Mr. Downs, you were talking about school teachers
and municipal employees before. The mayor of New York appeared
here about 2 weeks ago and testified that the 175,000 city employees,
firemen, policemen, school teachers, and so on, have received only an
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
increase of 15 percent since the war began, and a temporary one, at
that.
Mr. D O W N S . That may be true in the city of New York. I do not
believe it is typical of the country as a whole. I believe that the
school teachers' salaries in the country as a whole are up considerably
more than 15 percent since the maximum rent date.
Mr. BARRY. Well, that is the biggest city in the country.
Mr. D O W N S . I appreciate that, but at least that is 15 percent. We
have nothing.
Mr. BARRY. That is a temporary one taken out of special funds.
Mr. D O W N S . That is right. But I would imagine, in the light of our
studies of the economy, that it is not temporary.
NOWt, there is always the stereotype, also, which is given to owners
of real estate, that we must hold rents at their freeze level of 1941 and,
1942, respectively, because, perhaps, other factors have not been held,
or because it would work too great a hardship on the economy if WQ
were to allow increases in rent.
Now, gentlemen, we have not come here and we are not urging, m
any sense, the abandonment of rent control. We have not come here
to ask for a horizontal increase in rents throughout the United States,
We have come here only to ask that you make an amendment to this law
which we believe is practical of attainment, which we believe will be
beneficial to the national economy and which we believe will in no
sense create a stir of inflation or add one whit to inflation.
Let us suppose that under this amendment, landlords, who had an
increase in taxes—a man owns a house out here, he has an increase in
taxes, he has some increase in decorating costs. He comes in under
this amendment, if he has an affidavit of those increases in costs,
comes up, and asks for a rent raise to offset those increases in costs.
We have no reason to believe that it will be typical for that man to get
the full 10 percent, because his individual condition may not justify it.
If it does not} he will not get it. But let us look at the two alternatives. A 5-percent raise in rent would do what to the typical
renting public? Forty-five percent of the families in the United
States, if their rent was raised 5 percent, would be increased in rent less
than a dollar a month. Eighty-four percent of the families in the
United States, if we allowed a 5-percent increase in rents, or if this
amendment resulted in an average 5-percent increase in rents, would
get less than a $2 a month raise. Ninety-six percent of the families in
the United States now renting, or who were renting in 1940, would
get a rent raise of less than $3 a month.
Now, at a time when wTe are considering basic increases of 18 cents
an hour, it does not seem to me, and it does not seem reasonable in any
analysis of the economy which wTe can make, that a $1 raise of 45
percent of the people's rents, or a $2 raise of 84 percent of the people's
rents, would bring on inflation—especially when you realize that rent
control, with all of its controls as to occupancy, with all of its controls
as to the tenure of tenants, would still be in force in exactly thei
method used now.
Finally, I would like to point out what a 10-percent raise would do.
This amendment would not result in a 10 percent increase in rent to all
the Nation's tenants, by any means. But suppose, just for the case of
argument, that it did result in a 10-percent increase in rents. Seventv
994
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
percent of the tenants in the United States would pay less than a
dime a day or less than $3.10 a month in increased rents.
Twenty-six percent of the tenants would pay from 10 to 20 cents
a day increase.
Only 4 percent would pay more than 20 cents a day as an increase
in rent.
Now, it is our conclusion that it is not wise to allow rent control to
go into another year in its present inflexible condition. There is no
argument to the contrary of our statement that most owners today,
who own the Nation's real estate, are in a considerably poorer position
with that real estate than they were in 1942 or 1941, whatever the
freeze date. There is no refutation of the fact that local taxes are
going up and will go up more substantially, that local expenses of
operation are going up and will go up, that coal and heating prices
are up substantially now, and will go up again—probably in April,
when this miners' adjustment is made again—and in all of those industries with which the landlord deals—for example, in the purchase
of coal, every time the coal price goes up at the mine because of
increased labor at the mine, a new price is given the mine, a new price
is given the local dealer, dealer's margins are increased, and the whole
thing is ultimately borne, to a large extent, by the people who heat
the Nation's buildings, by the landlord.
I am not here to cry tears for the Nation's landlords. But I am here
to plead for this amendment which is the evolution of 2 years of
thinking on this problem, which we believe is realistic, which we believe is fair, and which we believe is not inflationary, and which we
believe is practical of legislative attainment.
Thank you.
Mr. SNYDER. Mr. Chairman, with your permission, we are having
these charts reproduced and would like to insert them in the record.
The C H A I R M A N . They will be inserted in the record, without objection.
Mr. M O N R O N E Y . Can we make cuts of the charts ?
The C H A I R M A N . I do not know.
Mr. D O W N S . We can furnish members of the committee with the
cuts.
The C H A I R M A N . Yes. Instead of putting in the charts, you may
put in the information relating to the charts.
Mr. M O N R O N E Y . It may be easier to print copies of the charts rather
than going to all that trouble.
The C H A I R M A N . All right.
Mr. SNYDER. We will furnish the committee with copies.
The C H A I R M A N . Very well. The information pertaining to the
charts can go in the record. I do not think we can go to the expense
of making cuts of the charts.
Mr. SNYDER. In conclusion, I would like to point out that Congress
has consistently held that the Office of Price Administration was not
created in order to regulate profits. The various facts that are presented to Congress from time to time indicating that some properties
are profitable always leave out of account the fact that today most
properties are not. If profits were to be the basis of rent control,
then, the rent on every property would have to be different because
the investment is different and the operating costs are different. We
do not ask for relief in order to show increased profits. We are only
995 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
asking for relief with respect to actual dollar increases in operating
costs. For the great bulk of small property owners, this will only
keep the situation level with what it was when rent control was originally imposed.
We wish to point out also that this Government has done much to
encourage people to build and own property, especially housing. The
Federal Housing Administration, the Veterans' Administration, and
other agencies, have; for years, pointed out that millions of small property owners are the very backbone of our Nation. Now, 8,000,000 of
these small owners, encouraged by Government in recent years to build
or buy property, are asking for fair treatment.
The 8,000,000 small property owners who own rental properties
and who are responsible for 79 perecent of all our rental units today,
are not alone. There are 3,000,000 owners of small commercial properties and 15,000,000 owners of owner-occupied homes who are sympathetic with the 8,000,000. The great majority of American families have a direct interest in the soundness and prosperity of real
estate. They constitute the majority of the Nation.
We believe that Congress, in spite of the tub thumping by some
groups that goes on here in Washington, still owes a great responsibility to these millions of small property owners and home owners
and that it will desire to make sure that they are treated with equity
and justice. We plead with you to do away with the present one-sided
operation or rent control and to give millions of small property owners
an increase in rents which is consistent with their actual increase in
taxes and operating costs.
Mr. WOLCOTT. Mr. Chairman.
The C H A I R M A N . Mr. Wolcott,
Mr. WOLCOTT. Where does the amendment differ from the existing
law ?
Mr. S N Y D E R . The point, about the third or fourth line from the
bottom. The existing law is intact down to the third line from the
bottom: "The owner of any housing accommodations with respect
"
Mr. D O W N S . May I answer your question ?
M r . WOLCOTT.
Yes.
Mr. D O W N S . The existing law provides relief on the basis of hardship only in such instances where the increase in owner's costs—that
is, where the decrease in owner's profit below the base period has resulted in an amount equal to 5 percent of the gross rents.
Mr. WOLCOTT. That is in the regulation now ?
Mr. D O W N S . Yes; that is the present regulation.
Mr. WOLCOTT. That is the law ?
Mr. D O W N S . I thought you meant the operation of the law.
Mr. WOLCOTT. N O . We are dealing with the law, not the regulations. He has authority under existing law to do everything that
has to be done.
Mr. S N Y D E R . On the basis of substantial hardship, sir.
Mr. WOLCOTT. All right.
Now, if you go to the next page, you set up a procedure whereby
you may make application for an increase, and you may file, at the
same time, or any time thereafter, a new rent schedule, and he may
provide for rent increases. Is that not so now ?
Mr. S N Y D E R . Except that it is not being done now.
83512—46—vol. 2
2
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. WOLCOTT. Well, I am not asking about that. Under existing
law, he can do it now. Under existing law, he may increase rents
generally or in specific cases ?
Mr. SNYDER. In the decision of the Administrator, the local area
administrator or the district administrator.
Mr. WOLCOTT. Yes, sir. Your amendment would make it permissive only.
Mr. SNYDER. NO, this is not permissive. This is a basis for making that effective. This provides that where you have increased
Mr. WOLCOTT. What is the language in the amendment which compels him to do anything about it ?
Mr. SNYDER. Only that it does not leave it to the jurisdiction of a
decision of an individual or group of individuals, but on the basis
of the facts themselves. A new^ schedule of increased costs.
Mr. WOLCOTT. What do you intend to set up? Do you intend to
lay some ground work for the fact that if he does not act, then his
action becomes arbitrary and subject to legal review ?
Mr. SNYDER. The whole point of this, sir, is that it is arbitrary
under the present plan, whereas this would make it an act of actual
compulsion.
Mr. WOLCOTT. That it what I cannot understand, where the language is that compels him to do it.
Mr. SNYDER. Merely that you file the taxes and increased operating
costs, and, on the basis of those increased operating costs and taxes,
you file a new schedule of rents which would cover, dollar for dollar,
that amount of increased costs up to 10 percent of the maximum
rent. And that is filed, then, with the Administrator, and if he does
not take action to show that this is not true, that this schedule is
untrue, in 60 clays it automatically becomes effective.
Mr. WOLCOTT. Reading from the top of page 2 :
* * * may file with the Office of Price Administration a statement of the
property taxes and operating costs in connection with such housing accommodations, showing the actual amount of increase, if any, in such taxes and costs,
between the maximum rent date for such housing accommodations and the
date of filing such statement, on a monthly basis, and may file at the same
time or at any time thereafter a new rent schedule for such housing accommodations to become effective at the beginning of the first rental period following
the expiration of 60 days from the time of its filing, which new rent schedule
may provide for rent increases.
Do you claim that that compels him to act in 60 days on your
application ?
Mr. SNYDER. It makes the new schedule of rents effective at the
expiration of 60 days, unless the Administrator proves that these
costs are unfounded, or untrue, or incorrect.
Mr. WOLCOTT. S O your contention is that this language authorizes
you to make a certification, we will say, and that it must be under
oath, a certification to the effect that your expenses have increased
to that extent, and then, if he does not act within 60 days to prove
that your statements are correct, the rents will be automatically
raised ?
Mr. SNYDER. That is right, that the new rent schedule will then be
in effect.
Mr. WOLCOTT. I S there any provision in here for framing an issue
anywhere to review the question as to whether your expenses have
actually increased? In other words, you come in with an affidavit
997 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
saying they have increased. He says they have not increased. What
are you going to do about that ?
Mr. S N Y D E R . Well, on that basis, then, it is a matter of
Mr. W O L C O T T . If he makes a statement based on your affidavit and
certification, that he made an investigation and finds that the increases
have not been sufficient to justify the increase in the rest, where are
you then ?
Mr. S N Y D E R . They would not be effective, then. But the burden of
proof is on the Administrator.
Mr. W O L C O T T . All right. Who does he present his proof to?
Mr. S N Y D E R . Well, obviously it would go up through the line of
appeal as it has been done before.
Mr. W O L C O T T . Y O U have got to show, in order to take it up, that
his action is illegal, or is arbitrary or capricious. That is the only
way you can get into any court.
Mr. S N Y D E R . That is right.
Mr. W O L C O T T . Then, is not the burden shifted to you to show that
his action was arbitrary and capricious ?
Mr. S N Y D E R . If my statement filed as an affidavit is presented to
the Administrator, and he chooses to say that it is not effective, that
it is untrue or incorrect, then, it is a matter, I would assume, of
arbitration
Mr. W O L C O T T . Y O U cannot assume that, because you cannot get into
the Emergency Court ofT Appeals without a showing that his action
was illegal. Surely, it w ould not be illegal for him to take issue with
your affidavit. The presumption is that he is not acting arbitrarily
or capriciously in taking objection to your affidavit and the burden
is shifted to you to show that lie did act arbitrarily and capriciously,
so you are back where you started.
Mr. D O W N S . Under the law, as amended, the new rental schedule
would go into effect, and then the burden would be on the Administrator to prove
Mr. W O L C O T T . N O . Wait a minute. I do not understand this.
Mr. S N Y D E R . At the end of 60 days.
Mr. W O L C O T T . N O . If he acted negatively on your certificate before
60 days, that would not be so.
Mr S N Y D E R . Well, the owner would come in with affidavits and
books to show the exact increases that he has.
Mr. W O L C O T T . Y O U are trying the case before the Administrator.
He says "No." All right, You are in the Emergency Court of
Appeals, and your only way to get into the Emergency Court of
Appeals is to show he acted illegally, capriciously, or arbitrarily.
Mr. S N Y D E R . I think it would be arbitrary.
Mr. W O L C O T T . Y O U think so, but what would the court say about it?
You have to frame an issue in order to get a determination on it. Of
course, you would think so, but you would have to prove it.
Mr. S N Y D E R . Well, perhaps we will have to frame that additionally.
Mr. W O L C O T T . Well, you leave that to us. You have made your
point,
Miss S U M N E R . Mr. Chairman, I do not want to take the time of succeeding witnesses in order to ask questions, but I do have a couple of
questions I would like to ask Mr. Snyder.
Mr. Snyder, would you mind getting in touch with me in my office
later?
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. S N Y D E R . I will be glad to, Miss Sumner.
Mr. M O N R O N E Y . Your 10-percent maximum increase, because of increased operating costs and taxes, would not necessarily be the maximum rent increase that could be secured, provided the hardship of the
original ceiling was challenged? This is in addition to provisions
already in the act for the adjustment of the original ceilings under
the hardship clause ?
Mr. S N Y D E R . That is correct, sir.
Mr. H U L L . In renting real estate, like apartment houses, they are
now all fully rented generally. How do you arrive at your costs—
on the basis of fully rented, partly rented, or what ?
Mr. D O W N S . The cost would apply to the increase in the cost of the
operation of that particular property without respect to its occupancy
status since the maximum rent date.
Mr. H U L L . All right. But, now, 10 years ago, suppose the apartment building wTas 70-percent rented. Now it is 100-percent rented.
You are making a lot more money.
Mr. D O W N S . Y O U might find that there are some instances which
would prove to be in that condition. However, they would be extremely rare—they would be isolated. It is one of the unfortunate
facts about a universal freeze principle that when you freeze a lot
of people into a bad position you freeze some people into a good position, but those people are a very small percentage of our total group.,
as we point out.
Mr. H U L L . Well, is it not true that now apartment buildings are
fully rented, generally speaking ?
Mr. D O W N S . That is correct.
Mr. H U L L . Ten years ago, supposing they were 70 percent rented.
Mr. D O W N S . That is not true.
Mr. H U L L . If they are 100 percent rented now, you are making an
awful lot more money, regardless of costs ?
Mr. D O W N S . That is one of the stereotypes that we would like to
disabuse, and that is that in 1940, the large apartment buildings in the
country were less than 10 percent vacant, average. They were not 40
percent vacant. That is one thing. That was in March of 1940. The
regulation did not go into effect, in most of our rent areas, until March
of 1942. Between that period of 1940 and 1942 the housing shortage
became so acute in that particular area that rent control was imposed.
For example, in New York, where there was a high vacancy, they
did not put rent control on. And it is just not true that this terrifically
great increase in occupancy has resulted in increased profits.
Mr. H U L L . The point is that the percentage of occupancy enters into
the profits.
Mr. D O W N S . That is correct.
. Mr. H U L L . I do not see how you can tell unless you take that factor
into consideration in any pricing.
Mr. D O W N S . It enters into it in a small number of cases, and as I
say, that is one of the difficulties of the broad freeze principle.
The C H A I R M A N . If there are no further questions, you may stand
aside, Mr. Snyder and Mr. Downs.
We will next hear from the United Fresh Fruit and Vegetable
Growers Association.
Proceed, Mr. Kitchen.
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E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
STATEMENT
UNITED
OP
C. W .
FRESH
KITCHEN,
FRUIT
AND
EXECUTIVE
VICE
VEGETABLE
ASSOCIATION
PRESIDENT,
Mr. K I T C H E N . Mr. Chairman and members of the committee, my
name is C. W. Kitchen, executive vice president, United Fresh Fruit
and Vegetable Association.
For the information of the committee and by way of identification
for the record, the United Fresh Fruit and Vegetable Association is a
national organization with headquarters in Washington, D. C., and
has a membership of more than 2,000, consisting of grower-shippers,
cooperative marketing associations, wholesalers, jobbers, and brokers,
all engaged in the marketing of fresh fruits and vegetables.
Fresh fruits and vegetables constitute an important part of the
Nation's food supply with a farm value of more than $2,000,000,000
annually. This industry is vitally concerned about the continuation
of price control.
The fresh fruit and vegetable industry is a highly competitive industry. I t is made up primarily of comparatively small business units.
This is evidenced by the fact that the United States Department of
Agriculture has in effect approximately 21,000 licenses issued under
the Perishable Agricultural Commodities Act, which act requires that
all commission mechants, dealers, and brokers engaged in the marketing of fresh fruits and vegetables in interstate commerce shall be
licensed by the Secretary of Agriculture.
Effective and equitable control of prices for fruits and vegetables
at all levels of distribution is a complicated and difficult undertaking.
There is a sharp distinction between them and staple foods or manufactured products. Fresh fruits and vegetables are highly perishable.
Only a few, such as late potatoes, pears, and apples, can be stored
in quantity for any length of time.
In all instances, storage is possible for only short periods. All
must be disposed of within a definite marketing season. They must
be sold at the market price. There can be no carry-over from one season of production to another. Prices of fresh fruits and vegetables,
therefore, are subject wholly to the influence of supply and demand.
The imposition of price control on such highly perishable commodities as fresh fruits and vegetables, despite the best intentions and
efforts of the Office of Price Administration working under severe
handicaps, operates to disrupt long-established practices of this fastmoving business.
I t has interfered with the marketing of these products on the basis
of grade. Unavoidably complicated regulations, often difficult to
understand even by experienced analysts, seasonal price changes to
conform to historical price patterns, seasonal adjustments for storage
allowances, threatened roll-backs in both prices and margins, requests
for complicated cost data, suspensions for short periods with reinstatement on little or no notice, delays in the announcement of price
ceilings until after marketings have begun, long and expensive conferences over the necessity for equitable allowances for increased labor
and other costs, and the constant fear of prosecution are a continuing
source of confusion and uncertainty in this industry.
Many feel that price control, especially at the retail level tends to
operate as a magnet and causes retail prices to respond less rapidly
1000
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
to increased supplies. The inability of the Office of Price Administration strictly to enforce its regulations encourages the unscrupulous
and places the law-abiding merchant at a serious disadvantage.
Notwithstanding these difficulties, the United Fresh Fruit and
Vegetable Association has cooperated with the Office of Price Administration, believing that any inconvenience or hardship in the
public interest should be borne if it would help to win the war.
Many of its members have served on advisory committees and several
have served as special consultants to the Office of Price Administration.
We believe the situation is now entering a new phase and that price
control of fresh fruits and vegetables should be removed as rapidly
as possible, and in accordance wTith a more definite formula, During
the war, production of fresh fruits increased about 7 percent and
vegetables nearly 37 percent.
Consumption also increased and we earnestly hope it will continue
at a level substantially higher than prewar. The reconversion problem of the fresh fruit and vegetable industry, as we see it, is to press
for consumption substantially above prewar, or be forced to adjust
production downward to a demand at prices which will enable producers to produce. Some of our important fruits relied heavily upon
export markets before the war. Prospects for export trade are not
promising.
The situation confronting this industry was brought out recently
in the hearings on the agricultural appropriations bill before the
House Committee on Appropriations.
A statement wTas inserted in the record by the Department showing
that it might be necessary to use nearly $42,000,000 of section 32 funds
in price-support operations during the fiscal year 1947. This sum
would be in addition to such expenditures as might be necessary
from Commodity Credit Corporation funds to carry out the obligation to support prices on potatoes and sweetpotatoes under the Steagall
amendment.
It was stated that there had been a rapid increase in the production
of both deciduous and citrus fruits and that the Government might
be called upon for extensive price-support operations. With respect
to vegetables the statement pointed out that there might be a reduction in demand for fresh vegetables, owing to the greater availability
of processed products, but that it is doubtful there will be a corresponding reduction in production. Even during the war years,
the Department of Agriculture has spent substantial sums on pricesupport operations for fresh fruits and vegetables.
Government buying for military needs has been greatly reduced.
Thus, continuation of wartime high production, without the assured
continuation of wartime abnormal demand, is likely to result in many
periods of below-cost markets for producers. The natural offset is for
producers to be permitted to avail themselves of prices higher than
present ceiling levels when they occasionally occur for short periods,
due to low yields or to transportation and container shortages.
Such conditions need not be alarming to consumers because the long
list of commercial fresh fruits and vegetables will provide cheaper substitutes for temporarily higher priced items. Moreover, farm and
1001
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
packing charges have risen which require an increase in present ceilings
to be in line with the announced wage-price policy of the Government.
Despite the difficulties inherent in price control for such highly perishable commodities as fresh fruits and vegetables, the United Fresh
Fruit and Vegetable Association does not come here today to urge that
price control be ended entirely on June 30 of this year, even for fresh
fruits and vegetables.
At its annual convention at, Chicago, in January of this year, this
association adopted a resolution urging that the Office of Price Administration—
proceed with a progressive and final removal of price ceilings on all fresh fruits
and vegetables as rapidly as is consistent with a sound national economy, with
the specific request that such removal on each item or group of related items be
properly timed to go into effect during a period of adequate supply, so that the
danger of sharp market changes upon such removal, and unfavorable public reaction thereto, may be minimized.
Directive No. 68. issued by the Office of Economic Stabilization on
July 25, 1945, authorized the Price Administrator to suspend price
control with respect to any commodity—
whenever in his judgment such action will not result in an increase in prices
above the general level of existing ceilings for the commodity.
The directive also authorized the Price Administrator to revoke
suspensions if prices rise, or even threaten to rise above preexisting
ceilings. We still have price ceilings on 21 fresh fruits and vegetables—apples, apricots, cherries, grapefruit, lemons, oranges, peaches,
pears, plums, prunes, tangerines, berries, grapes, string beans, carrots,
lettuce, onions, spinach, peas, cantaloup, and watermelons.
Suspension of the ceiling on potatoes was continued recently for another 30 days, until April 10, with the prospect that should potatoes
sell above previous ceiling prices they will be reinstated, even though
large quantities have been sold below ceiling prices and the Government has spent more than $12,000,000 to support prices during the past
year. Informal indications are that plans are underway to continue
ceilings another season on various fruits and vegetables at approximately the present level regardless of increased cost.
We believe this is too indefinite a policy for this industry to work
under. With the increased production now available, we believe the
time has come to relieve the fresh fruit and vegetable industry of the
uncertainties under which it now operates. We believe the Congress
would greatly assist the Price Administrator and the Director of the
Office of Economic Stabilization in discharging their duties with respect to price control on fresh fruits and vegetables by including in the
law a more definite g u i d e for them to follow, assuming that everyone
agrees that i>rice control is not to become a fixture in our marketing
system for these commodities.
Therefore, we suggest a new subsection (h), under section 3 of the
Price Control Act, to read substantially as follows:
No officer or agency of the Government shall establish a maximum price or issue
a price regulation, or continue in effect, after the passage of this act, any maximum price or price regulation with respect to any fresh fruit or vegetable, except
as the Secretary of Agriculture shall find, based upon official estimates of the
I,)epartment of Agriculture, that the prospective production for the usual marketing season of any fresh fruit or vegetable is at least 10 percent'less than the
1002
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
average of the official estimates of production for the three marketing seasons immediately preceding the season for which such finding is made, or that prospective production for the usual marketing season for any fresh f r u i t or vegetable
is less than the average production for the 10-year period 1934-43, inclusive.
Such a provision recognizes a production of some commodities substantially above prewar, but provides for price control in cases of comparative scarcity.
In 1944, the Congress included in the Emergency Price Control Act,
the so-called crop disaster provision, under which it is mandatory that
the Price Administrator increase the shipping point ceiling on any
fresh fruit or vegetable whose supply is substantially reduced by
unfavorable weather or other causes.
The purpose of this provision was to insure producers adequate
financial returns by recognizing the unusual hazards in this industry.
We believe this provision should be retained in any future pricecontrol legislation. Crop damage also reduces the volume available
to distributors and, therefore, when shipping point ceilings are increased under the "disaster" provision, distributive margins also should
be increased proportionately.
In 1944, an amendment was also included, requiring the Price
Administrator to give growers of annual crops at least 15 days' notice
of his intention to establish or low^er shipping point ceilings. We believe this amendment should be retained, but we urge also that similar
notice should be given to the distributive trade with respect to new
ceiling prices, lowering ceiling prices, and reinstatements of suspended
regulations. As such commodities are in transit often as long as 15
days, we recommend that a 15-day notice be given to distributors, as
well as to producers.
Brokers perform an important function in the marketing of fresh
fruits and vegetables. Despite increased operating costs, many of
which have resulted from congressional action such as the excise taxes
on communication and transportation, the broker's compensation was
frozen in RMPR-165 to what he received on a certain date in 1942.
We recommend that when ceilings are suspended or removed, they
also be removed with respect to brokers' charges. We ask that brokerage be considered not merely as a service occupation, but as an aid
and means to distribution. The Price Control Act prohibits the Price
Administrator from interfering with aids and means of distribution
and we request that the Congress strengthen this provision by specifying that when ceiling prices are not in effect for any fresh fruit or
vegetable the regulation of charges for brokerage also be inoperative
for such product.
We recommend that a provision be included in the act making it
mandatory that ceilings be adjusted to include added costs since 1943.
The United Fresh Fruit and Vegetable Association is closely associated and cooperates with several regional and local groups. Some
agree with the recommendations made herein. Others favor complete removal of price control from fresh fruits and vegetables. We
request that the record of this hearing show the views of the other
groups named below and that they receive the careful consideration
of this committee:
Western Growers Association, Los Angeles, Calif., representing
producers of 90-95 percent of all commercial shipments of vegetables
1003
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 194 2
from California and Arizona, totaling approximately 150,000 carloads per year, by a resolution of its board of directors on February
15,1946, requests—
That such price ceilings as remain on fresh fruits and vegetables be removed
at the earliest date possible and that no extension of the present pricing act
be passed that carries price ceilings on any fresh vegetables or melons.
Florida Vegetable Committee, Orlando, Fla., in a resolution by its
board of directors recommends:
That the Office of Price Administration be urged to immediately remove price
ceilings from perishable fruits and vegetables, so that the law of supply and
demand may restore normal relationships between the producer and consumer
prices, to the benefit of each.
Kern County Potato Growers Association, Bakersfield, Calif., recommends against a continuation of the Emergency Price Control Act of
1942.
California Grape and Tree Fruit Association, Fresno, Calif., states:
We believe all perishables should be exempted, but for the time being standing
on position comparable under Chicago resolution 2 weeks ago.
Texas Citrus and Vegetables Growers and Shippers Association,
representing the commercial shippers of citrus and vegetables from
the Texas lower Rio Grande Valley, states:
We request that congressional committees take necessary steps to amend the
Office of Price Administration laws to provide for the exemption of the handling
of fresh f r u i t s and vegetables from any and all provisions of the act.
Mr. K I T C H E N . N O W , Mr. Chairman, we have several other gentlemen
here who have brief statements to make. Mr. O. D. Miller, our past
president, came here from Phoenix, Ariz. But, as he is now engaged
in the shipping of lettuce and we were unable to make our presentation to the committee yesterday afternoon, he had to return last night.
So, with your permission, I should like to have Mr. Lamonte Graw, who
is secretary of our committee at Orlando, Fla., present Mr. Miller's
statement and supplement it with such remarks as he may care to make.
The C H A I R M A N . Mr. Lamonte Graw.
Mr. G R A W . Mr. Chairman, my name is Lamonte Graw. Due to Mr.
Miller's inability to be here, I just waived any opportunity of presenting a brief myself, and I am going to present his in his language^
and do the best 1 can with it.
STATEMENT
FRUIT
IN
Mr.
OE 0. D. M I L L E R ,
AND
VEGETABLE
WASHINGTON,
GRAW
PAST PRESIDENT,
ASSOCIATION
D . C., P R E S E N T E D
BY
WITH
UNITED
ERESH
HEADQUARTERS
LAMONTE
GRAW
(reading) :
My name is O. D. Miller. I live at Phoenix, Ariz. My business is the commercial growing and shipping of vegetables and melons from Arizona and
Florida. My experience with these commodities covers the! last 22 years as a
producer and shipper in those States and also California, New Mexico, and
Colorado; and prior to that time I "worked as a marketing assistant in the
United States Department of Agriculture, assigned to reporting marketing information on these commodities in producing districts all over the country.
I am immediate past president of the United Fresh Fruit and Vegetable
Association, which maintains its headquarters here in Washington, but in my
appearance hefe today, I speak especially for the growers and shippers of vege-
1004
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
tables and melons in Arizona and California. I believe I may also say that
our position regarding the extension of the Office of Price Administration, so
far as it affects these commodities, is shared by the producers in the other
so-called winter-garden areas of Texas and Florida.
I can certainly confirm that as to Florida.
Our position is that, regardless of what action is taken on the extension of
the Office of Price Administration beyond next June 30, vegetables and melons—
in fact, all fresh fruits and vegetables—should be dropped from the list of controlled items. Our industry accepted the mandates of the Emergency Price
Control Act for just what the name implies: A price control for the period of
the emergency—a necessary evil of wartime.
Price control is particularly an evil in our industry because of the essential
nature of our commodities—their high perishability, and the speculative risk
which goes along with producing them. They have no fixed value, but are
worth only what supply and demand conditions dictate during the short period
when they have just matured and are ready for market. For this reason, it
often happens that during the; periods of our heaviest output, market prices
are considerably less than enough to return production costs. So we must be
able, at some time during the season, to realize offsetting periods of above-cost
sales, if we are to come out with an average price which will keep us producing.
Our industry not only accepted these emergency mandates, which we understood were only for the period of actual warfare, but our organization and many
individual members actively assisted the Office of Price Administration in the
formulation of the regulations for implementing them, to the end of making
them as workable as possible. The matter of the sudden and wide fluctuations
of prices which I have mentioned was brought out to show the necessity of an
adequate cushion being included along with costs and margins in the structure
of any ceilings established—an allowance to compensate for the price peaks and
valleys and provide a reasonable chance that the average of returns would justify
a continuation of production.
The cushions which eventually were included by the Office of Price Administration were considerably less than those originally recommended, set so on the
theory that wartime demands would largely erase the subcost market periods of
normal times, and that the ceilings which the Office of Price Administration established would result in adequate average returns to growers.
Fortunately, this did work out fairly well as planned during the time of our
all-out military activity.
With the aid of the crop-disaster clause, added in 1944 to provide compensatory
higher ceilings in cases of disastrous weather losses, most of the vegetable producers did receive reasonable returns under ceiling control during the war years;
and the growers, on their part, did a fine job of maintaining and even increasing
their output to meet production goals in the face of all sorts of shortages and
restrictions.
From 1941 to 1944 this country's production of vegetables was increased 37
percent. This, of course, was not because of but in spite of price controls. It
was entirely due to a supernormal demand which resulted from the Nation's
high industrial employment, heavy Army-Navy buying, and the shortage and
rationing of other living-cost items, so that buying power was funneled in our
direction. This wartime demand absorbed our increased production so readily
that during that time there were comparatively few subcost market periods.
Prices, while limited at the top by fixed ceilings, did not go disastrously low,
and the averages were reasonably satisfactory.
Now, however, the circumstances which created this abnormal demand are
fast disappearing. No peacetime situation will create the full employment that
this country experienced in 1942 through 1945; and there are now hundreds of
insistent and growing demands upon the family living budget which did not
exist or could not be filled during the war. But we still have our 1937 production increase, and without our erstwhile overdemand that means we have a serious
overproduction.
Our periods of subcost markets are with us again, and our country's large
population of vegetable growers will be mighty lucky if we are able to readjust
our supply to postwar demand without passing through a period of high mortality—even if all wartime restrictions on our operations were ended right now.
Vegetable grower and shipper organizations in all of the districts I have men-
1005
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
tioned, recently have gone on record as demanding immediate and final removal
of price controls on this class of commodities.
While I realize, of course, that it is not the function of your committee to
administer the present law, but that you are, rather, studying the facts which
should determine whether or not this Emergency Price Control law should be
extended beyond next June 30, and, if so, what modifications should be made
in it, still, these producers' arguments for immediate removal of ceilings on
vegetables, which are sound and urgent now, will be all the more so a few months
from now. So I would like to summarize briefly the position of our producers.
I t is this:
In any extension of the Office of Price Administration beyond its present life,
price control on fresh fruits and vegetables should be eliminated because:
First, the highly speculative risk involved in the production of our products,
their high perishability, and the sensitivity of their market prices to immediate
supply and demand, place them in a category distinct from any other commodities so controlled, and make them especially unamenable to price regulation.
Second, our volume of production, greatly increased by wartime goals and
supported until recently by a decidedly supernormal wartime demand, now is
reccgnized as an always potential over supply, so that workable average prices
now cannot possibly be realize under ceiling control. To compensate them for
periods of subcost markets, and especially in view of a wartime 20 percent
increase in their costs even since ceilings were established, growers must be
free to avail themselves of prices higher than present ceiling levels, when such
prices occasionally occur for short periods of light supply. The consumer may
always find cheaper substitutes for temporarily high-priced items.
Third, the high perishability of our products, and their plenteous aggregate
supply, is assurance of a very practical and automatic self-control of prices.
Even in the event of the most extreme situation imaginable, it should be noted
that the average expenditure for the fresh vegetable and melon items now
under control represents probably less than 2 percent of the Nation's total cost
of living.
Fourth, finally, price control came into existence for a specific period and for
a particular situation, neither of which now exists: (a) the war is over, and
(b) our products are in oversupply, rather than in undersupply. The only possible need or excuse for extension of the Office of Phrice Administration would
be to apply on items of which the production is short of the demand.
Mr. K I T C H E N . Mr. Chairman, we would like to have Mr. S. B .
McCubbins from Oklahoma City, who is chairman of the brokers
division of the United Fresh Fruit and Vegetable Association, make
a brief statement.
STATEMENT BY S. B. McCUBBINS, CHAIRMAN, BROKERS DIVISION,
UNITED FRESH FRUIT AND VEGETABLE ASSOCIATION
Mr. M C C U B B I N S . For the purpose of identification, my name is
S. B. McCubbins, of Oklahoma City, Okla,
I am an independent broker of fresh fruits and vegetables, operating
in Oklahoma and the Panhandle of Texas. I am a member of the
advisory board of the United Fresh Fruit and Vegetable Association,
and chairman of the united brokers division. I have taken a poll of
a representative group of the brokers division who indicate that they
do not object to an extension of price control with the stipulation,
however, that controls be eliminated item by item as quickly as production and general economic conditions will justify. We, therefore,
concur in the recommendations of the United Fresh Fruit and Vegetable Association.
Speaking specifically for fresh fruit and vegetable brokers I would
like to say that our rates are more or less established by custom and
that they are so small as to have little or no bearing on the con-
1006
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
sumers' cost. Under RMPR 165 we are frozen at rates which we
were using as of March 1942. Yet since that time our operating
costs have increased in the form of higher salaries, traveling expense,
and communication taxes—the latter being 25 percent.
In addition to the freeze order BMPR 165, we are also governed by
rates as fixed under most of the commodity directives and we must
use whichever is lower. This seems a little unjust.
However, speaking for myself and my colleagues, all we wish to
ask of this body is that when the Office of Price Administration suspends or eliminates a certain commodity from control that brokerage
rates on that same commodity also be suspended from control, and
that the law so require. I can assure you gentlemen that this would
not contribute to inflation as the average brokerage fee per carload
of fresh fruit and vegetables is only about $25 which is approximately
1 percent or less of the average wholesaler's cost of the merchandise.
Finally, I think the price agency should be required to issue uniform interpretation of any directives which may be continued after
June 30. Our business is of such a nature that a broker in Oklahoma
City negotiates a sale between a shipper in Florida and a wholesaler
in Kansas.
If uniform interpretations are not recognized, the buyer in Kansas
or the broker in Oklahoma might be considered in violation by his
district officers, whereas the shipper in Florida who makes the invoice
might be in strict compliance under the interpretation of his own
district.
If this committee should be interested, I can cite specific instances
of such occurrences which have cost law-abiding and legitimate operators a very onsiderable amount of money to defend their position
and where the district enforcement officer received definite recommendations from the Office of Price Administration headquarters that
his actions were ill-advised.
Uniform interpretations which must be followed by district officers
can prevent this sort of'unnecessary harassment and expense.
On behalf of the many brokers in the various States I wish to thank
this committee for allowing me to appear here and make this presentation.
Mr. K I T C H E N . Mr. Chairman, we would like to have Mr. E . J .
Blalock, from Fort Worth, Tex., president of our association, speak
with specific reference to the functions of the service wholesalers.
The C H A I R M A N . Mr. Blalock.
S T A T E M E N T OF E. J. BLALOCK, P R E S I D E N T , U N I T E D F R E S H
AND
VEGETABLE
ASSOCIATION,
FORT WORTH,
FRUIT
TEX.
Mr. B L A L O C K . My name is E . J . Blalock, vice president of Ben E .
Keith Co., whose principal office is Fort Worth, Tex. Ben E. Keith
Co. are service wholesalers of fresli fruits and vegetables. We buy
in carlots from producers and distribute to approximately 3,500 firstclass retail grocery stores. I have been in this business more than
25 years. I am also president of the United Fresh Fruit and Vegetable Association, a national organization which has a membership
of more than 2,000, consisting of growers, shippers, cooperative marfeting associations, wholesalers, and brokers.
1007 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Early in the war period I was appointed a member of the fresh
frjiit and vegetable industry advisory committee and early in 1943
was made a consultant to the Office of Price Administration. In the
capacity of an adviser and consultant I attended every meeting called
by the Office of Price Administration and assisted as much as possible
in formulating the regulations governing the fresh fruit and vegetable
industry.
I feel, therefore, that I have an intimate knowledge of the industry
I represent, as well as that part of the Office of Price Administration
which controls, the industry. Service wholesalers of fresh fruits and
vegetables distribute from 55 to 65 percent of the total production.
Our position in the industry affords us the opportunity of observing
closely the operations of all wholesalers and retailers. The Office of
Price Administration was fortunate in having the desire to comply
with its regulations by the service wholesale industry, and this industry played a very important part in keeping prices within the levels
set by the Office of Price Administration.
We also had an opportunity to observe first-hand the lack of enforcement by the Office of Price Administration, both at wholesale
and retail levels—and we assisted as much as possible in obtaining
compliance. All of this was done voluntarily and willingly to meet
the wartime necessity, but now that the war is over it is more difficult
to get compliance or to enforce price ceilings. In addition, production of vegetables and melons during the period 1941 to 1944 increased
37 percent, and the production of fruit increased 7 percent.
Primarily, service wholesalers are sales and service organizations,
but during the war period the unprecedented demand for fresh fruits
and vegetables reduced the necessity for sales promotion. Our problem was the proper allocation of the merchandise we received. The
industry did a fine job.
Now, we are faced with the job of returning to our original place in
the picture and that is selling and distributing to independent retailers
this enormous production of fresh fruits and vegetables. Under the
Office of Price Administration regulations such a selling program
cannot be succesful—with one exception, price control eliminated the
necessity for grades and no selling program can be successful behind
mixed or irregular grades of merchandise.
On the other hand, if price control were removed from fresh fruits
and vegetables growers and shippers would be anxious to go back to
grades with the assurance that top grades would bring top prices and
other grades would sell according to their value and usefulness.
I cannot emphasize too much the big job ahead of the distributive
industry, if we are to move at prices which will preserve sound economy for our producers, the enormous production of fresh fruits and
vegetables which now confronts us. Admittedly, we can no longer
lean upon the abnormal demand of wartime.
The industry as a whole recognizes this problem and the United
Fresh Fruit and Vegetable Association has this year inaugurated in the
States of Kansas and Missouri its first merchandise institute, which
has as its sole purpose the proper merchandising of fresh fruits and
vegetables, to the end that the consumer may purchase these commodities in as near farm-fresh condition as possible, and with a minimum
of waste and expense.
1008
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
We are confident that we can accomplish these purposes only if we
are unhampered by governmental regulations.
I do not know how to emphasize that any more, but if there are
some questions as to how^ the regulations might hamper a selling program, I think we have members here who can give you the information you would like to have.
Thank you.
Mr. K I L B U R N . May I ask a question, Mr. Chairman ?
T h e CHAIRMAN.
Mr. K I L B U R N . I
Yes.
would like to ask if you agree with Mr. Miller or
with Mr. Kitchen. Mr. Miller, as I understand it, is in favor of discontinuing all price controls on fresh fruits and vegetables, whereas
Mr. Kitchen is not. He is in favor of continuing it under certain conditions.
Mr. B L A L O C K . Personally, I am in favor of the removal of price
controls altogether. As president of the United Fresh Fruit and Vegetable Association, the resolution adopted is for the progressive removal, and, as a representative of that association, I must agree with
that policy.
Mr. K I L B U R N . D O you personally agree with it ?
Mr. B L A L O C K . Yes, I do now, yes, because of that resolution.
Mr. K I L B U R N . Mr. Miller is the only representative of the association; here who is against continuing it beyond June 30.
Mr. B L A L O C K . He is a producer.
Mr. K I T C K E N . Plus those others quoted in my statement, at the end.
Mr. B L A L O C K . That is right.
Mr. K I T C H E N . N O W , Mr. Chairman, our next witness is Mr. Thomas
B. Sheahan, Kansas City, who wishes to speak briefly on the operations of the terminal market handlers.
The C H A I R M A N . Mr. Sheahan ?
S T A T E M E N T O F T H O M A S D. S H E A H A N , C O M M I S S I O N E R
MARKETS,
KANSAS
CITY,
OF
MO.
Mr. S H E A H A N . My name is Thomas D. Sheahan. For the past -5
years I have been commissioner of markets for the city of Kansas
City, Mo. In that capacity I have had the responsibility of keeping
abreast of the many regulations which have been imposed upon the
fresh fruit and vegetable industry under the Emergency Price Control Act. Previously I was engaged actively in the wholesale receiving and distribution of fresh fruits and vegetables on a rather large
scale. My experience in the industry dates back to 1924 when I became associated with the Packer, one of the recognized trade journals
devoted to the production and marketing of perishable commodities.
My purpose here is to represent terminal market operators on behalf
of the United Fresh Fruit and Vegetable Association with respect to
price controls on perishable commodities under the Emergency Price
Control Act.
Spurred on by the necessity of fighting the world's greatest war,
the fresh fruit and vegetable industry has produced perishable commodities beyond all previous records. And, with the return of thousands of young men who have made farming a vocation, this increased
production unquestionably will continue.
1009
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Throughout the period of the war our commodities found ready
sale to Army and Navy procurement offices and to a consumer trade
greatly augmented by increased buying power because of full and
lucrative employment in war plants. Thus, in spite of price controls,
the terminal market operators had opportunity to make a reasonable
profit on virtually every item they handled.
But we now are faced with an entirely different situation. Army
and Navy requirements have been substantially reduced. So also has
been the civilian demand following the closing of many war industries
throughout the country. At the same time, heavy production of fresh
fruits and vegetables still goes on. Bear in mind that in our particular type of business we must move these highly perishable, commodities without delay. From time to time we will have an overage
of some items which we must, of necessity, sell below cost. So, if we
are to continue to function as an integral part of this distributive
system we should not be denied the opportunity to make a reasonable
profit on temporarily scarce items to offset these losses. This cannot
be accomplished so long as our industry is shackled with price controls
on the various items the terminal market operators normally handle.
Throughout the war we have tried as best we could to comply with
the myriad of regulations which govern our industry, intricate and
complicated as they are. Believe it or not, there have been no less
than 165 amendments to MPR 426 which governs the shipping and
distribution of fresh fruits and vegetables; and no less than 46 amendments to RMPR 271 which governs the shipping and distribution of
potatoes and onions. Virtually all of these regulations and amendments are so complex that unless one has a fair knowledge of law it
is virtually impossible to interpret them. It therefore is readily understandable why some of our people, sincere and honest as they may
be, have been charged with violation of these regulations.
Our business is by its very nature fast moving. Our products are
highly perishable and our people just have to do the best they can to
comply with complicated regulations and at the same time move these
fresh fruits and vegetables with dispatch.
Give free enterprise a chance in our industry and you may rest
assured the law of supply and demand will bring about a lower average of prices to consumers than all the laws Congress may enact.
I thank you.
Mr. K I T C H E N . Mr. Chairman, we have one more witness who wishes
to make a statement with specific reference to citrus fruits.
S T A T E M E N T O F K A R L D. LOOS, C A L I F O R N I A F R U I T
GROWERS
EXCHANGE
Mr. Loos. Mr. Chairman and members of the committee, I am Karl
Loos, traffic counsel of the California Fruit Growers Exchange, of
Los Angeles, Calif. I have been working for the California Fruit
Growers Exchange ever since September 1914.
The exchange is a cooperative agricultural marketing association
which markets the citrus fruits produced by its members, and its members produce about 70 percent or more of the total oranges, grapefruit,,
and lemons produced in California and Arizona. They are marketed
under the Sunkist brand which may be familiar to some of you.
1010
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Mr. Kitchen referred to the increase in the production of all fruits
and vegetables compared with the prewar years. I would like to
refer specifically to citrus as a separate commodity, because in the case
of citrus the increase in production is so marked.
Taking the five prewar years—and by that I mean preceding our
entry in the war—the average production of oranges for the United
States as a whole was 73,721,000 boxes. During the last 3 years, including the current year, the average production is 109,849,000 boxes,
an increase of slightly over 49 percent.
On grapefruit the increase is even greater. The prewar average was
36,694,000 boxes. The average of the last 3 years is 57,017,000 boxes,
an increase of 55 percent.
On lemons, which is, of course, a much smaller proportion of the
total, the increase was not so great from the prewar average of 11,442,000 to a present average of 12,594,000, an increase of something
over 10 percent. Citrus, as a whole, has increased its production during the past 3 years by 50 percent above the prewar production.
If every industrial and agricultural commodity were being produced
in this country at a rate of 50 percent in excess of prewar production,
I don't think there would be the slightest thought of price control.
During the war we made no requests for exemption of citrus fruit
from price control. We recognized the necessity and still recognize the necessity of price control during the war, even though our
production was large.
There were many demands on it for infant feeding in Europe and
for the Army and Navy and the large demands for citrus fruit because
of the shortage of other foods. All of those things made it necessary,
we recognize, for price control during the war.
We think, however, that the time has come when we must recognize
that if we are not to have price control as a permanent part of our
economy, and I hope we may all assume that is the intention of everyone that it will not be a permanent part of our economy, we have come
to the point now where we should begin to remove the controls, particularly when production is adequate and ample.
So we support the proposal presented by Mr. Kitchen that price
controls should be forbidden unless the Secretary of Agriculture finds
that the prospective production is less than 10 percent below the
average of the past 3 years. Let me say that average of the past 3
years in the case of citrus and in the case of most fruits and vegetables
is way above the prewar average, and therefore this amendment would
not operate to remove price controls unless the production of that
particular commodity were well above the prewar production.
I want to say something about the citrus prices during the period
of November and December when citrus ceilings were suspended. I
imagine you have all heard more or less about that. I t has been held
out as a horrible example of what would happen when price controls
were removed, even though production was substantial.
Of course, production of citrus for the current year is substantial
and was at that time, although we must recognize that November and
December is just in between the California-Arizona season and the
Florida season. At that particular time of the year supplies are
short and prices tend to rise no matter how great the production may
be for the season as a whole. You probably have the impression that
1011 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
citrus prices went way up, way through the ceiling and two or three
stories above during that period of suspension. I must say from what
I read in the newspapers and heard over the radio, I was convinced
that prices had gone way up and they were way out of line.
But the figures don't support that. I have a table that I would like
to hand to the members of the committee which shows the average
prices in relation to the ceiling price on citrus during the entire period
of suspension, which continued from November 19, 1945, to January
3, 1946. I would like to have it incorporated in the record.
(The table mentioned above is as follows:)
10 auction average prices compared with average ceiling prices for entire period
of suspended ceiling Nov. 19,1945, to Jan. S, 19^6
[Each weighted by number of cars sold in each market]
Cars
Oranges:
Florida, interior
Florida, Indian River.
California
Total
Grapefruit:
Florida, interior
Texas
Subtotal
Florida, Indian River
Total
Combined oranges and grapefruit: All except Indian River
grapefruit
All
Actual
price
Ceiling
price
Differential
(cents)
1,192
502
1, 759
$4.49
5.35
5. 55
$4.59
5.00
5.37
-10
+35
+18
3. 453
5.16
5.05
+11
154
619
3.68
3.33
3.59
3. 58
+09
773
562
3.40
4.95
3.58
4.10
-18
+85
1.335
4. 05
3. 80
+25
4, 226
4. 83
4. 78
+05
4,788
4.85
4. 70
+15
-25
Mr. Loos. That table shows average prices and ceiling differentials
for each commodity, separating oranges between the various producing districts and in Florida between interior Florida and Indian
River, Fla. Let me explain that separation.
The Indian River fruit is a special premium fruit and has always
been so recognized. It is sold principally in the eastern seaboard cities
and goes largely to the hotel and restaurant trade. I t has always
had a large premium. It has a premium in the ceiling. The Indian
River fruit does not represent what the great majority of the people
buy for food purposes. It is something that will go into the WaldorfAstoria, and if you go in there and eat breakfast, you will pay 50 cents
for half a grapefruit.
The price rise in that kind of fruit shouldn't alarm anyone. The
prices did go up. There were lots of cases where small lots sold at
$10 or $12 a box. That got all the publicity.
The Florida interior oranges, which I buy and which most of
us would buy, sold on the average for the whole period of price
suspension at 10 cents below ceiling.
Let me say this about this table: We have in the first column of
figures the number of cars, in the second column, the average actual
price as reflected by the auction markets. There are 10 auction markets in the country where a large volume of fruit is sold, probably
83512—46—vol. 2
3
1012
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
40 or 50 percent at this time of the year, in November and December.
The averages are published and are easily ascertainable. They reflect market-price level.
Mr. M O N R O N E Y . Could you give us the retail prices, also ?
Mr. Loos. I will come to that later. These are wholesale prices.
These are the prices the growers got. The ceiling price is shown in
the next column. That is the ceiling price as computed by the Department of Agriculture, averaging the ceiling price at the different markets in proportion to the total amount of fruit sold through those
markets over a period of 2 or 3 years.
The last column shows the differential above or below ceiling. As I
said, the Florida interior oranges sold on the average at 10 cents
below ceiling. Florida Indian River, 35 cents above: California
oranges, 18 cents above. That was the end of the California summer
season. There were very few California oranges on the market, although in these particular weeks the total number sold at auction was
in excess of Florida. Florida interior were selling a large amount of
their fruit in private sales.'
Mr. M O N R O N E Y . What were the Florida prices before the ceilings
were put on?
Mr. Loos. Let me finish my reference to this table, then I will take
that up.
The Florida interior grapefruit averaged 9 cents above ceiling.
Texas grapefruit averaged 25 cents below ceiling. All of the grapefruit and oranges, with the exception of Indian River, averaged only
5 cents above ceiling for this entire period of suspension of price
ceilings.
Mr. M O N R O N E Y . D O you have lemons on there, too ?
Mr. Loos. I can give you that. I don't have it in the table.
Mr. M O N R O N E Y . Is that in the same kind of category ?
Mr. Loos. The lemons during the period of suspension w^ere somewhat more above ceiling, I believe, although they declined earlier than
the other fruit.
Mr. B R O W N . Take the Texas grapfruit. Why is the Texas grapefruit lower ?
Mr. Loos. Because there was a greater supply. There was a delay
in maturity in Florida.
Mr. B R O W N . I do not think there is any comparison between the
rapefruit that comes from Texas and the grapefruit that comes from
lorida.
Mr. Loos. I have my own views on it. I am glad to eat citrus fruit
wherever it is produced.
I do not have before me the prices immediately before the suspension
of ceilings.
Mr. M O N R O N E Y . What is the most recent date you have ?
Mr. Loos. November 19, the first day of the suspension.
Mr. M O N R O N E Y . That would probably start off pretty close to
f
ceiling?
Mr. Loos. No. All of the fruit except Indian River fruit was below ceiling immediately before price-ceiling suspension, and it remained below ceiling for the first few days. I t was not until the
1013 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Thanksgiving holiday that it began to go above ceiling. The jump
came 2 or 3 days after suspension.
Mr. MONRONEY. T O be useful to us, I think we ought to have some
place what point it hit before price ceilings were put back on, because
you average out a price over several weeks there. You get the advantage of what the ceiling had been holding down.
Mr. Loos. I intend to give you that. I will try to give you an analysis of the whole period.
Before price ceilings were suspended, we were in the period toward
the close of the California summer season. That is the only source of
supply of oranges in the summertime. We had in California a very
large crop. There was a very heavy supply in July, August, September, and October. During those months the prices were very'low, much
below ceiling.
The Florida season begins in October. Of course, the first shipments:
of any new fruits on the market always are small in number and
always get high prices. The Florida volume was just beginning to
move when the price controls were removed.
Mr. B R O W N . When do the Texas grapefruit go to market ?
Mr. Loos. They start in October, also. Normally, by December we
would have had a very large volume of fruit from Florida and Texas
in the market. We had the volume from Texas, but we did not have
the volume from Florida that was anticipated either on oranges or
on grapefruit, because Florida had a very unusual situation this past
year in that their early bloom came in the period of drought. I t was
very limited. The greatest late bloom they ever had in the history
of the State was slow in maturing.
It cannot be shipped until it reaches a certain standard. There was
a flurry a few days after the removal of price ceilings. They went up
considerably. They averaged down for the week—for the first week,
Florida interior oranges and even Indian River oranges were below
ceiling. California oranges were 8 cents above ceiling for the average
of that first week. Taking the first 4 weeks, a table similar to the one
I have handed you shows that the average price of all fruit, except
Indian River, was 11 cents below ceiling for that first 4 weeks. Including Indian River for the first 4 weeks, the average price was 1 cent
below ceiling.
The bulge in the price came the week before Christmas and during
Christmas week. That was probably the time to which most of the
publicity refers. Even then, the average prices were not nearly as
much above ceiling as I am sure the publicity at the time led most
people to believe.
The highest weekly average that was reached by the several fruits
was, in the case of Florida interior oranges, $5.28 for the week ending
December 28. That was Christmas week. That was 69 cents above
ceiling.
Mr. M O N R O N E Y . That would not reflect Christmas buying because
there is a week or 2 weeks' transit between the time they are auctioned ?
Mr. Loos. These are the prices as they are auctioned.
Mr. M O N R O N E Y . We are laymen. Those oranges would not reach
the market until sometime in January.
1014
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. Loos. You are mistaken 011 that, I am sorry. Th s auctions sell
the fruit in the large cities to the wholesale trade. Those
auctions
are held early in the morning. That same day much o ? that fruit is
on the retail stands. I t is all on the retail stands by t i e next day or
the day following. Out of these auction markets, when you go out
to some of the service wholesalers who serve sparsely set led areas and
large rural areas, it does take a few days to a week or maybe 2 weeks
before they dispose of all of their fruit.
These prices reflect the market price for the week in wl rich this fruit
was also sold at retail. The Indian River oranges averuged $6.51 for
that same week. That was $1.52 above ceiling. California oranges
averaged $6.41 against a ceiling of $5.36. That is $1.05 above ceiling.
Florida interior grapefruit was down below ceiling )y Christmas
their highest point
week. The supplies had caught up. They reached
the second week of price suspension. It wTas 42 cents ibove ceiling.
By Christmas week they were down to $3.37, which was S 3 cents below
ceiling. Indian River grapefruit reached its peak on Cli ristmas week,
also, at $5.29, compared with $4.10 or $1.19 above ceiling.
Mr. T A L L E . Was there any comparable movement in the prices of
fruit juices ?
Mr. Loos. No. The fruit juices were low at that time. They were
considerably below ceilings. Shortly after, or about this time, price
ceilings on citrus juices were suspended. They have continued to be
suspended.
Texas grapefruit also reached its peak in the second *veek of price
suspension because that wras the time when their supplies were short.
They had a highest average for that week of $3.54, whic h was 4 cents
below ceiling. On Christmas week they were $3.29, which was 29
cents below ceiling.
So you see that even in this highest week, while t h i prices were
substantially above ceiling, they were not many times ceiling price
or anything of that sort. When you remember that each box contains
around 200 or more oranges—almost 20 dozen oranges—even a rise
of $1.50 does noty mean very much per dozen.
A question w as asked about retail prices.
Mr. M O N R O N E Y . And lemons. Have you got thos3 figures for
lemons ?
Mr. Loos. I am sorry. I have not got those figure-! for lemons.
They did not figure much in the publicity. The price of lemons was
on a few sizes very high. On the majority of the fruit the prices were
below ceilings. As I recall it, except for Christmas week and the week
before Christmas, the prices of lemons were considerably below ceiling.
The reason I haven't the figures is that that was not % part of the
discussions we were having with the Office of Price Administration
about the restoration of ceilings. The whole thing centei ed on oranges
and grapefruit. It was the high prices during Christmas week and
during the week before that caused the Office of Price A dministration
to restore those ceilings.
Perhaps I had better continue with this discussion of the wholesale
market.
Mr. M O N R O N E Y . Would you put in the record A corresponding table
for lemons?
1015 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
(The following was later received for the record:)
10 auction average prices compared with average ceiling prices (each weighted,
by number of cars sold in each market) for entire period of suspended ceiling
Nov. 19,1945, to Jan, 3,1946
ALL CITRUS INCLUDING LEMONS
Cars
Oranges:
Florida interior
Florida Indian River
California
.
Actual
price
Ceiling
price
Differential (cents)
1,192
502
1,759
$4.49
5. 35
5.55
$4.59
5.00
5. 37
-10
+35
+18
3,453
5.16
5.05
+11
154
619
3.68
3. 33
3.59
3.58
+09
-25
773
562
3.40
4. 95
3. 58
4.10
-18
+85
1,335
4.05
3.80
+25
737
6.78
6.48
+30
Combined oranges, grapefruit, and lemons: All except
Florida Indian River grapefruit
4,963
5.12
5.03
+09
All
5,525
5.11
4.94
+17
Total
..
Grapefruit:
Florida interior
Texas
...
Subtotal
Florida Indian River
Total
.
_
Lemons
Weekly
-
. .
average prices—10 auctions, California oranges and lemons, June 16,
1945, to Mar. 22, 19Jh6
Wfcek ending-
Approximate ceiling.
June 16
June 23.
June 30
July 7.
J u l y 14
July 21
July 28..
Aug. 4
Aug. 11
Aug. 18
Aug. 25
Sept. 1
Sept - 8
Sept 15
Sept. 22
Sept. 29
Oct. 5
Oct. 12
Oct. 19
Oct. 26
Nov. 2
Nov. 9
Nov 16
Nov. 23
Nov. 30
Dec. 7
Dec. 24...
Dec. 21
Dee. 28
Jan. 4
Jan. 11
Jan. 18
Jan. 25
Feb. 1
Feb. 8.
Feb. 1 5 . . . .
...
_
.
. _
$5. 89
5.37
$5.85
5.85 —
5.84 —
5.84 —
5.80 —
5. 34 —
4.33 —
3.70 —
3. 61 —
3.65 —
4.35 —
4.73 —
4.68 —
4.42 —
4. 55 —
4.47 —
4. 59 —
4. 54 —
4. 49 —
4. 51 —
4.40 —
4.17 —
4.39 —
5. 44 +
5. 56 +
5. 22
5. 26 —
6.34 +
6. 41 +
5. 29 —
4. 99 —
4.87 —
4.98 —
5.08 —
5.16 —
5.19 —
10.04
.04
.05
.05
.09
.55
1.56
2.19
2.28
2.24
1.54
1.16
1. 21
1.47
1.34
1.42
1.30
1.35
1.40
1.38
1.49
1.72
1.50
.07
.19
.15
.11
.97
1. 04
.08
.38
.50
.39
.29
.21
.18
$7.11
6.48
$1.26
$5.85
6.74 — .37
6.62 — .49
6.29 — .82
4.86 — 2.25
3.70 — 3.41
3.57 — 3.54
3.17 — 3.94
3.70 — 3.41
3.48 — 3.63
5.24 — 1.87
5.17 — 1.94
6.69 — .42
7.03 — .08
7.09 — .02
7.10 — .01
7.10 — .01
7.09 — .02
7.04
.07
6.85 — .26
5.91 — 1.20
5.45 — 1.03
5.44 — 1.04
6.82 + .34
6.60 + .12
.30
6.18
6. 52 + .04
7.29 + .81
7. 28 + .80
6.63 + .15
6.08 — .40
5.79 — .69
6. 04 — .44
5. 52 — .96
4. 77 — 1.71
4.86 — 1.62
_
1016
Weekly
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
average prices—10 auctions, California oranges and lemons, June 16,
1945, to Mar. 22, 1946—Continued
Week ending—
F e b . 22
Mar. 1
Mar. 8 .
M a r . 15 .
M a r . 22
Oranges
5.24
5.08
5.00
4.91
4.86
..
-
Lemons
.
.
.
.
.
L3
29
VJ
16
51
4.86
4.92
5.27
5.49
5.25
-
1.62
1.56
1.21
.99
1.23
NOTE—Summer ceiling: Oranges from M a y 1 to N o v . 15; lemons from M a y 1 t o < )ct. 31.
W i n t e r ceiling: Oranges from N o v . 16 t o Apr. 30; lemoDS from N o v . 1 t o A p r . 30.
W i n t e r ceiling for oranges computed on basis of sales during period of price-ceilini: suspension in t h e 10
auction markets.
S u m m e r ceiling represents winter ceiling plus f. 0. b. a n d freight differentials s u m n er over winter as p u b lished in M P R - 4 2 6 .
Ceilings for lemons are t h e actual ceilings for auction sales at N e w Y o r k w h e n s )ld b y t h e California
F r u i t Growers Exchange.
Prices for weeks ending J u n e 16 to N o v . 2, as reported b y California F r u i t Growi rs Exchange. Prices
for later weeks as reported b y D e p a r t m e n t of Agriculture.
Weekly
average prices—10 auctions, Florida organges, Nov.
22, I946
Week ending
Approximate ceiling
Nov. 9
N o v . 16
N o v . 23
N o v . 30
Dec. 7
Dec. 14
Dec. 21
Dec. 28
Jan. 4
J a n . 11
J a n . 18
J a n . 25
Feb. 1
Feb. 8
F e b . 15
F e b . 22
Mar. 1
Mar. 8
M a r . 15
M a r . 22
Interior
ffirst
(secondII
$4. 59
4. 89
$3. 66
). )3
3. 73
. $6
4. 23 — . $6
4. 27 — . 52
4. 36 — . L9
4. 34 — . 25
4. 51 — . )8
5. 28 + . 59
5.10 + . 51
4.15
. 14
3. 67 — . IS
4. 21 — . J8
4. 48 — . LI
4.12 — . 17
4. 02 — . 57
3. 97 — . 32
4.12 — . 17
4. 66 — . 23
4. 41 — . 18
4.99 . 70
1945, to Mar.
I n d i a n River
$4. 99
5.11
$4. 57 - $ 0 . 4 2
4. 36 .63
4. 61 .38
.15
4. 84 5.16 + .17
4.96 .03
5.15 + .16
6. 51 + 1.52
6. 31 -f 1.32
4. 94 .05
4. 53 .46
.17
4. 82 4.95 .04
4. 96 .03
4. 91 ,08
4. 79 .20
4.74 .25
5.06 .05
5.04 .07
4.81 .30
NOTE.—First period ceiling, from Sept. 1 to Feb. 29.
Second period ceiling, from M a r . 1 to end of season.
W i n t e r ceiling computation basis of sales during period of price-ceiling suspensi :>n in t h e 10 auction
markets.
Weekly average prices are as reported b y D e p a r t m e n t of Agriculture.
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Weekly average prices—10 auctions, grapefruit,
1017
Nov. 9, 1945, to Alar. 22, 1946
Florida
Week ending
Interior
Approximate ceiling..
Nov. 9
N o v . 16
N o v . 23
N o v . 30
Dec. 7
Dec. 14
Dec. 21
Dec. 28
Jan. 4
J a n . 11
J a n . 18
J a n . 25
Feb. 1
Feb. 8
Feb. 15..
Feb. 22.
Mar. 1
Mar. 8
M a r . 15
M a r . 22
ffirst
-{second!
I n d i a n River
$3.
3.
$2. 79
3.13
3.84
4.02
,3.97
3.50
3. 42
3. 37
3.14
2.94
2. 54
2.89
3.15
3.02
2.75
3.16
3.42
3.22
3.46
3.31
&0. 80
.46
.25
.43
.38
.09
.17
.22
.45
.65
1.05
.70
.44
.57
.84
.43
.17
.63
.39
.54
$4.10
4.26
-$0.54
.45
+ .68
.71
+
+
+ .99
72
$3.56
3.
" 65
4. 78
4.81
5. 09
4.82
5.12
5.29
4. 53
4.05
3. 75
3.87
3. 81
3. 52
3.52
3.53
3. 66
3. 76
4. 09
4.04
+ 1.02
+ 1.19
+ .43
.05
.35
.23
.29
.58
.58
.57
.44
.50
.17
-
.22
NOTE.—First period ceiling prices, from Sept. 1 to Feb. 29, are averages computed on basis of volume sold
in the auction markets during period of suspension of price ceilings.
Second period ceilings, from M a r . 1 to end of season, are t h e first period plus t h e f. o. b. differentials
a s shown in M P R - 4 2 6 .
Weekly average prices are as reported b y D e p a r t m e n t of Agriculture.
Mr. Loos. I can give you the average prices at the auction market on
lemons just as I have here on oranges and grapefruit. I will be glad
to furnish that table.
When price control was restored—first let me say again, this may be
a little repetition, as to the reason for these high prices in Christmas
week and the week before. We had a combination of unexpected circumstances. First was the Florida maturity, slowness in getting to
maturity, especially the oranges. There were rains in Florida that
interfered with the picking, and then along Christmas week, and the
week before Christmas, everybody in the Florida groves quit working
and took a holiday, the first Christmas after the war. That is easy
to understand. The volume from Florida fell down to low proportions
in those 2 weeks.
California was at the end of its season and had very little fruit to
ship. It was impossible to ship what it had because of the car shortages
that developed in November and December. I t developed about the
first of November and continued until sometime in February. The carshortage problem is solved for the present. I am not optimistic enough
to think it is solved permanently. We will have more. They will not
be as severe as they were in December and January, I am sure.
Mr. T A L L E . I think you said you had been with this organization
since 1914.
Mr. Loos. Yes, sir.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. T A L L E . What change have yon found in the American diet insofar as fresh fruits and vegetables are concerned ?
Mr. Loos. The per capita consumption has greatly increased in many
fresh fruits and vegetables. In the case of oranges, it has increased
probably more than any other fresh fruit that is in large volume.
Apples have remained fairly stationary, but the American people are
certainly eating a far larger proportion of fresh fruits and vegetables
in their diets than 25 or 30 years ago.
Mr. T A L L E . I S it not true there was a considerable increase in 1920 ?
Mr. Loos. Yes.
Mr. T A L L E . With the dropping off of meat, there was an increase in
the use of fruits and vegetables.
Mr. Loos. There has been right through the twenties. I t even continued through the depression, but not at such a rapid rate.
Mr. T A L L E . I t has become a habit.
Mr. Loos. I hope it has. I t would be indicated from the large volume consumed now that it has become a fixed habit.
Mr. T A L L E . If it had not been a habit, you probably would not have
heard much about it in December and January.
Mr. Loos. No; as I say, there was this combination of circumstances
that tended to reduce the supplies, and the supplies the week before
Christmas and Christmas week were very, very short. However, that
situation was just about to right itself when price ceilings were
restored.
For example, the week of December 28, when most of these fruits
reached their peak, total sales in the New York auction for that week
were only 25 cars. The California Fruit Growers Exchange often has
of its own fruit in the New York auction market 75 or even 100 cars in 1
day. So you can imagine how short the supplies were when we had
only 25 cars in the whole New York auction market for a whole week.
On January 2 we offered 54 cars for sale in the New York market,,
twice as many as we had the whole preceding week.
The price for oranges on that day came down from an average of
$8.42 of the week ending December 28 to $5.42. I t dropped $3 two days
before price ceilings were restored. At the same time, curious as it may
seem, the prospect of putting back the ceiling, the prospect of removing
that suspension tended to reduce the price in Chicago and St. Louis on
California fruit and increase the price in New York and the other
eastern cities, because the growers were getting scared and were putting their fruits into the first markets they reached from California,
and that contributed to the shortage in the eastern markets.
So we have the curious situation of the week ending December 28,.
prices in New York averaged $8.42, Boston $7.51, Philadelphia $6.65,
all a dollar or two above ceiling, and in Chicago they averaged $5.36,.
which was 2 cents above ceiling, and in St. Louis, 18 cents below ceiling.
In Chicago and St. Louis they had an adequate supply for those markets in that week ending December 28, and they were right at ceiling..
In the other eastern markets the situation was much like New York.:
On January 2 there were adequate supplies. Prices in Philadelphia
dropped $1.10 a box; in New York, the prices dropped $3 a box from
the preceding week, and I believe that if the suspension had been continued the supplies would have been ample to take care of the situation,,
although we did run into very severe car shortages in January and
the first part of February.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
We are not complaining that the price ceilings were restored at that
time. We are just simply trying to point out to you the factors that
-existed during this period of price suspension in an attempt to convince you that if price ceilings were removed on citrus following June
30, so long as we have ample supplies—and that was what our proposed
amendment would contemplate—that there would be a leveling of
prices so that the average would be at or below ceilings. I do not
want you to think that I am contending that there would not be some
fruit that would sell above ceiling. The scarce sizes, the premium
grades, would go materially above the present ceilings, but there are
very, very few boxes of those compared with the total. There are
probably 5 or 10 percent of that type of fruit. As I said before, it
is like the Indian Kiver fruit. It goes to the hotel and restaurant
trade where the price they pay for a box of 200 or more oranges does
not affect much the profit they make when they sell it at 40 or 50
cents a glass for orange juice or 50 cents a half a grapefruit.
Now, to refer to the retail prices, there was unquestionably a considerable number of retail outlets during this period of scarcity in
Christmas week and the week before where prices were high and where
prices were very much above ceiling, but our review of advertisements
of the stores published in the newspapers all over the country shows
at no time, except possibly during Christmas week, was it impossible
to find some stores and important stores in almost every city in the
country where oranges could be bought below the previous existing
retail ceiling.
Mr. M O N R O N E Y . Was it not true that A & P went under normal
margins in order to combat that rapidly rising cost?
Mr. Loos. I t may be in some cases they did, but not in many cases,
because they were selling the medium grades, the sizes that were in
plentiful supply. They did not try to buy 120-size oranges when
there were only maybe 2 or 3 boxes in 10 cars. They bought the
sizes that were in supply. They sold those. They may have reduced
their margin somewhat in those 2 weeks, but they did not have to
reduce them very much.
Mr. M O N R O N E Y . But you had an extremely irregular level in retail
prices throughout the country.
Mr. Loos. Yes. We had that even during price control, because people will insist on going into the black market and buying fruit at
higher prices than ceiling prices. You have that same irregularity.
I have seen figures of the Office of Price Administration showing
that during the periods of price control, a year or so ago, at the end
of the California summer season and before the Florida and Texas
fruit had come into the market, when fruit was very, very scarce,
showing there were more violations of price ceiling at that time
than there were higher prices during this Christmas week and the week
before Christmas with no regulation. That is an extreme example.
The retail markets wrere very irregular. There were plenty of markets selling considerably above ceiling. We have come to a point
now, I believe, where the American housewives are not going to pay
the fancy prices for premium fruit at a store on this corner when
they can go down the street a half a block and get the medium fruit
that has just as good juice and just as good food value at reasonable
prices. I think that is what the situation will be if our proposed
amendment is adopted, and as long as we have adequate supplies
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
so much above prewar production, price control certainly should
not be continued.
Mr. T A L L E . When you use the term "medium grade," what does that
refer to ? Not the quality of the meat or juice?
Mr. Loos. I tried to avoid using technical terms. I do not know
too much about them myself. I would confuse everybody if I tried to
use them, I am sure.
By "medium grade" I mean something that would still be classified
as "U. S. No. 1." It is good. The difference between that and premium
grade is the matter of size and the matter of exterior appearance.
Fruit to sell at high premium prices must be perfectly clear, the kind
you can cut a slice of and put in an old-fashioned, and it will look
pretty. The juice is not better or the food value is not any better
than you can get at a peddler's fruit stand or a grocery store, and buy
at a lower price.
Mr. O U T L A N D . What would have happened if they removed prices
on all food at one time ?
Mr. Loos. I think some foods would have gone up, those in scarce
supply. I think the food supply was sufficient so that there would
have been adequate substitutes at reasonable prices.
Mr. O U T L A N D . Y O U do not think it would be a general rise in
everything ?
Mr. Loos. No.
Mr. O U T L A N D . Is it not a tendency when you take the ceiling off
to jack the price up?
Mr. Loos. There is to a certain degree. One man in the New York
trade said it is like a colt that has been in the barn all winter; he runs
down to the end of the pasture and then walks back. They overbid
the market.
Mr. B R O W N . Thank you, very much.
Mr. T A L L E . May I ask a question?
M r . BROWN.
Mr. T A L L E .
Yes.
I think this should be referred to Mr. Blalock. I am
interested in the Merchandise Institute you refer to. What do you
expect to do with that institute?
Mr. BLALOCK. The institute was sponsored by the United Fresh
Fruit Association. We chose the area of the States of Kansas and
Missouri with the purpose of improving the merchandising methods
of all the handlers of those products from the car door to the consumer. Before a wholesaler can participate in the plans, he must
first agree to certain principles which we think are sound. He must
employ a retail merchandiser in the wholesale business, a man who
is thorough^ conversant with retail merchandising. They have done
that.
Secondly, he must employ a man who is capable of going to the
retailer and laying out the plan to the retailer on how best to merchandise fresh fruits and vegetables. To acquaint the consumer with
production at the peak of their goodness and low price, they should
encourage heavier purchases at that time. That brings in store management, equipment, preparation of the merchandise for display,
proper displays, proper sales records, and, naturally, the results, the
increase in the sale of fresh fruits and vegetables.
It is going to take that to move the crops we have.
1021 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. T A L L E . I have been interested for several years in what the
Department of Agriculture has done in the way of combating pests
and diseases both as to vegetables and fruits. You probably would
not have any recommendations from your institute about those
matters ?
Mr. B L A L O C K . I am sure Mr. Kitchen could answer that.
Mr. T A L L E . I have one question for Mr. Kitchen.
Mr. B R O W N . We have one more witness.
Mr. T A L L E . On page 5 of your statement, I wanted to ask how you
arrived at the figure 10 percent.
Mr. K I T C H E N . That is just an arbitrary figure.
Mr. T A L L E . That is just what I wanted to know. How did you
arrive at the 10-year period ?
Mr. K I T C H E N . That is based on the statistics of the Department of
Agriculture. If the supply was below the 10-year period, we would
not ask that price control be discontinued.
Mr. T A L L E . Y O U thought that was a good base period to take ?
Mr. K I T C H E N . That is all.
Mr. B R O W N . Thank you.
Mr. C H A I R M A N . Proceed, Mr. Cook.
STATEMENT
O F T . G. C O O K , M A N A G I N G
APPAREL
INDUSTRIES
DIRECTOR,
TWIN
CITIES
ASSOCIATION
Mr. C O O K . Mr. Chairman and members of the committee, I have not
prepared a special brief. I will make my remarks as short as I can.
My name is T. G. Cook. I am managing director of the Twin Cities
Apparel Industries Association, with headquarters at Minneapolis,
Minn. Our association is composed of 92 members, 65 of whom are
manufacturers and produce every type of apparel from infants' robes
and underwear to all types of lingerie and outer apparel for men,
women, and children.
I am not a lawyer but a former manufacturer for 20 years. Our
association office is set up to help our industry in every possible manner. We issue bulletins on Government regulations. We try to explain the provisions of fabric and price control and negotiate labor
contracts.
I am proud of the compliance records of our members from our largest manufacturer employing some 2,400 workers to the smallest manufacturer with 6 or 8 workers.
I am proud of the quality merchandise produced in our modern
plants. You will find no sweatshops in the Twin Cities market of
Minneapolis and St. Paul. Ours has never been a mass-production
market.
We are justly proud of our friendly labor relations. We are proud
of the intelligence of our workers whose background is mostly Scandinavian.
This is only the second trip I have made to Washington in behalf
of our members since the inception of price control and fabric and
supplies controls have been in effect.
We have never been members of or are not now part of any national
pressure group. The members of the Twin Cities apparel industries
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
have made every possible effort to live within all governmental regulations.
My association now feels that their problems should be brought to
Congress. Some of our members are in such despair, they have asked
me to lay these problems before your committee, representing Congress, as the only method of getting relief.
In my capacity as managing director, it has been my privilege to
represent a number of our members when they have been investigated
by an investigator from the Office of Price Administration.
I am happy to say that not one of our members has ever been found
in violation* of his highest price limitation according to his price
chart filed with the Office of Price Administration—but only because
his cost accounting did not agree with the definition of "costs" as
defined in the price regulation under which he was to operate.
In most cases these price regulations are so complex and cumbersome that even "price specialists" in district offices are unable to
interpret them themselves. I cite, for instance, the new clothing
regulation MPK 607. It is 82 pages long. Seventy-eight pages, I
think, are devoted to definitions of costs. Orders such as this are
written in such language that many Office of Price Administration
representatives are unable to fathom or explain them.
Is it any wonder that some small manufacturer employing a handful of workers is unable to understand them or fathom their purposes ?
If one of these smaller manufacturers were to do nothing else but
try to keep the required records in such regulations asT the men's clothing order, he still would not be able to understand w hat was required
of him.
We have just recently completed a union contract for seven of our
overcoat manufacturers in which they are required to pay a 15-centper-hour increase; 3-percent payroll contribution to supplement Federal social security, plus a 2-percent pay roll contribution they have
been paying for 2 years for sick and death benefit funds; plus six
paid holidays; plus 65 cents minimum wage; plus union dues and assessments check-off.
The new clothing order is supposed to afford some price relief, but
the manufacturer is still subject to MAP which, as you know, is an
average price based on 1943 operations.
Now when low-priced fabrics are not available and manufacturers
are forced to give wage increases totalling in some instances as high
as 30 percent, and are required to meet an average price based on 1943
operations; is it any wonder industry is alarmed?
Oh, yes; labor rates in some regulations are frozen at 1942 levels,
and in the clothing order just released, at August 18,1945 levels.
In our lingerie division, we have three of the country's top producers of branded knitted lingerie. They are Munsingwear, Inc.,
Winget-Kickernick Co., and Strutwear, Inc.
I know it to be true that at least one of these firms produced and
sold the same undergarment made of the identical fabric, with identical
trim, at the same price as he did in March 1942, under general maximum price regulation. This garment retailed at the same price as it
did prior to the war. Still, when the lingerie and pricing regulations
became effective on March 15, 1945, this manufacturer was required
to take a 15-percent roll-back on his 1942 mark-up and prostituted a
relationship that his retailer had with the consuming public.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
I would like to explain that just briefly. If this garment sold at
$2.95, retail, prior to the war, and prior to the time the general maximum price regulation came in; with this 15-percent roll-back, he
might be required to sell at a lower price and possibly retail at $2.49.
Some lady who had been buying this slip at $2.95 would see it at $2.49
and she would then feel the store had been cheating her and she might
go to another store and pay a larger price for an inferior garment.
I would like to cite, also, an instance of one of our other lingerie
houses, Strutwear, Inc. They have been in business for 29 years in
Minneapolis. They produce hosiery and underwear. They manufacture full-fashioned hosiery. They have 20,000 pairs of nylon hosiery
that they are unable to sell because the Office of Price Administration
refuses to give them a license. They claim even though they were in
the business of purchasing and resale for 29 years, that they do not
qualify under 602, the nylon hosiery order to get a license as a wholesaler. Their primary business is small stores throughout communities in the Northwest. These smaller stores will have no method of
securing this hosiery, if they are refused this license. If they are
refused this license, then all of the supply from this hosiery mill which
produces these goods, will go to large distributors and chain outfits.
Again, the small store in the small community would not have an
opportunity to share in goods that are already on their shelves and
have been for some time past.
I am appearing before your committee to register a strong objection
to the continuance of supplementary maximum price regulation order.
The most simple way to give you an idea is to read a few excerpts
from several letters our office has received. We do not ask for complete
abolition of price controls, but let us have them simple and workable.
These letters will tell a story of why the country is faced with shortages of essential apparel.
It is our contention that MAP has defeated the very purpose for
which it was intended; and if it is permitted to continue this country
will be faced with a greater peacetime shortage.
With your permission, may I read a few excerpts from some of these
letters?
Mr. B R O W N . G O ahead.
Mr. COOK. This is a telegram received yesterday morning from
Minneapolis. Minneapolis Knitting Works has been manufacturing
children's underwear for 60 years. There is a combination of two
things here [reading] :
Direction 9 to Priorities Regulation 32 throws another monkeywrench into production ; under this order we cannot build stock boys' underwear for fall, and
cannot ship now under MAP, and unable to get fine cotton yarn for lightweight
production. What is the answer?
I do not know the answer.
Here is a letter from Martin Bros. Co. They have been in business since 1903. They manufacture garments for children and infants. [Reading:]
We have come to the conclusion that it is impossible for Congress to control
the Office of Price Administration under the present administrative set-up.
Maximum Price Regulation 607, just released, appears to be one of the most
voluminous that the Office of Price Administration has issued to date. It imposes still more burdensome, tedious, expensive bookkeeping and accounting
records on an industry which is already loaded down with so much red tape,
in an effort to comply with various Office of Price Administration regulations
1024
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
that the overhead cost of this type of business has increased sharply. This is
the final act which convinces us that a continuation of the Office of Price Administration under the present set-up cannot be controlled by Congress and that
the continuation of that Office will only lead to still greater confusion, increased
shortages of badly needed wearing apparel, and open the road to more prosecutions by the Office of Price Administration for variations of regulations which
cannot be understood or followed by the average businessman.
Mr. B R O W N . Y O U may insert those in the record.
Mr. COOK. I would like to leave these with Congressman Judd.
Congressman Judd will see that you get a copy of them.
This is a letter from a manufacturer of dresses in Minneapolis.
They have been in business for some 25 years. [Reading:]
Our problems are no different than those of thousands of other manufacturers
throughout the entire country. Please understand we are not in favor of the
elimination of the Office of Price Administration in the immediate future, but
do want to see its regulations administered with reason and judgment and
relaxed here and there where necessary to increase production. Our biggest
current problem is maximum average price. It is ridiculous that we should be
expected to average out to our 1943 prices when our fabric costs, our labor
rates, our supplies and equipment, our rents and our entire overhead have steadily
increased. In our estimation, maximum average price, is the biggest single factor
and almost the only cause for the retarding of production, throughout the entire
industry. We, for example, have been working for a long time under RMPR
287 and would like to go back to the slight leeways of price lines we were permitted under this regulation as the first step toward operating under more
normal conditions. There is, however, the objectionable feature to RMPR 287
which does not permit us to include the increased cost of labor and operation
in our cost controls. We must be permitted to include all operational costs, as
we are no longer able to absorb the great percentage of increase we have been
unable to avoid.
MAP h a s :
1. Reduced the supplies of fabrics available to us.
2. Made it impossible to use fabrics (due to our price set-up) that have been
offered us, and which we would normally use in our operation.
3. Taken many items we use in the general manufacturing process off the
market entirely.
4. Has made it impossible to merchandise, produce, and deliver our product
to the best advantage of the consumer. We are today performing the above
services to comply with regulations and quarterly periods, instead of timing
our operations to conform with consumers' normal buying.
5. Compelled us to reduce the tangible value of our product, due to increased
cost.
6. Caused us to lose a reputation for quality, styling, and workmanship we have
been 30 years building.
7. Has added a burden of bookkeeping, records, and filing of reports to an
already unbearable burden.
OPA, MAP, CPA, and all the rest of the Government alphabetical agencies
will achieve the purpose we are working for if they will:
1. Issue regulations well before the effective dates, with an eye to ample
time for compliance and seasonal considerations.
2. Issue set-asides, et cetera, in textiles well in advance of quarterly periods.
3. Consult with industry before regulations are put into effect or eliminated.
4. Establish a policy of reasonable and justifiable interpretation of regulations.
5. Establish a policy of prompt consideration in issuance of relief in justifiable distress cases.
Here is a letter from D. B. Rosenblatt, Inc. They have been manufacturing men's overcoats and women's overcoats for some 25 or 30
years. [Reading:]
I t has been our experience in operating under S0-108, the MAP order, that we
have incurred a surcharge in every quarter due to the following reasons :
1. Our inability to procure low-priced materials used in the basis period.
2. Our prices in the basis period were not a true reflection of current market
replacement cost, but rather a liquidation of prewar merchandise.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
These two factors have made it impossible for us to come within our MAP in
any one of the three categories manufactured by our firm. This is true despite
the fact that we have been given a tolerance allowed by the OPA.
It is our firm conviction unless this order is lifted or a considerable change
is made, we will be unable to continue shipping merchandise after May 1,
despite the fact that the items we manufacture are badly needed by the public.
That one firm is probably as large as all the other seven put
together.
Here is a letter from Straus Knitting Mills in St. Paul. They have
been in business for a great many years. [Reading:]
Anything that we might have to say regarding MAP has already been repeated a thousandfold and you are familiar with all phases of it. We have
found it virtually impossible to operate under and have been forced time and
again to withhold much needed items from consumers simply because of this
ridiculous regulation. To cite one instance of which we have many, we manufacture an all wool knitted soaker for infants which is very much in demand.
The Office of Price Administration has classed this soaker in the same category
as infants' training pants or underwear which gives industry an exemption level
of $2.70 per dozen under MAP, whereas our average price is $6 per dozen. It
is obvious that here a much needed item cannot be produced in sufficient quantity
by us as a manufacturer because we simply cannot comply with regulations.
We are not for the abolition of price controls. We are, however, strongly
opposed to the Gestapo-like methods used by the Office of Price Administration
and their unbending, unwielding attitude towards recognizing the problems confronting manufacturers. Our Representatives should see to it that in reenacting
the price regulation, amendments be added compelling the Office of Price Administration to adjust prices upward under certain conditions, for as long as
the manufacturer does not receive relief in the form of price increases to offset
labor and material increases since 1942, the threat of inflation will continue to
grow.
I would like to read one or two others. This is from the Minneapolis
Knitting Works making children's underwear. For 55 years they
have been in business. I will cite only the part about price control.
Aside from the tremendous amount of clerical work involved, this order affects
our production seriously in the following ways:
1. In a given category, we are frozen with our 1943 maximum average price.
At that time, yarns were fairly free, and we could buy in mostT any count we
needed. Today, with yarn shortages, we have to take what w e can get when
we can get it, and to keep our production going and our people employed, knit
it and finish into garments. In the first and second quarter of 1943, we shipped
lightweight underwear, made from fine-count yarns, and our price was fairly low.
We are unable to buy fine-count yarns today, and consequently our production is
on heavier-weight garments at a higher price—and this, of course, throws us
out of line with our MAP charge.
2. In 1943, on infants' training panties, for example, we had three styles:
One at $3; one at $3,60; and one at $4 a dozen. At that time, about 50 percent
of our sale was on the $3 number. If we were to follow the requirements of our
retail store customers today, we would make less than 25 percent on this style,
and these stores don't want it, and their customers won't take it if they can buy
either of the other styles, and, yet, to keep within our MAP charge, we still have
to ship about the same 50 percent on this cheaper number.
3. Before any revisions can be made in any other pricing orders, it will be
necessary to eliminate MAP, which is still in effect, any other orders would be
useless.
I have several others which I want you to see, however I will not
take up any more time.
We find in our midst out there, where we have some very fine
manufacturers, that maximum price regulations is one factor that has
retarded production. That is why there is such a definite shortage.
The C H A I R M A N . Thank you very much.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. FOLGER. The letters that you have not read, do you desire for
them to be a part of the record ?
Mr. C O O K . I will leave them with Dr. Judd. When may I have
them returned to me if I put them into the record ?
The C H A I R M A N . About 10 o'clock in the morning.
Mr. COOK. I will be glad to leave them.
Mr. FOLGER. I thought you would like to have them in the record.
COOK. There are more here.
Mr. B R O W N . Y O U can get them back tomorrow morning. Just see
the clerk.
Mr. COOK. All right. Thank you.
Mr. T A L L E . A S I understand your testimony, if you can get only one
thing done, then that thing is the removal of maximum price regulation?
Mr. COOK. That is right. We are not asking for removal of price
control. We feel that maximum average price has retarded production instead of increasing it.
I have other letters which show that production has gone down 15
or 20 percent already this year. Some of our people are working only
on a part-time basis. We are alarmed over the fact that we are facing
an unemployment situation. That will occur before too long. That
will occur if this thing continues.
Mr. T A L L E . H O W are stocks?
Mr. COOK. Our people havp no inventories. Try to buy a white shirt.
Try to buy lingerie at a reasonable price for your wife. You can buy
lingerie produced in other markets from new firms who have had allocation of materials and who have been given price ranges much higher
than our people, much higher prices than what we produced.
They showed men's gym pants at $6 a dozen. That was quite superior to the competitor's item shown at $10.50 a dozen.
Mr. T A L L E . H O W about underwear for the summer season ?
Mr. COOK. Munsingwear manufactures women's, men's, and children's underwear. The most tragic part of this whole picture is the
shortage of underwear for children who live in these rural districts.
They have to wait for the school busses when it is 15° and 25° below
zero. There is no warm underwear available for those children. We
try to give a service to merchants all over the United States. We try
to see that they are directed to places where merchandise can be had.
These people need heavy underwear, work clothes, and work socks.
Mr. B R O W N . Thank you very much.
We will reconvene this afternoon at 2 o'clock.
(Thereupon, at 12: 50 p. m., a recess was taken until 2 p. m.)
AFTERNOON SESSION
The C H A I R M A N . The committee will be in order. Our first witness
this afternoon is Mr. Linder, commissioner of agriculture for the State
of Georgia. I will ask Mr. Brown, of Georgia, to preside.
Mr. B R O W N . Mr. Linder is an eminent citizen of the State of Georgia,
and has been commissioner for a good many years—about 10 years,
I believe, Mr. Linder ?
M r . LINDER. Y e s , s i r .
1027
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. B R O W N . I think he is one of the ablest commissioners of agriculture in the country, and we are very glad to have his testimony.
You may proceed, Mr. Linder.
STATEMENT
OF TOM
LINDER,
FOR
THE
COMMISSIONER
STATE
OF
OP
AGRICULTURE
GEORGIA
Mr. L I N D E R . First, I would like to read, for the record, a telegram
addressed to me by Mr. Zack B. Cravey. I t reads as follows:
H o n . TOM LINDER,
Care of Congressman Paul Brown, House of Representatives:
I have been in 30 central and south central Georgia counties recently; clothing
commodities, food, farm implements and acessories of every kind frightfully scarce
and getting worse; third of families here in Atlanta have not had butter in the
past 3 weeks; they say OPA is to blame and I agree; they attempt to put ceiling
on raw cotton; with surpluses on hand this is ridiculous; authority of OPA must
be curbed or this country is ruined ; hope you impress Banking and Currency Committee. Regards to Paul Brown.
(Signed) ZACK B . CRAVEY.
Now, I would like to call to the attention of the committee certain
facts having reference to cotton dealings on the exchange, and futures of cotton.
Recently I have been asked as to what is the attitude of the farmers toward the. various agencies in Washington. I am here to say
that the farmers of the South look with suspicion on many regulations of the Office of Price Administration.
Mr. B R O W N . I wish you would explain how the exchange works.
Mr. L I N D E R . I was leading up to that. In the first place, the commodity exchanges are under the direct control of Government.
Under the commodity futures bill Congress set up a Board for
supervision and control of futures exchanges, which is composed of
the Attorney General, the Secretary of Commerce, and the Secretary
of Agriculture. All rules and regulations must be either made or
approved by that Board.
As you know and everyone knows, last fall we had a bear market
in cotton. A man by the name of Wade Armstrong has been sending out news releases from Washington. I have received several
releases from him. On January 21 of this year Mr. Charles S. Kenney, head of the Feeds Section of the Food Price Division, wrote to
Mr. Armstrong as follows:
DEAR MR. ARMSTRONG : Your several wires to the Administrator of this Agency
sent in November have been referred to this section for reply. * * *
We wish to thank you for your comments and suggestions and appreciate
receiving them. The regulations covering the several grains you list establish
also ceiling prices for grain futures and deliveries on such futures. This Office
has no jurisdiction over margins for f u t u r e contracts on any grain.
In November, under the bear market, Armstrong and others interested in higher price ceilings applied to OPA and asked increased
margin requirements on people who sold the market short. With the
result as given in the above quotation from Mr. Kenney's letter.
As long as the heavy trading was on the bear side of the market,
the Office of Price Administration took the position that they did
not have any legal authority to change the amount of margin
required.
83512—46—vol. 2
4
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. B R O W N . Was that letter dated the 21st of January 1946 ?
Mr. L I N D E R . This year.
Mr. CRAWFORD. And in answer to telegrams sent as far back as
November ?
Mr. L I N D E R . That is right.
Now, as soon as the cotton trade realized that they had a cotton
famine on hand, which is the case now, Mr. Chairman—we have had
a lot of figures and statements about a great surplus of cotton, a great
carry-over, but, as a matter of fact, there is very little carry-over of
ordinary spendable grades of cotton. The cotton crop in 1945
amounted to 9y2 million bales, of which a large part has never been
gathered, and a large percentage of what has been gathered stayed
in the field and the rain and bad weather until it was very low grade.
I do not think anybody would be able to stay just how many bales
of spendable cotton came out of the 1945 crop. My own estimate
would be not in excess of 6 million bales.
Well, as soon as it became evident to the cotton trade that there
was a famine on cotton, they quit selling the market short and they
began to buy. And as soon as tliey began to buy, naturally, the price
of cotton started up. And just as soon as it started up, then, the Office
of Price Administration comes in and decides that they have got
authority to regulate the amount of margins required on those contracts and issues a rule, which is not yet in effect, but still they issued
the rule, w^hich would provide, in effect, that for every cent or fraction
of a cent that cotton went above 25 cents a pound, there would be a
marginal deposit required of an additional $10 on each bale of cotton.
Well, now, from 25 cents to 30 cents is 5 cents a pound. And 30%
cents would be 6 cents a pound, insofar as this order is concerned.
That would be $60 a bale. With a basic deposit of $10 on each bale, it
would require $70 put up in cash on each bale of cotton that was
purchased.
But, mind you, that rule does not apply to the man who sells cotton. It only applies to the man who buys. I can still sell at the
minimum marginal deposit, but if he wants to buy a bale, then, he has
got almost a prohibitive marginal requirement to keep him from
buying.
Now, I would like for the committee to think about this for a
minute. That the short selling of cotton, corn, wheat, and other
American crops, is not confined to people who live in the United
States. At least some, if not all, of these exchanges are international
in their character. The cotton spinners, for instance, of England,
France, Holland, Italy, any nation with whom we are at peace, the
cotton spinners in those countries who are interested in cheap raw
cotton can come in and sell the American cotton farmer short to any
extent they see fit.
Now, if they came in and sold this cotton short and their contracts
were valid under the law, so that delivery could be demanded of
them, they would not sell it short, because what they want is to buy
actual cotton. They do not want to sell actual cotton. They want to
buy actual cotton. But they want to sell future contracts short to
force the price of actual cotton down.
In order to show you the international character of this whole set-up,
including the Office of Price Administration, in order to fix it so that
the short seller cannot get squeezed himself, the exchange, with the
1029 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
approval of the Board, which is the United States Government, have
written into their rules what is known as the seller's choice, and if this
bearer, who has sold this cotton short, if someone calls him for the delivery of the cotton, then he can elect to exercise the seller's choice,
and when he does that, under the rule, he can deliver any grade of
cotton that is recognized by the United States Department of Agriculture. For instance, if a cotton man in Massachusetts had bought
cotton and demanded delivery of the cotton, if he used a 15- or 16-inch
staple of strict middling cotton, he could be forced to take low middling cotton of 7- or 8-inch staple. Or he could be forced to take
low middling cotton of an inch and a quarter staple. He can be forced
to take any grade, recognized by the United States Department of
Agriculture.
Now, if he bought it on the New York Exchange, this cotton mill
man in Massachusetts, if he decided to accept just any grade that the
seller might elect to give him, he would not get it in New York, where
it would be close to his mill, but he would get it wherever the seller
elected to deliver, in any of the ten markets or in all of them. He
could be forced to take it in Houston, Tex., or he could be forced to
take it in New Orleans. Or, if it was a 100-bale contract, he could
give him 10 bales in Houston and 10 bales in New Orleans and 10 bales
in each of the 10 markets. He could give him 10 different grades in
10 different staple lengths.
Consequently, the cotton miller cannot buy that cotton to protect
his own spinning needs, and the bearer who w ants to raid the market
and force the price down on the American farmer, who produces that
cotton, is protected against his offer to sell being taken up by a spinner,
who might use the cotton.
Now, the fact of the matter is that the Department of Justice, of
which one of the members of this Board is a member—the Attorney
General—would bring suit—possibly would prosecute—anybody that
did exactly what the Department of Justice itself is doing to force
dow^n these farm prices, because it absolutely amounts to a conspiracy
against the American farmer who produces these crops, wrhich are sold
to these futures exchanges, which are under control of the Attorney
General, the Secretary of Commerce, and the Secretary of Agriculture.
Now, as you know, under the act provided by Congress, known as
the Agricultural Adjustment Act, and its amendments, the Secretary
of Agriculture is empowered to determine what is legal parity on
these basic farm crops. In addition to that, the Commodity Credit
Corporation, which is also a part of the Department of Agriculture,
is empowered to make loans to farmers on these basic farm crops,
and to fix the differentials between grades.
Now, in the matter of cotton, 25 years ago I bought a great deal
of cotton. At that time the maximum variation in price between
the lowest grades and the highest grades of cotton was around $10 a
bale, or 2 cents a pound. Today, under the operation of the Commodity Credit Corporation's power to fix differentials, this maximum
difference in the price of cotton goes as high as $35 and $50 per bale.
In addition to those powers, as I have already said, the Secretary
of Agriculture is a member of the Board which controls futures exchanges. Now, last fall, when the cotton trade began to suspect
that there was a shortage of cotton, the market showed a tendency to
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
go up, and the Commodity Credit Corporation came out and said that
they were going to sell a large amount of their holdings of cotton.
They threatened to dump it.
That was not sufficient to break the market, and before very long
they threatened to sell, if I recollect correctly, a million and a half
bales. And then just a short time later, they threatened to dump a
tremendous amount-—I do not remember exactly, I think it was 3%
million bales. That is a part of the Department of Agriculture.
In August of last year, the Department of Agriculture estimated
the 1945 crop at 10% million bales of cotton—that is, in round figures. Everyone who knows anything about the cotton market would
realize that the actual market for cotton during the fall was greatly
influenced by this Government estimate of the prospective supply of
10% million bales.
Along about the 1st of December, or maybe January, they got
that estimate down to 9 million bales. I t gradually came down
every time they came out with an estimate they made a lower estimate than the one they had previously made. They finally got down
to 9 million bales, which showed the prospective supply of 1 y2 million bales less than the August estimate.
Nevertheless, during those fall months, when the farmer was picking and ginning his cotton, the cotton trade was under the impression
that there was a million and a half bales more of cotton b e i n g produced than actually was being produced.
Of course, we do not expect anyone to be perfect, and we do not
expect anybody to be able to guess in August how many bales of
cotton there are going to be. But, certainly, an error of one million
and three-quarters bales on a 9-million-bale crop is almost a 20-percent error, and with all the men that the Department has throughout
the Cotton Belt, available to get information on the crop, I think
they ought to be able to guess closer than that. Almost any individual citizen who is familiar with cotton growing and cotton yields
in various States could guess closer than that without any Government machinery set up for the obtaining of that information.
The effect of all this control—and you cannot separate what the
Office of Price Administration is doing from what the other governmental agencies are doing, because it all works together
There has been a lot of talk about the farmer making money:
What the farmer has and what he ought to have. I have right here
a quotation, also by Mr. Armstrong, under elate of March 13, which
happens to be exactly 1 week ago today.
He says: "Argentine corn is selling at $1.83 a bushel and the freight
on it to the United States is 50 cents a bushel. Oats are 94 cents, freight
25 cents to the United States,"
I understand, not from Mr. Armstrong, but from news releases, that
next to the United States, Argentina is the largest producer of corn
in the Western Hemisphere. I also understand that corn is cheaper
in the Argentine market than it is anywhere else in the world except
in the United States.
The Office of Price Administration ceiling on corn—it has several
different ceilings, different kinds of corn and in different places, different uses and so on—my understanding is that the Office of Price
Administration ceilings on the American farmers' corn average about
1031
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
$1.16: $1.16 in the United States against $1.83 in the open market in
Argentina.
Now, we all know that the United States is a country of high-cost
production, because the American farmer has to use American labor,
he has to use American industrial products, which are protected by
tariffs, he is supposed to have a higher standard of living than farmers
of other countries, and it costs him more to produce corn in the United
States than it does anywhere in the world in corn countries.
But on the other hand, the price of that expensive corn is lower
than it is anywhere else in the world.
So, it seems to me that that is self-evidence, that the American
farmer, who produces corn, is being penalized. I understand further
that this Government is buying corn in Argentina, or has been, and
I presume still is, and shipping it lend-lease to the countries of Europe.
I have no objection—in fact, I am in accord with the idea of trying
to help feed people who face starvation—I do not think we have any
choice in the matter except to try to help them, but I see no reason
why the American corn grower should be expected to produce corn
in America and sell it for 67 cents a bushel less than it is worth in
Argentina.
In December 1941,1 appeared before this House Banking and Currency Committee which was then considering the bill creating the
Office of Price Administration. I called attention at that time to the
fact that the administration of the Office of Price Administration
as drawn was a superhuman job. Nobody could do it. The Congress
would be asking the President to do what would be humanly impossible
for anybody to do, and that was to fix prices.
Because proper prices are a matter of a relationship of prices, and
the only way in which it is possible to determine a correct relationship
is by the experience of the past, the relationship that prices and labor
have had to each other over a period of time.
At that time, I suggested that it was impossible for Congress or anybody else to maintain price levels unless the act should cover labor as
well as commodities.
There is a great deal being said about the Office of Price Administration these days—especially on the radio and in the newspapers. 3
seem to be hardly ever able to turn on the radio but what I hear them
talking about inflation, holding the line, and that high prices are going
to create inflation, and so on. So I decided to make survey of one
thing. It is impossible to go out and survey everything, but I just tried
to find out what had actually happened on cotton dresses.
I went out and made a survey in Atlanta, Ga., just to find out what
the farmer was getting out of the consumers' dollar that went into
cotton dresses, and what the consumers were paying for the farmers'
cotton that he was selling at that time for about 18 cents a pound.
We tried to take into his survey just as many different kinds and
sizes and prices of cotton dresses as we possibly could, and I would
like to give the committee, briefly, the outstanding facts of that survey.
The cheapest cotton dresses that we found were $1.69 each, and they
weighed 4 ounces each. That was size 14. I assumed that was a child's
dress. I am not familiar with these sizes, but I assumed it was. That
is $1.69.
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EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Now, in that cheap range of dresses, we took the seven cheapest ones
we could find, and they ranged in price from $1.69 each to $4.98 each.
Those seven dresses cost $25.58 and the seven dresses together weighed
4.5V2 ounces, a little less than 3 pounds. Those seven dresses cost $8.99 a
pound: Five hundred pounds of those dresses, which is the weight
of an ordinary bale of cotton, would cost $4,495.
Those were the cheapest dresses to be found in Atlanta.
Then we had the next class of dresses, six dresses that ranged from
$5.98 to $7.99 each. Those six dresses weighed TO ounces. They cost
$10.25 a pound, and 500 pounds cost $5,125.
The next six dresses ranged in value from $7.98 to $12.95. Those six
dresses weighed 64 ounces, and they cost $14.75 a pound, and 500
pounds cost $7,350.
The next six ranged from $12.98 to $35 each. Those six weighed
48 ounces, or three-quarters of a pound each, and they cost $37.29 a
pound, 500 pounds, $18,645.
Then there were 13 dresses which came into the highest range, averaging from $13.48 to $50.47 each. Those 13 dresses cost $45.12 a pound
and 500 pounds cost $22,560.
The farmer who produced the cotton that went into those dresses
received five-eighths of 1 cent out of each dollar that the consumer
paid—just slightly over one-half of 1 percent of the consumer dollar.
Now the Office of Price Administration comes along
Mr. B R O W N . Will you pardon me there Mr. Lindner ? My recollection is that Mr. Nelson who was head of the War Production Board
3 years ago, replied, when I asked him, how much cotton was there
in a shirt that Sears, Roebuck & Co. retailed for $2, and he said 8 or
10 cents worth. At that time he was correct.
Mr. L I N D E R . Well, that is about right.
Mr. B R O W N . Cotton at that time was about 18 cents?
Mr. L I N D E R . That is right, of course, that would vary with shirts,
but one shirt that I happened to investigate was made with 20-cent
cotton and it had 9 cents worth of cotton in it and the price was $5.60.
At any rate, out of all these dresses covered in this survey, the
farmer received five-eighths of 1 cent out of each dollar of the consumers' money.
I talked to a lady in Atlanta who happened to be a regular customer
of one of the department stores, and she pointed out some dresses that
were then hanging up there for sale, and she said that just before the
Office of Price Administration law was passed that she had bought five
dresses, and she pointed out the exact kind of dresses they were, and
at the time she bought them then, they were $2.98 to $3.98 each. The
day she pointed them out in the store, those same dresses were $8.98
to $14.98 each. The ones that had been $2.98 had gone up to $8.98 and
the ones that had been $3.98 had gone up to $14.98.
Now I undertook to make another survey to take in a great many
articles, but particularly had in mind the things that the farmer ordinarily buys, such as work shirts, overalls, plows, harness, the different things that a farmer ordinarily would buy. So I undertook to get
from merchants and from catalogs comparable prices. For instance,
I took a Sears, Roebuck catalog. I thought I could do it with their
catalog. But I found that Sears, Roebuck were not selling the same
things now that they were selling before the Office of Price Adminis-
1033 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
tration was created. I undertook to investigate that and found that
in a great many instances they cannot buy the same brands of merchandise they used to buy. They cannot buy merchandise that is of
the same weight and quality. They cannot buy it with the same label
on it.
I t seems that the Office of Price Administration made a practice of
fixing a hard-and-fast ceiling on our product that was established
in the trade, and that when the cost of producing that product went
up, that they refused to raise the ceiling, so that the manufacturer
could continue to produce that same quality and that same brand.
So the manufacturer simply sidestepped it by making a different quality and different brands, which he sold either at the same ceiling price
or at a higher ceiling price—in many cases a higher ceiling price.
But, of course, a farmer cannot change his brand. A bale of cotton
is a bale of cotton. He cannot change it. A bushel of wheat or of
corn is still a bushel of wheat or corn, and the farmer cannot do anything about changing it.
It seems that the whole country today is more interested in, and
there is more talk about, inflation than anything else. Of course,
that is perfectly normal, because the Government itself is agitating
the idea of fighting inflation.
They talk about the Office of Price Administration holding the line,,
preventing inflation. Well, now, holding the line on prices may
prevent runaway prices, but preventing inflation is entirely a different story.
There is no way, Mr. Chairman, in which prices can either create
inflation or prevent inflation. Nobody can create inflation except
the Government and its agencies.
The Government, through Government spending, and through its
control over the banks and over bank credits and other credits—if
you have inflation, it must come through the action of the Government itself. It cannot come from any other place. But if you have
inflation, you are going to have high prices, because high prices are
a natural economic antidote for inflation, just as low prices are a
natural economic antidote for deflation.
We hear a lot of talk about the great inflationary period of World
War I, and what happened to the country on account of that inflation. Many people are young and do not remember what happened,
and many more have forgotten what happened, and the rest just have
not studied what happened. But in 1919 and 1920 we did not have
inflation. We had a lot more money, and we had much higher prices^
that is true. But the whole country's economic level had been adjusted to those high prices and to the fact that there was a lot of
money. Farm-land prices, mercantile-goods prices, farm-labor prices,
other labor prices, bank credits, other credits, everything had been
adjusted to a higher level. There was no inflation, and there cannot
be any inflation so long as your entire economy is in adjustment. I t
does not make any difference whether your cotton is 5 cents a pound,,
and everything else is adjusted to that level, including the amount of
money and credits, or whether it is 50 cents a pound. I t is a matter
of relationship, and that applies to the volume of money and credits
as well as it applies to anything else.
At that time we did have a balanced economy.
1034
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
But if you remember, in 1920, the Governors of the Federal Reserve
Bank issued an order and destroyed $5,500,000 of outstanding currency. They restricted radically all credits, bank credits, and the customers of the banks restricted their credit, and debts which had been
made on the basis of 30-cent cotton could not be paid with 10-cent
cotton. The fact that cotton went down, and that the man who had
made that debt could not pay it, was not due to inflation, either of
prices or of money. It was simply due to the fact that we undertook
to adjust our economic level back to 10-cent cotton, when the whole
country had gotten accustomed to working on the basis of 30-cent
cotton, and everything else in proportion.
We are in this position today, as I see it. We have a $300,000,000,000
debt, or some such large amount—I do not know just what it is.
Mr. CRAWFORD. $ 2 7 9 , 0 0 0 , 0 0 0 , 0 0 0 at the 1st of this month.
Mr. L I N D E R . Well, it is a tremendous debt. Whenever a nation
incurs a large debt, or whenever the citizens incur large debts, you
cannot then undertake to adjust the entire economic structure downward radically and expect those debts ever to be paid.
If a farmer makes debts on the basis of 30-cent cotton, and cotton
goes to 10 cents, he can do nothing except repudiate the debt, either
in whole or in part. And if the Government incurs $300,000,000,000
or $279,000,000,000 debt, on the basis of prices that we have been
having, and wage levels that exist, and you undertake to adjust that
economic level to a low^er point, then the Government has to do exactly
what that farmer did. It has to repudiate that debt, in whole or in
part.
But if your entire economic level is adjusted upward, so that you
have the proper relationship existing, then you can pay that debt,
and you can have prosperity, and you can have a return, not to the
same normalcy that you had under a lower level of economics, but
back to a normal peacetime condition.
I appeared not very long ago before one of the committees that was
holding hearings on the bill to increase the minimum-wage law from
40 cents an hour to 65 cents, then 70 cents, then 75 cents an hour.
I got up a number of Government figures on that point, going back
over a period of years, and I found, over a period of 18 years, immediately prior to this war, that the amount of money the factory
workers received and the amount of money that the farmers received
was almost identical. It did not work out exactlv in each individual
year, but as wages went down, or as the farm income went down,
wages went down, and as the farm income went up, factory wages went
up, almost the identical amount. Which proves, to my way of thinking, that in a natural economic system, that you have a certain percentage of your national income that is going to the raw-products
producer and a certain percentage that is going to your factory
worker.
That being true, and the records of employment and unemployment bear it out, the amount of money that you have for your factory
pay roll in 12 months is determined by what the farmer gets—or, at
least, it may not be determined by that, put it is substantially the
same percentage that he gets, and when you arbitrarily raise the
hourly pay of the factory worker, without increasing your entire national income, you create unemployment, because you cannot hire as
E X T E N D TRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
1035
many men with that same number of dollars, at a higher wage, as
you could hire at the lower wage.
At the same time, of course, you increase the cost of producing
wThat the farmer has to buy with which to produce the raw materials.
Now, I have some figures here showing just how this relationship
has changed between what the farmer got and what the hourly wage
w7as.
In 1919—that was the year of our highest prices, just after World
War I—the average hourly earnings of factory workers was 47.7
cents per hour. And the average price of cotton on the farm was
31.2 cents per pound.
In other words, in 1919 it took iy 2 pounds of cotton to pay for 1
hour of factory labor.
From 1910 to 1920—that took in the war period—the price of cotton
went up 130 percent, and the price of cotton on the farm when up
130 percent. They both stayed in the same balance during that
period.
In 1925 the average earnings of factory workers had gone to 54
cents an hour, and the average cotton price had fallen back to 15
cents. At that time it took S'y2 pounds of cotton to pay for 1 hour
of factory labor.
In 1925 the price of cotton had fallen almost to where it was in
1910, but the average factory worker's income was 225 percent higher
than it was in 1910.
In 1910, it took 1.4 pounds of cotton to buy 1 hour of factory labor.
During the war years, 1915-19, it required an average of 1.4 pounds
of cotton to buy an hour of factory labor.
Immediately after the war we started the imports of agricultural
products, and during the years 1920 to 1924, inclusive, it required 2%.
pounds of cotton to buy 1 hour of factory labor.
During the next 5 years, these imports were increased, and during
that 5-year period it cost an average of 5.14 pounds of cotton to
buy an hour of factory labor.
And from 1930 to 1934 it required 5.86 pounds of cotton to buy
buy 1 hour of factory labor.
From 1935 to 1939 it required 6 pounds of cotton.
From 1940 to 1944, it required 5.32 pounds.
Now, Mr. Chairman, I had occasion some time ago to call attention
to the fact that the Office of Price Administration had arbitrarily
fixed a ceiling on pulpwood, $7.60 a cord in the Southern States, and
up in New England it ranged as high as $12.75, to $13.25 for that
same quality of pine pulpwood.
At that time, Mr. O'Kelly, whom you know very well, wrote Mr.
Bowles a letter, in which he asked him if I had given the correct
facts. Mr. Bowles said yes, that what I had said was true, but that
under the law he did not have any power to change it. He said he
did not have any authority to change that differential on pulpwood
which amounted to $5.65 a cord.
Mr. B R O W N . The Georgia Legislature passed a resolution showing
the differential.
Mr. L I N D E R . That is right.
Mr. B R O W N . That is in the record of the hearings. I asked Mr.
Bowles to comment on it later on.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. L I N D E R . Well, I brought that out in a bulletin and then the
legislature took it up and passed a resolution on it.
He took two and a half pages to explain that he did not have any
authority to change that differential. But when the pulpwood shippers became aware of the great discrepancy in the price they were
getting, they simply stopped shipping, and, in order to get pulpwood moving again to the mills, it became necessary to do something
about it, and he turned aro.und then and raised it $1.40 a cord.
He wrote this letter to Mr. O'Kelly on the 8th of February, in which
he said he did not have any authority to change it, but he signed an
order changing it soon enough, but the order became effective on
the 18th, which was only 10 days from the date on which he wrote
the letter. Then days from the day he wrote the letter until the effective date of the order raising the ceiling $1.40. Which showed that
he was arbitrary in one case or the other, and if he did not have any
authority to change it on the 8th of February, then, he certainly had
no authority to change it on the 18th of the same month, because
there had been no change made in the law. But that is just in keeping with this other letter wherein he says he had no authority to
change the marginal requirements on the futures market. But as
soon as the market went the way he did not want it to go, then he
ussumed to have authority to regulate the marginal requirements.
Mr. Chairman, I suppose we are all willing to make all sorts of
allowances for human errors and human mistakes. We do not
expect anybody to be perfect. But there are some things that the
Office of Price Administration does and has done that I do not think
are consistent with a sincere intention to do the right thing.
For instance, I do not believe that anybody can sincerely maintain
that it is right to raise everybody else's wages and cut the farmer's
wages. Of course, when you fix a price on a pound of cotton, or a
bushel of wheat, or a bushel of corn, you are fixing the farmer's wages,
because that is his wage, what he gets for those crops. And when you
lower those prices, you are cutting his wages.
They have gone ahead—I think Mr. Bowles objected personally to
some of it, at least he said he did, but, nevertheless so far as the Government policy is concerned, they have gone ahead with the idea of
increasing wages, they have gone ahead with the idea, if necessary, of
raising prices to make it possible to pay increased wages, and yet, at the
same time, they come right back and say that the men and women and
children who produce these crops on the farms should receive a lower
wage. I just do not think that is consistent with a sincere intention
to give a fair administration of law.
Down in Georgia we grow a lot of watermelons. Watermelons constitute one of our larger money crops. Last year the ceiling price on
watermelons, fixed by the Office of Price Administration, was $45 up
until about the 1st of July, and then it was $35.
M r . BROW^N. P e r t o n ?
Mr. L I N D E R . Per ton, yes.
In the case of this year's crop, before it
was even planted, they have issued an order to reduce that ceiling about
30 percent, from $35 to $25 a ton, even though everybody knows that
labor is scarcer than it was last year, that equipment is scarcer than it
was last year, and that it is bound to be more expensive to produce
them than it was last year. Yet, arbitrarily, without any reason in the
1037 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2
world, or any hearings, so far as I have been able to learn, they just
decided that the farmer's price on watermelons should be cut $10 a ton,
which amounts to approximately 30 percent.
I would like to call the committee's attention also to this cotton
ceiling, and this effort to interfere with what I would call a bull market
on the cotton exchange. You know that two-thirds of cotton is seed,
while one-third is cotton. Cottonseed is one of our major food crops.
Through cottonseed meal and cottonseed oil, we have more feed and
food value on an average acre of Georgia cotton ground than it would
produce if you planted it in corn or wheat.
If you plant one acre in cotton and throw the cotton away and take
the seed, you still have more feed and good than you would get on an
acre planted in wheat or corn.
I do not mean to say that you could not pick out some acres on which
that would not be true, but just taking an average acre of cotton land
in Georgia, that is absolutely true.
I am informed that we are now in a period of great world-wide
famine. I understand that millions of people are starving to death,
and will starve to death in the world. I understand that we have a
great need for all the fats and oils that we can get in this country. I
see where the Government is, or has been, paying a reward to ladies
who would preserve the grease from fried meats, and the old grease,
and turn it in, stating we needed it so badly. Yet, in the face of all
of that, we have a threat to the next cotton crop which is going to be
small, anyway. We have a threat there of an arbitrary ceiling, wrhich
he has attempted to fix in twTo ways:
First, he attempted to fix an arbitrary ceiling on the cotton itself.
Then, when a great number of Congressmen and Senators interposed
their objection to that, he suddenly decided that he has the power
under this law to go ahead and fix marginal requirements in such a
way that that will amount to an absolute ceiling.
Mr. B R O W N . Has he put into operation the marginal requirements
as yet ?
M r . LINDER. NO, n o t y e t .
Mr. B R O W N . I do not think
he can do it under the law unless Mr.
Anderson signs it. And I doubt very much that Mr. Anderson will
sign it.
Mr. L I N D E R . I understand that that is true.
I believe, Mr. Chairman, that that substantially covers what I had
in mind, unless there is something else you would wish me to cover.
Mr. B R O W N . Mr. Chairman, do you care to ask any questions?
The C H A I R M A N . N O questions.
Mr. B R O W N . Mr. Crawford.
Mr. CRAWFORD. Mr. Linder, are you familiar with the statement
made before this committee by Mr. Bowles at the beginning of these
hearings ? He stated, in substance, that it was not unf air or unreasonabl to ask that the farmers of this country go along with their present
wages as measured by the prices they are now receiving from the
products they produce for the market.
Mr. L I N D E R . Well, only to the extent that I read it in the newspaper.
I was not here.
Mr. CRAWFORD. Y O U disagree with that, do you not?
Mr. L I N D E R . Oh, yes; I disagree with that.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. CRAWFORD. I think you ar one of the best-informed Commissioners of Agriculture in the United States. I say this because I have
watched your statements and releases for many years, and I would
like to ask you this question: What do you estimate is the hourly wage
of those who produce cotton in the South, and by that I mean those
who plow the ground, who prepare it for the seedbed, who plant the
seed, and, after the cotton comes up, who block and thin the cotton,
and who hoe it during the growing season, who pick the cotton and take
it to the gin after it is harvested.
Mr. B R O W N . I would like to say, Mr. Crawford is a Representative
from the State of Michigan. Formerly he was a cotton grower in the
State of Texas.
Mr. CRAWFORD. What is the wage of those people who perform the
productive labor in connection with that crop under the present
prices?
Mr. L I N D E R . Y O U mean what is his wage in relation to the price of
cotton ?
Mr. CRAWFORD. Well, it would have to be that, because he does not
get a wage until he sells his cotton. In other words, a farmer's wage
consists of what he receives for his labor in the form of the products
which he places on the market. That is a fact, is it not ?
Mr. L I N D E R . Well, the generally accepted rule in the Cotton Belt
is that whatever a farmer gets for a pound of cotton pays him for
1 hour's work.
Mr. CRAWFORD. In other words, 1 hour's work is equivalent to about
1 pound of cotton ?
Mr. L I N D E R . That is right.
Mr. CRAWTFORD. In actual tangible goods ?
Mr. LINDER.That is right.
Mr. CRAWFORD. j3o if cotton sells for 5 cents A pound, he gets 5 cents
an hour ?
Mr. L I N D E R . That is right.
Mr. L I N D E R . If cotton sells for 2 4 cents a pound, he gets 2 4 cents
an hour ?
Mr. L I N D E R . Well, actually, that is an absolute rule, and has been
for many years.
Mr. CRAWFORD. Under the Agricultural Adjustment Administration, you make estimated cost sheets, do you not ? By "you" I mean
the cotton growers.
M r . LINDER.
Yes.
Mr. CRAWFORD. On those cost sheets, what do they allow, per hour
of productive labor, for the farmer, for the tractor, or for the mule
or team ? Are you familiar with those studies ?
Mr. L I N D E R . N O ; I am not. But they do not allow you anything
for the labor.
Mr. CRAWFORD. In those statements, I think you will find that they
put down a figure—I am now talking about your cost studies which
you make on the farms for the Agricultural Adjustment Administration operations—they put down a figure at which they estimate the
cost of the team, or the tractor, or the man per hour. It is stated
in hourly rates. I was wondering if you could give us any of those
figures.
1039
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. L I N D E R . N O ; I do not remember. In fact, I am not familiar
with that procedure. But I do know about what a farmer gets when
he sells the cotton.
Mr. CRAWFORD. What is your present going prices down there, say
on 15 or 16 staple middling cotton, per pound ?
Mr. L I N D E R . I think it is about 25 to 26 cents a pound for 1 5 or 1 6
staple of strict middling cotton. Now, you understand that that does
not mean that the farmer is averaging 25 cents a pound.
Mr. CRAWFORD. I understand that. But that would be a good
average price, would it not ?
Mr. L I N D E R . For that particular grade, yes.
Mr. CRAWFORD. Then, as I understand you, what you are protesting
against—and if I am not correct in this statement, I want you to
correct me—is the Congress and the administration and the public,
generally, accepting and endorsing and prosecuting the philosophy
where government steps in and sets a wage, for instance, for the
factory man who works in my home town, at $1.30 per hour, by government procedure, and then, at the same time, taking the position
that your cotton grower should be satisfied with 25 cents an hour ?
Mr. L I N D E R . I would like to enlarge on that a little bit, if I may.
Mr. B R O W N . Will you yield, Mr. Crawford?
M r . CRAWFORD. Y e s .
Mr. B R O W N . While
you' stated that cotton brings 2 5 cents, this
year we have had so much damage to cotton that I doubt that this
year's crop will bring, on an average, more than 21 or 22 cents a pound.
Mr. L I N D E R . That is right.
Mr. CRAWFORD. I think you are correct in that.
Mr. L I N D E R . I would like to call attention to two things
Mr. C R A W F O R D . Just a minute. Let us go back to this other point.
If you southern men want to go along willingly and accept your 25
cents under Government edict, I am going to quit raising "Oid Ned"
about it.
Mr. L I N D E R . I do not blame you.
Mr. CRAWFORD. If you are satisfied to take it, it is all right with
me. But if I try to help you develop the testimony and show that
these things are done by Government decree, then, I want you to support me in that contention. If I am wrong, you tell me so. If I am
right, I want you to say whether or not you are going to support
me. Are you protesting against the Government doing what I have
outlined here?
Mr. L I N D E R . I am; emphatically.
Mr. CRAWFORD. That is what I want to know, because I think it is
economically unsound, I think it is morally wrong, and I think it is
politically indefensible, and so far as the northern agriculturalists
are concerned, I am going to protest against it, and I have a lot of
people who will support me, and I hope you people in the South will
support me. There just is no sense in a situation where people who
live in cities should say to the man who produces our foodstuffs,
"You have to work for 25 or 30 cents an hour while we here in the
city are going to charge $1 to $1.50 an hour, and you have got to
pay it if you want any of our production." We cannot defend that.
Mr. L I N D E R . I think it is totally indefensible. The fact of the
1040
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
matter is, in 1909 to 1914, the period which Congress saw fit to take
as a base period, cotton sold, on an average—that is, good, bad, and
indifferent—cotton crops sold on an average, during those 5 crop
years, for around 12 cents—12.20,1 believe it was, if I remember correctly—12.20 cents a pound. That was taken as representing 100 in
farm prices. The existing wage rate at that time was taken also as
being 100.
But since that time your wage rate has been increased more than
400 percent—18 y 2 or 19 percent very recently—and if you give the
farmer that same 400-percent increase, it would make the average
price of cotton 48.80 cents a pound, for strict middling 15 or 16
staple; in a crop such as we had in 1945, it would put the price of the
best grades of cotton up around 53 to 55 cents a pound. The same
thing would be true with regard to your corn and wheat.
As you know, North Dakota is a great wheat State. The State
of North Dakota has a wheat mill run by the State, which grinds
anywhere from 7 to 10 million barrels of flour annually.
The farmers are getting, for that wheat, which goes into a barrel
of flour, $6.30—that is, for enough wheat to make a barrel of flour.
The people who buy bread, prior to this last order of the Office of
Price Administration, were paying $39 and some cents for that same
wheat for which the farmer got $6.30. In addition to that, the other
day the Office of Price Administration issued an order to cut down
the size of that loaf of bread, but to maintain the same price per loaf,
which is just another way of raising the price to the consumer, but
none of it is passed on to the man who produces that wheat.
I just brought that out because I happen to have those figures in
mind, and that same price applies to practically everything that the
farmer produces and that the consumer buys.
Mr. CRAWFORD. Are you familiar with the testimony that Mr. Goss
submitted the other day ?
M r . LINDER. N O , s i r .
CRAWFORD. He made
Mr.
this statement:
We need certain controls against inflation more than ever, but these controls
must be sound. Otherwise, they may do more harm than good. I t is our considered opinion that continuation of the policies which the Office of Price Administration has followed for the past 4 years would promote inflation and
retard recovery. If the choice were between continuation of those policies and
removal of all controls, we believe removal of controls would be preferable.
Mr. L I N D E R . Yes, sir; I agree with that. In fact, I would go a little,
further than that. I do not think you are ever going to get anything
like normal conditions without getting away from all controls.
But I am sure that these abitrary controls of the Office of Price
Administration are absolutely interfering with production. I think
the country is just about faced with the choice of whether they will
save the Office of Price Administration and give up America or
whether they will save America and give up the Office of Price Administration.
Mr. CRAWFORD. On that direct statement, in times of war, you probably would have agreed to submit to arbitrary rules and regulations,
and controls exercised by Federal functionaries. I think our people
generally accepted that type of control during the war. In other
words, we became, during the war, the servants of the state, in order
to defend the country against outside enemies.
1041 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2
M r . LINDER. Y e s , s i r .
Mr. CRAWFORD. But is
it not a fact that in peacetime, if we maintain and support these Federal functionaries, such as the Office of
Price Administration, that we become, as citizens, the servants of the
state, instead of the State and Government functionaries being the
servants of the people ?
Mr. L I N D E R . That is true, in my judgment, and I think it will lead
into a permanent condition of totalitarian control unless we get away
from it.
Mr, CRAWFORD. In other words, you feel that if the Congress, as the
agent through which this is to be done, forces the citizens to submit to
Federal functionaries and their rules and regulations in peacetime,
that, as a matter of fact, we forget and forsake the trusteeship placed
in our hands for the protection of our Government for posterity?
Mr. L I N D E R . I think, Congressman, that you can go further than
that.
The C H A I R M A N . Will you yield, Mr. Crawford ?
Mr. CRAWFORD. Well, just let him answer that question, Mr. Chairman, and then I will yield.
Mr. L I N D E R . I think that arbitrary power placed in the hands of any
man or any group of men, unless limited in time, and removed as soon
as possible, will lead to a loss not only by the individual citizen of his
rights, but if you let it operate long enough, Congress itself will become
helpless to remedy it. I will go that far.
I think that any governmental agency, except actual military organization in the field, that finds it necessary to have laws which place it
above the courts, which finds it necessary to have laws that, to all
practical purposes, repeal the constitutional provisions, in order for
it to live, is, I think, a dangerous organization.
We have cases—many of them—where citizens have been denied
every right under the Constitution, by the Office of Price Administration. We have even had cases where judges of the courts have held, in
effect, that under this law the judge himself was not a judicial officer,
that he was not a court, but that he was simply an administrative official of the Office of Price Administration, and that he must sign an
order even though he knows it is in violation of the law when he
signs it.
I think a law like that ought to be repealed, whether it is the Office,
of Price Administration or what it is.
Mr. CRAWFORD. Y O U are referring to the Oregon decision ?
M r . LINDER. Y e s .
Mr. CRAWFORD. I yield
The C H A I R M A N . What
to the chairman.
was cotton bringing before the Government
established the policy of support prices ?
Mr. L I N D E R . Y O U mean back in 1933 ?
The C H A I R M A N . Yes, when they all hollered for help.
Mr. L I N D E R . It was bringing about in proportion to what everything else was bringing.
The C H A I R M A N . It was the process of evolution, it seems to me, that
the Government should not interfere in the affairs of individuals. I
agree with that. But they all hollered for help and we helped them.
The railroads were in trouble; the insurance companies were in
trouble; the cotton producers were in trouble. They said, "Help us or
we will sink," and we established the Reconstruction Finance Corpora-
1042
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2
tion. They interfered with the affairs of the American people. We
took them off. They became indebted. We exercised control. But
they were glad to have them come.
We closed the banks. They all said the Federal Deposit Insurance
Corporation was a socialistic scheme. And we opened the banks and
the banks have been pretty solid ever since.
Now, a war came on. The Government had to go into the business
of controlling prices. It had to go in to save the economy of America.
And yet we hear everywhere that it was a violation of the rights of
the American people. We do not violate the rights of the American
people when you take the rights away from some people in order
that all the people's rights may be maintained and the economy of
the Government may be established. I was told and brought up to
believe that the "Government's best is the Government's least." That
was the principle of Thomas Jefferson. Times have changed since
then.
I heard Washington's Address read the other day, and he said,
"By reason of our detached and distant position w^e must not have
anything to do with foreign nations." But we are no longer detached
and distant. Times have changed, and men change with them.
I get tired of hearing them say that we have violated all the rights
of the American people, when the American people asked that we
violate their rights in order that we might protect them.
You wanted protection way back yonder. I think the farmer ought
to get a fair return for his product. Why does he not get a fair
return? Parity is a relationship. Parity is not a price. And as
wages and other costs go up, the farmer, if you establish the parity
principle, ought to receive a greater price for his product.
What is wrong with that? Why do the farmers not get a higher
price ?
Mr. B R O W N . May I interject there?
T h e CHAIRMAN. Y e s .
Mr. B R O W N . The man
who wrote the parity formula said it did
not take into consideration the labor costs. He did not include that
in the parity formula, and it should have been included; is that not
right ?
Mr. L I N D E R . That is right; and I would like to
Mr. B R O W N . If you had that now, you would make no complaint,
would you?
Mr. L I N D E R . I would like to enlarge on my statement. The base
period selected for parity was the period from 1909 to 1914—July 1
to June 30, I believe.
As I said, the price that the farmer got for his cotton over that
period was taken to be 100 percent of parity. Actually, though, it was
not 100 percent of parity, because for many years prior to that time
and during that time we had protective tariffs on almost all of the industrial products that a farmer bought which went into the cost of
producing that cotton.
Those tariffs run—I remember looking some of them up—as high
as around 100 percent. Some of them down as low as 20 and 25 percent.
The farmer was buying all of his industrial products, which went
into the production of that 12-cent cotton, in a protected market, but
65 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
he was selling it in the markets of the world, and, therefore, he was
not getting anything like parity, even in that parity period. But
Congress arbitrarily took that and said that was a hundred percent
of parity, when it was not anything near a hundred percent of parity,
due to the fact that he was buying in a protected market and selling
in a world market.
Mr. CRAWFORD. N O W , Mr. Linder, there is no legislative committee
on earth which should be any more aware of the different phases of this
question you are discussing than this committee, the House Banking
and Currency Committee, and this committee should know that at the
moment the Office of Price Administration is nothing more than an
umbrella. It is being held temporarily in the storm that is going
to break across this country in connection with the banking industry,
wherein the unsound fiscal policy of this administration has jammed
over a hundred billion dollars worth of Government securities, and it
is only a matter of a few moons until this committee will have to give
consideration, from the standpoint of the prevention of inflation, to
what is to be done with those securities now held by the banks, to
what shall occur to bank earnings, to how long this administration
shall continue to subsidize banking earnings, and to whether or not
banks will be permitted to purchase any more of the Treasury issues.
That is the issue before this committee, and I repeat that the Office
of Price Administration is simply a temporary umbrella which the
administration is supporting
until we can get past the next election,
and then have a showT-down on this whole proposition.
The chairman opened up this case and we might just as well better
understand what this hearing is about. We have got to face it. You
cannot continue to let banks buy these bonds the way they are being
bought. That has to do with inflation. The Office of Price Administration is utterly helpless, and it goes along imposing these arbitrary
rulings on our people, saying to one group: You shall have this; and
to another group: You shall not have that; all as a matter of temporary expediency. That is all I have, Mr. Chairman.
Mr. B R O W N . Does any other member desire to ask any questions?
Mr. K I L B U R N . I would like to ask a question:
If you were a member of this committee, would you vote to terminate
the Office of Price Administration on June 30 ?
Mr. L I N D E R . I would vote to end it; yes, sir.
Mr. K I L B U R N . That is all.
Mr. B R O W N . We appreciate your appearance, Mr, Linder. Thank
you very much.
The C H A I R M A N . We will hear next from the National Association
of Lumber Manufacturers.
Mr. COLGAN. Mr. Chairman, I have about seven men with me. I t
will take about 2 hours to complete our testimony. If you will take
them in the order in which I have set them out, we will go right
through with them.
The C H A I R M A N . Y O U may proceed.
Mr. COLGAN. Mr. Chairman, my name is Richard A. Colgan. I am
executive vice president of the National Lumber Manufacturers Association.
83512—46—vol. 2
5
1044
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
STATEMENT OP RICHARD A. COLGAN, JR., EXECUTIVE VICE PRESIDENT, NATIONAL LUMBER MANUFACTURERS ASSOCIATION
Mr. COLGAN. The association for which I am speaking today is a
federation of the 16 regional, species, and product associations of the
lumber-manufacturing industry, which in turn represent virtually all
producers and manufacturers of lumber throughout the United States.
Our position in the matter before you may be expressed in one sentence : The dilatory, unrealistic, inconsistent, and almost confiscatory
methods of the Office of Price Administration in the pricing of lumber
are the major cause of the large and tragic decline in the production of
lumber today, and we recommend the complete elimination of all Office
of Price Administration price controls in this industry if maximum
production of lumber is desired.
However, if, in the judgment of the Congress, price-control legislation should be extended, we recommend a series of changes in the act
which would go a long way toward meeting the pressing needs of the
country for lumber.
My statement is brief. I am not going to attempt to detail for you
the dozens of specific complaints against the Office of Price Administration price schedules in this industry. A number of other witnesses
representing various regional and species associations will appear to
give you the damning testimony from the record. I merely wish to
point out the present over-all position of the industry, to give you in
general terms the reasons which we believe are responsible, and to
suggest changes in the act which we are confident will permit substantially increased production of lumber.
A shortage of lumber obviously would be a fundamental bottleneck
in the housing program. That shortage is here right now—today.
The President's program calls for 36,000,000,000 feet of lumber this
year—the same amount we produced in 1942, the peak year in the industry's recent history. During the first 5 weeks of this year, however,
we produced only just half of what we did in the same period of 1942,
and the prospects for reaching the housing goal, or anywhere near it,
are nonexistent under present price ceilings.
Production of lumber has declined steadily from the 1942 peak of
36,000,000,000 feet to last year's estimated total of only 27,500,000,000
feet. We do not, of course, claim that bad pricing was the only reason
for that drop during 1943, 1944, and 1945, although it was largely
responsible. Wartime losses of manpower and shortages of equipment
also contributed. But these two deterrents have been greatly relieved—and production is still going down.
Nor is lack of productive capacity the reason—the industry right
now can exceed its 36,000,000,000-foot record, the goal of the housing
program. The answer, almost entirely, is price. Unrealistic, belowcost price ceilings are sabotaging lumber production, and the Nation
is just not going to get the lumber it desperately needs until something
is done about price. The answer to shortage is production, to be
sure, but the answer to production is price.
In our judgment, five specific fundamental complaints can be proved
against the Office of Price Administration's current pricing methods
and philosophy in this industry:
First, the Office of Price Administration has imposed by its own
admission price ceilings on the industry arrived at by its own account-
1045 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
ing practice, which permits only 75 percent of the industry to make a
profit. Industry advisory committees do not have access to these
figures which the Office of Price Administration uses in arriving at
the ceiling prices. Office of Price Administration officials have stated
that 25 percent of production in certain major producing areas cannot
make a profit under present prices. Actually, not even 75 percent
of present production is profitable when you include the capacity of
the scores of mills which only recently have been forced to shut down,
A policy which arbitrarily puts 25 percent of production into a nonprofit categry—and then progressively extends that 25 percent after
many producers have been forced out of business—obviously will put
new large segments of the industry into this nonprofit group every
time it makes a new study.
For example, as long ago as 1944 a cost survey of the southern-pine
producers revealed that 44 percent of a representative sample were
operating at a loss. By volume, 38 percent of the lumber produced
was unprofitable. Last week the owner of a mill which operates the
year round, producing 10 to 15 million feet annually for the past 12
years, reported that he had finally been forced to shut down on December 6. He found that he had been operating at a loss of $1.25 a
thousand feet for 6 months, and could not take it any longer.
Second, the Office of Price Administration seems to have been
obsessed with the idea of profit elimination to the extent that it has
based a number of its decisions on the over-all return to producers who
make other products instead of limiting its cost and profit studies to
the lumber product being considered. Now, you know as well as I
do that no company can indefinitely continue to support a nonprofitable part of its business with a fortunately profitable other line. That,
carried too far, is business suicide. Even the Office of Price Administration admits that this unrealistic approach is unsupportable, but
they have done nothing about it yet in lumber, despite the industry's
protests.
Third, the Office of Price Administration, in its blind determination
to prevent realistic pricing, has adopted the practice of figuring standing timber—or stumpage—at its book value. A number of operators
it is true, purchased large reserves years ago at depression prices.
But the majority of small operators are forced to buy new stumpage
currently at much higher market prices which the Office of Price
Administration will not recognize as a legitimate cost factor. These
market prices may be two, three, or even more limes the average of
the depression book values of the timber in certain areas. Naturally^
no operator can possibly go in and buy this timber if he cannot base
his prices on the actual cost—yet the Office of Price Administration
persists in using low average book values of a few large operators.
Even for those producers who have the advantage of the low-cost
stumpage, the replacement cost of new timber to insure future operations is a very real problem which the Office of Price Administration
refuses to recognize. And certainly it is a silly, ridiculous state of
affairs when the profit from selling his raw-material stumpage gives
a lumber producer much more profit than cutting it into lumber, as
is the case in many areas today.
Fourth, one of the most annoying of all of the Office of Price Administration's practices is its utterly inexcusable slowness in granting
needed increases in specific prices. Cost factors in all industries have
1046
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
been changing so quickly during the past year, and right now are
accelerating so rapidly, that no agency which takes up to a year or
even more to reach a decision on a specific request can possibly hope
to meet the need for prompt, realistic pricing changes to match the
changes in costs of doing business. The policy of what seems to us to
be deliberate delay, in the experience of many of our industry advisory
committees who have attempted to obtain decisions from the Office
of Price Administration, will be described in detail by other witnesses.
I t is completely evident that, whether from policy or otherwise, this
agency is the price exponent of "too little and too late."
It is not enough that in the last few weeks the Office of Price Administration has finally been stirred to a flurry of activity after months
and months of inaction. The storms of protest from industry, these
hearings themselves, and the necessity for the Office of Price Administration to present a temporarily showy flare-up of business in-order
to encourage the renewal of its contract, undoubtedly account for much
of the unusual heat right now. But frozen as we have been in the
past when we attempted to warm our industrial problems at the cold,
cold stoves of the Office of Price Administration we cannot be blamed
if we look skeptically at this new fire, and wonder how soon it is
going to go out again.
Fifth, and finally, the cost studies on which the Office of Price Administration bases its decisions are always out of date long before
any decisions are reached. Wages, equipment , and stump age, the
three major determining cost factors for a lumber manufacturer,
increase from day to day. Any prices figured on the basis of costs
even 6 months old are no good in meeting present problems. These
costs are no respectors of our lumber price ceilings—they blithely
jump right through the ceilings, and long before the Office of Price
Administration can consider them, they have very effectually put
many operators in the red, and out of business.
I recognize that this statement of general complaints has been unsupported by specific cases. But the proof is available, as you will
see from the witnesses who follow me.
It is our considered opinion that if price control is continued it
will be impossible to achieve the 36,000,000,000 feet of production
needed to meet the requirements of the housing program. If you
must extent the act, we strongly recommend that you make these
minimum changes mandatory to the Office of Price Administration :
1. The act should require specifically that the Office of Price Administration establish ceiling prices which will permit at least 90 percent of the industry to recover the cost of production.
2. In determining the adequacy of ceiling prices, the Office of Price
Administration should be required to disregard the over-all profits
of producers and to limit its consideration to the particular ceiling
involved.
3. The act should require specifically that the Office of Price Administration consider the market value of standing timber instead
of its book value in analyzing costs to determine whether price ceilings need to be changed.
4. The act should require that the Office of Price Administration
act on requests and recommendations of industry advisory committees
within a specified time.
1047
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
5. The Office of Price Administration should be required to base its
price -determinations on current costs.
I submit that these are not radical changes—they are a realistic
recognition of the only way in which lumber production can be increased. If you cannot remove price ceilings entirely, we sincerely
hope that you will make some such revisions—without them lumber
production must remain at a level far below what is needed, and the
housing program is doomed to failure.
Mr. CRAWFORD. Mr. Chairman, we have some additional lumber
witnesses, do we not ?
T h e CHAIRMAN.
Yes.
Mr. CRAWFORD. Will wTe be able to get to the furniture men this
afternoon ?
The C H A I R M A N . I hope so.
Mr. K U N K E L . These gentlemen said it would take them 2 hours.
The C H A I R M A N . Well, we might be able to shorten it up. Have
you completed your statement ?
Mr. COLGAN. Yes, sir; if there are no questions.
The C H A I R M A N . If there are no questions, we will hear the next
witness.
Mr. COLGAN. I would like permission to submit a statement from
the Southern Pine Association in relation to their price.
The C H A I R M A N . That may be incorporated in the record.
(The document above referred to is as follows:)
SOUTHERN P I N E CASE
The case of the southern pine industry stands out in bold relief as an example
of how control, as administered, has resulted in widespread plant shut-down
and consequent serious curtailment of production. Southern pine is produced
chiefly in 12 Southern States by some 15,000 units, the bulk of the production coming from mills with an annual outturn of less than 5,000,000 feet, these being
commonly designated as small mills. Normally, southern pine is responsible for
about 30 percent of all lumber (softwoods and hardwoods) produced in the United
States.
In the 4 years, 1936-39' inclusive, the annual production of this species, in round
figures, was 7,000,000,000' feet. As our country geared up for defense in 1940,
production that year rose to 10,000,000,000' feet. About the same volume, slightly
increased, was produced in 1941, and in 1942 southern pine production reached
the staggering total of nearly 12,000,000,000 feet, the largest output since 1925.
I t was in 1942 that the Price Control Act was imposed as a war measure, and it wTas
during that year that OPA set up an Industry Advisory Committee to counsel with
its lumber branch in matters dealing with the price angle of the industry's production for war needs.
This advisory committee to OPA, composed of practical lumbermen either engaged in the manufacture of southern pine lumber, or thoroughly acquainted with
the make-up of the industry and its operating conditions, did advise OPA on many
occasions but its advice was rarely considered by OPA, or considered too late and
too lightly to be of any practical use. The industry, through the Southern Pine
War Committee and its duly accredited representatives, exhausted every effort in
its power to provide factual evidence to OPA and to facilitate and expedite the
work of the OPA staff. Comprehensive cost studies were made by the industry
and checked by public accountants to vouchsafe their accuracy and accounting
reliability. These were submitted to OPA in toto and were used by OPA, in combination with its own theoretical formula, in making ceiling price determinations
based on the years 1942 and 1943.
When the industry completed its 1944 cost study, under the same methods and
conditions followed for all previous studies, it, too, was submitted to OPA. But
OPA, for some reason never made clear to the industry, had elected to make its
own direct cost study applicable to the year 1944, using methods that departed
1048
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
sharply from the customary accounting procedures followed generally by the
industry. OPA was unable to complete its study and, as a last resort, was compelled to draft some two-thirds of its returns from the industry's study.
Cost studies made by the industry are confined strictly to the lumber manufacturing operations, excluding any subsidiary operations not directly associated
with lumber production and distribution. The figures reported on lumber cost and
sales realization agree with the lumber books and are submitted on reports signed
by an official of the company. Notwithstanding these procedures, OPA assumed
unwarranted liberties in treating reported figures for previous ceiling adjustments
and for income derived from nonlumber operations in instances wThere it was able
to obtain such information from profit-and-loss statements submitted by mills
reporting directly to it. Of the 180 mills included in the OPA "adjusted array"
of southern pine operations, year 1944 (61 mills on direct reports to OPA and 119
mills taken from the industry's study), 94 had reported to the Southern Pine War
Committee they were able to recover their costs in 1944, some by a bare break-even
or by a few cents, while 79 had reported losses.' No cross check was available on
7 of the 180 mills. When the OPA economists had completed their maze of theoretical adjustments, more than four-fifths of the gainful mills had been made to
appear more gainful, and more than two-thirds of th& ungainful mills less ungainful. Some of the reported gains, it would appear, had been so substantially
increased by OPA tampering that had these mills actually obtained such a spread
between their cost and sales realization, they would have had to sell above ceiling
and in violation of OPA controls. Yet OPA could transcend its own law in its
effort to produce evidence showing the industry not to be in need of a ceilingprice increase.
Is OPA a commodity price control agency, or an agency to control or confiscate
profits? It is chiefly the larger southern pine operations wTho have subsidiary
sources of income—those having the largest production, operating mainly in
owned timber reported at depreciated book values—and when these, who are the
most likely to show a spread because of their low valued stumpage, have their
gains from lumber arbitrarily increased by the inclusion of other income, there
is little hope for the rank and file of the industry to be adequately protected under
OPA procedures. Many of the larget mills, in 1944, were unable to recover even
the cost of their devalued stumpage, and it is a rank discrimination against them
and against the industry for OPA to inflate their gains and disguise facts that
should be revealed in the public interest. The larger reporting mills, those
profiting mainly from the sacrifice of undervalued stumpage, were responsible for
nearly two-thirds of the production reported in the industry cost study for 1944.
As a segment of the industry, this class of mills account for less than one-third
of the total normal production, their reverse weight in cost studies causing mills
responsible for the bulk of the industry's production to be left unprotected under
methods employed by OPA in examining the industry for price adjustments.
Few southern pine producers, representing perhaps less than 20 percent of
the total production, have other considerable means of income. Most depend
exclusively on their lumber operations. No income, therefore, that is not common
to the majority of operators should be applied to a minority. When so used, it
distorts facts and deals unfairly with the industry as a unit. Even those few
mills who have other sources of income have it only spasmodically, and notably
at times when they are failing to profit from the profit-making enterprise. It
more often involves some sacrifice of capital to keep the main utility alive, than
any deliberate effort to enhance income. Of the group of larger pine mills
included in the industry cost study for 1944, 51 percent of their number and
38 percent of their production recorded losses in their lumber operations. Is it
any wonder that some few should look for other available sources of income,
when OPA ceilings would not permit them to get this income in lumber? As
though conditions were not bad enough, OPA must credit this income to lumber
sales and make the lumber operations show income it did not receive. There is
no authority in accounting annals to condone such treatment. Only TOPA could
do this and attempt to justify it under the requirements of law. A law so handily
appropriated by OPA to defend its theories is scarcely a law that OPA could
invoke if it were similarly appropriated to defend lumber producers against
OPA abuses.
Let it be known, further, that OPA could find scant excuse for increasing
reported costs, although it did increase reported realization by any and every
device it could conjure. In^spite of a continuing sharp upward spiral in costs
(southern pine cost at reporting mills increased $5.56 per M, or 14.1 percent, in
1049
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
1944 over 1943) OPA allowed only a 50 cent per M increase in cost to account for
increased wages between the year 1944 and the latest available date prior to its
examination of the case in 1945. The increase in southern pine labor cost, in
1944 over 1943, amounted to $2.75 per M, or 17.5 p e r c e n t — t i m e s the allowance
permitted by OPA to compensate for its unequal additions to reported lumber
sales realization. The industry has contended, and rightfully, that no adjustments should be made in reported realization unless proper adjustments be made
also in reported cost. Having no reported data to sustain the full actual increase
in cost, it was manifestly a discrimination against the industry for OPA to distort earnings. If costs had been available, the increase in cost undoubtedly would
have offset the increment arbitrarily pyramided on realization, because OPA
controls served as a stopgap to lumber realization and there was nothing to check
the upward trend in costs.
It was only in 1945, in dealing with 1944 costs, that OPA saw fit to depart
radically from its past practices. Previously, OPA had dealt with reported
lumber cost and sales realization, and its application of extraordinary adjustments to reported book data was made effective only in 1945, based on its consideration of the 1944 costs. OPA's only stated reason for this sudden departure
from a former custom was that it "had made a mistake" formerly and was trying
to rectify that mistake (at the expense of the industry) in its present study.
This, however, does not seem to justify OPA's retrieval of its old mistake, for it
considered incomplete cost and sales realization it gathered for the first half of
1945 without making the adjustments it applied to the 1944 record. Industry
accounting methods have remained uniform and comparable throughout, but OPA
changes its methods at will and makes mistakes to excuse mistakes without end.
No Federal agency charged with the control of a major industry should ever
make a mistake. Such mistakes involve millions of dollars and huge volumes of
lost production, and are a blight on the Nation.
So f a r as mistakes are concerned, every decision made by OPA involving
southern pine ceilings has been a mistake, as witness the progressive decline in
percentage return on sales recorded by reporting mills—from 12,7 percent in 1941,
to 9.2 percent in 1942, to 5.5 percent in 1943, and thence to a bare 2.7 percent in
1944. The average spread, all reporting mills, dropped from $4.19 per M in 1941,
to $1.26 per M in 1944, a decline of $2.93 per M, or 70 percent, in 3 years. OPA
made mistakes, to be sure, but these were not mistakes which helped the industry.
It must, therefore, make the grand mistake in 1945 of changing its computing
methods to make an already distressed industry more distressed. Instead of
tightening its tentacles, these should have been relaxed to insure the industry
some recovery from the less damaging mistakes previously made by OPA.
The 1944 cost study made by the Southern Pine War Committee, from information taken directly from the lumber manufacturing books, showed 52 percent
of the reporting mills and 40 percent of the reported production as having sustained operating losses that year. Had the study been less heavily weighted with
large mill production, as afore-mentioned, these results would have been still
more disappointing. When OPA had completed its "adjusted array" for 1944,
and had made its decision based on a 75 percent cut-off in reported production,
it was able to declare the southern pine industry not to be in need of price relief
based on OPA's accounting methods and the "minimum requirements" of OPA
law. In fact, notwithstanding OPA's questionable adjustments, the OPA adjusted array for 1944 showed 29 percent of the production to have been obtained
at losses. This brought from OPA the startling declaration that some 25 percent
of the total production of southern pine is always produced at a loss and is expected to continue being produced at a loss; therefore, OPA is under no obligation
to protect it. How and where OPA got this information, nobody knows. Certainly, if any substantial part of the production is obtained at a loss in any year,
due to economic conditions beyond the control of the operators, these operators
expect to recover their losses in a subsequent period. Nobody engages in business
for the avowed purpose of losing money consistently. Under the inflexible OPA
ceilings, there would be no opportunity for subsequent recovery, and this 25
percent would continue to revolve until nearly all of the producers had shut down
or gone broke. What, then, can be expected of a control agency whose thinking is
so lacking in common sense that it would sit by waiting for production to dry
up without ever seeing the need for any action on its part?
The southern pine industry contends that price adjustments, under methods
employed by OPA, where the past year's cost is involved, should be made on a
95-percent cut-off in reported production, leaving roughly 5 percent as the un-
1050
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
protected marginal fringe. In its determination, effective March 16, 1944, based
on 1943 costs and realization, OPA remarked in its statement of considerations:
"The next point is that the increase is the minimum required by law. Figures
supporting this statement are set out in detail in the statement In brief, the
reason lies in the fact that the essential demand for lumber is considerably greater
than the supply, so that it could ba said that 100 percent of production is needed.
However, since it is obvious that practical principles of price control would not
permit the price so high as to cover the entire cost to the most inefficient producer,
the present increase has been designed to support approximately 85 to 90 percent
of production by volume."
If protection afforded an estimated 85 to 90 percent of reported 1943
production, unadjusted for nonlumber income or other factors, resulted in more
than one-half the reporting mills and 40 percent of the reported production showing losses in 1944, then by no stretch of the imagination could a 75-percent cutcff in an adjusted array for 1944 protect as much as one-half of the 1945 production. OPA made no adjustment based on 1944 costs, and allowed only $2.25 per M,
effective November 29, 1945, to account for partial increase in costs in the first
half of 1S45 over the year 1944, amounting roughly to $1.50 per M at a 75-percent
cut-off in production, plus an additional 75 cents per M to convert the schedules
from a war to a peacetime basis. The industry had petitioned for an increase
of $5.31 per M, based on a 95-percent cut-off in its reported 1944 production
(amounting to $5.10 per M at a 95-percent cut-off in the adjusted OPA array),
which should have supplemented the increase granted in November of $2.25 per
M, making a total increase of roundly $7.75 per M, the amount actually needed
to keep some 85 to 90 percent of the industry's production alive.
OPA's failure to heed the industry's need for relief caused 859, or 51 percent,
of a total of 1,676 mills recently surveyed to shut down, resulting in a loss of
production aggregating 1,140,000,000 feet, or 44 percent of a probable production
in 1945 of 2,564,000,000 feet. This condition is directly attributable to OPA and
its blundering and procrastinating administration of a law that is gradually exterminating the hitherto most stable and efficient segment of a vital American
industry.
While there may have been need of price control in war, there is no way to
make it work equitably and practically in peacetimes. Representatives of OPA
have admitted that, in their opinion, more than one-half of the 1945 production
of southern pine was being black-marketed, rough, green, and ungraded, at prices
f a r in excess of those established for the finished arid properly graded product.
OPA has no effective control over black-market practices, and has made no
vigorous effort to check violations. Consequently, its efforts to prevent sound
inflation have resulted in unsound inflation on a huge scale. Consumers are paying extortionate prices for inferior lumber because there is not enough good lumber being produced to supply the demand. That is inflation of a vicious type—
inordinately high prices onT one hand, and failure of the product in use on the
other. Yet, OPA, fully aw are of this condition, does nothing to stop it and continues to sit tight on the law-abiding producer, who is the only medium through
whom unlawful practices can be checked by being assured a price for his quality
product that will enable him to produce it without loss and in quantities that will
limit or dissipate the demand for black-market lumber.
No industry made up of thousands of diverse operations with varying degrees
of financial and managerial stability can adjust itself bodily to uniform controls.
Some must fare worse than others under these controls, yet all should survive
if lumber production is to be the keystone of the gigantic housing program planned
for our country- All cannot survive with OPA at the helm. Each individual
operation is a world to itself, depending for its life and fate on such natural forces
as location, climate, human relations, and a host of circumstances peculiar to its
own being. Subsidies would not succeed, because they would be contingent on the
ability of each and every operator in the industry to produce accurate statements
of cost and income, and it is doubtful if as many as 5 percent of all southern-pine
mills do any real cost accounting. They may keep records of a sort, but these
are not the orthodox cost records, for few, indeed, could afford the talent needed
to install and operate cost accounts. Furthermore, any attempt to subsidize
mills would cause interminable delays in the already interminably delayed procedures of OPA, and competitive discriminations resulting from such delays and
from OPA deficiencies would only force more lumber onto black markets. Subsidy
is no cure f o r southern-pine disabilities, nor is subsidy a palliative for any ill
resulting from conflicts with the inevitable forces of nature. There is no place
MANUFACTURES INDEX
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MANUFACTURING
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83512 O - 46 - vol. 2 (Face p. 1150) No. 2
1051 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
for subsidy in our young, vigorous, and growing America. OPA would have to be
the biggest business in America—a monopoly control—if it hoped to administer
subsidies fairly and properly.
The facts in the southern-pine case have been laid before all authorities having
power to redress industry grievances. They are recited briefly in this presentation to illustrate the hopelessness of any effort to improve our national economy
while OPA holds the reins. OPA is politically sensitive, swayed more by poliitical
sentiment than by allegiance to its duties. For example, in the southern-pine
industry's appeal to Congress for relief from distress caused by OPA, the manufacturers of rough green lumber who customarily sell their product to concentration plants for drying, dressing, grading, and marketing were granted a $5
per M advance in ceiling by OPA, while the advance allotted by OPA to the concentrators and other manufacturers of finished lumber was restricted to $2.25
.per M. This meant that the concentrator must pay $5 per M more for his rough
green purchases, refine the lumber, and sell it for a $2.25 per M advance on his
list, thereby losing, roundly, $2.75 on every thousand feet of such lumber he
handled. This was plainly a case of putting the cart before the horse, because
it was politically expedient for OPA to do this. In reality, the larger increase
should have been accorded the manufacturer of the finished product. Failure of
OPA to do this stripped many of the rough Tgreen independent producers of a
legitimate market and either shut them dow n for want of a normal outlet or
compelled them to route their production to black markets. Another mistake
made by OPA, but one OPA made no direct attempt to correct.
Southern-pine costs, average for all reporting mills, between 1941 and 1944,
increased $16.41 per M, or 57.1 percent, while sales realization in that period
increased $13.39 per M, or 40.9 percent. OPA did not, therefore ,adjust ceiling
prices comparable to the increase sustained in cost, causing the spread between
cost and sales realization, at these reporting operations, to decline $2.93 per M,
or 70 percent, in this 3-year period. Here, again, as previously remarked, this
showing would be even more alarming if the cost study had been contingent on
industry weights rather than reporting mill weights, being biased abnormally by
the 61 percent of production reported by large mills operating chiefly in low-bookvalued owned stumpage, whereas these mills as a class yield less than one-third
of the industry's total production. OPA has done nothing to rectify this condition, knowing full well that it resulted in discriminatory and inadequate treatment being accorded the industry.
Then, there is the problem of coordinating prices between regions and between
trade groups, to preserve the normal differentials in competition and avoid
serious supply and demand distortions. OPA has given little attention to these
problems. On the contrary, OPA has evaded these responsibilities and, through
its cost absorption theory, has endeavored to compel one branch of trade or industry to underwrite the grants extended another. Such treatment does not
keep business healthy, nor is it likely to encourage the volume of employment,
production, and distribution that would exist normally in a free economy. OPA,
or no other standardized and streamlined control can be depended upon to iron
out all of the difficulties that must arise when synthetic directives are applied
to uncontrollable natural forces. If progress must be hindered or prohibited,
there is no better way of achieving this disaster than to let OPA plow ahead
with its sails untrimined.
The Office of War Mobilization and Reconversion has recently directed that
southern pine ceilings be increased $3.25 per M, as an incentive for increased
production. The industry has demonstrated its need for an even greater adjustment to cover its actual increase in costs. This incentive, therefore, is
primarily a necessity, rather than a premium for extra effort on the part of producers who are failing to recover their costs from adjustments made hitherto
by OPA. Its uneven allocation by OPA to items and grades entering mainly
into housing construction will not enable all producers to realize the full amount
of this incentive. As applied to the total production, it will yield less than the
declared $3,25 per M, and will not be an incentive for producers of exempt items
to increase their outputs. All items enter into the total production, and production goals based on total output should be predicated on uniform treatment
being accorded all producers under any incentive granted for the purpose of increasing total production. Failure to do this distorts price relationships and
discourages production by mills equipped to supply a demand for industrial users
whose need for lumber must be met if the housing program is not to suffer from
their lack of full participation in it.
1052
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
The southern pine industry made an all-out effort, regardless of cost or sacrifice, to supply the war demand for lumber. It may point with justifiable pride
to its wartime production record. It will not be neglectful of its peacetime obligations, and will exert every possible effort to discharge its responsibilities. Hampered with confusing and restricting directives, progress will not be so rapid
as it could be if the industry were left to its own resources. OPA interventions
result in distortions and bottlenecks, and these will prevail as long as OPA has
authority to subordinate varying industry customs and practices to its price
control theory.
The longer these abuses are permitted to accumulate under OPA price controls, the greater will be the chaos and the economic displacements when the
controls are finally relinquished. If OPA law could be fairly and equitably administered and rigidly enforced, it might have some psychological if not needful
merit. There seems, however, no way to accomplish this, for even the uniform,
price adjustments that are made by OPA do not apply equitably to all operators.
When these adjustments are prorated to specific items and grades, some producers realize more or less than others, depending on the class of timber they
cut and its item and grade yield, and on the circumstances under which they
operate. The whole thing, therefore, is impractical and unenforceable and
cannot be made to work effectively in a competitive peacetime economy. The
vast expenditures of tax money budgeted for the maintenance of OPA are more
of an inflation threat to consumers than would be the higher prices obtained
for an adequate and.better quality of production without price controls.
OPA cannot transcend natural causes and effects, and as long as these must
prevail and thwart all efforts to control our economy synthetically, the sooner
these artificial obstructions are removed, the quicker will our country regain its
equilibrium and be alertly on its way to a bigger and better future.
The
CHAIRMAN.
We will hear Mr. Warren next.
STATEMENT OF C. J. WARREN, PRODUCTION MANAGER,
SOUTHWEST LUMBER MILLS, McNARY, ARIZ.
Mr. W A R R E N . Mr. Chairman, my name is C. J . Warren. I live in
McNary, Ariz. I represent the Southwest Lumber Mills, of which
I am production manager.
I came to this hearing in order to give you some specific facts showing the effect that the administration of the Emergency Price Control Act has had on one particular industry, my particular company,
I am qualified to speak for the western pine industry, to the extent
that I am a member of the industry advisory committee and have
been off and on for some time past.
It is my understanding that this committee is here to consider
whether or not to extend the Price Control Act and that if it should
hear enough evidence to the effect that the administration of the act
has resulted in reducing production and reducing employment and
creating chaotic conditions from wThich we will take a long time to
come out, the committee will, of course, recommend the discontinuance or termination of the act on June 30.
I think I can give you more help in trying to decide that very
heavy question if I tell you some of the facts about my own individual business.
First, I would like to touch—and I realize your time is very shorty
Mr. Chairman, and I am going to go through it very fast. I hope
not too fast, however, to make at lest the necessary impression for
my particular segment of the industry. I am going to touch first
upon production.
My company in past years before the war produced from 40 to 50,
and one one or two occasions, 60,000,000 feet of lumber per year. We
1053 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 194 2
reached in 1944 a peak of 105,000,000 feet under the stimulus of preparing for war and producing for war. That is about enough lumber, Mr. Chairman, to build 13,000 homes.
To do that we operated our three main plants, which are modern,
electrified plants, and we had seven subsidiary plants—somewhat
similar to what you gentlemen in the South are familiar with, the
semiportable and even the portable-type sawmill, which we send out
into the timber, close to the stump, at higher cost, in order to stimulate and increase production.
We did that because it was profitable primarily, and our year in
1944 was a successful year and we have no complaints. We were able
to pay some tax into the Treasury from our profits, and we would
like to experience the same thing again.
In 1945, the increase of costs resulting from factors over which
management had absolutely no control—wages which were provided
for us, wage levels dictated by the War Labor Board, costs of materials, costs of stumpage, which Uncle Sam himself was selling us at
constantly increasing prices—shoved our costs up against our ceilings
to the point where we were losing money in these marginal units of
production.
We, therefore, dropped our production in 1945 at a very time when
you and we all wanted lumber in this country—if we ever wanted it—
from 105,000,000 to 75,000,000 feet. That was a drop of 30,000,000
feet.
Now, in 1946, you will, of course, be interested to know what our
plans are—I am speaking of my own company, still, but I would like
to emphasize that our company is almost a perfect cross section of
the western pine industry, the only principal difference, if any, being
that not so many of the mills operate so many small subsidiary plants.
But in doing so, we represent all classes of mills, from the very smallest groundhog mill up to the very finest, modern, electrified plant.
So I think you are hearing a pretty fair cross section of the western
pine industry.
I recently conducted a survey on my own account, for purposes
which I would like to mention later, of about 115 of the principal producers in the western pine industry, the men whom you would think
first would be in production, at their fullest possible capacity. I
found that the prevailing average of production was 35 percent.
I t ranged from 30 to 35 percent under 1945. That is in this year of
1946.
We could produce, this year, even as late as this—and it is late for
a lumberman, because the snow melts in the mountains, you know—
but we could still produce 85 to 90 million feet this year. We will not
produce over 65 million feet this year. And it is not because we do
not want to. We are not on a sit-down. We simply cannot produce
that additional 25 to 30 million feet and lose from $2 to $5 per thousand on the production. In some instances a good deal more than
that.
The loss in 1944's peak production in our own relatively small
branch of this industry represents 5,000 dwellings that could just as
well have been built for the people who are crying for them today.
They will not be built unless price relief is granted, or unless the
Price Control Act is amended or allowed to expire.
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I want to tell you now a little about some of the components that
go into the house. We also happen to be in the business of remanufacturing moldings and interior trim out of our lumber.
Up to 1942, we were the largest ponderosa pine molding manufacturer in the United States. Ponderosa pine is what we call western pine in the trade. That is the most commonly used pine for
interior trim throughout the West, the North, the Midwest, and the
East.
We had a total capacity of a carload a day. For years we shipped
300 carloads each year. Each car represents about a half million
lineal feet. The amount of moldings we produced in a year's time
would supply all that you would need for somewhere between 75,000
and 100,000 homes.
Our molding plant is shut down today. I t was shut down long
before this by reason of general maximum price regulation, which
froze our ceilings at the March 1942 high. We should be producing
moldings. We want to produce moldings. We have a plant in which
we have a good many hundreds of thousands of dollars invested. Our
machinery is all high-speed electric machinery. A push button would
start it. There is no machine that is not ready to go. We have the
knives, the equipment to do it. We would have to round up the labor,
t u t we would, first of all, have to have a price which we could see,
to begin with, not one of these theoretical prices, but a price that we
know, from our own practical experience as lumbermen, would bring
forth production and still leave us a profit. We want to produce
moldings but we cannot produce moldings. That is the story in a
nutshell.
You would be interested, I think, to know that there were no molding prices, as such, published by the Office of Price Administration
on a specific ceiling price basis until November 1945. We were governed by general maximum price regulation, as they call it, which
was issued in March 1942. Now, this will astonish you, I am sure,
but I am going to have to tell you this fact: That Maximum Price
Kegulation 601, which was published after YJ-clay, presumably to
taper off after the war and lead us into peacetime production reduced
the price of our moldings below what it would have been had we
continued to produce at March 1942 prices.
We produced, in prewar years and until 1943, in fact, 6,000,000
lineal feet of venetian-blind slats m our factory. That is enough
venetian-blind slats to make a Venetian blind for 60,000 ordinary
home windows, not like this one, but the ordinary dwelling house.
We are not running that plant. We have not run it since 1943, and
we cannot run it until the price controls are removed or lifted high
enough so that we will have enough elbow room to be sure we can
operate at a profit. I t will take us 6 months to get that department
going again. If they gave us complete free rein today, it would be
1947 before this country could have the benefit of whatever production we could get going, and it would probably be the end of 1947
before we could get up to the full production we had at the time we
shut down. I am sure you all realize we did not want to shut down.
We did it because we were forced to by a rigid ceiling and mounting
costs.
1055 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
We formerly manufactured large quantities of railroad ties. We
do not make a single railroad tie today and we wTould not make one,
unless to use in our own railroad sidings.
Let me give you a short example of such a silly inconsistency.
When I say that I want you to understand I am not blaming the
individual man in the Office of Price Administration who wrote the
regulation and is responsible for crossing the "t's" and dotting the*
"i's" in this case or any other case. Those boys are doing the best
they can with a situation they are told to do something with from
higher-ups.
We have a regulation which governs what we call cut stock. That
is the material that is used in framing a door or a window, or in
manufacturing a door and a window. Now, one of the items that I
happen to know a specific instance about is a piece called a casing,
a door casing, 7 feet 2 inches long. The cut-stock price list goes to
that length. I t stops at that point. A customer wants a piece 7 feet
4 inches long. Does he get it ? He does not. Because when you
price the 7-foot-4-inch piece it is $25 to $30 a thousand cheaper on a
board measure basis than the 7 foot 2, so the manufacturer, if he is
making the stuff at all, would be a fool if he did not just cut it off 2
inches and sell it to somebody else for $30 higher.
We do not make any of it because the prices are still too low for
our plant.
Now, here is one of the most vicious things in the entire price-control programs, as it applies to lumber. How far widespread this
applies to other industries, I do not know. But if it does, I can say
that it must be devastating to other industries.
The Office of Price Administration, in making adjustments to conform to the hold-the-line order, evolved a formula which they called
the internal adjustment. I guess you have heard a lot about that.
Sometimes they call it compensating adjustment.
They take a given item that someone tells them, like the War
Production Board, in need, short supply, and they want to raise the
price of that item. As a compensation, so that the consumers generally will not pay more for the average total product, they have to
reduce something else. Let me give you an exact example down to
the last penny of what happened in a case dated September 11, 1945,
after YJ-day. This has to go back in the preface to 1944. The
industry advisory committee made very explicit and definite recommendations in answer to the War Production Board's plea for more
lumber. The recommendation called for $4.72 premium on 1-inch
lumber. They said they will get lumber quickly. That was 1944.
we all forgot it.
On September 11, 1944, here comes the amendment, after VJ-day,
and ammunition box contracts were canceled. Here comes an amendment which raises the price of 1-inch lumber to promote its further
production. To compensate for that, they reduced the prices on
articles they thought the country did not need so badly. That would
have been fine, had it not been that they were dealing with an industry that spread over 12 States from South Dakota to northern Washington, to the Mexican border. We have ponderosa pine in 12
Western States. It varies from 10 inches to about an average of
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EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
60 inches, for example, in Oregon. They put out a compensating
adjustment so the consumer will not pay more. That hits the mills
that do not happen to have logs or trees that can produce 1-inch
lumber. We are in timber that does not produce 1-inch lumber.
We took our inventories on September 10 of the exact footing shipped
on that date. We applied Office of Price Administration prices to
that footage. It cost us $2.72 per thousand because they made an
internal adjustment which would theoretical}7 increase the production of 1-inch lumber. I t cost us $1,500 that day. That should help
to answer why our production is falling and why the western pine
industry, generally, is gradually going down to predepression levels.
Let me show you the effect of the internal adjustment on small
mills. I am going to take the liberty of quoting from Mr. Peterson
in the Office of Price Administration. No concern was given to
the fact that little mills do not have the facilities to make 1-inch
lumber. They cannot make it; they go in the hole. Mr. Stone
recognized that.
He recently made a recommendation, and it was published for fir
lumber, which provided for some of these so-called compensating
adjustments, an increase in this, a decrease in that, to keep^the consumer level at the same general level.
In explaining that to Senator Knowland's committee in the Senate,
subcommittee of the Agriculture Committee, a few days ago he made
this statement :
In order to make a compensating increase and decrease something had to be
cut. There was a very delicate problem of how f a r you could cut without
hurting some of those mills that could not gain from the increase on the
housing items. We couldn't come to an agreement at that meeting. * * *
I went back in January and worked out a slightly different adjustment which
would not hurt the smaller mills as much by taking the cuts out of the higher
grades that were still not housing items, that is, thick clears, etc. * * *
Here you have in the words of the lumber price executive himself
the evidence that it is the little fellow or the marginal producer
who is most likely to be hurt in the application of price control.
I am not blaming Mr. Stone. Mr. Stone did his best with an almost impossible situation. I think I should extract the word "almost."
The other day we had occasion to get up some estimates for a new
logging camp we are about to construct. We will have to build about
100 houses. The ordinary door used in any modestly low-priced house
would be the five-cross panel door, a fir door, generally. It costs
about $5 at retail. We inquired. There was none available at the
retail sources. We asked them what else they had. The only other
door available was a flush door which had no paneling on it. I t is a
solid flush door. It costs $24.
Well, that is $19 per door. That multiplied by the average number
of doors than an ordinary four- or five-room house would require
would be about $200 premium that a builder is paying to get doors
when he could just as well use the five-cross panel for about $50. I
think that illustrates the defects in price controls.
This industry is too intricate, too delicate. It is impossible. There
is no human intelligence strong enough and great enough and broad
enough to sit in Washington or in any other city and tell the lumber
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
industry—and I firmly believe any industry—how to run their business best.
We have done pretty well in this country under free enterprise. I
hope this committee will give very serious consideration in the light
of the illustrations I have given you to the effect of any continuation
of these meddlesome, harassing conditions in our industry and all
industry.
Mr. Chairman, I happen to be in Washington in order to present to
a joint informal committee of Senators and Congressmen a special
plea for help in securing the attention and the ear of the Office of Price
Administration in connection with a very serious problem facing my
industry. In connection with that meeting, which was held last Monday morning, a complete record was taken.
There were present a great many men who are deeply interested in
the industry, both directly and as representatives of the region. I
would appreciate it very much if you would permit me to introduce
into your records a copy of the record from that informal hearing,
which can be obtained. I will obtain it for you.
(The matter referred to is as follows:)
P a r t 1, Western Pine Production Obstacles; conference, Western Pine Lumber
Producers with Members of United States Senate and House of Representatives,
morning session, March 18, 1946, Senate Office Building, Washington D. C. P a r t
2, held on March 23,1946.
Mr. P A T M A N . Which group was that ? Who was in that group ?
Mr. W A R R E N . Well, Congressman, they were all western men, as
far as I know. There was Congressman Engle, Congressman Johnson from California—I am sorry, I am not familiar enough
Mr. P A T M A N . It was just the people over on the west coast ?
Mr. W A R R E N . Yes, sir; it was generally concerned with ponderosa
pine production.
Mr. P A T M A N . In official committee ?
M r . WARREN. Y e s , s i r .
Mr. CRAWFORD. How are we to interrogate these witnesses ?
The C H A I R M A N . If it will expedite matters, we can hear them all
and then call them back.
Mr. CRAWFORD. That is satisfactory to me.
The C H A I R M A N . Any interrogation the committee desires to pursue,
we can call the witnesses back.
We call Mr. Dosker as the next witness.
STATEMENT OF C. D. DOSKER, PRESIDENT, GAMBLE BROS,
LOUISVILLE, KY.
Mr. DOSKER. My name is C. D. Dosker, president of Gamble Bros.,
of Louisville, Ky. I am here as a wood fabricator. The company of
which I am the head has been in the business of producing wood parts
for the consuming industries for many years. We are as a matter of
fact in our fiftieth year in this business. We make wood parts largely
from hardwood for the furniture, cabinet, piano, display, fixtures,
machine tool, and textile trades. These parts which we manufacture
are made to customers' specifications. We make no items for stock.
There is no industry in which the current situation is more confused
than in the lumber and timber products industry and those industries
1058
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
depending upon them for raw materials. To say that the situation
is chaotic is but a mild description.
Lumber, both hardwood and softwood, is needed in order that finished products may move into consumer markets. Because of the
unrealistic pricing policy of the Office of Price Administration, lumber production today is being stifled. In the north central region,
in which our company is located, practically all of the large mills are
shut down. The Wood-Mosaic Co. is operating its sawmills at about
40 percent of normal. This company operates several mills. Its
Louisville mill has been shut down for 2 years. The Amos Thompson
mill at Edinburgh l'nd., I understand, is also shut down, and has been
for 6 months. The Malley-Wertz mill at Evansville, Ind., has been
shut down for 6 months. We recently received written notice from
the Chicago Mill & Lumber Co., from whom we purchase quantities
of lumber, that they regret the necessity of having to shut down their
mill.
The large manufacturers can no longer operate. The restricted
production of other mills is seriously affecting those industries who
are dependent upon them for raw material. Nothing but the unrealistic approach of the Office of Price Administration to the problem
of lumber production can be blamed for this condition. Unless this
situation is rectified a wave of unemployment is bound to follow as
plants shut down for lack of lumber.
The wood fabricator, and that is what I am, is most sympathetic
with the problem of the sawmill. The sawmill problem is our problem, for without the product of the sawmill, our plant must become
idle. I t has already been necessary for us to curtail production to
the extent of approximately 35 percent because of lack of raw material.
The fabricator knows that the sawmill man must have a fair average
realization for his lumber or he cannot survive. This applies equally
to any other product from the tree, whether it be veneer, last block
bolts, shuttle block bolts, handle blanks, cooperage stock, or pulpwood.
The composite dollar yield of all of the products of the tree is necessary for the survival of the logger-lumberman. These products of
the tree vary as to the type of operation, area, and species of timber.
Furthermore, they all vary within an area.
The economic fabric of industry in this country is woven in such a
complex pattern that no individual, or group of individuals, has
sufficient comprehension to adequately understand its complex structure and thus be able to establish price controls that are fair and
equitable. Great harm is being done to American industry and particularly to small American industries, and a desperate struggle of
survival has now begun.
As processors we, in our industry, have been able to observe the
great shifting of production, wherever it is possible, that is taking
place in an effort on the part of manufacturers to come under a price
ceiling sufficiently favorable to permit the manufacturer to stay in
business. Years of manufacturing experience, special equipment, established, markets, are all being discarded. All of this has the effect
of making scarce goods scarcer. I t is not serving the best interests
of the people of this country and will inevitably result in business
recession and lack of job opportunity for returning veterans.
1059 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Our company had plans for postwar expansion. Because of the
situation which began to develop early after VJ-clay, our board of
directors hesitated and in December tabled these plans.
We know the machinery manufacturers need increased prices for
machinery. Orders placed for machinery last August are still unfilled. This machinery, we are told, can only be made at a loss. The
machinery manufacturer will not proceed until price relief is granted.
Our plans and those of others whom we serve are stagnating ; reconversion is getting moss covered. The capital with which postwar expansion was to take place is being dissipated in business losses. Our
company is but one of hundreds in this same position. During the
war our company was occupied in the manufacturing of war materials to the extent of 90 percent of our plant capacity. Our company
has lost money constantly every month since VJ -day, and we have at
the present an appeal for relief before the Office of Price Administration.
This loss is the result of shifting from mass production of war
goods to civilian items. The quantity is smaller. The set-up is
different.
In our industry we operate, because of the nature of our products,
under many different ceilings. Our particular company operates
under a price formula—Maximum Price Regulation 501. At the time
of its formulation this price regulation was fairly adequate. It is no
longer adequate. It is out of date because we and all other fabricators
have had
to absorb many of the problems of the material suppliers
from wThom we receive materials. Our problem is the same as the
plywood manufacturer, furniture manufacturer, casket manufacturer,
or any other branch of industry converting lumber.
The processor formerly bought his lumber by specific grades, thickness, and species as required in his finished product. If he is to get
lumber at all today, he takes the full product of the log, which includes all grades and thicknesses. Furthermore, he t akes it unseasoned
and green from the saw. What is the cause of this ? Nothing but the
ceiling prices on lumber which are so low that if the sawmill man is
to break even he must ship his lumber in this conditon because he
cannot afford the expense to properly handle his product. There are,
of course, a few manufacturers who may take advantage of this situation to move their product by compelling the consumer to take something which he knows the customer does not want.
The effect of this is to cause rehandling on the fabricator's yard.
As an illustration of what this can amount to, we recently unloaded
a carload of 17,000 feet of lumber that contained 18 items and 5 species,
all of which had to be separated by grade, species, and thickness.
This is not a record, however. A more recent carload of 12,600 feet
contained 44 items and 13 species. This lumber must all be held for
air-seasoning and it seems that the fabricator must assume the shrinkage and degrade due to seasoning. This will amount to 10 percent of
the money value of the lumber, and this added cost must be borne
by the processor.
Ceiling prices of lumber are on an f. o. b. mill basis. The fabricator
must pay the extra freight on green lumber, but under the provision
83512—46—vol. 2
6
1060
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
of Maximum Price Regulation 501, he can expect no relief. I quote
from this regulation:
Material costs for the particular item ,of hardwood small dimension shall not
be higher than the current f. o. b. mill ceiling price, plus the average in bound
freight for the cost of the particular material during the 6-month period from
May to October 1943.
I have explained to you that the sawmill operator is shipping his
lumber green today. He says he must. And I believe him, because
I have had some experience in sawmilling.
Under the regulation just quoted, we, as fabricators, may only include in our cost freight based on dry lumber, because that is the kind
of lumber we received during the 6-month period from May to October
1943. Inch air-dried hardwood lumber will average about 3,200
pounds per thousand feet. Green from the saw this same lumber will
average 4,400 pounds. This means that wTe, as a fabricator, must
absorb an average of $3.25 per thousand feet of additional freight on
rough lumber, which is equivalent to approximately $5 per thousand
feet on our net product after waste. When a company is already on a
profitless basis, this represents an additional loss.
The great demand in the fabricating industry is for 1-inch lumber.
Most products require this thickness and normally the laws of supply
and demand regulate the production of other thicknesses of hardwood
lumber. The Office of Price Administration ceiling prices have
changed this picture. Inch, No. 1 Common Appalachian Poplar
has a ceiling price of $62 per thousand feet. Three-inch No. 1 Common Poplar from the same region has a ceiling price of $97 per thousand feet. Gentlemen, if you were running a sawmill ana tried to
save your capital investment, you would naturally try to produce the
item that brought you the greatest return. Under the artificial market
thus created, the fabricator buys the 3-inch lumber and resaws it into
three 1-inch boards. The fabricator must absorb the extra cost. As a
result of the operation of the Office of Price Administration pricing
policies, artificial markets are being created without any relationship
to the normal requirements of industry. Such a procedure is destructive of the timber resources and the utilization value of the lumber produced, and retards reconversion.
The country needs consumer goods. I t needs furniture, pianos,
plumbers' woodwork, radios, refrigerators, and the myriad of products of which lumber is a part. I t does no good to talk of housing
shortages for returning veterans with no furniture to put in them.
It must be remembered that no log produces a predetermined proportion of any product. The grade out-turn of every log varies.
Only a free economy can properly price and merchandise these
products.
Our company has been compelled to discontinue the manufacture of
many items. I t was recently necessary for us to advise a customer
whom we have served for over 30 years that because of a price situation over which we had no control we could no longer serve him. Our
company has never been fortunate enough to make exorbitant profits.
Our industry is highly competitive. We have been able to weather the
lean depression years, but today we cannot properly price our product
to recover costs of manufacture under an unrealistic pricing program.
Under this same Maximum Price Regulation 501 we cannot add any
increase in wages that have been necessary since September 30, 1943.
1061 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Under Maximum Price Regulation 501, all costs other than material and labor are frozen as of March 1942. This means that all
indirect labor, clerical wages, such services as legal and accounting,
&nd all other costs must be figured in 1946 as though we were still
living in 1942.
But if you did not happen to be in the business of manufacturing
wood parts in 1942, but began operations after VJ-day in 1945, you
would be able to currently establish costs; at least, that is my understanding., Driving old-established people out of business for the
benefit of newcomers is not progress, nor will it increase production.
I t will not add one foot of lumber to the finished goods which the
markets so badly need. Gentlemen, does this make horse sense; is it
realism or asininity ?
We feel that every manufacturer in an established business is entitled to the same realistic consideration that is given a newcomer in
the industry. We ask only one thing—let management compute into
cost those items that belong in cost. Let management price lumber
products as they must be priced. Trees are a unique raw material,
and one tree may go into many different types of products such as
lumber, veneer bolts, and pulpwood. Trees are a variable raw product.
The time has come to stop trying to operate the industrial capacity of
this Nation from Washington. The time has come to return this
Nation to a free profit and loss economy ; to a free competitive system.
Industry is too conscious of the dangers of inflation to permit runaway markets.
I belong to that group of American manufacturers who are members of the G. I. A. C. C. This alphabetical organization of industry
is known as the God, I Am Confused Club and, gentlemen, I and
hundreds like me are confused. Let us do away with a policy of profit
control which, if continued, will destroy small industry in America
and realize that the urge in business today is not for profit but for
survival.
If you don't think you could be confused, here are just a few of the
regulations we have to try to follow. You just cannot follow them all.
The C H A I R M A N . Mr. Howard Gray.
STATEMENT OF HOWARD I . GRAY, PRESIDENT OF MEADOW
RIVER LUMBER CO., WEST VIRGINIA
Mr. G R A Y . Mr. Chairman my name is Howard L. Gray. I am president of Meadow River Lumber Co., in West Virginia, I also speak for
the Appalachian Hardwood Manufacturers of wThich I happen to be
president.
I hope to speak very briefly on what I consider some of the broader
aspects of this situation.
Last September, I sat among a group in Chicago and listened to Mr.
Peter Stone, the then price executive for lumber make the statement
that if Congress were willing the Office of Price Administration intended to retain rigid control over lumber until stock aggregated to
14,000,000,000 feet—the stocks were then somewhat less than 5,000,000,000 and badly broken and knowing something about the declining
scale of production I immediately reached a conclusion that if Congress
were willing, as Mr. Stone expressed the hope, those of us in the present generation of lumber men would never, again, know this thing
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we call free economy and the generation which might succeed us would
only know it by hearsay or history.
I want to assure you that unless there is a political catastrophe of
major proportions there will not be any such quantity of lumber within the next 10 years at least.
In West Virginia, from where I come, and where we happen to operate the largest single hardwood unit in America, the problem is essentially different from other areas.
It was necessary in order to justify large plants to acquire large
timber holdings. As a typical example we began this in 1906. We still
have a considerable quantity of timber acquired at that time.
When the First World War came along, we were required to enter
an argument, sometimes a fight with the timber section in order that
we might by some measure of compromise reach a value for timber held
as of March 1,1913. If you were so unfortunate to have the cash to pay
for that timber, you were permitted not a single penny of carrying
charges since that time, it is true if you did not pay for it at the time
and carry it on a series of interest-bearing notes the interest thereon
is chargeable to production costs. If you paid for it, there was no
such luck.
The problem that concerns us today is this:
We feel under definite obligation to four agencies or groups of people, one, our country; two, the stockholders who made the operation
possible; third, the employees in the community which we created; and
fourth, the customers we have served for some 30, 35 years.
We gave ample evidence of the proper discharge of our obligation to
the country in the war period, because our own normal stock of
28,000,000 feet on the yard at one time was reduced to 9,000,000 feet
because we had one customer and that customer of a preemptive character. What we got for that liquidation of inventory after we paid
the extravagant taxes which will in no wise permit us to replace that
inventory in like quantity or grade, nothing like it.
We are faced with a very embarrassing problem. Shall we diminish
production to the barest minimum possible and hope for some more
favorable time at some later period where we can at least secure
enough to permit us to reestablish ourselves in business on the current
values of business or shall we liquidate it now that we cannot return
capital to them that has a purchasing power equivalent to that which
they placed in it ?
You must bear in mind that in 1934, when the then administration
decided to dilute our currency, that unless the people were willing to
accept a lower standard of living, that at sometime, it was mathematically certain that there must be an increase of some 67y2 percent in
wages and commodity prices and also, if you please, the returns to
investors.
As a matter of cold record, in our operation, we have, since 1934,
January 1, increased average wages by 118 percent and because we happened to be working 54 hours a week and thereby incurring a severe
overtime penalty, the net effect for the hours worked is that we are paying today, 246 percent of the then wages.
I have mentioned we took care of our Government. We have amply
cared for our labor. Prices on our products—and I am speaking of
rough lumber now—have risen in that period between 40 and 50 percent so we are dealing with what I generally call diminishing returns.
1063 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 194 2
These are serious questions. We are under heavy obligations to
our customers. I feel definitely that the lumber industry is going to
get an unsavory name and reputation because it has been maneuvered
by agencies beyond its horizon into a position which is wholly
indefensible.
The No. 1 political problem of the moment and it will continue to be,
is the housing question. There is no immediate relief in sight. I
want to tell you that in the hardwood industry you cannot by taking
wishful thought today, have lumber tomorrow.
There is an average time lag of at least a year between the time we
fell a tree and the fabricated product is ready for use. We knew this
during the war, but we sat by helpless, frozen as to w^ages and as to
prices, frozen as to the channeling of men in war industries where
they were not needed.
I visited too many of them. I know how they were padded. That
is a situation we face today. Trees grow in rather inaccessible places.
Lumber men by nature have to be of the rugged individualist type.
Because of that they do not work well together. Neither do they
ably present their problems at forums like this.
They must of necessity rely completely on the good understanding
and the good wishes and the tremendous interest in America that
their Congressman should have.
Thank you very much.
The C H A I R M A N . Call the next witness.
STATEMENT OF ABBOTT FOX, IRON MOUNTAIN, MICH.
Mr. Fox. Mr. Chairman, my name is Abbott Fox.
I run a sawmill in Iron Mountain, Mich. With your permission,
Mr. Chairman, I would like to submit, for the record, a statement
covering the industry in Michigan and Wisconsin.
The C H A I R M A N . Without objection, it may be received.
Mr. Fox. I would like to preface it with a few remarks. I happen
to be one of that unfortunate 25 percent that is losing money in the
lumber industry.
Why? Because my mill and my timber was purchased on today's
market. My prices are established by the average cost of timber
whether it was purchased in 1913, or 1932. My prices are further
established by the depreciation on all of the sawmills in northern Michigan and in Wisconsin and some of them were 35 or 40 years old.
They are all written off. I am down here now talking again to
the Office of Price Administration about a little matter concerning
home-building lumber. Through the war by arbitrary pricing, to
which we agreed, our hemlock logs that make building lumber, went
to the production of paper.
Our price on hemlock lumber was artifically kept down to stop the
production of lumber. We are again pointing out that inasmuch as
the war is 6 months over, and about 300,000 homes went to paper
in the last year in Michigan and Wisconsin, that we can still save
about 18,000 homes this year in Michigan and Wisconsin should we
finally get some price change that puts our logs back to our own mills
instead of sending them away.
Thank you.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
(The above referred-to statement is as follows:)
FEBRUARY 18, 1 9 4 6 ,
F E D E R A L PRICEI A D M I N I S T R A T I O N I N W I S C O N S I N AND M I C H I G A N
Lumber production in Wisconsin and Michigan in 1945 was 23 percent under
1944. Mills producing more than 5,000,000 feet annually and supplying the bulk
off the lumber from this area which goes into interstate commerce are making
only 44 percent of the lumber which mills of this class made in 1941. The manufacture of hemlock lumber, which has been a primary factor in residential building in Wisconsin and Michigan, has fallen off out of all proportion to other lumber
production. The chief factor causing this loss of residential construction lumber
is certainly due to the artificial diversion of hemlock logs into other channels
of use through OPA pricing methods. An important factor in the over-all decline
in the output of lumber in the Lake States is the lack of a method which measures
changing production costs with reasonable accuracy, and the inability of Federal
agencies to make prompt ceiling price adjustments to cover wage increases as
determined by Government agencies, and to take care of creeping production
costs. We emphasize that the OPA cost-accounting methods which may be applicable and reasonable elsewhere, have greater factors of error when applied to
conditions in the Lake States than the production-cost differences which the
method undertakes to detect.
E X A M P L E S OF T H E EFFECT OF OPA CONTROLS
Retail-lumber dealers in Michigan and Wisconsin have long placed much dependence upon quick, local shipments of hemlock construction lumber. Currently, the quantity available is unreasonably and artificially reduced by pricing,
[n 1939 and 1940 the sawmills were taking 89 percent of the hemlock logs, but
;he price ceilings on hemlock lumber and on other commodities in industries
which could well afford to buy hemlock logs, have resulted in the diversion of
the logs from the sawmills into other uses, so that since 1943 less than half
of the hemlock logs have gone into lumber. The record of the winter log input
of hemlock during the past 5 years has shown other industries than lumber
manufacture taking the following percentages of the winter seasonal output of
hemlock logs.
Percent diverted from lumber
Winter season:
Percent
1939-4 0
11
1940-4 1
17
1942-43
28
1944-45
53
In 1945 less than half of the hemlock produced in 1941 went through the sawmills, while the over-all production of lumber was about 79 percent of the 1941
figure. Last fall this situation was further aggravated by an increase of $4
in the ceiling price of hemlock logs, while the average hemlock lumber ceiling
price was increased $2. This followed wage increases by the WLB which raised
the production costs of lumber between $4 25 and $8.50 per thousand feet. This
came at a time when residential construction lumber production needed to be
stimulated. The reverse action was taken. One of the medium sized producers,
whose situation is like that of many others, on February 7, 1946 wrote:
"I can truthfully state that we lost at least 1,500,000 feet of production during
1945 for the reason that we declined to take in hemlock logs, and this was entirely
due to the price set-up, as we had no manpower or equipment problem."
On February 14 the president of one of the larger operating companies testified:
"Hemlock lumber production has dropped to a small fraction of what it formerly
was and hemlock logs are being shipped to the paper mills instead of being manufactured into lumber. Our firm has manufactured and shipped hemlock lumber
for years to customers who at this time are desperately in need of it and now
have to go without it because of OPA price situation. I know of a retail yard
operator who formerly purchased a good deal of Hemlock lumber from a sawmill. This retail yard man is unable to buy hemlock lumber from this sawmill
and is forced to purchase hemlock logs and ship the logs in on cars—unload
the cars—load these logs on trucks and haul them to a small mill in order to
obtain lumber which he formerly purchased from the same operator that is
selling him the logs. This seems to me to be going a long way round the bush
1065 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
and this ridiculous situation is caused by OPA's price controls and is a good example of the results of the failure of OPA to live up to its responsibility to be
f a i r in dealing with the industry."
On October 8,1945, the War Labor Board awarded a wage increase of 10 cents
per hour retroactive to April 26, 1945. The effect of this on certain producers
is shown by a report from one of the companies on January 18, 1946. They
write :
"What this whole situation means can be stated in a nutshell. We employ
amout 400 men on a 48-hour week, meaning 52 hours' pay. The 10 cents per
hour increase means $5.20 per week to each man or $270.40 per man per year, so
that for 400 men our wage increase amounts to $108,160. We produce about
14,000,000 feet of lumber per year, so that the $2 per thousand increase means
$28,009. Consequently, the wage increase means a net loss of $80,000 per year
and w^e need hardly point out that there is no such money available from the
profits of a company of our size in the lumber business. Unless we get some
relief we are bound to go badly into the red while this situation lasts or we will
have to shut down. It is manifest that we cannot continue to pay a net increase
of $80,000 in wages per year and continue on."
OPA COST
ACCOUNTING
The cost accounting methods which the Lumber Branch of the OPA is currently
required to use, are not reasonably applicable to the condition which prevail in
the Lake States. I t is possible to obtain detailed OPA cost reports from less
that 20 operators, chiefly in the larger production classifications. These may
not be representative with respect to timber holdings, related operations, and
mixture of species. The smaller operators do not have comparable cost figures
in the books.
The cost reports from 12 to 18 mills have to be taken as representing the costs
in Wisconsin-Michigan, for example, of 2,475 mills producing less than 1,000,000
feet annually, but making 38 percent of the lumber; and 119 mills producing
between 1 and 5 million feet annually, and making 26 percent of the lumber, and
32 mills cutting over 5,000,000 feet annually, and making 36 percent of the lumber.
These 15 or 20 cost reports are presumed to cover the following variations in
the cost problems of more than 2,000 sawmill men.
1. Firms consuming timber purchased many years ago and carried on the
books at low values.
2. Firms which must purchase logs or timber on the current market.
3. Firms with equipment well depreciated, and firms using normal equipment costs.
4. Firms having a heavy percentage of valuable maple and birch, and
firms normally having a high percentage of hemlock or aspen.
5. Firms cutting many species, and also handling various percentages
of ties, poles, fuelwood, small-dimension products, and other items which
are averaged into their costs and realizations. The operating profit or loss
on the OPA reporting forms shows variations from a loss report of $16.64
per thousand feet, to a profit of $13.98 per thousand feet.
Certainly the reports from 15 to 20 sawmills cannot be averaged and applied
as a fair measure of cost to the hundreds of firms in the region which deal with
entirely different complexities.
The operating profit or loss per thousand feet of some of the companies which
reported to the OPA in the last cost survey, for the first 9 months of 1944 and
which furnished the bulk of the production coverage showed the following variations :
Loss
$0.27 Profit
$4. 74
Loss
3. 45 Loss
16. 64
Profit
9. 78 Profit
3. 48
Profit
13.98 Profit
5. 01
Loss
3. 64 Profit
5.05
Loss—i
1. 02
Obviously, where there is such variation in profit and loss in the sample, it
is unreasonable to 'attempt to apply an analysis to these reports which would
determine the break-even costs of 75 percent of the production. The addition
or elimination of one firm changes the ceiling price figure which will be set for
the entire regional industry.
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E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
A method which has seemed to prove that the industry was more profitable as
wages and costs increased is prima facie in marked error. Each time a new
survey is made under the conditions outlined above, but with different firms
reporting, the final analysis under the OPA method cannot be fairly applied
to operators working under so many different conditions. The most feasible
method would be to take a base period determined by the original cost reports,
and to use comparative cost reports of identical firms to determine the changes
which are taking place so that prompt adjustments in average ceilings may be
made on the basis of the actual cost increases in the region.
The
CHAIRMAN.
STATEMENT
WEST
Mr. Simpson.
OP H. V. SIMPSON, E X E C U T I V E
COAST
LUMBERMEN'S
ASSOCIATION,
VICE PRESIDENT
SEATTLE,
OP
WASH.
Mr. S I M P S O N . Mr. Chairman, my name is H . V . Simpson. I am
executive vice president of the West Coast Lumbermen's Association,
feeattle, Wash.
The Douglas firm mills located in the western half of Oregon and
Washington produce about 30 percent of the softwood lumber manufactured in the United States.
In 1942 mills in this area produced 8,800,000 M feet of lumber. In
the three succeeding years production decreased to 8,085,000 M feet
and in 1945 dropped to approximately 5,908,000 M feet. In the first
9 weeks of this year production is at the rate of about 5,500,000 M
feet per year.
In the fall of 1945 our industry was partially tied up by strikes at
the end of which wages were increased 15 cents per hour for all
operations. In response to requests made to the Office of Price Administration the industry was told that no price adjustments could
be made until 6 months had expired during wThich time we must
submit cost statements for the year 1944 and 9 months of 1945.
We were told that at the end of the 6 months waiting period, the
Office of Price Adminstration would make a further survey and if
more than 25 per cent of the industry was in a loss position a price increase would be granted.
The industry properly interpreted this to mean that 9 months or a
year would elapse before any price relief would be granted. The
operators also fully appreciated that the Office of Price Administration would require operators to include stumpage at cost in their determination of the profit position of each operator even if this stumpage might have been held by the company for many years.
The operators understood also that profits for any other enterprise
conducted by that company, such as retail yards, docks, stores, plywood plants, and so forth, would also be included in the Office of
Price Administration calculations before any company would be considered in a loss position. There was no enthusiastic response to the
Office of Price Administration's request for cost statements—very
few were sent in.
Later the Office of Price Adminstration announced that the waiting
period of 6 months could be waived. Meantime the Office of Price
Administration had twice increased the price of logs, once $1.50
per M and again an average of $1.25.
No corresponding increase was made in lumber prices. The Office
of Price Administration also released on March 1, a price adjustment
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
on lumber intended to channel production into housing items and
which, all during the course of negotiations with the industry, was
declared to be an internal adjustment and not a price increase but
which was declared a price advance of $1.10 when issued and so released to the press.
Many hundreds of items were affected by this amendment and I
vigorously state the Office of Price Administration could under no
circumstance determine the affect of this amendment with any degree
of exactness and that their release to the press was a breech of faith
with the industry; and is so branded by the industry.
A few weeks ago the Office of Price Administration released a
further amendment permitting buyers to pay wholesalers and commissionmen a buying commission for purchasing lumber. No change
of any price in the manufacturers' ceiling was made. Possibly occasional commissions previously paid by the manufacturers may now be
paid by buyers. Possibly this might be a saving of one-half of 1 percent for the industry.
Neither amendment recognizes the increase in wage nor the increase
in log costs. Neither amendment provides any incentive to increase
production.
The Civilian Production Administration has asked our industry
to produce 8,000,000 M feet of lumber during 1946\
This agency further requested the Office of Economic Stabilization
to grant the industry $3 per M price increase as necessary to get this
production. Without consulting the industry, the Office of Economic
Stabilization has denied this increase, stating in part that the two
recent amendments referred to above made any increase now unnecessary. This letter of denial was signed by Mr. Bowles.
Our mills are now caught in the queeze between advanced cost and
fixed Office of Price Administration ceilings. Many of these mills
must economize on every operating expense—less planing, less drying,
less sorting—while at the same time they must carefully select the
most profitable items to sell regardless of the end use. Even so many
are losing money. And this process of manufacture does not suit the
national economy.
If our output is to be increased it will be because our operators log
difficult timber stands, work during adverse weather, work overtime,
and exert extra effort in many directions, all very costly.
If we are to produce 8,000,000 M feet all our efficient plants must
give extra effort to the job and all of our marginal mills must be
allowed to operate. Any substantial increase in our production can
be had in no other way.
Our Government, our people demand increased lumber production;
the Office of Price Administration denies us the necessary price relief
to accomplish this production.
Our industry strongly supported the Office of Price Administration
during the war. Our industry has now lost confidence in the Office of
Price Administration. I t is rapidly losing confidence in other Government agencies.
Our operators have been and are strong supporters of inflation control. But they now wonder whether it is better to have inflation with
the Office of Price Administration or inflation without it. Reluctantly we have concluded we prefer full production without the Office
1068
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
of Price Administration than limited production and doubtful inflation control with the Office of Price Administration.
Mr. M O N R O N E Y . The next witness is Mr. Arthur Bruce.
S T A T E M E N T OF A R T H U R BRUCE, PRESIDENT, NATIONAL
MANUFACTURERS
LUMBER
ASSOCIATION
Mr. B R U C E . Mr. Chairman, and gentlemen, I am the last witness to
appear on behalf of the lumber and timber production industry.
I was in Memphis last week and got a wire that we were to be allowed
about 2 hours' time to present the story of the lumber industry. The
lumber industry manufacturing part, you will hear from the retailers
who are our sales outlet for most of our products that go into construction.
I t is composed of approximately 40,000 units of manufactures.
These 40,000 units are scattered in every State of the Union, almost
every city and even small hamlets contain a woodworking plant of
some kind. There are four major divisions of the lumber industry.
You have heard a brief statement, just recently, from Mr. Simpson
of the Douglas fir situation. You have heard from Mr. Warren with
respect to western pine. There is another major division which is
southern pine and there is a division, also, of hardwoods; those are the
four major divisions.
Until March 7, 1946, I was president of the Southern Hardwood
Producers, which is the largest division of hardwood production.
That includes 11 or 12 Southern States. I am not going to add very
much to the testimony I presented here in the way of evidence. I want
to say this, however, that given the opportunity, to parade our witnesses before you, the story would be much the same for this entire
lumber industry.
I want to tell a little story. It is a traditional story in the lumber
industry. It was a northern man who bought a sawmill in Arkansas.
After he negotiated with the owner of the sawmill, he asked this
native, this southerner, if he could not give him some points on how
to operate it profitably. The previous owner said he did not think he
could do him any good. The northern man kept pressing him. The
northerner reminded him he paid his price for the mill. He said,
"Pardner, I cannot do you any good. As a matter of fact, I did not
pay anything for this mill. My father died and left it to me; I do not
employ any help. Me and my four sons run it. We steal all our
timber and still we run behind."
The lumber industry is a beautiful picture on paper and as it may
be presented in Washington, but I want you to get this fact and get it
clearly; lumber is a variable raw product and when the sawmill operator busts open a log, he has got to make the products that come out
of that log, make it into products to the best advantage.
That is the cause of a great deal of the confusion that exists on
account of the Office of Price Administration prices. They do not
know our industry.
I have reminded you of the fact that I am just recently and for 3
years prior to March 7, president of the Southern Hardwood Producers, Inc. They are not here to present their case. I am here with a
statement which their advisory committee—and that advisory commit-
1069
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
tee was selected by the Office of Price Administration from the members of the industry, which their advisory committee made to the Office
of Price Administration as late as January 23,1946.
I want to read this statement into the record. I t will tell you the
story of that branch of the lumber industry right up to date. I t is an
official statement.
Before going into the matter of the cost study, we wish to report
the serious conditions prevailing throughout this industry.
The members of our committee and the staff of Southern Hardwood
Producers Industry have surveyed the situation carefully prior to this
meeting.
I t is difficult to exaggerate the conditions as pertaining to production
and distribution. The Statistical Summary of Lumber Production
shows a production of 3,083,000,000 for the first 11 months of 1945
against 3,596,000,000 for the identical period of 1944—a decline of
about 14 percent.
However, prospects for 1946 are really nothing short of a crisis, as
mills who are unprofitable are not disposed to continue operating at a
loss, and also mills who are showing a profit because of low-priced,
long held stumpage are refusing to convert it into lumber at a lower
price than it would bring.
Some mills are refusing to sell lumber because they cannot replace
their inventories without loss and with the conviction that sooner or
later, values will have to increase materially.
We enclose a list of quotations from letters which are in answer to
the following telegram sent to each participant in the current cost
study:
Please advise me not later than January 8 increase per thousand feet in operating costs for year 1945 over year 1944. If actual figures not available give best
estimate. Also state what effect current ceiling prices unless revised will have on
your 1946 production schedule. This information for use advisory committee.
These complete letters are also handed to you.
The causes of this situation are mostly the fault of the Office of Price
Administration, and could have been averted by a realistic Office of
Price Administration policy. They are as follows:
On prices, the original prices established in February 1942 but
cut back to those existing in September 1941 did not take into consideration the tremendous inflation of the minimum-wage rate since
October 1938 on top of the then existing depression in the industry.
They represented a heavy cut-back and were much too low, and incidentally were established over the strenuous protest of the committee.
Since then, the Office of Price Administration has followed three
policies which absolutely guarantee that prevailing prices cannot be
otherwise than ruinous to a very large section of the industry during
a period of rapidly advancing costs of all kinds.
1. Use of a system so full of red tape that no cost study can be
processed until a year or more of increased costs have been absorbed.
For instance, we are now operating on costs of 1943, supposed to
recover costs for 75 percent of the industry.
2. Stumpage values should be market—or what it would sell
for—not cost. Otherwise, the soundest policy for holders of lowpriced stumpage is to sell it to the more fortunate industries or with-
1070
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
hold it rather than to saw it. Also, this policy can only result in
depressing prices down to where timber cannot be currently brought,
sawed into lumber and sold at ceiling prices without a loss.
3. The changing of the policy to only allow 75 percent of an
industry to break even instead of 85 percent, as was done in amendment 16, is in itself a guaranty of lower production even if on fair
stumpage values and on current costs. There are so many unforeseen hazards which always arise in producing lumber that such a
theoretical percentage would decline in actual experience to not over
60 or 65 percent.
Now on labor. This industry is burdened by a 53 percentage of
labor cost out of its total cost. The minimum-wage rate in September 1941—date of original Office of Price Administration price
level—was 30 cents per hour and the average rate paid in southern
mills according to BLS was 39.4. According to BLS in 1944, it advanced to 59.1. To September 1945—the last available—it has advanced to 61.
Shortage of labor and its accompanying inefficiency has steadily increased costs by much more than the actual wage increase. This is
getting worse each year, and was much worse in 1945.
These additional labor costs were yet much worse in logging,
where the mills and their contractors attempted to hold their labor
against other industries.
Next, I will take up stumpage and logs.
Much has been said by the Office of Price xidministration about the
advancing of stumpage prices by this industry. The facts are that
other users of hardwood timber have been allowed Office of Price
Administration prices for their products which permit them to pay
far more than the hardwood mills. This does not refer to just a few
picked logs. Yeneer mills are scouring the entire South and paying
far more than any sawmill can even consider for all kinds and grades
of gum, tupelo, and other species used by them, either on the stump
or in the log. The stave people are doing the same on oak. This
condition never existed prior to the Office of Price Administration.
Many mills are selling their timber rather than saw it.
The pulp industry has been paying prices for pulpwood and loggingit, which inflate our logging costs. Now it is understood that the Office of Price Administration is advancing the price of pulpwood by
over 15 percent. Recently, the production of the Belgian mine-pits
props has also inflated these costs by paying unbelievable prices.
The users of our products are under no illusions. They know that
most of them will only be able to operate their plants at part of capacity. This applies to the building industries such as the flooring and
trim manufacturers, the furniture, the box and container, the implement and all others. They are scouring the South desperately. They
would very gladly pay enough to stimulate production, and put a stop
to their heavy losses of partial production.
The result of all this can only be toward one end. This is that instead of stopping or impeding inflation, the Office of Price Administration is actually causing it and pyramiding it by preventing production and causing a scarcity.
This statement is made advisedly and after careful consideration.
The South produced 4,100,000,000 feet in 1943 and unless some action
is taken quickly, it is improbable that much more than half of this will
1071
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
be produced and marketed in 1946. The difference in the labor situation, except as to cost, can only account for a small part of this loss of
production.
At £he same time, black markets are really coming into swing, and
can be expected to soon reach the proportion of illicit buying under
prohibition. There is hardly *a day when every legitimate seller and
buyer are not tempted once or more by every conceivable device.
We have now been dilly-dallying over this since our first scheduled
meeting for October 12, when the committee came to Washington by
appointment, but failed to get a hearing, and nearly 4 months of
valuable time has transpired since the industry furnished the complete
cost study.
During this time much has been injected by the Office of Price Administration to confuse and delay the issue rather than take necessary
action to meet the prevailing situation.
The time has come when this committee must decide whether or not
it is a hindrance rather than a help to this indusry, when the members
are using their valuable time only to concur and participate in all this
dilly-dallying around and temporizing while this crisis is materializing.
Under conditions as have existed to this time, it probably would be
more honest and at the same time, perform a greater service by leaving
the Office of Price Administration alone and letting the industry, its
customers, the public and our southern solons know that a large part of
the southern operators, probably a majority, will have to await the end
of price control before they can produce southern hardwood without
sacrificing their capital assets.
I want to add one little bit more of testimony. That is in reference
to my position. We are large manufacturers of hardwood flooring.
One time in our history we made as much as 20 percent of all produced.
Our average is probably around 10 percent. We do not dominate
the industry. Today, we have 26 flooring units ready to go. How
many are we able to operate? We are able to operate under present
conditions just six. That does not tell the whole story. Several of
our plants are down, 40 hours a week. Our production of hardwood
flooring the potential sale of which is simply tremendous, is less than
20 percent.
How can we supply the needs ? Why is that ? We cannot buy the
lumber and we have twice or three times the force of lumber buyers
because we do not make a large percentage of the lumber that goes into
hardwood flooring.
We buy it. Our buyers just cannot buy it. Some of our buyers
tell us there are 10 times as many buyers in the South today looking
for lumber.
These millmen are our customers. We have been buying from
them over the years. We think they would favor us. We make a bid
for it at the ceiling price of Office of Price Administration. We do
not get it. It is going away from us.
That is the reason we are not producing flooring. We just cannot
go back to anything that parallels it at all.
I am just going to close with this statement.
Given an adequate opportunity, the lumber industry can prove to
any fair-minded person that the responsibility for the present short-
1072
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
age of lumber production in our country lies mainly on the doorstep
of the Office of Price Administration.
This Government agency has been arbitrary in not following the
recommendations of its selected advisory members drawn from industry, it has been dilatory to an exasperating degree in affording
relief in price change to compensate for increased cost, to the extent
that in most cases the relief, when granted, was too late and too little.
Polls may indicate that popular opinion supports the continuance
of the life of the Office of Price Administration. On the other hand,
it is not going to be popular for the Office of Price Administration to
continue to throttle this great American lumber industry so that it
is unable to employ our people and produce the lumber and lumber
products demanded for so many purposes.
I believe, Mr. Chairman, you said questions should be asked after
the testimony.
May I bring our witnesses up here so that questions may be asked
them?
Mr. M O N R O N E Y . Mr. Crawford has a few questions.
Mr. CRAWFORD. Mr. Chairman, before starting the interrogation, I
think the witnesses are entitled to a statement from somebody on tnis
committee. As members of the committee, we are in a most embarrasing situation, at least I am. The furniture people from Michigan
asked that I be present when the furniture people testify. We went
through a 5-week hearing on housing. I voted against the Patman bill.
We cannot legislate a house into existence. We have to have lumber.
This is our first chance to get any lumber information. If we close
this afternoon session without any interrogation, I think we are failing
to carry out our duty. If we interrogate these people, the furniture
people cannot come forward to testify. I have made engagements
with the Chamber of Commerce of the United States for this evening.
That is my position. I have some questions I want to ask these
li;mber gentlemen.
Miss S U M N E R . The funniest thing is after running quantities of
lumber and lumber producers out of production, they come in this
morning with an investigation for which taxpayers will pay to investigate prefabricated houses. I t seems to me it is outrageous.
Mr. CRAWFORD. I do not know to whom to address my questions.
The first question I want to submit to you gentlemen is, What position are you in, financing and otherwise, to make it understood by the
people of the United States what the reason is that they are not getting
lumber ? Is it on account of the policies of the Office of Price Administration, backed up by the Congress of the United States? Do you
understand the question ?
Mr. COLGAN. We have one member of the advisory committee of
the Office of Price Administration here. We have two members. I
think they would all say it was 011 account of the pricing of lumber.
That is holding up the production at the present time.
Mr. CRAWFORD. Y O U do not understand my question. I agree with
the gentleman. I made a statement to this committee as far back as
December of last year that the No. 1 political question was going to
be that of housing. One of you gentlemen made a statement today that
we are facing a housing crisis. If the lumber is not produced, who
do you think is going to be blamed? My question is in what position
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
are you gentlemen to let the country know that the responsibility is
on the Congress backing up the Office of Price Administration in its
rules and regulations which prevents the production of lumber, otherwise the burden will be shifted from Congress to you in the minds of
the public ? Have I made my question clear ?
Mr. COLGAN. We would be defenseless.
Mr. B R U C E . I think we all realize that what we are dealing with
is probably maladministration of the Office of Price Administration.
All of us who have read the enabling act cannot find anything in the
act that would not have let them operate to the satisfaction of industry.
They have not operated to the satisfaction of industry or to the satisfacion, at least, where they felt they could go ahead and produce.
The problem that you have is one of mandatory provisions of an
amendment of this act, and a prohibition in some cases. That is prohibition of the executive department of your Government to do these
things. I do not know how you are going to handle it. So far as the
lumber industry defending itself and being in position to place the
responsibility where it belongs, we have tried to do it here today.
Perhaps this will not be blazoned over in the newspapers and the
responsibility properly placed. We are lumbermen. We are not publicity men.
Mr. CRAWFORD. The whole veterans' proposition is going to come
into this. You could at least approach the veterans' organization
and put your story before them so that they, in their publicity, will
not condemn the lumber industry for not bringing forth the lumber
for building the veterans' houses.
Mr. B R U C E . The entire lumber industry is sympathetic with this
situation. We want to go. We are ready to go when we get free of
some of these restrictions. We welcome any suggestion of yours
enlisting our aid to put the pressure where it belongs.
Mr. CRAWFORD. Let us go into this stumpage proposition for a
moment. Do I understand if one of your operators, for instance in
1926 or 1934, or any previous day you want to select on which you
have paid taxes, on which you have paid interest on the purchase price,
that in calculating your costs, that you must carry into the cost formula, as a direct cost of lumber, a price element which does not exceed
the original cost of the stumpage ?
Mr. G R A Y . I made that statement. I would like to be very specific.
Mr. CRAWFORD. I have some other questions to follow on the same
line.
Mr. G R A Y . We acquired most of our stumpage in the years between
1906 and 1920. As of March 1, 1913, we were required to reach an
agreement with the timber section that happened to be at $5 per thousand feet. Today, in arranging or getting our operating data, cost
data, we used precisely that same figure. It has never gone up above
$5.20, in spite of the fact that today the price of comparable timber
is probably in the neighborhood of $15 or more. I have also, unanswered on my desk, letters which I do not want to answer. I am
offered as high as $100 a thousand for certain species. I leave them
stand there. Those are realistic points. We have to deal with them.
That is a concrete situation we are facing today. The Office of Price
Administration is following, religiously, the same ritual. Had I
made a thousand feet of floor 30 years ago and had it on my shelves
1074
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
today, the Office of Price Administration would not offer the slightest
objection to my selling it at the cost it is selling today.
Mr. CRAWFORD. In calculating your cost under the Office of Price
Administration rules and regulations, you have to throw in, in your
case, $5 per thousand. You are not even permitted to add your taxes ?
Mr. G R A Y . Nothing whatever. We have carried some of it for 40
years.
Mr. CRAWFORD. Y O U include in the cost formula the agreed upon
price for your March 1913 tax ?
Mr. G R A Y . That is correct.
Mr. CRAWFORD. Tax valuation?
Mr. G R A Y . That is right,
Mr. CRAWFORD. Do you know of any case where a company owning
stumpage has leased the mill to some operator to come in and manufacture that stumpage into lumber and place in the lease a sufficient
lease valuation to give the owner of the stumpage and the mill a reasonable return letting some other one person perform the service ?
Mr. G R A Y . I understand what you mean. I know of no such offer.
However, it is legally possible. Absolute conformity with the Office
of Price Administration rulings must and are still followed. If we
care to hunt or produce a bona fide purchaser we can sell him our
stumpage at the current market price. We can pay a 20 percent tax.
Mr. CRAWFORD. Y O U could even operate your plant for him on a total
basis?
Mr. G R A Y . Surely.
Mr. QRAWTFORD. And still be within the rules and regulations of the
Office of Price Administration ?
Mr. GRAY. Surely. I would like to point out something. By taking back, the correct set-up, you cannot provide lumber to him. We
have the plants. We still have sufficient capital and all of the equipment to jump into full-time production, but there is going to be an inevitable time lag. A lot of people are going to blame the industry.
Industry is not at fault. I want to leave that with you.
Mr. CRAWFORD. What political importance can you attach to this
phase of it ? You have the stumpage acquired from 1905 to 1920. You
refuse to cut it and sell it. The Office of Price Administration publicizes that fact. They condemn you. Do you attach any importance
to that publicity from a political approach ?
Mr. G R A Y . That is one of the crosses, I suspect, we shall have to bear.
The fact that we know that we are right will probably help in some
degree. Whenever you take a position of that sort, no home owned by
any individual in this country is any longer safe.
Mr. CRAWFORD. D O you face an increase in operating direct wages
which you have not yet met as a result of recent wage agreements?
Mr. G R A Y . Last November, because we were continuing to lose men,
we discussed this. Keep in mind that for generations the lumber
industry has been known by city standards as a low-wage industry.
We were getting in desperate straits although the war was over. I
called our men together. I said, "Gentlemen, solely on our hope and
expectation that by the time the lumber we shall make from here on
will be ready for the market, the Office of Price Administration will
either be out of existence or they will have acquired some measure of
realizing what we are up against; we are raising wages once more by
1075 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
10 percent. Definitely, if these things do not come to pass, we have
made a rotten guess." That is what I said. We are doing everything
we know is possible. We are willing to go out on the end of an
extremely long limb. In our case, we are paying 246 percent of the
1934 wage.
Mr. S I M P S O N . Our area went through a strike last fall. It tied us
up for 3 months. In the West we have very high wages. Since then
we have had no additional compensation from the Office of Price
Administration.
Mr. CRAWFORD. My question goes further. As a result of wage
agreements in which the Government agencies and the Government
was a party do you gentlemen, in the lumber business, face additional
wage increases in your operations during the next 3 to 6 months? I
mean based on what has occurred since last November.
Mr. G R A Y . Just as surely as we sit here. You mean because of
the 18i/2 cents?
M r . CRAWFORD. Y e s , s i r .
Mr. G R A Y . It is going to happen to us in some degree.
Mr. B R U C E . Senator Pepper's proposition of a 75-cent
minimum
wage is to be considered. If that comes into effect, it must be considered. A great deal of work goes into the making of lumber.
Everyone has to watch it. Everyone has to exercise discretion. We
have to have a lot of labor. We cannot mechanize to a great extent.
They beat us to it out on the west coast. We are trying in the South.
I am from Memphis. A great deal of our work is labor.
Mr. CRAWFORD. Y O U can mechanize as to physical load, but not as
to types of material.
Mr. B R U C E . Not until an electric eye is developed.
Mr. CRAWFORD. Your company is operating how many units?
Mr. B R U C E . We have 26 flooring units. They produce hardwood
flooring. We are operating 6 out of 26 units today at 40 hours per
week. Our normal operation would be 50 hours. That is the economical basis of operation.
Mr. CRAWFORD. If this wage-hour proposal, which is now before
the Senate or the Congress, I should say, moves the minimum from 40
up to 65 cents, and then up to 75 cents for this period specified, what
will the immediate 65-cent rate do to your industry in the South ?
Mr. B R U C E . Well, I think the committee should understand that
while the minimum wage figure is 40, the Federal law, most of us are
paying 55 today. Most operats are paying a whole lot more than
that, so the difference is not between 40 and 65, but it is between 55
and 65. That, figured in a percentage of the wage we started with,
is a considerable percentage advance.
Mr. CRAWFORD. Would it not be right to say, taking your 55-cent
rate, when you go above your 40 hours and up to your 65-cent rate,
you would have to pay a 65-cent base plus one-half of that base for
overtime ? Is that not right ?
Mr. B R U C E . That is right.
Mr. CRAWFORD. S O you have an increase in wage, there, of probably
25 to 30 percent?
Mr. BRUCE. That is right.
Mr. CRAWFORD. Y O U face that?
Mr. B R U C E . That is in prospect.
83512—46—vol. 2
7
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. CRAWFORD. If this amendment goes through.
Would any of you care to give us further information as to the
scope of black markets at this particular time? Especially in the
southern-pine area,
Mr. B R U C E . Mr. Congressman, it is a difficult question. I t is a $64
question. For this reason: These black-market operations are going
on in ways that it would take a Department of Justice man to really
get at the facts. In other words, the passage of money or the cases
of liquor that we are quite satisfied goes on, we cannot know those
facts. These people in the lumber fraternity are our friends. We
cannot bring to you cases of violation. I tried to make clear, in my
statement, the reasons why we are not operating all of our units.
We ought to be able to purchase that lumbar at the ceiling price. They
are our friends. And when we do not purchase at the price, it gets
away from us. Then we have only one conclusion to draw. The extent
of it, we do not know. I have heard it estimated at more than half
in the South up to as high as 75 or 80 percent. I say this: I think in
fairness, that if you gentlemen in your committee endeavor to recommend to Congress the continuance of the Office of Price Administration, it is my personal judgment, and I have not conferred with the
members of the lumber industry on this at all; it does not make good
sense if you continue the Office of Price Administration and not give
them the money to police that kind of a situation. It is crucifying
the legitimate operators. It leaves the men in the business who are
getting their stuff to market at extremely high prices. They are prices,
if the Office of Price Administration were released today, that I
don't believe the lumber industry prices would exceed.
Think in these terms: Whatever this percentage of black market
is, your lumber prices put back in legitimate channels would probably
not exceed that until production could catch up to it,
Mr. Gray has talked about a lag of 1 year. That is in his particular part of the country. Our business, which is the hardwood lumber industry, will not have such a lag. We do have to have a long
drying period. With us, down in Memphis, it is not probably quite
as long as he indicates. It is quite a few months. Most of our construction lumber, Douglas fir, yellow pine, and western pine, can go,
immediately from the sawmill to a drying kiln and be shipped immediately. The entire industry is not going to be on the same spot, The
hardwood industry, as such, contributes to construction. But, principally, in floors, in trim, and in doors and other places where you
see hardwood, as you see it here, most of us can produce as soon as
it is present.
Mr. CRAWFORD. On this question of prefabricated homes, will any
industry that you know of be able to produce prefabricated homes
without lumber? Here is what I am getting at. We are trying to
get information. The story will undoubtedly go out that we can
rely, to a great extent, on prefabricated homes. You gentlemen have
made your presentations here. That convinces me the lumber will
not be forthcoming unless rules and regulations are changed. Can
prefabricators, so far as you men know, produce those homes without
lumber from your operation?
Mr. B R U C E . No, sir. It will require lumber. My company is one
of three lumber-producing companies that went into the prefabri-
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
cated house field. They require lumber. They may require less
lumber, considerably, than the average standard house, but when
they do, they will not get by the code provisions of most of our cities.
They will have to be built outside of the district where codes control.
People will have to live out there in most of the places of the United
States. I am not trying to damn that end of the construction industry. There is an opportunity, probably, to provide housing more
quickly with less lumber, but, still, with lumber. There is the matter
of speed to be considered. Those houses can be produced and made
available quickly. I do not believe the same type of house can be
produced with good lumber in the standard way. Those elements
are prefabrication, what their plans are, and what they can do, is for
them to say.
Mr. CRAWFORD. One of the gentlemen referred to the $20 for doors
as against the $5. Why are not these doors being produced ?
Mr. W A R R E N . It is because of the pinch-penny pricing policy which
prevents the manufacturer from recovering his cost on the low-cost
item plus a reasonable profit.
Mr. CRAWFORD. I have satisfied myself of that. Would you agree
with
me in that respect we are forcing the man who builds a home
wTith only 5 doors into paying about $100 up on the house with 10
doors, about $200 upward?
Mr. W A R R E N . That is correct,
Mr. CRAWFORD. And we sit around and worry about a $ 5 up cost
on pipe, for instance, and let a thing like that go unnoticeSd and
uncorrected.
Mr. W A R R E N . May I elaborate on that point, sir? Western pine
industry, at this time, has before the Office of Price Administration,
the Civilian Production Administration, and the Office of Economic Stabilization a formal application which has, as I understand
it, been endorsed by the Civilian Production Administration, but it
has not been endorsed by the Office of Price Administration for an $8
per thousand across-the-board increase in western pine lumber. To
what extent the Civilian Production Administration actually endorsed
our application we, of course, do not know. We think they qualified
it to some extent. But in the testimony before an informal committee
called by Senator Chavez and attended by all of the western Senators
and Congressmen, it was testified that the increase of $8 per thousand,
if all of the houses were built out of western pine lumber, would
amount to something like $50 to $60 increase in the cost of the house.
I t was also testified that the average house builder, today, who is,
of course, patronizing the black market if he is getting any lumber,
is paying far more than that for inferior lumber. While I am on the
subject of black markets, if I may, I would like to say since Mr. Bruce
stated that we had not conferred on this subject, there is this difference of opinion at least between him and me. He is in the flooring
business, largely. I am in the sawmill business. I see the sawmill
from the standpoint of a little fellow in overalls who gets up at daybreak and is not in bed until after dark. He is up against a problem
of getting cost out of his lumber. There is a trucker who comes into
his place of business. He offers him something better than the ceiling
price. If that is black market, I think we had better make the most
of it. It probably is black market. That man needs that to survive.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
He cannot produce lumber at present ceilings. There are 40,000 producing units in this industry. We hear representatives for the most
part, out they are relatively larger units.
When you deal with this problem, just remember you are dealing
with 4 0 , U 0 0 individual little sawmill owners. You cannot deal with
them any better. There is not a possibility of controlling this blackmarket problem. I do not think there are enough enforcement officials to spread out over the 48 States of this country and ride up and
down the country roads into the sawmill district and follow these
truekloads into market. I t does not make sense. You cannot do it.
Mr. CRAWFORD. Even if they had a provision of a billion dollars a
year {
M r . WARREN. Y e s .
Mr. CRAWFORD. Who
spoke about two amendments which granted
an increase in price of $ 2 . 7 5 ?
Mr. J J O S K I N . 1 spoke of them.
Mr. CRAWIORD. Did Civilian Production Administration make its
recommendation of a $3 increase since those amendments?
Mr. D O S K I N . The Civilian Production Administration made theirs
after hour-wage increase. The wage increase wTould probably amount
to something like $2.25 per thousand. They said $2.25 plus $1.50;
they said give them $3 as an incentive price increase. Later, there
was another amendment increasing prices.
Mr. CRAWFORD. In other words, you have an allowance of $1.25
agamst the $3 recommendation of the Civilian Production Administration i
Mr. D O S K I N . In our opinion, we have had nothing. The one amendment which the Office of Price Administration released to the press
was one m wliich their representatives met with our advisory committee m which any suggestion made by us that we might want to increase tlie price was immediately turned down by them. This was an
internal adjustment matter. When it was released to the press, it
was announced to our customers that there was a $1.10 increase. I t
would give us a net return of $40. Nobody could figure out this with
a degree of exactness. It was unfair to us to say it was a price increase. Mr. Bowles used that in his letter as one justification as to
wliy we needed no further increase.
Mr. CRAWFORD. That is all I have.
Mr. R I L E Y . Can you give me an idea about the percentage of increase it would take to put you all back to work?
Mr. B R U C E . That is impossible to state on any average basis because
the cnaracter oi our lumber industry depends upon the given situation,
the territory, the species, and, for instance, in the hardwood lumber,
we have 15 commercial species to deal with. To answer that, you have
to answer it by individual situations.
Mr. R I L E Y . I thought you could give me a general idea.
Mr. B R U C E . I am sorry. I could not. I do not believe any such
figures are available.
Mr. W A R R E N . On ponderosa pine it is 2 0 percent.
Mr. D O S K I N . Our current survey shows the ceiling price set by the
Office of Price Administration which we are denied the right to use.
We have no objection to the use of the ceiling price. We are denied,
however, the use of it. I would judge in the Douglas fir area that an
1079 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
increase of perhaps 12 percent would bring 84 percent of our industry
in an even or better position.
Mr. B R U C E . I can answer that, too. I thought you wanted me to
give you a general over-all picture. With respect to oak floor, on February 1 , 1 9 4 6 , the Office of Price Administration granted a price raise
to the oak floor people. So far as the price of the product they make,
if they can get the lumber out of which to make it, they figure they
can operate. However, with respect to southern hardwood production^
they have been promised a price increase of Sy2 percent. I am led
to believe that would take care of that situation. It has not been
granted. What we hope will not happen is that that will sit up like
a lot of promises that have been made for a long period of time. They
say they are going to give you something and then they do not give it.
That is bad. The man who has the lumber hangs on to it. Those are
actual situations. If the Office of Price Administration increases the
price of hardwood lumber 8y2 percent, the oak floor people are right
where they started because they have had this increase in their raw
products.
Mr. K I L E Y . This percentage of increase will not necessarily be reflected in retail yards if the mills could go back to their normal method
of production and not have to ship green lumber and that sort of
production ?
Mr. B R U C E , I think we can get our industry back on the tracks.
Hardwood lumber is being used for construction purposes. I t is a
misuse of hardwood lumber. It is being put into houses green. I t is
going to make bad houses. Our whole structure, if we can get back
into the groove again by getting these things rectified, I believe, what
we have to do is get an attitude on the part of the Office of Price
Administration instead of something arbitrary. We are going to keep
prices down to keep down inflation, then we will make out pretty well.
Mr. K U N K E L , I believe Mr. Warren could answer this one best on
account of his statement. We have heard a great deal about subsidies
being a cure-all for almost every economic trouble that affects the
country. I see you have gone out of actual production in your particular business in the number of items. Therefore, the cost and the
amount that you would require in order to go back into production in
those items ought to be readily determined because you have your
cost figures. What do you think of subsidies as a remedy ?
Mr. W A R R E N . We would not go into production if we had to do it
with subsidies.
Mr. K U N K E L . Y O U do not think subsidies would get production?
Miss S U M N E R . Why not ?
Mr. W A R R E N . I do not see how anyone could expect 4 0 , 0 0 0 units
could be individually examined and their accounts studied and actual
determinations made as to howT much each sawmill would need to get
into production. I cannot conceive of its being possible, that you could
treat an industry like this with subsidies.
Mr. K U N K E L . In your judgment, even if subsidies were granted,
that would not cause any appreciable increase in critical materials?
I t would not cause such an increase ?
Mr. W A R R E N . If you starve lumber producers to a point where they
are in the hands of their bankers, there is always the possibility that
somebody would weaken here and there. The thing might sweep
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
through the industry. If it did, it would be adding chaos to chaos. I t
would be impossible to administer subsidies without discrimination
and just more Government controls piled on Government controls.
We better give it back to the Indians.
Mr. K U N K E L . Y O U probably know that the President, and everyone
else, who has had power to institute subsidies has done so; do you
think the reason they have neglected you—and they referred to it as
the heart of the housing program—if they believed that, it is a case
of gross neglect; you believe the reason they have not instituted subsidies before is that it is an impossible procedure ?
Mr. W A R R E N . That has definitely crossed my mind a good many
times.
Mr. K U N K E L . I was interested in some of these few observations as
reported in the paper. I do not know whether he ever made these
observations. He said low wages, not low prices, were the cause of
holding back the production of needed lumber supplies. Would you
care to comment on that observation ?
Mr, W A R R E N . I can comment as far as the West is concerned and the
Southwest. The western pine and the fir industries of the West are
paying now an average wage of $1.35 per hour. Their highest wages
go up into the brackets comparing with the highest wages in the
country today. I can tell you, definitely, that the western industry,
lumber industry, is a high-wage industry.
Mr. K U N K E L . Y O U believe there is a relation between prices and
wages or rather wages and prices?
Mr. W A R R E N . Definitely, where 55 percent of our cost is in the form
of labor cost.
Mr. T A L L E . Mr. Chairman, I do not want to misrepresent Mr. Kaiser
who testified before this committee some time ago. I will check this
with the record if it is in the record, but he left the impression with
me that what the lumber manufacturers needed was more competition,
and that he thought substitutes for lumber would come forward and
serve as that competition and, therefore, we might expect lumber.
Have you any comment ?
Mr. W A R R E N . I do not want to answer all these questions, sir.
Mr. G R A Y . I would like to make just a remark about this impact
of increased wages. I think we all ought to keep clearly in mind that
we, in America, are definitely committed because of public debt to a
production cost so high that we can no longer sell our goods in
international markets. Evidence of that is the British loan that is
up for examination and others undoubtedly will follow. I will give
you a concrete example. We formerly sola large quantities of highgrade stock for export to England. In January I received some letters
from former customers saying they had, among others, been appointed
for the timber control and would be presently coming to this country
and would we please reserve all of the high-grade stock they once
bought for their account. In some n^sterious way, they have been
failing to show up for a long time although they gave me their American address and I am persuaded the loan has not been approved as
soon as they hoped it would.
That is merely an extension of the subsidy system. That is a terrible
situation. We'will have to be realistic and deal with it.
The other question that you wanted
1081 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. T A L L E . May I ask if it is not true that something over 1 2 5 , 0 0 0 , 0 0 0
feet of hardwood lumber left this country under lend-lease prior to
the 31st of January of this year?
Mr. G R A Y . I suspect that is true. I am not qualified to talk about
that.
Mr. T A L L E . There are still deliveries to be made, and commitments
made before the war was over are held for delivery still ?
Mr. G R A Y . We still have an unfilled order they want us to ship in
that way.
Mr. T A L L E . Around 2 0 , 0 0 0 , 0 0 0 feet of choice hardwood that our
furniture makers want for making good furniture ?
Mr. G R A Y . That is right.
Mr. T A L L E . My other question was with reference to Mr. Kaiser. I
do not want to misrepresent him. He left the impression with me
that what lumber manufacturers needed was more competition, and
that he thought remade lumber, something manufactured out of waste
lumber, and certain other types would come forward to meet the
competition of the lumber manufactures and that that would stimulate
you people to greater production.
Mr. GRAY. If I may be a little humorous
Mr. T A L L E . I thought it was funny at the time.
Mr. G R A Y . The lumber industry has never been permitted to try
this cost-plus business. Maybe they should.
Mr. T A L L E . I think that is a pertinent remark.
Have any of you counseled with Mr. Wyatt ?
Mr. G R A Y . S O far as I am aware, no. That may not be true for
the whole industry.
Mr. D O S K I N . If I may answer that, Mr. Campbell is holding a
meeting of the Lumber Association here on Friday with the idea we
might suggest to Mr. Wyatt something that might be done. I would
like to add that we are 100 percent opposed to the subsidy. We have
some ideas as to what we might do to help. We will have to have
money to do it with.
Mr. T A L L E . H O W much does a sawyer get in your area ?
Mr. D O S K I N . $ 1 6 to $ 1 8 a day, 8 hours.
Mr. T A L L E . H O W much do truckers get ?
Mr. D O S K I N . The log truckers get $ 1 5 or $ 1 6 a day, too. I am
guessing a little bit.
Mr. T A L L E . That would vary with the conditions that prevail ?
M r . DOSKIN. Y e s /
Mr. K I L B U R N . Can any of us get a JOB there ?
Mr. D O S K I N . I will let you know.
Mr. T A L L E . Can anyone tell me about the export of lumber ?
Mr. D O S K I N . The export has always been a part of the Douglas
fir
picture out there. Probably 40 percent or more of the lumber that
is being exported is a part of that picture. We can divide our mills
into two sections. One is inland mills. The other is the waterfront
mills. Of the inland mills, there is no proportion considered there
yet.
Those who have the cost to the waterfront are not interested in export today. Of the balance, those that are at the waterfront, this
includes our very largest operators, who are fully equipped with equipment they need to produce American lumber, they are not taking
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
any export business. That leaves a small group of mills built for
water business. They, as a group, do not have sufficient materials or
capacity to put their lumber'into so-called housing sizes. To them the
export business has always been their specialty. Without that they
are in a serious position. They are already caught between this cost
of doing business and the Office of Price Administration prices.
Bear in mind these are the mills that are the farthest from our woods.
They have the longest hauls to get there. Without this export business, you increase their difficulty of producing. Of all of those mills
operating under an order of the Government, which says 40 percent
must go to housing items, no mills operate exclusively on export. No
mills operate 50 percent on exports. None operate 25 percent on
export. This little export business which is their specialty, for
which they were built, keeps them in business.
Between the Office of Price Administration and other prices, we
net, for the domestic economy, by letting them have very little. Do
not forget that 75 percent of the cargo moves from the north coast
by tonnage. We are trying to build up ports. Fifty-two percent
of the cargo from the whole of the Pacific companies is lumber.
These fellows who are in that business are willing to take a reduction
in the amount of their export business. They would like to keep
their accounts. They would like to stay in business and take care
of the domestic economy. If we should shut off lumber to the
British Empire, where we get a million feet a year, and if we should
say no lumber, we could expect the British Empire to take care of
itself. We would lose maybe all of it. Believe me, we need that
little bit of export business to keep these mills going. It will help
our production if we have a little bit.
Mr. T A L L E , The dollar value exceeds the imports ?
Mr. D O S K I N . I would have to qualify that. There is no comparable grade. You ship export lumber, and there is no rule for prices,
comparing one against the other. Just that custom and the law of
supply and demand sets the price. Much too much has been said
about the high prices of export business.
Mr. T A L L E . What is the amount of the premium price %
Mr. D O S K I N . Y O U cannot compare it.
Mr. T A L L E . What loss of production was incurred by your stoppages ?
Mr. D O S K I N . I have had A lot of guesses on that. We had a strike
with one group and we operated with another group. Our own production fell off about 50 percent on the 25th, 26th, and 28th of September. I am guessing at my dates. The strike was over in time for us
to run into our holiday situation. I cannot answer that. I have
heard a billion.
Mr. T A L L E . I have heard that too. What is the full production
capacity of your industry annually ?
Mr. D O S K I N . It is 1 0 , 0 0 0 , 0 0 0 , 0 0 0 feet, slightly over.
Mr. T A L L E . Y O U do not know what it would be for the Nation's
industry ?
Mr. COLGAN. In 1 9 3 6 it was 4 0 billion.
Mr. T A L L E . In 1936 about 40 billion feet was the total production, I
understand.
Mr. COLGAN. The capacity figure could be worked out.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. K I L B U R N . I have just two questions. I would like to ask Mr.
Bruce, if you were a member of this committee, would you vote to
extend the Office of Price Administration beyond June 30?
Mr. B R U C E . I have not the benefit of the evidence that has been
presented to you by all of the testimony that you have received from
other lines of industry. If your question is general with respect to all
industry
Mr. K I L B U R N . Keep it to the lumber industry.
Mr. B R U C E . I believe, personally, that we cannot get an industry
opinion on it with the 40,000 units that we have. We are pretty well
together on the prepared statement made by Mr. Colgan, the executive
vice president of the National as to the main things that are the matter
with our companies. I personally think we would be better off if the
Office of Price Administration were to die a natural death on June 30.
Mr. K I L B U R N . Supposing it did die. You gave an estimate that
there would be between &y2 percent and 18 percent rise in different
types of lumber. Supposing it did die. What would your estimate
be on the percentage of rise that would occur under a natural law ?
Mr. B R U C E . I am sorry. I could not hazard a guess.'
Mr. K I L B U R N . Would it go up 100 percent ?
Mr. B R U C E . I would not want to guess a figure. I think it would
go up some. I am in hopes, however, that the lumber industry, which
at various times has seen the reasonableness of action in the public
interest, would so construct itself realizing that they were out from
under price control, that they would not go wild on it. A good deal of
effort would be made in that direction. We would be faced with a
situation of that kind every time an industry tried to handle that kind
of a situation. They would be thinking about the Department of
Justice. The Department of Justice might say it was collusion on
prices. I think there is a great deal of intelligence in our industry.
Also, our industry has not forgotten the experience they went through
during the last war when prices did get out of control. I believe they
would be very conservative, at least, the responsible operators would
be. What the irresponsible operators are going to do, I do not know.
That is not a very good answer, I agree. You have asked me a very
difficult question. If any members think they cai) make a better
answer, I wish they would rise.
Mr. COLGAN. I feel it would not go any higher than some of the
prices we have heard that the retailers and constructors are paying
to the truck drivers that come up here from the little mills. I think
the flow of production would be so great, so soon, that there would
be a competitive price on the market.
Miss S U M N E R . Wliy would it be less ? A man who risks a criminal
sentence is going to charge more than a man who has a premarket
supply and demand situation.
Mr. COLGAN. I feel a great majority of it would be less. I know
that some of the big producers would not raise it higher than the
advisory committee is asking now. Some of them would raise it less.
Mr. B R U M B A U G H . I S there any representative of the Northern Lumber Manufacturers Association present ?
Mr. COLGAN. Mr. Roderick has not been with this committee now.
He is here in audience.
Mr. B R U M B A U G H . I am interested in the sawmill business myself.
We are down from seven mills in about 1941 to two mills now. Since
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
the first of the year, we have lost money. I feel that I am well
qualified to state what you gentlemen are bringing before this committee is true and correct. The situation has to be corrected. In other
words, the lumber business is so complicated, if they were about their
own problems, they can do it on a profitable basis and keep prices
where they are. As it is, you will now keep certain grades off the
market that you could make a profit on.
Mr. COLGAN. That is correct,
Mr. M O N R O N E Y . Let the record show that Congressman White of
Idaho appeared on behalf of the lumber industry of his state, and he
will make his full statement at such time as members of Congress
appear to testify.
We thank you gentlemen very much for your testimony. We
appreciate your staying until this late hour.
The hour is very late. We have some gentlemen here who have
been waiting quite patiently. Please come to order, gentlemen, so we
may proceed with the testimony they have to offer.
STATEMENT OF LOUIS S. BING, PAST PRESIDENT OF THE
NATIONAL RETAIL FURNITURE ASSOCIATION
Mr. B I N G . My name is Louis S. Bing, Jr. I am from Cleveland,
Ohio. We would not hold you over at this late hour, but, unfortunately, all of our committee is from out of town. We have all
arranged for transportation home this evening. We must be back
in our cities tomorrow.
We have prepared a formal statement, I shall review some of the
high spots of it in as brief a time as is possible so we can develop our
story to you and have time for any questions you have. We are prepared to answer them. I shall not keep you very long with my
statement.
My company is the Bing Furniture Co. in Cleveland, Ohio. I t is a
medium sized retail furniture store. Other members on my committee
are Mr. M. I. Behrens of Ludwig Baumann & Co.; Mr. W. E. S.
Griswold, Jr., of W. & J. Sloane Co. They operate stores, in New
York and Washington and also in several cities on the west coast;
Mr. J. Hudson Huffard, of Bluefield, Ya., and Mr. L. J . Heer, our
vice president in charge of our Washington office.
We all speak to you representing the National Retail Furniture
Association which comprises 7,000 retail furniture stores doing about
80 percent of the retail furniture volume of the United States. Our
presentation in our formal statement to you represents the vote, the
vast majority vote of our board of directors' meeting in Chicago in
January and after a poll and an analysis of the opinions of our 7,000
members.
A definite minority of our members were opposed to this majority
report, and would have been in favor of an immedate suspension of
the Office of Price Administration price control if they could come
and speak for themselves.
We are filing a formal brief with you which is the result of the
preparation and words of those who have come to the committee and
who are speaking to you this evening. We wish to present for the
National Retail Furniture Association a statement that we are in
favor of continued price control through the first quarter of 1947 with
1085 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
the following modifications which are the result of our own operating experience as retail merchants.
For the past 4 or 5 years our contacts with the Office of Price Administration have been on a friendly and pleasant basis. We wish to
give official testimony to the success of the, Office of Price Administration in controlling prices and the economic life of this country in a
large way. They had a difficult problem which they had to face in handling the price situation in these trying times of war, and more recently, of reconversion. In a large measure, we pay tribute to the
success of the Office of Price Administration.
On many specific occasions, relating to our own operating problem,
our own operating details, we have differed from them and we have
wasted our opinion regarding these operating details directly and
specifically to the Office of Price Administration.
However, speaking of the general economy in this country, many
merchants in the furniture trade remember the terrific boom of prices
and inflation from 1919 through 1921 and also the resulting depression. We do not wish to be a party to the encouragement of a repetition of such a rise of price inflation followed by a destructive depression.
We feel it is our responsibility to present to you a list of what we
believe to be practical and constructive suggestions and revisions that
should be added to the Office of Price Administration regulations to
protect the interest of the retail furniture merchants and their customers who represent the home owners and the population of this
country.
First, we recommend a prompt correction of the unbalanced price
control below the wholesale level at which we buy for retail resale.
You have just heard a presentation of the problems of the lumber
industry with which we are completely aware and which is retarding
the production of furniture for our stores and for our customers. A
similar situation exists, to our knowledge, in the textile trade, in the
radio trade, and other trades, which is a bottleneck below the level at
which we buy the goods for our stores.
Secondly, we recommend a modification of the industry earnings
standard which has become an official policy of the Office of Price
Administration. Specifically, we recommend that a choice be given
of the earning performance of the best 3 years of the period 1936
through 1941 and also a number of other technical changes relating
to the computation of the base of capital, the percentage of earnings,
and so forth, to allow for the growth and expansion of our business
so that we are modified as to our earnings standards but given sufficient latitude to add to capital for expansion.
Third, we believe in a modification of cost absorption at the retail
level to make it more realistic. Manufacturers are all working for
price relief in their own trades and for their own factory products,
and the retail trades cannot stand the complete burden of price absorption or, as it is more popularly called, the retail squeeze. We
also must face new higher wages in our own stores. And, in that
regard, a higher wage scale for the country affects us doubly. First,
through our own increased wages and our own higher cost of operation, and secondly, through the higher price of manufactured products sold to us because they, too, must pay higher wages.
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EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Fourth, we recommend that there be made a restudy of the problem
of low-priced merchandise. The Office of Price Administration is,
in almost all classifications, trying desperately to provide a steady
flow of merchandise at low-price ranges for low-earning consumers;
but unfortunately many of their policies tend to the distortion of
price and production and distribution which does not bring about
the result which they are trying to achieve in the marketing of lowprice merchandise.
Fifth, we recommend a clearly defined policy and schedule of decontrol by the Office of Price Administration as fast as production
reaches levels so that merchandise can find its own legitimate price
level on a competitive basis.
Sixth, we recommend a program of individual hardship relief for
the retail trades under the Office of Price Administration regulations.
At present relief is produced for manufacturing establishments on
a separate appeal basis, but no relief is provided for the regulations
of the Office of Price Administration governing the retail trade.
Seventh, we recommend the elimination of individual inequities
and discrimination as an allowance for error in the calculation of
retail prices. To mention two out of several well-known discriminations and inequalities, I would mention the fact that under our
retail price formula for the pricing of home furnishings there is no
allowance made for freight differentials, which has been a definite
and a distinct burden particularly on the west-coast stores, and also
one of the inequities is the reticketing of certain home merchandise
where that has never been priced the same in all stores. In some
cases reticketing conforms to the established wholesale and retail
pattern, but the Office of Price Administration for convenience has
also selected a number of other items customarily sold at different
prices in different establishments and in different parts of the country. and has established a single, uniform retail price.
Also let me add at this time that we would recommend strongly
that the Office of Price Administration find a more moderate technique
of endorsement for those rather numerous errors in retail prices that
are inevitable in a trade which has hundreds of millions of transactions each week and each month, and that the harsh method of law
enforcement be not used in the number of errors which come about
through technical errors or mechanical errors or in a number of other
ways unintentionally in the retail stores.
I n conclusion let me say that we of the retail furniture trade feel
very keenly our responsibility in the postwar world for the expansion
of production and distribution. All factories and producers are
aiming at a vast increase in their productive capacity and in the
marketing of their product.
We of the retail end must be encouraged by Government agencies
so that we, too, can do our share of distributing a mass product to a
mass market.
Most of the retail furniture stores of this country are individually
owned and individually operated. In most cases the furniture merchant is a part and parcel of his community. When we speak for the
retail furniture trade I think we speak for a trade which lives closely
with its customers and with the consumers of this country. We shall
be pleased, if you wish, to answer any questions.
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E X T E N D PRICE C O N T R O L A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Also let me say at this time if in the future we can be of any assistance to your committee in preparing statistical or other information,
our Washington office is at your service if you command.
I would like to file now our formal statement.
S T A T E M E N T TO H O U S E B A N K I N G AND CURRENCY COMMITTEE BY T H E N A T I O N A L
R E T A I L F U R N I T U R E A S S O C I A T I O N , P R E S E N T E D AT H E A R I N G M A R C H 2 0 , 1 9 4 6
We deeply appreciate the opportunity afforded by the committee to the National
Retail Furniture Association to present the views of the retail home-furnishings
industry on the Stabilization Act.
Our testimony is presented here today on behalf of more than 7,000 furniture
stores, large and small, from all sections of the Nation, urban and country,
who account for approximately 80 percent of the total furniture store sales
volume. The recommendations we are about to make represent the consensus
of the vast majority in our industry, and our industry is one that has had a
great deal of experience with price control from its very inception. Because
some of our merchandise forms an important element in the cost of living,, we
have been subject to price control from the very start. Perhaps to a greater
degree than most industries, we have been subjected to the cost-absorption
policy in the major phases of our business. As a matter of fact, Stabilization
Director Bowles recognizes this for in his answers on wage-price questions
issued March 11, 1946, he said, and I quote:
«* * * OPA has already required absorption * * * in many fields to
the full extent permitted by its standards, for example, * * * household:
furniture * * * and * * * a number of household appliances * * *."'
Throughout these years of control, the retail furniture industry has at all times
exerted every effort toT cooperate with OPA in the development of regulations.
We are thoroughly aw are, too, of the great complexities of the problems which
have beset OPA, and of the substantially sincere and valiant efforts which the
agency has made to solve them. We on our side have endeavored to render a
helpful, constructive service in the belief that, in comparison with uncurbed
inflation, some form of price control was by f a r the lesser of two evils. O u r
appearance today, therefore,, comes after considerable experience with the problem and it is in the interest of adapting present-day regulations to the realities
of today. We wish to speak concretely, not in vague academic terms, not in
fear of what may or may not happen, but in the clear language of an industry
that has had the experience, that has devoted careful study to the problem, and
that has demonstrated a desire to cooperate in every way possible toward solving
a common problem facing our Nation right now,
1. Renewal of the Stabilization Act.—The National Retail Furniture Association favors extension of the Price Stabilization Act for 1 year from now,
or until March 31, 1947, on the condition that certain moderate changes are
written into the act by amendment.
If the act were allowed to expire this coming June, the general price structure might undergo violent and drastic disruptions which ultimately could cause
serious financial damage to the entire domestic economy.
On the other hand, to continue the act without modification would perpetuate
a body of regulations that in many cases bears little relation to circumstances
today. Despite existing amendments to OPA regulations, many basic policies
now in effect were conceived 3 or 4 years ago when the economy was under
stress of war and when conditions were entirely different. We believe that the
Congress must now remove from the act the absolescence that exists in it today
and must provide industry with a workable, practical system of control geared to
present circumstances.
It is for this reason, therefore, that we advocate extension of the act on t h e
condition that certain changes are simultaneously provided.
2. Encourage production.—At this relatively late stage of your committee's?
inquiry, there is no need of dwelling long on a subject with which we feel sure
you are most familiar, and that is the retarding effect on production of overly
tight price controls. If lack of production is in part the effect of certain phases
of price control, we would prefer to dwell on causes. Our testimony on behalf
of the Nation's furniture stores, however, would be incomplete and inaccurate if
we failed to bring to the committee's attention a very serious and increasingly
alarming situation that exists in the field of our basic raw material: Lumber.
1088
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The facts are that lumber sources are telling furniture manufacturers that,
under present price ceilings, they can no longer supply raw lumber for furniture
end-use purposes. In other words, despite the absorption required, which Mr.
Bowles has said represents the limit which retailers can undertake, the end retail
price of furniture is not sufficient to support the necessary costs at all prior levels
and it does not provide an incentive to the production of the basic raw material
in our industry. Parallel conditions exist in the fields of textiles, houseware,
radios, and major electrical appliances.
It is hardly within our province to suggest techniques of control at the level
of the raw material producer or even the manufacturer, but we submit that it is
not in the interest of consumers, nor is it anti-inflationary, to hold prices to an
academic line that prevents production from reaching the volume that would
promptly fulfill the demand and reduce prices. It is even more aggravating to our
trade when we realize that the present form of rigid price control is driving our
basic raw material from furniture end-use to other channels which happen to offer
greater incentives. We urgently request prompt, careful consideration of this
alarming situation in order that this dangerous case of maldistribution may be
corrected without delay.
3. Industry earnings standard.—We see no merit for the economy or for consumers in adhering rigidly, for cost absorption purposes, to the deflationary
standards of earnings on net worth equivalent to the average of the years 1936-39.
These particular years are not sacred in our economic history. They were not
typical of any particular situation. And they bear even less relationship to current conditions than they did when they were first established as a base period.
In many cases some of those years were loss years, and to use unadjusted loss-year
figures
of an industry works an undue hardship on the efficient operator today.
WTe believe, therefore, that the Congress should provide mandatory flexibility
in applying standards of a base period by the use of the best 3 out of the 6 years,
1936-41, in determining trade-wide profitability.
Heretofore, the 1936-39 standard has been so rigidly used that any potential
increase in earnings over that base period average has been looked at askance
and with some misgivings by OPA. We submit that conditions today justify
and require a change in standards. The volume of business is greater, operating
costs are higher, and the entire tempo of7 commerce is greatly accelerated. Industry must be in a position to change w ith these rapid developments. A rigid
adherence to standards of the last decade will not permit business to adapt itself
to these changes and will not provide the larger retail distribution machinery
that will be required to market the Nation's increased industrial output. No
administrative bureau charged with the responsibility that is now OPA's can
move quickly enough to stave off severe losses that may accrue due to increased
wage rates, cost of materials, and other factors. For all these reasons, special
study and consideration must be given in computing earnings, capital base, and
percentages in establishing the industry earnings standard. We, therefore,
urge once again that the act provide maximum possible flexibility. At the
moment, the use of the best 3 out of the 6 years, 1936-41, appears desirable in
most respects, but we believe that a subsequent change even in these years
should be permitted if circumstances later this year warrant a further change.
4. Cost adsorption.—Judging our own industry by any standards, apparently
Mr. Bowles and we are in agreement, as mentioned before, that we are not in a
position to absorb any further cost increases. But in practice the process is
never ending. On the theory that they play only a small part in our volume,
we have recently been required to absorb the entire increases granted manufacturers of linoleum, metal furniture, and numerous other items. So there is
urgent necessity for a realistic, clear-cut statement of policy which will once
and for all remove cost absorption from the endless realm of argument and
debate we have experienced to date. Therefore, we believe that no seller should
be compelled to sell any individual product at a price which does not reflect at
least his base period dollar margin.
We hold this opinion because we contend that the current obstructions to production and distribution are caused by distortions that have unnecessarily been
created in the delicate balance between current costs and selling prices. While
we hold no brief that a seller should be permitted always to realize a profit on
increased costs, we do maintain that a seller should be permitted to pass through
the dollar-and-cents amount of cost increases entering pro rata into the product
or services he supplies when such increases reduce his actual dollar-and-cents
profits below the base period.
1089 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
This technique represents substantial absorption to the seller who must accept
lower gross margins, higher direct costs of sales commissions, warehousing,
occupancy charges related to volume, insurance, and many other items of expense. But it is simple and understandable and so will engender dealer cooperation, now as always, so important to the success of price control.
5. Low-priced merchandise.—OPA has developed a number of programs aimed
at stimulating the production and distribution of lower price line goods, but once
again OPA adheres to a base period that now has little relationship to present
circumstances. The latest OPA order in furniture grants to manufacturers certain additional price incentives for producing essential low-end items and a
graduated scale of increases favoring the lower brackets of prices in effect in
March 1942. The plain facts are that March 1942 represented no ideal situation
at that time, that the vast changes in the past 4 years have long since destroyed
any present-day relationship with March 1942, and that the actual adjustments
provided by the present order are unrealistic. As a result, furniture stores are
still not in a position to offer really low-priced furniture because manufacturers
cannot afford to produce goods in these brackets.
We urge that the subject of low-priced merchandise be completely restudied,
that the lowend cut-off points be liberalized, that present cost-absorption decentives be removed from low-priced merchandise, and that some year having
a more direct relationship to March 1946 as used as a base period.
6. Decontrol.—The Stabilization Director has assured you that decontrol as
speedily as possible is his objective. We realize, however, that the transition
from tight wartime controls to a free economy cannot be achieved overnight and
that some interim machinery must be provided. We conclude, therefore, that in
this transition period Congress should provide for a system of progressively more
selective control for a limited time, with over-all decontrol as the ultimate
objective. The mere existence of such a policy, spelled out in the act, is, in our
opinion, a primary requirement for the resumption of normal production and
distribution.
Essentially, the real guide to decontrol must be business judgment, carefully
exercised between business and government. We propose, therefore, that the
Congress state decontrol as a policy objective to the Administrator, that the
Administrator continue to be granted discretionary authority, within limits,
necessary for the proper discharge of his responsibilities, and that the Administrator be required to consult with, and to give due consideration to the recommendations of, industry advisory committees. The Administrator should" not
possess authority to overrule his properly selected advisors without first making
available to those concerned and to Congress, if need be, all the pertinent facts on
which he based his decision. In order to provide the required mechanics for this
all-important phase of the transition period, we urge (1) the appointment of a
congressional committee to conduct continuing investigation of price decontrol
progress; and (2) a mandatory bimonthly report from the Administrator to such
committee on the progress of decontrol, including a listing of all cases in which a
majority of any industry advisory committee present at an official meeting had
been overruled on affirmative decontrol recommendations, together with supporting reasons for failure to follow affirmative counsel.
In our opinion, such a device would create a practical means for careful study,
forthright action, and a prompt return to a free economic system.
7. Individual hardship relief.—Present OPA regulations do not permit any
relief to an individual retailer who is placed in an impossible operating position.
This is not true of manufacturers, and the distinction is most unjust. OPA contends that the administrative difficulties involved in granting relief to retailers,
comparable to that received by manufacturers, preclude the proposition. We
submit that no administrative situation, and that no regulations based on average
performance, should be permitted if they force a citizen to operate at a loss without recourse to some form of relief escape machinery.
The only action taken resembling relief in our trade is an order which ; establishes the cost of doing business as a floor for margins in certain goods. It is
interesting to note that OPA told Congress in March 1945 that this so-called
expense floor regulation would be issued, that it was not issued until February
1946, that it has been necessary to revise the order to conform it to practical
trade conditions, that the revised order is not yet released, and that it is now
promised in a few days. Further, a preliminary estimate of the order indicates
that its involved calculations may make its use impossible by the average small
dealer.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Confronted as we are with situations hardly fair or equitable to retailers, with
prolonged delays in relief orders for the general T trade, and with all the uncertainties inherent in the new wage-price policy, w e believe it only right that the
retail trades be provided access to individual relief processes.
8. Inequities to individuals.—An inevitable outcome of a highly complex system
of price control is the unintentional discrimination or inequity worked upon
individuals.
Here are some examples:
In the past, OPA has determined upon preticketing certain items in our trade
which never before were sold at a uniform, established retail price. This action
has resulted in undue hardship in a large number of cases. For the future, we
strongly recommend eliminating the preticketing of any products not normally
priced for sale at retail by the manufacturer.
In another instance, the technicalities of a particular regulation discriminate
against stores that are far distant from their sources of supply because of the
manner in which the item of freight has been handled.
In the field of enforcement and compliance, perfectly plausible, unintentional
errors in pricing by a retailer have been followed by prolonged investigations,
unfair publicity, and entirely unreasonable prosecution of minor violations.
While we support wholeheartedly legal action instituted in cases of serious or
willful violation, and while wTe do not suggest any reduction of valid enforcement or compliance activity, we do submit that there is now no adequate or
reasonable protection against unduly harsh or injurious handling of unintentional violations of a minor nature. Among the 7,000 retailers we represent,
there is a large number of small store owners to whom the proper interpretation and application of this vast body of economic regulations represents a very
serious problem. We propose that the act should direct that noncompliance with
regulations of a nonwillful nature be first dealt with by private interview, with
a reasonable time allowed for correction. On price cases, some margin for error
should be allowed, enabling those subject to control to correct mistakes or to
make refunds without legal involvements before OPA institutes formal enforcement action or publicizes proceedings.
9. Conclusion.—To summarize our specific recommendations—
1. On the condition that certain reasonable modifications are provided by
amendment, we favor extension of the Price Stabilization Act for a limited
period, preferably not to exceed the first quarter of 1947.
2. We urge prompt correction of unbalanced price controls which are
curtailing production of lumber and other basic raw materials of our trade,
or are diverting them from furniture end-use to other channels.
3. We urge modification of the industry earnings standard to provide for greater flexibility, to adapt it to current conditions, and to establish certain
limits.
4. We urge that OPA's cost-absorption policy be corrected to remove current obstructions to normal production and distribution.
5. We urge a complete restudy of the low-priced merchandise problem.
6. We urge the establishment of a clearly defined policy of decontrol and
other safeguards.
7. We urge provision for individual hardship relief to the retail trade.
8. We urge elimination of individual inequities and discriminations and
the allowance for a margin of error.
Respectfully submitted.
By
Mr.
Mr.
M O N R O N E Y . Thank
GRISWOLD. Did you
NATIONAL RETAIL FURNITURE ASSOCIATION,
W . E/ S. GRISWOLD, J r .
M. I. BEHRENS, J r .
L. S. BING, J r .
you very much, Mr. Bing.
have a statement?
STATEMENT OF W. E. S. GRISWOLD, JR., VICE PRESIDENT AT
LARGE, NATIONAL RETAIL FURNITURE ASSOCIATION
Mr. GRISWOLD. My name is William Griswold. I am from New
York City. There is one little contribution which I wish to make.
It is late. I hesitate to keep anyone any longer than is necessary.
The formal statement which we have prepared here is a sincere attempt
1091 EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
to present our ideas of what will make price control in our industry
work more effectively. We are in between the squeeze of requirements of manufacturers and the limitations of customers. We are
very keenly aware of what it would mean to have price control go
out the window. Having worked also very closely over the past few
years with the Office of Price Administration, we have had sufficient
experience to believe that with more flexibility and a little more
realistic approach to the problem that wTe face, that many of the
obstructions and handicaps under which our industry operates can
be corrected and cured. I t is a fairly straight matter that I want
to inject here.
It is completely supported by the factual statements we have made
and the concrete recommendations we have presented. If we can
have the same degree of cooperation and understanding in attempting
these few recommendations I really believe that many problems affecting thousands of retailers can be eliminated. I think I better
stop at this time. I would like to say I, personally, and I know our
group appreciates your staying on here. I hope that the brief which
we carefully prepared and spent hours talking about and studying
will receive consideration because it is our main speech. We are
hours late now.
Mr. B I N G . May I take this opportunity to tell you that we will
mail a separate copy of our brief to each member of the committee?
Mr. M O N R O N E Y . Thank you, Mr. Behrens.
Mr. B E H R E N S . I agree with everything Mr. Griswold said. It is
very late.
*
Mr. M O N R O N E Y . Tell these men about this dollar pass through.
I think that will help more in stimulating a production at a smaller
cost to the consumer than anything I have discussed. Mr. Behrens
has made a study of it. He understands it very well. I believe it
offers one of the solutions for this trouble.
Mr. B E H R E N S . My name is M. I . Behrens. I am vice president
and general manager of the Ludwig Baumann Co.
I would like to say that in the brief itself we have worked out,
concrete suggestions that we think are practicable to solve one of the
problems. I would like to mention one of them before I talk about
the dollar pass through because Louis Bing did not touch on it.
One of the most difficult problems of all is the problem of decontrol. We spent literally hours trying to put out some kind of formula because there are a lot of people in our trade and in other trades,
too, who feel that if some kind of rules are not set up, there will not
be any decontrol.
I can summarize, quickly, the result of our deliberations by saying
we could not find any formula. We do not believe it is possible to
write such a formula into a law even if you could find one.
One practical thought did occur to us. It is our suggestion that a
congressional committee should be appointed with the task of making
a continuing study of the decontrol problem, and that the price or
the stabilization administrator should be required to report to that
committee at least once every couple of months as to the progress of
decontrol.
We feel, further, that the Congress should say to the Administrator that he be required to consult his industry advisory committees
on the problem of decontrol. And where he does not see fit to be
83512—46—vol. 2
8
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
guided by their advice, at least he could set down some reasons therefor, and supply there to the committee, the Congress or other interested parties.
It seems to us that that presented a possible solution to this problem which would obviate the necessity of setting up a precise decontrol formula at this time.
Mr. M O N R O N E Y . It would be almost impossible, in other words, to
strait jacket any agency with an automatic decontrol. I t has to be a
surgeon's operation at the right time.
Mr. B E H R E N S . Your analog}7 is very good. He has to cut out what
he finds has to be cut out at the time he sees it and not try to prejudge
it 1 month or 6 months or longer in advance.
I would agree with that. Something ought to be set up to study
the problem so it does not just run by itself.
The dollar pass through which Congressman Monroney has mentioned is not really just something of my own. I did not originate it.
I t was presented to the Office of Price Administration as far back as
15 or 16 months ago, to my positive knowledge, by a group representing all of the retailing business. I think some 400,000 stores w^ere
represented at that meeting. The more I thought about it, however,
in these ensuing months, the less I can understand why it has not been
adopted. It is so simple. I t is so easy. It offers a solution to so
many problems. The basic problem of price control, the problems
which subsidies were created to solve, as a matter of fact, is that an
increase cost, as a primary level, is pyramided normally throughout
the economy with a constant percentage of profit added to it. That
is in any hypothetical example that you wanted to take, if you have
an increase of 5 cents per unit in the raw-material cost, by the time
it gets through the process and/or the manufacturer and the wholesaler and the retailer, it has been multiplied many times. That is
inflationary.
The dollar pass through says very simply we cannot ask people to
absorb too much more. That is, if a man were accustomed to make,
in his base period back before the war, 50 cents on a given product;
that man is down where he is only making 42 cents on that product
now. We cannot cut him further to 38, 36, and 32 cents. He has just
about reached his limit.
The dollar pass through says, in fact, let us let him go on making that
42 cents to which we have now cut him. In that way, if he were paying
a dollar for an article and he is now selling it for $1.42 and the Office
of Price Administration decides that his source of supply has to be
given $1.10 for that article, to keep up production, let him not sell it
for more than $1.52. That is, take the 10 cents, and only the 10 cents,
and add it to his price to the people who buy from him. That is all
there is to the dollar pass through.
I have to say one word more. We have a fairly large operation for
the furniture business. The Office of Price Administration has promulgated an extension for retailers in many fields. I believe I understand the new order will be quite similar in general outline to the
original order. Some technical changes are present which had to be
made. We have a pretty large organization for a furniture business.
I t took us a little over 30 days to work out the formulas for our business
under this industry. That was not one person working. We never
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
had less than two on any one of those 30 days. At times, we had as
many as half a dozen. Sometimes Ave even had 8 or 10. I believe
they kept a count for me. One day they had about a dozen people
just working on the application of these formulas to our business and
the production which we carry.
I submit, gentlemen, it looks fine on paper. I think that in our
shop we can work it out and make it work for us. But, I ask you
what the little retailer around the country, the little furniture dealer
is going to do with that order if it took us anywhere from two to a
dozen comptometer operators working on it, 30 days to work it out?
This is fair. I t is psychologically sound. It is a solution to a lot of
problems.
Mr. M O N R O N E Y . I thank you. Mr. Huffard ?
Mr. H U F F A R D . My name is J . Hudson Huffard. I am from Bluefield, Va. I was not originally cast in this show. I came in after
the rehearsal. I am opposed to Government control during peacetime. I think it wise to continue with modifications the price control
authority for a reasonable length of time. Until you have the logical
situation of supply meeting demand. Until then I think we need to
keep in mind that price control, per se, and the need for it, is only
part of this inflation we already have and will continue to be only a
part of the inflation we are going to get.
There are a lot of other factors, and most of them are well within
the control of the Government, and, properly so. They will continue
to effect the rate and extent of this inflation.
I do not believe we have or will have the productive capacity in this
country with or without controls to create the volume of business in
national income to service the debt we have and reach the minimum
level of employment which we will need to have.
As one indication, apropos of the lumber industry, there was an
offer made me today: A furniture retailer, six bedroom suites for each
car of lumber I can get them. Whether that is black market or
whatever it is, it is a sad commentary on the so-called ethics that we
have.
Mr. T A L L E . Mr. Behrens, I have had complaints from furniture
manufacturers that they cannot get the hardwood which they need
for making good furniture.
Have you had that difficulty ?
Mr. B E H R E N S . Yes, sir. I made rather an extensive report on that
subject. I phrased that badly. I did not make the report. Our
buyers make trips through the various areas where furniture is made.
We have always done that. I t is more necessary now than ever. The
head of our furniture department has been with us a matter of over
25 years. I think he is one of the most respected and well known individuals in that capacity in the whole trade. His name is almost a
household word in the furniture business. He made this trip. When
we got back, he made a short report to me. He finds that the lumber
situation has never been so acute and the manufacturers tell him that
75 percent of the trouble is due to prices; that the lumber mills cannot
supply them with lumber at the prices they are allowed to charge.
He has some pretty fantastic stories to tell about factories accepting
loads of lumber. Of course, this is only hearsay. He did not see it.
They told him stories about accepting loads of lumber graded as No. 1
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EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
common, paying the price for No. 1 common when, in fact, the lumber
was something quite different.
He also related the story that Mr. Huffard just told. Some factories
told him if we could supply him with lumber, they would supply us
with bedroom or dining room furniture. He saw a letter which had
been written by one large lumber mill to one factory which stated
that they were not going to saw lumber for the furniture industry any
longer because they could not afford to do it. Those are all stories.
We are not lumbermen. We are not manufacturers. We do not know
whether they are true. That is what we are told.
Mr. T A L L E . If I may turn to Mr. Griswold, you used the words "a
more realistic approach is needed." Your remedy, in that case, would
be what ?
Mr. GRISWOLD. We try to dwell on this subject of encouraging this
production that happens to be in the second chapter. We believe that
it is a question of price. The testimony given just ahead of us was
ample demonstration of that. My company also happens to be in the
manufacturing business so we have little experience on this subject.
It is a question of price plus quality in that a furniture manufacturer
has to accept a great deal of lumber that is eminently unsatisfactory,
although he may get a carload which is good, though it is exceedingly
high. He is really up against it. So far as we know, as an association
here before this committee, we do not feel we should stand and recommend what action should not be taken at levels ahead of our retail
trade. I think it is pretty definitely a difficult question.
Does that answer the question ?
Mr. T A L L E . Yes. I believe it does. As far as following the advice
of the advisory industry committees is concerned, I have had some
complaints about that. Members of those committees tell me that
at the outset they were not consulted at all.
Later on, when they were called in for advice, someone listened to
them, but the orders and regulations were written without any regard
to the advice given.
Mr. Beherns, your recommendation is that administrators should
be asked reasons for not following the advice ?
Mr. B E H R E N S . We made that recommendation with special reference to decontrol. Let us see how the procedure would work. The
administrator might be considering decontrol on a certain line of
goods. He would summon the industry advisory committee. Let us
suppose that committee recommended decontrol on that line of goods.
Let us suppose, further, that the Administrator decided that the time
was not right for decontrol on those goods. Then we feel that the
committee and also this congressional committee which we have suggested should be furnished with the Administrator's reason for disregarding the advice of the industry advisory committee.
Mr. T A L L E . D O you know anything about the second-hand furniture market ?
M r . BEHRENS.
Mr. T A L L E . I
NO.
wonder if extremely effective advertisers like Mr.
Bowles got busy and gave a tremendous push to the demand side
how long it would take your production to catch up with your demand?
Mr. GRISWOLD. Are you inferring demand is lagging now ?
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E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr T A L L E . N O . I am saying it is an uncertain thing. In fact, the
wants of the people are insatiable.
Mr. G R I S W O L D . It has been so constantly. I can't remember when it
was not. Demand has been so constant that I cannot remember when
it was not. It has been so for several years.
Mr. B E H R E N S . The supply side of the furniture, in bedroom and
dining room furniture, it would seem, at the present time, to be substantially one of lumber. The labor situation, they tell us, is not
acute. They certainly have plenty of machinery to make a whole
lot more furniture than they are making at the present time.
Mr. T A L L E . A lot of people have worn out their furniture. They
will turn their old furniture over.
Mr. GRISWOLD. That, probably, is true.
Mr. T A L L E . I think this matter of demand is something that is not
a fixed thing. When we talk of supply catching up with demand,
that demand thing is not a fixed matter. Over a period of years you
can determine pretty well what the future is going to be; however,
do you not think it would be hard to determine now, in view of the
pent-up demand, such conditions ?
Mr. B I N G . I do not know that you can ever measure correctly
enough supply and demand as a measure of decontrol. However,
there are certain production figures as to the industry, and with nonperformance, where any branch of the industry reaches average production; then, at that point, decontrol should be looked into and
checked very closely for that part of the industry. I t would be good
to find as favorable a time as possible. Some of our items have been
decontrolled already. Some small articles of furniture, including
magazine baskets have been decontrolled. Also, most furniture stores
handle toys. Toys were decontrolled with the exception of juvenile
furniture and wheel goods. I was at a toy market in New York last
week. I looked at it rather thoroughly. I would say that the result
on the price was rather slight. Most things were kept at the same
price. A few things went up very moderately, and a few things went
down in price.
Mr. T A L L E . Those toys were very low grade ?
Mr. B I N G . The toys to be sold for the next year are not exactly
the same as those that were sold in the past 2 or 3 years. Most of it
drifted into paper.
Mr. T A L L E . Just fragile paper or wood things ?
Mr. B I N G . Yes. For next year, there will be the return of steel
goods on the market.
Mr. T A L L E . I should think the advisory committee of your industry
would be useful to the Administrator in determining the proper time
to decontrol.
Mr. B I N G . Our advisory committee has met with the Office of Price
Administration officials for a period of years. On some items we
have had a great many meetings before the Office of Price Administration handed down its regulations. On some we have had rather
perfunctory meetings and on some items, we have had no meetings.
I n most of those later cases, the pattern had been set by negotiations
on other items.
Mr. B E H R E N S . We were a little shocked when we saw Mr. Bowles'
questions and answers on the wage-price policy because he said there,
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
very distinctly that home furnishings had reached about the limit of
absorptive capacity. At the same time, we received a squeeze on
linoluem, and another one on metal furniture.
Mr. M O N R O N E Y . I would like to say, for the record, that the furniture industry was the first to take any cost absorption and to take
it willingly and without protest for a period of about a year and
a half.
Mr. B I N G . There were two items on which the furniture business
was a rather outstanding example. The first was a reticketing of the
bedspring which was one of the very first items where the Office of
Price Administration established a uniform price for all operators
in the industry. We have the mail-order houses, the retail department stores, and the retail furniture stores. Customarily, the prices
are not the same. The price of operation is not the same. But, over
our vigorous protest, the Office of Price Administration put out the
bedspring at a single price. Then, I believe, it was in December
1943, when we were the first industry that was given an all-over retail price freeze as Congressman Monroney says, that was a 5 percent'
all-over price freeze on furniture.
Mr. MONRONEY. D O you have any further questions? Mr. Riley
represents a big furniture district. Have you any questions?
Mr. R I L E Y . This has been one of the most practical and constructive presentations that I think has been made during this hearing.
I would also like to compliment you gentlemen on your attitude. I t
is very refreshing.
Mr. MONRONEY. I wish every member of the committee would have
been here to hear the kind words spoken about the Office of Price Administration which you gentlemen in your testimony recognized and
understood. So much of the testimony we hear is confined to a very
narrow viewpoint of that particular industry's operation and the
hardships they are undergoing without any viewpoint of the results.
We want to thank you for your patience and the willingness to
come down here and give the benefit of your views. We will study
the brief you have submitted.
Mr. B I N G . May I thank the chairman and the remaining members
for their interest ? We appreciate your sitting so late.
Mr. MONRONEY. We will adjourn until 10 o'clock tomorrow morn(Thereupon, at 7 p. m., the hearing adjourned until the following
day, Thursday, March 21,1946. at 10 a. m.)
1946 EXTENSION OF THE EMERGENCY PBICE CONTROL
AND STABILIZATION ACTS OF 1942, AS AMENDED
THURSDAY, MARCH 21, 1946
H O U S E OF R E P R E S E N T A T I V E S ,
C O M M I T T E E ON B A N K I N G AND C U R R E N C Y ,
Washington, D. C.
The committee reconvened at 10 a. in., Brent Spence (chairman)
presiding.
The C H A I R M A N . The committee will be in order.
We will hear from the Producers' Council. Mr. Whitlock:
STATEMENT OF DOUGLAS WHITLOCK, CHAIRMAN, ADVISORY
BOARD, THE PRODUCERS5 COUNCIL, INC.
Mr. W H I T L O C K . Mr. Chairman, my name is Douglas Whitlock, and
I appear as chairman of the advisory board of the Producers' Council.
The Producers' Council is a national organization of building-products manufacturers. The council's membership is composed of about
80 concerns manufacturing building materials and equipment, together
with 20 national trade associations representing manufacturers of
materials and equipment.
The council is vitally interested in legislation affecting the operation
of the Office of Price Administration because the Office of Price Administration policies have been directly responsible for delaying the
construction of homes for veterans and for retarding other types of
essential construction. By restricting the output of building products,
the Office of Price Administration not only has reduced the value
of all types of construction but also has directly and substantially
increased the cost of building.
However, the council at this time is not asking that all price controls
over building materials and equipment be removed immediately. We
recognize that the supply of some products is so much less than the
demand that the sudden removal of all price controls might have
undesirable consequences during the period required for production
to catch up with demand.
On the other hand, we do ask that Congress take prompt and effective steps to make certain that the policies of the Office of Price Administration will be so directed in the future that the production of
building materials can be increased sufficiently to meet the pressing
need existing today.
During the war the Office of Price Administration endeavored to
accomplish two purposes: First, to prevent inflation by regulating
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
sales prices; and, second, to restrict the use of critical materials and
labor by discouraging the production of nonessential goods.
The war is over. Industry now faces the complex problem of reviving its peacetime production. There still is need to prevent runaway inflation, but there no longer is any need or any excuse for trying
to discourage the production of nonwar goods, yet the Office of Price
Administration seems not to recognize that fact. The Office of Price
Administration does not realize that many of the very items which
were least wanted during the war are in greatest demand and are most
urgently needed in peacetime.
We urge that Congress use every legislative device at its command
to make it mandatory on the Office of Price Administration to adopt
and put into practice policies which will permit maximum production
of currently scarce civilian products, including those building products
needed to build low-cost- homes for veterans.
Since before the end of the war, the Office of Price Administration
has failed in two counts to discharge its responsibilities so far as the
production of building materials and equipment is concerned.
First, it has failed to approve certain fully justified ceiling-price
increases needed to permit manufacturers of building products to make
wage adjustments which are required to attract more labor to their
plants.
Second, it has failed to adjust price ceilings on certain building products which are essential to home construction but which cannot be
produced in volume now because present ceilings permit no profit.
In the case of some items, inadequate price adjustments have been
made. In the case of other building products, 4 to 6 months or more
have been lost before the Office of Price Administration finally has
granted necessar}^ ceiling-price increases.
Specifically, 6 months were required to get an increase in brick
prices; 6 months elapsed before manufacturers of clay sewer pipe
obtained necessary increases; 3 to 4 months passed before the Office
of Price Administration made its decision with respect to ceilings on
enameled plumbing fixtures; essential price adjustments on coal furnaces and air conditioners have been pending for 5 months without
decision; IS months were required to induce the Office of Price Administration to adjust ceilings on millwork, and 5 months passed in the
case of window screens.
These examples can be multiplied several times, demonstrating beyond question that the Office of Price Administration has been consistently slow and reluctant to take action. Each major request for
ceiling-price adjustments requires endless argument, telephoning, surveying, and discussion. And each month of delay means fewer homes
built for veterans, fewer schools and hospitals.
The Office of Price Administration waits 4 to 6 months or more and
then grudgingly grants the requests which have been pending, indicating clearly that the manufacturers were fully justified in their requests
and showing with equal clarity that the fault lies with the Office of
Price Administration. That agency either does not want to speed
up construction or else does not have the ability to make quick
decisions.
Before making any specific recommendations as to the nature of
the leigslation which we believe Congress should pass at this time, I
should like to stress the fact that this country cannot attain full pro-
1099 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
duction of building products or other goods and cannot attain full
employment until price controls have been removed completely.
I repeat that the council is not asking removal of all controls at this
time, but we are asking that all controls be removed at the earliest
possible date.
Maximum production cannot be attained until industr}^ is encouraged to make bold plans and to take those risks without which all-out
production is impossible. If we are to have maximum production and
employment, management must be able to plan with confidence that it
will be free to use its full ingenuity in achieving its goals, that its plans
will not suddenly be blocked by new or changing regulations.
Business is a gamble, and the odds must be favorable before stockholders and directors are willing to take long chances. New investments in plants and tools and machinery cannot and will not be made
unless there is a fair chance of paying out the investment and making
at least a moderate profit.
The confidence needed, if risks and long chances are to be taken, does
not exist today and will not exist so long as the Federal Government
is in position to change the rules of the game at any time, and on
short notice. How can anyone feel free to make large new investments when the Government stands in position to wipe out all chance
of profit merely by issuing a new restrictive order or lowering a ceiling
price ?
Take the case of the small-home builder who has the capital, the
organization, the land, and the know-how to build 10 small homes for
veterans. Under normal circumstances, he feels free to take the risk
because if he has guessed wrong about his costs or if costs increase
while the homes are being built, he can add a few dollars to his selling
prices and still make a profit or at least come out even. He is willing
to take these chances. Experience has taught him that with freedom
of action, he can usually come out all right on the average. He may
lose on his first group of homes and then make up the loss on the second
group. He understands that and is willing to take the risk.
But all of that is changed when the Government controls home
building. The Government can effectively prevent the builder from
obtaining the few extra dollars needed to make up for a few higher
costs, which may be incurred after construction starts. The decision
is made by a Government employee who may be completely new to his
job and without any practical experience in the building of homes.
Indeed, this new and inexperienced Government employee may prevent the builder from starting his project at all, by insisting on a selling
price which will not cover costs.
Under these conditions, the only safe course for the small builder is
to play safe. Either he cuts down his building program to avoid the
chance of heavy loss, or else he sits back and waits for conditions to
change. He cannot risk all he owns when the Government can wipe
him out by an unfavorable ruling.
Take the small manufacturer, or the large manufacturer, if you wishy
of a scarce building product. He has to decide whether to produce at
capacity or at half of capacity, or not produce at all. The decision
rests on the possibility of realizing a profit.
If he produces at capacity and if his costs rise suddenly with no
change in his ceiling price, the manufacturer stands to lose heavily.
He knows that in advance. He knows how exceedingly difficult it is
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 194 2
to get, an adjustment in ceiling prices from the Office of Price Administration. The safe course, and the course which many are following of
necessity, is to produce on a moderate scale, thereby running less risk
of heavy loss. Profits, if any, will be smaller, but so will losses. Control forces conservatism, and conservatism does not permit all-out
production.
Those are the factors which prevail while controls remain in effect,
wrhile the Government arbitrarily decides whether a businessman is to
make a profit—while the government, not free competition and ingenuity, determines the fate of business.
That is why we say that controls must be eliminated completely at
the earliest practical date. That is why we say that the policies of the
Office of Price Administration must be flexible and sensible so long as
controls remain. Past experience convinces us, without the slightest
doubt, that the policies of the Office of Price Administration will not
be reasonable or practical or sensible unless Congress can give the
Office of Price Administration a clear and unmistakable mandate
through the new legislation.
Earlier, I said that the Office of Price Administration has failed
to approve many needed price increases, and thus has prevented production of critically needed building products. The time available to
me here today does not permit of a detailed report on these instances,
and I shall not attempt to enumerate them. Instead, I urge that your
committee arrange to hear the chairmen of the Office of Price xVdministration industry advisory committees who have been dealing with
these problems and can give you complete information.
I said also that the Office of Price Administration has failed to
permit ceiling price adjustments needed to permit manufacturers to
pay the higher wages required to attract additional labor to their
plants. Without this additional labor, production: cannot be increased. Again, I urge that the committee seek the facts from the
chairmen of the Industry Advisory Committees.
If you will consult the advisory committee chairmen, you will conclude, I am sure, that the Office of Price Administration itself has
been the greatest bottleneck in home building. By delay and procrastination, the Office of Price Administration already has deprived
veterans of thousands of new homes. The same will be true in the
future unless the policies of that agency are radically changed.
Let us look now at the results of these misguided policies which the
Office of Price Administration has been following. I have said that
the Office of Price Administration has retarded home building. In
addition, the Office of Price Administration has increased the cost
of building new homes, and the increases are substantial. In the
first place, the shortage of certain building products has resulted in a
vicious black market for some materials. The industry advisory committee chairmen can tell you what has happened. They can tell you
about the ingenious barter system which has been set up in some places
to circumvent ceiling prices.
The black market directly increases the cost of building homes.
But even with a free flow of materials, there would be no need for these
illegitimate transactions, and the black market soon would disappear.
I t exists only because of the shortage perpetuated by the Office of
Price Administration.
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Home-building costs are further increased by the fact that builders
are compelled to buy the high-priced luxury grades of some essential
home-building products. The low-priced standard lines cannot be
produced because existing Office of Price Administration ceiling prices
do not permit a profit 011 those grades. Thus, the builder, if he is
to build at all, must pay far more for a luxury grade than he would
have to pay for the standard grade, even after the necessary ceiling
price adjustments had been made.
In simple mathematics, ceiling-price discrepancies force the builder
to pay $2 for a fancy grade when he could buy the standard line for
$1.20 even after a 10-percent increase in the present ceiling. Forcing
builders to buy luxury building products increases the cost of building
homes for veterans.
The inadequate ceiling prices which exist today in the case of some
scarce products also increase the cost of home building by causing
long delays in construction. The builder has to wait 10 days for
brick, another week for millwork, 2 weeks for plumbing fixtures, and
10 to 12 days for electrical equipment, all because the supply is not
sufficient to permit prompt arrival of materials and equipment on
the job.
Meanwhile overhead continues to pile up, interest charges keep on,
larborers are paid for idle time, and the cost of the home mounts
higher and higher. These delays increase the cost of home building,
and all of the factors just enumerated also increase the cost of all
other typs of essential construction.
We contend that as much as half of the recent increases in the cost
of building are a direct result of these factors. We also contend that
judicious increases in the ceiling prices of scarce building products
would permit a saving in building cost which would be twice as great
as the amount of the increases in the ceilings. In other words, the
Office of Price Administration is directly responsible for much of
the high cost of building today. The cost of building would drop
appreciably as soon as the Office of Price Administration adjusted
ceiling prices. Veterans' homes would cost less.
Among the Office of Price Administration policies to which we
object in the strongest possible way is the one by which industry must
agree to pay increased wages without any assurance of receiving ceiling price adjustments to compensate for the increases.
In a set of questions and answers issued by the Office for Economic
Stabilization in connection with the wage and salary regulations issued March 10 by the Stabilization Director, the following question
and answer appeared:
May the Office of Price Administration advise an employer who is engaged
in wage negotiations what price increase he might be entitled to if he should
make a certain wage increase and secure approval of it?
The answer which appears in the document is "No."
Economic Stabilizer Bowles in a press release dated February 27
made this statement:
Under no circumstances will the Office of Price Administration set a price
or promise a price adjustment in advance of a wage agreement.
In other words, a manufacturer who is faced with a demand for
increased wages must agree to an increase and then, and only then, can
1102
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
he attempt to secure a compensating increase in his ceiling prices to
permit him to pay the higher wages.
We submit that this is a completely unrealistic policy. I t means that
a manufacturer first must bind himself to increased costs and then try
to get fair treatment from the Office of Price Administration.
Under the Office of Price Administration policy as enunciated by
Mr. Bowles, the manufacturer either must close down his plant until
the increased ceiling is approved or else must pay the higher wages
without a higher ceiling, perhaps incurring heavy losses, during the
period required for the Office of Price Administration to reach a decision.
In actual practice, as stated previously, 4 to 6 months or 2 years are
required to get these decisions in case after case. Certainly, this is not
a policy calculated to speed up production of materials. Some effective means of assuring short cuts in this procedure must be found, if
production is to reach the necessary increased levels. Many buildingproduct manufacturers already are operating on so narrow a margin
of profit that they cannot possibly pay higher wages without higher
ceilings. And the Office of Price Administration refuses to give any
assurance of bridging the gap, if increased wages are agreed to.
Moreover, the Office of Price Administration consistently refuses to
raise ceilings on individual building products when they find that the
company involved is making an over-all profit or if they decide that
the company is likely to start making a profit. In other words, if the
ceiling price on a scarce and urgently needed building product is so
low that the product cannot be produced except a£ a loss, the Office of
Price Administration gives no relief because the company is making
a profit on its other lines, which may have no relation whatsoever to
the building industry.
Similarly if prevailing ceiling prices permit a company to produce
a high-priced luxury line at a profit and require that a low-priced
standard line be produced at a loss, the Office of Price Administration
will not adjust the ceiling on the standard line if they find that the
company is making an over-all profit.
No company can be expected to produce goods at a loss. Congress
surely does not expect that the Office of Price Administration will
follow such a policy. Yet that is exactly what is happening in many
cases. We urge that Congress require the Office of Price Administration to revise its policies in this respect.
The situation is critical, and building-product manufacturers will
have to have some relief without delay if veterans' housing needs are to
be. met. We therefore are proposing for the consideration of this
committee, and are urging the adoption of, a program which we believe
will prevent runaway inflation and at the same time permit the free
flow of building products. We are proposing, for the time being, a
middle course between absolute discontinuance of controls and the intolerable conditions which manufacturers have faced in their dealings
with the Office of Price Administration.
First, since the Office of Price Administration now has a mandate
from Congress to fix all prices in order to accomplish an objectivenecessary for war, Congress must give the Office of Price Administration a new mandate to prevent runaway inflation and to accomplish the entirely different objectives of peace.
1103
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Second, instead of controlling all prices, the Office of Price Administration should be instructed to exercise control only over a limited
list of scarce items where control is necessary untii supply catches
up with demand. The list of items to be controlled should be those
which affect the cost of living, particularly those pertaining to shelter,
food, and clothing. These items should be specified by Congress, and
additions to the list made by the Office of Price Administration and
the President should be subject to the later approval of Congress.
Third, Congress should state in the mandate that price control is
temporary; that the objective is to get away from it as soon as possible
and get back to price determination in the market place where governing factors are competition and the decision of the individual
citizen to buy.
Fourth, Congress should prescribe a formula for fair pricing as a
guide to all sellers of scarce commodities in this temporary period
when demand exceeds supply.
Fifth, manufacturers or sellers of scarce commodities should submit
price schedules based upon the fair price formula to the Administrator for his approval. Businessmen would thus have an incentive
to price below the fair price formula to avoid rejection by the Office
of Price Administration.
Sixth, the Office of Price Administration should be given power to
investigate and take into Federal court, and thus bring before the
bar of public opinion, those individuals who, when given a chance
to exercise freedom under a prescribed formula, violate that privilege
by charging more than a fair price.
Seventh, Congress should prescribe that, when supply and demand
come into approximate balance on any item designated for price control, the Office of Price Administration must remove controls without undue delays, thus giving everyone an incentive to produce to
the limit of capacity so as to bring about freedom from Government
controls as soon as possible.
Eighth, such a new mandate from Congress should be made effective
at once, instead of at the expiration date of the present act on June 30,
1946, and should instruct the Office of Price Administration to eliminate controls on a gradual basis so that all controls will end on a
definite termination date fixed by Congress.
Ninth, Congress should specify that the function of the Office of
Price Administration is not to fix prices but to protect the public
against unfair prices and that prices on each item must be sufficient
to encourage full production and hence full employment as soon as
possible.
In the long run, full production—getting supply ahead of demand—
is the only real preventive of runaway inflation.
The effects of the Office of Price Administration policies with re?
spect to building products are not being felt only in the reduced volume
of home building. Because of these very policies which restrict the
supply of materials, the Government has found it necessary to impose limitations on other important types of construction. This means
that the building of new factories needed to provide employment for
veterans will be slowed down and in many cases stopped. It means
that important public works will be held up for an indefinite time—
all because the Office of Price Administration does not believe in
1104
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
encouraging production, even when increased production will mean
lower building costs and result in a reduction in current building
costs which have been inflated by that agency's very policies.
The C H A I R M A N . I would like to say that there are a great number
of people who have come from long distances to testify on behalf of the
petroleum industry. Mr. Whitlock had asked for 15 minutes to complete his statement this morning.
Thank you, Mr. Whitlock.
Mr. K U N K E L . D O we not get any opportunity to question at all?
The C H A I R M A N . H O W can we ? Last night at 7 : 3 0 he said if he
had 15 minutes this morning he would be satisfied. If we cannot
do those things, we cannot hear these witnesses.
We have a great number of witnesses who are interested in the
petroleum industry and who have come from a long distance. WE
scheduled those people for this morning.
Mr. K U N K E L . I S Mr. Whitlock coming back or is he going to disappear without being interrogated like many of the otl^er witnesses ?
The C H A I R M A N . I do not know whether he can come back or not.
We set the petroleum industry here. I t was a case of either having
Mr. Whitlock be heard or not be heard, and I thought he should have
an opportunity to be heard. We cannot now indulge in a long cross
examination or the petroleum witnesses will not be able to be heard
and they have come a long way.
You may step aside.
We will now hear from the Independent Petroleum Association of
America. Mr. Hardey, president.
Mr. P A T M A N . Mr. Chairman, are they going to turn over the presentation to one witness ?
Mr. R U S S E L L B R O W N . Mr. Chairman, on account of the great number of witnesses, we have tried to curtail the presentation as much as
possible, and I will arrange the order of the appearances, if it is satisfactory to you, and give it to the clerk. I would like for Mr. Hardey,
president of our association, to appear first.
The C H A I R M A N . Would you rather have your witnesses complete
their statements and then subject themselves to interrogation?
Mr. R U S S E L L B R O W N . I think the witnesses should be subject to the
committee on that.
Mr. P A T M A N . Mr. Chairman, I suggest it be left to Mr. Russell
Brown to designate the order of appearance.
The C H A I R M A N . That may be done.
Mr. R U S S E L L B R O W N . Thank you.
STATEMENT OF B. A. HARDEY, PRESIDENT, INDEPENDENT
PETROLEUM ASSOCIATION OF AMERICA
Mr. H A R D E Y . Mr. Chairman and members of the committee, my
name is B. A. Hardey. I live in Shreveport, La. I am an independent
producer of oil and gas and have been engaged in this industry for
more than 30 years. I am president of the Independent Petroleum
Association of America, whose membership consists of independent
producers of oil and gas throughout the United States.
I come before your committee today as a spokesman for the people
who have produced their oil during the war just ended at depressed
1105
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
prices—at prices which were below its intrinsic value and prices which
were far below the cost of replacing the product produced.
It was necessary during wartime that controls be imposed on products which would assure proper distribution in the interest of conducting a war. Price controls were imposed on crude oil while at depressed
levels. We have attempted continuously since the beginning of the
war to have this unjust situation changed. We have presented our
case many times since price control was imposed on us. We have been
trying to develop the method by which the Office of Price Administration could be forced to act in accordance with the meaning and intent of the law. We do not believe that Congress ever intended that
the law should be so administered as to endanger the future supply of
petroleum nor to drive oil producers from business and establish a
trend toward monopoly. That is the way it has worked out.
Our repeated efforts have brought 110 results. The Office of Price
Administration has repeatedly refused to take a realistic view of our
problems. This unfair attitude prevails even to this day, 8 months
after VJ-day. Recent conferences with Office of Price Administration
officials give us no hope that these unfair restrictions will be lifted. So,
as a final resort, I come to you today, a committee of Congress, with
the hope that you will consider our problem from a realistic viewpoint
and extend us the relief that is necessary if we are to be able to accomplish our peacetime job. The remedy is a complete removal of price
control by legislative action from petroleum and its products.
It is not my intention to burden this committee with a recitation of
minute details affecting our industry, but I will ask you to consider
the contents of a booklet which our association has published this week,
which
contains many of the facts affecting this price situation and
wThich has been drawn up in a graphic manner which will not consume
much time in analyzing.
I would like to depart from my text for a minute, Mr. Chairman,
to ask if the members of the committee have been provided with a
copy of this booklet.
The C H A I R M A N . Yes; it has been passed around.
Mr. H A R D E Y . With the committee's permission, could I refer to the
booklet extemporaneously and call your attention to some of the factual
matter in it?
This pamphlet, Mr. Chairman, and gentlemen of the committee, was
prepared very recently, issued during the last few days, by our association. The matter is factual because it has been drawn up and the
contents taken from an official report by the National Crude Oil
Industry's Advisory Committee and was recently submitted to the
Office of Price Administration by that committee. It contains quotations from sources of official record and I would like to call the committee's attention to some of the pertinent facts contained in that
pamphlet.
I would like first to call your attention to the first page, or page 3
in the pamphlet, which shows a projected estimate by official agencies
of the Government on the possible consumptive demand of petroleum
and its products over a period of years beginning with 1947 and
extending into 1965. That is the column on page 3 of the pamphlet.
Therein is contained the aim which the producers of petroleum
and the industry must look toward in accomplishing their purpose
1106
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
and properly supply the consuming public and at the same time to
pile up a necessary reserve or backlog of petroleum that might be
needed by this Nation in case of emergency.
For that reason I call your attention to these projected requirements
for peacetime.
In the interest of saving the time of the committee, I would like to
pass to page 5 of the booklet, where we say "Where shall we get this
oil?" That is, the oil to meet the anticipated requirements that were
cited on page 3 of the booklet.
Under this heading, you are reminded that the petroleum industry
and this Nation cannot afford to be short of oil for the future. You
are reminded that the domestic petroleum industry must be relied
upon to furnish these consumer demands during peacetime and at
the same time provide the necessary amount of oil that might be
needed in time of emergency, and it offers as a comparison what might
happen as it did in the case of rubber, where we were dependent in
years past on a foreign supply of rubber.
We of the petroleum industry do not think it is in the public interest nor in the interest of the security of this Nation that the petroleum industry be so strangled as not to be able to pile up a sufficient
reserve to take care of our sufficient needs, and it only asks, in this
presentation, that it be permitted to have an economic climate which
will permit it to do this very job. This Nation cannot afford to be
dependent on a foreign source of petroleum, regardless of the amount
of reserves that might be in those foreign nations. For that reason,
the basis of our presentation today is a request that the Congress take
cognizance of the fact that the domestic industry cannot be expected
to do this job unless it be developed in an economic climate which will
permit it to do its job properly.
I would like particularly to quote on that same page, page 5, a
recent statement by President Truman on this very subject, wherein
he recites, and it is quoted on this page, the necessity for this country
to augment and keep up its stock pile of natural resources, among
which oil is one of the most important, not only in our expanding
econon^, but in the interests of national security in case of emergency.
Under the same heading, "Where do we get this oil?" I would like
for you further to refer to page 6 of the same pamphlet, where there
is graphically portrayed a picture of the North American Continent,
showing the possible sources of oil supply, and this is a quotation from
an official document prepared by the American Association of Petroleum Geologists, which shows possible sources of future petroleum
as yet unexplored. The graphic picture does not portray that part
of the United States which has been explored and which is now producing oil, but there is portrayed in red, on this page, the possible
future sources of petroleum not only in this country, but extending up
into Canada and Alaska.
I wish to call your attention particularly to the vast empire of
possible future production beyond the present producing States. I
want to call to your attention the possibilities of Oregon and Washington, additional areas in California, the States of North and South
Dakota, Nebraska, further development in Wyoming, Colorado, further possible deeper production in Kansas and northwestern Oklahoma, additional new areas around the Permian Basin of New Mexico
1107 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
and west Texas, and then, beginning at the present frontier of the oil
business in Mississippi, where new additional reserves have been added,
in that area to the east, taking in the States of Alabama, Tennessee,
Georgia, Florida, and up the east coast, up as far as the State of
Maine, all along the coastal line. Those are your possible new source
beds for additional petroleum for this Nation.
Then, if you will turn to the opposite page, you will notice that we
have cataloged there-—and this is a quotation from official sources, it
has already been entered in official agencies as testimony—it shows
there the promising area for development of the area in square miles.
I t could be quickly interpreted into millions of acres, and shows the
various basins that are prospective in these various States that I
have just told you about. That is the source of your future petroleum
in this country.
And I wish to call to the attention of the Congressmen who are
from those States which are not producing States now, as to the
possibilities in their own particular States and the necessity for
encouraging the future development of this industry.
I will pass over to page 8, where we begin to make our firm argument on the necessity of carrying this on, and how it should be brought
about. We have a graph there which is easily understood and easily
analyzed, which shows that the solution of the problem of uncovering
and developing these new reserves is a cost item.
I say to you, gentlemen, that in my opinion, any program of conservation or exploration or development which ignores the price factor
or the economic factor is unsound, untenable, and will not be practicable.
Our pamphlet continues and recites the fact that this industry,
through its proper accredited representatives, have made repeated requests to the Office of Price Administration during wartime. We are
still doing it during peacetime. We are carrying it on now trying to
convince the Office of Price Administration of the realism of this whole
picture. So far we have been unsuccessful. As late as yesterday
afternoon we sat with officials on the higher level—I am using their
words now, on the higher level—and we got the story that, according
to our standards—and I am using their words—their standards, it is
impractical for their Office to consider replacing the reserves of this
Nation. That they can consider only the balance-sheet figures in
determining what the price of oil should be.
To us who are practical operators in the business, it is impossible for
us to see how a group sitting up here can take an unrealistic attitude
on this price question which ignores the necessity of the industry continuing in business. Their whole policy has been one of permitting the
industry to liquidate itself out of past reserves. We think that that
is unfair; we think it is not a good thing in the national interest, and
that national policy should be established that does encourage the
petroleum industry to keep on with its job.
I would like to pass over to page 10 in this pamphlet, where there is
graphically shown the percentage of return from the producer's income, which is placed back normally in replacement of reserves.
We have five charts prepared there, figured out by years—and this
is based on factual data, gentlemen, which has been taken from a questionnaire circulated throughout the producers of the industry and
83512—46—vol. 2
9
1108
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
compiled by competent people, the National Crude Oil Advisory Committee of the Office of Price Administration—showing the necessity
of placing back into efforts at finding new oil certain percentages of the
income from the industry. And still the Office of Price Administration says that in their computation of the cost situation in the industry,
replacements should be ignored.
Well, if you want to go out of business and fail to build up your
reserves and keep an industry stable and solvent, that is all right, but
we do not think it is in the public interest, and we submit that for
your approval.
These costs have gone up a great deal during the war. If you will
pass over to page 12 of this pamphlet, it shows graphically how these
costs have gone up from the base period of 1936-39. That is how they
do all their figures, on the 1936-39 base period. We show graphically
there how these costs have gone up.
I would like to remind the committee that these costs are not of the
petroleum industry's making. It is not a part of their job to put up
these costs. They had nothing to do with any increase in wages. They
had nothing to do with any increase in prices of steel. They had
nothing to do with the increases in the costs of other critical materials
that went into it. Admittedly, the war effort, and the resulting increase in over-all prices, had a great deal to do with it. But our
figures show that those prices are still going up. Those increased costs
are not made by the industry itself, but they must be recognized as a
potent factor in the problem of the petroleum producer, and the entire
petroleum industry when it comes to determining this matter of cost
of petroleum.
Over on page 13 of the booklet, we explain graphically why a higher
price is needed.
One of the most dangerous things facing this Nation today, in my
humble opinion, is declining rate of discovery of petroleum reserves.
This is brought about largely as a result of the unrealistic price structure in industry. We show graphically on that page the decreasing
rate of discoveries of crude petroleum. We are finding a great deal
more new natural gas as we drill deeper, but crude oil is declining in
the rate of discovery.
Production, however, is going up. The expanding economy of this
Nation requires more and more oil as we go along. I showed that to
you on the first page, which is page 3 of this pamphlet. The estimated
future consumptive demand of this Nation in the way of reserves.
With the demand going up, and the reserves going down, what is the
answer ? Some day we will reach the millenium on this subject. I hope
that will not endanger the national security. But I do think the thing
can be changed, and I think the trend can be changed, but it can be
changed only if the petroleum industry is permitted to go along and
operate under the laws of supply and demand and carry on its job as
it has for the last 85 years.
We explain in detail on page 15—I will not read it, but I hope you
will some time—how we are going deeper and deeper for this production ; why the wells cost more; why we are getting smaller pools; why
we have to have an increased cost in the price in order to continue
operations.
On page 16 we draw a comparison. They say that comparisons are
odious. I think this is going to be odious to some people who do not
1109 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
like the looks of it, but I hope it will not be to you members of this
committee.
This comparison shows the relative price of crude oil, as compared
to other commodities, and also shows a line there which recites the
increase in hourly wages affecting those commodities.
I t is shown very clearly there just how bad our situation is as compared to other commodities, and we maintain, gentlemen, that a reasonable increase to permit this industry to live, a reasonable increase
to take care of these higher costs, is not an inflationary trend. We
would have to go a long, long way to reach this commodity index up
there in the middle of the page, until it would reach a point where it;
could be construed as being an inflationary trend.
We have on page 17 the summary of this entire pamphlet. I am submitting that to you as a matter of simple facts that I hope the Committee will sit down and analyze if it has the time.
With the committee's permission, I will proceed now with my statement,
Now that military demands for crude-oil products have decreased
we have an abundant supply of oil for all of our requirements, and.
we have sufficient reserves, product ability, and refining capacity to
take care of all requirements for the foreseeable future. Because of
this plentiful supply, economic forces and the competitive nature of
our industry are already working to take care of any possibility of
skyrocketing prices during peacetime. If we are permitted to continue operation in a free economy, this supply will continue. There;
has never been a peacetime shortage of petroleum or its products in,
the history of this Nation.
I say peacetime. There was a shortage during the war because the*
demand was abnormal. But during peacetime there has never been
any shortage of crude oil for all foreseeable demands in this Nation..
However, if the present controls imposed by the Office of Price
Administration continue, I can foresee the possibility of this Nation
becoming short of oil supply. The refusal of the control authorities
to give proper consideration to the practical problems common to
the industry and to see the necessity of allowing a price for oil which:
will keep the industry solvent is literally driving thousands of independent producers out of business. It will close independent refineries down. It will destroy the very competitive forces which have
always prevented monopoly in the business and which have assured!
the consumer of a good quality of product at fair prices.
The public interest and national security require that this important industry remain in a solvent condition and that it continue to be*
permitted sufficient profit incentive to get out and search for and
develop sufficient reserves to take care of the Nation's requirements for
a constantly expanding economy and to maintain a backlog which
might be needed in another emergency.
The petroleum industry asks these things, not through a spirit of
selfishness, but it is motivated by a sincere recognition of its duty tothe consumer and to the Nation it serves. These duties can be performed and these obligations discharged only if the industry is provided with conditions under which it can function efficiently and fairly.
I say to you that the Congress can give us this opportunity and since
the petroleum industry is able to produce its product in excess of
consumer demand, I respectfully request that your committee approve*
1110
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
the plan of excluding price controls on petroleum and its products
if the Price Control Act is extended beyond June 30.
I will be glad, Mr. Chairman, to answer any questions that I can
on this subject.
The C H A I R M A N . I thought we had agreed that we w^ould complete
the hearings and then the witnesses may subject themselves to interrogation.
Who is the next witness ?
Mr. R U S S E L L B R O W N . I suggested that we would do as the committee
desired. But that is satisfactory.
Mr. Majewski is our next witness.
The C H A I R M A N . Mr. Majewski.
STATEMENT OF B. L. MAJEWSKI, VICE PRESIDENT, DEEP ROCK
OIL CORP., CHICAGO, ILL.
Mr. M A J E W S K I . Mr. Chairman and members of the committee, my
name is B. L. Majewski. I live in Chicago, and I am vice president
of the Deep Rock Oil Corp., an independent producer, refiner, and
marketer of petroleum products.
I appear before your committee, Mr. Chairman and gentlemen, on
behalf of the independent segment of the petroleum industry.
The announced policy of Government, declared by both the White
House and the Office of Price Administration, has been that price
regulations on individual products and industries be removed as
rapidly as possible without inviting inflationary tendencies and unwarranted price increases. Such controls were to be removed as soon
as the supply and the demand situation within that industry conforms
with these conditions. If this means anything, it must mean that a
competitive industry, capable of putting a surplus of supplies on the
market, would be freed from Office of Price Administration controls
and the free forces of competition relied upon to insure reasonable
prices to the public.
I t is my understanding that the House Banking and Currency Committee is meeting to consider the necessity of extending price controls
beyond June 30,1946. I do not wish to speak on the general question
of price controls in all industries, but have requested that you gentlemen hear my thoughts on the case of the public inconveniences being
brought about through continuing Office of Price Administration
control in the petroleum industry only.
At the final meeting of the Petroleum Industry War Council in
December 1945, and the Petroleum Industry War Council was theundustry advisory group appointed by the Petroleum Administrator for
War, and served for 4 years of the war, a statement was unanimously
adopted and released to the press, from which I quote:
There is more than adequate crude production and refining capacity available
to meet all currently indicated needs for petroleum products. • * *
1941 industry prices, which are the basis for present petroleum product price
ceilings, were set at a time when there was need for maximizing gasoline production. Today there is less demand for gasoline and substantially more for
"kerosene and various grades of fuel oil. However, the price straitjacket preTents the fluctuation of prices on various products from fluctuating in the normal
manner to readjust product yields and meet seasonal and other fluctuations in
consumer demand. Mainly as the result of this, there is a serious prospective
shortage of fuel oil to meet this winter's needs.
1111
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Supplying this winter's heavy demands for fuel oil and serving the interests
of the American people in having adequate quantities of all needed products
available at all points can best be accomplished by the prompt removal of price
control on petroleum and its products. The Petroleum Industry War Council
strongly urges that this be done forthwith.
Let us consider the basic underlying reasons for preparing and
releasing this statement to the public:
Industry estimated requirements: The economics committee of thewar Council in its last report on indicated supplies of and demands
for petroleum products presented the following estimates for the
year 1946. All quantities are stated in thousands of barrels daily.
Estimated domestic demand
Estimated export demand
Total estimated demand
Deductions, natural gasoline:
Natural gasoline condensate and benzol
Less condensate mixed with crude oil
Net
Imports:
Crude oil
Products other than residual
Residual
Total imports
Corresponding domestic crude production
Corresponding crude runs to stills
4, 301
427
4,728
BOO
25
> 275
171
10
100
281
4,172
4,146
These calculations assume no change of inventory levels.
Within the fortnight the military and War Shipping Administration have revised upward their daily requirements of petroleum products and the level of crude runs indicated herein will have to be increased approximately 200,000 barrels daily. Therefore, the present
estimated crude production should be 4,372,000 barrels per day and
corresponding runs to stills 4,346,000 barrels per day.
These estimates were prepared by a group of experts who have
devoted their lives studying problems of this nature. Estimates
prepared separately by the Program Division of Petroleum Administration for War, published November 1945, vary from the above
estimated crude runs by less than 1 percent.
There is more than adequate crude oil.
Crude production in the United States reached an average level o£
4,710,000 barrels per day during the 4 weeks ending March 2, 1946..
This is 338,000 barrels per day over the indicated crude production
of 4,372,000 barrels per day, or a surplus production capacity within
this country of 7.7 percent.
There can be no question? therefore, but that there is adequate crude
oil available to meet anticipated requirements and a surplus production capacity will continue to exist.
There is a surplus of petroleum transportation facilities.
There is a surplus of all forms of petroleum transportation facilities
required to move crude oil from the wells to refineries and to move
refined products thence to the market. This surplus exists in the
form of tankers, pipe lines, barges, tankcars, and truck transports.
Quantitative data cannot be assembled on this phase of the problem-
1112
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
to indicate the extent of the surplus, but all limitations on the use
of these facilities imposed by the Office of Defense Transportation
to meet the exigencies of war demands have been removed. This
is adequate evidence of the elimination of any shortages.
There is surplus refinery capacity.
The crude runs adequate to meet estimated demand as stated above
are 4,346,000 barrels per day. The economic operating level is about
4,900,000 barrels daily.
There is, therefore, a total surplus of approximately 550,000 barrels
per day. Therefore, even after running the additional 200,000 barrels
of crude oil daily to supply recently increased demands of the Navy
and War Shipping Administration, there is a proven surplus refining
capacity. The industry desires to utilize this capacity to secure
economies incident to full utilization of plant facilities.
There is surplus plant capacity over requirements by individual
products.
The petroleum industry produces many products from a barrel of
crude oil. The principal classifications with which all of you gentlemen are familiar are gasolines, kerosenes, distillate fuel oils, and residual fuel oils. Normally the composite output of these four classifications represents approximately 85 percent of the volume of crude oil
originally charged to the stills. The percentage yield of each of the
rfour classifications is subject to variations as different seasons of the
wear require increasing or decreasing the yield of a particular product
to meet current demand. This flexibility of yields is adequate to
ipermit the industry to meet the requirements for any or all of the
above classifications of products. Strait jacket price controls prevent
various derivative products from being produced and brought to the
market with various changes of demand requirements.
The industry's ability in this respect is well illustrated by the change
in the production of kerosene before and after the much-delayed price
adjustment on that product sought by industry for several months,
prior to its recognition. The pending shortages of kerosene and heating oils were called to the attention of the Office of Price Administration in August 1945. With elimination of other war controls, price
adjustment was necessary if the industry were to produce enough of
these products to meet winter requirements. Recognition of this problem came only after serious regional shortages had developed and
the industry had repeatedly pressed its case to the Office of Price
Administration.
On December 19, 1945, an increase of .5 percent per gallon in the
ceiling price of kerosene was authorized in districts I and I I I . District I comprises the 17 Atlantic seaboard States and district I I I ,
the Gulf coastal States in the Southwest.
This was followed by a similar price adjustment in district I I on
January 24, 1946. And district I I is the great bread basket of the
world in the Middle West, the 15 Middle Western States.
The yield of kerosene against crude runs prior to the price adjustment was approximately 4.4 percent, according to the Bureau of
Mines, Bureau of Mines reports are not yet available beyond December 1945, but American Petroleum Institute data indicate that
since the price increase, the industry had adjusted yields of kerosene
1113
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
upward to 7.2 percent during the week of March 2. Upward adjustments of yield of distillate fuels has also reflected the price changes
finally authorized by the Office of Price Administration. At, that time
the Office of Price Administration rejected a recommended increase
of one-fourth cent per gallon on residual fuel.
As of Monday of this w^eek, the Office of Price Administration
recognized a belated increase in the ceiling prices of residual fuels of
one-half cent per gallon. An increase of at least this magnitude will
be necessary to attract added supplies to meet both the military and
civilian demand. Industry opinion expressed some months ago was
to the effect that one-fourth cent might effect a balance of supply and
demand.
I t is always necessary to introduce larger immediate price increases
when deficits in supply approach critical status than would have been
necessary if the Office of Price Administration had allowed operations
to be adjusted gradually. The home owner and the farmer have paid
more for kerosene and heating oils during the past 3 months than
would have been the case had our industry been free to make small
price adjustments when needed and foreseen by the industry immediately after V*1 -day.
Adjustment of yields among products can be made as needed to meet
requirements for particular products. Adjustments will not be made
as needed when the industry is asked to conform with a price rigidity
predicated upon 1941 demands for merchandise which have been drastically modified by succeeding events. The industry must be permitted
the latitude of making necessary adjustments from time to time as
demand for individual derivative products vary or the continued existence of Office of Price Administration regulatory measures will
create the very crises that should be avoided. One of the best illustrations of controls creating crises is this winter's experience 011 kerosene and burning oils.
Price controls have led to an unbalanced inventory position.
Gasoline production normally varies from about 40 to 45 percent
yield against crude processed. Refinery tanks throughout the country
are filled or near capacity levels as industry has accumulated an abnormally high level of 104,901,000 barrels of inventory as of March 9,
1946, according to the American Petroleum Institute. Price ceilings
frozen at unsound economic levels on heating oils and residual fuels
resulted in deficits while prices fixed on gasoline encouraged an abnormal accumulation of stocks and now the ceiling price on gasoline is
meaningless in terms of possible actual realization. Most recent published quotation (March 19, 1946) on tank-car price of house brand
(regular) gasoline in group 3, the midcontinent field, was as low as 5
cents, as compared with a ceiling price of 6 cents per gallon.
This condition of surplus stocks of one product and deficit stocks
011 other products is not offered to the committee solely as a criticism
of the policies adopted by the Office of Price Administration, but
it is offered as evidence that the minds of a small group of men cannot
comprehend all of the problems of adjustment of prices, refinery
yields, inventories, and market potentialities of all derivative petroleum products, in all sections of the United States simultaneously. It
is my firm conviction that in an industry where an over-all surplus
1114
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
exists the free play of competition would serve as an infinitely more
reliable control to insure adequate supplies at reasonable prices to
the public.
Price controls in a multiple product industry must recognize costs
and profits.
The petroleum industry is one which is characterized by joint costs
of production and which permits alternate yields of finished products
within a sufficiently w^ide range to meet requirements of all refined
products with runs substtntially lower than are currently being experienced. With the price balance wheel unable, under frozen ceiling
prices, to operate except downward, refineries cannot increase yields
of low value products at the expense of yields of high value products
in accordance with normal seasonal practice. There must be a sufficient degree of flexibility to permit adjustments to be made from time
to time to supply the public with the products needed at competitive
prices. The greater the time period of delay in the introduction of
corrective action in such adjustments the greater is the ultimate adjustment required to meet a current problem. If adjustments are not
made, there results a loss of crude runs when refinery tankage of the
high-value products is filled which greatly aggravates the shortage
problem on low-value products as well as introducing a general stagnation in the industry and particularly upon many individual refineries.
Refineries cannot operate without heavy cash loss at present ceiling
prices on residual fuels and distillates with actual gasoline realization
at the.present levels.
The present policies of the Office of Price Administration with
respect to the petroleum industrjr create deficits of particular products, introducing serious problems of supply essential for full industrial recovery, encouraging an unsound supply position of higher
value products such as gasoline, so that currently established gasoline
price ceilings are meaningless and are creating a gradual paralysis
of an industry throughout its entire operation.
The petroleum industry asks only for the chance to demonstrate to
the American public, as it has in the past, its ability to meet all requirements for all refined petroleum products when the free forces
of competition are allowed to determine the prices of all petroleum
products. It is my firm conviction in 37 years as an independent—I
started as a muleskinner 37 years ago in Chicago—that such a modus
operandi will react definitely to the public's advantage and ultimately
to the petroleum industry's future advancement and development.
I thank you for this opportunity of presenting this matter to you
and would like to answer any questions you may have.
The C H A I R M A N . Call your next witness, Mr. Brown.
Mr. R U S S E L L B R O W N . Mr. Chairman, shall we keep all these witnesses available for questioning at a later time ?
T h e CHAIRMAN. Y e s .
Mr. R U S S E L L B R O W N .
If it is permissible with the chairman, Congressman McGehee, the Representative from Mississippi, has asked
to have just a few minutes, if that is satisfactory.
The C H A I R M A N . Y O U may proceed in your own way. If you will
produce your witnesses without interruption, it would be more desirable from the standpoint of the committee to so do.
1115 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. M C G E H E E . Mr. Chairman, I want to introduce Mr. H. M.
Morse, supervisor of the gas and oil industry of the State of
Mississippi.
The C H A I R M A N . We are very glad to hear from you, Mr. Morse.
STATEMENT OF H. M. MORSE, OIL AND GAS SUPERVISOR OF THE
STATE OF MISSISSIPPI
Mr. MORSE. Mr. Chairman and members of the committee, my name
is H. M. Morse. I am oil and gas supervisor of the State of Mississippi. I live in Jackson, Miss.
I appear before you today as the representative of Governor Bailey,
who is indisposed and who came to the reluctant decision to cancel his
personal appearance.
We are much interested, in Mississippi, in the question of price control in the oil industry. Mississippians are much interested in oil.
The development of oil and gas fields in our State began a short time
ago, compared to the oil history of our neighbor State, Louisiana,
and many others. But the development has proceeded far enough
to have a profound effect on our economy and the lives of our citizens.
In Mississippi we are in a new era of pioneering. Long ago settlers
came from farther east and north and settled the lands of Mississippi
until all the acreage had been occupied. Now another group of pioneers has arrived and the number is growing. They are oil operators,
from all points of the compass, and they have brought a new outlook
to our State.
We want to encourage greater activity on the part of these pioneers.
We want to see the wartime control of the oil industry ended finally
and completely. The supply of crude oil is plentiful and there is no
occasion to control prices further. I think, in fact, that price ceilings
should have come off in this industry simultaneously with the end of
rationing of gasoline.
The industry has its own way of making the adjustments which
fit the conditions and the needs of the time. Being highly competitive, unduly high prices have not been remotely possible for many
years. There certainly is no possibility now that prices to the public will soar if the Office of Price Administration control is removed.
What we do hope is that there will be an upward adjustment in
the price! of crude oil which will stimulate further activity in our
State and in others of the South. A great deal remains to be done
in order to carry on the impetus that has been given to exploration
and development of oil and gas in Mississippi to date.
We did not know much about the geology of the Coastal Plain in
Mississippi until oil exploration brought intensive geological and
geophysical studies. As a geologist, I have witnessed this technical
development with great interest; I can see that the key to one puzzle
unlocks others and that some of the things we have learned in Mississippi apply to Alabama, parts of Florida, and Georgia, and perhaps
elsewhere.
The technical work is expensive. The drilling in part of this area
is going to be around 10,000 feet deep and in some places deeper, and
this is very costly. There are many other expenditures. Oil opera-
1116
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
tors are distributing millions of dollars each year in rentals and
bonuses on leases throughout the South and the Atlantic coastal region as for north as Delaware. The landowner is the direct beneficiary of this distribution. It all comes out of the producer's income from the sale of crude oil.
That is the end of my prepared statement. Just to give you a slight
resume of the oil industry as oil has been developed in Mississippi in
the last few years, in 1939 our first oil field was brought into the
State. Up until that time a great many people thought that there was
no oil east of the Mississippi, or, at least, between Louisiana and
Mississippi. So it was with great pleasure to our State and people
that this field was brought in and was a major oil field. So that from
1939 the known reserves of oil in the State of Mississippi had increased from zero to date, which is approximately 300,000,000 barrels
of oil in reserve.
We had gas also discovered in 1930, and this dwindled. Until
1939 we had very little, but the gas industry has also increased of late.
This exploration and this finding of oil has extended over into
Alabama and probably will extend on further east.
Thank you, gentlemen, and if you have any questions I will be
glad to answer them.
The C H A I R M A N . We are glad to have had your testimony.
Call your next witness.
Mr. R U S S E L L BROW T N. At this time I will call Mr. McClure, president of the National Stripper Wells Association.
STATEMENT OF H. M. McCLURE, PRESIDENT, NATIONAL STRIPPER
WELL ASSOCIATION, ALMA, MICH.
Mr. M C C L U R E . My name is H . M. McClure and my home is in Alma,
Mich. I am the president of the National Stripper Well Association,
chairman of the State Oil Board of Michigan, and have been engaged
continuously in the drilling and producing segments of the oil industry since 1919.
The National Stripper Well Association is composed of district and
State oil and gas associations located in various oil-producing sections
of the Nation and interested in the production and preservation of the
petroleum reserves underlying our stripper wells.
It is a unique privilege and honor that one from the ranks of manual
labor should have the opportunity to appear before this distinguished
committee to acquaint you with the facts as to the effect price control
has had upon the stripper well segment of the petroleum industry.
A stripper well may be defined as any oil well producing at a cost
which approximates the revenue from the sale of its production. The
depth or size does not necessarily determine its classification. I t may
be a 1-barrel well at 500 feet or a 50-barrel well at 5,000 to 10,000 feet;
the principal factor being the cost of production in relation to the
amount of money received therefor.
The most recent authoritative survey of stripper-well production
was made by the Interstate Oil Compact Commission and the National
Stripper Well Association covering the year 1944.
I t discloses that the 412,851 producing oil wells in the Nation, 296,388, or 71.8 percent, are classified as stripper wells. In 1944 these
1117
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
stripper wells produced 217,041,621 barrels of oil or 12.9 percent out
of a total United States production of 1,678,376,000 barrels. Average
daily production per well was 11.1 barrels for all oil wells, and 2.0
barrels for the stripper wells.
In fields now developed we have a total of 298,000 stripper wells with
reserves conservatively estimated at 4,000,000,000 barrels; 20 percent of
our Nation's total reserves which approximate 20,000,000,000 barrels.
The crude-oil price structure was probably the greatest single handicap under which the production branch of the oil industry operated
during the war. Crude-oil prices were frozen by the stabilization program at the October 1941 level. At that time, crude prices were at
a low level resulting from the flood of oil made available by the discovery and development of a large number of prolific oil pools in the
1930's. From 1938 on, discoveries had been distinctly disappointing
and crude-oil prices were undergoing an upward readjustment under
the normal economic processes of supply and demand. When the
Office of Price Administration froze prices at the October 1941 level,,
this normal upward readjustment was terminated. Operating costs
mounted continually during the war period but except for a few
minor adjustments in isolated pools, crude-oil prices are still held by
the Office of Price Administration down to the October 1941 level.
A situation such as the present where 33 gravity midcontinent
crude oil is selling at $1.11 per barrel of 42 gallons, which is less than 3
cents a gallon or three-fourths of a cent per quart, seems absurd for an
article that is so essential to the national defense and the national
welfare. Milk sells for around 15 cents per quart, beer 35 cents and
Coca-Cola 27 cents. On a pound basis oil sells for less than one-half
cent per pound. Ordinary table salt, ordinarily considered a cheap*
commodity, sells for 14 times as much as crude oil. On a pound basis,,
butter sells at 55 cents, cattle at 15 cents, hogs at 14 cents, and cotton at
26 cents.
This crude-oil price structure has adversely affected both the large
and small operator, but it has worked a particular hardship on the
operators of stripper properties because of the narrower margin between their inherent higher operating costs and sales realization from
the crude oil produced.
In June 1944, Economic Stabilizer Vinson issued a directive, effective August 1, 1944, which established the stripper subsidy plan.
Under the plan the first purchaser of all oil produced in fields certified
by the Office of Price Administration as qualifying for the subsidy
would be reimbursed, provided the purchaser showed he had paid the
full ceiling price plus the applicable subsidy to the purchaser. The
amounts of subsidy were as follows:
Thirty-five cents per barrel from fields in which the average production per well per day was less than 5 barrels.
Twenty-five cents per barrel from fields producing more than 5 but.
less than 7 barrels per well per day.
Twenty cents per barrel from fields producing 7 or more but less
than 9 barrels per well per day.
Seventy-five cents per barrel from fields in Pennsylvania, West Virginia, New York, and Ohio that produced Pennsylvania grade oil.
The principal aims of the establishment of the stripper subsidy were
to discourage premature abandonment of wells and to encourage start-
1118
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
ing secondary recovery projects and to prolong the operation of projects alread^y started. Although subsidy payments did retard the rate
of abandonment of wells, a fair and equitable price would have offered
even more encouragement to the continual operation of these wells.
Stripper subsidy payments also encouraged the continuation of secondary recovery projects already in operation. Few new secondary
projects were started because the temporary nature of the subsidy
plan gave no assurance of payments for a period long enough to just i f y the added investment.
The abandonment of uneconomic wells is a continuing process in the
operation of the oil industry. The rate at which abandonments occur
(fluctuates with economic conditions of operation. The chief factors
that influence the abandonment of wells are:
1. The return received for the oil produced.
2. The condition of the reclaimed materials market.
3. Whether or not the price of salvageable equipment as used material exceeds the value of the well as an operating unit.
The tabulation below shows the stripper-well abandonments from
1940 through 1944:
194 0
1941
1942
9, 625 1943
11, 733 1944
10, 541
10, 720
9,400
In this 5-year period a total of 52,019 wells were abandoned because their continued operation was not economic.
The decrease in abandonments in 1942 and 1943 as compared with
1941 was, no doubt, due to a considerable extent to the patriotism of
the owners of stripper wells in their desire to continue to furnish
as much oil as possible for the war effort, realizing that oil was essential to victory. Many of these stripper-well owners had sons and
other relatives in the armed forces and recognized the importance
of oil. The smaller number of abandonments in 1944 can be attributed,
in part at least, to the institution of the stripper-well subsidy on
August 1, 1944, but it is my firm belief that far fewer wells would
have been abandoned during the war period if there had been a fair
and adequate price for crude oil.
The stripper well survey shows that 34,297,740 barrels of recoverable oil were left in the producing horizons underlying the oil wells
abandoned in 1944. When and if abandonments increase, the recoverable oil lost- will also increase.
I want to stress the fact that about three out of every four oil
wells in this country are stripper wells and that the stripper-well
production in 1944 of 217,041,621 barrels nearly matches the 1944 production of the Asiatic Continent which included the highly publicized fields of Iran, Iraq, Saudi Arabia, the East Indies, Burma,
China, and Japan.
Undoubtedly new oil fields will continue to be discovered, but they
will not be so easy to find as those we are now using. Inevitably, of
course, all wells will in time reach the marginal or submarginal stage
and will be abandoned. Each time a well is abandoned, some oil is
left behind in the reservoir. The crude oil price level is the chief
•factor determining the point of abandonment of a well. The maintenance of an adequate price incentive to keep stripper wells operating
will furnish many billions of barrels of additional oil that has been
1119
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
already found and developed. The maintenance of the disastrously
low price level that has prevailed during the war will, on the other
hand, result in the loss of these huge reserves.
The serious situation confronting the stripper-well operator was
recognized by the Federal Government with the introduction of the
stripper well compensatory payments on August 1, 1944. Figures;
available indicate that in the 11-month period from August 1, 1944,,
to July 1, 1945, subsidy payments were made on 136,788,408 barrels,,
for a total of $49,822,347. The average amount per barrel' was 36<
cents. The daily average on which these payments were made was
409,832 barrels for a daily average payment of $149,020. I t is interesting to note that 8.6 percent of the Nation's production received
subsidy payments during the period referred to. It was stated by
W. L. Clark, head of the Stripper Well Section of the Office of Price
Administration, that the number of wells to which premium price
increases were applicable as of November 1, 1945, was approximately
74 percent of the number of wells producing in the United States
during that period.
The continuation of these payments is indefinite and uncertain..
Much of the benefit of these payments has been lost because of increases;
in wages and increased cost for materials and supplies. With the war
over, stripper-well operators cannot be expected to operate wells a t
a loss for patriotic reasons. Even if the present subsidy payments
were continued without any increase in the posted prices for crude o i l y
there would undoubtedly be an acceleration in abandonments because
of the increased costs and the uncertainty as to future economic conditions.
The future of the stripper wells and their underlying reserves presents a problem that deserves the serious and careful consideration of
the industry and of governmental agencies from the point of view of
conservation. The price of crude oil has been at depressed levels continuously since about 1926. The production cost per barrel varies in
accordance with the average daily production of the well and the*
method of production, whether flowing, pumping, or secondary recovery. As well production declines, the cost per barrel increases,
and the operator cannot change that trend. The price received per
barrel for the oil determines the economic limit beyond which the well
cannot be operated.
In conclusion, I have no charts or production curves. Those figures present in detail the status of the stripper-well operator. I do
want to stress the fact that this week figures will be presented to show
that $1.60 a barrel is the cost to produce this crude oil. It is approximately 4 cents a gallon.
Mr. T H O M . What is the ceiling price ?
Mr. MCCLTJRE. The national average is $ 1 . 2 3 a barrel. The ceiling
price is about 3 cents a gallon. That is an average. The averagecost of finding, producing, and developing a barrel of oil—those figures will be presented to the O'Mahoney committee. That report has
already been released. It reflects a figure of 4 cents a gallon cost..
That is the average cost.
Certainly, in the production of any basic commodity as vital as oily
the price should not be lower than the average cost of finding, developing, and producing. When we say a "sustained adequate price," we
1120
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
mean 5 cents a gallon. It would cost 4 cents a gallon to develop, find,
and produce it, Certainly a reasonable profit would be 1 cent a
gallon profit.
To show you how ridiculous it is, gentlemen—this is the only chart
I have. I will leave it in evidence. This is a pound of crude oil
selling at the well already transported to the top of the ground.
An average depth in excess of 2,500 or 3,000 feet sells for half a cent
a pound already transported to the top of the well, found, developed,
and produced. I offer that in comparison with any other commodity
that you gentlemen have in mind. Any ordinary commodity sells
anywhere from 14 to 200 times as much as crude oil.
Small producers produced diligently and effectively during the war
with very little complaint. They did ask for the cost of their product
or a little profit. It was never received. Most of the small operators
evaporated from the business. Of those who could beat the average
cost, some of them still remain.
That is all, Mr. Brown.
The C H A I R M A N . Call the next witness.
Mr. R U S S E L L B R O W N . During Mr. McClure's talk he has emphasized
the importance of secondary recovery.
Our next witness is Mr. Oak.
The C H A I R M A N . Identify yourself.
STATEMENT
OF DONALD
P. OAK, M A N A G E R ,
DARBY,
OF TULSA,
LYNDE,
WALTER
&
0KLA.
Mr. OAK. My name is Donald P. Oak. I am a graduate engineer
and all of my business life has been spent in the producing end of the
oil business. For the past 15 years I have devoted my time exclusively to the water-flood method of secondary recovery. In 1943 I
plugged and abandoned three projects on which the total production
at that time was in excess of 100 barrels per day, for the reason that
they could no longer be profitably operated under the Office of Price
Administration's existing price ceiling.
Stripper-well properties and secondary recovery properties are very
closely associated as the stripper properties are the sites wliere the
secondary recovery operator conducts his development, so that the secondary recovery operator must own or acquire a sufficient number of
these stripper properties to insure an adequate reserve for his
operations.
As you may not be familiar with this phase of the oil business, «I
will try to give a brief explanation of the theory underlying secondary
recovery. Petroleum is found in porous formations such as sandstone
or limestone below the earth's surface. AVhen wells are drilled in this
reservoir, it requires some energy to overcome frictional resistance and
cause particles of oil to move from the points where they exist to bores
of the oil wells from whence the oil can be produced. In primary or
natural recovery the source of this energy is inherent in the reservoir
itself, usually in the form of compressed or dissolved gas, although
there are other sources, such as natural water pressure. So far as compressed gas is concerned, this energy is almost entirely dissipated
when only a fraction of the oil in place has moved to the oil wells.
Movement ceases and the oil wells reach the end of their economic
1121 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
life when only a small percentage of the oil in place has been recovered. Secondary recovery now enters the picture and supplements
the natural energy inherent in the reservoir with energy which has its
origin in an outside source. The two most common types are air or
gas repressuring and water repressuring. In both types the repressuring medium is introduced under pressure into the reservoir through
existing oil wells converted to injection wells or through new drilled
wells. This pressure again starts the movement of the oil particles
and production is resumed. No one method has universal application,
but where it can be used, the water-flood method has proved to be the
most efficient.
Even with the best technique, under this method only an additional
fraction of the well in the reservoir is moved to the producing oil wells
so that there still remains a vast amount of oil in the reservoirs when
all present known methods of secondary recovery have been exhausted.
Research is constantly improving methods and if not interrupted will
ultimately lead to the recovery of a very much larger percentage of
the oil than now thought possible.
The problem of research and its possibilities is admirably covered
in the testimony of Mr. Don T. Andrus before the Special Senate
Committee Investigating Petroleum Resources, on March 20, 1946.
Secondary recovery by water flooding is an expensive operation.
As we take over stripper properties which already have had a long life,
much of the material on the surface or in the wells, is worn out or not
adaptable to water-flood operations.
The existing oil wells have to be reconditioned or plugged and new
ones drilled, usually new water injection wells are drilled in proportion of one injection well to one oil well. Expensive water-pressure plants and a distribution system of water lines are built. Producing expense is also high, as the expense of obtaining, treating,
pressuring, and distributing the water to the injection wells has to
be added to ordinary production expenses. Even the better floods will
require 10 barrels of water injected to 1 barrel of oil produced, so
that this adds an expense of at least 10 cents per barrel of oil to producing costs. Ordinary producing expense is also high, because much
of the water injected has to also be produced from the oil wells, and
it costs as much to produce a barrel of water which is thrown away as
it does to produce the saved barrel of oil.
I do not think that there are any figures available to show the average cost of producing a barrel of water flood oil, and they would
mean very little if secured, as so many factors enter into the problem
in the various oil fields of the United States, such as depth, condition
of physical equipment, and existing wells at start of flood, intensity
of development, location of properties, water supply source, drilling
costs, and so forth, and the recovery of oil per acre, that typical costs
in one section would have little relation to those in another section.
Also, average costs are very dangerous figures to use. A few highly
productive floods in favorable cost locations will bring down the average cost of all floods giving a distorted picture of those not so favored.
The reverse is also true. In most of the floods now in operation in the
midcontinent field, development costs will range from $300 to $3,000
per acre.
1122
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Production expense will range from 25 cents to 80 cents per barrel
of oil, and recoveries will range from 800 to 8,000 barrels per acre.
I am not so familiar with air and gas repressuring and will not
attempt any estimates of cost or recovery ranges.
Historically, water flooding started in Pennsylvania and air and gas
repressuring in Ohio. Air and gas repressuring soon moved to some
extent to the Mid-Continent field, but water repressuring did not reach
there until 1931, when air experimental flood was started near Chelsea,
Okla. Results from this flood were sufficiently encouraging to cause a
number of others to start but they had only gotten well under way when
the price of crude declined and most of them became marginal operations. However, they were generally continued in operation until the
Office of Price Administration froze crude prices at depressed levels at
the start of the war. Operators then continued and sometimes expanded them, even at financial sacrifice to themselves in order to do
their part in supplying the war petroleum needs. At the same time
they joined in the fight to get relief from these price levels, which fight
finally resulted in a subsidy being granted in August 1944 to stripper
and secondary recovery operators. However, in the meantime, many
operators had to discontinue operations and abandon their properties,
leaving large unproduced reserves which are permanently lost. The
advent of the subsidy did allow existing floods to be expanded and a
few new ones started in very favorable locations, but there was no
general renewal of secondary recovery operations for the reason that
the subsidy was a too uncertain factor to permit long-time investment.
Returns from water-flood operations do not start in any volume for at
least a year after investment. That is about the picture as it stands
today with the exception that all costs have increased to such an extent
that they have nearly absorbed the subsidy. In other words, the present economic picture is not sufficiently good to encourage widespread
secondary recovery.
I do not think the public or even considerable sections of the oil industry itself realize the importance of secondary recovery in relation
to the national oil supply. The usual estimates of petroleum reserves
recoverable from stripper wells and secondary recovery operations are
about 20 percent of the total reserve, or some 4,000,000,000 barrelsHowever, the surveys leading to these estimates were made several
years ago, at which time the various bodies making the estimates were
faced with entirely inadequate information on which to base their
estimates and many large producing areas were omitted completely due
to lack of any data at all. The amounts to be recovered in any area
were^little better than a guess. Today, we have some additional data
upon which to work, but even now it would be impossible to make an
intelligent estimate for all the producing areas of the United States.
One illustration will show the change that would be made today from
the original estimate. The original estimate gave Osage County, Okla.,
a secondary recovery of 60,000,000 barrels, while a recent survey by one
of the leading operators gave the Burbank field alone, which is located
in that country, a secondary recovery reserve of 200,000,000 barrels.
Secondary recovery technique is constantly improving, and what the
ultimate recovery will be, I will not try to predict. The best that I
can do is to call attention to Mr. Andrus's figures. In the known oil
fields of the United States there have been produced some 28,000,-
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
000,000 barrels of oil, and the estimates for present visible supply
amount to 21,000,000,000 barrels, which includes the above-mentioned
4,000,000,000 barrels for stripper wells and secondary recovery. After
this 49,000,000,000 barrels have been produced, there will still remain
in the reservoirs 100,000,000,000 barrels of oil, which most estimates
class as unrecoverable. The secondary recovery operators, if given
encouragement, are going to get part of it, I know, but I will to leave
the amount to your imagination.
Today, the secondary recovery operator is faced with an entirely
too low ceiling price for crude oil, plus a war subsidy which he is
receiving from you and all the other taxpayers of the country. Certainly, this is not an attractive picture for long-time commitment of
capital. Even if he were assured of a continual price equivalent to
the sum of the two, he could only undertake developments in favorable areas as with present increased costs average development would
not show a profit. This aspect of oil production differs from others^
in that by expending comparatively small amounts for investigation,
the operator can determine within reasonable limits the cost and expense of the development and the amount of oil which he may expect
to recover, so that if he can determine the price at which he will sell
the oil, he will know what to expect in returns. In the Mid-Continent
field, it is my opinion that the present price of $1.40 to $1.50, including subsidy, will not justify development of properties where less than
3,000 barrels per acre can be anticipated. A price of $2 or even $1.75
would vastly increase the areas in which secondary operations could
be successfully conducted.
The secondary operator is also intensely interested in the preservation of stripper wells for the reason that the abandonments of these
wells so affect the sites of future secondary recovery operations that
they may be lost forever for that purpose, or if not, the cost of secondary operations will be very much increased.
When properties are to be abandoned, they are dead horses as f a r
as the owner is concerned, and he tries to get away as cheaply as
possible, so he takes no more precaution in protecting the oil reservoirs than is absolutely necessary by law. This is particularly true
when the properties are sold as a whole to dealers in second-hand
oil-field supplies. He is interested only in the profit from his deal,,
and as a result, thousands of abandoned wells are improperly plugged.
As a result, uncontrolled extraneous water often infiltrates into the
reservoir, rendering secondary recovery methods ineffective. On one
lease we found 25 percent so affected. Even when the abandoned
wells are properly plugged, another problem arises for the secondary
recovery operator. As he starts introducing pressure into the reservoir, the fluid contained seeks the path of least resistance, which
often leads to these abandoned wells and the oil and water pushes
its way to the surface. It is then necessary to redrill and replug
these wells, adding greatly to the cost of the development.
As an example of this condition, on a development covering 400
acres in the shallow fields of eastern Kansas, it was necessary to redrill and replug 106 wells at a cost in excess of $50,000. In shallow
areas it is often cheaper to plug and abandon existing stripper wells
and drill new ones than it is to recondition the old ones for use in
water flood, but as the well cost increases in deeper territory, the re83512—46—vol. 2
10
1124
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
verse becomes true, even to such an extent that if the existing wells
were abandoned, it is doubtful if secondary recovery can be undertaken except in very high recovery areas, unless crude prices rise to
a point beyond present expectations.
The problems of the secondary recovery and the stripper well operator cannot be solved without an adequate crude-oil price. There is
some diversity of opinion among operators as to how this adequate
price is to be obtained. Certainly the present situation with a depressed ceiling and a war subsidy is not the answer. Other testimony
has shown that price controls are no longer needed to prevent inflation, but with the return of a free economy some operators feel that
flush production will be the guide to oil prices and that these w7ill
be insufficient to support stripper-well economy. They claim the past
20 years' experience demonstrates this fact. They believe there
should be a permanent differential between the price paid for oil
produced from stripper and secondary recovery properties and that
paid for oil produced from flush properties. I t is generally accepted
that this differential cannot be paid within the industry itself—in
fact, it would probably be unlawful under the antitrust laws; therefore, the only source from which this differential can come is the
Government itself, or by tax on imported oil to be impounded for
the benefit of small-well operators. Their argument in behalf of the
justification of this differential falls into two general lines of
reasoning.
First. That although only about 15 percent of the total production comes from stripper and secondary recovery wells, nevertheless
about 300,000 of the total of 400,000 oil wells in the United States
fall into the stripper-well class. The forced abandonment of any
large proportion of these would seriously affect the economy of hundreds of small towns and throw thousands of workers out of employment, A large proportion of these workers have grown old on the
job and if thrown out of employment would have great difficulty in
obtaining new jobs. They believe that these local dislocations
throughout the country would have an appreciable effect on the
national economy.
Second. That from a conservation standpoint it is to the advantage of the country as a whole that this differential shall be paid in
order to protect and preserve petroleum reserves wrhich otherwise
might be permanently lost. They believe that these reserves which
are in danger are in such magnitude that the comparatively small
cost now will be more than repaid by the larger supplies at reasonable prices which will be available to future generations. Another
group of which I am a member, while agreeing on the underlying
principles advanced, believes that a different method of approach
should first be tried to accomplish their fulfillment. Oil producers
as a whole, and particularly the small-well operators, have been so
discriminated against in the past, especially in the early years of the
war, that many of them are now grasping at straws for self-preservation without thinking the problem through to the end. We believe that any permanent subsidy paid from public funds is the entering wedge of Government control which, if followed to a logical conclusion, may eventually lead to the nationalization of the entire oil
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
industry. The nationalization of one great industry might easily
lead to nationalization of all industry and state socialism.
If there ever were a class of men who loved and were willing to
fight for their freedom and individual rights, it was the pioneers of
the oil business, and we must carry on the tradition they founded.
We believe that all members of the industry, both great and small,
recognize these dangers, and if the present Office of Price Administration price controls are lifted, they will all cooperate to the solution
of our problems and crude-oil prices will be realized which will be
based on the raw commodity itself and its replacement cost. If such
a program is carried out, we believe there will be a sufficient crude
price to protect the small-wTell operators, and the reservoirs under
their wells will not be lost, without having to take nourishment from
the public purse.
Even though the great majority of all divisions of the industry
unite in. this program it cannot be carried out unless we also have the
cooperation of Congress in protecting us in a—
1. Sound import policy.
2. Supporting the interstate oil compact in allotting production
allowables to the various States to meet market demand and prevent
loss.
3. A reasonable tax program.
I have great faith in America and Americans, and if we all earnestly
work for it, I believe this program of cooperation within the industry
itself and with Congress can be carried out to the benefit of all.
The C H A I R M A N . H O W many more witnesses do you have ?
Mr. RUSSELL B R O W N . The industry necessarily has a great number
of factors and different elements in its make-up. We have presented
here some of the testimony from the independent petroleum associations who are independent producers from the National Stripper Well
Association, an association of the smaller well operators. We will
develop the effect of the secondary recovery.
One of the largest so far as investment is concerned, probably the
largest association of its kind in the country, is the American Petroleum Institute. In order to get this testimony into 1 day's time, we
have tried to avoid duplication. Mr. William R. Boyd is present, of
the American Petroleum Institute. They have some witnesses.
Mr. Frank Porter, who is president of the Mid-Continent Oil and
Gas Association, would like to make an appearance. After that, I
would like to make a few suggestions as to a possible remedy.
The C H A I R M A N . D O you have any additional statements you wish
to put into the record ?
Mr. R U S S E L L B R O W N . I would like to introduce Mr. William Boyd,
president of the American Petroleum Institute.
Mr. BOYD. Mr. Chairman, you have graciously permitted us to
schedule witnesses. I thank you. Those three witnesses are Mr. Walter S. Hallanan, president of the Plymouth Oil Co., of Pittsburgh;
Dr. Robert E. Wilson; and Mr. J. Howard Pew, president of the Sun
Oil Co., of Philadelphia. I should like to ask permission for them
to appear in that order.
Mr. Hallanan.
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E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
S T A T E M E N T O F W A L T E R S. H A L L A N A N , C H A I R M A N O F A M E R I C A N ^
PETROLEUM
INSTITUTE
Mr. H A L L A N A N . Mr. Chairman and gentlemen of the committee,
my name is Walter S. Hallanan. I am president of the Plymouth
Oil Co. and the Big Lake Oil Co., of Pittsburgh, Pa. Both of these
companies are engaged in the business of producing crude oil from
properties mainly located in Texas. During the war emergency, I
served as chairman of the production committee of district 1 under
appointment of the Petroleum Administrator for War. I was also a
member of the Petroleum Industry War Council and was chairman
of the general production committee of that organization.
Today I appear before your honorable body as chairman of a
special committee of the American Petroleum Institute to petition
your favorable consideration of the unanimous plea of the petroleum
industry, every segment and division of it, to be relieved from the
strait-jacket of Federal price control. Instead of holding the
price line, it is now realized that the Office of Price Administration
is holding up the production line. Every group of the industry has
joined together in this appeal to the Congress that we may be liberated from the shackles of the Office of Price Administration control
and that we may now be given an opportunity to meet the constantly
variable problems of this great industry through a free economy operating under the competitive system of free enterprise. 'We present a united front in asking Congress for this relief.
The committee of the American Petroleum Institute was directed
to present to your body its views and informative data bearing on
the following subject:
1. To explain the present supply and demand situation of our industry and the unbalances and inequities created by the operation of
peacetime price control.
2. To summarize the fundamental difficulties with, and bad effects
of price control in peacetime.
3. To urge and supply the information which justifies prompt
elimination of price control in the petroleum industry.
Particularly do I desire to dwell upon "the forgotten man" of
the price control program—the American oil producer. For almost
5 years this indispensable figure in our economy has been a victim
of an inflexible and unrealistic price structure. The oil producer,,
along with the other segments of the industry, has ever been deeply
conscious of an obligation to provide the American people with an
adequate and low-cost supply of crude oil and petroleum products.
That obligation has been fulfilled both in war and in peace.
To the best of its ability, the oil industry is intent upon carrying
out its obligation to serve the national interest. Its purpose is to
get available oil products to customers in plentiful supply at the
lowest price consistent with a healthy industry. This it cannot
guarantee the public so long as it is hamstrung by inflexible restrictions and prohibitions that no longer have any color of justification.
The Office of Price Administration controls were provided by Congress for the purpose of preventing runaway prices of commodities
and products in scarce supply during wartime and in the reconversion
period. There is today an adequate supply of petroleum, and the
1127
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
principle of price control is consequently wrongly and dangerously
applied to petroleum products. I say "dangerously'' because it is a
fact that seasonal shortages of certain types of heating oils the past
winter were Office of Price Administration created, and any scarcity
which may arise will be due solely to continuation of Office of Price
Administration control over the industry.
A specific example, Mr. Chairman, of the effect that production
restriction by price control has on the motoring public is the present
shortage of metallic lead which is now in such short supply due to a
demoralized economy that current allocations of industrial lead are
so limited that the American motorist is now confronted with the
prospect of a return to the inferior wartime gasolines with their
pings and knocks—simply because without enough lead the high
antiknock rating of postwar gasoline cannot be economically maintained. Here again the petroleum industry may be blamed by the
public for a fault that, like so many others, sprang directly from the
Office of Price Administration.
I may say that the petroleum industry here and now disclaims responsibility for future low-cost supply of petroleum products to the
American public if the Office of Price Administration controls are
continued; but if the industry is permitted to operate under the
flexible law of supply and demand, it is confident that it can furnish
an adequate and continuous supply of crude oil and its products at
reasonable prices.
Because of unnecessary continuation of the Office of Price Administration regulation of the oil industry since VJ-day, there have been
many bottlenecks and hindrances in getting petroleum products to
the. American people at fair prices. This situation will become
progressively worse if the industry is unnecessarily kept in a "straitjacket."" It is in the public interest that this situation should be
recognized immediately and corrected promptly.
Petroleum supplies are now ample to meet all foreseeable demands
if they are not subject to frozen and unrealistic price structures. On
any yardstick that would measure adequate supplies to take care of
all demands, the petroleum industry is ready to meet every test. After
many months have elapsed since the close of the war, during which we
mobilized every resource at our command to fill every need of our
fighting forces on every front, this industry which gave forth oil and
petroleum products in quantities and kind never dreamed of before,
finds itself locked up in the hands of Federal bureaucrats who seek to
impose their distorted economic will over our destiny and the welfare
and security of the American people. It becomes increasingly evident
that certain groups which enjoyed the exercise of far-reaching power
during wartime, prefer indefinite continuation of their wartime power
to direct the Nation's economy. Having had a taste of power, they
found it a sweet morsel, very much to their liking. They are loathe to
give it up now.
I submit that there is no room in a free America for any Government
control that is exercised for control's sake alone. There must be some
sound justification in the public interest. That justification does not
exist today insofar as the oil industry is concerned; it has not existed
since the end of the war, and there is no foreseeable circumstance under
which it will exist. On the contrary, it is decidedly in the public
1128
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
interest to remove Government control now so that the oil industry may
be free under the flexible law of supply and demand to meet the
variable and seasonal problems which are peculiar to the industry.
There is nothing complex about the situation in the oil industryThere are no algebraic equations involved. The facts are simple. The
price of crude oil was frozen by Government decree at a depressed and
subnormal level, even before the Office of Price Administration enjoyed statutory authority. Wasteful production in Illinois had
resulted in a price cut of 20 cents a barrel throughout the midcontinent
area in 1938. Only a part of this price cut had been restored when
prices were frozen at a similar time when the Office of Price Administration refused to permit one of the leading purchasers of crude to put
into effect a 25-cents-per-barrel increase which was then entirely
justified by market conditions. While crude-oil prices have remained
fixed throughout this war, except for nominal spot adjustments permitted in some fields, prices of all other essential raw materials have
been allowed to increase until they exceed parity with the 1926 price
level. According to the United States Department of Labor, the
wholesale price of all commodities in January of this year was 107.1
in comparison with the 1926 price of 100. But for the same month the
same agency reports that the wholesale price of petroleum products
was only 62.1. In the meantime, production costs doubled and finding
costs of oil multiplied from five to ten fold.
This subnormal price structure, gentlemen of the committee, has
been maintained in the face of recommendations for an upward adjustment from every public agency which studied the question, including the Petroleum Administration for War, the Petroleum Industry War Council, several committees of this House of Representatives, one committee of the United States Senate, the Interstate Oil
Compact Commission, the House of Representatives itself, and the
governors and other public officials of practically every oil-producing
State in the Nation. Insofar as the oil industry is concerned, the
price-control program has been administered with utter disregard
of the law. When Congress enacted the price-control statute, it was
keenly aware of its potential destructiveness if unwisely and unfairly
administered. It provided that price ceilings should be established
with relationship to costs and profits durng the 1936-39 base period,
and further provided that the Office of Price Administration should
appoint advisory committees from each industry and consult with
such advisory committees and give full consideration to their recommendations. May I say to this committee that it was not until a short
period before the end of the war that the Office of Price Administration agreed to appoint and consult with an advisory committee from
the oil industry. This concession was wrung from unwilling hands
by the persistent efforts of a committee of this House, the Select
Committee on Small Business, of which Representative Patman of
Texas is chairman. In the meantime, price ceilings on crude oil have
been held without any relationship whatsoever to the 1936-39 base
period.
After denying for 2 years that any relief was needed by the oil
industry in order to stimulate production and to safeguard reserves,
the Office of Price Administration, in response to indisputable facts
presented by congressional committees and other public agencies,
1129
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
finally provided a subsidy for wells producing less than 10 barrels
per day which is costing the taxpayers from $60,000,000 to $75,000,000
per year. This action was taken over the protests of the industry,
which knew that a subsidy could not possibly produce the desired results and which likewise was aware that, touching only a bare, small
percentage of the Nation's total production, it was wholly inadequate
and unsatisfactory; it was merely the subterfuge by which Peter was
robbed to pay Paul. The industry knew that the subsidy was nothing
more nor less than an opiate which would deaden the pain without
curing the disease.
In any event, the subsidy was made effective amid pronouncements
by the Office of Price Administration that here was the answer to
the decline in exploratory drilling and to declining production in the
stripper fields, particularly in the Pennsylvania grade district which
produced the high-grade lubricants then so vital to the prosecution
of the war. The highest subsidy paid anywhere in the Nation—75
cents per barrel, was given to producers in that district.
The result of the subsidy was that the decline, both in production
and exploratory drilling in this field, was not only continued but was
actually accelerated. When this factual condition was brought to the
attention of the National Oil Policy Committee of the United States
Senate, Mr. Orville Judd, then head of the Oil Price Section of the
Office of Price Administration, advanced the amazing contention that
the subsidy had never been intended to provide an incentive for the
discovery and development of new reserves. He quoted the Honorable
Fred M. Vinson, then Director of War Mobilization, as having told
him that the subsidy plan "was not promulgated as a stimulus for
exploratory drilling." In this connection I hope the members of this
committee will bear in mind that the basis of every recommendation
for a crude-oil price increase that had been made by all the publicagencies that I have named was the imperative necessity for encouraging exploration in order that reserves so heavily drawn upon in the
war effort might be replaced and the Nation thereby assured of a
plentiful and continuing supply of petroleum products throughout the
foreseeable future. It was in response to these recommendations and
to the action of the House of Representatives itself in passing the
Disney bill, making mandatory an upward adjustment in oil-price ceilings, that the subsidy was made effective by the Office of Price Administration.
As I have said, the insistence and persistence of the House Committee on Small Business finally compelled the Office of Price Administration to obey the plain mandate of the law by appointing an
advisory committee for the oil industry. That committee made its
report last month showing that the gross income per barrel of oil in
1944 was actually 36 cents less than the cost of finding, developing,
and producing that barrel of oil. With costs continuing to increase
during 1945 and the early part of this year, the discrepancy is far
greater today. The committee reported that an average price of
$1.99, exclusive of subsidy, would have been necessary in 1944 in order
to have maintained the base period margin of 45 cents per barrel. The
committee recommended an immediate increase of 35 cents per barrel.
The response of the Office of Price Administration to this report
of its own advisory committee—a comprehensive document of incon-
1130
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
trovertible facts—was to announce an increase of 10 cents per barrel,
which is less than one-quarter of a cent per gallon, to be effective at
some undetermined future date. I t is perhaps not without significance that this grudging and wholly inadequate increase was given
at a time when the Office of Price Administration was fighting for its
continued existence. The record would seem to justify the suspicion
in the oil industry—a suspicion which pervades other segments of our
economy—that in their loudly proclaimed determination to hold the
price line the bureaucrats of the Office of Price Administration are not
entirely without purpose and desire to hold their own power over
every branch of American industry. The 10-cent figure was obviously
"pulled out of the air." It bears no relationship whatsoever to equity
or adequacy. In the light of the record, it is not a stretch of the
imagination to conceive that had it not been for the fact that the
Office of Price Administration's own life was hanging in the balance,
the report of the advisory committee would have received the same lack
of consideration that has been given in the past to the reports and
recommendations of other public bodies.
Those are the simple facts about the administration of the Price
Control Act with reference to crude oil and petroleum products. The
result has been a creeping paralysis in the oil industry. Literally
thousands of small, independent producers, whose production costs are
naturally higher than those of the major integrated companies and
who have no sources of revenue outside of production, have been driven
out of business.
And may I call your attention to this? I t has always been the
small independent in the business who has carried on the bulk of the
exploratory work. Three-fourths of the oil reserves which this Nation
has today were discovered by these independents.
To the extent that the independent oil producer discovers the replacements which keep our reserves in the balance with production,
he represents the foundation of the industry. You cannot tear down
that foundation without undermining the whole structure and when
the structure goes down, the Nation's peacetime economy and security
go down with it. We must be certain in looking to the interests of
the immediate future as well as the destiny of our posterity, that we
shall not become a "have-not" Nation with respect to our petroleum
reserves. The civilization of which we boast, in this great land is inseparably linked with the oil that flows from the "wildcatters'"
projects.
The people are concerned with the question of whether the crude-oil
productive capacity in the country today is sufficient to meet all requirements. The answer is yes. There is not only enough capacity
to meet the needs but some to spare.
The requirements for 1946 as estimated by the Petroleum Administrator for War, with additions made to cover the revised requirements
of the Navy and War Shipping Administration is 4,381,000 barrels
daily. The actual production during the 4 weeks ending March 2 was
4,710,000 barrels daily. The surplus productive capacity is therefore
more than 300,000 barrels daily. Actual production during January
and February of this year resulted in a large accumulation in stocks
even though this was a period of peak requirements. As a result, production in March has been cut down to about 4,400,000 to prevent further accumulation.
1131 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
There can be no doubt as to the present crude-oil productive capacity
being in excess of maximum requirements.
What of the future? That will in our opinion depend on price
control. The question will naturally be asked: Will lifting of price
control result in an increase in crude and product prices ? The answer
is, most probably, yes. The real question is: would such an increase
be in the public interest ? I will not try to answer that question but
will state the facts to your committee:
With present price ceilings on crude oil, the return to the producer
is less than his cost of replacement. In order to maintain production,,
new fields must be found because the old fields are constantly declining
in productive capacity. As a matter of fact, three-quarters of our
production comes from one-quarter of the wells. If there were no
new drilling of any kind, the productive capacity would fall below
requirements within a year.
To drill enough wells and find enough fields to sustain productive1
capacity requires a tremendous and increasing amount of capital each
year. Capital is attracted into this r i s k j business only if profits are
possible when the driller is lucky enough to find at least an average
amount of new oil. However, when the cost of finding and producing
oil costs more than the sales price of the oil, as it does today, it may
be expected that drilling activities will decrease markedly. This
will result in a short supply of crude oil within the near future. Is
this in the national interest? The military people tell us it is not.
How about the public, the average consumer of gasoline, kerosene, and
heating oil ? He may save as much as 1 cent per gallon on his purchases
for perhaps a year. Is it worth it to him to have this country become
a have-not nation as regards oil? Consideration must be given to
what his cost will be in later years when the Government, realizing
the danger to the Nation resulting from the mistakes it made this year,
attempts to rectify them by high cost synthetic producion—perhaps
subsidized, but still at the taxpayers' expense. Or maybe they will,
simply return to rationing the public on gasoline and other petroleum
products.
It is easy to hold prices artificially low and appear to be acting in the
public interest when you do not have to bear the responsibilities of the
future. Certainly, many oil companies can stay in business and produce some oil for a considerable time at the present prices, simply by
liquidating their assets, their underground reserves, and not replacing
them. No oil company wants to do this and I do not believe the public
wants it.
The old adage "You can't get something for nothing" is just as true
today as ever. If the sole object is to have the lowest possible price for
oil, then the public must be willing to put up with shortages, low quality and lack of reserves for a national emergency. We saw what oil
meant to us in the last war. A healthy, expanding industry was a
national asset then, and we do not believe it has ceased to be. We
wonder what the public will think when they realize where the present
policies are leading.
From the day of its completion, an oil well is a liquidating enterprise. As its reserves are liquidated, many direct and indirect charges
must be paid. Part of the numerous costs of exploration and discovery
must be paid by the revenue remaining after the payment of land-
1132
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
owners' royalties and property taxes. Then the cost of drilling must be
amortized and the daily costs of operation met. Then come overhead
costs and Federal taxes and from what remains must come the profit
and the increased fund for the replacement of reserves, and for this
latter purpose the prevailing depletion allowance is an absolute
essential.
In July 1941, the crude oil production of the United States averaged
4,019,800 barrels or 168,831,600 gallons daily. Most of this oil was
'being produced by efficient methods intended to obtain maximum ultimate recovery from the reservoirs. As the result of costly experience,
10 or more years previously, it was known that several of the newer
fields had a productive capacity somewhat in excess of the most efficient
rates of production, and it was the fervant hope of those most concerned that this reserve productive capacity would see us through the
demands of the war that then seemed certain to engulf us.
It is wellTmown now that it was the reserve productive capacity of a
number of new fields that shortened the war and assured victory, for
the utmost production of the 300,000 settled and stripper wells, and of
thousands of new wells drilled under such handicaps during the war,
would still have fallen far short of the magnificent total of 5,197,500
barrels, or 218,000,000 gallons of petroleum daily that was required
in July 1945 to smash our last enemy. Without this reserve of oil to
hurl against oar enemies, it is doubtful if we could have fought two
wars at once without completely crippling our civilian economy by oil
rationing of unbelievable severity.
Many of the fields that contributed so heavily to the call for oil,
regardless of price or future, are now far less productive than they
would have been under continued good production practice. Their
owners, gentlemen, have paid heavily and without recompense for the
excessive depletion of the reservoir that the wasteful emergencies of
war forced upon them. Perhaps this now comes in the category of
water over the dam, but the war-taught fact remains that our national
security will henceforth demand an almost instantly available reserve
productive capacity of at least 25 percent greater than our ordinary
needs. With reasonable freedom of action and some encouragement,
the petroleum industry will do its part in maintaining this vital reserve capacity, but it has no relish for again being penalized for its
efforts.
Gentlemen of the committee, the war we have so recently won was
an oil war. On the sea, in the air, and on the land, oil was one of the
great factors that gave us superiority and ultimate victory over our
enemies. Our Allies looked to us for the oil to carry on their victorious
advances. If those who blazed the trail in the past generations in
finding oil had been compelled to build our great crude reserves and
our refineries and distribution lines with an Office of Price Administration mandate over their heads, there might have been another story
to tell today. Those crude reserves from which flowed the high octane
gasoline, the lubricating oils and the fuel oils that took our Navy
armada to the four corners of the earth, would not have been there.
We have our oil reserves today because the American oil producer—
the "wildcatter" if I may use thafname—went forth to take a chance
in the most hazardous business in the world: finding oil. That would
not have been the case if he had thought it would be necessary to see
1133 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
his product sold under an arbitrary price structure that denied him a
fair price for his product, It would not have been possible if he had
been told that he had to sell his product for less than he could replace
it. Under "frozen" price structures, the profit margin is entirely
inadequate to attract the venture dollars that have been responsible
for past discoveries of new crude oil reserves.
It has been said by some poorly informed persons, and by some
others who were not so poorly informed but who were desirous of
creating dissension within the industry, that the larger companies
have been pleased with the liquidation of the independent oilman and
with the consequent trend toward control of the industry by a few
large, integrated corporations. That belief is wholly without foundation. In making that statement, I am speaking as the representative
of companies which are not classified among the majors. The executives of the major companies are fully conscious of the perils inherent
in monopoly. They are likewise fully conscious of the fact that the
industry as a whole cannot be prosperous unless that prosperity extends to every group within the industry. It is an industry structure
and no part of it can be injured without disturbing repercussions all
down the line.
The Office of Price Administration propagandists have attempted
to obscure the fact of the liquidation of the independent oil producer
by proclaiming from time to time that few oilmen have gone bankrupt
throughout the period of price control, and by repeated assertions that
the industry has enjoyed "satisfactory profits." It is true that very
few oil companies have resorted to bankruptcy in the last few years,
but this does not mean that literally hundreds of producers have not
been driven out of business. The oilman has not chosen to make his
retirement from business by way of the bankruptcy courts. He sells
out his property to more favorably situated units within the industry
or merely liquidates his affairs, pays off his debts, and seeks some
other line of endeavor. It is not without irony that as he was following his course he would read the Office of Price Administration statements about his "satisfactory profits."
Let us look for a moment at those so-called satisfactory profits.
This is a subject which has furnished a Roman holiday for the scaremongers of the Office of Price Administration who manufacture the
propaganda of that organization and feed it to the public in the form
of speeches and public statements. To them the very word "profit"
seems to be evil and unwholesome and to connote some sinister purpose. Indeed, when representatives of industry come to Washington
to exercise their constitutional right to petition their Government to
provide them with the necessary profit margin to permit them to survive, the Office of Price Administration propaganda mill grinds out
words of calumny upon the heads of these men, branding them as
greedy profiteers who, in reckless and irresponsible fashion, are willing
to bring on ruinous inflation in order to line their own pockets.
The oilmen of this Nation are deeply conscious of the ruinous effects
of unbridled inflation. They are just as desirous as anyone of preventing any such tragic condition in this country. I think I may say
with pardonable pride that, measured over the years, they have demonstrated a capacity for vision and action. Their record is one of the
marvelous achievements by private industry. Since the First World
1134
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
War, we have quadrupled our crude-oil-producing capacity, found
and put to use enormous volumes of gas, increased our yield of gasoline from a barrel of crude oil by 75 percent, built 100,000 miles of
pipe lines, and not only quadrupled refinery capacity but changed
refinery technology to an amazing extent.
During the 23 years, 1919 through 1941, we drilled 551,676 wells
in the United States, of wdiich 136,381 were failures. In 1918, United
States Geological Survey estimated the crude oil of the United States,
both "proved" and "to be discovered" at only 7,000,000,000 barrels, and
the automobile industry feared that an oil shortage would hamper its
growth. Since that period, our private oil industry has produced
27,000,000,000 barrels of oil and still has proved resources of 20,000,000,000 barrels, while we continue to discover new fields.
The great network of highways and roads covering the United
States was built by Federal and State governments largely out of
funds derived from special taxes levied on automobiles and the consumption of oil products. In the case of gasoline alone, the States
were collecting taxes at the rate of $948,038,000 yearly in 1941. Along
these roads and highways the oil industry has established the greatest
distribution system in the world. During normal peacetime in America, a so-called nation on wheels, the motorist is rarely, if ever, beyond
reach of a service station where he is assured of fine products and exceptionally efficient service.
A business dealing with so vital a product, organized so efficiently,
and enjoying so rapid and constant an increase in consumption, might
perhaps be expected to earn a great rate of profit and pay dividends at
high percentages on investment. On the contrary, the industry's
profits, large in total dollars, have been small in relation to the investment, because the investment in dollars has grown so great. It has
been able to pay dividends at only modest rates. In the past 20 years
they have averaged only 4 percent on net depreciated investment.
Those engaged in the oil industry are practical men. They are concerned with facts—facts which convince them that the only way to
assure this Nation of a continuing adequate supply of petroleum over
the years to come is to remove the blighting hand of bureaucracy from
the industry's throat. In that way, and in that way only, will we
achieve the production necessary to meet demands and at the same time
maintain an adequate ratio of new reserves. That is the way to prevent inflation—the only certain way to clo it. The Petroleum Administrator for War, in commenting upon the theoretical oil reserves projected by statisticians outside of the industry, aptly observed that you
could not discover oil with a pencil. By the same token, permit me to
say that you cannot stop inflation by incendiary and scaremongering
speeches. Inflation can and will be prevented only by exercise of the
full capacity of America's enormous productive facilities, unhampered
by strait jacket controls lodged in hands that are without comprehension of the problems involved.
As I have said, the Office of Price Administration propagandistshave made much of the so-called satisfactory profits of the oil industry
during the war. They have selected a particularly favorable earnings
statement which suited their purpose and have given it to the public
with the implication that it represented a fair cross-section of the industry. They have failed to take into account that such apparent
profits as have appeared result from the exhaustion of assets developed
1135
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
with capital invested years ago and that cannot be replaced except at
much greater cost. In effect, therefore, the so-called profits are largely
the liquidation of capital.
High production during the war drew heavily upon crude oil reserves accumulated in prewar years. Those reserves, produced during
the war and currently, are being only partially replaced with new
crude oil reserves, discovered and developed at much higher cost.
The industry has disposed of a substantial part of its low-cost inventory of crude oil in the ground at prices which do not stimulate sufficient exploratory and development drilling.
It is axiomatic that if you sell goods off your shelves and do not
replenish those shelves, you are liquidating. The oil industry resists
its involuntary liquidation. It wants to continue on a going concern
basis. I t is motivated not alone by the instincts of self-preservation
but by the knowledge that the national economy cannot survive without an adequate supply of petroleum.
The replacement or reserves is nothing new in the oil industry. I t
is one of its major normal operations, and during the base period
of 1936-39, 63 percent of the industry's gross income was put back into
exploratory operations. That percentage has declined precipitately
since 1941 because the Office of Price Administration price ceilings
did not permit the industry to carry on its major normal operation
with any expectation of deriving a reasonable profit therefrom. In
1941, the percentage fell to 52 percent, and in 1942 and 1943, it dropped
to 41 percent.
The American petroleum industry is built upon the crude oil producer. The needs of the millions of petroleum consumers in this
country eventually fall squarely upon the owners and operators of the
425,000 oil wells in the United States. The responsibility of the industry for so much of the present pattern of life in this Nation is not
so lightly held nor casually regarded by those who through four generations of the history of petroleum have inherited and steadily developed the creed of continuing service. In the brief interval between
two global wars, the demand for petroleum multiplied fivefold—and
so did the supply. The degree to which that supply will continue to
meet a positively increasing demand depends very largely upon the
liberation of the petroleum producer from the artificial and unnecessary shackles of a misplanned economy which now imbue the* oil producer with a futile feeling of despair, discouragement, and disgust.
So long as this attitude continues, the future oil supplies of this
Nation are in jeopardy.
It is not necessary for me to recall the many declarations made before
this committee and in other statements by Office of Price Administration spokesmen that price controls would be removed from any
commodity when the supply became adequate to meet demand. In
the oil industry that day arrived last August. But the only word
that has come from the Office of Price Administration—word, incidentally, that came only after urgent request by a member of your
committee—was a letter from Mr. Bowles stating that it might be
"possible" to suspend price controls in the oil industry sometime within the next 6 months.
The oil industry insists that it is not interested in a mere suspension
of price control, either now or at some uncertain date in the future.
We are asking Congress for our full freedom. We do not want the
1136
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
probationary and restricting hand of the Office of Price Administration on our shoulder. We want to be restored to our status as a highly
competitive industry. We want the opportunity to survive. We seek
to conduct our business entirely unhampered by the restrictions which
were imposed by Congress only as a war emergency.
The war is now behind us and we ask that the restrictions born of
that war also be placed behind us. We want the opportunity to go
forth as free Americans to develop the vast oil reserves of the Nation
and to be enabled to make the same kind of contribution to national
security and prosperity as we have in the past. The greatest incentive to that goal would be immediate release from the strangling hold
of Federal price regulation. We submit that on the facts and the
record we are entitled to that consideration forthwith.
The C H A I R M A N . Mr. Russell Brown, the House is now in session.
It is obvious we cannot conclude in the next few minutes. We will
adjourn and meet at 2 o'clock.
(Whereupon, at 12: 30 p. m., the meeting recessed, to reconvene at
2 o'clock of the same day.)
A F T E R N O O N SESSION
The C H A I R M A N . The committee will be in order.
Who is your next witness, Mr. Brown ?
Mr. R U S S E L L B R O W N . Mr. Wilson.
The C H A I R M A N . Y O U may proceed, Mr. Wilson.
STATEMENT OF ROBERT E. WILSON, CHAIRMAN OF THE BOARD,
STANDARD OIL CO. OF INDIANA
Mr. W I L S O N . Mr. Chairman and members of the committee, my name
is Robert E. Wilson. I am a resident of Chicago, 111.
For a year prior to our entry into the war, I was head of the Petroleum Unit of the National Defense Advisory Commission, and later
the Office of Production Management.
During the war I was Chairman of the Technical Committee and
of the Committee on Petroleum Economics of the Petroleum Industry
War Council.
I am chairman of the Board of the Standard Oil Co. of Indiana.
Previous witnesses have made it clear that there is plenty of crude
oil available to meet all prospective needs for the foreseeable future.
I shall devote my remarks on behalf of the American Petroleum Institute to the adequacy of refining capacity and its ability to make
abundant quantities of the various petroleum products. The facts are
very simple and readily demonstrable.
To put the entire problem in a nutshell, the petroleum industry
has an excess of refining capacity and transportation facilities. The
stated office of Price Administration policy is to remove controls when
productive capacity is adequate. Continued adherence to present
price controls are introducing serious dislocations of supply and
pauperizing the refiner to the extent that his ability to serve the public
is being jeopardized. The only shortages of any products experienced
since the war have been brought about by the Office of Price Administration's disregard of repeated warnings that the frozen industry
1137
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
price structure did not fit the postwar demand pattern. I shall
develop these essential facts in greater detail.
The effective refining capacity of the industry at the present time is
approximately 4,900,000 barrels of crude per day, not allowing for the
completion of units now under construction. The refining branch
of the industry actually ran at a rate of 5,000,000 barrels per clay
during the latter part of the war period. Last fall the Petroleum
Administration for War estimated the average crude runs necessary
during the year 1946 to be 4,200,000 barrels per day. Apparently the
military, and particularly the naval, and the War Shipping Administration portion of this demand was somewhat underestimated..
Latest revised estimates of the requirements of these agencies for the
year 1946 will necessitate an increase of crude runs over the previous
estimate by about 200,000 barrels per day. This requirement of
4,400,000 barrels daily of crude runs still leaves spare capacity of more
than 500,000 barrels, or 21,000,000 gallons, per day.
The question may logically arise, in view of the adequacy of crude
and of refining capacity, as to why we have heard so much discussion
during recent months of prospective and actual shortages of kerosene,,
distillate, and residual fuels. These have given the industry and its
customers real concern. The fundamental causes are as follows:
Ours is a multiple-product industry which has substantial flexibility
as to the relative amounts of different products which can be made
from a barrel of crude. The average percent of gasoline present as
such in crude oil is only about 23 percent but with the present installations of cracking, and particularly catalytic cracking equipment, it
is today easy to produce a total of well over 50 percent gasoline by
cracking kerosene and the heavier oils. As a matter of fact, it is not
'practicable to reduce the country's average yield of gasoline much
below 36 or 37 percent and still maintain adequate qualityv as the
products and byproducts of cracking are essential to making good
quality gasoline.
The following table and chart show the average percentage yields
of principal products from a barrel of crude petroleum during 1941
and the estimated yields required for the year 1946 :
This chart shows that in 1941 we got 44.2 percent of gasoline as
against 37.4- estimated for this year. On the other hand, residual
fuels went from 24.3 to 28.4; distillate, from 13.4 to 15.4; kerosene,
from 5.2 to 5.3, a very major change in the demand pattern. The
sharp drop in the required yield of gasoline between the two periods,
and the higher yield of fuel oils now required, is due primarily to
two factors: First, the demand for gasoline.is off because registration
of automotive vehicles in 1946 is between four and five million lower
than in 1941, and, second, the strong demand for fuel oils resulting
mainly from naval requirements for Diesel and residual fuels are
far higher than for any peacetime year.
The sharp shift in demand did not come as any surprise to the industry. The need for a substantial change of operations was strongly
urged last fall by alll students of the petroleum industry. This was
very clearly indicated in the report of the committee on petroleum
economics of the Petroleum Industry War Council, dated October
23, 1945, which was made public immediately, and in the November-
1138
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
report of the Petroleum Administration for War. The industry
and Petroleum Administration for War urged that the only way to
bring about these changes was to reintroduce the flexibility of prices
which had existed in the competitive economy prior to the war. What
;actually took place after these warnings?
The Office of Price Administration continued in effect price ceilings which were designed to produce the high gasoline yields needed
in 1941. It did not lift price control nor did it take action all during
the period when it would have been fairly simple to secure the moderate changes in yields required to meet this winter's demand.
Production of the lowT-ceilinged fuel products was discouraged and
shortages came into existence while excess gasoline piled up. The
reaction by the Office of Price Administration to this growing problem was to recommend reinstatement of controls on the distribution
of kerosene and fuel oils. This was vigorously opposed by the industry which could not see the justification of rationing the public in
the face of abundant capacity to supply.
It was only after the situation 011 heating fuels became desperate
that the Office of Price Administration granted meager increases
of 0.5 cent per gallon on kerosene and 0.2 cent per gallon on distillates
in districts I and I I I on December 19. It was not until January 24
that these ceiling modifications were changed to 0.5 cent per gallon
on kerosene, burning distillates, and Diesel fuel in district II, and
districts I and I I I were brought up to meet these levels. On February 20, district V was granted an increase in kerosene and distillates
.ceiling of 0.75 cent a gallon.
These changes in ceilings came very late in the winter to meet a
serious situation. However, their effect was immediate and substantial. Supplies of kerosene and distillates were attracted to the
market in adequate quantities to prevent the customer from suffering.
This is strikingly portrayed by chart II.
Notice that kerosene stocks were running substantially below last
year for the months immediately following VJ-day. Refiners could
not afford to adjust yields to make more kerosene at the expense of
gasoline because of established ceiling prices. On December 19 the
first price adjustment was made in districts I and I I I . Note how rapidly the kerosene stock situation changed from one of potential crisis
to normal. Did not the public benefit far more from this than from
reintroducing rationing ?
The price changes on kerosene and distillates came so late, however, that they were not able to overcome all the local shortages and,
in fact, aggravated the shortage of residual fuel oil because nothing
was done as to the price of the latter. If free competitive prices had
existed, the price adjustment would have been earlier, and probably of
lesser magnitude, and the consumer would have benefited. Considerable of the kerosene and distillate fuel would have been made at the
expense of gasoline which was piling up in excessive quantities. As
it was, more crude had to be run, and more gasoline stocks piled up
until some refineries had to curtail operations due to lack of gasoline
storage capacity. These dislocations would not have occurred if
prices had been free to perform their normal regulatory function in
our industry, especially for products where the demand is highly
seasonal.
1139
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The failure of the Office of Price Administration to extend an increase of ceiling prices to residual fuel oil led to shortages of such a
serious nature that the Secretary of the Navy called the industry together on March 8 and showed the urgent and immediate need for
more of this type of fuel than is being secured to meet Navy and War
Shipping Administration requirements. The ceiling price on this
product had been held at unremunerative levels all through the war
in spite of a large growth in demand.
Even with the price increase of 21 cents per barrel announced on
Monday, residual fuel oil continues at a figure below the refinery cost
of most crude oils and the refiner cannot afford to run more crude to
produce residual fuel as a primary product. While he can afford
to make somewhat higher yields from present crude runs, I doubt
if the increase will be adequate to meet requirements.
Apparently it is believed in some quarters that if each product price
remained constant, the income to the refiner and the over-all cost to
the public for petroleum products would remain the same. This is
not the case because the mere shift of yields from the 1941 basis to
the 1946 basis would reduce the cost to the public and the gross receipts
of the refiner by about 10 cents per barrel of crude. I t is analogous
to a butcher having to-sell part of his potential steak as h a m b u r g e r .
As a further illustration of the situation of the refiner, the National Refiners Industry Advisory Committee has presented a detailed
statement of what is taking place with respect to refinery margins
in the midcontinent area, one of our largest petroleum markets. The
midcontinent refinery margin index represents a calculation of the
value, on the basis of quoted refinery prices, of the products manufactured by midcontinent refiners from their crude runs as reported
by the Bureau of Mines. This information is available for many years
and by comparing the typical realization from a barrel of refined
products with the prevailing posted price of crude oil at the well, it
is easy to determine the approximate gross margin available to the
refiner above his crude oil cost at the well. The margin is the total
available to the refiner from which he must pay for gathering and
transporting the crude to his refinery, pay all refinery operating costs
and, if possible, produce a profit. The average margin so calculated
for the years 1935 through 1941 was 54 cents per barrel. As of March
1, 1946, this margin was only 48 cents per barrel. Thus the refiner
in the midcontinent, through lower gasoline prices and altered yields
has already had his gross margins reduced by 6 cents per barrel of
crude oil processed, and out of this reduced margin the refiner must—
(a) Provide the American consumer with a better quality gasoline
at increased manufacturing cost;
(b) Pay the new increased wage levels which, including "shift"
differentials, amount to more than 40 percent over 1941; and
(c) Meet substantially higher costs of all materials for maintenance
and repairs.
As if this were not enough trouble for the refiner, particularly the
small operator, the Office of Price Administration, early in March,
announced that it proposed to increase crude prices by 10 cents per
barrel and would "consider" possible increases in product prices. The
National Refiners Industry Advisory Committee was convened on
March 11, and impressed upon the Office* of Price Administration that
83512—46—vol. 2
11
1140
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
refiners could not absorb this increase from existing margins. Many
refineries would have to close as they would be operating at losses, supplies coming on the market would be reduced, and the public denied
merchandise needed. That committee strongly urged discontinuance
of Office of Price Administration control of prices of refined petroleum
products.
The most that the Office of Price Administration was willing to
grant, at least for the present, was increases of one-half cent per gallon on tractor fuels, residual fuel oils and asphalts. These price adjustments, even if realized in total by all refiners, which will not be the
case on account of competition and contractual commitments, would
return the refiner approximately 5 cents per barrel on crude which is
only half enough to compensate for the increased crude price which
will be effective shortty. Many of the smaller refiners reported to the
Office of Price Administration Advisory Committee that the crude
price would entirely wipe out their profit margin.
Our industry is a clear case of one where capacity to produce and
refine at a rate above demand has not been recognized by the Office
of Price Administration in spite of its promise to decontrol when such
a situation exists. We are not only suffering from a price strait-jacket,
but we are tortured by one which is a bad misfit for the present demands
of our customers.
Our industry is one in which frequent price changes are absolutely
necessary in order to keep our yields adjusted to fluctuating seasonal
demands for different products. The price history of the industry
speaks for itself in this respect. Chart I I I attached shows on an expanded scale the seasonal fluctuations in the average Oklahoma wholesale refinery prices for gasoline and a typical distillate fuel for our
prewar years. Without free prices as a guide, managements are
hampered or misled in making the many day-to-day decisions necessary to fulfill their responsibilities to their customers.
Our industry is highly competitive, and with an adequate supply of
crude and more than adequate refining capacity and transportation
facilities, competition can be relied upon without question to keep
prices reasonable, as they were prewar.
I might just point out that the service station price (ex tax) of our
principal product, gasoline, on an average in 50 cities in the United
States on February 1, 1946, was only 67.5 percent of what it was in
1926, and well below the ceiling, in comparison with the all-commodity
price index which was 107.1 percent of 1926 on the latest available
figures.
The plight in which the refining branch of the industry finds itself
is an outstanding example of the undesirable effects of price control,
which has created shortages in spite of repeated warnings, and has
required months to grant price adjustments which are clearly justified.
So far as I can discover, there has never been a peacetime shortage of
any petroleum product in this country until under price control we
had those of the past winter.
Does the public really want a price-control system which has been
creating shortages when plenty could have been made available, which
restricts the introduction of new products and qualities, and which, if
continued for very long, will result in a pauperized industry unable to
meet the Nation's petroleum needs ? Or do the American people want
1141
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
an industry capable of meeting all requirements at competitive prices,
constantly improving quality and developing new and useful
products ?
The Office of Price Administration has indicated to the National
Refiners Industry Advisory Committee that we cannot expect relief
from price controls until the industry goes through one of those processes of delay incident to filling out another series of its interminable
questionnaires. Office of Price Administration representatives have
repeatedly said that when supply is adequate, controls would be removed promptly, yet when our problem is presented, the best we have
been able to get after many months of discussion, is Mr. Bowles- recent
statement to Congressman Patman that—
The Office of Price Administration believes a successful suspension program can
be worked out for the industry within 6 months. * * *
May I remind the committee that "the way to resume is to resume."
I can also assure you that with the pressure of 500,000 barrel^ of
excess daily refining capacity there will be no unreasonable refinery
profits but that free prices will once more perform their vitally important regulatory function.
While our frequent visits to Washington in recent months have
served to make the Office of Price Administration, the Congress, and
the industry more cognizant of one another's problems, I feel sure
that all three of us would be relieved and the public would be better
served if we could go back and resume our full and proper responsibility for supplying the public and the military services with all
their petroleum requirements at reasonable competitive prices.
The C H A I R M A N . Thank you.
Mr. W I L S O N . May these charts to which I referred be made a part
of this record ?
The C H A I R M A N . Yes; they may be inserted in the record.
(The charts above referred to are as follows:)
U.S. REFINERY YIELDS • 1941 ACTUAL VS 1946 REQUIRED
PERCENT
GASOLINE
RESIDUAL
DISTILLATE
KEROSENE
TOTAL RESIDUAL.
OISTILLATE.fr KEROSENE
STOCKS OF KEROSENE • P.A.W. DISTRICT O N E
MILLIONS OF
BARRELS
1944-1945
\
\
\
™ 1 9 4 5 - 1 9 4 6
* DEC 19 fOATE OF 0 PA
1
*
* JAN 24 [.PRICE INCREASE
1
/
*
CO
25
npnAPtiT
- PERCENT I) F Y I E L D
20
-
in
15
15
10
5
SEPT
4.4
m
29
m
6
13
20 27
OCTOBER
i
3
i
10
i
17 2 4
NOVEMBER
n-AVERAGE — Zk 6 5
n
1
i
8
i
15
i
22 2 9
DECEMBER
u
5
i
12
«
m
19
JANUARY
10
Mh-B
I I I H 1 1
26 2
9
1b
23
FEBRUARY
2
9
5
16 23 30
MARCH
t>
13 20
APRIL
27
1144
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
TYPICAL COMPETITIVE SEASONAL REFINERY PRICES
MOTOR GASOLINE AND DOMESTIC FUEL OIL
Cents Per
Gallon
The C H A I R M A N . Mr. Brown, will
M r . RUSSELL BROWN. M r . P e w .
you call your next witness?
STATEMENT OP J. HOWARD PEW, PRESIDENT, SUN OIL CO.
Mr. PEW. Mr. Chairman, my name is J. Howard Pew. I am president of the Sun Oil Co.
In seeking discontinuance of price controls, the board of directors of
the American Petroleum Institute believe we would not discharge
our full duty if we failed to point out that such controls are seriously
retarding, disrupting, and strangling all enterprise to the detriment
of the American people.
Jobs for petroleum workers, and continued service and quality
products at reasonable prices for our customers, depend upon the wellbeing of all industries. They are our suppliers and our customers.
1145
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
So integrated is our American economy that what affects any one of
us, affects us all.
Competitive enterprise, which has given 140,000,000 people a standard of living far above that which has ever existed elsewhere, cannot
function to serve the public welfare half free and half regimented by
artificially imposed price controls. Therefore, I am addressing you
on behalf of all business enterprise and the consuming public.
Much that I have to say will revolve around the principle that business and industry must serve the public to succeed. This is best done
through competition. To have competition we must preserve at all
cost an environment in which the little man can continue to challenge
the big fellow for public favor.
I learned this at my father's knee, and that faith in competitive
enterprise has guided my life. Within my lifetime the company
founded by my father grew from a very small enterprise to one of
substantial size, although comparatively speaking, we are still one of
the smaller units in the petroleum industry.
To me, American enterprise is one of the miracles of modern industrial democracy in that it enfranchises everyone with a cent in his
pocket and provides him with a continual polling booth whereby he
can elect, or refuse to elect, the suppliers of his wants. Strangling
enterprise denies every citizen of this free choice.
I shall attempt to demonstrate to your committee that:
(1) America's present manufacturing capacity, unless impaired by
hampering restrictions, is sufficiently large to supply the public demand without price increases substantially above costs.
(2) Price controls have retarded production, increased the deficit
of needed goods and, if continued, will perpetuate scarcities and shortages, thus encouraging inflation and reducing the purchasing power
of the consumer's money; and
(3) Price controls can never be administered with fairness and in
peacetime cannot be made to work without resort to increasingly
severe, additional controls, thus eventually destroying competitive enterprise and individual freedom.
First, we should clear our minds of several misconceptions which Mr.
Chester Bowles and his Office of Price Administration propagandists
have created to confuse consideration of continued price controls.
The first is the failure to distinguish the great difference between
price control during war and price control in peacetime. During the
war our imperative objective was to produce the requirements of our
armed forces. Nothing could be permitted to interfere with that end.
Our national strategy was to make war work as attractive as possible; to make all nonessential production unattractive. Producers
of war goods were given material priorities. They were given fair
profit margins. Their workers received sharply increased earnings.
Conversely, producers of nonessential civilian goods were denied
critical materials, forcing them in many instances either to shift to war
production or shut down. They were subjected to frozen price levels,
which frequently caused financial losses. The salaries and wages of
their workers lagged under governmental restrictions.
All of this had the effect of more than doubling our production and
shifting 60 percent of manufacturing output to war orders. This was
necessary and proper—otherwise we never could have become the
arsenal for democracy which won the war.
1146
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
When hostilities ceased, onr national requirements changed. Our
postwar objective overnight became the production of consumer goods
in sufficient volume to give our people those things for which they had
fought the war—homes and a better standard of living for everyone.
Removal of road blocks erected against civilian production became
imperative. The needs of our people demanded the restoration of a
freely functioning market, historically the most effective stimulant of
production in peacetime.
Thus ended all justification for price control. Along with other
wartime controls, it should have been thrown overboard as quickly as
administratively possible. Had this been done last fall, supply and
demand in all industries now would be rapidly on their way to a point
of balance. Instead, supply and demand have become more unbalanced and our people go without the things they want and need.
The avowed reason we have not abandoned price control is a specious
argument that price increases cause inflation; that inflation helps none
but hurts everyone; that the Office of Price Administration keeps down
prices, and thus is the only barrier standing between the country and
a devastating inflation.
This is double talk designed to deceive and confuse. I t is putting
the cart before the horse. Price increases no more cause inflation than
wet streets cause rain. Wet streets are a result of rain and rising prices
are one of the many disastrous results that follow in the wake of
inflation.
Inflation results when there has been an expansion in purchasing
power that is not matched by a comparable expansion in the production of real consumer goods and services. We have an inflationary
condition today as a result of the monetizing of the Federal debt, and
war-accumulated shortages in certain consumer goods, aggravated by
Office of Price Administration controls.
The best and, I believe, the only effective, ways to halt this inflationary trend are to balance the Federal Budget at the earliest possible
date and to stimulate the production of goods. This last can best be
done by removing Office of Price Administration controls from business.
All this Office of Price Administration talk about industry promoting scarcities is bunk. The lifeblood of industry is abundant production and nothing would suit industry better than a peacetime level of
production equal to that achieved in the war. There is no doubt, if
the hobbles are removed, that industry can produce all the goods the
public needs. The expansion of manufacturing production in 1940-44
is proof of that.
Taking 1939 as representing 100, the Federal Reserve Board Index
of Manufacturing Production was 231 for 1944. The factors which
more than doubled the manufacturing output were:
A $25,000,000,000 expansion of plant and equipment increasing
over-all capacity by 50 percent over 1939.
A 50-percent numerical increase in machine tools, with an even
greater rise in their actual operating capacity.
Increased utilization of existing facilities through second and
third shifts.
A 60-percent increase in production of raw materials.
An increase in manufacturing employment from about 10,000,000
in 1939 to approximately 16,000,000 in 1944.
1147 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Of these 16,000,000 workers, 57 percent worked on orders for the
armed services, 43 percent, or less than 7,000,000, produced goods for
civilian use, according to the War Production Board.
This agency last year asserted:
It is especially remarkable that notwithstanding the massive shift of industrial
resources to munitions production, the manufacturing industries managed to
supply the civilian market throughout the war with about as much finished goods
as in 1939, though somewhat less than in 1941.
Thus less than 7,000,000 workers in 1944 were able to produce about
as much finished goods for consumers as were 10,000,000 workers in
1939. Of course, there were reductions in metal goods and other
durable commodities, but these were offset by increased supplies of
manufactured foods, textiles, furniture, and other commodities.
These facts are of the greatest significance. Not only did American
manufacturing industry produce everything needed for the prosecution of the far-flung Global War, but it also produced in the same
period a volume of civilian consumer goods at least equal to 1939,
when manufacturing production was substantially as high as at any
previous time in our history. And this was achieved in a year when
11,000,000 of America's finest youth were in the armed services.
In view of these facts, why has manufacturing production fallen
in February to 140 on the Federal Keserve Index % Why have manufacturing plants dropped 5,000,000 workers since the peak of production ? Why are the things people want so slow in coming ? Why the
delay in building homes? We have all the expanded plant captcity
that we possessed in 1944. With few exceptions, like shipyards, it
can all be converted to the production of consumer goods. The output
of these plants can greatly be increased by second and third shifts.
We continue to have adequate raw materials and, in the few cases
where supplies are tight, we are able to draw on world supplies denied
us during the war. Our civilian labor force is no less than it was in
1944 when 43 percent of those employed in manufacturing produced
as much finished goods for civilians as in 1939. Surely this volume
should be doubled when the 57 percent who were engaged on war
orders are shifted to consumer products. I t is simply absurd for anyone to argue that with these two groups at work there would be a
scarcity of goods for any considerable length of time.
Price control and labor strikes primarily have been responsible for
the failure to produce the consumer goods needed—and price control
in large measure has been responsible for the strikes. Had industrial
management been free to adjust prices and wages, and if the Government had not interfered, increased wage demands would have been
reconciled without the lengthy strikes which have been so costly to
everyone.
Even though a statistical showing of comparatively high peacetime
production levels can be made, we know that we are not obtaining the
goods the public wants most. Thus our production is out of balance
with the desires of consumers. In a freely functioning market price
changes quickly would correct such maladjustments. Price controls
multiply the maladjustments until the entire production system breaks
down.
At this point I desire to lay before you a very interesting report of
a survey of the experiences of smail manufacturers under current
price controls, just completed by Opinion Research Corporation, di-
1148
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
rected by Dr. Claude Robinson, generally recognized as preeminent
in this field.
The Robinson organization made this survey as part of a program
of regular polling of public opinion on subjects in which business and
industry are particularly interested. My company subscribes to this
service, called the Public Opinion Index for Industry. Dr. Robinson
granted me permission to present copies of this report to your committee.
May I ask you to have that report in front of you ?
Time will permit only a summary of the highlights. I urge that
you study this report with care, for, in my opinion, the manufacturers
whose testimony is the basis of this document make the most damning,
factual indictment of the harm being done by Office of Price Administration price control that has come from any source.
In this survey a representaive cross section of small and medium
sized manufacturers in the concentrated industrial area east of the
Mississippi and north of the Mason-Dixon's line were interviewed regarding the effect of the Office of Price Administration on their operations. The results constitute an accurate sample that can be applied
to about 250,000 manufacturing enterprises in this country employing
1,000 or fewer workers.
This report shows that 70 percent of these manufacturers—roughly
three out of four—say price ceilings are injuring their business; 63
percent say Office of Price Administration ceilings have been unrealistic in regard to costs; 34 percent say they have had to hold up introducing new produclcts on the market because of price ceilings; 44 percent say they have had to stop marketing certain products because of
price ceilings; 51 percent say they have had to curtail production of
certain lines because of price ceilings; 40 percent say they will be
forced to curtail or eliminate products if price ceilings stay where
they are; 36 percent of this last number say that they would have to
shut down their plants unless they get price relief.
Dr. Robinson reports that, after eliminating duplications, 67 percent of these manufacturers—roughly two-thirds—say they have
already cut out or curtailed production on some items, or face that
necessity in the near future. Of these, 53 percent say ceilings are
restricting an important part of their production line.
The next series of answers indicates why these manufacturers are
stopping or curtailing production. Despite Office of Price Administration ballyhoo about profits being greater than ever, only 14 percent
say they are making good profits; 41 percent say they are making a
very small profit; 15 percent say they are breaking even; and 20 percent are losing money. Ten percent did not answer.
Thus, 40 percent of those answering are not making any profit.
How long do you believe these men can stay in business under those
conditions? I know several who are sticking it out only in the hope
that Congress will give them relief from the Office of Price Administration. If you do not, many of the 40 percent reported by Dr.
Robinson, reflecting some 100,000 manufacturing enterprises, will
have to close their doors.
Fifty-seven percent say they are losing money on some item they
make.
Fifty-seven percent say their recent profit trend is down.
1149
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Thirty-nine percent say that if the Office of Price Administration
were ended tomorrow their output would increase.
Forty-three percent say in such an event they would hire more
workers almost immediately.
There we have the story of what the Office of Price Administration
is doing to production and to small business enterprises as succinctly
as it can be told. The small manufacturer is the supplier of parts
and machinery to the big producers. When the little fellow cannot
produce, the production line halts and 100,000,000 consumers go
without the goods they want.
Small enterprises cannot wait from 2 to 6 months for relief. When
they go into the red, they must sell out to a larger unit—thus creating
the monopolistic trend to which we are so opposed—or shut their doors
with bankruptcy for themselves and injury to every man and woman
in the country.
Patching up the present law will not correct this serious situation.
Price control can never be made fair and equitable, for neither a few
men nor several hundred thousand can be substituted for the day-byday functioning of a free market reflecting the judgment and desires
of the consuming public.
The weakness of any price-control scheme, no matter how competently administered, lies in the complexity of the interrelationships
between prices, wages, other costs and earnings. Arbitrarily tinkering with a price here and another there throws a myriad of other
prices out of adjustment.
Aside from all other considerations, it is physically impossible for
a price-control agency to work out equitable price relationships. Let
me demonstrate.
We have in this country some 8,000,000 articles of trade. We have
140 metropolitan marketing areas. The number of equations necessary to establish proper price relationships in the metropolitan marketing areas would be 140 times 8,000,000, or 1,120,000,000. We have
some 50,000,000 workers whose wage rates might be reduced, for
convenience, to 1,000 classifications. To establish proper wage-price
relationships, the number of equations would be 1,000 times 1,120,000,000, or 1,120,000.000,000—one trillion one hundred and twenty
billion equations. Computing one equation an hour, it wTould require
the 50,000,000 workers in America 10 years to do the job on the basis
of a 40-hour week, with only 1 week off a year for vacation.
Of course, it is fantastic. So the price fixers resort to formulas for
universal application, freezing prices to some previous level. But no
sooner are such formulas proclaimed than conditions change. Business conditions change constantly as people's desires and needs
change—as producers increase or reduce their output in relation to
those desires and needs—or as efficiency increases or costs fluctuate.
No matter how well-intentioned, the price fixers can never keep up
with the changing economic picture. Necessarily large segments of
industry and commerce always shall be knocking at your door for
relief from the maladjustments created in their operations, and when
such relief is not promptly forthcoming, production is impaired and
the public suffers.
American industry and business cannot be operated by formulas.
If they could, it would have been figured out years ago and all business
1150
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
enterprises would be successful, while their managers could go on
year-long vacations. Day-by-day judgments and decisions are essential to business operations. Enterprises are successful when they
adjust themselves to changing conditions. They retrogress when
they become static.
?rice changes in a free market are the regulators of American
industry. They control the volume of production; they shift savings
to where they are needed; they move workers into those fields of
production in greatest demand. They give consumers what they
want.
In effect, the free market price serves the economic system as a
safety valve does a steam boiler. Under price control, however,
the safety valve is tied down and, in the pending bill, it is proposed
to heap on the inflation fire some $2,000,000,000 in the form of subsidies.
Such a course of action is analogous to the engineer who ties down
the safety valve on his boiler while adding fuel to the roaring fire.
Does anyone doubt that there will be an explosion ? And the longer
price control is continued, the greater that explosion will be.
During the war, price control had a measure of success due to
supplementary controls and because the people, out of patriotic motives, accepted it, subordinating their desires and needs to the national urgency of winning the war. With the end of the war, however, the pent-up desires of 100,000,000 consumers again asserted
their force.
The black markets have become rampant, breeding widespread
disrespect for law. Office of Price Administration officials testify to
that. The situation is "worse than at any time" during the war, says
J . M. Blackford, Office of Price Administration top enforcement
officer in Portland, Oreg. Leo F. Gentner, Office of Price Administration regional administrator, says the same thing about the black
market in New York City and makes this revelation: "Congress
could give me 10,000 more investigators, but I would not have a
chance of breaking up the black market, unless the women of the
city refuse to buy from such merchants."
As long as price controls continue, black markets will grow. Demoralizing though they are, they constitute a manifestation of a
free people seeking to satisfy tneir legitimate desires when their
Government has forbidden a free market. Since the days of Confucius people have refused to accept as wrong that which in their
hearts they know to be innocent, and not even a Gestapo the size
of an army can prevail against them. All this has the effect of
penalizing the law abiding, whether consumer or producer, and
encouraging all others. Likewise, it breaks down the legitimate
sources of Government revenue.
When price control holds the price of a commodity below its free
market level, two things inevitably happen: demand is encouraged
and supply is discouraged. Thus the shortage of that commodity
grows, rationing becomes necessary, and the consumer pays the bill.
Next in order will be material priorities and all other wartime controls under which industry would be told not only at what price it
can sell its goods, but what type of goods it can make. What is more,
consumers will be told what they can have, irrespective of what they
want. A system of wage stabilization would have to be adopted, and,
1151 E X T E N D P R I C E C O N T R O L A N D S T A B I L I Z A T I O N A C T S OF 1 9 4 2
ultimately, workers would be told where they must work, and what
kind of work they should do.
The result would be, as Henry Hazlitt, the brilliant New York Times
writer, has so well said:
A completely petrified totalitarian economy, with every business firm and every
worker at the mercy of the Government and with a final abandonment of all
the traditional liberties that we have known.
If the existing Office of Price Administration price control powers
are continued for another year, it will be the first and a far-reaching
step toward that end. Let none be fooled. If such action is taken
the price control administration will be back here next year pleading
for extension for another year, using the same arguments they propound this year, with this one exception: Next year they will be able
to plead a worse situation and a greater urgency, for continued price
control meanwhile will make the problem worse, just as our situation
today is more critical, in the words of Chester Bowles, than it was
Sit the end of the war.
Termination of price controls inevitably will result in some price
rises. Wage rates cannot be increased across the board 15 to 20 percent
without an impact on prices.
Since, on paper, at least, our prices are anchored unrealistically to
the conditions of 1941-42, which long ago changed, prices generally
will go through a period of readjustment. For a short period this will
be a disturbing factor, but, I repeat, it is inevitable whenever price
control is terminated. The sooner it is done, the less disturbing it will
be.
Not all prices will rise. Some, in all probability, will go down. Certainly, the public will be freed of the extortions of the black market,,
quality deterioration and the present necessity of buying high-priced
goods in the absence of standard low-priced articles. Price increases
will stimulate increased production which quickly will bring prices
back into balance. If prices go up too fast, consumer resistance will
check them.
Whatever the dangers of price control termination—and they have
been grossly exaggerated—they are infinitely less than the dangers
inherent in continuing price control.
Congress will decide within the next few weeks either that America
will take the road which has proven so disastrous to the rest of the
world, or the road back to freedom and an ever higher standard of
living. Your decision will determine the fate of our country, not
only for the next year but for many, many years to come.
Mr. Chairman, may I have incorporated in the record the charts
attached to my statement ?
The C H A I R M A N . The charts may be inserted in the record.
(The documents above referred to are as follows:)
SMALL MANUFACTURING ENTERPRISES—75 TO 1 , 0 0 0 EMPLOYEES
(Dr. Claude Robinson Survey)
Seventy percent say price ceilings are injuring their business.
Sixty-three percent say price ceilings have been unrealistic in regard to costs.
Thirty-four percent say they have had to hold up introducing new products on
the market because of price ceilings.
Forty-four percent say they have had to stop marketing certain productsbecause of price ceilings.
1152
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Fifty-one percent say they have had to curtail production of certain lines
because of price ceilings.
Forty percent say they will be forced to curtail or eliminate products if price
ceilings stay where they are.
Thirty-six percent say they would have to shut down their plants unless they
get price relief.
Sixty-seven percent say they have already cut out or curtailed production on
some items or will in the near future.
Fifty-three percent say ceilings are restricting an important part of their
production line.
Fourteen percent say they are making good profits.
Forty-one percent say they are making a very small profit.
Fifteen percent say they are breaking even.
Twenty percent say they are losing money.
Fifty-seven percent say they are losing money on some item they make.
Fifty-seven percent say their recent profit trend is down.
Thirty-nine percent say if OPA were ended tomorrow their output would
increase.
Forty-three perceftt say they would hire more workers almost immediately.
The
Mr.
C H A I R M A N . Mr.
RUSSELL B R O W N .
Brown, do you have another witness ?
Mr. Forter.^
STATEMENT OF FRANK M. PORTER, PRESIDENT, GENERAL MIDCONTINENT OIL AND GAS ASSOCIATION, TULSA, OKLA.
Mr. PORTER. Mr. Chairman and gentlemen of the committee:
My name is Frank M. Porter. I reside in Oklahoma City, Okla.,
and am engaged in the business of producing oil and gas as an independent operator. I am also engaged in the business of drilling oil and
gas wells on contract for others.
I am president of the General Mid-Continent Oil and Gas Association, with headquarters in Tulsa, Okla. The association has a membership of more than 1,000 independent and major operators engaged in business in the States of Texas, Oklahoma, Kansas, Louisiana, Arkansas, Mississippi, and Alabama.
During the war this association, through its officers and membership, lias contributed its share to the outstanding record established
by the petroleum industry in furnishing the Armed Forces with an
ever present and adequate supply of petroleum products. Since the
application of price control to the oil industry by the Office of Price
Administration in January 1942, the General Mid-Continent Oil and
Gas Association, along with other representative organizations and
individuals of the petroleum industry, has pointed out to various congressional committees dealing with the subject and to the Office of
Price Administration, the inadequacy of the price of crude oil and its
products.
In practically every instance, the position of the industry has been
sustained by the report of the congressional committees that have conducted these investigations. The Petroleum Administration for War
has at all times sustained the position of the industry and recommended to the Office of Price Administration that a fair and equitable
adjustment of prices should be made in the petroleum industry. The
Petroleum Industry War Council, appointed as an advisory group
to the Petroleum Administrator for War, has sustained the position
of the petroleum industry and recommended an upward adjustment
of prices. The National Crude Oil Advisory Committee, appointed
by the Price Administrator, has conducted a thorough investigation
1153
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
of the cost of finding, developing, and producing crude petroleum,
and on February 11, 1946, filed its report with the Office of Price
Administration in which it has concluded that the
existing crude petroleum maximum price ceilings are insufficient to permit the
normal exploratory and development operations needed to provide adequate petroleum reserves in this country sufficient at all times to maintain a readily
available supply of producible crude petroleum for national security and to meet
the indicated military demands and the normal expansion in civilian and industrial requirements for petroleum products.
The report further stated :
Supply and demand are now in substantial balance and the reduced volume of
crude production required in 1946 is a little smaller than productive capacity
within maximum efficient rates.
Although at the termination of the Japanese war the industry was
producing an estimated 300,000 barrels a day greater than the potential capacity within maximum efficient rates in order to supply the
military demand, the decreased requirements for high-octane gasoline were such that at present our domestic producible capacity at
established efficient rates exceeds existing domestic demand for crude
petroleum. Actual daily production for the 4 weeks ended March 2,
1946, averaged 4,710,100 barrels. Runs to stills on the basis of Bureau
of Mines estimates were approximately 4,779,000 barrels per day.
Thus, it will be apparent that when any consideration is given to
imports, the total daily supply of crude petroleum within the United
States exceeds current refinery requirements.
The declaration of purposes as contained in the Emergency Price
Control Act of 1942, as amended, makes it clear that the intent and
purpose of the law was to assure a supply of any materials necessary
for national defense and to stabilize prices in order to eliminate and
prevent profiteering, hoarding, manipulation, speculation and other
disruptive practices resulting from other abnormal conditions or
scarcities caused by or contributed to by the war, in order that an
adequate supply of critical materials and commodities may be available for both military and civilian uses at noninflationary prices. The
dangers anticipated by the Price Control Act do not now exist with
respect to the oil industry because supply and demand for crude
petroleum and its products are in balance. Immediately following
VJ-day, the Administration gave assurance to the public that it would
be the policy to withdraw price and rationing controls as fast as the
supply in any industry equaled demand. The Office of Price Administration failed to act in accordance with this policy insofar as
the oil industry is concerned.
It is, therefore, respectfully suggested to your committee that if
the Congress shall see fit to extend price control beyond June 30, 1946,
an appropriate provision be included in the extension act that will
impose the mandatory requirement upon the Office of Price Administration to act in accordance with the policy announced by the
Administration immediately following VJ-day with respect to withdrawal of price control from individual industries. If such provision had been included in the present statute, the oil industry, for
example, would have long since been freed of these controls and would
have now been adjusted to a peacetime economy with the forces of
supply, demand and competition in full operation, to the resultant
benefit of the American public and the industry.
1154
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
In our view, it is highly important that the statute be made selfexecuting in this respect. We, therefore, make the additional suggesion that if and when any industry advisory committee, constituted
and appointed as provided by existing law, shall have found and
certified to the Administrator that conditions exist in any industry
which qualify such industry as being eligible for the withdrawal of
price controls under the policy announced by the Administration
following VJ-day, the Office of Price Administration shall forthwith
withdraw such controls.
Some concern has been expressed that removal of price controls in
the oil industry might result in run-away and inflationary price rises
for crude and refined products. Such fear is, however, dissipated
by the statistical position prevailing in the industry. With supply
equaling and exceeding demand, the increase in storage develops a
competitive condition that automatically applies the brakes to any
sudden or severe price rises. During the month of February crude
storage increased at the rate of approximately 160,000 barrels a day.
The Texas Railroad Commission reports storage accumulations since
January 1, 1946, in excess of 11,000,000 barrels. Bureau of Mines
reports show at the close of the week of March 9, 1946, crude oil
storage in the United States totaled in excess of 226,000,000 barrels.
A few days ago, following the filing of the National Crude Oil Industry Advisory Committee's report with the Office of Price Administration and just ahead of the appearances of petroleum representatives
before this committee, the Olfice of Price Administration stated they
would in the near future issue regulations authorizing or permitting
crude oil purchasers to increase prices across the board 10 cents per
barrel. It is the prevailing view in the industry that such increase is
wholly inadequate.
According to the February 11 report of the Crude Oil Industry Advistory Committee, the average cost of finding, developing, and producing crude petroleum rose from 70 cents per barrel in the years 1936 to
1939, inclusive, to $1.60 per barrel in 1944. It is further pointed out
by the report that during the base period 1936 to 1939, inclusive, the
average excess of crude oil income, over replacement cost was 45 cents
per barrel, whereas the 1944 finding, developing and producing cost
of $1.60 a barrel was 35 cents greater than the average price for crude
petroleum. Two factors contributed to this deficit—first, increased
cost of supplies, materials, and labor; second, the increased and deeper
drilling necessary for the discovery of new oil.
Recent surveys disclose that in 1938 for each million barrels of new
oil discovered, it was necessary to drill 10,000 feet of hole, whereas in
1944 it was necessary to drill 45,000 feet for each million barrels of
new oil discovered, or an increase of 350 percent. It is, therefore, obvious that at least 35 cents a barrel is necessary to bring the price of
oil in balance with the average cost of finding, developing, and producing, as disclosed by the National Crude Oil Industry Advisory Committee. In view of the competitive position existing in the industry,
there is no reason to believe that crude oil price increases would exceed
the 35 cents a barrel necessary to bring the price in balance with replacement cost at this time. It is, of course, obvious that the oil industry, or no other industry, can be expected to continue to be content with
a bare return of operating cost. It is only fair, in the absence of a de-
1155
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
crease in the cost of finding, developing, and producing crude petroleum, to say that there will be a natural striving within the industry to
increase prices to include the profit factor if and when competitive circumstances permit, which is the only way the American public can be
assured of a healthy economic organism that can guarantee a continued supply of petroleum products at reasonable prices.
Refining surveys indicate that such increases in the cost of crude oil
would probably justify an increase of a cent a gallon on refined products, but again, the statistical position of refined products may not
permit such increase to immediately materialize. It should be pointed
out that there has also been a constant increase of domestic stocks of
finished and unfinished gasoline since VJ-day. For the week ended
March 2, 1946, American Petroleum Institute estimates show a total
of approximately 105,000,000 barrels of finished and unfinished gasoline in storage.
The oil industry has functioned through the war years at a price
for its crude production which wholly ignored the facts of production cost. This inequity has rested especially heavy on the stripper
well producer who has labored diligently to keep his small wells
alive and thus preserve, as a conservation measure, the stripper reserves for future use. This price condition, of course, was no less
burdensome to the larger producer but due to his greater reserves
he was in a better position to stand the depletion of his capital inventories below ground. To meet the stripper well emergency the
Congress provided for a stripper subsidy ranging from 25 cents a
barrel in the lower grades of crude to 75 cents a barrel for Pennsylvania ^ crude oil. It will be suggested that these subsidies must be
terminated with withdrawal of price control. The largest subsidy
now being received by any stripper well owner outside of the Pennsylvania grade producers, is 35 cents a barrel. If we are correct that
midcontinent and Gulf coast crude will advance the 35 cents per
barrel necessary to bring the price in balance with reproduction costs,,
then it may be assumed that Pennsylvania, California, and Rocky
Mountain grades will be correspondingly increased, and the stripper
well producer will be precisely in the same financial condition with
respect to price structure as he was under the subsidy except he will
be living in an atmosphere of free and competitive enterprise. He
will also be free to take advantage of any special position or circumstance that may exist, such as availability to local refiners or the
production of oil having special characteristics which many times
are important factors to stripper well producers.
I have just had an opportunity to see the statement made by Mr..
H. M. McClure, of Alma, Mich., president of the National Stripper
Well Association and chairman of the State Oil Board of Michigan,
before the Special Committee of the Senate Investigating Petroleum
Resources. Mr. McClure makes it clear that although subsidies have
been a substantial factor in preserving the stripper wells throughout
the duration of frozen prices, the stripper-well producers recognize
that it is a more healthy economic condition and more in keeping with
our form of government when any industry or any segment thereof
is assured an adequate price for its production in a free and competitive market.
83512—46—vol. 2
12
1156
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
A further continuation of price controls, particularly within the
oil industry, is fraught with certain economic hazards which we
cannot escape. Continued oppressive and unfair prices in any major
basic industry obviously mean curtailment of production. Curtailment of production in any such industry is reflected in new hardships
to the American public and a greater lowering in living standards,
because scarcities necessarily develop increased prices which eliminate
the ability of the public to use the products produced as the prices
increase. In the case of the oil industry, continued price controls at
subnormal levels will curtail expansion and finding of new petroleum
reserves as a backlog to a continued healthy condition in the industry resulting in weakening the ability of the industry to perform one
of its paramount obligations to the public in providing at all times
adequate reserves, first, for the national defense, second, for civilian
uses, and third, the service of expanding and developing new products
for the benefit of the public. With the decrease of production and a
further curtailment of searching for and finding new petroleum reserves, shortages of current available supplies will develop. This
necessarily will result in inflationary prices. Such is the cost to the
public of a controlled economy when controls are carried beyond a
great national emergency such as war.
A free economy -cannot exist without free prices. They are one and
the same. Any argument to the contrary is elusive. To proceed on
any other basis will lead us to bottomless pitfalls in the economic structure. Free prices are so definitely the core of a free economy that
the statement must be accepted as axiomatic. Prices are the reflections
of economic conditions and decisions, and free decisions in the economic world have no other means of expression than through free
prices. Economic decisions, like prices, are controlled by the immutable law of supply and demand. All we ask is that industry be permitted again to function within the realm of this economic principle.
The history of production and prices in America is such as to warrant
the confidence and faith that system of free and competitive enterprise
is the best yet devised.
The C H A I R M A N . Mr. Brown.
Mr. R U S S E L L B R O W N . Mr. Chairman, Mr. Emery Carper, who comes
from Artesia, N. Mex., is here. I would like to have him make a brief
statement on the position of the independent producer in New Mexico.
STATEMENT OF EMERY CARPER, ARTESIA, N. MEX.
Mr. CARPER. Mr. Chairman, ladies and gentlemen, my name is
Emery Carper, Artesia, N. Mex.
I am an independent producer and also a drilling contractor. The
fact that I am a drilling contractor is the main reason that I am still a
producer. Otherwise I think I would be forced to sell out.
That is what my friends are doing out there. The larger independents out there are going out of business rapidly, because they
cannot make a profit, and they cannot pay the bank without selling.
I think that is a very bad condition for the industry, and I think it is
largely through price control.
I think that low prices are one thing that is stopping drilling in our
area.
1157
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
During the war we had about 50 operations continuously against
about 25 now. Twenty-five drilling operations will barely keep the
production from declining in New Mexico.
Some of New Mexico property is subsidized. If the subsidy should
be removed before a substantial increase in price is granted, it will
lead to an intensive plugging program, beyond a shadow of a doubt.
I believe that production is the best method of preventing price inflation. Whenever the price reaches the point where it is profitable,
drilling will immediately begin to take care of it, and hold the price
where it should be. I believe that the Office of Price Administration
is responsible for a great many of the scarcities we now have—for
instance, sugar, certain lines of clothing, and a number of things I
could mention, which are, no doubt, made scarce on account of artificial
price control.
We are faced with an increased cost in our business on account of
the increased cost of steel. The recent raise in steel prices will undoubtedly be passed on to the products we are using and it will have a
material effect on our drilling.
It seems to me it would be sensible to remove the oil business from
price control, as Mr. Porter and Mr. Bowles have both said that when
the product of any industry reaches the point where it can supply
the demand, that it would be removed from under control. I do not
think the oil business has ever failed in that respect.
An increase of 50 cents a barrel would not be too much, and would
not amount to more than 4 or 5 dollars per year per car for anyone
using the products of the oil industry. Anyone that could not pay that
much should not have a car.
In my opinion, rigid price control is going to lead to an artificial
scarcity of oil and, as to the supply of oil, it all depends on the
price. The surface has only been scratched as far as New Mexico is
concerned. We already have proven production as deep as 11,900
feet. Of course, that is absolutely out of reach of any independent
under present prices or perhaps any other price, but the fact is the
oil is there if they will pay what it is worth to get it.
I would like to endorse all these statements that have been made
here. In that way I can save you a great deal of time.
I think the field has been fully covered, and I concur in what has
been said 100 percent.
Thank you.
Mr. R U S S E L L B R O W N . Mr. Chairman.
The C H A I R M A N . Mr. Brown.
STATEMENT OF RUSSELL B. BROWN, GENERAL COUNSEL, INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA
Mr. R U S S E L L B . B R O W N . Mr. Chairman and gentlemen of the committee : My name is Russell B. Brown. I am the general counsel of
the Independent Petroleum Association of America. I have held
that position, with offices in Washington, for about 15 years.
Our position in this hearing may be stated simply. We believe
that the price controls which the Office of Price Administration still
maintains on crude oil and its products should be terminated at once.
Rationing of products was lifted immediately upon the end of the
1158
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
war with the Japanese, but price ceilings remain. Under that condition, it is not an industry in position to be responsive to the needs
of the times or free to prepare for the future.
This situation, we contend, should not be continued. The oil industry is one that is in position to meet all present and foreseeable
future demands. No threat of shortage exists, none is feared by the
industry, unless produced by interference with the normal conduct
of the industry.
On the other hand, the same urgency exists for an increase in the
price of crude oil that has existed throughout the life of price control, since October, 1941. Discovery of new oil reserves has always
been an essential to the adequacy of supply. That has been true from
the very first day of the petroleum industry in the United States.
We cannot indefinitely stand on that which has already been found
and developed.
The oil needs of the war were largely supplied from the reserves
that had been found before price control was instituted. With the
beginning of the defense preparations the cost of finding, developing,
and producing crude oil began to rise. Increased wages, cost of supplies, and taxes were forces of attrition on whatever margin the producer had. There has been no compensating increase in crude oil
prices. In the third quarter of 1941, immediately preceding Pearl
Harbor, the national average price of crude oil at the wells was $1.17.
The Department of the Interior's calculation is that the 1945 average
price of $1.23, including the subsidy paid by Government on wells of
small production. Thus, including the subsidy, the price is 6 cents
more than at the start of the war. A barrel of crude oil is 42 gallons.
Under price control crude oil has been permitted to go up one-seventh
of a cent per gallon. The recently announced 10-cent raise in crude
oil price ceilings is not included in the above; it is not yet effective.
Six cents per barrel, one-seventh of a cent per gallon, is not much
of an incentive to the search for new fields when the cost has increased
since the war began by 90 cents per barrel for finding, developing,
and producing.
The facts are indisputable as to the present adequacy of supply
of petroleum in the United States. Our reason for asking that the
price controls be removed is that under a free economy we believe we
might be given recognition by those who purchase crude oil at the
depressed, noncompensatory price now prevailing. A number of the
purchasers, who also produce, transport, refine, and market crude oil,
have said that it is imperative that such recognition be given.
There is nothing in the record to justify the belief that the Office
of Price Administration will make the adjustment of crude-oil prices
in the amount needed. It ignored for more than 4 years the recommendations of committees of Congress, of the Petroleum Administration for War, of the Petroleum Industry War Council, the Interstate Oil Compact Commission, numerous public officials of oil producing States and the oils producing industry.
The Office of Price Administration's decision on the price of crude
oil was formed even before there was congressional authority to control prices. Thereafter, it was deaf to all representations. It held
no hearings, entertained no petitions on more than small segments of
production, and make no acknowledgment of resolutions and recom-
1159
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
medations. The Small Business Committee, which twice conducted
hearings and twice recommended crude oil price increases, in December 1944, requested the Office of Price Administration to appoint an
industry advisory committee, as provided in the law, and to survey
costs by obtaining the figures from a representative number of producers. The House committee said that the survey could be made
wTithin 90 days. The survey was duly announced on January 15,1945.
The figures obtained were placed in the hands of the advisory committee for its analysis on November 28, 1945. The report of the advisory committee was given to the Office of Price Administration on
February 11, 1946. On March 5, the Office of Price Administration
announced its intention to raise crude oil price ceilings 10 cents per
barrel.
Such has been the history of the past year on crude oil prices.
How many casualties have occurred in our ranks in that period I cannot say. Independent oil producers have been selling their holdings to
large integrated companies throughout the war years as I have stated
in former appearances before your committee. The alarming thing is
not the total number of economic deaths but the malady that has been
created which leads to death.
The number of oil and natural gas producing corporations declined
from 5,974 in 1939 to 4,060 in 1943 according to statistics of income,
published annually by the United States Treasury Department, Bureau of Internal Revenue. Comparable data for 1944 and 1945 has
not yet been published. This is a decline of 32 percent in the 4-year
period.
In the first 6 months of 1944 the population of operating firms engaged in mining and quarrying, of which a substantial proportion are
producers of crude petroleum and natural gas, declined from 26,000
to 25,500, a drop of 500 in 6 months based on the United States Department of Commerce statistical publication in the May 1945, issue of
Survey of Current Business.
The fight of the independents for economic existence has been difficult. It has formed much of the basis for the antitrust laws now on
our statute books. It has been largely an economic fight with others
in the industry. In this the Congress has at times intervened to prescribe rules for the conduct of the economic game. The rules have
been such that we could understand and conform to. They were usually as favorable to the independent as they were to the integrated units
of the industry. That was as much as we asked.
Our experience with bureaus has not been like that with the Congress. Particularly is this true of the Office of Price Administration. As I have said, operations under the control of this agency
have caused many casualties. I know that your committee is not indifferent to that result and that it understands fully our request that
you move to terminate oppressive controls so that competition may
again have free play under the rules heretofore prescribed by Congress.
Your committee may rightly be concerned with the effect of possible
price increases that might follow the removal of petroleum price ceilings. A proposal for price increase to average 35 cents per barrel
was made by the Petroleum Administrator for War in 1943. At that
1160
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
time careful study was made to determine the effect of such an increase,
if made, on the cost of living. The study was conducted under the
direction of Dr. John D. Gill, of Philadelphia, chairman of a committee of the Petroleum Industry War Council. I think it pertinent
here to quote from the conclusions then reached as to the effect on the
cost of living, assuming the full increase in the price of crude oil, 35
cents, was passed on to the consumer in the form of increases in the
price of petroleum products.
The cost of living index has shown an increase every month except one since
the war started in Europe in 1939, and the total rise since that time has been
26.6 percent.
said Dr. Gill.
He then gave the following cost of living index figures:
Aug. 15, 1939
98. 6 i June 15, 1942
116.4
Dec. 15, 1941
110. 5 | June 15, 1943
124.8
As the following table shows, petroleum components have relatively little
weight in the total cost of living index:
Percent of total cost of living index
Fuel oil
0. 2 I Gasoline
0. 9
Kerosene
0.11 Motor oil
0.1
An increase of 0.85 cent (eighty-five hundredths) per gallon in the price of
petroleum products (approximately 35 cents per barrel) would increase the
petroleum part of the index by 4.43 percent. The total index would be increased
by fifty-eight one-thousands of 1 per cent, a rise which could not be shown by
the index at its present level. The total index now stands at 124.8. The
increase estimated above to be the result of a higher oil price would raise it to
124.846; the published index would not be changed at all.
I t is our position that price controls should be removed from the
petroleum industry immediately. We make the contention that this
is the announced policy of the administration. In support of that
contention, I quote the following statements:
1. It is the policy of the Government, in order so f a r as possible to prevent
price increases, that there be prompt and firm enforcement, during the present
emergency, of Government controls over scarce materials and facilities.
That quotation is from Executive Order 9697, dated February 14,
1946.
2. Price ceilings have been removed from several thousand items, and the
elimination of controls is going ahead on items relatively insignificant in the
cost of living. Those already dropped represent only a small percentage of the
total. The continuation of heavy general inflationary pressures has made the
retention of most price ceilings necessary to the maintenance of a stable
economy. They will be lifted as quickly as supply approaches balance with
demand.
From the Fifth Report of the Director of War Mobilization and
Reconversion, dated January 1,1946.
3. Price control should and must be removed as rapidly as supply conditions permit. Barring continued labor-management difficulties, the production
estimates for 1946 indicate that in industry after industry during the next 12
months, we will find supply and demand coming into balance. As that occurs
I assure you that your Government will move promptly to eliminate the last
vestigate of price restrictions in those industries. But to remove them before
competitive conditions are again established is to invite inflationary chaos.
1161
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
From the speech by Chester Bowles, then Office of Price Administration Administrator, December 6, 1945, before the National Association of Manufacturers in New York City.
4. We should extend the Price Control Act just as soon as possible to remove
the lingering hope of the minority that they can profit out of the scarcity that
exists before our total reconversion makes available all of the items for which
our appetite is whetted.
From speech of Secretary of the Treasury Vinson. January 31,
before the Baltimore Association of Commerce, Baltimore, Md.
These four declarations of policy are by leaders in Government.
Why, then, are we not willing to believe that they will be translated
into action ? Why do we appear here and ask that congressional order
be given to end price controls on crude petroleum and its products ?
Our answer is that we do not deal with these leaders. We have to
rely on those in lesser positions, but policy announced from the heights
is frequently bent to suit the convenience or the philosophy of those
who are charged with the application of policy.
As an example I quote from an interview with Sumner T. Pike,
Fuel Price Director of the Office of Price Administration, published
in Piatt's Oilgram of January 14, 1946 :
On gasoline ceilings, the Office of Price Administration Fuel Price Chief said
they were serving exactly the purpose for which they were intended to serve and
he saw no reason to remove them.
They're not doing any harm', if th prices are soft," he said, "and the situation
won't last more than 60 to 90 days, anyway. Then we'll probably have a scarcity
of gasoline, because motorists will drive their cars at higher speeds and there'll
be a tremendous pent-up demand for vacation travel."
It is Mr. Pike and his subordinates that we have to live with. They
and not the President and Mr. Snyder and Mr. Bowles attend to the
details. Mr. Pike has declared his intention of keeping price ceilings
on the oil industry, not because of scarcities but because they "are not
doing any harm."
Mr. Chairman and gentlemen of the committee, the Office of Price
Administration is again in one of its inconsistencies on the question of
petroleum. Throughout the war its attitude was that there was no
cause for anxiety, that the supply situation was comfortable. I denied
that price incentive would make any difference in the expansion of
supply, in which position it stood alone, and it denied that there was a
shortage. Every civilian user knew that the latter was not true.
Now, with the war ended the daily production of crude oil in the
United States has been reduced from 4,869,800 barrels daily in August
1945 to 4,638,000 barrels for the four weeks ended March 9. The
Bureau of Mines estimate of demand for March was 4,450,000 barrels
of crude oil daily; current production is in excess of demand, as shown
by additions to stocks, and there are further reductions in the rate of
production to be made. The aim of the oil-producing States is to
prevent waste which occurs through storage of excess production by
fitting production to demand.
The Office of Price Administration has access to the same official
figures that the industry does. The Bureau of Mines each week
issues a statement on crude-oil stocks above ground in the United
States. It forecasts monthly the demand for crude oil. The producing capacity in the United States is known within reasonable
1162
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
limits. I t may be assumed to be approximately as great as it was in
August 1945, when the war ended. How, then, can there be any assumption worthy of notice that this is an industry whose production
is scarce ?
One more quotation and I will have finished discussion of this
particular point. I have said that we do not rely upon the promises
of the Office of Price Administration to do any particular thing.
Our reason for such distrust is based upon past actions and statements. On June 4,1945, Mr. Bowles appeared before your committee
in support of the bill extending the price act for one year. I quote
from the printed record of hearings, page 39, as follows:
Mr. MONRONEY. Amplifying what you said, removing it commodity by commodity, even if we have a year's extension now, there might be 10, 20, 30, or
even 40 percent of the commodities released before the expiration of the act.
Mr. BOWLES. Well, there are two types of removal. First of all, there is the
type where supply and demand catch up and get in balance. Now, there are
certain fields that that may begin to happen as you suggest, next winter or
next spring, a year from now; well, we will watch those, and each time we
see that happen, our present theory is that we will probably suspend the price
control for 90 days to see what is going on. See if it is temporary or not.
If you see the continued supply of goods coming along, you can drop it altogether.
Had Mr. Bowles carried out that assurance to your committee, we
would not be here today. Supply caught up with demand in August. The evidence of that is in the lifting of gasoline rationing and
the reduction of crude-oil production. But there was no suspension
of price control, for 90 days or any other period.
We can only conclude that the Office of Price Administration likes
price control merely for the sake of control. I t is unresponsive to
the facts which are apparent to all. I t is intent on following a line
that was established in 1941 and, for all we can now conclude, it will,
in the absence of congressional direction to do otherwise, maintain
price ceilings on petroleum for the entire time it has authority to do
so.
In the many speeches by Office of Price Administration executives
and other proponents of its continuance with all the authority it is
presently clothed, a chief argument is that without firm and continued control of prices, there will be a return to the conditions
which followed World War I. I wish to discuss this theory as it relates to petroleum.
The dissimilarity between conditions in our industry now and in
1919 is so great that the sweeping predictions of Mr. Bowles and his
associates and supporters can have no application to petroleum. We
ended the First World War in a condition of shortage. The United
States supplied most of the requirements for the Allied cause in both
wars; we had no cushion of reserves then. With the close of the First
World War, the first in history in which petroleum had been a major
factor of supply, the producible supply of the United States was at
such a point as to cause great concern in the industry. The refining
companies began to stimulate drilling and the discovery effort generally in the only way they knew, by making the price attractive. The
national average price of crude oil in 1918 was $1.98. The previous
year it had averaged $1.56, it had risen 42 cents to stimulate the effort
to get enough oil for the war.
1163 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
In 1919 the price factor was again invoked to replenish reserves.
The national average price in that year was $2.01 per barrel, but the
advance started late in that year; the advances which occurred in the
last days of 1919 and in early 1920 resulted in a national average price
for 1920 of $3.07 per barrel.
. The high-price era did not last long, for it produced such results in
discovery and development as to bring on an overproduction of crude
oil. The price began to drop in 1921, the national average price fell
to $1.73 for that year and kept on declining; in only one year since has
it equaled or exceeded the 1921 average. That was in 1926 when the
average was $1.88. As I have said, last year the average was $1.23,
including a subsidy on production of small wells.
But, relatively short-lived as the high crude-oil prices of that postwar
era were, they added enormously to the known reserves of petroleum.
The effects of the stimulus lasted for years. Major producing areas
were opened to development. Geological knowledge was gained that
led progressively to more and more discoveries. Without that stimulus in 1920,1 wonder what shape we would have been in 20 years later
when the Nation began to get ready for its greatest war.
We ask for our industry merely that a proper perspective be kept,
devoid of emotionalism. In 1920 Mid-Continent, Oklahoma, Kansas,
and North Texas crude oil reached a high of $3.50 per barrel. It was
then bought at a flat price. Now it is bought on gravity schedule.
The price at the wells today for the average pipe-line stream, 37° A P I
scale, is $1.19. Does anyone seriously contend that with price ceilings
lifted, in a situation of plentiful supply, there would be no advance
amounting to nearly two times the present price? Or, consider the
retail price of gasoline. The average in 1920 in 50 representative
cities was 29.74 cents, exclusive of tax. The average price in the
same cities in November 1945 was 14.19 cents exclusive of tax. I n a
period of currently plentiful supply, does anyone believe gasoline
would go up 1 5 ^ cents per gallon so as to make the Office of Price
Administration's predictions good ?
In the year 1940 the daily average production of crude oil in the
United States was 3,697,000 barrels. At the time of Pearl Harbor
it was 4,103,715 barrels. In response to the ever-growing demands
on the industry, production kept mounting until the peak month of
July 1945, when the daily average yield of the wells in the United
States was 4,891,000 barrels.
Oil producers committed waste to supply the program. Their wells
were produced at maximum capacity, not at maximum efficient rate.
A considerable amount of the crude was sold at less than the cost
of production; practically every barrel produced in the last 2 years
of the war moved from the fields at prices much below the cost of
replacement through discovery and development. This is the only
method the producing industry has of replacing its goods. The
Office of Price Administration has displayed the utmost concern
as to the future of petroleum supply; its only philosophy throughout
the war was to hold prices, disregard effects on production, and
attempt to meet war needs by rationing the civilian and industrial
users.
We believe that the Office of Price Administration's philosophy on
petroleum is unchanged. I t has never understood the petroleum-
1164
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
producing industry, nor, it has seemed to us, made an effort to understand. Always, in defending its oil-price policy the Office of
Price Administration has relied on the earnings statements of a few
companies, chiefly those which operate through the full cycle of
producing, transporting, refining, and marketing.
In the producing industry we entered the price-control era with an
index of 62.2 for crude oil in relationship to the "all commodities"
index as compiled by the Bureau of Labor Statistics. Today the
crude-oil index is 65.4.
We are today in a position of adequate supply. There must be
continued, and increased, exploratory activity to maintain that position, to maintain our position in world events. Surely, we should
have learned by now the extreme importance of having an assured
supply of oil, producible underground reserves, with which to meet
any emergency.
Immediately following the Japanese surrender the Petroleum Administration for War began to drop certain controls it had imposed
on the oil industry. None remain today. The organization stated
its views to the Senate Special Committee Investigating Petroleum
Resources, last November. I believe it is pertinent here to quote
from two of the statements in support of what I have said about the
necessity of exploration, and the means of getting it.
The following is from the statement of Ralph K. Davies, Deputy
Petroleum Administrator:
NEED FOE MORE EXPLORATION
With the war over, requirements for crude have dropped, though not to prewar levels. Present estimates indicate that 1946 demand wil be higher than
that of 1942: or even 1943, and that by a year from now demand will again be
rising, passing peak wartime levels within a very few years. The discovery
rate of the past 7 years would not keep pace with consumption at such levels.
It follows that, unless we are to curtail our use of oil or radically increased
imports or resort to higher-priced sources of production including synthetics, we
must reverse the downward trend of discovery.
We may reasonably hope for help from improved geological, geophysical, and
geochemical techniques. Each successful new technique developed in the past
has resulted in a substantial increase in discoveries. Still other techniques
will doubtless be developed, some of them, perhaps, from scientific developments
incident to the war. How much new oil they will discover no one can predict.
Neither can anyone predict how soon they will come. Meanwhile, the only safe
course, if the downward trend of discoveries is to be reversed, is to drill more
wells in dynamic exploration.
PRICE AS A
STIMULUS
The most effective stimulus, of course, is an adequate price for crude. Eightyone percent of the wildcat wells drilled in the United States last year were dry.
To induce enough individual operators to face adverse odds of 4 to 1, the price
of crude must be such that the man who makes even a small discovery can
expect something more than a modest return.
It is true, as has been pointed out, that a higher crude price does not lessen
the odds against the wildcatters; what a higher price does is to enhance his
prospective reward. Whether he operates his discovery or sells it, it gives him
more money with which to go on to the next chance. It likewise makes outside
capital easier to obtain. Anyone who has raised money for wildcatting knows
how much more easily it can be had when the price of crude is up rather than
down.
Why, then, during the war years, did wildcatting-increase despite a virtually
static price? There were at least three reasons: The industry responded to the
1165
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Petroleum Administrator for War's appeals to maximize exploration; many
wildcat wells were drilled by high-bracket taxpayers because most of their cost
would otherwise have gone for taxes; and the relation between supply and
demand convinced the industry that higher prices were sooner or later inevitable.
NEED FOR T H E S M A L L WILDCATTER
Even the large company tends to reduce its wildcatting when the price is not
high enough to make the hits pay for the misses and a profit besides, but the
chief restriction is on the small operator whose wildcat plays are too few to
get the full benefit of the law of averages. If a company drills 50 wells in a
year under good geologic guidance, the law of averages is likely to give it 10
producers. The small operator who drills 1 or 2 or 3 wells may get none. The
wildcatting hazard is greater to him than to the larger company.
If enough exploratory wells are to be drilled the small wildcatter must be
kept in business and kept drilling. The large companies, with all their resources, do not have enough risk capital to drill all the wells that should be
drilled. Moreover, they are not numerous enough to cover the multiplicity of
possibilities that should be given attention. Their final decisions on what spots
are worth the risk of drilling are made by too few men; they do not represent
a sufficient diversity of opinion.
The small operator has always discovered a fair share of the new oil; he will
continue to do so as long as he is given a crude price that will keep him wildcatting.
The next quotation is from the statement of Phil H. Bohart, Director of the Division of Production, Petroleum Administration for War:
PRICE VERSUS RESERVES
In considering the relation between price and reserves, it must be borne in
mind that with increased drilling depths, with the decreased success in exploration, and with the increase in the cost of exploration, the cost of new reserves
has risen substantially over a period of years and probably will continue to rise.
A great deal of the oil which was produced to meet war requirements and a great
deal of the oil being produced to meet current requirements are from an inventory which was "put on the shelves," so to speak, at a price considerably lower
than that at which the stock can be replenished. Moreover, as already explained,
each year since 1937, with the exception of 1940, more oil has been produced in
the United States than has been discovered.
When price does not advance in proportion to the advance in the cost of replacement of stock, a business to a degree is in liquidation. The crude-oil reserves,
of course, are the stock supply of the production branch of the industry; also,
to the extent that withdrawals have exceeded additions, the industry has been
selling its capital assets and the net return from the sale of the excess withdrawal
is not an operating profit. The price of crude oil should bear a proper relation
to the discovery cost, as well as to other drilling and production costs, since
without an adequate price the industry is forced into a position of involuntary
liquidation.
Reserves are increased by drilling. New sources are discovered by exploratory
drilling and then are developed and proved by development drilling. Whereas
the month-by-month and the year-by-year effect of price on production and reserves cannot be readily shown, there is a striking relation between the price
trend and the drilling trend. Curves of the average price prevailing and the
average number of wells completed by years from 1914 to 1941, inclusive, shows
a remarkable degree of parallelism. As the price rose from about 60 cents a
barrel in 1915 to the peak of about $3 per barrel in 1920, drilling increased from
an annual rate of completions of 14,000 wells in 1915 to 34,000 wells in 1920.
Thereafter each important change in price is reflected in the drilling rate.
The major part of drilling is development drilling. This does not add new
reserves, but it does add productive capacity, and consequently the price of oil
has a direct and consistent effect on productive capacity.
A relatively small part of the total drilling is exploratory or wildcat drilling.
There is no direct relation between the number of wildcat wells drilled and the
new discoveries made because there is no infallible or even reasonable sure method
of locating an oil pool in advance of drilling. However, the only way in which
new oil pools are discovered is by the drilling of wildcat wells, and, notwith-
1166
extend price c o n t r o l and stabilization acts of
194 2
standing the lack of a relation between the number of wildcat wells drilled and
the amount of oil discovered, the way to increase discoveries is to increase wildcat drilling that it has on development drilling. Higher price brings more wildcat drilling, and the greater the amount of drilling and the greater the number
of areas being tested the better the chances of discovery.
The independent producers are hopeful that under a free economy
the long-needed adjustment in crude-oil prices will come; that those
who buy the crude oil and who normally consider today's actions in
relation to tomorrow's needs will be governed by the obvious facts.
The policy of the Office of Price Administration throughout has
been to drive independents from the producing business, to develop
concentration of the business in the hands of a few companies, and to
force this Nation to rely on foreign sources. We do not know that
an increase in price would occur if ceilings were lifted; we hope it
would. It is in the public interest that a little insurance premium be
paid now against the requirements later on. Pennies now will save
the public dollars in just a few years, a very few years hence.
The justice of our position on price has been acknowledged and endorsed by everyone who has given it consideration, except the Office
of Price Administration. We have no faith that the Office of Price
Administration will give us any different treatment than they have
heretofore.
We ask, therefore, that our industry, being one that is now and for
months will be in position to supply all requirements of crude oil and
products, be freed of the Office of Price Administration price control.
We hope that once out from under the deadening hand of this agency the intraindustry recognition of values, costs and necessities will
result in correction of the inequitable position we have occupied under
the Office of Price Administration since the beginning of price control.
As safeguard to the Office of Price Administration's professedly
feared inflation of prices, we submit that the plentiful supply and the
active competitive forces in the industry will be effective, as they have
been throughout the history of the industry.
There is one other point that I want to make aside from my prepared statement, and that is I want to acknowledge the very fine service rendered in trying to settle this matter by Congressman Patman
and the Small Business Committee of the House. Mr. Patman directed a letter to Mr. Bowles, trying to clarify this, and got a letter
in return indicating that he was contemplating lifting the ceilings.
Yesterday I had a conference with Mr. Porter of the Office of Price
Administration, and his Petroleum Division, hoping to clarify that.
What they are thinking of is not decontrol, as contemplated in the
statement which I understood Mr. Bowles made a year ago, but a lifting of ceilings at some point determined by them, so that they may
replace them at any time when their judgment is that the economic
factors are not moving in accordance with what, in their judgment,
is correct.
That will not solve this problem, because it keeps over the heads
of those who hope to move out from under it the threat that we might
in some way conform to the regulations they set, and they would reimpose ceilings on us.
Thank you very much for your consideration.
The C H A I R M A N . Does that conclude your testimony?
1167 e x t e n d p r i c e c o n t r o l a n d s t a b i l i z a t i o n a c t s o f
19 4 2
Mr. R U S S E L L B R O W N . That concludes our presentation.
The C H A I R M A N . Mr. Brown.
Mr. B R O W N of Georgia. I know very little, Mr. Brown, about the
oil industry. I am thoroughly convinced that we have a surplus of
crude oil, however. Do you have a surplus of kerosene, heating oil,
and gasoline, also?
Mr. R U S S E L L B R O W N . I am not sure about the heating oils. That
I would have to ask someone else to answer. I do know that we have
a surplus of the facilities for making those.
Mr. B R O W N of Georgia. Well, I am talking about the market now.
Do we have a surplus of gasoline ?
Mr. R U S S E L L B R O W N . I will ask Dr. Wilson to answer that.
Dr. W I L S O N . At the moment we are very short of distillate and
kerosene for the simple and sole reason that the Office of Price Administration retained in effect all fall and in the early winter the prices
that were set at a time, in 1941, when we needed maximum gasoline.
They encouraged the production of gasoline, they discouraged the
production of heating oil, they were warned of the result, and when
they finally did make the price change, immediately the stocks of
kerosene became comfortable and today they are substantially better
then they were a year ago.
Mr. B R O W N of Georgia. The reason I asked that question was I
announced sometime ago that I was going to offer an amendment to the
effect that whenever production of a commodity was equal to the
demand that the ceiling should be taken off. Now, we do not have a
surplus of gasoline, do we ?
Dr. W I L S O N . We have a very large surplus. We have over a hundred
million barrels of gasoline in storage today. One hundred and five
million barrels of gasoline, w^hich is the largest amount of our industry. The refineries are shutting down because they cannot get rid
of it.
Here is the picture here. All fall it was lost, because the prices discouraged it. Finally we got a half-cent price increase in this one
district in December, and immediately the falling of stocks ended and
we finished the winter better than a year ago.
Mr. B R O W N of Georgia. I think somebody testified to that before.
Now, some witness testified that if you take the ceiling off, the consumer would not pay more than 1 cent more per gallon. Some witness
testified that crude oil is selling for 5 cents.
Mr. R U S S E L L B R O W N . N O ; 3 cents a gallon.
Mr. B R O W N of Georgia. Then, I understand the ceiling is 6 cents.
Mr. R U S S E L L B R O W N . N O ; it is right up against the ceiling and the
ceiling is 3 cents a gallon.
Mr. B R O W N of Georgia. Somebody testified that in some area the
ceiling was 6 cents.
Mr. R U S S E L L B R O W N . N O ; he said 5 cents is what they should have.
But the present ceiling is 3 cents a gallon.
9 Mr. B R O W N of Georgia. On crude oil ?
Mr. R U S S E L L B R O W N . On the average throughout the country.
Mr. B R O W N of Georgia. Gasoline is selling now around 19 cents; is
that correct ?
Mr. R U S S E L L B R O W N . I cannot tell you what the retail service station
is selling it for, but a large part of that, of course, is tax. The gaso-
1168
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
line in onr area is selling for 5y 2 cents a gallon wholesale. Then, you
haAre to transport it, pay taxes on it, and so on.
Mr. B R O W N of Georgia. I T looks to me as though that is a long spread
between the producer and the distributor, and the car user. I just
do not understand why there should be such a spread—5y2 cents to 19
cents.
Mr. R U S S E L L B R O W N . I can tell you approximately how that is made
up.
Mr. B R O W N of Georgia. Pardon me. I will come back to it. What
I am trying to find out is this: Suppose you are raised 1 cent a gallon.
Would that satisfy the people engaged in business? Could they make
a profit?
Mr. R U S S E L L B R O W N . I would rather the crude oil people spoke for
themselves. I would say a half cent a gallon above present ceilings
would cover all necessary flexibility in product prices, and, as a matter
of fact, we could not get a half cent more for gasoline if they did raise
the ceiling.
Mr. B R O W N of Georgia. I am talking about crude oil. Suppose they
raise crude oil a half cent a gallon. Then, that would be just a half
cent on the 19 cents a gallon of gasoline.
Mr. R U S S E L L B R O W N . That is right.
Mr. B R O W N of Georgia. Does that mean that there would be just
a half cent increase in the price of gasoline ?
Mr. R U S S E L L B R O W N . The more important thing is the half cent on
other products rather than gasoline, because we have so much gasoline
that we are not getting ceiling prices now. Raising the ceiling on
gasoline does not do us any good. If we had a half cent on crude,
what we would need would be a cent on other products and nothing to
gasoline.
Mr. B R O W N of Georgia. What other products ?
Mr. R U S S E L L B R O W N . Kerosene and heating oils and residual fuel.
Mr. B R O W N of Georgia. Of course, I think the most important thing
is heating oil.
Mr. R U S S E L L B R O W N . That is right.
Mr. B R O W N of Georgia. I do not think there ought to be anything
in the way of production of heating oils.
Mr. R U S S E L L B R O W N . That is correct.
Mr. B R O W N of Georgia. I certainly think that all obstacles in the
way of production of heating oil ought to be removed. That is all.
Thank you.
Mr. R U S S E L L B R O W N . I might say that the average gasoline tax is
over 6 cents a gallon. That is one of the things in that spread you are
thinking of.
The C H A I R M A N . Mr. Crawford.
Mr. C R A W F O R D . Mr. Brown, in your testimony, on page 5, you give
some quotations from Executive Order 9697, and from the Director
of War Mobilization and Reconversion, also from the Secretary of
Treasury, Judge Vinson, in which they lay down the fundamental
propositions that these controls are to be removed when the supply
comes into balance with demand. That is the meaning of that language, is it not ?
Mr. R U S S E L L B R O W N . That is my understanding of it.
1169 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. CRAWFORD. N O W , on page 282 of the official transcript of these
hearings, which has not yet been published, I submitted this fundamental question to Mr. Bowles.
I said, "So long as you are Administrator, do you take the position
that these controls should go off as we bring supply into balance with
demand? Or do you take the position that the controls should continue as long as there is a great backlog of pent-up buying power
which, in the absence of control, can be exercised by the citizen at
his will?"
I also asked him this: "Would you care to go on record before the
committee that insofar as you are personally concerned your philosophy is that when supply reaches balance with demand that you feel
there would be no longer material necessity for the Office of Price
Administration ?"
Mr. Bowles answered: "Generally, when supply and demand are in
balance, I believe that is correct."
Then I said: "And remove controls at that time?"
Mr. Bowles answered: "Yes." And he said: "I think that point
will certainly come, area by area, at different periods, but in my
opinion, as I say, you will have only remnants left by a year from
today."
Now, what does Mr. Bowles give you gentlemen as a reason for not
removing these controls? You have the Executive order; you have
Judge Vinson's statement; you have the statement from the Director
of War Mobilization and Reconversion; and you have Mr. Bowles'
statement in these hearings. What does he tell you gentlemen?
Mr. R U S S E L L BROW T N. Our difficulty is that we do not work with
Mr. Bowles. We work with a division below him. The division
below him—I asked them that question yesterday. I said: "What is
your interpretation of Mr. Bowles' statement that you would take
these controls off as supply reaches demand P
He said, "Mr. Bowles was talking generally. Our idea is that we
ought to, instead of taking controls off, suspend controls until we are
satisfied that this condition exists, ourselves." That was the answer
I got yesterday from Mr. Reppert, who is the head of the Petroleum
Division in his office.
Mr. CRAWFORD. What was his name ?
Mr. R U S S E L L B R O W N . Mr. Reppert.
Mr. CRAWFORD. R-e-p-p-e-r-t?
Mr. R U S S E L L B R O W N . That is correct.
I called his attention to Mr. Bowles' statement of a year ago, and
I also called his attention to the fact that since VJ-day we had been
in sufficient supply. And that is the answer I got.
Mr. CRAWFORD. Well, was that kind o f — I am going to call it
double talk myself. You can call it what you please—does that kind
of double talk create any confidence of your industry in Office of Price
Administration administration, as to their sincerity ?
Mr. R U S S E L L B R O W N . In response to that, we told Mr. Reppert we
should talk at a higher level, at which time he invited in, I believe,
Mr. Barnett—I do not know his name exactly—but he is in charge of
fixing these prices, and also Mr. Porter. We asked them the same
question, and I am not quite sure that I remember what the answer
was to that. Anyway, it was not clear-cut enough that I could bring
1170
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
it back to you, except to the effect they were studying the question
and that they hoped to get some form of suspension of ceilings within
the 6-month period.
Mr. CRAWFORD. Within what 6-month period ?
Mr. R U S S E L L B R O W N . Some period that he had mentioned in the
letter to Mr. Patman, I believe. And, of course, the suspension of
ceilings just will not leave freedom of action in the industry, particularly in view of the experience we have had in trying to get these
people to do something—we have been at it 4 years now.
Mr. CRAWFORD. Mr. Bowles has led me to believe that when this
situation developed which we were at that time describing, that he
intended to effectuate decontrol. I t is decontrol you are asking for,
is it not ?
Mr. R U S S E L L B R O W N . That is it, exactly.
Mr. CRAWFORD. I am going to say publicly—and I have at least one
vote in Congress that I can exercise—that if Mr. Bowles and his
associates propose to come up here and make one statement, and go
back to the' Department and carry out a different policy, that I am
not going to vote as if I had any confidence in any of their operations,
because I think the American people are getting fed up on that kind
of procedure. Today at noon I had the privilege of talking to 22 of
the lower level officials of the Office of Price Administration down
there for about 2 hours, and I told them I thought it was time they
were changing some of their tactics. I am using this oil case as one
in point.
If I understood Dr. Wilson right, the only reason there is a lack of
balance between supply of kerosene and fuel oil and distillate and
residual fuel, and the demand, is because of the method of applying
price ceilings on your total operations.
Dr. W I L S O N . That is definitely correct, sir.
Mr. CRAWFORD. In other words, if they will make an adjustment,
instead of turning out so much gasoline, we would convert more crude
into fuel oil and kerosene.
Dr. W I L S O N . The chart shows exactly what was done. Half a cent
increases on kerosene in one district did that. But that did not come
until December, and in district I I it did not come until January.
There is plenty of kerosene in district I and there would have been
in district I I if they had gotten it earlier. The only trouble today is
residual fuel and we did not get any action on that until last month,
after several months of representations.
Mr. CRAWFORD. S O , then, we have a basic industry before us, perhaps as important as the steel industry, whereby, with manipulation
within the Office of Price Administration, they can effectuate an imbalance and create shortages of very important commodities in our
country in order to create, in turn, a situation where controls can
somewhat be justified. Is that about the situation?
Dr. W I L S O N . That is correct.
Mr. CRAWFORD. Mr. Chairman, how should we interrogate these
witnesses when testimony is thrown in in this manner? It gives the
industry a chance to put in their presentation, but it makes crossexamination very difficult. Please understand, I am not criticizing
you.
The C H A I R M A N . Y O U may proceed as you wish, just so it is an orderly
procedure. I t is difficult for the reporter to make an orderly record
1171 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
-when you take people out of the audience. If you wish to interrogate
another witness, I suggest that he take the stand.
Mr. CRAWFORD. I want to ask Mr. Pew a question.
T h e CHAIRMAN. M r . P e w .
Mr. CRAWTFORD. Mr. Pew, the
question I have in mind has to do with
this report of the Public Opinion Index. I think these people to whom
you referred are all manufacturers; is that right ?
Mr. PEW. Yes, sir; they are.
Mr. CRAWFORD. Are they what we recognize in general terminology
as small industry?
Mr. PEW. They are.
Mr. CRAWFORD. With employees running from what to what?
Mr. PEW. From about 50 to 1,000 employees.
Mr. CRAWFORD. From 5 0 to 1 , 0 0 0 employees?
Mr. P E W . Yes, sir.
Mr. CRAWFORD. With capital structures ranging from, say, $ 5 0 , 0 0 0
on up to about what capitalization ?
Mr. PEW. Well, I think, in different industries that would vary.
But my first reaction is that it might run up to a million dollars.
From a million dollars down, let us say.
Mr. CRAWFORD. In other words, it is within that class of manufacturers which the so-called House Small Business Committee, Mr.
Patman's committee, dealt with; is that correct?
Mr. PEW. That is correct.
Mr. CRAWFORD. This group of companies with 5 0 to 1 , 0 0 0 employees
within that class, which was dealt with by that committee ?
Mr. P E W . Yes, sir.
Mr. CRAWFORD. N O W , you had a chart, and the opinions expressed
<on that chart are to the effect, are they, that the Office of Price
Administration is greatly interfering with production by those manufacturers covered in that survey?
Mr. P E W . Yes, sir.
Mr. CRAWFORD. Have you seen any kind of a Gallup poll—now,
referring to Dr. Gallup specifically—which deals with the opinions
of producers in this country ?
Mr. PEW. I have not.
Mr. CRAWFORD. The Gallup polls, as a general rule, deal with consumers, do they not ?
Mr. PEW. Yes, sir. So far as I know, they do.
Mr. CRAWFORD. In your opinion, does the Office of Price Administration base a great deal of its administrative policy on the opinions
of consumers, or the opinions of producers ?
Mr. PEW. I would only be able to guess, but from their actions,
I would deduce that they take full consideration of the opinions of
the consumers.
Mr. CRAWFORD. Who want production ?
Mr. PEW. Who want production.
Mr. CRAWFORD. But who do not produce the goods ? So somewhere
down the line we have got to get into a realm of thinking which has
to do with production, do we not ?
Mr. PEW. That is right; yes, sir.
Mr. CRAWFORD. That was one of the purposes of this survey, was
it not?
Mr. P E W . I t was.
83512—46—vol. 2
13
1172
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. CRAWFORD. What percentage of the total production would you
say that group represents ? Have you any figures on that ?
Mr. PEW. I do not have any figures, but it is a very important
group, because they produce many of the products which the larger
manufacturers use in connection with the production of automobiles,,
radios, and materials of that character.
Mr. CRAWFORD. In other words, they feed into these larger operations ?
Mr. PEW. They feed their material into the larger operations of the
larger companies; yes, sir. And I might add, sir, that because of the
discontinuance of the production of many of the smaller gadgets,
these large manufacturers are hamstrung in the getting out of their
products.
Mr. CRAWFORD. Then, the position of your industry, as presented
here today—if I am correct in my understanding of it—is that you
are opposed to a continuation of the Office of Price Administration
beyond next June 30, as far as the law is concerned ? Or do you appear
here and ask for decontrol on your industry ?
Mr. PEW. We want our own industry decontrolled, and, because of
the interrelationship as between the operations of different industries^
we want decontrol throughout all industry, and particularly manufacturing industry.
Mr. CRAWFORD. D O you think the oil industry has any difficulty in
getting your drilling machinery and such other machine tools and
equipment as you would use in the production of crude oil?
Mr. PEW. A great deal of difficulty.
Mr. CRAWFORD. Would you advocate, on the assumption that the
Office of Price Administration is continued, Congress writing into the
law a proviso that decontrol should automatically follow as of next
July 1 on all capital goods ?
Mr. PEW. Yes, sir. We advocate decontrol being effectuated on all
goods.
Mr. CRAWFORD. If it is continued, I say.
Mr. PEW. Then, we would like to have as much taken out from
under Office of Price Administration control as possible.
Mr. CRAWFORD. I am not asking you for a compromise. I am trying
to get your viewpoint.
Mr. PEW. Yes, sir; we would like to have the drilling material
decontrolled.
Mr. CRAWFORD. That is all, Mr. Chairman.
The C H A I R M A N . If there are no further questions, you may stand
aside, Mr. Pew.
We are glad to have given you the opportunity to express your
views to the committee.
Mr. R U S S E L L B R O W N . I appreciate'very much the courtesy and the
patience of the committee, Mr. Chairman.
We will recognize Mr. Baumbach.
Mr. B A U M B A C H . Mr. Chairman, I am past president of the Northern
Kentucky Food Dealers Association, Newport, Ky. I want to introduce as our first witness Mr. R. H. Raibert, executive secretary of the
Kentucky Food Dealers Association, of Louisville, Ky.
The C H A I R M A N . Y O U may take the stand, Mr. Raibert.
1173
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
STATEMENT OF R. H. RAIBERT, EXECUTIVE SECRETARY,
KENTUCKY RETAIL FOOD DEALERS ASSOCIATION
Mr. RAIBERT. Mr. Chairman, my name is R . H . Raibert. I represent
the Kentucky Retail Food Dealers Association, Inc. I am secretary
of this organization.
The C H A I R M A N . Where do you reside, Mr. Raibert ? Louisville ?
Mr. R A I B E R T . Louisville. Yes, sir.
Before any of the gentlemen who are retail grocers, that are with
me, present any testimony before this committee, I would like to ask
this committee if the same thing is going to happen to these men that
happened to the grocers that testified before this committee last year.
The thing that happended that I am referring to is that each and
every grocer who testified before this committee last year was hounded
and persecuted by the Office of Price Administration. Many of those
grocers have been forced out of business.
Even though we have come a long way up here from Kentucky to
present the factual information on things that we think are unfair
m the present Price Control Act, I do not think that it would be f a i r
to ask these gentlemen to testify if they are to be persecuted by theOffice of Price Administration for appearing at this hearing. These
gentlemen are honest, upright American citizens, and they deserve
fair treatment, because, after all, this is still America. I hope. I ask
you gentlemen of this comittee to assure the representation from Kentucky that no method of retaliation by the Office of Price Administration will be allowed against them. I certainly do not want to see these
grocers in Kentucky crucified, as the grocers were, who testified before this committee last year.
We are here to present on behalf of the grocers of Kentucky their
complaint about the unfair and harsh methods now being used by the
Office of Price Administration, particularly in the Enforcement and!
Checking Division.
We do not believe that these methods are the fault of the local Office
of Price Administration offices, but we believe that they are trying to
rigidly live up to the letter of the law as written in the original Price?
Control Act, and in the amendment presented last year to the PriceControl Act.
Now that the war is over, we sincerely believe that the law in itself
is entirely too harsh and too far-reaching for peacetime, and that i t
should be amended so that price control will be more simple and more
effective. Unless it is possible to do this, many more honest, upright,,
independent grocers will be driven from their businesses by this unnecessary harshness and unjust attitude taken by the Office of Price9
Administration.
I repeat that I think the way the law is interpreted today by the
local offices is due entirely to their instructions from their superiors
and that is that they must get tough and live up 100 percent to the*
letter of the law. It appears to me that the use of some common sensemight help to remedy the situation a little bit.
But, frankly, gentlemen, I believe the only remedy is to amend or r
rather, for the Congress of these United States to amend, the Price
Control Act so that the harshness and the unfairness and inequities
will be removed from it, and that it will be possible for the hones^
1174
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
independent grocers to live under this act for another 6 months or
possibly 1 year.
You gentlemen and the other gentlemen of the Congress and Senate
are responsible for the amendment that was put into this act last year
that allowed the Office of Price Administration paid employees to
make purchases and build a case against independent grocers and
other businessmen. The only reason that this was necessary was
because the consuming public in general did not feel that the violations
were as bad as the Office of Price Administration seemed to think
they are. For that reason, this amendment should be corrected.
Therefore, the Kentucky Retail Food Dealers Association asks you
gentlemen for your consideration on the following corrections and
amendments to the present Price Control Act.
First, the correction and easing up of unnecessary harshness in the
enforcement of unintentional violation. We believe that for an unintentional violation there should be no fine. We further believe that
if a grocer has items under ceiling as well as over ceiling, that there
is no intent on his part to violate the law.
I might just ad lib a little bit there and say that I recently had
occasion to appear before a price panel with a lady who was running
a grocery store, because her husband was in the service. I asked
to see the file. On checking this file, I find that there were eight minus
items and three plus items, the minus items being items that were
under ceiling; the plus items being items that were over.
Certainly, there was no intention on the part of that lady to black
market or get rich, because she was selling eight items below ceiling
and only three over ceiling, and yet she was cited for a violation.
We further believe that the penalties for these violations are entirely too harsh, and that there are many more corrections that should
be made.
For instance, when a checker comes in the store, that he or she should
not come ahead of the merchant's customers, but should wait their
turn bef ore checking the store.
Second, we ask revocation of all controls as supplies of individual
commodities come into a reasonable normal balance with demand,
and the danger of ruinous inflation decreases.
Third, an immediate end of consumer food subsidies.
Fourth, the immediate removal of all food and grocery commodities that do not have a direct effect on the cost of living.
Fifth, that prices cannot be controlled by the Office of Price Administration or any other Government agency unless wages are controlled. The present policy of this administration encouraging wage
increases is one of the basic causes of inflation.
Sixth, the removal entirely from price control of the attached list
of nonessential and luxury items.
I have here a list containing those items, attached to this statement. Some of those items are ammonia, bluing, cleansers, insecticides, lye, and so on.
Seventh, that the retailers should be allowed to raise prices at the
same time meat packers or wholesalers raise prices to them.
Please remember we are not asking that price control be discontinued. We are only asking that it be simplified and that it is more
fair and equitable to all under its control.
1175 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
There is just one more thing I would like to call to your attention*
Here is an order that was sent out telling the grocers to take an inventory of the sugar on hand:
T h i s a m e n d m e n t s h a l l b e c o m e effective 1 2 : 0 1 a. m., F e b r u a r y 10, 1946.
We have a large number of members throughout the State of Kentucky. In Louisville we have, roughly, some 400 members. This
order was effective February 10, 1946, yet the earliest it was sent
through the mails to any grocer, and received by then, was March 7.
I would like to know how you can take an inventory on February 10
when you do not receive an order until March 7.
Mr. M O N R O N E Y . Mr. Chairman, could I make a statement for the
record?
Representative Chelf, of Kentucky, was here earlier today and
wanted to be here for this testimony, but was necessarily called to
the floor. He will testify when the Members of Congress go on.
Mr. CRAWFORD. Mr. Chairman, may I ask the witness what happened in that case where you had eight minus and three plus?
Mr. R A I B E R T . They wanted $ 5 0 , and they finally got down to $ 2 5 T
and I said, "This happens to be a case we will go to court on. I da
not think you can do anything with it." And after I was asked to
step out of the room and then returned later. They said that they
had decided that they probably had made a mistake.
Mr. T A L L E . Mr. Chairman.
The C H A I R M A N . Mr. Talle.
Mr. T A L L E . Who receives the money when these fines are imposed ?
Mr. R A I B E R T . The check is made to the Treasury of the United
States.
Mr. T A L L E . And is it turned over to the man who imposes the fine?
M r . RAIBERT. Y e s , s i r .
Mr. T A L L E . I t is not mailed to the Treasury ?
Mr. R A I B E R T . N O , sir; it is turned over to the food-enforcement
attorney of the district office of the Office of Food Administration.
That brings to my mind a thought which was very ridiculous when it
was brought up: I had a food-enforcement attorney in Louisville tell
me, "We cannot accept a $25 fine, because it costs us more than $15
to transmit this check to Washington." I think it cost them 3 cents,
and possibly the cost of a letter, which in my office, amounts to about
60 cents a letter. So I could not figure out, and have not yet discovered, the mystery of the $15 it cost them. That is the reason they
wanted $50 fines instead of $25.
Mr. P A T M A N . I would not believe that $15 part of the statement.
Mr. R A I B E R T . Y O U cannot believe it. I t just does not make common
sense to think that it would take $15 to transmit a check from Louisville to Washington.
Mr. CRAWFORD. I S there general feeling among your associates t h a t
some of these investigators attempt to build up the volume of business in their favor in the way of assessing thesefines?
Mr. R A I B E R T . Y O U mean that they are framing cases against the
grocers ?
M r . CRAWFORD. Y e s , s i r .
Mr. R A I B E R T . N O , sir; I
do not think that that feeling is there at
all. The feeling is simply this: That due to their lack of knowl-
1176
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
edge of the grocery business and not being able to tell a Taylor ham
from a regular ham, or not being able to tell a piece of beef from a
piece of veal—in other words, that that is the cause of it—incompetence, more than anything else.
The C H A I R M A N . Mr. Baumbach, will you introduce your next witness ?
I failed to introduce Mr. Baumbach. He is a fellow citizen of mine,
.and he is a grocer of standing and influence in the community in which
lie lives.
Who is your next witness ?
Mr. B A U M B A C H . William Murray, of Lexington, Ky. He is president of the Kentucky State Food Dealers' Association of Lexington, Ky.
The C H A I R M A N . Take the witness stand, Mr. Murray.
STATEMENT OF W. L. MURRAY, LEXINGTON, KY., STATE PRESIDENT OF KENTUCKY FOOD DEALERS' ASSOCIATION
Mr. M U R R A Y . Mr. Chairman and members of the committee, my
name is W. L. Murray, Lexington, Ky., State president of Kentucky
Food Dealers' Association. My one and only purpose in appearing
before this important committee is for the interest, protection, and
'betterment of the retail food dealers, not only in Kentucky but all
over these United States. May I state, first, that I own and operate
a fair-sized food market in Lexington, Ky. I have spent the past
16 years in the food business, and I very much like the business when
I can operate on a pure and competitive basis, but I must state that
due to complications that have arisen from the unworkable and unreasoning regulations of the Office of Price Administration it has especially been very hard to operate efficiently as per Office of Price Administration checkers' views in the past 6 or 8 months. I have cooperated
wholeheartedly with the regulations the best I could, and so far have
never been questioned by any Office of Price Administration worker.
I have never violated a price regulation knowingly, neither have I
permitted any one of my employees to violate any of the price regulations. However, according to some of the indictments of several of
my fellow food dealers, I may have my name in the big wheel, ready
to be turned out at any time; for example, some of these indictments
^charge that between August 1, 1945, and January 19, 1946, some item
was sold above ceiling price. Very seldom the item is ever mentioned
in the indictment; therefore, the dealer must try to find out just what
item has been sold above ceiling price. Won't you agree that due to
so many changes in prices and regulations that this method is unfair
to any food dealer and will work an undue hardship on him in preparing his defense? Wouldn't it be better and fairer that the food
dealer be advised immediately of his error or violation, whichever the
case may be ?
I want to make this statement that it is next to impossible to calculate 2,500 to 4,000 items normally carried in a retail food market
without making an error. I contend that there is a big difference
between an error and a violation. As I understand a nonintentional
error the Office of Price Administration asks for a $25 voluntary
contribution to the United States Treasury and an intentional error—
1177 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
they ask for $50 plus court costs and an injunction against such food
dealer for further violation.
Now here's the joker—on second offense they are permitted to
assess large fines and add long jail sentences. I ask you, gentlemen,
if you think in time of peace after the display of all-out cooperation
to win the war by contenting ourselves with various regulations,
rationing, buying bonds, making contributions to war chests, Red
Cross, and so forth, that this law is fair to the food industry? Do
you not think that it is harsh enough in time of war, much less time
of peace ?
We are not asking for inflation. However, you will probably
agree that we already have plenty of inflation. Neither are we asking for higher prices or larger permitted mark-ups. We are only
asking for a fair deal and for your assistance to write such laws
that do not persecute or work undue hardship on any group or groups
of small or large businessmen.
We have inflation on real estate now in most sections of 100 percent
or more. It is my opinion that inflation such as this is much more
dangerous than a small percent on foods. It was such inflation
after World War I that really turned people out of their homes.
It seems to me that a world facing starvation that we should encourage production of all kinds instead of encouraging a planned
economy which creates shortages and does not allow a fair margin
of profit. I believe that every producer is entitled to a legitimate
profit and every laboring man is entitled to a fair wage and good
working conditions.
We believe that it is the purpose to make laws based on justice,
and if such unfair laws as are now being interpreted by the Office
of Price Administration enforcing agencies remain in effect, that
many, many honest food dealers, some of which have been in business
for many years and are respected in their communities will throw
in the sponge and be forced to quit the t^pe of business they love
and resort to some other way of making a living.
In fact, we have two well liked food dealers of many years in
Lexington, Ky., that have recently gone out of the food business
according to their own statements because of unjust regulations and
enforcements of the Office of Price Administration. One of these
gentlemen quit before any charge was placed against him and one after
an indictment had been made against him of which he pleaded
"not guilty."
The thing that worries all of us most is what is a violation? Is
there a difference between a violation and an error? And why does
the average Office of Price Administration checker not have the ability
to discern this difference? And if they are not qualified to determine
this difference, why shouldn't the laws be written in such a manner
that would enable the judges or the jurors to determine that difference
after hearing the evidence in such cases ?
Here is an example of an error made by the Office of Price Administration in Lexington, Ky. One of our food dealers had a small
truck for sale, but before he advertised this truck in our local newspapers, he called the Office of Price Administration and after giving
them full details and description of the truck, they asked for time to
figure the ceiling price. In a short time they called him and told him
1178
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
the ceiling price was $289.15. The food dealer advertised the truck
and the next morning by 8 a. m. he sold the truck. I t was necessary
for the purchaser to go to the Office of Price Administration and get
the necessary papers for the purchase. He took the papers to the seller
and stated, "I think I got a bargain." The seller readily agreed, but
when the purchaser presented the paper to the seller for his signature
he found that the Office of Price Administration employee had made
a mistake. The correct ceiling price was $376. Therefore, the food
dealer lost $86.85 by an Office of Price Administration employee's
error.
They have this same food dealer indicted for selling some item above
the ceiling of possibly 1 or 2 cents. Gentlemen, does this make sense?
Is there not some way that you, gentlemen, can eliminate such practices %
It is my honest opinion that a large majority of foods are being
sold below ceiling prices. After talking and checking with several
food dealers in our good State of Kentucky, I firmly believe that from
10 percent to 50 percent of food items are being sold below ceiling
prices. This being true, should two or three items accidentally be sold
a penny or so above ceiling and dozens or possibly hundreds of items
in the same store being sold below ceiling—is there anyone who could
accuse a dealer of being a crook, chiseler, or a violator?
I should think that if a man wanted to profit or cheat he would
price all of his items to the highest permitted mark-up and then try
to chisel on as many other items as he thought might get by without
being caught. When I make the rounds over my own store, in order
to satisfy myself that there has been no error made in the pricing of
my food items, I occasionally find where there have been a few errors
made. I immediately correct such errors and console myself that it
was an error. Had it been that an Office of Price Administration
checker would have found this error, I would have been branded as a
crook and a chiseler or some other kind of a criminal.
Some few months ago when we had a district office in Lexington,
Kv., our chief price administrator made this statement: "That the
ordinary retail grocer was responsible for the black market." This
statement was published in one of our newspapers. Some of us food
dealers from different parts of the State secured an appointment with
this gentleman and strongly resented this statement. We pointed out
to him that it was the unworkable regulation of the Office of Price Administration that was responsible for the black market.
Now, gentlemen, if you agree with us that these regulations are
unjust or being misinterpreted and that if the law in its present form
is too harsh and unjust, then we ask your cooperation in correcting
same.
The C H A I R M A N . Y O U said they charged certain violations between
certain dates, specifying the character of the violations ?
Mr. M U R R A Y . N O , sir; nor the date. There were three cases: I believe one on the 17th, one the 18th, and one on the 19th, all stated
as being from August 1,1945, to January, I believe, 17 or 18 or 19.
The C H A I R M A N . Did they not state the character of the offense?
Mr. M U R R A Y . N O , sir. We have to dig that out by writing letters
or getting our attorneys to get these things, which has been done in
these particular cases.
The C H A I R M A N . Y O U may stand aside, Mr. Murray.
1179 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. CRAWFORD. Mr. Chairman.
The C H A I R M A N . Mr. Crawford.
Mr. CRAWFORD. What about these people who were persecuted by
the Office of Price Administration since they testified here a few
months ago. Do you know anything about that ?
Mr. M U R R A Y . What is that?
Mr. CRAWFORD. These witnesses who appeared here a few months
ago from your area, and, after testifying, have been crucified, as you
expressed it, by the Office of Price Administration since.
Mr. M U R R A Y . NO, sir; I do not know whether they are in our area
or not. I am not familiar with that. The witness who preceeded me
made that statement.
Mr. CRAWFORD. I thought you two men were working together.
Mr. M U R R A Y . We are, but I do not know anything about that.
Mr. CRAWFORD. Would it be permissible for the other gentleman to
answer that?
T h e CHAIRMAN. Y e s .
Mr. R A I B E R T . I made that statement.
Mr. CRAWFORD. Have I understood your testimony ?
Mr. R A I B E R T . Yes, sir; the names and addresses of
all those men
who testified in 1945 are available from the National Association of
Retail Grocers, of which we are an affiliated member. If you wish the
names of them, we will be glad to send them to you.
Mr. CRAWFORD. T O your knowledge, have they been unjustly treated
by the Office of Price Administration as a result of that testimony ?
Mr. R A I B E R T . Shortly after appearing here, checkers began to appear in our store from two to five times a week. Sometimes two to
three times a day.
Mr. CRAWFORD. That is what I was trying to get at when I asked you
the question awhile ago; if any of these people had been framed.
The C H A I R M A N . Y O U may stand aside, Mr. Murray.
Mr. M U R R A Y . Gentlemen, may I leave the letters here from the
State of Kentucky for your consideration ?
T h e CHAIRMAN. Y e s .
Mr. T H O M . Have the checkers
Mr. M U R R A Y . Well, the panel
gone into your store, Mr. Murray?
checkers are in there frequently;
yes, sir. But if the undercover men have been, I do not know it.
Mr. T H O M . Y O U have never been cited?
Mr. M U R R A Y . I have never been questioned.
Mr. T H O M . That is a good record.
Mr. M U R R A Y . Thank you.
Mr. P A T M A N . Have you lost much money during this time, or have
you made money ?
Mr. M U R R A Y . NO, sir; our records show that we have made about
the same. Our organization was organized in April 1941, and our
profits have been about the same each year, with very little difference.
That, of course, possibly was due to the fact that our expenses have
been a little more recently.
Mr. T H O M . What size business do you have ?
Mr. M U R R A Y . $200,000 a year.
Mr. T H O M . H O W much were your net profits last year?
Mr. M U R R A Y . I will give you this: About $ 5 , 8 0 0 or $ 6 , 0 0 0 . But
this was an incorporation as of last year, until the last of last year,
and a salary to the officers was not included in that amount.
1180
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. T H O M . I t does not look like much of a net income on that much
of an investment.
Mr. M U R R A Y . Well, almost all of my time is given to keeping up
with the regulations, and trying to keep these boys lined up, and trying to see that there are no violations.
Mr. T H O M . What is your capital investment ?
Mr. MURRAY. We have been operating on a $ 3 0 , 0 0 0 capitalization,
with two stores.
Mr. T H O M . Y O U are not asking for the repeal of the Price Control
Act?
Mr. MURRAY. N O , sir; I think that should be left to you gentlemen, but I do think that it ought to be fixed so there will not be
persecution. You will notice I did not ask for permitted mark-ups;
I did not ask for anything except justice. I am appealing to you in
the interests of the food industry in our State, which has elected me
president, and that is the reason I am trying to work so hard for their
interests, giving my time gratis.
Mr. T H O M . Y O U are satisfied with the law, but not satisfied wTith
the enforcement of it ?
Mr. M U R R A Y . Yes, sir. I am not falling out with your law. In
other words, I am not asking—under the permitted mark-ups, I will
tell you, we are confused in many cases, but it could be made simpler.
However, I think that we are allowed a legitimate profit as retailers.
I am not worrying about that. Maybe we are pinched in places, but
in other places we have a loophole. So I see no reason that anybody
should want to violate the ceilings. I do not see any reason for it,
because they can operate with a profit by not violating them, and
honestly, gentlemen, if there has ever been one violated in my store,.
I have no knowledge of it.
The C H A I R M A N . Thank you. You may stand aside, Mr. Murray.
We are glad to have your testimony.
Mr. B A U M B A C H . Next I would like to present Mr. Frank Bile, vice
president of the Home Owned Grocers Association of Louisville, Ky.
STATEMENT OF F. K. BILE, VICE PRESIDENT, HOME OWNED
GROCERS ASSOCIATION, LOUISVILLE, KY.
Mr. B I L E . My name is F. K. Bile. I am president of the Home
Owned Grocers Association of Louisville, Ky., and represent grocers
there.
The first thought I want to get in your minds is that w^e do want
price control. I am a grocer, and I live with grocers, and I know
our troubles. I would like to cite to you some of the grievances of us
grocers with the Office of Price Administration situation.
One man told me only day before yesterday about an Office of
Price Administration price panel worker visiting his store unofficially.
He was amazed at the fact that the grocer had not been before the price
panel for a violation. During the course of the conversation he left
the impression with the grocer that they would check and recheck
until they found a violation against him. This attitude will give you
an idea of how unfairly we feel we are treated. It has a tendency to
have grocers on nerves' edge regardless of how well they try to keep
their prices in line.
1181 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Citing an example of the fear under which grocers live, I found
on a recent tour occasions such as this: The first grocer I visited I
asked for the store owner upon entering. The man whom I presumed
was the owner went on about his business saying that the boss was not
in. I said to him, "I am not an Office of Price Administration inspector, I am here from the Grocers' Association." He smiled then
and left his work while we had our conversation.
The next store I visited I introduced myself as an Office of Price
Administration investigator. The man shied away from me and
literally went into a nervous spell. Then when I finally introduced
myself*he said, "Hell! you scared me. Damn! They got me again
this morning." It happens that this man had been washing his
shelves and walls, which naturally caused him to move his merchandise about, and after working until 11 p. m. the night before, had not
reset his prices on the merchandise.
A small item I would like to call to your attention is the wording of
the newspaper releases from the Office of Price Administration citing
violations which leaves the public with the impression that we are
just short of being criminals. I know of cases in which grocers have
had numerous items under ceiling and been charged with a violation
with one price over ceiling. Why do they not put that in the newspapers ?
The fines that are put out for these slight violations are far out of
proportion. Fifty dollars may not be too heavy a fine for a $25-overceiling sale, but when you compare $50 to 1 cent, there is such a drastic
difference that it sounds as if it were the war debt.
On more than one occasion when the panel worker has been checking
my store, I have shown him prices under ceiling, and I usually get a
look that makes you know they do not believe you. We could hardly
expect to get rich on a penny or two overcharge. Does it not stand
to reason that it is easily possible for a man to slip up here and there
when he has anywhere from 800 to 1,500 different prices in mind?
Further, along the line of keeping a man confused, I would like tocall your attention to the list of mark-ups put out by the Office of Price
Administration. Unless I am sadly mistaken, there are 37 different,
mark-ups on this list, 18 of which vary no more than 4 percent. Why
could they not be placed in about two groups so we do not have to
become cross-eyed running up and down columns ?
If the Office of Price Administration is big enough to control prices
and do this gigantic job, why don't they get to the base of the trouble?
You gentlemen would only have to go down town to a wholesale produce house, open a crate of lettuce, and find up to 10 unusually small
heads among those of the regular standard grade. Now and then you
will even find the end row at the lower layers placed in such a way as
to account for the two bottom layers, thereby shorting the grocer four
heads of lettuce. While at the wholesale house, turn several cases
of citrus fruits on end and note the vacant space where plenty of room
is left for a dozen or so more oranges or several grapefruit, whichever
the case may be. Open some of these crates and you will find the
reason—up-grading.
Many of our stores are now turning to shelf service. They have an
undue hardship when the customer selects the largest fruit, leaving:
1182
e x t e n d price c o n t r o l and stabilization acts o f 1 942
the small ones for an Office of Price Administration check to find you
with short weight.
Recently a large chain was cited for being over 51,000,000 pounds
short in their sugar inventory. This amounts to over 4 tons per store.
'They were not penalized for this, but what would happen to me if I
were short even 1 ton ? I refer you to figures Mr. Raibert has about
what happened to some of our grocers in our association.
Furthermore, how could you expect us to keep our sugar account
straight when such things as this happen: Our ration bank statement
was due to be in our hands January 15. I personally had not used
the checking system for a month prior to January 1 in order to get
my account perfectly in line before the sugar adjustment February 16.
But as late as March 16 they still did not have our statements ready
at the bank.
Another thing I have worthy of mention dates back to the days
when price panels were first put into effect. My first checker happened to be a customer of mine. When she was through with her
work in my store she said, "I am on the way home and do not have
my points with me. Let me have a pound of butter, and I shall give
you the points tomorrow."
Mr. T H O M . Did you get the points ?
Mr. B I L E . She didn't get the butter.
I s this situation supposed to work only one way ?
I think a simple solution to the whole set-up that would make life
"worth living in grocery stores once more would be to set the mark-up
at about 30 to 35 percent on cost, which would be about 25 percent on
selling price, as we had always figured prior to the Office of Price
Administration. This would have a tendency to put the grocery business back on a competitive basis.
Our present competitive situation is different than back after World
W a r I. Now we have thousands of chain stores and tens of thousands of independent markets, not like the predecessors, the grocery
business is modern. Competition is so keen that a grocer would only
he signing his death warrant to take the full mark-up on all items.
The most competitive items are naturally the necessity items.
One more thing I would like to relate to you is the wholesale price
increase on meat that took effect recently. We were led to believe
that pork would be raised 55 cents per hundredweight, but the prices
to retailers were raised up to 4 cents per pound. Citing examples,
bacon was raised 2 cents per pound in Louisville, and 4 cents per
pound in northern Kentucky. Hams were raised 1% cents per pound,
sausage 1 y2 cents per pound, wieners 1% cents per pound. You will
notice, please, that these are on the better selling items, and I am sure
that it averages more than 55 cents per hundredweight.
In closing I would like to tell you that I was a violator once. My
butcher sold pork chops above ceiling price because it was necessary
for him to trim fat off the loins in order to put them in salable condition. I know that the law requires not more than a half inch of
fat on a pork lo$n. It is not uncommon to find an inch and a quarter
of fat on them. When I went before the Office of Price Administration attorneys with my case, I took some pork chops along. They
measured them for themselves and found them to have 1% inches of
fat. 1 trimmed one chop for them and laid it beside the other one.
1183
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
I asked all five of them which chop they would buy for themselves
providing there was 5 cents difference per pound. None of the five
gave me an answer. Does not silence still give consent ?
These are just a few of the many things I could bring to your
attention providing we both had the time.
The C H A I R M A N . Have you any other witnesses
Mr. B A U M B A C H . I want to remark just a minute. I have some
clippings of local papers from a community of northern Kentucky..
Some of these are from Fort Thomas. The headline is "14 Violators of OPA pay $9,558." That is small independent merchants.
Here is an independent merchant of Covington, Ky. He was fined
eight thousand-some-odd dollars. Two days later they came in and
they are going to recheck his inventories.
One other thing, in our schools they are putting a program on to ask
children to check ceiling prices in their stores. One little boy came
home to his dad who had been in the grocery business 32 years. He was
8 years old. He said, "Daddy, can you tell us why in school they say
we have to watch you?" They are putting fear into the child. They
tell him his dad should be watched.
We are not asking for controls to be taken off. There has to be^
some form of controls on price. We are asking for common-sense
regulations. In other words, we are not in business for the last 30)
or 35 years to operate illegally. We built our reputation over a<
period of years for the confidence of the people. Some of these small
merchants, some of them bad to borrow money to pay some of theses
fines. It is hard for a fellow to pay $8,000. That is a lot of moneys
gentlemen.
We are not asking for anything unreasonable. We are just asking for some relief. There has not been a grocer in northern Kentucky who hasn't had to appear before a price panel. They had 62:
the day before I left. They are after all of them. You are constantly working in fear. You are afraid who the next customer is
going to be. They are checking some stores' complete inventories,
from one end to the other.
There is nothing to stop a young child from pushing a sign—pushing a 12-cent price over on another item. They do not ask you for
any explanation. That is marked down on their sheet. Then you
are a violator. We have some checkers—we have been trying to find
them. Some of these checkers are young people, possibly 16 or IT
years old. We had a case in Cincinnati, two colored girls approximately 16 years old were checking stores.
The thing is that we want to live up to these regulations. We are
trying to live up to them. We want some relief so we will not constantly be hounded and watched. We are trying to operate a legitimate business.
Thank you for your attention.
The C H A I R M A N . I am sure the committee will give you consideration.
Mr. RAIBERT. Many merchants are called in before the price panel
and also by the district office. They are asked to make a voluntary
contribution for an intentional violation of $50, or an unintentional
violation of $25. Rather than go to court, they go ahead and settle*
for the voluntary contribution, not realizing the debt will be held
1184
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
against him on the next case which comes up, which will probably
be a civil suit. They will also ask for an injunction.
We had a man in Louisville who did not appear. They had an
injunction against him. When he came before me, I thought he was
being imposed on. Through his lack of knowledge, which is no excuse
of the law, they had obtained an injunction against him. They wanted
to send this man to prison for 1 year for being over 2 cents on one item
and 3 cents on another item. They finally compromised the case for
$500 for being over 2 cents on one item and 3 cents on another item.
The grocers, rather than going to the inconvenience of hiring an
attorney for $250 and having the court cost, go ahead and admit their
guilt. We have tried to get them to fight the cases. Unfortunately,
they would rather settle that way, not knowing they were going to
be incriminated for suits in Federal courts.
The C H A I R M A N . Did he pay that $500 ?
Mr. RAIBERT. Yes, sir. Our attorney had just returned from the
service. The attorney who was serving until he got back dropped
dead a few days before. He paid it because they took off the year in
prison and reduced the fine they asked for from $1,000 to $500. If
they get him the next time, I suppose they will throw the keys in
the Ohio River and he wTill stay in prison until he rots.
Mr. T H O M . Mr. Chairman, I think you better get back there and
practice law. They collect good fees.
Mr. R A I B E R T . I think we brought some intelligent considerations
before you. I hope we are not in the class*that just blows off steam.
The C H A I R M A N . We were glad to have you come here.
Mr. SUNDERSTROM. Mr. Margetts is chairman of the mediation board
of the great State of New Jersey, and he is also president of the New
Jersey Taxpayers Association. As the chairman of the mediation
board, he has worked for both management and labor in order to settle
strikes and disputes in my State. His efforts and work have made a
large contribution in the fight against inflation. We will welcome
his views.
Mr. MARGETTS. Thank you Mr. Chairman.
STATEMENT OP WALTER MARGETTS, CHAIRMAN OF NEW JERSEY
STATE BOARD OF MEDIATION
Mr. MARGETTS. Gentlemen, my name is Walter Margetts. I am
Chairman of the New Jersey State Board of Mediation. I was
formerly a member of the National War Labor Board in Washington,
D. C.
My presentation is really in three parts.
The first deals with my experience on the State board of mediation.
The second with respect to the woolen and worsted industry, and the
third with respect to the cotton industry in which I have a personal
interest.
Concerning the first phase, we have a problem which is closely related to your problem in considering the extension of the Office of
Price Administration or the modification of it.
Since YJ-day, in practically every case coming before our board
involving wages which labor through its union representatives in
^accordance with what I personally believe is a good American ambi-
1185 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
tion, seeks to obtain higher wages, we are faced* with the statement by
management that their peacetime products are in most cases operating
at a substantial loss even before granting further increases i nwages.
If you wish specific citations of actual cases, I would be pleased to
give them to you.
The fact that so many companies have informed us that they are
compelled to operate at a loss even before giving effect to increases
has in my opinion contributed in a substantial way toward the prolonging of industrial disputes and has prevented us from expeditiously
resolving wage disputes.
This matter needs correction and I believe your committee is the
correct congressional group to do so.
I would like to point out to you that our board has received what
I would consider wholehearted cooperation from the representatives
of labor appearing before our board and, of course, labor itself by
accepting settlements of labor disputes for a lesser amount than they
honestly believe to be due them.
Especially is this so when labor generally has been given to understand that the Government is sponsoring a national pattern of wage
increases.
With respect to the woolen and worsted industry, as Chairman of
the New Jersey Mediation Board, I am naturally interested in problems affecting industrial production and wages in this State.
The woolen and worsted industry is a very important segment of
the manufacturing actvity which comes within my purview. Furthermore, as a life-long resident of Passaic, I live in the midst of the
woolen and worsted mills of this immediate area, where approximately
20,000 workers are employed in the production of the better qualities
of essential clothing fabrics for both men's wear and women's wear
use. The welfare of these mills and of their workers, and the ability
of these establishments to adequately assist in providing for the
Nation's clothing needs, are matters of considerable local significance
and concern.
I have been very much disturbed over the serious hindrances to maximum, effective production which have been directly caused by various
Office of Price Administration regulations, and by the trouble-fomenting statements which have been issued by Mr. Chester Bowles relative
to the wages paid by the woolen and worsted industry.
When I previously served as a member of the National War Labor
Board in Washington, I knew that woolen and worsted mills generally
throughout the country, as well as in New Jersey, applied for permission to increase their scale of wages, but these requests were denied
in view of the Government's then existing hold-the-line policy.
After this policy was abandoned, and when contracts with the
Textile Workers Union of America, Congress of Industrial Organizations, the bargaining agency for the larger New Jersey mills, came up
for renewal on this last February 1, the woolen and worsted mills
collectively bargained with it to substantial wage increases, the inclusion of paid holidays and other benefits, totaling an upward revision
of over 18 percent. Furthermore, these benefits for the most part
were made retroactive to January 1 although the old contracts ran
until February 1. I t so happens that it was a New Jersey mill in the
Passaic area that first signed such a contract renewal with the Textile
1186
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Workers Union, Congress of Industrial Organizations, thereby setting
the pace which the other mills in the industry followed.
As a result of these increases in the new union contracts, the minimum wage of the industry is now 75 cents an hour (10 cents an hour
higher than a national minimum of 65 cents publicly advocated by
Mr. Bowles in an article written for and recently published in Collier's
magazine), and the average rate is over $1 per hour.
Bearing in mind that most of the industry's employees are women,
and that the majority of the jobs are only semiskilled, the average
weekly take-home pay of these workers compares most favorably with
industry generally throughout the country. These wage increases are
fully in accord with the current national pattern of wage revisions.
Perhaps most important of all, these new contracts were negotiated amicably across the table with the union, without any strikes
or work stoppages of any kind and without any commitment from
the Office of Price Administration that these increases would be
reflected in the selling prices of the industry's products.
Throughout the war the woolen and worsted industry met all the
vast requirements of the Army and Navy, produced extra fabrics for
lend-lease, and still took ample care of the entire civilian population
without the necessity of resorting to clothes rationing.
Since VJ-day the industry has continued working steadily, day and
night, 6 and sometimes 7 days a week, on either two or three shifts,
without any serious production interruptions. The reconversion from
military to civilian manufacturing was accomplished in a matter of
hours rather than of weeks or months.
At no time were there any labor difficulties requiring the services
of our mediation board or any other means of settlement. In fact,
the textile and garment manufacturing industries combined, representing one of the three most extensive and most fundamentally important industrial segments of our entire national economy, have presented a production record both during and after the war that more
than favorably compares with the strife, strikes, and wTork stoppages
that have occurred in other major industries.
As one who is professionally connected with the settlement of labor
disputes, I am proud of this record in which New Jersey mills, their
labor, and the Textile Workers, Congress of Industrial Organizations,
have played a prominent part.
Among the many misleading statements issued by Mr. Chester
Bowles, I would like to refer to his remarks which were broadcast
on Saturday, March 9, and prominently featured in the papers of
March 10, in which he said that a lack of needed production in the
textile industry was caused by the "miserable" wages which that industry pays and by the added fact that the industry's looms were antiquated and inefficient. Not only are such assertions unwarranted on
the basis of the prevailing facts, but they definitely induce the very
kind of confusion, unrest, and work stoppages which retard production rather than help it.
Since YJ-day the industry has, and still is, maintaining a rate of
production far in excess of any previous peacetime year.
Mr. Arthur Besse, president of the National Association of Wool
Manufacturers, testifying before the House Banking and Currency
Committee, said:
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Employment in the industry has increased from 134,000 in August 1945 to
approximately 160,000 at present. Mills in some areas are turning away applicants though it is true that shortages exist elsewhere. These shortages,
however, are due to local labor conditions (inability to obtain labor) and.
not to inadequate wages. And I am sure this statement will surprise you—
there is no present shortage of wool fabrics.
The mills have been delivering so many goods that just this week, several
spongers who accept, examine and shrink goods for the clothing manufacturers,
have given notice that they cannot accept further shipments until they can
process accumulations. There are goods enough—our production of civilian
fabrics is at a new all-time high.
Surely this does not betoken any break-down arising from low
wages or inefficient machinery. Paul Porter, Administrator of the
Office of Price Administration, stated in the papers of March 20,
approximately the same thing.
Since the inception of price control in the summer of 1942, the
woolen and worsted industry has operated under the Maximum
Price Regulation No. 163, wThich sets the individual price ceiling
on each separate fabric that a mill produces.
From my observation, I believe that sensible and practical price
controls should be maintained for the time being, but from my
studies of wage rates, I believe that Maximum Price Regulation 163
should be amended in certain respects.
Since the industry went under price ceilings in the summer of
1942, wage rates in the woolen and worsted industry have risen by
approximately 40 percent, and none of these increases are reflected
in the price ceilings of the fabrics, but have been absorbed by the
industry.
In fairness not only to the workers but to industry and the public
as well, I propose that Maximum Price Regulation 163 be so amended
that of those wage increases which have been granted since the
inception of price control, 50 percent be reflected in the individual
fabric price ceilings, and 50 percent be absorbed by the mills.
This is fair to labor, for they have received the benefit of these
substantial wage increases; it is fair to the mills because their tremendous current rate of production will enable them to shoulder
50 percent of such increases although it is unreasonable for them to
absorb it all as they do at present; and it is fair to the public that
they should absorb some share of the burden of such a greatly augmented wage structure.
Incidentally, the price ceiling changes on fabrics at the mill level
which are here proposed would have a very minute effect on the final
price of a fabric, since only about one-third of the cost of a yard
of cloth is reflected in labor, the other two-thirds being made up of
raw materials, overhead, selling, and so forth.
Furthermore, this increase means little in the cost of the finished
garment since fabric cost is a small part of the cost of the finished
garment.
Without question, the real difficulty with which the industry is
confronted is this:
The maximum average price regulation of the Office of Price Administration (RSO 113), by forcing mills to meet a mathematical
average price despite increased costs and wages, has forced production
into lightweight fabrics (principally for women's wear), which are
less needed, rather than permitting a normal flow into the heavier
83512—46—vol. 2
14
1188
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
weight men's wear materials which are obviously in the greatest demand.
At a time when the needs of millions of returning veterans have
built up a tremendous market for men's apparel, at a time when the
mills should and gladly devote a greater than usual proportion of their
production for this purpose, the industry is compelled by an arbitrary
order to make that which the public could best afford to do without.
It is not a question of total production, or of wages, or of machinery.
I t is a question of permitting the industry to use its vast, current productive capacity in those channels where the need is greatest. The
Army did this with extraordinary results. The removal of the restrictions of maximum average price would accomplish this desired
end. The public would get what it wanted, at prices which would still
be held in reasonable check under Maximum Price Regulation 163,
under which the industry has operated since the inception of price
control.
The maximum average price is not so much a pricing order as it is
an order which tells the mills what they should make irrespective of
what the public demand may be. Not only at the fabric level, but in
the garment manufacturing industry, the garment maximum average price by the same faulty reasoning tends to disrupt the proper,
normal flow of clothing to the retail stores, and to hinder production
rather than encourage it.
In reading the testimony given at the House hearings, and the
statements published in the press, I am deeply impressed, as I believe
we should all be impressed, by the fact that fabric producers, garment
manufacturers and retailers, individually and through their associations, are unanimously and firmly convinced that maximum average price regulations are an unmitigated evil, that they hinder production at a time when to encourage production is the greatest protection against inflation, that they serve no worthy purpose, and that
thev should be rescinded.
These men are the producers and distributors whose responsibility it
is to clothe the Nation. They are the men with the practical experience, who performed such herculean tasks during the war and who
are trying to maintain that pace now.
To say that all these men are merely activated by selfish motives
is both insulting and ridiculous. They want to keep production and
distribution at a maximum, because they know that the dreaded effects
of inflation feed on insufficient supply. I am convinced that their
advice should be taken, and that maximum average price regulations
should be abolished.
• Referring again to Mr. Arthur Besse's statement that there is currently an ample volume of production, the fact remains that maximum
average price forces a substantial part of this production into relatively unwanted items, and conversely fails to supply that which is
in demand.
This in itself is inflationary because it prevents the public from
spending its money to secure that which it definitely wants.
As I said previously, I favor reasonable and practical price controls
until conditions are normal, but I feel that the Office of Price Administration should be sufficiently realistic and flexible in its regulations
i to encourage production rather than hinder it.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Now with respect to the cotton situation.
I would like to talk briefly about the third phase. That is the cotton
industry. As I said, I am interested in the small cotton mill. We
have been unable to obtain any raw material.
The mill is 125 years old. We face the closing of that mill just
because we can not get gray goods. I have discussed it with the owners
and management of the larger mills. Without exception they all s^ate
that it is due to the Office of Price Administration. That situation
applies to another industry in the same area which makes a tape that
covers electrical cable. The cable is manufactured by Phelps-Dodge
Corp., by Western Electric, by Oakenite Co. They, too, have had
to practically cease production in that line because of their inability
to obtain gray goods.
This morning while waiting at the station one of the largest independent laundry supply owners, a manufacturer of soap in New
Jersey, stopped to talk to me. He told me they had to practically
give up their cotton end of the business. They could not obtain cottons. As I said, I contacted my friends in the cotton textile industry.
Incidentally, I was chairman of the Cotton Textile case from the
industry point of view when it appeared before the National War
Labor Board on the case brought by the Congress of Industrial Organization to increase wages, in which they were successful. Through
that I have contacts with practically all of the cotton people in the
South.
As I say, they all informed me that it is the Office of Price Administration that is holding them back. On the question of the statement
made by Mr. Bowles on March 10, that it was wage rates; not being
currently advised with respect to wage rates, I took the liberty of
contacting the American Cotton Manufacturer's Association in conjunction with the owners of several large mills.
They advised me as follows:
In response to your request following information submitted:
Average hourly earnings southern cotton goods industry when Great Britain
went to war September 1939 was 36.3 cents. At time Little Steel formula January
1941 was 40.3 cents. Pearl Harbor December 1941 was 48.3 cents. Latest
figures available show 68.5 cents November 1945.
Above figures from United States Bureau of Labor Statistics. Additional
increases in February 1946 will raise figure to approximately 75 cents. Percentages computed here show increase from December 1941 to November 1945
of 42 percent; January 1941 to November 1945 of 70 percent; September 1939
to November 1945 of 89 percent.
Figures for cotton manufacturing for United States show average hourly
earnings August 1939 of 38.2 cents; January 1941 of 41.9 cents; December 1941
of 50.5 cents and July 1945 of 70.5 cents.
Increase August 1939 to July 1945 of 85 percent; January 1941 to July 1945
of 68 percent; December 1941 to July 1945 of 40 percent.
Increase same periods United States nondurable goods 57 percent, 48 percent ; 33 percent. All manufacturing in United States same periods of 66
percent, 51 percent, 32 percent. These figures from United States Bureau of
Labor Statistics and show cotton-goods increase has been considerably greater
than for nondurable industries or for all manufacturing industries. Cotton
goods wage very favorable when compared with industries in same area
requiring equivalent skill.
North Carolina Department of Labor shows that in November 1945 average
hourly earnings of cotton-goods workers in that State 68.9 cents, November
1945 which was higher rate than paid in same State in brick industry, tile and
terra cotta, fertilizer, foods, furniture, and bedsprings, seamless hosiery, flat
knit goods, lumber and paper boxes.
1190
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
United States Bureau of Labor Statistics report shows only 28 percent cottongoods employees classified as skilled. Therefore considering degree of required
skill together with figures above cotton goods industry on favorable basis with
neighboring competitive industries.
That is signed by the American Cotton Manufacturer's Association.
I have read that telegram to show that it is not as Mr. Bowles has
stated, the miserable wage paid in the textile industry, nor is it the
antiquated equipment. It must be what our prospective sellers of raw
material tell us, and that is, it must be the Office of Price Administration regulations.
I think something should be done so that a business that has been
established for over 125 years or even a business in space we rent,,
one of the largest manufacturers of hats, can obtain gray goods or can
obtain material either through us or somebody else with which to
manufacture articles of clothing.
Mr. B R O W N . Y O U may stand aside.
Mr. SUNDSTROM. May I ask one question?
Mr. B R O W N . Very well.
Mr. SUNDSTROM. A S chairman of the Mediation Board of the State
of New Jersey, you have had the experience of sitting in with many
labor disputes, did I understand you to say in your statement that
price controls had delayed and prolonged settlement of strikes and^
secondly, it had interfered with giving labor a bigger increase ira
wages than they were entitled to ?
Mr. MARGETTS. I t has. Notably so in your own district.
Mr. B R O W N . We will take the next witness.
Mr. F E R R Y . It is rather late. If you prefer, I can present my speech
tomorrow.
Mr. B R O W N . Y O U can have your statement incorporated if you like.
Mr. F E R R Y . The size of these charts does not indicate my brief will
be lengthy. I will only take ten minutes.
The C H A I R M A N . Anything you gentlemen want to incorporate in
the record, it will be incorporated.
STATEMENT OF ROBERT E. FERRY, GENERAL MANAGER, THE
INSTITUTE OF BOILER AND RADIATOR MANUFACTURERS
Mr. F E R R Y . My name is Robert E . Ferry, general manager of the
Institute of Boiler and Radiator Manufacturers.
The following statements are made in the name of the members of
that institute who comprise a large majority of the volume of manufacture of cast iron heating boilers and radiators.
The purpose of this statement is to present facts pertaining to the
needs for and potential supply of cast iron heating boilers and radiators and to place on the record the effect which the Office of Price
Administration price controls continue to have in creating serious
shortages in these products.
Heating boilers and radiators are products which are an essential
part of the emergency housing program.
I t is true that there are other types of heating equipment which
will be used, such as warm-air furnaces, space heaters, floor furnaces
and stoves; but without a greatly expanded production of boilers and!
1191 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
radiators, heat will not be available in many of the homes which will
be built:
First, because the maximum capacity of plants producing these
other types of heating equipment is insufficient to cope with the total
volume of homes that are needed over a several years' period.
Second, because a certain portion of those buildings can be heated
only by steam or hot water, which means boilers and radiators. Therefore, unless production of boilers and radiators is maintained and
sharply increased, it is inevitable that a large number of homes
which are to be built during 1946 and succeeding years will be uninhabitable because of lack of heat.
Recognition by Government agencies of the essentiality of boilers
and radiators is in ample evidence. The Civilian Production Administration and the housing agencies are deeply concerned over
present and impending shortages.
The report of Wilson W. Wyatt, Housing Expediter, to the President, dated February 7, 1946, states that 2,700,000 homes must be
started before the end of 1947. The target for 1946 is 1,200,000 and
for 19471,500,000 homes.
The number of conventional homes listed as a goal by the Housing
I3xpediter is as follows:
1946
$1947
700, 000
900, 000
Total
1, 600, 000
The other 1,100,000 homes to be built during 1946 and 1947 will be
prefabricated and temporary units.
The shortage of boilers for 1946 and 1947 home requirements is
very serious. I t is estimated that this shortage for 1946 will amount
t o 175,000 boilers, if something is not done to accelerate production.
Production is currently at the rate of 100,000 boilers per year. Requirements of boilers for the 700,000 new homes of the conventional
type are estimated by the Civilian Production Administration as 25
percent of the total or 175,000 boilers.
In addition, 105,000 boilers are needed annually for replacements.
Thus, if the Housing Expediter's goal for 1946 is to be reached,
production of boilers needs to be stepped up from 100,000 per year to
"275,000.
The monthly report of John D. Small, Civilian Production Administrator, dated January 28, 1946, states the following with respect
to radiation:
Production of cast-iron radiation failed to reach 1.5 million square feet in
any month during 1945, and at the end of the year was at the monthly rate of
1.2 million square feet. This compares with average monthly production of
5,000,000 square feet in 1939 and more than 7,000,000 square feet in 1941. Current production must be quadrupled if estimated requirements of 60,000,000
square feet for 1946 are to be met.
The monthly report of John D. Small, Civilian Production Administration Administrator, dated January 28, 1946, states the following
with respect to shortages of radiation:
The major limiting factors in the production of cast-iron radiation are shortages of labor and unprofitability of this item. Civilian Production Administration has certified the criticality of cast-iron radiation as a bottleneck item to
1192
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
the Office of Economic Stabilization and the Office of Price Administration isconsidering whether discretionary price increases should be granted to producers. All possible efforts to stimulate labor referrals will be made through
United States Employment Service and priorities assistance will be extended to*
producers where necessary.
The same factors of labor shortage and price ceilings apply equally
to radiators and boilers.
Basically, the reason for the estimated shortage of production in
1946, of both cast-iron boilers and radiators, is a current shortage
of labor. The labor shortage is due to unattractive wage rates in the
industry and a shortage in the labor pool of skilled molders and
coremakers. Manufacturers of cast-iron boilers and radiators cannot afford to pay higher wages because the Office of Price Administration ceiling prices are lower than the cost of manufacture.
This means that:
Each shipment contributes a loss to the manufacturer.
Each shipment robs the manufacturer of a part of his working
capital.
Manufacturers are faced with ruin if they continue to sell for less
than their products cost them.
With this prospect ahead of them, this means that manufacturers
will refuse to produce boilers and radiators.
The policy purportedly used by the Office of Price Administration
in determining ceiling prices for boilers and radiators involves determination of the following items:
(a) Current cost of materials.
(&) Current cost of plant wages and salaries.
(c) Overhead, including plant, administrative, selling and general,,
at the 1942 rate.
To that, they add the over-all industry profit at the 1936-39' average.
This policy is tending to reduce rather than increase production for
the following reasons:
One, ceiling prices on boilers were established under Maximum
Price Regulation 272 on November 27, 1942 at a level 5 percent below
the average 1942 price levels. As costs increased during 1943, 1944,
and 1945, the Office of Price Administration on several occasions was
requested by the industry advisory committee to raise ceiling prices.
After receiving detailed cost data, the Office of Price Administration
deferred action for many months and even years. One increase on
boilers was granted in 1944 which placed the price level at 5 percent
over 1942 prices. In other words, present ceiling prices on boilers
reflect the level which the Office of Price Administration deemed adequate to cover costs as of the middle of 1943, with no allowance for
profit. No action has been taken on frequent requests to recognize
subsequent cost increases.
Ceiling prices on radiation were established under Maximum Price
Regulation 272 on November 27,1942, at levels 12 percent below average industry levels of 1942. Two increases in ceiling prices have been
made, one in October 1943 and one in August 1945, which represent a
total increase of approximately 17 percent over original ceilings.
However, due to the 1942 cut-back, present ceilings are only approximately 4 percent above 1942 levels. The industry advisory committee
made repeated requests during 1944 and early 1945 that recognition of
increasing costs be accorded by the Office of Price Administration.
1193 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
On May 27, 1944, the Chairman of the Office of Price Administration'
industry advisory committee requested a meeting to discuss the situation with the Office of Price Administration.
The Office of Price Administration replied, on June 3,1944, stating:
I t is our considered opinion that no useful purpose can possibly be served by
the meeting you propose.
And now No. 2. The effect of the Price Administrator's wellknown policy of "Over-all Profitability" has forced some of the manufacturers to divert their production facilities to products other than,
boilers and radiators. Adequate ceilings on boilers and radiators have
been refused by the Office of Price Administration because some of the
members of the industry showed over-all profits due to diversified
production.
Three, current costs, except for labor and materials, are not used by
the Office of Price Administration in determining ceilings. Overhead
as of 1942 is the maximum overhead used in their determination of
costs. It does not require an economist to recognize that costs of
everything are higher today than in 1942 and the items which make
up overhead are no exception.
Recently the Office of Price Administration has become more generous in their ceiling determinations and now say that an industry
should be permitted to make the same profit that it made on the average
during 1936 to 1939. That policy is of little help to this industry for
two reasons.
First, the Office of Price Administration does not recognize current
costs on which to add the 1936 to 1939 profit.
Second, it would not be possible to select four worse years from the
profit standpoint. During 1936 to 1939 construction levels were at
a very low point. The boiler and radiator industry was living largely
on repairs'and replacements. Because volume was down, profits obviously were almost nonexistent.
The net selling price for the industry, as compiled by the Office of
Price Administration for the latter part of 1945, was 30.6 cents per
foot—approximately 6 cents per pound.
Cost of raw materials, labor, and factory overhead totaled 30.8 cents
per square foot. Thus, before administrative, sales, and general
expense, radiation is being produced at a loss.
Administrative, sales, and general expense, under the Office of Price
Administration formula of using 1942 costs, amounted to 3.4 cents
per foot. Theoretically, the Office of Price Administration permits
a profit at the 1936 to 1939 average rate. The Office of Price Administration calculates that as approximately 2.5 cents per foot. Even
under the Office of Price Administration formula the ceiling price,
based on October 1945 costs, should be:
Gents
Cost of production.
Overhead
Profit
Total ceiling price.
30.8
3. 4
2.5
86. 7
I t is evident, therefore, that present ceiling prices on radiation are
6 cents per foot, or 20 percent under the figure which the Office of Price'
Administration formula requires.
1194
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
How much should ceiling prices be raised to allow a 10 percent operating profit on radiators, based on present labor and material rates %
A 10 percent operating profit presumes a Federal income tax rate of
40 percent, yielding a net profit of 6 percent of sales.
On the basis of late 1945 wage rates, ceiling prices should be raised
on small tube radiation, which represents almost 100 percent of present types, to meet the following costs and profits:
Cents
Factory cost
Overhead
Operating profit, 10 percent
30. 8
5. 8
4.0
Total
40. 6
The above calculation does not take into consideration the fact that
wages must be increased to attract additional workers. If 20 percent
were added to the 1945 cost of labor, which was 13.8 cents per foot, an
additional 2.75 cents per foot would be added to the cost, making a
total cost (including profit) of 43.35 cents.
The net selling price, as reported to the Office of Price Administration by a majority of the boiler manufacturers, for the latter part of
1945, was 8.4 cents per pound.
Cost of raw materials, labor, and factory overhead was 7.08 cents
per pound.
Administrative, sales and general expense, under the Office of Price
Administration formula of using 1942 figures, amounted to 1.13 cents
per pound.
Average 1936-39 profit was 0.53 cents per pound.
Thus, under the Office of Price Administration formula of figuring
costs, the loss is as follows:
Cents
Net realization
Cost plus 1936-39 profits
Loss per pound or 4 percent
i
8. 40
8. 74
. 34
The above figures, however, do not present the true picture as to
why small domestic-size boilers cannot be produced to meet vital
requirements. An increase of at least 30 percent is needed in ceiling
prices to stimulate increased production.
The following figures represent the average selling prices and costs
of small boilers, as reported to the Office of Price Administration by
several representative manufacturers:
[Cents per pound]
Net realization
Cost plus 1936-39 profit
Loss
8.12
10. 01
1. 89
This represents a loss of 23 percent without taking into consideration
an estimated 20-percent increase in labor rates which wiuld be needed
to attract additional employees.
Manufacturers of boilers and radiators cannot afford to increase
their volume of production of these products under the Office of Price
Administration pricing policies. Abandonment of price controls for
this industry will lead to full production within a reasonable time.
Of course, somewhat higher prices would ensue. However, it is
my belief that the extent to which prices would be increased would
219 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
be limited to actual costs plus a very limited profit. This has always
been a relatively low-profit industry. The forces of competition both
within and without the industry wTill restrain inflationary prices.
Steam and hot-water heating systems cannot be sold at price levels
which are not reasonably competitive with other types of heating
systems.
The situation in which this industry finds itself, as briefly described
above, will continue to have a very serious effect on the all-important
program of providing adequate housing under livable conditions.
The record proves that volume of production of these essential heating
products is tending donward rather than increasing.
We do not contend that had there been no price controls since the
termination of the w^ar the industry would have been able to get back
to their prewar volume. However, the curve of production without
question would be tending upward if the members of the industry
could anticipate rewards in profits for initiative, efficiency, and
progressiveness.
We believe that the restrictions now hampering industry have been
tried long enough and that this industry should be given an opportunity to return to a free competitive market and thus assure maximum possible production. We believe that maximum production is
the answer to controlling inflation.
There is another brief word I would like to add for the record. The
industry realizes the seriousness of this housing situation. With the
shortages that are indicated on these charts ceiling prices are the
things that are preventing production to meet those demands.
The housing program is going to be retarded and particularly as
we get into next fall's heating season it is going to be particularly
felt. The industry advisory committee and various members of the
industry have made frequent contacts with the Office of Price
Administration.
They received frequent statements as to what would be done. These
things have not been carried out in any degree.
I was told this morning about a radiator manufacturer who is
supplied with three important materials. They are plugs and bushings and one other item that slipped my mind for the moment.
One company supplies 70 percent of the requirements to the radiator
manufacturers. They have notified these people that they can no
longer supply these essentials. They intend to go out of that business.
The Office of Price Administration claims its exercise of power over
prices is to encourage production. I t claims its control has not hindered production in the past. I t has been alleged price control has
aided production by providing that stability of prices wThich is so
helpful in forward planning.
The record of this industry since the Office of Price Administration
shows conclusively that the contrary is the case.
In a statement before this Commission on February 8 Mr. Bowles is
reported as saying:
What does this new policy mean to prices? It means that a manufacturer will
no longer be required to wait 6 months before the wage increases they have granted
1196
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
will be taken into consideration in setting their prices. If for any reason an
industry, operating at normal volume, is in hardship, price adjustments will be
granted. These price adjustments will be designed to assure the minimum level
of peacetime earnings for that industry during the coming year.
For an industry to be in hardship it must be operating at normal
volume and still not be able to realize the minimum level of peacetime
earnings.
Who is to determine whether or when an industry will be operating
at normal volume?
The Office of Price Administration usually takes 1936-39 average
earnings as a base. Incidentally, it is interesting now—when considering periods of normal profits in peacetimes—to hark back to Mr.
Bowles' press release of June 5,1945. It contains this:
Few observers appreciate the contrasting fact that nearly 60 percent of all corporations, large and small were in the red in the prewar years 1936-39. The sales
of these companies operating at a loss accounted for 25 percent of the total volume
of sales in that period. These little known figures are based on published statistics
of the Bureau of Internal Revenue.
Yet the Office of Price Administration has not allowed this industry
the meager profit earned during those years which were exceptionally
poor for the boiler and radiator industry.
We are told we must wait until operating volume is normal—that
mysterious indefinable term; before we can expect price relief—though
in the meanwhile we must pay the going scale of wages if we are to
operate at all.
A substantial percentage of the industry's production has been down
since January 21 when the men were called out because of a controversy
in the basic steel industry—in which the members of this industry, who
had contracts with United Steelworkers Union were not the least bit
concerned.
If companies now strike-bound are not justified in resuming operations under the conditions reflected in these charts. How in the
name of common sense can they be expected to pay 18y2 cents more per
hour and absorb the increased cost of pig iron, 6 percent, granted as a
result of the settlement of basic steel strike, and the increased cost of
other materials and hope to stay in business?
The case I have briefly presented today is only one of the many that
illustrates what can be expected under a system of Government control of our economy, of employment, of industrial production.
May I suggest the elimination of the elements that are retarding
production and do away with the agencies that are perhaps unconsciously curbing our standards of living—due to their miscalculating
the needs of the people—even presuming to dictate their tastes and
wishes.
Let us replace bureacratic frustration and confusion for individual
creative effort. Once this has been accomplished the economic law of
supply and demand will soon bring prices in line.
I would like to incorporate in the record, Mr. Chairman, some charts
I have prepared.
M r . BROWN. YOU m a y d o so.
(The above-mentioned charts are as follows:)
1197 e x t e n d p r i c e c o n t r o l a n d s t a b i l i z a t i o n a c t s o f 1 9 4 2
NUMBER OF HOUSES
REQUIRED
The report of WSlson W. Wyatt, Housing Expediter, to the President, dated Feb. 7, 1946,
states that 2 , 7 0 0 , 0 0 0 homes must be started before the end of 1 9 4 7
1 9 4 7 TARGET
1 , 5 0 0 , 0 0 0 HOUSES
1 9 4 6 TARGET
1 , 2 0 0 , 0 0 0 HOMES
$00,000
CONVENTIONAL TYPE
' HOMES: .
.
* Estimated by the Civilian Production Administration as 2 5 % of the total.
Mr. B R O W N . Mr. Talle wants to ask one question.
Mr. T A L L E . I want to know if your industry has had an opportunity
to discuss your problems with the new Housing Administrator, with
Mr. Wyatt?
. Mr. F E R R Y . We had a discussion this morning with Mr. Wyatt.
We asked for it 3 weeks ago. He has been tied up and so we were not
able to have this hearing until this morning. We gained the promise
that they would do everything possible to go thoroughly into the
situation.
They recognize the need of these products for their program.
They stated they intend to do something about it.
Mr. T A L L E . What is the standard heating equipment used in prefabricated housing?
Mr. F E R R Y . Not the type to which I refer.
They are types of heating equipment suitable for smaller houses and
where the cost of installations is less than a piped system. However,
1198
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
under Mr. Wyatt's program, there are many conventional type houses
which need some form of central heating systems.
Mr. B R O W N . We thank you very much.
Since there are no other witnesses on the program this afternoon,
we will adjourn until tomorrow morning at 10 o'clock.
(Thereupon, at 5:30 p. m., the hearing adjourned until Friday,
March 22,1946, at 10 a. m.)
1 9 4 6 BOILER REQUIREMENTS
PRODUCTION AND SHORTAGES
TOTAL REQUIREMENTS
2 8 0 , 0 0 0 BOILERS
PRODUCTION & SHORTAGES
OF BOILERS
CIVILIAN PRODUCTION
ADMINISTRATION ESTIMATE
OF REQUIREMENTS FOR
7 0 0 , 0 0 0 NEW HOMES
OF CONVENTIONAL TYPE*
1 7 5 , 0 0 0 BOILERS
SHORTAGE IN PRODUCTION
FOR 7 0 0 , 0 0 0 NEW HOMES
FULL REQUIREMENT OF
1 7 5 , 0 0 0 BOILERS
PLUS 5 , 0 0 0 REPLACEMENTS
1 8 0 , 0 0 0 SHORTAGE
4
ANNUAL REQUIREMENTS
FOB REPLACEMENT
IN EXISTING HOMES
105;000 BOILiTRS
PRODUCTION FOR 1346 AT
CURRENT ANNUAL RATE
100,000 BOILERS
1199 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
RADIATION
PRODUCTION AND SHORTAGES
(MILLIONS OF SQUARE FEET - MONTHLY AVERAGES)
Source: - Monthly Report of John D. Small, CPA Administrator, dated January 2 8 , 1 9 4 6 .
1941
MONTHLY AVG.
PRODUCTION
7 MILLION
1946
PRODUCTION
M U S T BE
QUADRUPLED
TO MEET ESTIMATED
REQUIREMENTS OF
6 0 MILLION FOR YEAR
1939
MONTHLY AVG.
PRODUCTION
PRODUCTION
SHORTAGE
1945
MONTHLY AVG.
PRODUCTION
UNDER 1.5 MILLION
: 1>2 MtLUON :
MONTHLY
PROD RATE
AT END Oir 1945
Statement by CPA Admin. "The major limiting factors in the production
•of cast iron radiation are shortages of labor and unprofitability -
1200
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
LOSS ON RADIATION
LOSS INCURRED AT
PRESENT CEILING PRICES
I
SUMMARY OF
COST AS PER
OPA FORMULA
vs.
r
THE TRUE PICTURE
\
—~~—K
CEILING PRICES ON SMALL TUBE RADIATION SHOULD BE RAISED TO MEET THESE:
LEVELS OF COST AND PROFIT, BASED ON
\ LATE 1 9 4 5 WAGE RATES; OR WITH AN
INCREASE OF 2 0 % IN WAGE RATES TO^
ATTRACT ADDITIONAL WORKERS, AND TO«
LOSS INCURRED MATCH BIG STEEL WAGE SETTLEMENT
UNDER PRESENT
43.354
OPA CEILING
PRICE AND
COST FORMULA
40.64
4.0
COST PLUS 1936-*39 PROFITS -
4/0
36.74
AVERAGE 1 9 3 6 - ' 3 9 PROFIT
ADMINISTRATIVE, SALES
and GENERAL EXPENSE
58
[5.9
LOSS] . 2 \ 5
5.8*'
OPA Formula of using 1942 figures)
COST OF RAW MATERIALS,
LABOR and FACTORY
OVERHEAD
300
"33.S5 %
Uriretr Increase
• ' 35,8 ;
•
:
• '"••". „
' J '
'
j v.',
;
1201 e x t e n d p r i c e c o n t r o l a n d s t a b i l i z a t i o n a c t s o f
194 2
LOSS ON BOILERS
INCURRED AT PRESENT CEILING PRICES
(CE N T S PCK POUND OF P
LOSS
AS PER T H E
OPA FORMULA OF
FIGURING C O S T S
OPUCT)
VS.
T H E T R U E PICTURE
LOSS
ON SMALL BOILE.1X
AS RTPGRTEO
'.'O
OPA BY SLVC.R£L
RZFRF.3EIN f- "Tvcl
M A N U F A C T U R E : <S
ACTUAL C C ' - T FOR
LATf
PL''J
1 9 3 6 - ' 3 9 PRPFIT
10.01c PER P C . .\D
C O S T PLUS 1 9 3 6 - ' 3 9 PROFITS
LOSS
AVERAGE 1 9 3 6 - ' 3 9 PR'
ADMINISTRATIVE, SALES
and GENERAL EXPENSE
OPA Formula of using 1942 figures)
N E T SELLING PRICE
As reported to
O P A by a majority of
Boiler Manufacturers
for late 1945
s a loss of 23% without taking into consideration an estimated 2 0 %
or rates which would be needed to attract additional employees.
1946 EXTENSION OF THE EMEBGENCY PBICE CONTBOL
AND STABILIZATION ACT OF 1942, AS AMENDED
F R I D A Y , MARCH 22, 1946
H O U S E OF R E P R E S E N T A T I V E S ,
C O M M I T T E E ON B A N K I N G AND C U R R E N C Y ,
Washington, D. 0.
The committee reconvened at 10 a. m., Brent Spence (chairman)
presiding.
The C H A I R M A N . The committee will be in order.
We will hear the testimony of the American Meat Institute. Mr.
Hardenbergh.
STATEMENT
OF
WESLEY
AMERICAN
MEAT
HARDENBERGH,
INSTITUTE,
PRESIDENT,
CHICAGO,
THE
ILL.
Mr. H A R D E N B E R G H . Mr. Chairman and members of the committee,
my name is Wesley Hardenbergh. I am president of the American
Meat Institute of Chicago, which has as members more than 500 meat
packers and sausage manufacturers, small, medium, and large, located
in all parts of the United States. The volume of business handled by
these companies prior to price control represented in excess of 90 percent of the meat production of the United States which enters commercial channels.
I am here today to call to the attention of the committee the conditions and dislocations in the production and distribution of meat
which are in the opinion of the industry caused by the Price Control
Act, its faulty administration, and" impossibility of enforcement.
Present conditions are highly unsatisfactory and are rapidly approaching, if they have not already reached, the wholly unsatisfactory
conditions of a year ago. A great proportion of the better grades of
cattle are purchased in excess of maximum stabilization prices by
black-market slaughterers, making it impossible for legitimate slaughterers to purchase even minimum requirements and remain in compliance with the Office of Price Administration stabilization range,
thus compelling legitimate slaughterers to curtail drastically or discontinue their beef operations. Also a serious situation is developing
in the hog market and pork business.
The Government report of hog numbers on farms January 1, 1945,
when analyzed, shows a really startling disappearance of hogs into
what must be the black market. For the first time since records have
been available, the disappearance at other points has been larger than
the slaughter under Federal inspection.
Violation of both wholesale and retail maximum prices is widespread
.and flagrant. The prices that the consumers now pay for their meat
83512—46—vol. 2
15
1203
1204
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
average many cents per pound in excess of retail ceiling prices. As a
matter of fact, the country now has a dangerous black-marked inflation
in meat prices.
Meat products probably represent the most difficult commodities
to control as the perishability of the product and the extremely high
tempo of the business do not lend themselves well to control, and
price control has not worked well in the industry.
Profit control, which seems to have been the principal objective
of the Office of Price Administration has made price control extremely
difficult, if not impossible. It has resulted in a price squeeze 011 the
industry and paved the way for the black market.
The Price Control Act as originally enacted provided that maximum prices should be "generally fair and equitable,-' and an amendment to the Stabilization Act provided that a "generally fair and
equitable margin should be allowed," for processing livestock products. The construction placed by the Office of Price Administration
upon these provisions was that prices were "generally fair and equitable" and that a "generally fair and equitable margin was allowed
for processing" if the current over-all industry earnings before Federal taxes equaled or exceeded the over-all industry earnings before
Federal taxes during the base period 1936-39. This formula is "profit
control" and not "price control."
The regulations promulgated pursuant to this price policy placed
controls both on the price of cattle and hogs and the price of products of livestock, and resulted, together with the Tightening supply
situation and increased costs, during the latter part of the fiscal year
1944 and for the several months thereafter, in a squeeze on the customary and necessary operating margins of the packing industry in
the pork, beef, and lamb departments.
By January 1945, losses had become so severe that many meat packers were forced drastically to curtail or to suspend their operations.
These facts were well known to the Office of Price Administration
through advice from its industry advisory committees, committees
representing the industry, formal protests, complaints by many individual companies, and testimony given before congressional committees. The existence of a scandalous widespread black market and
the maldistribution of meat were a matter of common knowledge.
In January and February 1944, the Office of Price Administration
made a study of retail meat dealer compliance with Office of Price
Administration regulations under supervision of Mr. Joseph A.
Thornton, head of the Food Trade Relations Branch of the Office
of Price Administration, and surveyed 11 cities in North Dakota,
Minnesota, Wisconsin, Illinois, Iowa, and South Dakota. This survey shows that more than 2 years ago that of the cities surveyed,
from 81 to 100 percent of the retail stores were violating maximum
prices and that the above-ceiling prices ranged from 3 percent to 14
percent.
Notwithstanding full knowledge that its pricing policy was causing
heavy losses on every animal slaughtered, thereby compelling lawabiding companies to curtail or suspend operations, the Office of Price
Administration failed and refused to grant any relief, and, beginning
in February 1945, committees of Congress made extensive investigations of the meat situation, and published findings that the "squeeze"
1205
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
on meat processors was a factor contributing to the serious meat situation and the black market.
The Special Committee To Investigate Food Shortages for the
House—then the Anderson committee—in its report filed May 1, 1945,
said this about the black market and its causes:
BLACK-MARKET
EXPANSION
Evidence of this is to be found in the constantly developing reports of blackmarket operations. Naturally it would not have been and could not have been
the privilege of the committee to develop a sufficient staff of investigators to run
down and prove or disprove all of the statements and rumors which have been
made concerning the mishandling of food, the channeling of meat supplies into
improper hands, and the actual sale of it at prices far in excess of the Office of
Price Administration ceilings or without the surrender of proper red ration
points.
The committee, however, did receive in its meetings in New York what it
regarded as substantial evidence that a large portion of the retail establishments
in New York dealt in meat at above-ceiling prices. To support our opinion that
the evidence was reasonably conclusive, the committee had on the stand testifying
before it a Government official whose responsibility it is to gather market
quotations. It was his testimony that a substantial percentage of meat in New
York moved at the wholesale level in black-market channels, and his experience
was sufficiently specific so that he was able to quote for the committee the exact
black-market prices then prevalent in New York on the various grades of beef.
These prices were approximately 100 percent above the legal ceilings at the
wholesale level on the various grades. If the customary mark-up practice was
followed by the retail store the retail price to the consuming public was more
than double the legal ceilings.
In confirmation of that testimony the committee heard from the various consumer groups statements that steak sold customarily in New York at from
75 cents per pound to more than $1 per pound. These reports were confirmed
by numerous witnesses who had either seen sales made at those levels or had
been present within stores when actual transactions had taken place. Numerous
witnesses under oath concurred in this testimony.
The committee felt itself justified in believing that the black-market operations
in New York City were increasing rather than diminishing and that the price
was steadily rising. Indicative of this was the fact that some 5 weeks prior to
the trip of the committee to New York, it had received from a well-informed
executive of a packing concern a market quotation indicating that the prevailing
going price for a carcass of good beef in New York was $30 above the ceiling
price. At the same time the committee visited New York, the going black-market
price was reliably given as $100 per carcass above the legal ceiling price.
INFLATION I N BLACK-MARKET PRICES
This surely indicates the inflationary spiral that quickly moves into the blackmarket operation and indicates as well the cost to the American public of not
being able to control the price of meat and "hold the line" on that important part
of the American diet.
The best evidence of the dislocation that has taken place in our meat distribution system is the fact that legitimate processors of meat and legitimate wholesale and retail distributors of meat find it increasingly difficult to secure supplies
to meet the civilian requirements while those engaged in black-market operations
seem to have an abundance of supplies both at wholesale and retail levels.
Many legitimate dealers, both in processing, wholesaling, and retailing, are
being forced out of business because they are trying to "hold the line" and
comply with Government regulations.
That situation is even more true today than it was a year ago.
The Special Committee on Agriculture and Forestry for the Senate
in its report filed May 15,1945, likewise found that the "squeeze" that
the price regulation had placed on the customary and necessary oper-
1206
extend price c o n t r o l and stabilization acts of
19 42
ating margins of the meat-packing industry were a contributing factor
to the black market and recommended—
That the Price Control Act be amended to require and direct the Office of Price
Administration to give to processors of livestock a reasonable margin of profit
for processing each species of livestock.
In 1945, when the Price Control Act was up for extension, the existence of a scandalous widespread black market was recognized and the
remedy proposed for its elimination was the removal of the "squeeze"
upon legitimate meat packers.
Senator Elmer Thomas, of Oklahoma, proposed an amendment to
the joint resolution extending the Price Control Act and the Stabilization Act designed to correct the faulty pricing policy of the Office of
Price Administration and prohibit the use of the over-all industryprofits test.
The Thomas amendment would have made any maximum price
unlawful for the products of any species of livestock that did not allow
for the recovery of any processor's total costs plus a reasonable margin
of profit not less than the profit earned in a representative base period.
The Office of Price Administration opposed any amendment and
agreed to cure the defects and eliminate the causes administratively
and on June 6,1945, addressed the following letter to Senators Thomas
and McKellar.
You have asked for a statement of the policy which the Office of Price Administration will follow in pricing the products of the various species of livestock.
Recognizing the critical shortage of meat and the imperative need of avoiding
any impediment to maximum production and'even distribution, this Office, in
addition to satisfying all the various mandatory requirements of the present
law, will see that the products of each of the three main groups of livestock—
cattle and calves, hogs, and lambs and sheep—are each separately considered, on a
profitable basis.
To the fullest practicable extent the office will see that each of these groups
of products is separately profitable on an annual basis.
I have discussed this letter with Judge Vinson and Mr. Davis, and they authorize me to say they concur in it.
During the debate on the Thomas amendment in the Senate, the
Administration objected to the amendment on the grounds that, first,
the Thomas amendment applied to all agricultural products, whereas
meat was the only commodity needing legislative relief, and, second,
the Thomas amendment was impossible of administration because it
would require the collection and analysis by the Office of Price Administration of detailed figures from every company in the industry before
wholesale ceiling prices could be established or changed and would
require individual ceiling prices for each company.
Senator Barkley, the majority leader, offered a substitute amendment for the Thomas amendment and it was enacted into law as the
Barkley-Bates amendment.
It is clear from the debate following the introduction of Senator
Barkley's amendment that Congress clearly intended, by the enactment of the Barkley-Bates amendment, to prohibit the pricing policy
theretofore followed by the Office of Price Administration—the overall profit theory—and prevent any further "squeeze" on meat processing margins.
The meat-packing industry was entitled to assume that, from and
after Mr. Bowles' assurances to Congress and the amendment of the
law, any company with average costs and efficiency would be per-
1207 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
mitted to slaughter and process livestock and sell at maximum wholesale prices that would permit the recovery of all its costs, plus a reasona ble margin of profits, for each separate species.
Notwithstanding numerous and widespread complaints after the
enactment of the Barkley-Bates amendment that existing maximum
prices failed to return a reasonable margin of profit by species on an
industry basis, no relief was afforded until OSA Directive No. 90
was issued on December, 1945.
On November 4,1945, the Office of Price Administration announced
to a subcommittee of its Beef and Pork Industry Advisory Committees
what it proposed to do in carrying out the Office of Price Administration's commitment to Congress and to comply with the law. The subcommittee were informed the Office of Price Administration was recommending that each company be paid additional subsidy for each
species of livestock slaughtered from April 1 to October 31, 1945,
as follows:
Cattle and calves, 10 to 12 cents per hundedweight; hogs, 13 to 15
cents per hundredweight ; sheep and lambs, 20 cents per hundredweight, and that the same amount per hundredweight was to be paid
to each company, without discrimination on an industry-wide basis.
We are informed that the subcommittee of the Beef and Pork Office
* of Price Administration Advisory Committees promptly advised the
Office of Price Administration that the proposed subsidy payments
would be wholly inadequate to make the industry profitable by species
for the fiscal year just ended or to provide a reasonable margin of profit
by species for current and future operations. A survey of industry
results hereinafter set forth confirms the joint committee's views that
the proposed relief would not remove the "squeeze."
Directive 90, issued on December 4, 1945, as a substitute for the
Office of Price Administration proposal completely changed the Office
of Price Administration plan by, first, reducing the amounts to be
paid, second, setting up discriminatory eligibility provisions, third,
using "income from all sources" as a standard, and fourth, providing
for individual pricing dependent upon eligibility, amounts of sales
and other factors.
Directive 90 does not follow the law or carry out the Office of Price
Administration commitment to Congress; it revives practices and
policies which were condemned by both the Senate and House and
which led to the enactment of the Barkley-Bates amendment, namely,
control of profits, over-all earnings as a basis for maximum prices,
individual pricing which the Office of Price Administration claimed
was administratively impossible for the purpose of defeating the
Thomas amendment; in effect, the directive completely nullifies the
Barkley-Bates amendment.
This nullification is indicated by the fact that financial reports
submitted by 78 companies, small, medium, and large, located in all
parts of the country, equalling more than 67 percent of all federally
inspected slaughter, show net profits, before taxes, per hundred weight
alive of only the following amounts:
For the fiscal year through October, 1945: Cattle and calves, 2
cents; hogs, 4 cents; sheep and lambs, 7 cents.
For the 4 months' period July through October 1945: Cattle and
calves, 20 cents; hogs, 30 cents; sheep and lambs, 21 cents.
1 2 0 8
e x t e n d
price c o n t r o l
a n d
stabilization
a c t s o f
194 2
Certainly, by no stretch of the imagination can those figures be construed to give the industry a reasonable margin of profit for processing
each species of livestock, or place it in a position to compete with the
black market for livestock supplies.
The fact that the meat packing industry has been in a severe
"squeeze" because of the failure of the Office of Price Administration
to live up to its commitment and to the requirements of the BarkleyBates amendment, has been serious not only from the viewpoint of the
industry itself, but also from the viewpoint of the public.
For the squeeze which has existed has led to a growth of the black
market operation to the extent, on the one hand, that legitimate operators are being forced to shut down or curtail operations, and, on the
other, that consumers throughout the United States, generally speaking, do not have the benefit of price control on their purchases of meat.
The existence of a country-wide black market in meat cannot be
denied. As indicated by the following news stories, the black market
has already reached alarming proportions atiid is growing worse
daily:
From the Joplin, Mo., News-Herald, January 16,1946:
BLACK M A R K E T REVIVAL
Reports have it that black markets are flourishing with revived enthusiasm
in many parts of the country.
Mr. Edward C. Jordan, supervising Price Administration investigator in the Chicago area, on January 21, 1946, was quoted in the
Chicago Journal of Commerce as saying that 75 percent of all cattle
sold in Chicago the preceding week "went east at higher prices than
ceilings on dressed beef will justify."
From the Chicago Journal of Commerce, January 21, 1946:
Office of Price Administration trailing black-market meat suspects.
On February 1, 1946, the following news item appeared in the Lancaster, S. C., News:
TO W A T C H OUT FOR MEAT BLACK MARKET
A State-wide investigation and enforcement drive against violations of meat
regulations will be started immediately, according to E. II. Talbert, Office of Price
Administration District Director in Columbia.
From the Bartlesville, Okla., Examiner, February 8, 1946:
Meat makers cannot make ends meet.
On February 5, 1946, the following article appeared in the Chicago
Daily News :
EASTERN BUYERS BLAMED
H I G H E R PRICES DRAW CATTLE FROM
CHICAGO
(By Peter Lisagor)
A substantial black market in beef is thriving in the Chicago area, the Daily
News has learned.
An estimated 30 to 40 percent of the available beef supply in this district is
being sold illegimately by small packers and country slaughterers, according to
an Office of Price Administration official.
"This meat is uninspected and ungraded", the official stated. "It finds a ready
market because of a shortage of cattle here."
1209
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Behind these black-market operations which were aggravated by the meat
strike, is the fact that large shipments of cattle are being diverted to eastern
slaughterers who pay "suspiciously high" prices.
Edward C. Jordan, chief Office of Price Administration enforcement officer
for the Meat and Dairy Division here, said these eastern buyers were leaving the
local market short by paying $2 to $3 more a hundredweight than they did a
month ago.
"A slaughterer buying at that high figure would have to sell the dressed meat
at above-ceiling prices to realize a profit," Jordan said.
Suspecting a widespread black market, the Office of Price Administration in
Washington has issued a warning to eastern buyers who have been listed by
Office of Price Administration officials in Chicago.
These buyers have been notified that violations will result in withholding of
all subsidy payments as well as court action.
"One effect of this diversion to the East," Jordan explained, "has been to
reduce the cattle runs in the Chicago stockyards at least 40 percent under those
before the strike."
It also forced Gayle Armstrong, Government representative in charge of the
seized meat plants, to make an appeal last week to farmers' agents for more
stock to be shipped into local yards.
"Legitimate, Government-inspected packers cannot compete with the eastern
buyers and stay within Office of Price Administration compliance," Jordan
said.
"Further, the way has been opened for the illegitimate slaughterer," he
said.
"We have run across country slaughterers selling beef for 47 cents a pound
where the ceiling is 20 cents."
He added that city health officials, as well as the United States Department
of Agriculture, have aided in violation enforcement.
Edward C. Dufficy, chief Office of Price Administration retail food enforcement officer here, said it was hard to ascertain the effect of the present shortage upon retail operations.
"We do know that retail violations have been progressively worse since meat
went off rationing," he said.
I think I should point out in connection with his reference to eastern buyers, nobody should jump to the conclusion that just because
the packer is located in the East or does not have Federal inspection
that that packer has something wrong with him. We have plenty of
eastern packers in our membership and plenty of packers who do not
have Federal inspection who are operating honestly and legitimately
as any other type of packer. It is true, the East is the largest market
for meat, and that is only natural that the black market should be
largest.
The February issue of the Restaur ant Man, the monthly magazine
of the Restaurant Association, contains the following article:
PREDICTS FOOD H A B I T S C H A N G E S
"Meat Shortage Develops Taste for Other Dishes," says Henkel.
"The prices of all meat products is controlled by the Office of Price Administration which holds them down to the 1939 level. The responsibility for
the present situation and the responsibility for correcting it is squarely up to
the Government," says Paul Henkel, president of the Society of Restaurateurs.
"An adjustment of meat prices would enable the packers to pay their employees higher wages. The packers, not being in the black market, are held
by the price freeze. When the meat leaves their hands, a great part falls into
the hands of the black-market operators. We are strongly in favor of holding
the line in prices, but not to a ridiculous point, lacking a sense of reason."
"Every restaurateur," he stated, "would rather pay a few cents more a
pound, in a legitimate market and be able to get some meat, than to go into
the black market. His regular dealer can supply him with only about 25 percent of what he used in December 1941, as that is all be can spare. Consequently, the restauranteur is forced to limit his meat dishes, while at the
1210
extend price c o n t r o l and stabilization acts of
194 2
same time the public hears and sees places that make a specialty of meat dishes,
especially steaks and chops, and they wonder why they cannot get the same in
all restaurants. These places do not make a secret of their ability to serve
steaks as a specialty. Some even advertise the fact in the press."
On February 5, 1946, the Chicago Journal of Commerce carried the
following news item:
Office of Price Administration extending drive on black markets in meat.
From Washington, February 4 (United Press) :
The Office of Price Administration extended today its enforcement program
against black-market sales of meat to the stockyards of East St. Louis, St.
Paul, and Omaha.
The agency said its investigators are now checking all purchases of cattle
made at the stockyards to determine the number of large shipments purchased
at or near the overriding ceilings of $17.65 and $17.90 a hundred pounds.
"A slaughterer who consistently buys the lower grades of cattle at these high
figures would probably have to sell dressed meat at above-ceiling prices to make
a profit," Office of Price Administration said.
Office of Price Administration has already checked purchases of cattle made
in Chicago, and has received reports that black-market operators there have
been discouraged by the drive.
From the Chicago Daily News, February 6, 1946:
City sleuths probe meat black mart.
From the San Mateo, Calif., Times and Leader, February 8, 1946:
Local packers join "fight for life" with OPA.
From the Palo Alto Times, Palo Alto, Calif., February 7,1946:
M E A T BLACK M A R K E T S
OPA TO CRACK DOWN ON VIOLATORS
Live-cattle prices are running at break-neck speed toward inflation, Office of
Price Administration Pacific regional officials warned today, as they ordered a
sharp crack-down in the five Western States on widening black-market activities in the meat marts.
Regional Enforcement Executive Austin Clapp (former Stanfordite) disclosed
that so many slaughterers are paying above-normal prices for beef on the hoof
that Office of Price Administration suspects the dressed product is bringing overceiling prices.
From the Chicago Daily News, February 25,1946:
New set-up forecasts better black markets.
Shortages reduce fight on inflation to noble experiment level.
From the Seattle Star, February 26, 1946 :
Bootleg meat dealers raided.
From the Portland, Oreg., Journal, February 27,1946:
Black market meat dealing charges filed.
From the Chicago Herald-American, February 26,1946:
Meat black mart threat to supply.
From the Seattle Star, February 27,1946:
Black-market raid nabs four.
Six others accused of meat violations.
On February 28, 1946, the Portland Oregonian, of Portland, Oreg.,
carried the following story on the black market:
Black mart counts faced.
State-wide set-up Washington claim.
1211 e x t e n d p r i c e c o n t r o l a n d s t a b i l i z a t i o n a c t s o f
194 2
From Yakima, Wash., February 27, 1946 (United Press) :
Federal authorities moved swiftly Wednesday to clean np what they termed
the biggest black-market meat operation in the State, following arrest of two
men and issuance of warrants for several others.
On March 3,1946, the St. Louis Post-Dispatch carried the following
article:
P A C K E R S PREDICT DROP I N S U P P L Y OF BEEF FOR CITY
Sixteen packing plants scheduled to be closed tomorrow in protest against
OPA.
St. Louis housewives can expect few steaks and beef roasts in their meat
markets by midweek because of the scheduled shut-down of 16 small beefslaughtering firms tomorrow, representatives of the Missouri-Illinois Small
Slaughterers' Association said yesterday.
v Several of the firms already have suspended operations in protest against
Office of Price Administration regulations which they contend force them to
operate at a loss. Others threaten to follow suit.
''There may be a shortage of beef already, but it will be even more scarce,'*
one slaughterer said. "I don't like to close up, but I can't keep losing money
just to serve the public."
The 16 firms represent a majority of small beef slaughterers in the St. Louis
area, who supply a large portion of the local market. The large packing houses
have reduced beef production to one-third of normal because of the same regulations of which the small firms complain.
From the Auburn (Ind.) Star, March 5,1946:
OPA is extending fight to reduce black market.
From the Chicago Herald-Examiner, March 1, 1946:
End hog black-market drive.
On March 8, 1946, the following article appeared in the Chicago
Herald-American:
"Black market rampant here, OPA," by John Madigan.
Chicago's black market is having a field day !
Overceiling violations are more numerous and flagrant than at any time
during the w a r !
Not only is there no indication that they will decrease, but the peak has not
been reached.
That was the dismal price picture painted today by Homer Clay, Office of
Price Administration district enforcement attorney, as he again urged Mr. and
Mrs. Chicago to refrain from buying at overceiling prices in the black market.
Asserting there was more enforcement activity last month than at any time in
t h e history of the Office of Price Administration, Attorney Clay said:
"The patriotic motive for staying aw^ay from the black market is gone.
"During the war, people at home were willing to do their part to help the
hoys over there. But now, too many have adopted the attitude: 'We stayed in
line during the war. It's over now, so what's the difference?'"
From the Chicago (UP), March 11,1946 :
A livestock industry spokesman charged Friday that Government price and
subsidy policies had saddled producers with the expense of supporting nearly 10
times as many slaughtering houses and processing establishments as before
the war.
P. O. Wilson, secretary-manager of the National Livestock Producers Association, said that the number of markets had multiplied so rapidly that they
no longer reflected consumptive demand and ability to pay.
"Prior to the war," he said, "we had something like a hundred so-called terminal
markets and a thousand or two smaller local markets. Under Government pricing and controls, we now have litterally thousands of markets and buying stations scattered throughout the various producing States."
1212
EXTEND PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
In addition, Wilson said that the number of slaughterers had jumped from ai>proximately 1,800 to about 9,000, not including black-market processors.
The Government's "continued insistence" to maintain price controls has resulted not only in a black market, but has placed the industry in its most uneconomic and wasteful position in 50 years, Wilson said.
To continue the program as it stands today, with price regulations and subsidies, can only lead to further chaos, reduced production of meat, and less for
the average American consumer.
From the 'Indianapolis News, March 13,1946:
Black market ring exposed—235 indicted.
From the Kansas City, Kans., March 16,1946 (UP) :
BIG FOUR K A N S A S PACKERS CUT BEEF SLAUGHTER ONE-QUARTER—SMALLER P L A N T S I N
STATE H A L T PROCESSING
REGULATIONS FAVORING BLACK M A R K E T BLAMED
Kansas City "Big Four Packing Plants" dropped their beef kill to 18 an hour,
one-quarter to one-fifth of the killing rate of late last year, it was learned today.
While smaller packers in southeastern Kansas announced they had halted
altogether the processing of beef.
In the New York Times, March 19, 1946, the following new item
appeared:
Omaha cuts packing, blames steer prices.
From Omaha, March 18,1946 (AP) :
Omaha packing plants are drastically reducing slaughtering operations, representatives said today, because "we can't buy cattle at present prices and stay
within Government compliance."
"I don't know how long we can stay in business this way," Ed Hinton, Armour
plant manager, said. "Order buyers and chain-store packers are taking the
cattle at prices which we can't pay and stay within Government limitations."
The Cudahy plant here has reduced its beef kill 25 percent in the last 2 weeks
"and it will be worse this week," the manager, George Hugenburg, said. The
supply this week will probably be reduced by bad roads resulting from widespread
rains, he added.
Harry Colfee, president of the Union Stockyards Co., said order buyers were
taking a large part of marketings here and that in the week March 4-9 some
816 cars of livestock were shipped out to 140 cities in 37 States. The majority
went to Michigan, New Jersey, and New York he said.
From the Chicago Daily News, March 19,1946:
BLACK MART C H O K E S P A C K E R S — S H A D Y BUYERS OUTBID BIG 4
BREAK-DOWN OF LAW THREATENS LIFE OF BILLION-DOLLAR INDUSTRY
(By George Theim, staff farm writer)
Chicago's billion-dollar meat-packing industry, responsible for the livelihood of
at least 100,000 persons in the city and suburbs, stands threatened today by the
growing black market in beef.
Swift, Armour, Wilson, Cudahy, and others who are trying to comply with
Government price ceilings are gradually being forced out of the cattle business.
Taking their place is an army of fly-by-night slaughterers and little packers
suddenly become big. Their new-found riches in the meat racket will keep
internal-revenue agents digging like a farm dog after gophers for years to come.
And possibly with no more success—such are the intricacies of meat packing.
Swarms of unknown buyers of cattle have descended upon the Union Stockyards, many representing black marketers in the East. They are paying prices
for meat animals clearly out of compliance with Government regulations, according to experienced marketmen.
These buyers either waive the f a t Government subsidies to avoid detection or
falsify grade and weight records to obtain the money being poured out lavishly
from the Federal till.
1213
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The "alky" racket in the palmiest days of A1 Capone was peanuts compared to
the important monej' changing hands under cover today, say packing-house
officials.
Millions of dollars in meat-price overcharges and side payments which eventually come out of consumer pockets are involved.
Meat which normally flows into local retail stores is being diverted into other
channels.
Violations are so numerous and varied that the situation is completely out of
hand of Office of Price Administration and Department of Agriculture enforcement agents.
Legitimate packers are laying off employees with long service records while
they see their business being taken over by the ardent and shady newcomers.
The beef output of the Big Four packers has slumped 50 to 75 percent in recent
weeks despite high market receipts—a matter of record not only in Chicago but
^at all the large livestock terminals.
Office of Price Administration officials and Defense Supply Corporation agents
who pay the subsidies know more or less of what is going on. At this moment
they are making frantic efforts to deal with the crisis but thus f a r have no
workable plan other than complete abandonment of meat-price control.
Complaints are reaching Congress and a thorough-going investigation by several Senate and House committees is about to break in Washington.
One development that is bringing the matter to a head is the inability of the
Army and Federal relief agencies to get enough meat. Only last Friday, beef
set-asides were stepped up to as high as 60 percent on some grades. But this
will not solve the problem, say industry leaders, because the plants that supplied
the Government during the war gradually are closing down.
At the stockyards, Department of Agriculture market news officials and meat
graders realize that something must be done.
"There's no doubt that the black market has increased and is growing," said
L. M. Wyatt, livestock chief here.
"The wrong people are getting the cattle. I don't think they can enforce this
compliance thing at all."
The number of slaughterers in the Chicago area has increased fivefold to
tenfold in the last year or two.
Federal meat inspection, now compulsory, has brought an army of 600 new
inspectors into the field which compares with only 50 to 75 in the prewar days.
But even this number isn't able to cope with the mushroom growth of
slaughterers because so many are allowed to grade their own beef—one of the loopholes used by the black market.
Yesterday's cattle market here was typical of the trend. Armour bought just
225 head,—enough to keep only one-third of their cattle-department staff running. Normally the company would have bought 2,000 to 2,500 head of the 15,000
received, an official said.
Swift and Wilson likewise got only a few. Shipments from Chicago to eastern
markets took the bulk of the run.
From Kansas City, Kans., March 19,1946 (AP) :
P A C K E R S LAY OFF 1 , 0 0 0 AND P U T BLAME ON OPA
Spokemen for the Big Four meat packing plants here today said 1,000 employees of the plants are being "laid off indefinitely" due to a meat crisis, which
they blamed on the Office of Price Administration and black-market operations.
These are but a few of the stories appearing in the daily press which
clearly indicates that the black market has gotten entirely out of hand
and apparently the Office of Price Administration is wholly unable to
check or stop it.
It is a fact that numerous packers throughout the country are being
forced to curtail their operations, or shut down, because of their inability to compete with black-market operators.
One of our members wrote the other day in part as follows :
Our inability to purchase livestock in competition with the black market is
seriously hampering our production. Since November 1, the beginning of our
1214
e x t e n d p r i c e c o n t r o l a n d s t a b i l i z a t i o n a c t s o f 19 42
fiscal year, our volume has decreased over 400.000 pounds as compared with the
same period a year ago.
It is imperative that something be done to retard expansion of the racketeering
and illegitimate operations in the meat business and some protection be given
to those who wish to remain ethical and honest in their operations.
Our operating losses, the past 12 weeks have been the greatest in years. Meat
price control in our opinion is completely ineffective at all levels.
Another member wrote in part:
We call to your attention pages 1 and 2 of yesterday's local newspaper which
explains our attitude toward the beef situation.
As you might suspect our decision to discontinue slaughtering beef was a
difficult one. Under the circumstances, however, there was nothing else we could
do and continue to operate a legitimate meat-packing plant.
We have used all means to buy cattle in compliance with Office of Price
Administration ceiling prices. None of our buying sources in any of the large
or small markets has been able to furnish us with cattle which figure under the
ceciling. And there is ^very reason to believe that no decline can occur in the
cattle market. In other words, we see no relief in sight unless the Office of Price
Administration is willing to approach the many problems of the beef industry in a
sensible and realistic manner.
Reports from the institute's membership all point out the extreme
difficulty of purchasing even a small percent of their requirements of
cattle in compliance with the Office of Price Administration regulations thereby forcing law-abiding slaughterers to curtail drastically
or discontinue their beef business. One national packer reports that
on Monday, March 18, out of receipts of 15,000 at Chicago, it was able
to buy only 267 cattle, yet order buyers purchased in excess of 8,000
to ship from this market. Out of receipts at Kansas City of 7,500, it
was able to buy 48 cattle yet order buyers shipped out 4,000. At Omaha
out of receipts of 8,500, it was able to purchase 125 cattle. Oklahoma
City receipts were 2.100 and it was able to purchase 22. Sioux City
receipts were 6,600; it purchased none. St. Paul receipts 2,500; it
purchased none.
Country-wide, this company was able to purchase only 715 cattle
whereas its normal buy would be 6,500 cattle.
. All the evidence indicates that this situation is general and will
become worse rather than better. This means serious unemployment
in companies who are complying with the lawT and the end of the beef
business in legitimate channels.
The Office of Price Administration officials themselves in public
statements have admitted the existence of a widespread black market
in meats.
I think I should mention that so many of these violations w^ere of the
picayune type mentioned by the retailers from Kentucky yesterday.
And I think I should mention there are numerous honest retailers
throughout the country abiding by the law even though there are many
widespread black-market operations at the retail level as well as at the
wholesale level.
Because of complexities inherent in the situation—the break-down
of enforcement, the possibilities for juggling books, for concealing
details of transactions, for upgrading of product, and many other types
of evasions and avoidance—it seems apparent that price control on
livestock and meats is unworkable; at least, it has proved so up to
now from a practical viewpoint.
Black-market production is inefficient and costly. The black market
cannot save and utilize byproducts. Hides are destroyed, edible offal
1215
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
is wasted, blood, bones, and fat so badly needed for animal feeding
stuffs are not saved. Full legitimate production is the only answer
to both the inflation and the black-market problems. Full legitimate
production is the only answer if this country is to be fed and our meat
commitments to Europe are to be met. At this late date, a raise in
livestock and meat ceilings will not eradicate the black market. At
this late date, additional investigators cannot bring about compliance
with the Office of Price Administration regulations. Black-market
operators are not interested in the meat, business at normal margins,
they are inefficient operators and cannot compete with the legitimate
packer under normal conditions. They can be driven from the market
and put out of business if the legitimate operator is permitted to
compete.
Therefore, and because price control on meats fails to give the consumer adequate protection—indeed there are many who argue that
present black-market prices are higher than what prices would be without price control—we reluctantly have come to the conclusion that the
consumer and the industry alike would be better off if price control
on li vestock and meats were not extended.
In closing, I should like to point out that this recommendation
comes from companies whose conscientious support of price control
very largely made possible whatever degree of success price control
achieved during the war. We do not oppose price control as such,
but under existing conditions price control as applied to livestock:
and meats is unworkable. We think facts should be faced and the
fiction of price control on livestock and meats discontinued.
We trust this information has been helpful to the committee. We
shall be glad to submit any additional information that any of the
members may want. We would like to have the privilege, Mr. Chairman, of submitting later some information pertinent to this subject..
The C H A I R M A N . Y O U may incorporate any additional information
you have in the record.
Mr. CRAWFORD. Mr. Chairman.
The C H A I R M A N . Mr. Crawford.
Mr. CRAWFORD. Mr. Hardenbergh, we have the Gallup polls showing that an overwhelming number of the women of this country, the
housewives, people who buy the family meat, are in favor of the
continuation of the Office of Price Administration as now set up.
Who is supporting this black-market operation that you have divulged here if it is not the housewives of this country ?
Mr. H A R D E N B E R G H . May I quote? I hate to take further time to
quote from a newspaper, but the Office of Price Administration has
answered that question. May I read it ?
M r . CRAWFORD. Y e s .
Mr. HARDENBERGH. In
the Washington News of yesterday this
article appears:
On another gloomy angle on the food situation, the Office of Price Administration admitted it was virtually powerless to curb a black market in meats;
"already bigger than anything during the war" and drastically reducing available meat supplies from normal sources right at a time when normal seasonal
production let-downs are expected.
The President's statement came in answer to a question at his press conference on a suggestion by Herbert H. Lehman, retiring Director General of the
United Nations Relief and Rehabilitation Administration, that wartime food
1216
e x t e n d price c o n t r o l and stabilization acts of
1942
controls be reinstated in all nations participating in UNRRA as a method Of
helping starving peoples.
In declaring itself unable to do much to curb the mushrooming black market
in meats, the Office of Price Administration cited its limited enforcement staff
and a growing indifference by butchers and housewives to legal prices.T
The agency said its only hope of stemming the black market trend w as a plan
"to shame the housewives of the country" into an observance of price ceilings.
Mr. CRAWFORD. I have not seen that newspaper report. I did not
know it was published. But it seems to me a perfectly ridiculous situation for 75 or 78 percent of the housewives to join in a poll asking
that this be continued and then for those same housewives to help
destroy the 500 meat packers, the sausage manufacturers—small, medium, and large—in all parts of the United States, for which you
speak.
Now, let me ask you this: in your opinion, is this spread of the
black market moving in the direction of eliminating these 500 meatpackers, sausage manufacturers, from their legitimate business ?
Mr. H A R D E N B E R G H . I t very definitely is, sir.
Mr. CRAWFORD. S O we are destroying the historical meat industry
from which we not only drew meat as a prime product, but all of the
allied products which we salvage through orderly processing of the
animal, as against a throwing away of those byproducts by black-market operation, who buys the animal, slaughters quickly, throws away
the byproduct, and moves the prime meats to the market. Is that what
is taking place ?
Mr. H A R D E N B E R G H . I think that is the only deduction you can draw
from these figures I have quoted showing the trend of the business
away from the legitimate operator.
Mr. CRAWFORD. So,that, in turn, brings about the loss of all those
basic proteins which went into other mixed feeds, for instance, poultry,
and otherwise, and certainly, the black-market operator is not salvaging that, is he ?
Mr. H A R D E N B E R G H . Very little of it, I suspect.
Mr. CRAWFORD. And that, in turn, throws a greater shortage of fats
of all kinds for soap manufacturing and otherwise on the market?
Mr. H A R D E N B E R G H . I think that is right.
Mr. CRAWFORD. I think you have made a very enlightening statement. Would you go so far as to say that it is the consensus of opinion of all these 500 manufacturers whom you represent that these
black-market operations now are entirely out of control in so far as the
Office of Price Administration is concerned, and that there is little
chance, if any, of recapturing control ?
Mr. H A R D E N B E R G H . Yes, sir; and I quoted two letters from members
which are typical of many communications we have had to the same
end, that it is impossible to control and that the Office of Price Administration has an impossible task to do.
Mr. CRAWFORD. If it is impossible for the Office of Price Administration to control this situation, with all of the powers that have
been given and with all the voluntary assistance they have had from
the public, how do you think the Treasury Department is ever going to
catch up with the black market operators in capturing this income
for taxation purposes, Mr. Hardenbergh, which they are undertaking?
Mr. H A R D E N B E R G H . I think my opinion coincides with that of Mr.
Thiem in the article I read which suggests it is going to be very difficult.
1217
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. CRAWFORD. S O then, in addition to destroying the regular meat
packing industry, housewives and others are supporting the blackmarket operations, and destroying the income which flows to the
Treasury of the United States, if the profits clear through legitimate
manufacturers such as you represent, so that they can be taxed by
the Department of Internal Revenue? That is going on, is it not?
M r . HARDENBERGH. Y e s , s i r .
Mr. CRAWFORD. Well, we have
a pretty nice operation there.
That is all I have.
The C H A I R M A N . Are there any further questions ?
(No response.)
The C H A I R M A N . If not, you may stand aside, Mr. Hardenbergh.
Mr. Worley, we will hear from you now.
STATEMENT OF HON. EUGENE WORLEY, REPRESENTATIVE,
STATE OF TEXAS
Mr. W O R L E Y . Mr. Chairman, for the record, my name is Eugene
Worley, Representative from Texas.
Mr. Chairman, I am a Member of the House Committee on Postwar Economic Policy and Planning.
Originally, Mr. Chairman, Mr. Colmer, chairman of the committee,
was supposed to do what I am going to try to do this morning, but
the day before yesterday he had an attack of appendicitis and is in
the Naval Hospital now recuperating from that.
I was asked to assist in presenting to your committee the results of
the investigation commenced about 6 months ago by the House Postwar Economic Policy and Planning Committee. Frankly, we began
the investigation to remove wartime controls. I believe all members
went into that hearing with the hope that the committee could recommend that all wartime controls be removed immediately. However,
the farther they got into the problem, the more difficult and the more
complex we found our whole domestic and foreign economy to be, and
we finally concluded that we had a choice of one of two evils: First,
whether to continue controls at a minimum, as distasteful as they have
been and will undoubtedly continue to be to a large number of people,
or to wrestle with some economic dynamite, namely, inflation.
After considerable study, we have concluded that the conservative
and safe thing for us to recommend to your committee and to the
Congress is a modified continuance of price control for approximately
another year.
We, as members of that committee appreciate fully the difficulty .
you gentlemen will have in trying to write a new law governing the
new conditions. The recommendations we have made have, on the
whole, been conservative. We have made those recommendations in
the hope that they would be helpful to you and in the hope that the
modifications we suggest will work.
Mr. Folson—Marion B. Folsom—is director of the staff. He has
been assisted in this work by Mr. Edwin B. George. They have done
an excellent job in security data, in addition to the hearings, which
the committee held, before which labor, industry, consumers, agriculture, and all branches of our economy had an oportunity to be
heard.
1218
e x t e n d p r i c e c o n t r o l a n d s t a b i l i z a t i o n a c t s o f 19 42
We have submitted two pamphlets covering the entire investigation.
Those pamphlets are here and will be distributed to the members.
In addition, I would like to insert in the record a press release from
the committee, at this point, if there is no objection.
The C H A I R M A N . Without objection, that may be done.
(The document above referred to is as follows:)
The House Special Committee on Postwar Economic Policy and Planning today
recommended in its Ninth Report that the Price Control Act be continued in
modified form for another year. Chairman William M. Colmer (Democrat,
Mississippi) announced, however, that the committee felt that effective control
over inflationary forces would be impossible without the aid of strong fiscal and
monetary counter measures.
"The committee approached the problem of wartime controls with the hope of
being able to recommend a summary removal of most of them and the immediate
return in our postwar economy to the American way of doing business without
govrnmental restraints," Mr. Colmer said. "But after 5 months' of study of
the many problems involved, in which extensive hearings were held and representatives of industry, labor, consumers, and Government were heard, the committee reluctantly reached the conclusion that such a course would most likely
result in ruinous inflation and would react unfavorably not only to the wage
earners and consumers but to business itself."
Mr. Colmer stated, "The committee in its deliberations was confronted with
two evils, continuation of governmental controls on the one hand and a paralyzing
blow to our reconversion program on the other. It chose the lesser."
The chairman further stated that as anxious as was the commmittee to see
business freed from galling restraints as speedily as possible, their study had
convinced them that the disease of inflation is still worse than the preventatives;
that they had therefore felt it proper to recommend modification rather than
elimination of existing price controls. "The unforeseen and unfortunate wave
of strikes," Mr. Colmer continued, "has been a very important factor in slowing
down our reconversion program, but it is our earnest hope that these labormanagement disputes may soon be settled so that most of these controls can be
removed long before the termination of the act.
"Even so," the chairman stated, "the committee is of the opinion that the administration of these controls, and particularly the OPA, can be greatly improved. Therefore, while recognizing the impossibility of attempting to legislate
in detail for every industry and product, we are of the opinion that the Price
Control Act should be amended and have tied our recommendations for continuation for a period of 1 year to the following proposed amendments:
1. Establish the best 3 years of the period of 1936-40 instead of the years
1936-39 as the base period for calculation of the "profit increase factor" used
in determining prices under both the general and individual reconversion
formulas.
2. Establish the average of the best 3 years of the period 1936HW3 as the
base for application of the "earning standard" except for situations in which
the results would be inequitable. (This standard requires price adjustments
whenever earnings on net worth before taxes for the industries or trades as a
whole fall below those of the designated base period.)
3. In the case of essential "low-end" products (a) allow industry-wide current cost plus at least a reasonable profit (perferably historical margins) to
manufacturers on a list designated jointly by CPA and OPA; and (b) permit
retailers to pass on in full any dollar increase resulting from these concessions,
and percentage increases where margins are already tight.
4. In the case of other products, substitute for the present "product standard"
the requirement that prices be raised at least to the point of insuring recovery
of total costs on any product.
5. Adopt a policy to eliminate product controls that embodies—
(a) the principle of requiring that specified commodities or groups of commodities be released from price control upon satisfaction of acute demands;
Cb) standards for determining the fulfillment of this principle in each case;
such criteria should include, singly or in combination, the attainment of a designated rate of production, the maintenance of that rate for a designated period
of time, the achievement of a designated amount of production since August 18,
1945, and a limitation of inventories to stated proportions of the production r a t e ;
1219 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
(c) where establishment of such standards for a material or end-product in
terms of physical units is impractical, the development of measures to accomplish the intended result through equivalent limitations for materials entering
into the products concerned or products processed from such materials; and
(d) the provision that the standards set must be declared by OWMR within 60
days a f t e r the extension of the Price Control Act and after consultation with
the affected industries.
Additionally, the committee recommended to the OPA Administrator that in
applying the earnings standards and the product standard, actual costs be
substituted for so-called allowable costs beginning with second quarter 1946 experience ; also that industries be defined as narrowly as possible in applying the
earnings standards so that the profitable but perhaps specialized parts of a
business would not obscure losses in other parts.
The report of the special committee reflected f r a n k concern over the price
inequities and product distortions found to be occurring under some of OPA's
present rules. It did not charge OPA with complete responsibility for these'
undesirable results, pointing out that the existence of acute shortages of materials in a strong seller's market for finished goods would itself lead to abnormalities. Feeling that these have been unnecessarily exaggerated, however, by
OPA's policies, the committee made the above recommendations which in its
judgment would minimize existing inequities, stimulate production, insure the
removal of controls immediately upon substantial lessening of the threat of
serious inflation, and improve the production and distribution of essential lowcost products.
The committee's report also recommended the adoption of the following "important fiscal measures":.
1. Maintenance for the present of Federal income-tax rates.
2. Curtailment of Federal expenditures.
3. Balancing of the budget in the fiscal year 1947 and in the following year
creating a surplus to be applied against retirement of the public debt.
4. Continuance of control over consumer credit.
5. Legislation enabling the Federal Reserve authorities to increase substantially reserve requirements against commercial banks' demand and time deposits.
6. Request the cooperation of State and local governments in limiting current
expenditures for public works.
The Colmer committee likewise recommended extension of the Second War
Powers Act to expire coterminously with the Price Control Act on June 30, 1947.
The reasons given for this recommendation lie in three separate problem areas,
(1) the need for interlocking CPA and OPA actions in furthering the production
of essential low-end goods, (2) persistence of world shortages requiring the use
of allocation powers to insure American supplies and minimize international
friction, and (3) the importance of maintaining inventory controls while the
danger of large-scale speculation in this field remains serious.
"Our proposals are aimed at making price controls more equitable rather
than at wholesale relaxation in a still dangerous period," explained Chairman
Colmer. "We feel that standards considerably more liberal than those employed
by OPA would still be consistent with its obligation to hold inflationary price
movements in check. We have, therefore, driven at what we feel to be vulnerable
spots in the present standards rather than at the general structure of price
control.
"The OPA's present standard of equity is that if an industry earns as big a
percentage return on investment as it did in 1936^39, it is not entitled to relief.
That standard is no longer reasonable. We have suggested that it be liberalized,"
Mr. Colmer stated, "by substituting as a base the average of the three best years
of the period 1936-40. In particular we were concerned about the people who
might encounter temporary difficulties in moving from a war to a peace basis,
and whose plight would be merely concealed by the use of trade-wide tests of
fairness that were tight to begin with."
"The committee also came to feel," the chairman continued, "that much of
the business resentment against OPA could be traced to inadequate allowances
for individual products in a generally profitable business. OPA has always
given some protection to such products but only in special cases has it allowed
for actual costs, requiring the goods in effect to be made and sold at a loss. A-s
a result, many products wanted by the public are not now made at all. The
Congress would be assuming a serious responsibility if it ordered OPA to allow
a profit on any product that any industry wanted to make. Business does not
83512—46—vol. 2
16
1220
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
run that way even in normal times and presumably could do so now only because
in its great need for goods the public has little bargaining power and competition cannot perform its usual function. Nevertheless, the committee does not
wish prices to be any more of an obstacle to the production of individual products than can be helped and, therefore, has suggested that full recovery of costs
be permitted on any individual product regardless of the over-all operations
of the industry. In the case of badly needed low-cost and low-margin staples
it went further, recommending an allowance of not only full costs but reasonable
profit as well. The situation is actually very complicated, and no simple rule can
"be contrived that will stimulate production at just the right points and still be
free of inflationary dangers. The committee, therefore, approved the current
actions of CPA in continuing to direct a flow of materials to so-called low-end
products and in ordering their production where the public interest urgently
requires it."
"We sought earnestly," the Congressman said, "for a method of eliminating
control that would be built around positive and understandable goals rather
than be left to so rigid a test as 'an equivalence of supply and demand.' It is,
therefore, suggested that clear and attainable goals be set up by the Director of
OWMR for each major industry—after consultation with the industry—such as
the achievement and maintenance of a designated rate of production, with due
safeguards against inventory accumulation. Under this procedure managements
would be given an incentive to increase their output while business generally
would be reassured that price control was not to be fastened on it indefinitely."
"We feel," the chairman explained, "that in many instances controls could
undoubtedly be abandoned immediately, and others after completion of the
proposed study. The objective must always be to remove controls as soon as
possible."
In addition to Chairman Colmer, the committee is composed of the following,
many of whom are ranking members of important House committees: Cooper
(Democrat, Tennessee), Walter (Democrat, Pennsylvania), Zimmerman (Democrat, Missouri), Voorhis (Democrat, California), Murdock (Democrat, Arizona),
Lynch (Democrat, New York), O'Brien (Democrat, Illinois), Fogarty (Democrat, Rhode Island), Woriey (Democrat, Texas), Gilford (Republican, Massachusetts), Reece (Republican, Tennessee), Welch (Republican, California),
Wolverton (Republican, New Jersey), Hope (Republican, Kansas), Wolcott (Republican, Michigan), LeFevre (Republican, New York), and Simpson (Republican, Illinois). It was assisted in its studies and preparation of the report by
its staff director, Marion B. Folsom, and its special consultants, Edwin B. George
and Robert J. Landry.
Mr. W O R L E Y . In the interest of saving time, I would like to present
Mr. Folsom, who will briefly summarize the recommendations which
the House Postwar Committee has made, as I say, recommendations
which we hope will be helpful to the members of this committee and
to Congress in arriving at a satisfactory solution to some of these complex problems.
Mr. K U N K E L . May I ask a question, Mr. Chairman?
The C H A I R M A N . Mr. Kunkel.
Mr. K U N K E L . Mr. Worley, are you placing in the record the report
also ?
Mr. W O R L E Y . I will be glad to, but it is rather voluminous, and we
have had a large number of copies printed. Certainly, we would
have no objection, except in the interest of economy.
The C H A I R M A N . The report is on many other subjects as well, is it
not?
Mr. W O R L E Y . It pertains to the removal of all wartime controls and
restrictions, including price control.
The C H A I R M A N . I think we ought to try to keep our record down.
M r . K U N K E L . SO d o I .
Mr. W O R L E Y . The press
these recommendations.
release simply summarized a portion of
1221
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Mr. B R O W N . That is sufficient. The report will be supplied to all
Members of the Congress, I presume.
M r . WORLEY. Y e s .
Mr. K U N K E L . D O
you have copies of the hearings available and
printed ?
Mr. WORLEY. They are available.
The C H A I R M A N . The report on the matter under discussion will be
incorporated in the record, that is, the release.
Mr. W O R L E Y . Very well, sir. If there are no further questions, I
would like to present Mr. Folsom, director of the staff.
The C H A I R M A N . Mr. Folsom, you may take the stand.
STATEMENT OF MARION B. FOLSOM, DIRECTOR OF THE STAFF OF
THE SPECIAL COMMITTEE ON POSTWAR ECONOMIC POLICY AND
PLANNING .
Mr. FOLSOM. Mr. Chairman, members of the committee, as Mr.
Worley indicated, the Postwar Committee has been studying this
problem intensively for the last 6 months. We engaged the services
of Mr. George, of Dun & Bradstreet, and who also was the assistant
to Mr. Donald Nelson in War Production Board. He has been devoting his full time for the last 6 months to talking to businessmen,
retailers, wholesalers, manufacturers, and also the Office of Price
Administration, going back and forth between business people and
the Office of Price Administration to try to find out what the present
situation is and what the difficulties are and see if we could offer some
constructive suggestions.
The committee, as a result of this study and also the hearings which
we have had, as Mr. Worley has indicated, has come to some definite
conclusions.
The first was that the Office of Price Administration should be
continued but on a modified basis. The second conclusion they
reached was the Office of Price Administration and price controls
alone will not be effective in controlling inflationary pressure. There
are a number of fiscal and financial monetary measures which are
equally important, and the committee listed six of those measures
which it felt should be adopted.
I will just read those six briefly:
Maintenance for the present of the Federal income tax rates;
Curtailment of Federal expenditure ;
Balancing of the budget for the fiscal year 1947 and the followingyear creating a surplus to be applied against retirement of the public
debt;
F'ourth, continuance of control over consumer credit;
Fifth, legislation enabling the Federal Reserve authorities to increase substantially reserve requirements against commercial bank
demand and time deposits;
Sixth, request of cooperation of State and local governments for
eliminating expenditures for public works.
The committee considered first the over-all question as to whether
it was necessary to continue controls at all. We went back to 1919
and 1921 experience. That has probably been told you before, but,
as you know, there was a very sharp rise in prices after the last war,
1222
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
followed by a very drastic decline which caused a great deal of trouble
and hardship to business people and people generally.
It is true that the condition in 1919-21 was different in a number of
respects from the conditions we face today. Prices during the war
had risen more in 1918-19 than they have risen during this war, and
the present short supply was not as great at that time. In other words,
we had not gone without the things as we have this time, so we did not
have the shortages or the accumulated demand. So also the pressure
in many ways was less at that time than it is now.
On the other hand, the productive capacity of the country has increased much more during this war than it did at that time. So we are
in a better position to meet the demand than we were then.
But on balance, a study of that condition, after the last war, would
indicate that if you remove controls entirely now, you would be very
apt to have a sharp increase in price.
Now, the second approach that the committee and the staff made
was in considering the present situation, making some estimates as to
what business conditions might be over the next year. We did not
attempt to make any forecast because that is not our business, but the
staff considered all the estimates that have been made—not all, but a
number of estimates that have been made by some of the best experts
in the country, both in business and in Government—and, as a result of
analyzing those various estimates, w^e arrived at what seemed to be a
conservative estimate as to the gross national product for the next
fiscal year, beginning July 1, and we give the details of that in the
report.
Roughly, it is an estimate of about $178,000,000,000 at 1944 prices,
which is about a 40 percent increase over the 1940 level.
That would indicate—and there is not very much difference of
opinion among the so-called experts as to that range—of course, it
depends on a number of factors and nobody can make an accurate
estimate as to what business is going to be a year from now—but
indications are that we are going to operate at a very high level,
well above prewar levels and that will cause a great pressure on the
productive capacity of the country to meet it.
The third point is that there are, right now, a number of shortages in a number of important materials, such as building materials,
tin, leather, and all sorts of products, which we have listed in the
report.
Now, as a result of all those pressures, the committee felt that if
we did remove controls now that you would be apt to have a rather
sharp increase in prices of many products, and we felt that the danger
of inflation was so great that the conservative course would be to guard
against even a remote contingency of having a sharp increase in
prices. And if it looks as though we are going to have one, then,
the safest thing to do would be to keep your controls.
That led us into a study of what the present situation is. You
have had many statements made to you by various witnesses, some
that everything is going to pot now, and others that things are going
along very well. The way we have sized it up, after our study, is
that over-all production right now is quite high compared with prewar levels. The Federal Reserve index of production for January
1946, showed production at about 27 percent above 1940, and in No-
1223 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
vember it reached the highest peacetime level we have ever had. I t
has slowed down some since that time because of the strike situation,
but during the last 2 or 3 months, production has been well above
prewar levels, also the employment has hit the highest peacetime
level—that is, before strikes developed. Employment in January
was about 51.4 million compared with 46 million in 1940. That is
fairly close to the wartime peak of 54 million. And that, of course,
is the highest peacetime employment we have had.
Unemployment is only 2y9 million, compared with 8 million in
1940.
* Mr. George tells me, from the Dun & Bradstreet records, they show
that business failures right now are the lowest on record. So the
over-all picture is not as gloomy as many people have painted it.
On the other hand, when you look at the present situation objectively without bias or prejudice you must admit that there have been
considerable complaints about inequities in the Office of Price Administration and in the whole price-control situation. There have
not only been inequities in the way of squeezing down prices to a
very low level if not disappearing entirely, but there have been delays
in getting adjustments made, and there is also quite a widespread
fear among businessmen that controls are going to be continued indefinitely.
We found that almost everywhere we went, and you probably found
that same feeling in the businessmen who appeared before you, and
when the staff presented the matter to the Postwar Committee, we
found that quite a few of the Congressmen also had the fear that these
controls were going to be continued indefinitely, unless something is
written in the law to bring about decontrol.
Now, you must, on the other hand, realize that when you attempt to
control prices for the whole economy, that you just cannot avoid
inequities. I t is simply inherent in the system. There is no way in
the world to operate a perfect system of price control. I t is the most
difficult and intricate problem in business, and when you attempt to
set prices for every commodity it is simply impossible. That is one of
the main reasons why we should get rid of these controls as quickly as
we possibly can.
I t was with that background that the committee approached the
problem of seeing if we could not find some way in which we could
modify the present act and amend it in order to avoid some of these
inequities. We felt that the approach would be that you ought to keep
these controls on until the acute demands have been met. Not until
you find a perfect balance between demand and supply, but try to hold
it until these acute and very pressing demands are met.
Also, the main purpose should be to guard against accumulated
inflation. That is, a spiral of inflation. Some price increases would
lead to wage increases, again to price increases, and again wage
increases, and so on. That is the main purpose of the Office of Price
Administration.
Also, in any changes we make, we should not increase the administrative burden. Instead, we ought to lessen it.
It is was with that in mind that the committee has proposed a series
of recommendations, and I think it might be well here if I pass out our
1224
extend price c o n t r o l and stabilization acts of
19 4 2
report and have you follow with me the recommendations which we
have made.
I will read each one of the suggested amendments and then give you
the background and the basis for our recommendation.
Mr. C R A W F O R D . Mr. Chairman.
The C H A I R M A N . Mr. Crawford.
Mr. CRAWFORD. Mr. Chairman, why not invite Mr. Gifford to sit up
here with us ?
The C H A I R M A N . We are glad to have Mr. Gifford come up here
with us.
Mr. F O L S O M . N O W , I will ask you to turn to page 29.
The purposes of the following amendments and administrative modifications
are to minimize inequities, stimulate production, insure the removal of controls
immediately upon substantial lessening of the threat of serious inflation, and
improve the production and distribution of essential low-end products.
I t is recommended that the Emergency Price Control Act be extended until
June 30,1947, subject to the amendments enumerated below.
1. Establish the best 3 years of the period 1936-40 instead of the years 1936-39
as the base period for calculation of the "profit-increase factor" used in determining prices under both the general and individual reconversion formulas.
2. Establish the average of the best 3 years of the period 1936-40 n s the
base for application of the "earnings standard" except for situations in which
the results would be inequitable. (This standard requires price adjustments
whenever earnings on net worth before taxes for the industries or trades as a
whole fall below those of the designated base period.)
Now, you have probably had much discussion about this base formula. At present the years 1936-39 are being used. A fair analysis
would show that those were not good years. During that time, of
course, we had high unemployment—7 or 8 million. One of those
years, 1938, was quite a bad year, in which we had a sharp decline from
1937.
Also it must be realized that we are now in a period of active business, and it is not fair to expect business concerns to get along with
the low profit which they had during that period. It is a matter of
equity. If other parts of the economy are operating at a much higher
level, wages and salaries and so forth, there is no reason why you
should not expect business to have a higher profit than what they had
in a prewar period which was not very satisfactory.
Also, inherent in this formula are certain assumptions which the
Office of Price Administration makes as to what conditions are going
to be. They are not based on actual costs, as a reconversion formula,
but on estimates.- They make certain estimates as on volume, as to
what the price of material or labor is going to be, productivity, and
it is extremely difficult to estimate a year ahead whether productivity
is going to increase or decrease.
They also have to make estimates as to what selling expenses are
going to be. If the Office of Price Administration is wrong on those
estimates, the products go down. So there should be some allowance
made for mistakes in those estimates.
So we would not criticize the 1936-39 base during the war years.
The situation was quite different then, because you did not have to
worry so much about whether some of these civilian goods were produced or not, and you could get your production in other w^avs. But
right now the situation is quite different.
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
We must also realize that in all these bases you take into consideration profit before taxes, and taxes are, of course, much higher than
they were in 1936-39.
Now, the staff felt, and the committee agreed, that this was not an
equitable base, so then we got busy to see if we could find some base
that would be more equitable than that. We considered, first, just
a flat percentage increase over that 1936-39 level. We found that
that would not be fair, because it would give too high an increase to
those in the upper range. For instance, this relief base, as you know,
the Office of Price Administration on that will grant an increase from
the profit for the industry as a whole, or its net worth falls below this
1936-39 level.
Now, in some industries, the profit in 1936-39 might be, say, 12 or
15 percent. In other industries it might be only 2 percent. If you
give a flat increase of one-third, you would give a little relief to the
people at the lower end, and you would give considerable increase to
the people in the upper range. So we discarded that as not being
fair.
The second plan which we are considered was one by which you would
add a flat amount of profit to each range, a profit of 3 percent of net
worth flat on each one. That means 2 percent industry would go up to 5
percent. A10 percent industry would go to 13 percent, and a 15 percent
industry to 18 percent, That would cut down the high ones but would
give a very big increase to people in the low range and would cause a
large distortion, too, of the whole industrial set-up. So we did not
think that would be fair.
Then we began looking into the different years, 1936, 1939, and 1940,
and so forth. We found that 1940 was a very prosperous year compared to prewar standards, and it seemed to us the best bet would be to
take the 5 years from 1936 to 1940 and pick out the three best years during that period and use the average of those 3 years for the base. We
found if we applied that to industry as a whole, for all manufacturing
companies, it would represent an increase of about 35 percent over-all,
more in some industries, less in others. But if you give them the choice
of those 5 years, the chance is fairly good that three of those years
would be fairly prosperous years, and on the whole it would raise
this level in an equitable way.
We have looked into the question, including 1941, and whether we
should not use the average of 1936-41, but we found that in 1941 a
number of industries were profiting tremendously from a big increase
in war work, especially the metals industry. Profits that year increased
sharply over the previous years, and we thought that would bring a
number of inequities into the situation. So that is the recommendation
that, the committee makes.
Now, the objection might be raised that that is going to cause some
additional administrative work. We have got to get from the industry the information about 1 year more. We now have the figures for
each of the years 1936-39, so we would have to get it for the 1940 year.
But upon checking with quite a few people, the staff reached the conclusion that that would cause very little additional work, and we
thought industry would be glad to go to that extra work if they thought
it would raise the price levels. So there would be no objection from the
point of view of industry, and I do not think it means much more work
1225
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
from the point of view of the Office of Price Administration and would
certainly iron out a lot of the inequities we now have.
The second recommendation has to do with low-end products. That
is No. 3 on page 29.
3. In the case of essential "low encl" products (a) allow industry-wide current
costs plus at least a reasonable profit (preferably historical margins) to manufacturers on a list designated jointly by CPA and OPA; and (b) permit retailers
to pass on in full any dollar increase resulting from these concessions, and percentage increases where margins are already tight."
You have heard a great deal about these low-end products, products
which are selling at low price and on which the margin in normal times
is quite low. We have had an awful lot of trouble during the war, and
it still persists, in getting these low-end products on the market.
There are a number of reasons for that: Mainly, because if concerns
can make a higher profit on another product, it is natural, when they
can sell almost anything they make, that they are going to sell the
products on which they make the most profit. That is one of the most
difficult problems the Office of Price Administration has had to face
during the war and after the war. So some change is necessary in
order to get production into these products, these low end products.
The Office of Price Administration has recently made a number of
changes, all in the right direction, allowing more profit.
The committee in its report argued against adopting a cost-plus
program throughout, because the committee was very much afraid of
the effect that would have on a spiral of increases. But in these low
end products we do not see any other answer, in order to get production,
but to tell the manufacturers that if they produce these products they
are going to make at least a certain profit. And the profit will probably have to be, in some cases, even above the historical margin, if we
are going to get production.
But then when it comes to passing those increases on, we feel that the
dollar amount of those increases should be passed on by the retailer and
the retailer not be asked to absorb them, but not to a percentage basis,
because the percentage basis would mean a pyramiding of prices to the
ultimate consumer.
We made quite a detailed study of this low end product situation
in the textile industry, in which it has been discussed more than in any
other. Those who are interested will find in this report an analysis
of the low end product from that point of view, and I think it would
be very illuminating.
As a result of that study, we learned three major lessons. The first
was that in a low-wage-scale industry it is difficult to hold labor at
high straight-time rates without a corresponding increase in price.
The second was that when huge demands and reduced supplies of
basic materials begin to create a strong seller's market, the upgrading
is almost certain to take place on a large scale.
The third was that these forces are so powerful that they can rarely
be held in check by just upward price adjustments alone. In other
words, you have to have channeling of materials through Civilian
Production Administration as well as changes in the price situation if
you are going to meet the problem and get out the goods in those low
end fields.
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4
2
The next recommendation of the committee, No. 4, is as follows:
In the case of other products, substitute for the present product standard the
requirement that prices be raised at least to the point of insuring recovery of
total cost on any product.
Under the present plan, as long as they are making an industrywide profit, the manufacturers are guaranteed a return on the total
factory cost of any one product. We found a great many complaints
on that particular point, because factory costs do not include a great
many other costs, and the manufacturers are losing considerable money
on some individual products, just because they might be making an
over-all profit above this relief base.
So the committee recommends that the manufacturer be allowed
his total manufacturing and selling cost. The total costs are not just
the factory costs alone.
Some people have suggested that the manufacturer should be allowed a profit on every item. But if you do that, you are getting
into some of your cost-plus difficulties, and also you must realize that
in normal times it is not customary for a manufacturer to make a
profit that is above a total cost on every item. He might have some
items on which he might not be making a profit, due to competition,
and also he might want some loss leaders in a particular line in order
to help out other parts of the line. So that would really be giving him
a little more than he had before, if you go that far. But we think
this is a very important adjustment which should be made in order
to bring about production all along the line and cut down the number of inequities and complaints.
I might say in connection will* this retail cost absorption, we are
recommending that the retailer be permitted to pass on the dollar
amount of increases allowed the manufacturer but not percentagewise. As you know, the basis of Office of Price Administration policy
so far has been that the retailer should absorb practically all of these "
increases in cost, because they point out that the volume of a retail
distributing establishment is much higher than in prewar days and
also, at least during the war and up to date, he has been able to cut
down many expenses which he had in normal years, such as the returned goods item, very few credit losses, no forced sales. So on the
whole, retail establishments have increased profits compared with
prewar.
On the other hand, the situation is changing now, and many of
those costs are beginning to increase, so the retailers have quite a legitimate complaint now that they should not be expected to absorb all the
costs that they have been absorbing. I t is true that the volume will
hold up, but many of the expenses will rise, and also labor, wages,
costs, materials, and everything else is going up, so it is a question as
to whether they will not be queezed out. That is why we are suggesting
at least a limited change in the policy so that they will not be asked
to absorb all the increase in the cost.
Also the change in the relief floors which we are suggesting—that
i s the change to the three best years, including 1940, will also hit the
retailers whose profits are approaching this relief floor, so there will
not be many cases where they will have to ask for relief.
1225
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The next recommendation which the committee makes has to do with
the elimination of controls. I will read the recommendation first.
Adopt a policy to eliminate product controls that embodies—
(») The principle of requiring that specified commodities or groups of commodities be released from price control upon satisfaction of acute demands;
(&) Standards for determining the fulfillment of this principle in each case;
such criteria should include, singly or in combination, the attainment of a designated rate of production, shipments, or sales, the maintenance of that rate for
a designated period of time, the achievement of a designated amount of production, shipments, or sales since August 18, 1945, and a limitation of inventories to
stated proportions of the production rate;
(c) Where establishment of such standards for a material or end product
in terms of physical units is impractical, the development of measures to accomplish the intended result through equivalent limitations for materials entering
into the products concerned or products processed from such materials; and
(d) The provision that the standards set must be declared by OWMR within
60 days after the extension of the Price Control Act and after consultation with
the affected industries.
Now, we felt, for the reasons I have indicated, that it would be
very helpful if we could develop some formula in which these controls would go out more or less automatically, rather than leaving it
up to the discretion of the administrator. We found that the business people, as indicated before, were very doubtful as to whether
3^our controls would be eliminated fast enough if you did not have
some provision of this sort. So we set about trying to find some way
in which we could do that. The suggestion which has been made a
number of times is that we ought to have simply a rule that if production reached, say, a hundred percent or 110 percent, or 75 percent
of the 1940 level that the control would automatically go off. We
feel a blanket rule like that, applying to industry as a wdiole, would
not meet the situation, and because of the fact that we are estimating
and we are already in a situation where the over-all production of the
country is well above prewar levels. If you had a standard, say,
equal to prewar level, you would not meet the situation especially
in a number of these products that have been held off the market for
a long time, and where there is still a tremendously built-up demand.
And if you have a rate that might be fair for one industry, say, 10
percent above 1940, it would not meet the situation at all in another
industry where there had been no products available to it for several
years. So we could not find any one formula to meet all situations.
We then thought that the only fair basis would be to have Congress,
in the extension of the act, state the policies and objectives along the
lines we have indicated here and indicate that the Office of Price Administration and the Office of War Mobilization and Reconversion
and Civilian Production Administration, if they would get together
with the industry through the advisory committees, not only of manufacturers but also of the retailers and distributors, and see if they
could not study the principal industries and set up a goal, and when
that goal was reached, that controls would automatically go off.
Take the case of washing machines, automobiles, or anything like
that. After sizing up what the outlook is for general business for the
next year, they could say, "In this particular industry, if we can reach
a production, say, 20 percent above 1940 level and maintain that production for a 2-month period—we do not want it so that you can reach
it in 1 week and go down again—if we could maintain it for a 2-month
period, and also to be sure that there is no manipulation of inventory
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4
but a legitimate increase in production, that when that goal is reached,
controls would automatically go off."
We realize that you cannot apply that to every industry. In some
cases you might have to say, such as in steel, "When steel production
reaches a certain amount, off come controls." In textiles, "When you
reach such-and-such a yardage production a month, the controls would
go off."
If you attempt to apply that to every industry, of course, the thing
would fall down of its own weight. But the committee feels that
there are some controls that can be done away with immediately.
There are a lot of unimportant items that really do not matter in the
cost of living or in any other way and which are causing an awful lot
of administrative troubles and headaches. If we take bold acts now, in
getting rid of a lot of controls on the basis, as Mr. George indicated, of
a calculated risk, knowing that you are taking some chance on some of
these items going up but that over all it would not be very great and
would add very little cost on the cost of living, then you can concentrate on these important items and set these goals on a realistic and
fair basis, and then when the goals have been reached, the controls
would go off.
That program would inspire an awful lot of confidence among
business people, in the first place, showing that we really mean business
in getting rid of these controls, and I think many controls would go
off before June 30,1947.
Now, if you follow the present standard of the Office of Price Administration, which is that you take controls off when you reach balance
between supply and demand, in many important industries you will
not reach that situation before June 30,1947, and you might not reach
it until sometime after that, because we expect an active demand for
many years, and if you are going to measure it exactly on the equivalence of supply and demand, I am afraid you are going to have controls
a long time.
What we think you should guard against is not a slight increase in
price, say 10 or 15 percent, which might occur when some of these controls are removed, but that the main purpose is to guard against a
spiraling of prices, a cumulative inflation. We think you can guard
against that if you take the controls off when you meet the acute
demands.
Now, in a number of cases, for instance—I have not studied this
matter at all, but take the question of cigarettes. I should think the
present situation of cigarettes is such that they have met the acute
demand. You can go into a store now and buy cigarettes, any particular brand. You do not have any trouble and do not have to wait
in line. So the acute demand has been met in that case.
In the case of general purpose machine tools, they are not difficult
to get, and the manufacturers are now buying them when they want
them. So the acute demand has been met in that case.
On the other hand, in other things like automobiles and other durable goods that have gone off the market for a long time, it will be
several months before you can meet the demand. That, in general, is
the plan which the committee recommends for incorporating in the
law.
If you can, you will find probably some criticism from the point of
view of the administrators as to the difficulty of applying these recom-
2
1225
extend price c o n t r o l and stabilization acts of
1 942
mendations. On the other hand, if you approach it in a realistic way
with the main goal getting rid of controls as quickly as you can and
eliminating controls on a lot of nonessentials, we feel this is a practical scheme that could be put into operation and achieve results.
We have studied a number of items on which the controls have been
taken off to see what actually happened. We have those listed in the
appendix of this report. I think you will be interested in looking over
those. We found that—and I will not attempt to go into detail—in
many cases prices went up 5 or 10 percent. In other cases they went
up 25 or 30 percent. Furs was the best illustration of where prices
went up pretty sharply afterward. But on the whole the evidence is
not conclusive so far, but there is not, on the whole, a very sharp increase. We think it would be very effective and if the Office of Price
Administration were to come out with a list of items which can be
eliminated quickly. I noticed Canada has done that last week. They
de controlled a lot of items last year, and now they are continuing with
a lot of other items. That inspires confidence.
The only other recommendation which the committee has made in
the form of recommendations rather than in the form of amendments
to be incorporate in the act, are on page 30. I will indicate briefly
wThat they are:
We think that we ought to substitute the actual costs during the
second quarter of 1946 instead of this estimate for the next 12 months,
except in some cases where production is down very much below what
would be considered normal. That could not be incorporated in the
law very well, because in many cases it would not be fair, because
production is still quite below normal.
Also, if these changes in the base formula, three best years 1936-40,
are incorporated in the act, there is no reason why that change should
not be made right away by the Office of Price Administration, instead
of waiting until July 1 in order to give relief immediately. The same
would be true about the low-end products change which we are making.
As a matter of fact, the Office of Price Administration is already
going in a pretty good direction along the lines of our recommendation.
We also think it is very important—and we cannot incorporate this
into the law, but it could be applied by the Office of Price Administration without difficulty—that they ought to narrow these earning
standards to smaller groups. They include too large a number of companies or industries in one group, and if you get down to narrowing
that field, you will find that many of the inequities and complaints will
be met, because now they include too wide a range of products in the
industry group, and by a little more work they can get those down to
a narrower field.
Also, we think that the Office of Price Administration ought to seriously consider exempting small business to a greater extent than they
are now exempting from the law.
Those, in general, Mr. Chairman, are the recommendations of the
committee, and we had had the legislative counsel help us in drafting
the amendments to carry out these recommendations, and I have them
here, and I will submit them to you for incorporation in the record.
The C H A I R M A N . That may be done.
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
2
(The document referred to above is as follows:)
PROPOSED A M E N D M E N T S TO H . R .
5270
Renumber sections 3 and 4 of the bill as sections 4 and 5, respectively, and on
page 1, after line 8, insert the following section:
"SEC. 3. It is declared to be the policy of Congress that the provisions of law
relating to maximum price controls shall be so administered as to insure prompt
removal of such controls, with respect to commodities or classes of commodities,
upon satisfaction of acute demand therefor, stimulate production and distribution, assist in restoring normal patterns of production and distribution, and minimize inequities, and, in furtherance of these objectives, title I of the Emergency
Price Control Act of 1942, as amended, is amended by adding at the end of such
title the following new sections:
" 'EARNINGS STANDARD AND RECONVERSION PROFIT FACTOR
" 'SEC. 6. Wherever the provisions of any maximum price regulation or order or
of any administrative standard governing the establishment or increase of maximum prices refer to the average rate of earnings on investment or net worth or
to the average percentage or dollar profit margin or mark-up on selling price or
<?osts which prevailed in an industry or individual firm in the years 1936-1939
or in any other peacetime period, the Administrator hereafter shall, except where
he determines that the result would be inequitable to the industry or firm involved, use the average of the three most profitable years (either calendar or
fiscal years, according to the prevailing accounting practices of the industry)
during the period beginning January 1, 1936, and ending December 31,1940.
" 'ESSENTIAL LOW-END PRODUCTS
" "SEC. 7. (a) It shall be the duty of the Administrator of the Civilian Production Administration and the Price Administrator, acting jointly, to prepare and
publish (and to modify from time to time as necessity may require) a list of the
low-end products which are important in both the cost and standard of living.
" ' ( b ) In the case of the low-end products included in the list prepared and
published pursuant to subsection (a) of this section, no maximum price shall
be established or maintained
" ' ( 1 ) if applicable to manufacturers, unless it makes allowance for industry-wide current costs, plus at least a reasonable profit (preferably historical margins) ; or
" '(2) if applicable to distributors in the case of commodities with respect
to which increases in maximum prices have been permitted pursuant to paragraph (1) of this subsection, unless it permits distributors to pass on in full
the resulting dollar increase, or, where the net realized margin is already
abnormally narrow, unless it permits distributors to pass on prevailing percentage margins on the amount of the increase.
" '(c) For the purposes of this section
" '(1) The term "low-end product" means any item, grade, style, or variety
of a commodity which, relative to the other items, grades, styles, or varieties
of that commodity, is low in price and yields a narrow margin of profit.
" ' ( 2 ) The term "net realized margin" means the difference between the
distributor's selling price of a commodity and the sum of the cost to the distributor of that commodity and the cost of handling and selling that commodity; such cost of handling and selling to be determined by store-wide
or departmental expense rates, and such expense rates to be computed by the
Administrator on a trade-wide basis or on an individual firm basis in accordance with the type of price regulation involved.
" ' A D J U S T M E N T S I N CASE OF PRODUCTS OTHER T H A N ESSENTIAL LOW-END PRODUCTS
" 'SEC. 8. No maximum price shall be established or maintained for any commodity produced in a volume equal to, or greater than, the volume in which it was
produced in 1941, and not contained in the list of low-end products prepared and
published pursuant to section 7, which will return to the producers thereof less
than the average total cost, on an industry-wide basis, of producing and selling
such commodity, but, except in situations where the Administrator determines
1 2 2 5 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
that the result would be inequitable to the industry involved, no allowance need be
made for promotional costs greater than the per unit promotional costs incurred
in 1941.
" 'REMOVAL OF PRICE CONTROLS
" 'SEC. 9. (a) It is declared to be the policy of Congress that maximum price
controls shall be removed, in the case of particular commodities or classes of
commodities, upon satisfaction of acute demand therefor.
" '(b) In order that industry will be apprised, at the earliest practicable time,
of the conditions which must be met to bring about removal of maximum price
controls, the Director of the Office of War Mobilization and Reconversion (hereafter in this section referred to as the "Director") shall formulate, after consultation with representatives of the affected industries, and shall publicly announce
at the earliest practicable time, but not later than September 1,1946, the standards
on the basis of which such controls will be removed in accordance with the policy
declared in subsection (a).
" ' ( c ) The standards formulated under subsection (b) shall be established with
respect to specified commodities or classes of commodities, and—
" '(1) If it is practicable to establish standards in terms of physical units,
without specific reference to the situation in related or complementary
industries, such standards shall set forth, either singly or in combination,
(i) the rate of production, shipments, or sales to be attained and the period
during which such rate is to be maintained, (ii) the amount of production,
shipments, or sales to be achieved since August 18, 1945, and (iii) the extent
to which inventories shall be limited in relation to the production rate. Such
standards may also contain such other criteria as the Director inky deem
appropriate to effectuate the purposes of subsections (a) and (b).
" '(2) If it is not practicable, in the case of any particular commodity or
class of commodities, to establish standards as provided in paragraph (1),
the purposes of subsections (a) and (b) shall be accomplished by the establishment of standards expressed in terms of materials and components
entering into the products concerned, or of products manufactured or produced in whole or in part from such materials or components.
" ' ( d ) Nothing in this section shall limit the authority of the Administrator
to adopt standards governing removal of price controls which will result in
more expeditious removal of such controls than would be the case under standards
established pursuant to this section.' "
Mr. B R O W N . Y O U did
M r . FOLSOM. N O .
Mr. P A T M A N . I think
not have a minority report ?
the report is very interesting.
helpful to this committee.
The C H A I R M A N . We were glad to have you come.
Mr. CRAWFORD. May we ask some questions?
T h e CHAIRMAN.
It will be very
Yes.
Mr. CRAWFORD. I never had the pleasure of meeting you before.
I would like to have the record show, as far as I am concerned, I consider Mr. Edward George one of the best-balanced minds and one of
the greatest public servants this country ever produced. I have great
confidence in his report.
With whom were you connected before you joined the staff?
Mr. FOLSOM. I am down here on a part-time basis. I am treasurer
of the Eastman Kodak Co.
Mr. CRAWFORD. I notice a great similarity between these recommendations and the one made by the Committee for Economic Development. Do you see that same similarity?
Mr. F O L S O M . We worked in close touch with the various economies,
and in general, I would say that the import was about the same. Our
suggestions are quite a little different. On the whole they are the
same.
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
Mr. CRAWFORD. Could you give the committee the benefit of your
contacts with your Office of Price Administration staff in the upper
level, provided you have had those contacts.
Mr. FOLSOM. I would like to have Mr. George answer that. Mr.
George has done all the work on this. He is the man who contacted all
the industry people and the Office of Price Administration. I have
talked only casually with some of the Office of Price Administration
people myself. I would like to have Mr. George answer that.
Mr. CRAWFORD. What is their reaction to these recommendations,
first, as to the law, and second, as to administrative procedure?
Mr. GEORGE. Mr. Crawford, the reaction of individuals, of course,
varies. I talked with many on a personal basis. I t is difficult to
translate that into the form of statement that ought to be made to
reflect their official points of view. I would say on the whole they do
understand the basis of our reasoning. They are not violently opposed
to it. They have worries of their own. They do not like to go as far
as we have gone. Some things they feel fairly strong opposition to.
Others they do not. I do not believe at the present time they would
be entirely safe to lift the earning standard as far as we have done.
I think with respect to the decontrol policy they feel we have gone
too far. Our feeling was, after our numerous contacts with business,
that business was in such a state of mind that one of the most important
things that could be done was to give them assurance that there was an
exit. We went further in our thinking than the Office of Price Administration is willing to go.
Mr. CRAWFORD. What is the postwar policy of the planning committee with respect to the renewal of the Office of Price Administration if all of these proposals are defeated ? In other words, does the
committee still stand by the proposal to extend the Office of Price
Administration in the event these amendments are not adopted?
Mr. FOLSOM. The committee recommended the extension of these
amendments.
Mr. W O R L E Y . W E will cross that bridge when we come to it.
Mr. CRAWFORD. That is all right. I wanted to get that in the record.
I would like to ask this question. I would like to have both men
answer, Mr. Folsom and Mr. George. In your opinion, is there any
practical chance for us to balance supply with demand unless recommendations 1, 2, 3, and 4 on page 29 are substantially put into the
law?
Mr. FOLSOM. D O you want to answer the question ?
Mr. GEORGE. It is difficult to say what the effect of any particular
change in the law will have on business psychology. The probabilities
are with the present prices and with the kind of markets we have
ahead of us that in the main, business will come out all right. In a
time such as the present, it is the fringes we have to worry about, and
it is business' own feeling about prospects that we have to worry about.
Business will feel let down a certain degree. I t will feel it is being
asked for rewards that are not commensurate with the efforts asked
of them.
Mr. CRAWFORD. Suppose citizen A is running a factory and producing an important commodity to our economy, and the present law and
the present rules and regulations impose on him a price ceiling which
does not permit him to cover his cost. IS there any practical reason
why he should bring that production up into balance with demand ?
2
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extend price c o n t r o l and stabilization acts of
194 2
Mr. G E O R G E . Are you speaking about his total production ?
Mr. C R A W F O R D . About his total production. It might be brick, for
instance. I t might be Celotex. I t might be doors for houses. It
might be overalls for working people, or gloves for working people.
In other words, on what practical ground can we stand when we contend that the production of those specific items highly contribute to
our economy? Shall it be brought into balance with supply if the
Office of Price Administration says, "Thou shalt not have current
cost"?
Mr. G E O R G E . Y O U cannot expect business to produce unless they
make money.
Mr. CRAWFORD. I think that is the real issue we are up against. Certainly, I have no objection to the Office of Price Administration being
continued provided American economy can live under it. If it is
demonstrated American economy cannot live under it, I do not propose
to support it. I do not want to destroy the American economy.
What I have been trying to find out in these hearings from men
who know production and who know business, is 011 what grounds
have we to assume that we can ever come to a point of decontrol by
this formula, which is not so bad, in my opinion, so long as the Office
of Price Administration exercises those rules and regulations against
which you protest by your recommendations of the basic law ?
Mr. Folsom is a practical manufacturer. Would you mind giving
us an answer to those questions ?
Mr. F C L S O N . Y O U can get through it some way or other, even if we do
not make some change. There is 110 question but what it is going to
slow up production. Eight now it is not slowing up over-all production, as you might think, because most companies have such a great
demand they can supply the thirds on which they make the most profit.
Before long that is bound to have an effect on other producers, so the
accumulative effect would be such that production is bound to slow up.
I am afraid this thing is going to fall of its own weight. That is
going to cause trouble. By adopting some reasonable amendments
along this line on the important items, you can keep it on a more realistic basis and tend to control inflationary measures until production
gets to the point where we will not have to worry about a sharp increase in prices.
Mr. CRAWFORD. From what you said, I think it is fair to reach this
conclusion: That is why industry will proceed to produce, by reason
of its volume, those things on which it is allowed a profit margin, discontinuing the production of those things on which the cost is not
allowed and which are so badly needed by our people, that that operation encourages a new manufacturer to go into the production of the
thing which the old manufacturer discontinued, the new manufacturer
to impose a much higher price to the consuming public for that which
wTould be produced and sold to the public at a lower price by the old
manufacturer. Have you not said that, in substance ?
Mr. F O L S O M . I was not thinking about new manufacturing as much
as the fellow who would shift to some other product on which he could
make a higher profit.
Mr. C R A W F O R D . That is the new manufacturer ?
Mr. F O L S O M . I mean the same manufacturer.
Mr. C R A W F O R D . The same manufacturer shifts to a new product?
1225 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4
Mr. F O L S O M . He will concentrate more on products on which he can
make a higher profit, of his old products.
Mr. CRAWFORD. What happens to the product the old manufacturer
discontinues making?
Mr. F O L S O M . That is why we have shortages. The cumulative effect
will be bad on the whole economy.
Mr. CRAWFORD. If that operation follows—and the record will certainly show that it has followed—if that operation does follow,
it imposes the additional cost on the consuming public, does it not,
and it also interferes and dampens down production and holds back the
forthcoming of the full supply.
Mr. F O L S O M . That is the main purpose of these amendments.
Mr. CRAWFORD. I t seems to me that we face the proposition of correcting this in an orderly manner or forcing the public to correct it
through a disorderly manner_through the spread of black markets
until finally the Office of Price Administration must cease to operate.
Assume that must happen.
Mr. F O L S O M . There will be a strong tendency in that direction. I
do not know how long it will take.
Mr. CRAWFORD. I was interested in your statement, Mr. Folsom, to
the effect that the Office of Price Administration could not do this job
as far as inflation is concerned, you submitted six recommendations.
They had to do with curtailing tax burdens, curtailing expenditures,
and creating a surplus. I t authorizes the Board to increase Federal
Eeserve requirements. I think the last was to dampen down spending
for public works.
M r . FOLSOM. Y e s .
Mr. CRAWFORD. H O W
did the committee fail to particularly note or
recommend or point out the significance, perhaps the overwhelming
significance of placing the commercial banks where they positively
cannot purchase Treasury issues.
Mr. F O L S O M . I did not read the rest. Among others is the composition of bank holdings of Government bonds. We stated in the report,
also, the staff is now studying the whole business of financial and
fiscal policies. The committee expects to issue a report soon on those
subjects.
The committee had reached a conclusion that these six should be
adopted. They were going to consider the other measures. We expect to have a report out on that sometime within the next 2 months.
Mr. CRAWFORD. That w^ill necessarily be a part of the financial element which has to do with prevention of inflation.
Mr. F O L S O N . It is very important. There is no question about that.
Mr. C R A W F O R D . If these commercial banks purchase the bonds direct
from the Treasury, that is one proposition. If the Treasury says, "We
are not going to issue any more," and then refunding issues are put
out at a lower rate of interest and the banks are permitted to go into
the market and absorb from individual holding corporations, partnerships, and individual citizens, the bonds which they previously had
by reason of their carrying a higher rate of interest, it has the same
inflationary effect if the bank bought it from the Treasury in the
first place. The bonds are going into the bank portfolio. We face
the problem of laying down a law to the bank by saying, "Thou shalt
not purchase any Government issues and hold them." We may have
83512—46—vol. 2
17
2
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
to face the proposition of saying to the citizen, "Thou shalt invest
your savings in Government bonds, refunding issues, for instance,
assuming you are on a balanced budget, instead of going out and
buying goods with it, if we intend to prevent inflation."
I want to compliment the committee on pointing out that this is
not an Office of Price Administration job. I think you have certainly
convinced me that the committee's views are that the Office of Price
Administration is just a mere incident to deal with acute shortages.
Mr. F O L S O M . I think it is very important that we consider that
question of the Government bonds. The commitee had not taken a
position on it. It is important that we try to get bonds in the hands
of individuals, rather than in the banks. To do that, you have got to
have a higher rate.
Mr. CRAWFORD. Exactly.
Mr. FOLSOM. I think you had testimony from Mr. Eccles on that
same line. You cannot expect individuals to buy them.
Mr. CRAWFORD. On page 3 0 , under item 3 , second line, you refer
there to recommendation a (3) above. You mean 3 (a) on page 29.
M r . GEORGE. Y e s , s i r .
M r . FOLSOM. Y e s .
Mr. GEORGE. T O act immediately
without waiting for extension of
the law.
Mr. CRAWFORD. That is all right.
Mr. B R O W N . We are all agreed that we should have full production.
I think every man in business is entitled to a fair profit, especially so
in peacetime.
Suppose a mill manufactures only overalls and another mill manufactures overalls and a half dozen other items. What is your formula ?
Mr. FOLSOM. We attempted to cover that in (c) on page 30. You
could have a private standard set up for the overall industry. That
would apply to the second concern only to his overalls and not the
other part of his business. That is being done in some cases now.
Mr. B R O W N . I S it fair for one manufacturer to make - more profit
than another on the same product ?
Mr. FOLSOM. N O . That would apply only to the overall part.
Mr. B R O W N . We had some testimony here, a fellow testified he
manufactured several building materials. A man like that cannot
stay in business.
Mr. FOLSOM. He should at least get back his total cost on his product.
He at least ought to get that back. He makes his over-all profit for
the company as a whole.
Mr. B R O W N . But the brick man has to raise his price to keep him
in business.
Mr. FOLSOM. D O you want to comment on that?
Mr. B R O W N . We want that right.
Mr. FOLSOM. I do not see how you can set two prices.
Mr. B R O W N . That is right.
Mr. GEORGE. Y O U can set two prices if you make allowance for
the recovery of the complete cost by an individual manufacturer,
provided the item is low. I cannot have complete equity all over the
country as long as you have price control. As Mr. Folsom said, that
is one of the reasons for wanting to get rid of it as soon as possible.
If you can segregate industries as narrowly as possible with homoge-
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
neous groups of production so you have some ordinary data as to what
the costs are, you can isolate situations like that and approach equity
a little more closely, I think, than if you simply use broad categories
and let every product make its way as best it can under a canopy of
general big profit.
Mr. B R O W N . I want these people, all of them, to stay in business,
I know production is the main weapon against inflation.
Mr. GEORGE. What we have tried to do is to find the best dividing line
we can between the conditions that necessitate an objectionable control
of this sort at all. There is such extreme inequity that the cost of
preventing inflation is unbearable. We must find the compromise
between those. These amendments in the aggregate try to do that.
We try to acquire equity without risking the undermining of the system entirely. There is going to be an equity left.
I said to our committee, and they agree, as long as we have some
price control, some inequity will remain, or it will not be effective.
Mr. B R O W N . There was a ceiling put on textile items. If they
intended to put ceiling on textile items that does not reflect cost of
cotton at the mill, you are going to put the millman out of business.
That is why so many people are slowing down. What is your solution
to that ? Producers are storing goods. What is your solution ?
These people are entitled, certainly, to the cost of the product. That
is one way they hold down the cost of cotton. It is true the ceiling was
increased. The ceiling was increased just a fraction. Instead of
satisfying the people—it did not satisfy anyone. If you are going
to raise the ceiling, raise it high enough to get a fair profit. If you
do not do that, you are not going to get the goods. Do you' agree
with me ?
Mr. GEORGE. I do in the main. It is difficult to apply general considerations that were made up with regard to operation in many,
many diverse situations to a particular one and say, "Yes, this is it."
I do think that in the main the thoughts and the purposes that underlie our amendments are in general agreement with the ideas you
have been expressing.
Mr. B R O W N . Another thing, when demand is met by production,
ceilings ought to be taken off. I think the psychology of that is all
right. We expect to get rid of all ceilings as soon as production
approaches demand. We should have controls on scarce articles. Do
you agree with me ?
Mr. GEORGE. Yes. Most of our recommendations are in the direction of your suggestions. As I said before, in the application of individual situations you have to sit across the table and find out where
they match.
Mr. B R O W N . The thing that bothers me is how we are going to protect all these high-cost producers. We need all the producers we can
get. I have thought about it for months. We cannot have two prices.
Miss S U M N E R . Did you read the housing reports, or did you know
about Mr. Collet's plan by which he agreed to release price ceilings
within a certain 3-month period, providing the industry produces
sufficient goods within that time. Are you familiar with those programs he had with respect to the materials producers?
Mr. GEORGE. I have heard many suggestions of that sort. I do not
know whether I have the ones in mind you are referring to.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Miss S U M N E R . May I suggest you look into those. It seems to me
that the situation is very much like the one you have described here.
It is in effect the same program. He offered a premium on price when
the industry as a whole would reach a certain production by that time.
I believe it was the clay people, the brick people and different ones
came in here tearing their hair because obviously that put them in a
situation with the conscientious people. People who were not too
conscientious held produce and the others waited for their time when
they were under control. Nobody got the premium.
Your problem is essentially the same. It would get the same kind
of a reception from industry. Nobody is going to want that kind of a
control.
Mr. GEORGE. There is one solid thought that lies behind that proposal. That is to provide incentive that industry understands.
Miss S U M N E R . Industry understood that; also the way to get
around it.
Mr. GEORGE. I mean you should set up a goal. There should be
a reasonable chance of satisfying the people within a reasonable length
of time. They must have a goal they can meet that will exempt them
from price control.
Miss S U M N E R . Where is your program a departure from that? I t
is a decomposed program.
Mr. FOLSOM. Y O U have got to check your inventory to be sure no
one is holding goods back from the market.
Miss S U M N E R . What kind of a program is it that makes industry
produce. We have not got the kind of country where we make anybody produce.
Mr. F O L S O M . Here you set the goal; when you reach those goals, you
decontrol. We think that in itself will give incentive to industry to
try to achieve maximum production. In order to reach that level,
industry has to produce.
Miss S U M N E R . What different incentive have you to give when
Judge Collet promised them a price increase at the end of 3 months ?
The incentive is the same. He offered a price increase.
Mr. F O L S O M . If the manufacturer can make a reasonable profit, he
has all the incentive he needs to produce. In order to correct the
situation
Miss S U M N E R . Y O U mean in your other provision where you give
him his cost? Here again, Congress never intended to deprive a man
of some kind of profit. So, in effect, when you write another law saying we are not depriving you of some kind of profit, you figure as
long as you have the Office of Price Administration misconstruing
laws—I do not see where the industry is given any more to hope than
it has today.
Mr. F O L S O M . We think it would.
Miss S U M N E R . What do you think is going to reform the Office of
Price Administration personnel in the meantime ? You cannot do it
by law. You know yourself the thing that is preventing reconversion
in industry is the book provision that prevents your changing book
procedures in the past. They interpret it to say, "regardless of the
fact this says we cannot change bookkeeping procedures, Congress intended to leave discretion" is an absolute contradiction. Is that not
right?
1225
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4
2
Mr. F O L S O M . If you go to the current cost, you get rid of all those
difficulties. You take current cost instead of the estimated cost; you
get rid of a lot of those difficulties. But the one point I want to get,
you indicated that if we adopt this formula, some people would hold
back production so when price controls went off they would get a
much higher price and therefore profit by it.
We say in here, if you adopt this formula, you have got to protect
against accumulating inventories so one manufacturer will not be
building up an inventory and holding it to take advantage of the
price increase. The inventory at the end of your period must be the
same as the beginning of the period.
Miss S U M N E R . I just heard of it when you first read it. I t strikes
me that we decided it was a usury proposition the way you stated it.
Mr. F O L S O M . I did not want to go into too much detail.
Mr. B U F F E T T . Miss Sumner, do you yield ?
Miss S U M N E R . I do not think we are permitted to,
I want to ask you this: You were on the committee when they made
this report on foreign lending, were you not ?
M r . FOLSOM.
Yes.
Miss S U M N E R . Y O U advocated Bretton Woods and continuing loans
to foreign countries, did you not?
Mr. F O L S O M . The committee made definite recommendations. We
stated certain conditions should be met if loans were made.
Miss S U M N E R . In other words, as I recall that report, it would be
a situation
where we would not only be getting Bretton Woods money,
but wre would be financing continuous loans to foreign governments.
Mr. F O L S O M . Under certain conditions.
Miss S U M N E R . This Bretton Woods money starts coming in here
pretty soon.
Mr. F O L S O M . I do not think it is soon.
Miss S U M N E R . In your plans, when do you estimate this money starts
coming in here ?
Mr. F O L S O M . We did not go into,Bretton Woods thoroughly. I n
making your report on this decontrol program, you thought something
about Bretton Woods money and this export-import percent of dollars
coming in.
Mr. F O L S O M . We considered what effect foreign buying is going to
have.
Miss S U M N E R . Did you not give any consideration to stopping that
money until goods came into plentiful supply so we could get decontrol
and start into production before we let those dollars come in like
locusts ?
Mr. F O L S O M . The committee has not taken a position on this. I do
not see how you can adopt a policy of doing no export business at all.
That would be the equivalent of what I say.
Miss S U M N E R . Y O U have not suggested putting any
Mr. F O L S O M . Those products we have an over supply of, like machine tools, much of the money is going to be spent on items we have
a plentiful supply of.
Miss S U M N E R . Y O U have not put any control on those dollars to say
what they will buy. You do not know whether they might buy
nylons or white shirts.
1225
E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Mr. F O L S O M . If we continue export controls under the War Powers
ActMiss S U M N E R . D O they prevent scarce goods going out? I understand enough lumber to build 6,000 houses was exported. You do not
advocate any limit on those dollars, what they are going to buy here?
You did not mention in this report.
Mr. F O L S O M . We have not gone into the question of foreign loans.
Miss S U M N E R . D O you not think it is concerned?
Mr. F O L S O M . I t is a pretty small percentage of the total business.
Miss S U M N E R . H O W many billion dollars do you expect to come in?
Mr. F O L S O M . It depends on whether the British loan goes through,
primarily. It will be some time before the Bretton Woods money
will be spent. The bank has not been set up. The loans have not
been made. The Export-Import
Miss S U M N E R . H O W much time do you think it will take?
Mr. F O L S O M . I am not qualified to testify. About two years.
Miss S U M N E R . Y O U did not try to connect foreign export and the
Office of Price Administration ?
Mr. F O L S O M . NO. We cannot say we are going to cut out export
business.
Miss S U M N E R . Until this year, we have had freedom to produce
what the people wanted at the price they wanted to pay. The situation changes under the Office of Price Administration.
Mr. F O L S O M . I do not think it would be a good policy of this country
to stop export business. These countries now are not in the position
to buy unless we make loans to them. If we expect to build up any
postwar foreign trade at all, if we came out and said, "We are not going
to let you buy anything over here," it wTould mean the business concerns
would be losing their foreign market.
Miss S U M N E R . We are losing our domestic market.
Mr. F O L S O M . Business failures are the lowest they have ever been
now.
Miss S U M N E R . They do not count mergers as business failures.
They call that success.
The C H A I R M A N . Any further questions ?
Mr. K U N K E L . The questions Mr. Brown asked suggested the thought
to me, you have not refered to subsidies in this report. Why did you
not solve all these problems of getting increased production by the
use of subsidies?
Mr. F O L S O M . The committee did not go into the question of subsidies.
I submit I took no position. It is something that should be studied.
We have not done it.
Mr. K U N K E L . Neither the committee nor the staff ?
Mr. F O L S O M . Mr. George has gone into that; we have not reached
any conclusion.
Do you want to comment?
Mr. GEORGE. I am embarrassed by the question, probably because it
is not separable from this problem. Subsidies fell by the wayside.
Mr. K U N K E L . Y O U spoke about there being an overproduction of
machine tools. You mean there is an excess capacity existing ?
Mr. F O L S O M . There is excess capacity.
Mr. GEORGE. Purpose tools.
Mr. K U N K E L . That is all, Mr. Chairman.
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
The C H A I R M A N . Further questions?
Mr. K I L B U R N . I am wondering if your committee—when these hearings started, I was for the continuation of the Office of Price Administration myself. I did not know any better. We have had witnesses
testifying, industry after industry testifying as long as the Office of
Price Administration was in existence their production was going
down. As a result of that, a year from now, many' of them testified,
that there would be more need for price control. In fact, one industry
said they would have to be on for 10 years.
I am wondering if your committee considered that question.
Mr. FOLSOM. Over-all figures do not bear that out. There might
be a tendency in that direction, but over-all, the figures do not indicate
there has been that condition.
Mr. K I L B U R N . One lumber man only has 26 mills operating. He had
75.
Mr. F O L S O M . That is why we are recommending these changes. Production will slow up.
Mr. K I L B U R N . Does your committee think that whenever the Office
of Price Administration is discontinued that there will be an impact
of rise of prices ?
Mr. F O L S O M . We suggest that it would be better for the whole economy if you adopt a decontrol policy under which you can release these
controls gradually. If you wait and hold all of them until June 30
and cut them short, you might have a short increase. Coming over a
period of time, it might not be so great. You wTill find it in the appendix of this report. We found quite a wide variation. On the whole,
they were not more than 10 or 15 percent.
Mr. K I L B U R N . Yesterday we had petroleum people here. They testified they have the biggest supply of petroleum, but the Office of Price
Administration will not release it.
Mr. FOLSOM. I do not know a thing about the petroleum situation.
That is what we had in mind in the decontrol formula. The Office of
War Mobilization and Reconversion would get together with that industry. If the industry shows them that is so, the control should go
off. If you adopt this formula, they would have to do it.
Mr. K I L B U R N . It looks as if the Office of Price Administration will
never give up any controls of their own volition.
Mr. WOLCOTT. If you start off by saying price controls shall come off
any commodity on which there was a surplus, then that would take care
of itself.
Mr. F O L S O M . They would have to go through the mechanics of getting in touch with the industry and stating that.
Mr. WOLCOTT. In answer to what Miss Sumner was fearing, there
probably should be a provision that the burden of proof is on the
Office of Price Administration to prove that production had not increased to the point that there are surpluses. We could very well follow through and make a defense for any suit of damages that production had increased at any point. The Office of Price Administration
would be forced to take away the enforcement machinery after production of the commodity had reached a surplus point.
The C H A I R M A N . Any further questions ?
Mr. FOLGER. I do not know whether Mr. Folsom—I do not remember whether I understood you correctly. I will ask you two questions.
2
1 2 2 5 E X T E N D PRICE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
Is it the report of the committee, or your personal opinion that controls
should be eliminated when production comes into balance with demand.
Mr. F O L S O M . We say they ought to be eliminated before that point is
reached.
Mr. F O L G E R . I understood you to go further.
Mr. F O L S O M . Y O U ought to get rid of the control when you reach
the acute demand.
Mr. F O L G E R . I think I understand what you mean.
Mr. GEORGE. I t is when the edge is taken off competitive buying.
Mr. F O L S O M . What we are trying to do is replace a normal competitive situation by this control, because the normal competitive situation
has been upset by abnormal conditions.
Mr. F O L G E R . Would you ever get production equal to demand if you
were hindered by the controls that kept down the production and the
suggestion you made was "acute" ?
Mrs. W O O D H O U S E . I understand that the immediate effect of these
policies would be to increase prices somewhat, probably. Has your
staff made any estimates as to about how much the cost of living might
go up, say in 6 months after these policies were adopted?
I can see the point of presentation from business very well.
Mr. F O L S O M . I personally think it would be very slight, because many
of these items are not important items. Probably a lot of them would
not be passed on all the way down the line. On the other hand, you
must realize there is bound to be an increase in prices next year, primarily due to the increase in wages, and regardless of whether we have
these or not, you are going to have an increase in prices.
Mrs. W O O D H O U S E . That is exactly my point. How are we going to
prevent, when these prices are going up, the cost of living goes up,
and then wages go up ? Where are we going to cut it off, as it were, and
stop it?
Mr. F O L S O M . Y O U have to adopt these other measures. These other
measures are probably more important than the Office of Price Administration.
Mrs. W O O D H O U S E . I do not think anything you mention takes care
of our wage question.
Mr. F O L S O M . We have not gone into the question of wage controls at
all.
Mr. W O O D H O U S E . From the point of the consumer, the cost-of-living
question is very important,
Mr. G E O R G E . These are fairly well guarded. The effort has been
to come down full force on the areas of the most critical difficulty
rather to insure profits and price increases generally along the line.
In the case of low-end goods, which are an important item to the majority of consumers, we grant increases, but only on the reasoning
that low-cost goods at a slightly higher price are still more economical
than much more expensive goods they cannot afford. On other items
we have been more careful. It amounts to a guaranty. In those
cases we restrict the scope of the guaranty to recovery cost.
Some products eventually important do not fall by the wayside
in this disturbed period of transition. We tried to strike a balance
as well as we could between the necessities of consumers and enterprise.
Mrs. W O O D H O U S E . I can see the increase to manufacturers very
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
clearly. We have to give that. The retailers have not been selling
these goods. If the dollar falls, it will put up the price.
Mr. GEORGE. It is the same amount. It is not put up twice.
Mrs. W O O D H O U S E . It passes through pyramids.
Mr. GEORGE. Sometimes these margins as cost creep up on the operators and the Office of Price Administration cannot keep pace, and
those margins get pretty tight. I think that the Office of Price Administration would be willing to concede that. In many of these cases
the percentage margin should be allowed on the amount of increase.
Mrs. WOODHOUSE. I can see that on the manufacturing end. I could
not see your point as regards the retail.
Mr. GEORGE. The cost is still increasing.
Mrs. WOODHOUSE. I am not sure you can say that the per-unit
cost is going down.
Mr. GEORGE. I do not know the answer accurately as to that as of
this moment. The volume is increasing. There is a point of diminishing return and besides that, the rates are going up steadily in
retail. They have not yet returned to the levels of prewar, but they
are above the low points reached during the war. There is a reverse
trend that is now evidenced.
Mrs. WOODHOUSE. I think you have a nice point there. It is convenient to have these services. They make department costs heavy.
Mr. GEORGE. I would not attempt to revise the retailers as to the
kind of expenditures they should incur. Low end items cannot)
amount to substantial volumes. We tried to identify the major areas
of difficulty. This was one. Any correction at any point is going
to cost something. It is simply a question as to whether the cost
is as important as the benefit. In this case we believe that the acceleration of production was more important than such cost as you
mentioned within an identified area.
Mrs. WOODHOUSE. Thank you, Mr. Spence.
Mr. T A L L E . I S it the opinion that demand is something that is fixed
and that all you have to do is lift production to that point ?
Mr. GEORGE. It depends on what people you know and talk to. In
my world I would not run across many opinions of that sort. Demand obviously is not fixed. It is responsive to many things.
Mr. T A L L E . Therefore, the sensitive element is pretty important, because in a free market, the function of market price is to equilibrate
supply and demand. Your subsidy brings something into price that
you do not have in free markets. It disturbs the situation. I gather
that your committee had something like that in mind when you said
you would decontrol at some point where acute demand is taken off.
Mr. GEORGE. That was our thought. You mean with reference to
subsidies ?
Mr. T A L L E . N O . The statement you made a moment ago, that you
would take off controls when acute demand had been satisfied. The
individual is often forced to revise his buying schedule and to get
along without some things he would like to have and cannot afford.
If we were to wait for a point where demand and supply are in nice
balance, we certainly would never reach it, not wTith all these unnatural
things entering into the pricing.
Mr. GEORGE. We might reach it eventually. It will not be static.
Mr. T A L L E . Certainly; the shift is very rapid in an organized
market like the stock exchange.
2
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. GEORGE. I t is perfectly true that the satisfaction of demand
will generate more demand. There is another reason we felt it would
be unwise to insist upon a full equivalence of demand and supply
before we released the control. It must not be forgotten a chance
has been 'taken. I t gives us qualms sometimes. It is not a clear and
easy solution. Men can come forward; they can make a good case
against it. They thought it was better to give business a sure answer it would not permanently be in a strait-jacket.
Mr. T A L L E . I t is a chance you have got to take in the hope of getting
back to the kind of economy we call free enterprise.
Mr. K I L B U R N . H O W do you tell when acute demand has been satisfied?
Mr. GEORGE. Y O U cannot tell.
Mr. K I L B U R N . I do not think the Office of Price Administration
knows that.
Mr. GEORGE. When we first talked this thing over, the question
would come up. I only have one answer: less than the equivalent
of supply and demand. It means more than a prewar rate. That
has no relation to current levels of demand.
Mr. TALLE. I am certainly grateful to you, gentlemen, for the work
you are doing. I t is a service to the American people. It is a service
to the world. If free enterprise does not survive here, it is a dead
cinch it is not going to prosper anywhere else.
The C H A I R M A N . I speak the sentiments of the committee that we
thank you, Mr. Folsom and Mr. George for your testimony. You have
made a long, intensive, and conscientious study.
Mr. W O R L E Y . We appreciate the fine reception we have received
here. I would like to say, Mr. Crawford, that I had no intention of
giving you a short answer when I said we will cross the bridge when
we come to it. We do believe that the recommendations we have
made will certainly go a long way toward getting us back to what we
call a free enterprise system in the old American way of life.
The C H A I R M A N . The committee will adjourn until 2 o'clock this
afternoon. We will hear other witnesses this afternoon.
(Whereupon, at 12:30 p. m., the hearing recessed, to reconvene at
2 p. m. of the same day.)
AFTERNOON SESSION
The C H A I R M A N . The committee will be in order.
This afternoon we are giving the members of Congress an opportunity to testify with respect to the Office of Price Administration.
The clerk will call the names of the members who have requested to
be heard.
The C L E R K . The first witness will be Mr. Sumners of Texas.
The C H A I R M A N . Mr. Sumners.
STATEMENT OP HON. HATTON W. SUMNERS, REPRESENTATIVE
PROM THE STATE OF TEXAS
Mr. S U M N E R S . Mr. Chairman, I appreciate the difficulties under
which this committee is laboring. I appear briefly, with your permission, to suggest lessening of the discretion of the administrative
agencies, if it can be worked out by your committee, especially in
dealing with the rent that is allowed to small property owners.
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
I will illustrate what I have in mind. A woman in my city bought
a 5-room brick-veneered house for $6,150. She rented this property
for $60 a month, wThich, considering the cost of her property, cost of
maintenance, I think anybody would say was a fair rental. The
administrative agency allows her $45 a month for this $6,000 piece of
property.
Insofar as I know—and I believe it is so—that is the only property
she has, and it is about half paid for. And this woman is sick. The
explanation which these people give for cutting this rent from the
rent she had been able to get by contract was that they had examined
comparable property in the neighborhood and found that in 1942—
which was a time when there were a good many vacancies in that
community—rental was from $40 to $50 a month. So they cut it in
half and made it $45 a month, and that woman, with this property
being all she has, and it is not paid for, has no recourse.
I can appreciate the difficulty, but that sort of conduct is building
up an attitude of indignation and resentment, not only against that
agency, but against, I am sorry to say, the whole organization of the
Government. And these people do not seem to have sense enough to
exercise proper discretion in matters of that sort. It does not seem
that they can be trusted with the exercise of that discretion. I do not
know what is to be done about it. I do not know whether you can
draft legislation to take care of situations of that sort, but from the
standpoint of justice to the people, and I believe from the standpoint
of the exercise of a power that may be necessary for a good while, if
it can be done, it ought to be done.
I t imperils private ownership. I t is creating all sorts of resentment throughout the country, and, as I have indicated, if the thing
continues, we are going to have a pressure from our constituencies
that is going to wipe out the Office of Price Administration, and possibly it could easily, as you gentlemen are aware, cause a run-away
market and possibly a reaction, and reestablishment for a longer period
of time than otherwise would be required.
I have some familiarity with the subject. I know you are very busy
and there are other Members of Congress to be heard. But if there
is any information I can give the committee, I will be glad to be of
service. I know you have heard from a great many people.
The C H A I R M A N . That is an administrative matter which is rather
difficult.
Mr. S U M N E R S . It is tremendously difficult to guide administrative
discussion, is it not ?
The C H A I R M A N . I am sure the committee will give consideration to
your views, Congressman.
Mr. CRAWFORD. Mr. Chairman, I have a question I would like to
ask Judge Sumners.
The C H A I R M A N . Mr. Crawford.
Mr. CRAWFORD. Y O U made a remark there about resentment growing up in the country.
Mr. S U M N E R S . Yes. I t is not good, and should be avoided.
Mr. CRAWFORD. D O you not think we had better correct some of
this through orderly processes, or leave it to the people to make the
correction through disorderly processes?
2
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. S U M N E R S . Of course, the answer is very obvious. If you can
do it, it ought to be done, and it ought to be done here, if you can
do it.
Mr. CRAWFORD. Well, you have been here long enough to know
that we can do it here, if we want to do it.
Mr. S U M N E R S . Well, I hope you can do it, because it is developing
disregard for the authority of the Government.
Mr. CRAWFORD. That is what I mean by disorderly processes.
Mr. S U M N E R S . Producing what you would term, in general terms,
black market activities, and a lack of support of the administrative
processes, which makes it very difficult.
Thank you very much, Mr. Chairman.
The C H A I R M A N . Thank you.
Call the next witness, Mr. Clerk.
The C L E R K . Mr. Lewis of Ohio.
(No response.)
The C L E R K . He is not here just now.
Mr. Dirksen, of Illinois.
STATEMENT OF HON. EVERETT M. DIRKSEN, REPRESENTATIVE
PROM THE STATE OF ILLINOIS
Mr. D I R K S E N . Mr. Chairman, I do appreciate the opportunity to
come back to the committee on which I once had the honor to serve.
I presume the committee has heard just about every argument on
price control, both for and against, that probably could be advanced.
But my primary purpose in coming here today is to get on the record
with a series of amendments which, Mr. Chairman, I would like to
have the privilege of including in your hearings.
I am quite familiar with the fact that ofttimes when argument has
not been advanced in committee, it does not come with the best of
grace on the floor of the House. So I thought I should indicate to
the committee some of the amendments in which I am interested and
which I possibly might want to offer on the floor at some time in more
refined fashion than I have them spelled out here.
The first course would be to modify section 1 of title I of the bill.
I do believe that the language ought to be modified in such sense that
the emphasis ought to be placed on production, and probably some
other objectives ought to be recited there. It does not. require, necessarily, a tremendous modification, but I do believe that some emphasis
ought to be placed on the whole question of production, so I have
made a modification or change of section 1 of title I, and I will not
burden the committee with reading it at the present time, but will
submit a copy for the record.
The C H A I R M A N . That may be inserted in the record.
(The document above referred to is as follows:)
A M E N D M E N T TO T I T L E I
Strike out all of section 1 of title I of the act of January 30, 1942, and insert
the following:
" ( a ) It is hereby declared necessary to check inflation; to expedite the reconversion process; to stimulate maximum production of all goods and commodities;
'to facilitate demobilization, the retooling of industry and the recovery of an
unrestricted free market; to bring about a price balance at the earliest possible
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
2
date whereby prices will accurately and honestly reflect the supply and demand
condition with respect to all goods and commodities; to prevent speculative,
unwarranted and abnormal increases in certain prices and rents; to eliminate
and prevent profiteering, hoarding, manipulation and other disruptive practices;
to protect persons with relatively fixed and limited incomes, consumers, wage
earners, investors and persons dependent on life insurance, annuities and pensions against unfair and inequitable prices; to prevent hardship on persons
engaged in business; to protect schools, universities and other institutions; to
prevent a postwar collapse of values; to stabilize agriculture prices at f a i r and
equitable levels; and provide for fair and equitable prices on a selected list of
commodities which comprise the principal factors in the cost of living index for
a temporary period until the decontrol of such prices can be effectuated in accordance with a decontrol formula as defined in this Act.
"(b) The provisions of this Act and all regulations, orders, price schedules
and requirements thereunder shall terminate on June 30, 1947, or such earlier
date as determined by the decontrol formula hereinafter set forth in this Act
or by a concurrent resolution of the two Houses of Congress declaring that a
further continuance of the authority granted by this Act is no longer necessary;
except that as to offenses committed or rights or liabilities incurred prior to
such termination date the provisions of this Act and such regulations, orders,
price schedules and requirements shall be treated as still remaining in force for
the purpose of sustaining any proper suit, action or prosecution with respect to
any such right, liability or offense.
"(c) The provisions of this Act shall be applicable to the United States, its
territories and possessions and the District of Columbia."
Mr. D I R K S E N . N O W , I presume there must be dozens of amendments
dealing with price ceilings, and I do want to offer an amendment for
the consideration of the committee that will deal with this point.
It shall be the function and duty of the Administrator not only to protect the
public against unfair and inequitable prices, but to encourage the maximum production of commodities and goods to which this Act may be applicable, to effectuate maximum production of such goods and commodities; the Administrator
shall establish no price or price ceiling which does not reflect all current costs,
which may be reasonably applied to each item, together with a margin of profit
which reflects not less than the generally prevailing margin of profit for each
such item during the calendar year 1941.
That follows, to some extent, I think, the language that was carried
in the Patman Housing Act, and I believe it is reasonably sound.
There may be some quarrel, of course, about the base year you pick out.
But I would like to submit that for the record, Mr. Chairman, if you
do not mind, so that it will have proper attention when the bill gets
to the floor.
No. 3. I would like to submit to the attention of the committee what
I regard as a so-called decontrol formula that I do believe ought to
be written into the act. I t reads as follows:
Whenever the production of any article or commodity to w^hich this Act is
applicable equals or exceeds by volume, for any quarterly period, the production
of such article or commodity produced in the comparable quarter of the calendar
year 1941, as determined by the Department of Commerce, all prices, price controls, price ceilings, and all rules, regulations, orders, and directives relating to
such article or commodity, shall be fully and unconditionally removed not later
than 30 days from the date that the Department of Commerce has certified to
the Administrator that such volume has been produced. The Department of
Commerce shall, at the close of each regular quarterly period, make an immediate
and expeditious survey of production of all goods and commodities to which this
Act is applicable, and certify to the Administrator forthwith the volume of
production of such goods and articles, and whether the production thereof equals
or exceeds the production of such goods or commodities for the comparable
quarter of the calendar year 1941.
Now, I recognize, of course, that that is subject to modification.
You could put it on a monthly basis rather than quarterly basis, but
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
I do believe it spells out a design for a statutory decontrol formula that
is based upon production rather than upon supply and demand. If
you are going to condition it on supply and demand, obviously the
more goods that are exported from the country, the more this disparity or this unbalance develops, and the only thing I can see as a
proper predicate or proper basis for a decontrol formula would be on
the basis of production as compared with some anterior year.
Now, Mr. Chairman, amendment No. 4 deals with the progressive
liquidation of the Office of Price Administration. I t has been my
experience over a long period of years on the House Appropriations
Committee, that when you get up to the point where you are going
to liquidate an agency, you suddenly find yourself up against the
termination date, with the agency and all its facilities intact, and when
that time comes, obviously you have real difficulty in bringing to a
termination its functions.
In the case of the Office of Price Administration the last word we
had before the Appropriations Committee recently, in connection with
an urgent deficiency appropriation bill, was that with the urgent
deficiency that we allowed, and it passed the House yesterday afternoon, that they will have approximately 33,000 people on the pay roll.
If you continue the agency and you get up to June 30, 1947, or any
other date that the committee and the House finally determine, here
is a huge agency, and it is not so easy to liquidate them overnight. So
here is the language, Mr. Chairman, I propose for progressive liquidation :
I t will be an addition to section 2, paragraph O.
It shall be the duty of the Administrator to gradually eliminate all prices and
price controls upon all goods and commodities, to which this Act is applicable,
and to liquidate all functions and duties exercised by the Office of Price Administration so as to bring about the complete termination of such prices, price ceilings,
and controls, not later than June 30, 1947.
The Administrator shall submit to Congress within 15 days after the elapse
of each calendar month, during the effective period of this Act, a complete and
detailed report, setting forth the progress made in pursuance of this subsection,
the specific items on which prices, price ceilings and controls have been terminated, and the reduction in personnel as a result of such termination.
And, with the indulgence of the committee, I would like to have that
inserted in the hearings.
The C H A I R M A N . Without objection, that may be inserted.
Mr. D I R K S E N . The next amendment deals with unemployment estimates.
I t is rather interesting that the Department of Labor, the Stabilizer,
and the Administrator of Price Controls made such a glaring error
in their estimates of unemployment as of now, and even in an anterior
date, and subsequent date. And it was on the basis of those mistaken
estimates that of course, we followed the wrong line. Now, in my
judgment, it is not the business of the Administrator of the Office of
Price Administration to get out any unemployment statistics and if
it is, I think they ought to be broken down so that they are intelligible,
and that we might know what the method of computation is.
So I would suggest, Mr. Chairman, as an addition to section 2,
paragraph P, this language:
The Administrator is expressly prohibited from publishing, releasing, or issuing
any estimates of unemployment, unless such estimates specify each of the industrial areas of the United States, the number of persons estimated to be
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4
2
unemployed in each such area, and the method by which such estimates or
computations were prepared, and the exact date thereof.
The next proposal, Mr. Chairman, relates to court review. The
committee probably knows that I had something to do with a court
review amendment on other occasions. I t was adopted by the House
and was deleted in the Senate, and was left out of the bill in conference.
I would go further, I think, in the matter of court review than I did
heretofore. I would strike out all of section 204 of existing law, and
would substitute the following language:
Any person who is aggrieved by any action taken pursuant to any regulation or
order issued under the authority of this Act may petition the district court of
the district in which he resides or has his place of business for a review of such
action, and such district court shall have jurisdiction to enjoin or set aside in
whole or in part such action or dismiss the petition.
That is the exact language of the Patman housing bill with the
exception of the last sentence, as it relates to court review.
Now, I would add, in the matter of enforcement, still another item
to section 204, which would read somewhat as follows:
The Administrator shall take no action in law or equity against any person
alleged to have violated any of the provisions of this Act unless the Administrator
or any person designated by him shall have first confronted the person so charged
with a full and complete statement of all facts and figures relating to such alleged
violation, and an administrative determination has been made as to whether the
alleged violation did occur and was willful, and whether the nature and degree
of such alleged violation was such as to reasonably warrant legal or equitable
action.
Mr. Chairman, if you will indulge me for just a moment, I will
give you the background and the basis for that provision.
I do not know whether you are familiar with a speech that was made
by the Honorable Scott Lucas, a Senator from Illinois, on the 26th
day of February 1946. But there he took probably 40 or 50 minutes
to direct the Senate's attention to the fact that on November 26 a
directive had been issued by the Office of Price Administration, which
is truly one of the most astonishing things I have ever read.
I will only quote the salient portions of it, but, by way of testimony
to this memorandum, we were considering the deficiency appropriation
bill at that time in the subcommittee, and it had gone to the Senate.
The Senate cut the amount in two and reduced it from $1,854,000 to
$927,000.
When Senator Lucas' remarks appeared, Mr. Porter, the Administrator of the Office of Price Administration, was very properly apprehensive about that appropriation, and so on the 5th day of March
1946, he sent me a letter and I quote this sentence—it relates, of course,
to the remarks made by Senator Lucas
Upon reading his remarks in the Congressional Record, I was satisfied that
there was much justice in his criticism.
Now, with respect to this directive that was issued on November 26,
1945, just a few excerpts.
This, mind you, is a directive that went to all the field offices.
Prompt action must be taken on every report submitted from the field.
Treble damage, open-end complaints should be filed within 48 hours of the
investigation as indicated by our publicity.
The newspapers should be advised daily of the names of the defendants and
nature of the violations.
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EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The attorneys should prepare in mimeograph form complaints, a safe number
to reproduce the sum of the number of investigators, multiplied by 180.
Attorneys should postpone all conferences with violators until after the suit is
filed. Prior notice to retailers of the filing of the suit is not necessary and not
recommended.
I am reading from one of the directives of the Office of Price Administration dated November 26, 1945.
Now, to continue:
There is no need to rush into early adjustment of the case.
The basis for adjustment should be a certified self-audit, covering all categories
under Maximum Price Regulation 580 and Maximum Price Regulation 330, sold
by the retailer, during the period October 1 to 15, 1945, inclusive, for $1 or more.
This finding should then be projected for a 12-month period from May 15, 1945,
for Maximum Price Regulation 580.
That is the basis upon which, without legal action, they undertake
to assess the damage that was done by a retailer.
Settlement may be made for this amount, that is, single damages, but the
case may not be settled for less than single without prior approval of the regional
office.
Please note, no cases may be settled by office conferences.
Suits must be filed in each instance.
Since our drive can reach only a minute proportion of retailers subject to
Maximum Price Regulation 330 and Maximum Price Regulation 580, our prime
purpose is to file a great number of lawsuits, so that the attendant publicity
will effectually strengthen future compliance.
That is just a portion of this directive that was issued on November
26,1945.
I t seems to me it becomes our responsibility, then, to protect the
citizens of this country by a proper review, and by proper restrictions
written in the statute itself.
And so that accounts, then, for the last portion of this suggested
amendment, with respect to violations and whether or not an American citizen shall have a decent show for his money before he is called
into court.
Now, Mr. Chairman, I have another amendment here that relates
to rents and reads as follows:
Any owner of real estate which is subject to price control, who claims that
the rental of the same, as the rent ceilings fixed by law, will not produce a
reasonable income upon the value of such real estate or the portion thereof
used in the production of such income, may petition the Administrator to adjust
the maximum rent ceiling applicable to his housing accommodation.
The Administrator shall investigate or cause to be investigated the facts with
respect to such situation, and shall give the petitioner an opportunity for a
hearing and for submission of evidence, and shall enter an order prescribing a
maximum rent ceiling for such housing accommodation, in an amount so as to
permit a gross rental which, after payment of taxes and other reasonable costs
of ownership, management, and operation, including depreciation and an allowance for vacancy, will provide a net return which is reasonable upon the value of
such property or so much thereof as may be used in the production of such income.
Those are, in the main, Mr. Chairman, the amendments that I propose to refine and offer on the floor, but I offer them here for the consideration of the committee, and then, in addition, there are two
other items to which I want to give some attention when the bill is up
for consideration.
One deals with the maximum average price and the other with a
prohibition upon cost absorption.
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
I came here only for the purpose of making the record this afternoon. So that I would not be foreclosed in court. I thank the committee for its indulgence.
Mr. CRAWFORD. Mr. Chairman.
The C H A I R M A N . Mr. Crawford.
Mr. CRAWFORD. Mr. Dirksen, this matter of the directive that was
referred to by the Senator, that was a directive issued by the Office of
Price Administration to the field personnel; is that right?
Mr. D I R K S E N . That is correct.
Mr. CRAWFORD. I have not seen that. Do you interpret that to
mean that the publicity and stigmatization against the private citizens,
carrying out the Office of Price Administration's directives, occurs
before the citizen knows what he is charged with ?
Mr. D I R K S E N . It speaks for itself, because it says: "Office conferences should in no case be held and are not recommended." In other
words, sue him first, and put the tag on him, and then perhaps talk to
him at some later period.
Mr. CRAWFORD. Have you carried that far enough to find out that
the private banking accounts in our commercial banks may also become
involved in that procedure ?
Mr. D I R K S E N . They probably could, if it is carried far enough.
Mr. CRAWFORD. I refer you to the Wisconsin case, wThich has appeared in the reports, where the courts have held that the Office of
Price Administration may force the bank officials to divulge to the
Office of Price Administration private banking account transactions
of the citizen before a case is filed against him. Before a case is filed,
I said, which is a further injection of this principle of dealing with the
citizen before he knows what he is charged with.
Mr. D I R K S E N . It is entirely possible. .
Mr. CRAWFORD. I understand that the attorney who handled the
case has applied to this committee, upon some two or three or more
occasions, for a chance to come here and inform us of what actually
happened. I do not know whether he is going to be heard or not.
But it affects every bank in the United States, probably a hundred
million dollars of deposits, and I think the committee should hear
the case, because I do not believe that we want the Office of Price
Administration to proceed thus.
Mr. D I R K S E N . I might add, Mr. Chairman, that this matter of enforcement has provoked so much interest out home that finally warrants were issued for two Office of Price Administration investigators
by the States attorney of Fulton County, which is in the congressional
district represented by the Honorable Eobert Chiperfield, and they
were finally released from jail on a habeas corpus proceeding and the
matter has stirred no end of controversy out there. It has become extremely interesting and quite a cause celebre. It has not been fully
adjudicated as yet, but I think Mr. Patman is familiar with what has
happened, because the local papers in Peoria carried the information
that possibly our distinguished colleague from Texas might come out
there and sit in on the case and get first-hand knowledge of what it
is all about.
Mr. P A T M A N . I did not say a word about it.
Mr. D I R K S E N . That is right. I am telling you only what has appeared out in the papers in Peoria.
83512—46—vol. 2
18
2
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. P A T M A N . They just sent me a wire and asked me if I would
come. I did not even answer the wire.
Mr. D I R K S E N . That is maybe correct.
Mr. CRAWFORD. What is your amendment No. 3 ?
Mr. D I R K S E N . That is the decontrol formula.
Mr. CRAWFORD. Are you familiar with the decontrol formula which
appears in the House Committee on Postwar Economic Policy and
Planning report ?
Mr. D I R K S E N . I have not examined it.
Mr. CRAWFORD. It was presented this morning. I wish you would
take the time to read their formula and compare it with yours before
your amendment is offered on the floor.
Mr. D I R K S E N . I have no pride of authorship about it. I t is just a
case of developing something that is workable and feasible.
Mr. CRAWFORD. That is all I am interested in.
M r . DIRKSEN.
Yes.
Mr. Chairman, will you indulge me just 1 minute more?
T h e CHAIRMAN.
Yes.
Mr. D I R K S E N . In connection with court review, I want to read into
the record what Justice Roberts said in his dissenting opinion in the
Jakas case in the October term, 1943, Supreme Court of the United
States. Probably the committee is familiar with it, but I would like
to have it appear as a part of my remarks, and I am reading now from
the dissenting opinion of Justice Roberts, page 458:
When these cumulative burdens placed upon the protestant who seeks review
are fairly appraised, it becomes apparent that he must carry an insupportable
load, and that, in truth, the court review is a solemn farce in which the Emergency Court of Appeals, and this court, on certiorari, must go through a series
of motions which look like judicial review, but, in fact, are nothing but a catalog
of reasons why, under the scheme of the act, the courts are unable to say that the
Administrator has exceeded the discretion vested in him.
^There is a great jurist who calls it a "solemn farce," and it becomes
the responsibility, I think, of the legislative branch to see that that sort
of business is not perpetuated and does not continue any longer to the
prejudice of the people who are trying to reconvert this country to a
peacetime basis and to try to get production started.
I thank you, Mr. Chairman.
Mr. FOLGER. Mr. Dirksen, Mr. Crawford called your attention to the
report of the Committee on Postwar Planning. That is report No. 9.
Mr. D I R K S E N . I shall be very happy to examine it.
The C H A I R M A N . Thank you.
The Clerk will call the next witness.
The C L E R K . Mr. Yoorhis of California.
STATEMENT OF HON. JERRY VOORHIS, REPRESENTATIVE FROM
THE STATE OF CALIFORNIA
Mr. VOORHIS. Mr. Chairman and gentlemen of the committee, there
are several other Members of Congress waiting to testify, and for
that reason I am going to ask the committee's permission to place in
the record the entire statement I had hoped to make, and shorten it up
very substantially, if you do not mind.
I would like to ask permission, in connection with my statement, to
include in the record three charts. Is that permissible?
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4
2
The C H A I R M A N . Very well. You may put them in the record. If
we can get them printed, we will do so.
Mr. VOORHIS. Thank you. If it is possible.
Mr. K I L B U R N . We have to have cuts made of those charts.
Mr. VOORHIS. I S that an insurmountable difficulty ?
Mr. SUNDSTROM. We have turned down quite a few so far.
The C H A I R M A N . I do not know what type of charts they are.
Mr. VOORHIS. If you want to turn me down, I would like you to
turn me down right now, so I can save my breath.
The C H A I R M A N . We will see if we can do it, and we will let you
know.
Mr. VOORHIS. Mr. Chairman, the things that I want to say have to
do with general policy.
I am a member of the Committee on Postwar Policy and Planning,
but, as such, I have not been consulted on the exact form of the amendments they propose. I do believe, however, that their general approach to the problem was pretty sound.
At the present time we have, in this country, about 180 billion dollars of deferred buying power. That is, bank deposits adjusted, plus
cash in circulation outside banks, and does not even include bonds.
This should tell us two things: first, that it is necessary that we
continue price control for otherwise the pressure of this money would
force a tremendous inflation.
But the second thing it should tell us is that price control must be
sufficiently flexible to permit two things to take place:
First, the achievement of absolutely maximum production, and,
second, the making possible of a gradual adjustment of price, wage, and
salary levels to the monetary situation.
Such an adjustment will have to come sooner or later, for, as we
produce new goods, that production will itself generate almost enough
buying power—no, not quite enough—it takes those goods off the
market and this deferred buying power has to be absorbed some time.
I t should be brought about gradually rather than allowed to take
place by sudden convulsion. This means prices cannot be set successfully by mere reference to the past but must be set by realistic appraisal of the situation as it exists now.
There should be provision for decontrol, in my judgment, in the
bill. That is for a removal of price ceilings at the point where production has been increased to a level high enough to, itself, be a preventative of inflation. In monopolistic industries this will not work
successfully and continuance of price control is more necessary than
in other fields, but there should be an element of reward to those^ industries and those lines of agriculture where production is brought up
to a point representing, let us say, a certain percent of production in
excess of that achieved in 1941 or some other year, or else to a volume
which can be expected to reasonably satisfy the demand.
As I have said, we have in this country about 180 billion dollars of
adjusted bank deposits plus money in circulation outside banks. This
does not even include the large body of savings and war bonds. I t
represents three times as much money per capita as we had in 1929, and
even at a somewhat higher price level would make possible the purchase of mote than double the amount of goods that our pepole purchased in 1929.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
America has a tremendous opportunity, if we pursue wise policies,
to enjoy sustained full employment and full production for an indefinite period of time. To do so will require:
First, the continuance, for a period, of price control.
Second, the realistic application of price control with sufficient
flexibility to bring about maximum production;
Third, the gradual upward adjustment of the incomes of the people
and the gradual upward adjustment of some prices to make possible
legitimate profitable operation. It will require a continuance of a
sound, courageous tax policy; it will require certain changes in our
monetary system, in order to render it unnecessary, in the future, for
our nation to incur interest-bearing debt in order to maintain a steady
volume of purchasing power in circulation, to ward off depression,
deflation, and unemployment at any time they might threaten.
I t is well to remember finally, Mr. Chairman, that the tremendous
debt structure of our Nation amounting to some $450,000,000,000—that
is, public and private, of course—makes it absolutely necessary that
we maintain a high level of national production and income. Any
tendency toward deflation anywhere along the line would be disastrous
under present circumstances.
Now, Mr. Chairman, if I can have permission to extend my remarks,
I will stop at that point.
The C H A I R M A N . Y O U may have that permission.
(The documents above referred to are as follows:)
TESTIMONY
OF CONGRESSMAN JERRY VOORHIS BEFORE B A N K I N G
C O M M I T T E E ON B I L L T O E X T E N D T H E O P A
AND
CURRENCY
FEAR OF INFLATION
There was a time when inflation could have been prevented. That time is past.
It was at the beginning of the war. Had we determined then to tax heavily
enough to pay for the war currently, we should have had no inflation problem.
But we didn't.
We failed to pay for even half the cost of the war out of taxes. The other
half we paid for in two ways. One way was by honest, true borrowing—the
borrowing of the savings of the people, the sale to the people for money they
possessed because they had earned and saved it, of Government bonds. This
accounted for about 58 percent of our present national debt. As such it represents potential buying power in the hands of the people over and above their
current earnings, which is and will remain inflationary buying power probably
for a long time. But at least this portion of the national debt increase had the
virtue of not increasing the amount of money in existence in the Nation. The
other 42 percent of our national debt hangs about the necks of the American
people for a very different reason. That amount—about $105,000,000,000 in all
is held by the banks, including $22,000,000,000 held by the Federal Reserve Banks.
These Government interest-bearing obligations were bought by the banks with
money they created on their books for the express purpose of using it to buy
the bonds. It cost the banks nothing to create this money except a little fountainpen ink. But because the banks have been and are allowed to usurp the essentially governmental power to create money—albeit in the form of demand deposits—they now have the American people $105 billion in debt to them. This
part of the debt never should have been debt at all. If any money was to be
created to help fight a war for national survival, it should have been done by
the Congress or an agency thereof, and without a cent of capital debt or interest
connected with it. But this was not done. Instead we inflated our currency—
inflated it to the amount of over $85 billion. We permitted the banks to create
that much new money and put the Nation that much in debt, to them for no service
rendered in return. We permitted this because we failed to tax enough to pay
for the war. No wonder then that average bank earnings for all national banks
in the year 1945 were almost 10 percent of all their capital funds—10 percent,
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
not of capital stock alone, but of capital stock plus surplus, plus undivided
profits.
No wonder either that inflation is not a danger but a present fact with which,
for a time at least, we have got to learn to live as best we can. We more than
•doubled the amount of money in existence in the United States of America from
1941 when we had $76,000,000,000 of cash and bank deposits to 1945 when we
had $163,000,000,000. Either this backlog of demand will never be spent or else
it will bring inflation when it is spent.
There are only two possible cures for inflation—taxes and production. A vast
increase in production can enable us to catch up with the inflation of our money
supply over a period of time. And courageous taxation now could partly make
up for our failure to prevent the inflation when we should have prevented it—
namely during the war. It could also help reduce the national debt.
There are three courses we can take. The first is to keep OPA and other
agencies of control forever in order to prevent price inflation from resulting
from the money inflation which has already taken place. Or we could tax all
or most of the deferred savings out of the hands of the banks and the people
and devote it to paying off a part of the debt which was caused by our failure to
tax before.
The first of these alternatives is so alien to American tradition that it must
be rejected, although I do not believe we can or should abolish OPA until supplies of goods have been increased to a level well above anything we had prewar.
The second, or taxation alternative, while economically unassailable is politically
quite impossible, though I hope for enough courage in Congress so that we will
at least not reduce further the net Government revenue.
The third alternative therefore is the one that we must take. It is a mixed
proposition. It requires the maintenance of high tax rates, but recognition
that that will not be enough. And then it requires a willingness to face courageously the necessity of gradually absorbing the inflationary pressure of
$163,000,000,000 of money seeking to be spent. It must be borne in mind that
this can never be done by means of current production at any prewar price
level. For current production will, itself, generates about 90 to 95 percent
enough buying power to purchase what is being currently produced. Theoretically current production generates enough buying power to afford a full
demand. In practice it always falls short. For prices include not only those
•costs which are distributed in wages, salaries, dividends and profits, but also
reserves and depreciation accounts, business taxes and other items that do
not get into the buying-power stream. But current production will generate
almost enough new buying power to buy all that is produced. So where are
the billions of deferred buying power or savings to find goods to buy—this year,
next year or any other time? Only if there is full production over a long perioc?
of time and only if we deliberately seek to bring production and money supply
gradually into line with one another can the inflationary pressure of these large
savings be controlled. So if we are not going to pass a law saying no one can
spend his savings at all, as I assume we are not going to do, we have to adjust
the incomes of the people of the Nation upward in line with the facts of the
present situation. And some prices, including a good many farm prices will
have to be allowed to rise somewhat also. In this process we must keep sufficient controls to prevent the movement from getting out of hand, but accept
it meanwhile not only as inevitable, but as a certain means of bringing about
the constantly expanding rate of production upon which our salvation mainly
depends. Incidentally, we shall by this process be reducing the real burden
of our huge debt by the amount of the reduction in the buying power of the
dollar which takes place. If I correctly understand it the recent price-wage
announcement of the President is along these general lines.
Most of our present difficulties are arising not alone because we are in a period
of adjustment and reconversion but also because of a lack of understanding of
certain of the fundamental, and I am afraid, irresistible economic forces which are
now at work. We cannot solve this problem by looking back at the years after
the First World War or even to the ones just before World War II. Since a
continuance of well-distributed high mass buying power must in this age of
superabundant production possibilities be the key to our economic policy, the %
first task is to make certain that the income levels of the people are sufficiently
high. From this point of view, wage increases become not a danger but rather
an economic necessity and the only question is whether increases of 15 to 18
percent are going to be enough. As a matter of fact those increases should for
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
the time being primarily be calculated to prevent any decline in the standard
of living of the people and even to make an allowance for a reasonable increase
in that standard. I think, however, that few people will question the fact that
wage and salary workers in America would altogether be willing to compromise
the issue on the basis of an approximate 20 percent increase in unit rates of
pay. Now having once arrived at a fair basis of what wages and salaries should
be, it becomes necessary to view the matter of prices from a realistic rather
than a theoretical point of view. Of course in many cases wage increases can be
granted without price increases. But it is self-evident that a fair price for any
product is that price which covers the cost of production and leaves a fair profit
for the producer whether he be a manufacturer, a farmer, or who he may be.
I believe that the workers of the country, as well as all other elements in the
population, believe that American business is entitled to a fair margin of profit.
Now there are a few facts regarding the relationships of production, prices
and money supply which must be borne in mind. Let us take money first.
In 1834 we had one-sixth of a billion dollars of cash money or its equivalent in
bank deposits in the United States. Today we have approximately 1,000 times
that much money plus bank deposits or $163,000,000,000. On a per capita basis
we have about 120 times as much. We have five times as much money (including
bank deposits) as we had at the end of World War I and almost three times as
much as we had at the top of the boom in 1929. It took our Nation 158 years
to build up a money supply of $78,000,0000,000 which we had at the end of 1941.
In the 3y 2 years which followed, that is up until July 1945, we added $85,000,000,000
more by the process of permitting the banks to create money which means that wTe
more than doubled the money supply of America between 1941 and 1945. Under
these circumstances it is idle to talk about wage and price l e v e l s in terms of
prewar figures. The figures I have just given should prove conclusively that
prices do not necessarily tend to increase anywhere nearly as fast as the supply
of money increases. In the 100 years from June of 1845 to June of 1945, the
money supply of America increased over 100 times per capita while wholesale
commodity prices only doubled. This of course was due to vast increases in
production. However, it is inconvertibly true that the volume of production
moves up and down in the same direction as the volume of money. Indeed the
graph line of production follows the money line either up or down as slavishly
as a shadow follows a man. Carefully prepared records show that changes in
the money line occur from two to six months before changes take place in the
level of production. The fact of the matter is that today we have a sufficient
money supply in America to buy even at the price levels that would probably
pertain on the basis of the policy I am advocating, approximately twice the volume
of goods that we bought in 1929. We ought not to be preventing farmers from
staying in business of producing essential food supplies for America because of
too inflexible a price policy. Neither ought we to prevent by the same means a
full production of manufactured commodities. Let me say once again that I am
f a r from advocating the abolition of the OPA. I shall vote, for its continuance
beyond June 30 of this year, but I believe a more realistic policy is absolutely
essential and I think the keynote of that policy must be that expanding production
is the all-important need of the Nation. All the factors are present today which
can make possible a tremendous production increase provided only we overcome
our fear of higher incomes for the people on the one hand and our fear of reasonable
and necessary price increases in cases where they are essential to bring about
production. Everyone knows that we cannot expect to support and pay interest
upon, let alone reduce our present staggering debt, unless we have high production
and high national income.
It is my firm belief and vigorous contention that many of the problems connected with labor disputes which we have faced could be readily solved if only
we would approach them from the standpoint of the policies which I am attempting to set forth in this speech.
To illustrate some of these points I ask consent to include with my remarks
three charts which should make clear the relationship between movements upward or downward in the volume of money of the country and movements upward
and downward in the volume of production. It will be observed on charts 7 and
8 that every time a sharp decline in the volume of production has taken place, it
has been preceded by decline in the volume of money in circulation. Correspondingly it will be observed that every time we have obtained an increase in
production it has been induced by an increase in the volume of money in circulation. By way of explanation the line numbered 2 on graph 7 and the line
-m
-140
-130
No.I- Total Pubic Money n Billions of Dotes
No. 2- Physical Volume of Production, 1926-30 Aver. VoUlOO
-120
No. 4-Population in Millions
No's I
2
83512 O - 46 - vol. 2 (Face p. 1256) No. 2
3
GRAPH NO. 8
money; prices, AND production
No. h Total Public Money in B&ans of Dolors
No 2-Wholesale Commodity Prices, B&o Prices;
No 3- PfysrccTVofurne of Protection 18&H501 &
No 4-Industrial Production (Ptiys. Vbii Wfafrm, A
Na5\Popuiation m Mi&orts
j•
©AVRees
83512 O - 46 - vol. 2 (Face p. 1256) No. 3
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
numbered 3 on graph 8 are the same line to represent the physical volume of
production. Line 3 on graph 7 and line 4 on graph 8 are again the same line
representing in this instance industrial production only. In both instances the
correspondence in movements of these two lines with the movements of the money
line will be observed to be very close and intimate. On graph 8 is charted the
movement of wholesale commodity prices over a long period of time, with the
year 1926 taken as a 100 points.
These graphs were prepared by Mr. A. W. Rees, of Piedmont, California, and
I wish to acknowledge also my indebtedness to him for the studies he has made
of this question and the opportunity he has given me to go over his scholarly
work in preparing this testimony.
It will be observed that although our money supply has vastly increased
through the years as I have already stated, commodity prices have remained
fairly constant, a general dowmward trend having pertained to about the turn
of the century and thereafter a general upward trend. Changes in commodity
prices, however, have been nowhere near as great over periods of time as has
the increase in money supply. The reason for this of course is that increased
production has gone along with increases in the supply of money.
It is a fact that at present we have about $180,000,000,000 of deferred buying
power available in the country. This should tell us two things. First that it
is necessary that we continue price control for otherwise the pressure of this
money would force a tremendous inflation, but the second thing it should tell us
is that price control must be sufficiently flexible to permit two things to take
place. First, the achievement of absolutely maximum production and second
the making possible of a gradual adjustment of price, wage and salary levels to
the monetary situation. Such an adjustment will have to come sooner or later.
I t should be brought about gradually rather than allowed to take place by a
sudden convulsion. This means that prices cannot be set successfully by a mere
reference to the past, but must be set by realistic appraisal of the situation as it
exists today. There should be provisions for decontrol—that is for the removal
of price ceilings at the point where production has been increased to a level high
enough to itself be a preventive of inflation. In monopolistic industries this will
not work successfully and continuance of price control is more necessary than
in other fields, but there should be an element of reward to those industries and
especially those lines of agriculture where production is brought up to a point
representing, let us say a certain percent of production in excess of that achieved
in 1941 or else to a volume of production which can be expected to reasonably
satisfy the demand.
As I have said we have in this country about 180 million dollars of adjusted
bank deposits plus money in circulation outside banks. This does not even
include the large body of savings in war bonds. This represents three times
as much money per capita as we had in 1929 and even at a somewhat higher
price level would make possible the purchase of more than double the amount
of goods that our people purchased in 1929. Hence America has a tremendous
opportunity if we pursue wise policies to enjoy sustained full employment
and full production for an indefinite period of time. To do so will require
the continuance for a period of price control. I t will require the realistic application of price control with sufficient flexibility to bring about maximum
production. It will require the gradual upward adjustment of the incomes
of the people and the gradual upward adjustment of some prices to make
possible legitimate profitable operation. It will require a continuance of a
sound and courageous -tax policy. It will require certain changes in our
monetary system in order to render it unnecessary in the future for our Nation
to incur interest-bearing debt in order to maintain a steady volume of purchasing power in circulation and in order to ward off depression, deflation and
unemployment at any time that they might threaten.
It is well to remember finally that the tremendous debt structure of our
Nation amounting to some $450,000,000,000 makes it absolutely necessary that we
maintain a high level of national production ^nd income. Any tendency toward
deflation anywhere along the line would be disastrous under present circumstances.
Mr. KILBTJRN. I was wondering if, before you prepared that, if
you knew of the testimony that we have had before the committee
here from industry after industry which has shown that under the
Office of Price Administration their production is continually going
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
down. For example, sawmills are closing. One man who was running 75 is only running 26 now; another man who had 7,000, now
has two. These people, according to the impression I got, said that
as long as the Office of Price Administration continued, the production would go down.
Mr. VOORHIS. Well, I do not believe that. Now
Mr. K I L B U R N . In some lines.
Mr. VOORHIS. I will answer it this way: Of course, I have not been
here in the committee. I wish I could have been. But I have gotten
a lot of that same testimony in my mail. My belief is this: As I say
in my statement, I think it is absolutely essential that the principle
that the Office of Price Administration should now follow is the
principle of the encouragement of maximum production. I believe
during the war you had a draft on production caused by the necessity
of war demand, caused by all sorts of controls to get the production,
which you do not have now in peacetime, and I think today therefore
there is a somewhat different situation, and I think that should be the
cardinal principle pursued.
I wrote a letter not long ago myself to the Administrator of the
Office of Price Administration and suggested a review of prices in
all building material fields in order to be sure that those prices were
such as to bring about the increased production we have got to have.
But I believe, myself, that we have to be a little careful about this
sort of tendency, and I am afraid it exists. I think that there are
in some places tendencies on the part of producers who would like
very much to be out from under price control, to paint as black a picture as possible, and possibly, in some instances, even to hold back
production in the thought that it may influences the action of Congress, and I think that you have got to remember that.
Now, then, where a price can be shown to be uneconomic, I think it
ought to be changed, in the interests of getting production. I am
very strong for that, and I believe it is true. But I do not think
we can always just take the anti testimony at full face value. I think
we have to have a few grains of salt around to take with it.
Mr. K I L B U R N . D O you think that price controls should be removed
if supply is equal to demand?
Mr. VOORHIS. Yes, I do. In fact, I offered an amendment to the
bill a year ago which said that that policy should be the policy that
should be pursued by the Office of Price Administration. Now, I
recognize it is a complex problem that is involved in trying to apply
that, and I am somewhat impressed by the argument of some of the
staff of our Committee on Postwar Economic Policy and Planning
to the effect that that is not a definite enough criterion, that it would
be difficut to apply, and perhaps to apply the criterion of a certain
high percentage, let us say, above a hundred percent of production in
some past year, might be better. I do not know exactly how to do
it. I do agree with that principle, and I think that it will maybe
operate to say to these industries, "All right; if you do not like price
control, let us see you get your production up to the point where you
can legitimately ask for the removal in your case." In other words,
you offer an actual inducement for increased production under those
circumstances.
Mr. CRAWFORD. Mr. Chairman.
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
The C H A I R M A N . Mr. Crawford.
Mr. CRAWFORD. Mr. Voorhis, suppose I am operating a plant and
every unit I turn out costs me money as related to my capital structure, that is, no profit on the operation. You say to me in substance,
"Now, Crawford, you go ahead and go broke quickly by pushing up
your production to demonstrate to me that you want to reach the full
equality of supply with demand, and then we will take off controls."
That is what you just advocated.
Mr. VOORHIS. If the gentleman will pardon me; he did not listen
to my statement at all.
Mr. CRAWFORD. Yes; I did; because you did not take into your
statement the conception that a man may be running at a loss.
Mr. VOORHIS. I certainly djid. I do not like to contradict the
gentleman.
Mr. CRAWFORD. I will stand on the record. I wish you would make
it clear.
Mr. VOORHIS. May I say to the gentleman from Michigan that the
whole purpose of my coming up here this morning was to appeal for
a realistic policy with regard to price control, and if he cares to completely twist my testimony aroundMr. CRAWFORD. I do not want to twist it.
Mr. VOORHIS. It is his; privilege to do it.
Mr. CRAWFORD. I do not want to twist it at all, and you did not have
the right to make that statement. You stood here and argued for a
sensible approach.
M r . VOORHIS. I
did.
Mr. CRAWFORD. I agreed with you that far. Then, you told the
gentleman that you did not believe the statements these producers
had made to the committee.
Mr. VOORHIS. I did not make as raw a statement as that, Mr. Crawford. I said that I believed I had heard the same statements, that I
believed there were many instances where prices needed adjustment,
and should be adjusted; that I had asked for a review of all prices
in the building material field with that very thing in view, that I
did not think the committee should expect to take its action only on
the basis of the unilateral testimony of the people whose businesses
are involved. I think 3^011 have to go behind that in some instances.
Mr. CRAWFORD. I am talking about the fellow who is running at a
loss.
Mr. VOORHIS. I do not think he should have run at a loss.
Mr. CRAWFORD. And who says, "Unless I get relief I must close
down." You came back with the proposition that industry be told
to get their production up high so controls could be removed. How
is he going to get his production up high if he is running at a loss %
Mr. VOORHIS. Obviously, he cannot.
Mr. CRAWFORD. That is the only point I make.
Mr. VOORHIS. Obviously, he cannot.
Mr. CRAWFORD. Perhaps we agree.
Mr. VOORHIS. I do not think he should be asked to, and in instances
of that kind I think there should be a price adjustment. But the
question I was asked when I made that statement was whether or not
I believed there should be provision for the removal of price ceilings
when production approached demand, and got up to the point where
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
supply was equal to demand, and I answered that question by saying
that I did believe in that principle, had offered it myself as an amendment to the bill a year ago, but that I had been impressed by some
of the arguments that it was a difficult criterion to apply, and that
maybe a sharper criterion might be needed, and that I thought it would
be a healthy thing to say to the industry—and when I said this, I had
no reference to the particular relationship of prices to cost—I thought
it would be a healthy thing to say to industry that if production was
increased to such and such a point, controls would be lifted, because
I believed it would be an inducement to increase production. Which
I think it the main answer to most of our problems.
Mr. CRAWFORD. But you want them to be allowed cost to bring that
production, too; is that it ?
M r . VOORHIS. I
do.
Mr. CRAWFORD. That is all. Thank you.
Mr. FOLGER. Mr. Chairman, I have to leave. I would like to be
excused, and would like you to explain to these other gentlemen that
I have to go.
The C H A I R M A N . Thank you, Mr. Voorhis. If there is anything you
desire to insert in the record, you may do so.
Mr. VOORHIS. Thank you very much.
The C H A I R M A N . The clerk will call the next witness.
The C L E R K . Mr. White, of Idaho.
(No response.)
The C L E R K . Mr. Murray, of Wisconsin.
(No response.)
The C L E R K . Mr. Mundt, of South Dakota.
(No response.)
The C L E R K . Mr. Quinn, of New York.
STATEMENT OF HON. PETER A. QUINN, REPRESENTATIVE PROM
THE STATE OP NEW YORK
Mr. Q U I N N . Mr. Chairman and mem of the committee, I came in to
tell you what a marvelous day it is out and to say two things besides:
I have never been able to understand if, by keeping the Office of
Price Administration, we can bring production up to consumption,
why, in the name of heaven, we should ever want to give up the Office
of Price Administration, because that is the toughest thing in the
world to do. If we can do it under present conditions, then, there are
no conditions that we ought not to face by managing prices.
The second thing I would like to put in the record is that so far as
I have been able to read, or hear testimony about here, our wisdom on
this subject, especially from the proponents of price control, starts
largely with current events, and promises of men who pretend that they
can come on, after no experience in the field, from Louisville, new to
the situation, build up a new organization from scratch, and expedite
the expediter, who cannot expedite the prices that we need in order to
get moving, after a good many years of experience. Now, as a farmer
and a lumberman, I find it totally impossible to figure out what the
price of lumber should be now, although I am in that business, because
nobody can tell what price should be offered to labor to induce them
to come from other factories and from other businesses to do the lum-
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
ber business, to cut lumber. The Office of Price Administration price
is now 66 cents an hour. Industrial prices are $1.10 or $1.20. We do
not know what we are going to have to pay in order to get double
production, or production and a half to meet the market. No man can
be wise enough to predict what that price must be. No man sitting in
Washington can tell. Not even those in the industry can tell, until
they have a chance to work it out, and whatever the price is, that must
be the price, in order to get lumber moving.
Thank you very much.
The C H A I R M A N . Call the next witness, Mr. Clerk.
The C L E R K . Mr. Miller from Nebraska,
STATEMENT OF HON. A. L. MILLER, REPRESENTATIVE PROM THE
STATE OP NEBRASKA
Mr. M I L L E R . Mr. Chairman, members o fthe committee, I appreciate the opportunity of appearing here briefly to discuss some phases
of the Office of Price Administration.
I have a prepared statement that will take me about 4 or 5 minutes
to read, and then I will make some remarks for 2 or 3 minutes, if you
will indulge me that long.
It seems, Mr. Chairman, that the price ceilings as presently operated will follow the spark plugs of recovery.
Price ceilings and the control which controls profits, tamper with
the very mainsprings of our economy. An unreasonable lid on
prices will dry up production; jobs will disappear.
The incentive to produce will be gone.
True, free competition is the hallmark of our free-enterprise system
and this cannot be attained under Government regulations, which
eliminate competition. Rigid price control which denies profit, places
upon industry a harness of tyranny and causes stagnation with economic atrophy.
Manufacturers by the thousands have been trying to find out through
the Office of Price Administration what are the legal ceiling prices
for articles they want to manufacture. These factories have the
materials, the labor, and know-how. But the Office of Price Administration, by keeping a tight lid on these prices, prevents them from
soliciting sales or going to work, and thus nullifies the entire program
of reconversion.
They can put business into economic oblivion.
Business should not be forced to come to Washington and stand,
hat in hand, before some bureaucrat, begging for a price which will
permit him to supply a hungry public with desired products. How
can industry be expected to provide millions of jobs if, through rigid
price ceilings and controls by the Office of Price Administration, they
are denied a reasonable profit?
John Q. Public has one-hundred-and-forty-odd-billion dollars in his
pocket and he is anxious to buy everything from hairpins to helicopters.
Price means nothing unless there is something to buy. If you are
hungry and have money in your pocket, you will pay a dollar for a
doughnut to satisfy your hunger. Price is everything. I t is the
instrument for getting things done, agreed on between parties to a
transaction, the employer, the employee, the seller, the buyer, the producer, the customer. I t keeps production flowing.
1225
EXTEND PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The Office of Price Administration regulates prices on more than
8,000,000 separate items, by their own testimony. The record shows
it is taking the Office of Price Administration several months to establish what they call proper ceilings on new items. Government never
moves quickly. The individual with his own money invested needs
a quick decision.
Democracy is a system of production, if you please. The Office
of Price Administration, by refusing to give proper consideration to
the increased cost of material and labor, is following a destructive
delaying policy which will cause unemployment, which may reach a
high point.
This brings on scarcity, black markets, and inflation. Red tape and
regimentation get tangled up in their own feet.
Democracy is direct, voluntary employment of the individual, by
the individual, and for the individual. We should not let democracy
slip overboard on the icy decks of price freezing and work freezing.
If you do not have freedom to negotiate prices and wages, there may
be no transactions.
Chester Bowles, as Administrator of the Office of Price Administration, recently, when he was Administrator, testified before this
committee, I think some time last year.
We must maintain every bit of tight controls in the f u t u r e on all portions of the
cost of living. The Office of Price Administration is insisting on tight price
controls on all things. We have an interest in profits when a price increase is
requested. This, in effect, is a simple statement of our objectives in the coming
year.
NOWt, let us take a look at what tight control of prices will clo. In
this reconversion period, the Office of Price Administration should
limit their activities to the necessary items of cost of living. They
must permit industry the same margin of profit over production costs
as they had before going into war work. Clipping the dollar's power
and freedom to buy with a price ceiling, clipping the dollar's right
to be earned with a wage ceiling, and clipping the dollar's right to be
negotiated or used at all, even with a ration card, are not a postwar
expedient nor an efficiency recourse, nor an improvement for any
purpose.
Rigid price fixing places a stranglehold upon industry. Price controls must be framed and administered in the light of how it will
stimulate production and employment and not with a view of their
perpetuation. Unless this is done, many little fellows will close their
factories and go fishing. Establish a permanent Office of Price
Administration and the bureaucrats will blueprint and regiment the
citizen and make him do a physical, mental, and ritualistic goosestep,
with the tune being played in Washington.
Now, you have submitted the number of prices they are trying to
control. Eight million-odd was the last number that I had. Recently they have taken off price ceilings upon bird cages, teething
rings, manhole covers, but I believe they still continue price ceilings
on hula-hula pictures, because, in the register, Federal Register, of
September 13, 1945, you will find, on page 11711, a whole page of
ceilings on hula-hula girl pictures.
Now, I submit to this committee that that is a ridiculous situation.
That the Office of Price Administration should be trying to regulate
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
and control so many unnecessary items of living. Perhaps hula-hula
girl pictures are necessary some place, but, of course, not in the lives
of men that reach that age in life, at least, where they are not considered in this area.
Now, I would like to submit to this committee, and expect to offer
an amendment, if it is not offered, for the floor, and I want to do it
for the record now, an amendment which will, in effect, place the
rationing of sugar in the Agriculture Department. It is the only food
that presently is being rationed.
It is my opinion that all food should be placed in the Agriculture
Department. It is further my humble opinion that other necessary
items of living—and that does not include hula-hula girl pictures
Mr. P A T M A N . Y O U see, the Agricultural Department has no rationing machinery.
Mr. M I L L E R . Well, set them up.
Mr. P A T M A N . Well, you would have to set them up in 3,000 counties.
Mr. M I L L E R . Sugar rationing.
Mr. P A T M A N . Yes; you see, the Office of Price Administration only
administers it. They do not ration it. The Civilian Production Administration does that.
Mr. M I L L E R . I understand that perfectly. Yes, I understand that,
Mr. Patman.
Mr. P A T M A N . The point I am making, Doctor, is that you do not
want to require a different set-up.
Mr. M I L L E R . I want to get rid of the Office of Price Administration entirely and I want to place the power of rent control in the
Federal Housing Agency or with the States. In other words, so we
can get rid of 33,000 employees in the Office of Price Administration
now that are using the methods which, in many cases, are repulsive
to our people.
I just came back from Nebraska and talked with two merchants
who were running a little store. One of them told me that—he said.
Doctor, I am writing a letter today to the Office of Price Administration
to tell them to come and get me. My father was in business in this town for
30 years; I have been in business here 20 years; and under their present maximum price regulation order, or price absorption policy or mark-up policy on
women's wearing apparel, I cannot stay in business.
He said :
I think I am justified, by the matter of self-preservation, to go ahead and
sell these things as I was doing before the Office of Price Administration came
into the picture.
He said:
They are interfering with the way in which I do business, and I think that
is contrary to law.
Some of you Members may have to go out and bail this poor fellow
out of jail, because he is certainly going to do just that. He is not
going to close his doors and deny his family and patrons that come
to him the right to enjoy some things that he has to sell.
I hope this committee will give serious consideration to placing
those resptrictions on the Office of Price Administration which will
prevent them from interfering with the usual way of a man doing
business, before they came into the picture.
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
If the Office of Price Administration can bring on full production,
of course, it is only natural that when full production is reached, in
spite of the Office of Price Administration, that they will want to
continue it. There ought to be some machinery set up to bring their
operations on the economy of this country to an end. That concludes
my statement, Mr. Chairman.
The C H A I R M A N . Call the next witness.
The C L E R K . Mr. Lewis of Ohio.
STATEMENT OP HON. EARL R. LEWIS, REPRESENTATIVE PROM THE
STATE OP OHIO
Mr. L E W I S . Mr. Chairman, I appreciate this opportunity to appear
before you. I think that the sooner we can free the economy of this
country from Government control, the better off our people will be, and
the better our whole system of business and economic life will be.
There are, it seems to me, probably three basic commodities upon
which controls should be retained.
Those are food, clothing, and rents, until such time as these become
plentiful, and the law of supply and demand can be permitted to
operate.
There are a number of industries, in this country, that are of no
consequence in this whole picture of price controls. I have two of
them in my district. One is the pottery industry and the other is the
glassware industry. There is no reason that I can think of why we
should continue control over the prices of those industries or their
products.
Competition, within the industry, is such that we could immediately
life all price ceilings on those commodities without any danger of inflation or runaway prices at all.
Now, there are a number, of course, of other industries with which
this could be done. One of them is in my district, involving the
making of wax paper. That is an industry that competition will take
control of. The other is the making of caskets, burial caskets. There
is no reason in the world, it seems to me, why these controls should be
continued over those industries.
There is no possibility of inflation in the prices of either one of those
commodities any more in the case of wax paper than there is in the case
of glassware or pottery.
I am submitting this for your consideration, and I trust you will
give it consideration, because daily my mail is flooded with protests
from people in business who are doing their very best, but are hamstrung by these price controls, and by the regulations of the Office of
Price Administration that have no relationship at all to the thing that
the Office of Price Administration is set up to do. They simply constitute an irritation, a continuing irritation, that the people are demanding to be released from.
The C H A I R M A N . Call the next witness, Mr. Clerk.
The C L E R K . Mr. White of Idaho.
E X T E N D PxilCE CONTROL A N D S T A B I L I Z A T I O N ACTS OF 1 9 4 2
STATEMENT
OF HON.
COMPTON
THE
STATE
I. W H I T E ,
OP
1265
REPRESENTATIVE
OP
IDAHO
Mr. W H I T E . Mr. Chairman and members of the committee. As the
member from one of the greatest timber producing congressional
districts in the United States, I think that the First Congressional
District of Idaho stands preeminently in the production of timber,
particularly Government-owned timber.
In considering the matter of the Price Control Act and the Office
of Price Administration, I want to say to you. that I am unalterably in
favor of the Office of Price Administration.
Going back to the causes of the last depression, as a result of the
last war, the conditions then, when the war came on, and there was no
competition and no restraint on prices, we saw everything that the
basic industries used—and I might say that I have been engaged in
three great basic industries of the country; that is, agriculture, lumber,
and mining, have had first-hand experience in them—I saw, as a result
of the last war, I saw barbed wire go from $1.40 a roll to $6 a roll. I
saw wire used by the farmers go from $3.50 a bundle to $6.50 a bundle.
I saw lumber that was selling—No. 1 Common, White Pine—at
around $40 a thousand, go to $90 a thousand for only 6-inch or narrower
boards. If you wanted it wider, you had to buy more.
As a result of the last war, the greatest amount of money we had in
circulation was about 6% billion dollars. Today we have better than
$29,000,000,000 in circulation, besides credit. And if we do not hold
the line pretty soon our national economy will be out of adjustment.
You will find that it will be necessary for the utilities, the power companies, the telephone companies, the telegraph companies, and the
railroads, all will come in clamoring for increases in their rates, and
it will just be a spiral of increasing prices.
The laborers have been struggling to get their income up, and when
everything else goes up, they will be back for more. And there will
be no end to it. So, under these circumstances, I am absolutely in
favor of maintaining price controls. I t is the only salvation for this
country.
My purpose in coming before your committee this afternoon is to
suggest certain modifications in the price-control legislation, and I
would like to file with your committee, without taking the time of the
committee to read them, two letters, one addressed to Senator Gossett,
of which a copy has been sent to me, on lumber conditions and the
need for modifications of the rules applied by the Office of Price
Administration to the lumber industry, by one of the leading lumbermen of my State. I think the great warehousing company, and Mr.
Billings, their manager, represents one of the greatest concerns in the
lumber industry.
The other letter is from a county chairman who is active in business
in northern Idaho, Mr. Robert Do well. If I might insert these two
letters at this point in the record, I will appreciate it and I want to
close by saying that we must have protection in the form of price
controls in. this country, and I think, from all the communications
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
that have come to ray desk, that that is the sentiment of the majority
of the people of the United States.
Thank you.
The C H A I R M A N . Thank you. You may insert the letters at this
point.
(The letters above referred to are as follows:)
POTLATCH FORESTS,
INC.,
Lewiston, Idaho, March 1, 1946.
H o n . C H A R L E S C . GOSSETT,
United States Senate, Washington, D. C.
SENATOR : Complaining calls for helpful and constructive criticism and
this probably is as true of OPA matters as of any others. So I feel that I should
pass on to you some suggestions for widening the bottleneck through which OPA
is funneling the lumber production of the western pine area.
1. The act should require specifically that OPA established ceiling prices which
will permit at least 90 percent of the industry to recover the cost of production.
The refusal of OPA to permit more than 75 percent of the industry covered by a
ceiling price to break even or make a profit has resulted in a progressive elimination of operations which couldn't exist under the unrealistic ceilings. Production
has declined more than 25 percent since 1942 in the face of a continuing demand
for more lumber. This decline has resulted both from mills going completely
out of business and from decreased production of those remaining.
2. In determining the adequacy of ceiling prices, OPA should be required to
disregard the over-all profits of producers and to limit its consideration to the
particular ceiling under consideration. The policy of considering the over-all
profits from all products, including profits from products not under consideration
has resulted in an unnatural channeling of lumber into what are normally byproduct industries, and in many cases, has resulted in a discontinuance of
lumber production. OPA has already dropped this unrealistic policy as to some
industries. It is still being applied in the case of the lumber industry.
3. The act should require specifically that OPA consider the market value of
standing timber instead of its book value in analyzing costs to determine whether
price ceilings need to be changed. An operator who owns timber worth $7.50
per thousand is not encouraged to use that timber when he must sell the product
at a price based on a timber cost of $3.
Further, since cost reports are generally obtainable only from the larger
and better managed operations, many of whom acquired their timber many
years ago at low cost, the cost data used in determining price ceilings reflects
a much lower stumpage cost than a large percentage of the industry must currently pay. Those who buy their timber currently are thus discouraged from
starting to operate. Our company bought some of its timber over 40 years ago.
It is not fair to our competitors to use our book figures or costs in fixing lumber
ceilings if they have to pay current State of Idaho and United States Forest
Service prices for stumpage.
4. The act should be amended to require that OPA act on recommendations
of industry advisory committees within a specified time. The delay in granting
price relief when it is justified has resulted in substantial losses in production.
OPA is the outstanding exponent of "too little and too late." It should be required by law to act more promptly. Always remember that these OPA industry advisory committees are actually chosen and appointed by OPA and have official status. Why, then, not act promptly on their recommendations?
5. OPA should be required to base its price determinations on current costs
rather than on the costs of a past period, in many cases more than a year previous. In a period of rising costs, it is obvious that price ceiling determinations based on historic costs are not realistic. I commented at length on this in
my letter to the Portland OPA office, copy of which I sent you.
I much appreciate your interest in this thing, and I hope you have the time
and stamina to stay with it. It is an unholy mess.
Very truly yours,
DEAR
POTLATCH FORESTS,
Vice
INC.,
President.
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
BONNER
COUNTY
DEMOCRATIC
CENTRAL
COMMITTEE,
Priest River, Idaho, March 5, 1946.
H o n . COMPTON I . W H I T E ,
House Office Building, Washington, Z). 0.
I am writing you with regard to price relief for
western pine manufacturers which is seriously handicapping production of lumber in this area.
As you probably know the southern pine and the Pacific coast manufacturers
have very recently been given a price raise but to date nothing has been done
for the inland mills.
We here in Priest River are particularly interested in the operation of the
E. C. Olson & Sons Lumber Co. which, when operating, employs about 150 men.
This operation was started in December 1932 and has operated continuously
since that time with only short shut-downs for necessary repairs, until last
December.
Their mill has been closed since that time and it is very doubtful if they will
be able to again resume operations unless substantial price relief is granted.
Mr. E. C. Olson, together with others from our Western States plan on being
in Washington, D. C., next week with a view of discussing their problems with
their Representatives in Congress. Any assistance you can offer him will be
very much appreciated by me and all the people of this vicinity.
Thank you very much for your kind attention to this matter and with very
best personal wishes.
Yours sincerely,
ROBERT E . Dow, Chairman.
DEAR CONGRESSMAN W H I T E :
The
CLERK.
Mr. Murray of Wisconsin.
STATEMENT OF HON. REID F. MURRAY, REPRESENTATIVE FROM
THE STATE OP WISCONSIN
Mr. MURRAY. Mr. Chairman, there are just a couple of points
I would like to bring out before this distinguished committee. First
of all, I would not waste your time if I thought agricultural products
were going to be removed from under the Office of Price Administration and centered in the hands of the Secretary of Agriculture.
It seems that there is a general feeling that that should be done at
this time, but in case it is not done, I hope that the Office of Price
Administration at least will follow the law in connection with agriculture, which, in my opinion, they have not been doing in the past.
I t is easy to sit and listen to people talk about the Office of Price
Administration, the letters they get about it, and I notice they all
believe it except when it affects them, and then they do not seem to be
so much in favor of it.' In general, that is the nice thing. It is nice
to have the Lawyers Guild give Chester Bowles a banquet and have
everybody come there to throw the five bucks in the plate who want to,
and the man who produced the food for the banquet probably did not
get 50 cents for it.
The time is coming when, if people of this country want to eat, they
had better begin doing some thinking about it, because we are headed
on the downgrade in the production of all food products at this time.
That is reflected in the 30 percent decrease in evaporated milk, 30 percent decrease in butter of a year ago, and a 15 percent decrease as of
today in the production of cheese.
I have been, within the last few days, out in my own State, which
produces over an eighth of the milk of the Nation, and somebody
83512—46—vol. 2
19
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E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
should be doing something about some of these things if they expect
to have food not only to feed the rest of the world, but to feed the
American people.
I presume that if this were put under the Secretary of Agriculture
that many of these inequities could be corrected, so that there would
not be the present attitude which exists at the present time.
There is one more point I would like to take up, and that is in connection with whether the Office of Price Administration has the
authority to go into a bank and take the books of anyone they want
to, and look at the books. Maybe the Banking and Currency Committee intended it to be that way when they passed the original legislation. I do not know. I do not think that they many Members of
Congress thought that they were delegating that power to any one
agency. That is causing a disturbance, where some little fellow is
accused of some violation of the Office of Price Administration regulations—and another thing I cannot understand is how they have so
much time to pick out some small fry and put him on the pan and let
the big fry get away with the things with which they do get away.
But that is an important phase in my particular district, this matter
of going into banks and asking to see so and so's account during all
these years. If that is the law, it is all right, and I do not wTant to
protect anybody who is doing something he should not do, but I think
it is something I would like to have cleared up before I have to vote
either for or against the Office of Price Administration again.
Getting back to the food business for just a minute, I would like
someone in the Office of Price Administration, or anyone who wants
to apologize for them, tel me what sense there has been in keeping
as many products as they have under control. I would like to start
out by asking them why we have any price control in the poultry
industry, when poultry has been selling far below cost of production
for 6 months, and all it has done is to give the man who sold it to the
consumer a chance to ask more by telling him that the Office of Price
Administration price is so and so, inferring that he had to charge
wThat the Office of Price Administration ceiling was. That has been
going on for 6 months. Poultry in my country is bringing 15 cents
a pound and it is probably the same all through the Midwest, 15 to 22
cents for heavy hens, and I do not know any reason why they had to
have price control on that, or any other article that is in abundance.
I t just seems that there is more interest in control for control's sake
than there is in producing food for people to eat.
That is about all I wish to say at this time, because I just have a
feeling that this food matter is going to be transferred over to one
man, so that at least we will know which way we are going, and in
what direction the people must go, because if not, we are getting to a
point where it is serious. During the war we could wave the flag,
but now they wave the dollar bill, and there are many things in the
picture there that were not there during the war. I am not a calamity
hollerer and I am not trying to foretell the future, but I know there
is an emergency committee down in the White House trying to divide
up something we do not have, trying to divide up a scarcity and we
just do not have the stock pile in this country now to give any country
any great amount of food. I think every one of us, every real American wants President Truman to be able to fulfill the commitment he
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
made at Potsdam as far as food is concerned, and I think it can be
done, I think the facilities are here to do it, and if it is not done, it is
just going to be the result of bad administration on our part in not
seeing that these different agencies play ball together and have an
adequate amount of food produced in this country.
I realize that at the present time they have to tell Poland, and
country after country, that we cannot fulfill our commitments. That
should not have been necessary. We could have had the stock pile
to do it, and it would have been done, if it had not been for certain
governmental agencies taking the attitude they did, and I am sure
that the Office of Price Administration must take its share of the
credit or discredit for not being able to perform that feat. That is
all, Mr. Chairman.
Mr. K I L B U R N . Mr. Murray, I would like to get your opinion as to
whether or not you think the Office of Price Administration could ever
set prices on dairy products, which would be fair in view of the very
intricate relationship between products. Butter, for instance, is way
out of line. Do you think they can ever do that ?
Mr. M U R R A Y . The Pace committee just got out a report, made an
exhaustive study on the matter, and I might say that that was probably more or less the Agriculture Department rather than the Office
of Price Administration, but there is at the present time the right
relationship, I say that, regardless of all the talk you have heard to
the contrary, the relation of butter to powder, skim, cheese, evaporated milk, the relationship within the last year has been just about
as near as you can get it.
Mr. K I L B U R N . Why cannot you get butter, then ?
Mr. MURRAY. The reason you cannot get butter is the same reason
why you cannot get natural cheese.
Mr. K I L B U R N . Y O U get milk.
Mr. M U R R A Y . Why can you not get evaporated milk in many places ?
Why do women in El Paso, within the last 3 weeks, stand 50 in line
at the grocery store trying to get milk for their babies? That is a
matter of maldistribution. That is not a matter of not having the
product. We have the product at this time, and I am sorry to see,
every week and every month, that we are on the downgrade and there
are certain things that are causing us to be on the downgrade when
we should be on the upgrade with the demand there is for dairy products at this time in this country, and all over the world. We should
have more labor instead of less—more production.
Mr. K I L B U R N . D O you think we are going on the downgrade in
dairy products because of price control ?
Mr. M U R R A Y . N O ; I do not think so. That is only one small part
of it. The confusion is more than anything else in connection with
it, and it is all mixed up with other things that enter into it. Now,
I know the chairman and several of these members were down to the
dairy meeting, and I sat there and listened to them that night. We
heard five of them, and they spent all their time making the Office
of Price Administration the whipping boy. That is not the answer
to it. I know what is in the back of their minds, because I was born
and raised with them. I know what they were really complaining
about. They just figured if someone can tell them in Washington for
5 years more how much they are going to get for milk, that maybe
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
they will tell them forever and maybe they will get a President who
will tell them that maybe they should have only half as much as they
think they should have, and that is what is causing them to make the
statements they made that night.
I have never had a letter, during all this war period—and I got one
out of every hundred, in the United States in my district—and I cannot recall one letter that I have ever had from milk producers who
wanted more money for their product.
Mr. K I L B U R N . Why is production going down ?
Mr. MURRAY. For many reasons. One of them is a matter that
the labor situation is getting worse every day. The second is that
they are not producing any machinery to raise the production with,
and as these feeds go into other—for example, down in your State,
or down in Massachusetts, where they get $4 per hundredweight for
milk, is it not easy to see where they drive feed away from areas where
they get $2.68 a hundredweight for milk ? They got less for milk in
1945; they got 4 cents a hundred less. That may not be much, but
at least it is less. They take that feed, naturally, to the sections that
they get the more for their product, and that is the reason—not so
much in your State—but Massachusetts and New England they are
getting $4.30 a hundred today without subsidy.
Mr. K I L B U R N . But you still cannot get butter.
Mr. MURRAY. That is a different story again. There are A lot of
things you cannot get. You cannot get natural cheese.
Mr. K I L B U R N . The ceiling price on butter is why you cannot get
butter, is it not?
Mr. MURRAY. That is only a part of it. I want to be fair to the
Office of Price Administration. They do enough bad things without
me acusing them of anything they do not do. That is only a part
of the story. Because the butter, plus the powdered skim, on the
formula set up, is supposed to yield—and it does yield—$2.65 a
hundredweight for milk. The set-up for cheese is supposed to yield
$2.65. I t did not quite do it in Wisconsin, but, anyway, that is the
formula. Other States got a little more. And the evaporated milk
is along in that line.
So that we see it on butter and when there is the demand for the
fluid milk there is, naturally, it is easier to get it out of the butter
because that is the first place they go to get it.
Now, if I may take the time to answer the gentleman's question, to
me it is simple enough that for 25 years we have had agricultural colleges from one end of the country to the other telling'us the wonderful
food that milk is, and so on, but you want to remember there have been
long periods in there when people did not have the money to buy the
milk. Now all at once they have the money to buy the milk and they
are taking the milk in bottles. Whereas before the war 29 percent of
the milk of the Nation went into bottles, today the last figure I saw
was 45 percent of the milk and it would not surprise me if it was now
55 percent.
So we have not taken any great drop in the production of milk. But
we have had a big increase in population, our problem is getting worse,
and we are getting a larger percentage number of children, and the
milk production, if we could maintain it the way it is today, we would
be all right, but there are so many factors that are sending us down
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
that I do not think we are going to have it, because we cannot always
have the weather we have had in the last 3 or 4 years. We have the
machinery problem, the labor problem, which is still worse, and the
situation is getting serious. So I would like to see us take a position
that will increase food production, increase milk production. But
we have not taken that step yet.
Mr. T A L L E . Mr. Murray, do you choose to comment on what is
called reconstituted milk?
Mr. MURRAY. Well, what they have done is this: I have nothing
against it. I notice in the Pace report that it is inferred there is
something wrong about that. They go out in Iowa where the distinguished gentleman lives, and they buy cream, and freeze it; 35 to
40 percent butterfat, and they send it largely to the South. And
every one of the dairymen who were at that meeting, I asked several
from the South, and they said they were using this blended or reconstituted milk.
They take the cream, then they condense the skimmed milk, and you
might be interested in knowing that the condensed skimmed milk has
been almost doubled in the last few years. They take that in their
plant, put water in it and sell it for bottled milk. Had it not been for
that, many of the places in the South during all this time would not
have had any bottled milk.
But that is purely a mechanical process. There is no reason—there
is only one question there, and that is they have not a very good idea
of what the sanitary conditions were where the cream was produced.
That is the thing that has jumped this consumption of fluid milk from
29 percent up to 45 percent—that is the last figure I saw, but I personally think it is 50 or 55 percent of the milk today, and they have done
it through this blended milk.
There is where the Office of Price Administration is wrong, and I
do not like to have to uphold these southerners, because I have found
they are able to take care of themselves around here, but I will explain
that.
If you were in the milk business down South, and a man came to me
last week and wanted to know why those dairies were closing down.
An Office of Price Administration regulation allowed them only 15
cents a quart for milk and with increased costs they could not retail
it for more than 15 cents a quart. Therefore, they brought in outside
milk, and they could bring that in and sell it for 20 cents. I would
like to have a monopoly so that no one could get any milk they did not
get from Wisconsin, but I do not think the rest of you would want that
to be that way, and I do not think the Office of Price Administration
is using good judgment in now allowing those milk people to pay the
southern milk producers as much. He is not doing anything about
inflation, he is not helping the consumers of those cities any by making
them use this blended milk. At least, they should give the local
people a chance to get as much for their milk as for the milk imported.
Those are the things that aggravate me against the Office of Price
Administration, just things like that. That has nothing to do with
my district. As a matter of fact, I am taking the other side. But if
they were really interested in feeding the people instead of talking so
much about inflation, they would have had that corrected long ago.
We have run into that in our own little towns in Wisconsin.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
LaFayette Patterson was out there, and I took him out there to see
the fellow, and try to straighten it out. He was asking 11 cents a quart
for his milk. He had been getting 10. They would not let him do it.
He was going to do it another way, and I told him, "Life is too short.
You do not want to do it that way. You are better off to close your
doors than do that, young fellow." And he closed his doors. This
chap 12 miles away brought milk to that town and sold it for 12 cents
a quart. What did that have to do with inflation? What did that
have to do with protecting the consumer ? That applies to this southern milk situation.
Mr. T A L L E . H O W are your vegetable growers, especially your potato
growers, getting along?
Mr. M U R R A Y . Our State has gone down so much in the potato business that the only thing has been on the support price, and that is
another thing I want the committee to do away with, that Steagall
amendment, because that is one of the greatest acts this committee
ever brought out, and there was a disposition on somebody's part not
to support the Steagall amendment on potatoes for 1946, but within the
last couple of days they have come out with a new support that is
somewhere in keeping with the Steagall amendment because we cannot,
any of us, sit here and let them throw Steagall amendment out. With
all due respect to our city cousins—and I would like to get somewhere
near what our city cousins have, and I think every fair-minded person
wants that Steagall amendment lived up to, because that was the thing
that stepped up this production. That was the greatest individual
thing that got food at the time we wanted that food. I do not think
any Member of Congress wants to go and say, "Well, now, that was
on there, but it is over with," and figure out some excuse. I am sure
that, reading the reports of the chairman of the Small Business Committee, and what he said about it, I am sure that at least one member
of this committee agrees with me.
Mr. P A T M A N . I thoroughly agree with you. I understand what you
are talking about.
Mr. T A L L E . Mr. Steagall was a very fine public servant.
Mr. M U R R A Y . I think that amendment did more—the rural people
know a good deal more than people think they do. Lots of times
people down here think they do not know much, but they know they
can get more for a 300,000,000-bushel potato crop than for a 400,000,000 one. And the Steagall amendment gave them a chance to produce
the food to win this war without losing their shirts. That is the thing
that stepped up that production in 1942, and that is one of the greatest
step-ups of production we ever saw, 1942. The Steagall amendment
was the thing that made that possible, and I surely know that every
member of the committee—I feel we must all keep that in mind, and
continue that along through the whole procedure.
But I have been mixed up with the Office of Price Administration
enough to believe that we have gotten to a point now where we have
to have somebody personally responsible—whether it is the Secretary
of Agriculture or who, I do not know, but we have to have it so that
we do not get too many stories about too many subjects. I t takes too
long to iron them out.
Take cabbages, for example. They would not even place the ceiling
on kraut last fall. That is a small crop and I do not want to make a
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
mountain out of an ant hill. But it was an important thing to the
man who raised those cabbages. I happen to have just a little part
of one county, and I happened to go to their meeting and, after pleading and pleadiag, the Office of Price Administration took the ceiling
off from kraut, but they waited so long there is thousands of acres of
cabbages froze up there, I said at this time there does not seem to
be any correlation between the different agencies. That cabbages
could just as well have been put to use. The same thing is true of
potatoes, as far as that is concerned. We have wasted millions of
bushels that should have been devoted to home use, and we would at
least have enough to fulfill our commitment with UNRRA and that
is something wTe have not got at the present time.
Mr. TALLE. Some queer things happened in my State, some time ago.
The price of potatoes was fixed at a certain point except for a few
counties, and I had a great old time getting the price for those few
counties brought up to the price paid in the other counties of the
State, and when I asked why that decision was made at the outset,
nobody could tell me.
Mr. MURRAY. That might be, but were they below the 90 percent of
parity floor?
M r . TALLE.
Yes.
Mr. MURRAY. Well, then you had a grievance. But I might say
there are potato growers in the Red River Valley, I do not think they
have too much grievance against the Office of Price Administration
nor War Food Administration, because neither the Office of Price
Administration nor War Food Administration said they were going
to take all the potatoes one day. You have to use judgment. They told
the people to keep the potatoes until they could take them and they
would give them a 90 percent parity floor. They were in a hurry and
sold them for 50 cents. That is the only place that I know of where
they did not fulfill the Steagall amendment on potatoes. But they did
a good job as far as Wisconsin potatoes were concerned.
Mr. T A L L E . This is the first time I have mentioned it, but it took
a lot of effort to have that change made.
Mr. MURRAY. Well, I never wanted to blame the War Food nor
the Office of Price Administration for the JRed River Valley situation.
They just asked for a little time to iron it out. They did not have a
place to store all the potatoes. They knew the war was over, and they
remembered the other war, when prices went down, and they thought
they should get their money while there was still a little money left, and
they got anxious and were willing to take 60 cents and settle up for it.
In these cases in your county, if there was not a 90 percent parity,
they were wrong, and you got it corrected. That is what you are a
Congressman for.
Mr. P A T M A N . I want to commend the gentleman for his statement
about the Steagall amendment and the Commodity Credit provision.
I agree with you that that helped production more than anything
else, because it let the farmers know they would not be let down if
they would go out and produce the food, that we would guarantee them
so much for it. And let us not forget that we need this food now, and
we need that amendment on the statute books. I t is there. It guarantees these farmers that return for 2 years after the next first day of
January after the declaration of peace.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. M U R R A Y . That is right.
Mr. P A T M A N . We know it is for three harvest years now.
Mr. M U R R A Y . Of course. But the other part of that is this: the
Secretary of Agriculture can discontinue it by giving ajnple notice.
Mr. P A T M A N . H O W much time ?
Mr. MURRAY. Ample time. I have forgotten the wording. But I
remember when they had that egg business last fall, I said the Secretary
ought to put it out in time for them to get their house in order. In
other words, the public must have some protection even against us
farmers, you know. They have to have a little. I do not believe in
giving them too much, but I think they ought to have a little, and I
think that Marvin Jones started
Mr. P A T M A N . We are talking about two different things.
M r . MURRAY. N O .
Mr. P A T M A N . There
is a difference between the five basic commodities and the Steagall amendment.
Mr. M U R R A Y . I do not happen to come under the basic ones, because
I do not come under that, and that is the reason I wanted to be under
the Stegal amendment. The point I want to make there is that Marvin
Jones, if you will look it up, you will see that Marvin Jones, for this
last year—and I wish he were there yet, as far as I am concerned—
Marvin Jones, on green peas, only guaranteed the price for the number of bushels of dried peas. That showed that the domestic people,
and I presume the French people—he only guaranteed it for the
amount that we wanted. Therefore, the public is entitled to some
protection even under the Stegal amendment. I do not think the
Stegal amendment means that you and I and everyone else can go out
and raise three or four hundred thousand bushels of potatoes apiece
and the Government has to give us 90 percent of parity. I do not
think this committee ever meant that. Am I right ?
Mr. P A T M A N . There is a difference between the Stegal amendment
and the basic commodities.
Mr. M U R R A Y . Oh, wTell, they have the loan, but they are subject to
acreage reduction, and the other is subject, too. I say that because I
do not think the rural people would have a right to ask for 90 percent
of parity for the next 10 years and produce all they wanted to produce, and the Secretary can control that by saying that he will give
it for so much, and then they can just make themselves a suit according
to the cloth they have to make it with.
The C H A I R M A N . The clerk will call the next witness.
The C L E R K . Mr. Mundt from South Dakota.
STATEMENT OF HON. KARL E. MUNDT, REPRESENTATIVE FROM
THE STATE OF SOUTH DAKOTA
Mr. M U N D T . Mr. Chairman, members of the committee, I think it is
generally accepted now, all over the country, that the sole reason for
asking for the extension of the Office of Price Administration is the
fact that, due to the war and its aftermath, there is a dislocation between the supply and demand which would enable the pressure of this
artificial demand to force prices to an inflationary level, and I hope
that if the Office of Price Administration is extended at this time,
we recognize the fact that there is just that one reason for its extension,
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
and write into the legislation something which will enable a gradual
decontrolling process to take place on products and on items which
are no longer in short supply, and it is to that particular aspect of the
problem that I would like to address the committee very briefly.
I do not think anybody on this committee—I am, certain that the
general American public does not—wants the Office of Price Administration to become a permanent institution. On the other hand, no
right-thinking man wants it abolished before the general economy is
in such a condition that the public can be protected and so that maldistribution will not take place and cause tremendous dislocations of
products, and tremendous inflationary spirals of prices.
I would like to propose for the serious consideration of you gentlemen of the committee the following amendment, to be written into
the extension of the Office of Price Administration. Not necessarily
in the language in which I propose it, but in substance, to cover the
objectives sought in this amendment. As I have phrased it, it reads
like this:
Provided, however, That the authority of the Office of Price Administration
to fix prices on any commodity or product shall automatically terminate when
that commodity or product can be demonstrated to have been in production
for 3 months at the average monthly rate in which it was produced during
the calendar year of 1939: Provided, further, however, That each purveyor thus
exempt from price controls is prohibited from adjusting his prices upward by
more than 10 percent in any 90-day period during the life of this act.
In my opinion, such an amendment, or an amendment which will
carry out the substance of that suggestion, will achieve the following
beneficial results:
In the first place, it will establish a definite program of termination for the functions of the Office of Price Administration.
I t will set up a definite, understandable, demonstrable rule of
thumb, by which industries and the producers of products can have
themselves exempt from the functioning of the Office of Price Administration control, when the statistics showT that production has
reached a normal level over an adequate period of time.
No. 2. I think it is important that if some such self-liquidating
phraseology is adopted in the extension of the act, that the criterion
of production, rather than the criterion of demand, be written into
the amendment, because demand is an intangible thing, which is very
difficult to measure in any economic period of short supply. The
people in your communities and mine, today, for example, who want
to buy a refrigerator, or a radio, or an automobile, are putting in
orders with several different suppliers, and so what appears to be
demand for four automobiles may actually be the demand for one
automobile. A man can cancel the order which he does not desire
to substantiate with the cash payment when the cars become available.
That is the reason I urge the committee utilize a production figure,
which is measurable, which can be found in the Census Bureau, and
in the Department of Commerce, and which can be supplied by industries, which can be demonstrated by license numbers, in the case
of automobiles, and many other ways. You can determine what the
actual production is.
The third benefit which I conceive from such an amendment is this:
I think it will tend to stimulate the production of some items which
are now short, which are in the low-profit category, because all busi-
1225
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
ness people, both in the retail and manufacturing business, would like
to be free from the red tape and from the infringements of Office of
Price Administration regulations. There will be this added incentive,
then, to produce sufficient supplies of products, even at a low-profit
margin, if they realize that the wheels of production have started to
spin rapidly enough, so that there has been normal supply for a 90day period, that particular product will come out from under the
wing of the Office of Price Administration. You will have that added
pressure stimulating production, and production, in the final analysis,
is the answer to the challenge of inflation, and production certainly
is the answer to whether or not we need an extension of the Office of
Price Administration controls.
The fourth benefit which I envisage in this amendment is this:
That such a provision will tend to prevent hoarding of supplies by
jobbers and wholesalers, and processors, and anybody else who might
have control of the product before it reaches the hands of the actual
consumer, because of the provision that there can be no sharp zooming
of prices, even after the product has come out from under the Office
of Price Administration controls. I put in that proviso for that
reason. There cannot be an upward adjustment of more than 10 percent in any 90-day period, even when the product is no longer subject
to the whims and caprices of Office of Price Administration statisticians and economists. It will be a definite curtailment on their authority, and still it will be a lid, as it were, which cannot be taken
off entirely, so that because of a temporary shortage in a particular
area there can be a tremendous zooming of prices which would be highly
undesirable and ruinous to the average consumer.
Mr. Chairman, that is all I have to say. I simply want to emphasize
the fact that I think an intelligent approach to the problem of the
extension of the Office of Price Administration at this time calls for
some type of language in the Extension Act which will provide, within
itself, automatic terminal facilities which will be demonstrable by
actual statistics, and which will not be the occasion for argument and
dispute.
Unless there are some question, that concludes my testimony.
Mr. K I L B U R N . I would like to ask Mr. Mundt what would happen
under your amendment to a product which is now losing money. That
would never get out from under control.
Mr. M U N D T . A product which is losing money will never get out
from under Office of Price Administration controls, anyhow, as long
as we have an Office of Price Administration Act. It is hoped that
the pressure of public opinion concentrating on that particular problem would force the Office of Price Administration to make adjustments in prices on that product such as to bring it back into production.
I t is true that if the Office of Price Administration, through sinister
motives, were to desire to keep a product from coming out from under
control, it could put a low price on it so that it would be unprofitable to
manufacture it so it could never meet that criterion.
Mr. K I L B U R N . Some of their prices have kept production down, according to the testimony here. Production is going down.
Mr. M U N D T . I think that is undeniably true, in certain products.
Mr. K I L B U R N . And under your amendment2 of course, that situation
would continue?
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. M U N D T . Eight. And if some amendment as I propose is
adopted, it will, as of today, or would, as of today, eliminate from the
field in which the Office of Price Administration operates a great
many products which now meet this criterion, and enable us to reduce
the field of products in which the Office of P r i c e Administration is
interested, whereby we could spotlight more readily those instances
where the Office of Price Administration has placed a price which is
too low and has discriminated against products and kept them out of
production. I t would make it easier for public opinion, for the Members of Congress, for the people in the Office of Price Administration
itself to detect that problem and to solve it, granting their good intentions, and, of course, unless we grant their good intentions, the whole
Office of Price Administration thing becomes a fiasco.
Mr. WOLCOTT. That would apply to an individual industry, but
your argument is when the supply reaches a certain percentage of demand, the price control could come off that particular product. That
would benefit the industry which is operating at a loss.
M r . MUNDT.
Yes.
Mr. WOLCOTT. In the competitive field, the over-all supply, when it
reached a certain percentage of the over-all demand, and the controls
came off, it would take care of it ?
Mr. M U N D T . That is right. It would take care of the marginal case
which was unable to make a profit at a certain price level.
Thank you, gentlemen.
The C H A I R M A N . Mr. Dondero, you are next.
STATEMENT OF HON. GEORGE A. DONDERO, REPRESENTATIVE
PROM THE STATE OP MICHIGAN
Mr. DONDERO. Mr. Chairman, I was in the city of Detroit, Mich.,
yesterday, and in the public press of that city appeared the statement
made by Mr. Porter that if rent control was abolished that rent would
increase 55 percent in this country. I do not know the accuracy of
that statement. Neither do I question it. But I do know this: That
if Mr. Porter, whom I know personally, and for whom I have a very
high regard, if his statement is only 25 percent accurate, that state"ment, in my opinion, is a very bold admission of the injustice and the
inequity imposed upon the small property owners of this country,
in the rent ceilings which now exist, and particularly in the metropolitan area of Detroit.
Two things are happening back in my section of the country, which,
in my opinion, are contributing to the housing shortage, and which
Congress is trying to correct and relieve. One is this: Wherever the
owner of property is called upon to render essential services, those
property owners are resisting to the utmost the inclusion of any other
individual to come into their property and exist or live with the
tenants now in possession, on the ground that it imposes upon them
additional costs of maintenance, light, heat, gas, water, and janitor
service. And for that reason those people are not permitted to come
into that space, even though the space is adequate perhaps to accommodate one or two or more people.
That is No. 1.
1225
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
The other thing that is happening in my section of the land, which
I think is contributing materially to the housing shortage of the
country, is this: Wherever an apartment building, or a house, a
double house, or any other residence where people live, is in or near a
commercial center of the town, the ground floor or basement apartments and even the second floor are now being converted for commercial purposes and people who lived in those apartments are being
evicted, and thereby forced to seek residence or home or shelter elsewhere, and the owners of the property are doing that in order to
relieve themselves from the burden of trying to carry the property
under existing rents, which they cannot do. It is no secret that taxes
in some of the communities of my district have increased from 33i/&
to 40 percent since the rent ceiling was fixed in that area, as of April 1,
1941. That is the situation.
Now. I have no faith or confidence that an increase in rents is going
to be granted by the Office of Price Administration as an administrative function. If the small property owners of this country—and they
constitute that segment of our population who, in their earning and
productive years, have saved enough or accumulated enough to acquire
a little extra property, which they could rent in their declining years,
and thereby have an income to sustain them and keep them independent
of any Government support—that segment of our population, in my
opinion, will not receive any relief from the rent ceiling, unless this
committee does it. I have seen too many cases, and too many have
been brought to my attention in the last 5 years, to not believe that
the only relief that those people can get is at the hands of this committee m considering an increase in the rent at least for those people
and thereby have it presented to the Congress of the United States.
That is all I have to say, but it did strike me and challenged my
attention, that when we admit, through a Government agency, that
rent would increase 50 or 55 percent if all rent controls were abolished,
we are admitting our guilt that an injustice and inequities are imposed
upon those people from which they have not been granted any relief
in the last 5 years.
Thank you.
The C L E R K . Mr. Boren of Oklahoma.
STATEMENT OF HON. LYLE H. BOREN, REPRESENTATIVE FROM
THE STATE OF OKLAHOMA
Mr. BOREN. Mr. Chairman and gentlemen of the committee, it is
my view that however desirable the prevention of price rises might
be, that the tyranny of the Office of Price Administration, the evils of
its present administration as it now is constituted, outweigh those
benefits, and if I have to make a choice between voting for the continuance of the Office of Price Administration or its abolition, on the
basis of the present law and administration, I would be compelled in
good conscience to vote for its abolition, today or tomorrow or any day.
I am here today to request this committee to correct the frailties
in the law so that its benefits can be maintained without its evils, and
to request this committee to give particular thought to regulating in
the law the regulators, so that their regulation will be within the spirit
of the objective that this committee and the Congress had in mind
in the act.
1225 E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
I do not intend to take the time of the committee because I know
you have been holding long and detailed hearings on every phase of
this problem, but I do want to say that in almost every field of productive enterprise in the district that I represent, and since I sat as
chairman of a committee which, for the last 2% to 3 years, has had the
particular problem of making studies on Maximum Price Regulation
regulations and so on, I want to say that I can, if you choose, give you,
on the dairy business and many others, out of personal experience and
out of information collected, positive proof that the Office of Price
Administration, in its present practices, its dilatory tactics, in many
instances, has prevented production and in many others unnecessarily
delayed it, and that its policies have abolished, in many instances,
established sources of production, and in many other instances has
militated against a return to normal production.
And in one more generality, I want to say that it is my conception
that this committee intended, and that the Congress thought it was
voting for, a program that would place price ceilings, ceilings against
which the price of things would not rise. I think, for example, that
it is sound to assume that a can of tomatoes of a certain quality should
not cost more than, say, 15 cents, anywhere, in any store, any place
you might go to buy it, if that is a reasonable ceiling for that product.
But that has not been the approach to the problem, and the faults,
as I see them, have been in the lack of that approach, and I specifically
request that the committee change the present law on that provision
which provides that when a man is cited for noncompliance, or when
an Office of Price Administration official goes to a store and says,64 Your
store is not complying," that man is then called before a panel, which
panel has no authority in itself, if he admits he is out of compliance,
except to issue him a fine, and if he does not admit it, except to certify
him back to the Office of Price Administration Trial Division for a
trial in court. I do not know the paragraph of the law from memory,
but I am sure you know what I am talking about.
Recently, in a county which has only one town larger than seven or
eight hundred people, and that has 25,000 people, 88 grocers were
named as being out of compliance. I assume that is almost all of the
grocers. I cannot imagine a town of 25,000 people having many more
than that. When they were brought before the panel, only about 37
of them were found to be out of compliance. That is, 37 plead guilty.
I do not knowT what happened to the rest of the cases. But these 37
paid fines of $25 to $50, and they paid those fines for this reason: Those
88 grocers were not crooks. There might have been one crook amongst
them—that is, a man who was deliberate in violating the spirit of the
act, and I think this committee ought to see to it that the processes are
such that you simply go out and arrest the action of the man who is in
deliberate violation.
If you could pay $25 and have no more trouble, because you had
sold some one item for one penny more than it was supposed to sell
for, and the items affected were Hershey's chocolate and Skinner's
chocolate, a little bar that sells for 12 or 13 cents—at one time Skinner's chocolate sold for 13 cents and Hershey's wTas 12, but the Office
of Price Administration sought to reverse that later, so at least
fifty-and-odd of these grocers were cited on that one thing. They
went in and paid it. Why did they do it? Because $25 was cheaper
than going 70 miles away to Oklahoma City to the nearest Federal
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
court and hire a lawyer and plead their defense in that court. And
time after time that has happened. I appeal to you particularly
for you to correct that provision in the law and its abuses.
I want to say that in the dairy business in my home town there
were four dairies when the war began. Today there is one. The
price of a quart of milk laid down at my door in my home town
before the war was 12 cents. Today it is 17. At the time the other
three dairies were about to go out of business, they appealed to the
Office of Price Administration for a price of 12 cents a quart for
milk and they were not granted it for such a long period of time that
by the time they finally got down to granting a price increase, there
was only one left to get the benefit of it. And right today the milk
ceiling in the town of Ada, Okla., the whole milk, where the farmers
sell a can of milk, is so different from the price ceiling at Shawnee,
Okla., both towns of about the same size, that the milk from Ada is
going to Shawnee instead of to Ada. The same thing is true in instance after instance.
I appeal to you to do something.
I would like to see the maintenance of a price control system that
would prevent any runaway prices from some reasonable ceilings on
the basic commodities that are sources of great concern to us. But
I appeal to you to eliminate in this act this arbitrary decision as to
what the price of a can of tomatoes will sell for at this store, and at
the next store for something else and all those other inequities that*
are leading to disruption in manufacturing.
I do know from personal investigation, for instance, a man who
was selling a $2 shirt. This man had labor costs and other costs; because they would not permit him to raise the price to $2.10, he comes
in as a new manufacturer of something different, like ladies' blouses
or men's shorts, and he began to sell men's shorts, that used to sell for
75 cents, for $1.50, and the shorts man, because he could not get his
price raised to 75 cents, turned around and started to make shirts and
sells them for $3. So there is a disruption of the manufacturing
processes.
I want to say to the committee that what I have to say is the result
of my personal experience and my work as chairman of the committee
referred to as the Boren committee. We have reams of testimony
on these points. Although I personally do not operate any business
except the farm, and have the direct management of it, I can tell you
why I did not sell cattle and my neighbors did not sell them when
beef was short, and how we sell them or keep them, according to the
Office of Price Administration's mistakes. I know about that from
personal experiece, but I am also financially interested and on the
board of directors and management of a wholesale business, a local
Chrysler-Plymouth motorcar dealership and two or three other business firms, so I have some reason to say what I do out of a ctual business
experience and know what governs our policies within those businesses, where these impossible price regulations affect us.
Unless there are questions, I have nothing further to say, Mr.
Chairman.
The C H A I R M A N . Call the next witness, Mr. Clerk.
The C L E R K . Mr. Gossett of Texas.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
STATEMENT OP HON. ED GOSSETT, REPRESENTATIVE PROM THE
STATE OF TEXAS
Mr. GOSSETT. First, I will extend my sympathy to the committee.
I know that you are laboring with a most complicated, involved and
difficult problem, and that you have sat long and patiently, and that
you are going to do the very best job you can.
I will confine my remarks to a matter of general policy, and I will
not go into the detail of the Price Control Act.
In the first place, I am greatly concerned that in the pending Extension Act, that the committee give serious consideration to writing
into the act a formula that has been agreed upon, I think, by all those
in the Administration, and by everybody else that I know, to wit: That
no price control shall be imposed on any commodity of which there is
a normal and adequate supply.
I have in my hand here a letter just received in the morning's mail
from the present Administrator, the Honorable Paul A. Porter. I
will not read all of the letter. I t is on a particular subject matter, but
he states:
Some time ago Mr. Bowles announced a policy of removing all price controls
as soon as the need for them disappears.
Well, all administrators have agreed that that is a policy that we
should follow. Now the thing that embarrasses me, and I am sure
that embarrasses all members of the committee and all Members of
Congress, is the constant criticism that all of us get for not exercising
congressional powers and not setting policies in legislation. We are
also being upbraided for delegating too much authority to the executive branch of Government.
The folks throughout the country say, "Well, now, that is the
business of Congress. Why do you not do this? Why do you not
get some of your powers back?"
If the Administration agrees that this is a sound policy—that is that
price controls should not be imposed on any commodity of which
there is a normal and adequate supply, it seems to me that we certainly ought to write that provision into the law. I am not suggesting any verbiage or just how such an amendment should be written, but whether price controls are extended or not, I think if they
are extended that we certainly should write into the act that provision. I think it would give confidence to the business interests of
the country, it would give confidence to every citizen that we intend
to maintain the traditional American system of government and our
usual ways of doing business and that if and when production catches
up with demand in any particular field, price controls will no longer
be imposed.
I just beseech the committee to do a thing that I feel it already has
in mind doing, and that is not to leave such an important policy to
the Administrative determination but rather to write it into the act
and say that Congress is determining, as a matter of policy, that price
controls will not be imposed any longer than they are actually needed,
and that they are not needed when the production or the supply
of a particular commodity or product reaches normal or adequate
demand.
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
We have a number of items that could be released under such a
formula. That is the only purpose I had in coming here, because on
that one thing at least I have my mind definitely made up, and I
do not believe there is any logical objection to such a policy. I hope
that the committee will write that into the law.
Thank you.
Mr. K I L B U R N . Mr. Chairman, I wonder if Mr. Gossett knows that
yesterday afternoon we had testimony from the petroleum people who
said there is a bigger supply of petroleum in this country now than
we have ever had. They tried to get out from under price control but
they cannot.
Mr. GOSSETT. I might say to the gentlemen, that I think certainly
that the petroleum industry should be taken out from under price
controls. I am fully convinced that the alleged shortage of fuel oil,
for example, on the eastern seaboard and in certain localities has been
a result of price control. In my section of the country, I represent
perhaps the district that has the largest number of independent oil
men of any district in the world, and many of them have been going
out of business under existing ceilings.
My concern in this whole business is largely for the small business
structure of the country, and I think it would be far better for the
consumer, the country as a whole, to let the petroleum industry out
from under price controls and let the normal business procedure have
full sway.
The petroleum industry is not the only industry in which there is
normal and adequate supply in my opinion, but certainly it is the
outstanding example of one for which there is no further need of
price controls.
Mr. WOLCOTT. D O you think we have to wait until there is a surplus
before w^e remove price controls ?
Mr. GOSSETT. N O , I do not think so. But if there is a surplus certainly nobody, by any stretch of the imagination, could further contend that price controls are necessary, unless he advocates a complete
regimentation of the Nation's economy as a permanent policy of Government, and I do not understand anybody to be so contending before
this committee.
Mr. WOLCOTT. D O you think it would be perfectly safe to remove
controls when production reached a certain percentage of the demand ?
Mr. GOSSETT. I think that would be a very sound policy. I would
like to see that tried. But I am just saying that in my feeble way I
cannot see any argument in the world for continuing price controls on
anything which is in normal supply.
I may not have made myself clear. I think it is terribly important
that it be written into the act and not left to administrative discretion, because it is a congressional duty to determine policy and that
should be determined as a matter of policy.
The C H A I R M A N . Does that conclude the congressional witnesses?
T h e CLERK. Y e s , s i r .
Mr. WOLCOTT. Mr. Chairman, may I at this point insert in the
record a letter to Forest A. Harness by W. R. Sinclair ?
The C H A I R M A N . That may be inserted.
1225 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
(The above-referred to letter is as follows:)
KINGAN & Co.,
Indianapolis 6, Ind., March 15,19^6.
H o n . FOREST A . H A R N E S S ,
House Office Building, Washington, D. €.
feel compelled to call to your attention the situation
that prevails in the livestock markets and the effect it is having on our business
under present OPA regulations imposing ceilings on livestock, namely MPR 574
on cattle and MPR 469 on hogs.
There is such widespread violation of both of these orders in the sale of livestock for slaughter that the black market has grown to enormous proportions,
which the OPA enforcement division seems powerless to curb. The result is a
most serious diversion of both cattle and hogs from the normal established
commercial channels.
The closer to the eastern seaboard the livestock markets are, the worse is
the black market in livestock. It is rampant in the State of Indiana. The result of these operations places the legitimate operator, who is observing the
regulations, in an impossible position because of lack of volume.
Kingan is now in its one hundred and first year. * The affairs of the company
have always been conducted along honest lines. This is still the policy of the
company, and the management cannot remain silent and see the business crippled while bootleggers in meat are violating Federal regulations with impunity.
In markets where unscrupulous buyers are most active (Indianapolis is an .
outstanding example) it has become impossible for the legitimate operators
to obtain anything like normal supplies of livestock. During the past month it
has been practically impossible for our Indianapolis plant to buy any cattle
at all in compliance with MPR 574. Although we have been in the market every
day for every head we could purchase legally, we could not obtain enough cattle
to give our killing gang work for more than 1 or 2 days each week, with the
result that we have been compelled to lay off about 200 production employees.
The cattle shortage not only limits our killing operations but also curtails the
volume of important manufacturing departments that draw a large part of their
raw material from cattle. The operation of our distributive sales organization
is likewise crippled. We have been compelled to close about 50 of our 250 sales
routes in the past 9 months because of lack of volume, and we are working many
others on an every-other-week basis.
During November and December 1945 we were able to obtain a fairly normal
volume in our beef division and still stay in compliance with MPR 574. For the
past 6 weeks, however, the Indianapolis live cattle market has been consistently
50 to 75 cents per 100 pounds over the limit we figure we could pay for live cattle
and buy them legally. Our purchases have represented only a small proportion
of the receipts at this market and of our normal volume.
The situation on cattle in our plants at Richmond, Va., Orangeburg, S. C., and
Dothan, Ala., is just as bad, and in some cases worse, as is indicated by the
following table:
DEAR MR. H A R N E S S : I
Cattle kill (number of head)
Plant
N o r m a l weeklykill
2,500 to 3,000.
300 to 400
200 to 300
300 to 400
Indianapolis, Ind.
R i c h m o n d , Va__.
Orangeburg, S. C.
D o t h a n , Ala.
Thus the aggregate decline from normal in the volume of cattle killed in the
past 6 weeks in these four plants of Kingan & Co. is 72 percent.
The situation in hogs has been bad also, although our decline in volume has
not been quite so serious. In the public markets the ceiling prices are reason-
83512—46—vol. 2
20
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E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
ably well observed, but the hogs are not coming to the public markets in normal
numbers. Buyers who are not bothered by the rules have been picking up the
hogs at country points at prices more attractive than the legal ceilings at the
central markets. Several days in February we saw only a handful of hogs in
the Indianapolis yards, and our Richmond and Orangeburg plants have been
unable to buy hogs through their established sources. Our hog-killing gangs
are getting about half a week's work.
The Bureau of Agricultural Economics, United States Department of Agriculture, publishes statistics in a pamphlet entitled "The Livestock and Wool
Situation." In the January-February issue (on p. 12 under the caption "Recent
developments") are given figures on the total United States meat output and
meat produced under Federal inspection, the difference between the two indicating the production of noninspected meat. The figures show that production
of federally inspected meat declined 14.5 percent in the year '45 compared to
'44, whereas noninspected production increased 7.3 percent in the same period.
In our judgment this understates the diversion from normal commercial channels during '45, because no one can get statistics on the enormous volume of
livestock that is being slaughtered locally in country towns. Even so, the
figures indicate a switch of over 1,000,000,000 pounds from production under
Federal inspection to noninspected production. In the past 6 weeks the situation has become materially worse than it was in '45.
If these tendencies are not checked, the business of legitimate operators,
such as Kingan & Co., will gradually come to a standstill. Further reduction
in employees will be unavoidable, because we cannot continue indefinitely "making work" for our gangs to give them the guaranteed time of 36 hours a week.
Meantime even controls over meat prices have failed to produce the benefits
claimed for them, since millions of consumers are compelled to pay higher than
ceiling prices for their meat. Otherwise the black-market killers could not
flourish and pay higher than ceiling prices for their livestock.
The Kingan management fully recognizes the dangers of inflation but believes
that people who claim the cost of meat to the consuming public is being held
down by retail ceilings are misleading the public, because it just isn't so.
This business might be able to operate under a reasonable schedule of meat
ceiling prices alone but it cannot operate if it cannot buy livestock. We have
made numerous efforts to get OPA to do something about it—without success.
We have reluctantly reached the conclusion that the enforcement of the present
livestock ceiling prices is impossible ; and our management has concluded that
the only thing to do is to urge removal of present livestock ceilings.
We recognize that if they are taken olf we are likely to have a tough time
making any money in the business; but at least we shall have opportunity,
without breaking the law and being subject to jail sentence and penalties of
hundreds of thousands of dollars in fines and subsidies, to get our people back
to work, and to preserve the hard-earned position the company has taken so
many years to establish in the trade. If ceilings on meat won't work without
ceilings on livestock, then our only choice can be to recommend the removal of
both.
This question is timely, because of the present consideration by Congress of
renewal of the Price Control Act for a period extending beyond June 30, 1946.
We hope that if this is done, ceiling prices on livestock at least, will be
eliminated as unfair and unenforceable.
Very truly yours,
W . R . SINCLAIR.
The C H A I R M A N . There is another witness, Mr. Pace, who asked to
appear at the time the fruits and vegetable witnesses appeared. As a
result of a misunderstanding he did not appear. He is here now and
we will hear him.
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e x t e n d price c o n t r o l and stabilization acts of
194 2
STATEMENT OF MURL E. PACE, GENERAL MANAGER, UNITED
GROWERS AND SHIPPERS ASSOCIATION
Mr. P A C E . Mr. Chairman and members of the committee, I am Murl
E. Pace, general manager of United Shippers Association.
Our association is a professional organization, representing the producers, packers, and marketing organizations handling approximately
40 percent of Florida's citrus crop annually, the comments which we
may have to make relative to the subject under consideration, for my
own personal knowledge, meet with the general approval of other
Florida citrus interests.
The views of our group will be expressed to your committee by our
economic council. I may say here that we have a prepared statement
that would take some 15 or 20 minutes to deliver, but we are mindful
of the possible lateness of the hour and of your feelings, and we will
only undertake to hit a few of the more important points and file the
statement in full for the record.
T h e
CHAIRMAN.
YOU m a y
do
so.
(The following is the statement:)
S T A T E M E N T BEFORE T H E B A N K I N G AND CURRENCY COMMITTEE, H O U S E OF R E P R E SENTATIVES, S E V E N T Y - N I N T H CONGRESS, SECOND SESSION, BY J . W A Y N E R E I T Z ,
ECONOMIC COUNSEL, U N I T E D GROWERS AND S H I P P E R S ASSOCIATION, ORLANDO, F L A .
I appear here today on behalf of the United Growers and Shippers Association
with the belief that there no longer exists any need for continuing price control
on fresh citrus*fruits. We take this position in accordance with the announced
policy of the former Administrator of the Office of Price Administration, Mr.
Chester Bowles. This policy, which has been announced and consistently reiterated, even by the President of the United States on September 6, 1945, is that
when the supply of any commodity comes in balance with demand, price controls
shall be eliminated. We agree with this announced policy of the Office of Price
Administration. We do contend, however, that in the administration of this announced policy, the Office of Price Administration has exercised too much administrative discretion and has failed to establish yardsticks which can be used
in decontrol.
That the supply of citrus f r u i t s in the United States justifies the removal of
price ceilings in accordance with this policy can be demonstrated. We call attention to the fact that in the last 2 years of production ending with the 1&44-45
season, United States producers have increased their output of oranges by 71
percent over the 5-year prewar period. In the case of Florida producers the
increase in orange production during the 2 years ending with the 1944-45 season
has been 106 percent. Grapefruit production in the United States has increased
in these 2 years 86 percent over the prewar period. For Florida the increase
has been 61 percent. We know of no major agricultural commodity, except soybeans and possibly peanuts, which has shown a greater expansion in production
during the war period than has occurred in the case of citrus fruits. Yet prior
to the war our markets were well supplied with such fruits as judged by low
returns to producers. Furthermore, the trend in supply is ever upward. During
the present season the total
production of citrus fruits in the United States is
set at 187,000,000 boxes,1 or 9,000,000 boxes higher than any previous year. Of
this amount, Florida alone will produce 86,000,000 boxes, and it is estimated
thai within the next 5 years the output from Florida may easily reach 125,000,000
boxes.
At the time we have the largest crop on record, we are faced with a considerable reductions in one important outlet. Last year, Government purchases of
1
C a p a c i t y of b o x e s : F l o r i d a a n d T e x a s , 1 % b u s h e l s ; C a l i f o r n i a a n d A r i z o n a , 1 % b u s h e l s .
1286
E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
canned citrus products totaled approximately 19,000,000 cases. This year purchases by the Government will be under 1,000,000 cases, or less than one-nineteenth of last season. Therefore, when one considers the over-all supply of
both fresh and canned citrus, the adequacy of the supply for American consumers becomes apparent. We feel that when any commodity, whether it be
agricultural or otherwise, reaches such a supply level, the need for price control
no longer remains.
As evidence that supply is in balance with demand, wre submit in table 1
attached hereto, data showing the reflected ceiling prices to Florida orange
growers and the actual price received by months for the 1943-44 season through
February 1946.
We call attention to the fact that there is no ceiling on the grower, but that in
establishing f. o. b. ceilings, which is the first level of control, ceilings wherever
established must reflect to the grower a minimum price as provided for under
the Stabilization Act. In comparing this reflected ceiling price with the actual
price over a period of 25 months of price control of Florida citrus ending with
February 1946, there are only 3 months in the entire period when growers received a price in excess of this reflected monthly price. In two of these months
the price was in excess by 2 cents and in another by 32 cents. During the 22
months out of the 25 when actual prices to the grower were below the reflected
ceiling, the range was from a minus 2 to 120 cents. While this comparison deals
with a reflected ceiling price which was not directly under control, it definitely
shows that had supplies been consistently below demand growers would have
received ceiling or above ceiling levels for their fruit. More definitely the data
show that the supply of citrus fruits was such, during this 25-month period, as
not to justify price control.
When a similar comparison is made between auction ceiling prices on the 10
citrus auctions of the country and the actual auction price, differences between
ceiling and actual prices are even greater than for grower prices. In the same
period mentioned above, oranges from the interior of Florida, which represent
approximately 85 percent of Florida orange shipments, were consistently below
ceiling except for the first week of November 1944 which shows a plus 1 cent.
This is a discrepancy in handling weekly statistics in connection with a hazard
price adjustment made during the week. In the 23 months shown when actual
prices were below ceiling the monthly range was from a minus 2 cents to a
minus $1.60. In 14 of the 23 months the difference was over 40 cents. Even
during the much publicized period of decontrol from November 19, 1945, to
January 4, 1946, the monthly average auction price remained under ceiling levels
for Florida interior oranges.
What has been said about Florida oranges is equally true for Florida grapefruit, but we shall not labor the record with additional statistics, except for
filing herewith tables 3 and 4 which are comparable to the orange tables referred
to. We do wish to point out, however, that again during the much publicized
suspension of ceilings from November 19, 1945, to January 4, 1946, Florida grapef r u i t prices at auction were below ceiling. On the 5 days prior to reinvoking
ceilings auction prices for Florida grapefruit ranged on a daily basis from
10 to 56 cents per box below ceiling. Surely such a price situation is evidence
enough that supply has more than equated with demand as measured by ceiling
price level.
In light of the above, we believe that the Office of Price Administration is being
most arbitrary in carrying out its announced policy of decontrol as applied to
fresh citrus fruits. I t is our belief that Congress should, by amendment, establish
a yardstick which would make it mandatory for the Office of Price Administration
to remove controls whenever a commodity reaches a supply situation as now
prevails on fresh citrus fruits. Furthermore, we believe that the administrative
decision in interpreting the yardstick prescribed should rest with the Department
of Agriculture and not with the Office of Price Administration. This latter
recommendation is made for three reasons. (1) The Department of Agriculture
has the basic data for making the needed evaluation and the workers therein
are constantly studying the forces affecting market prices, (2) they can be
more objective in their evaluations since the perpetuation of an agency is not
at stake, (3) the Office of Price Administration is, by necessity we presume, too
susceptible to pressure groups which decry decontrol irrespective of the facts as
they pertain to individual commodities.
The recommendations hereinbefore are made not because we feel Florida
producers would receive higher than ceiling prices on a seasonal basis. The
data already presented reveal that such has not been nor would be the case.
1287 E X T E N D PRICE CONTROL AND STABILIZATION ACTS OF 1 9 4 2
Rather we feel t h a t the average seasonal price to the grower might be slightly
increased, yet still below ceiling levels. At the same time the average seasonal
price to the consumer could well be decreased. This may seem a paradox.
Again the experiences in price control gives every indication t h a t such a condition
would prevail. For basic evidence we submit figure I which shows the relationship
between the percent of the consumer's dollar expended for oranges which is returned to the grower, and the price paid per dozen.2 It is a well understood
principle t h a t when the price paid by the consumer for f a r m products increases
the percent of consumer's dollar going to the producer increases. This is because
of the relative fixity of marketing costs. As will be observed in figure I there
is a close relationship in these two factors for the period 1932 through 1942, i. e.,
a s the price increases the percent of the consumer's dollar going to the f a r m e r
also increases.
What happens under price control? The relationship no longer holds. We
realize that this line of relationship cannot go up indefinitely but rather would
tend to level off at current prices by returning 55 to 56 percent of the consumer's
dollar to the grower. Instead of returning this amount, only from 40 to 46 percent has been returned.
We attribute this abnormal relationship to the mechanics of price control.
In the first place, the margins allowed the distributive interests are in excess of
normal margins prior to price control, even when a justified increase is allowed
for operating costs. Thus, even when prices are at ceiling levels from grower
through to consumer, the regulation prevents the percentage of the consumer's
dollars which would normally be returned to the grower at prevailing prices from
being returned. But this is not all nor the most important reason. As previously mentioned, during most of the period of price control, prices at the tree
a n d at auction markets were below ceiling. While these below ceilings prevailed,
a vast number of retail stores continued to sell oranges a t ceiling levels in line
with the weekly community announcements of the Office of Price Administration
which established ceilings on an "overriding" basis, i. e., as though prices were
a t ceiling at all levels. Consequently we find t h a t in periods of seasonal short
supply the distributive interests were guaranteed a legal minimum mark-up in
excess of previous relationships, and when supplies were ample a large segment
of the trade continued to sell at ceilings, and thereby derived a windfall profit.
Now it is our considered judgment t h a t by removing price controls on citrus
f r u i t s competitive forces will reduce distributors' margins in periods of short
supply, as is normally the case. Thus, without necessarily raising the price to
the consumer over current ceilings a larger p a r t of the consumer's dollar will
be returned to the grower. Again, when supplies are ample, as has been the
case during most of price control, competitive forces will a d j u s t prices accordingly to the mutual advantage of producers and consumer. As the situation
now stands, many handlers no longer stop to figure at what margin they can or
would operate, but out of apparent habit accept the announced ceilings of the
Office of Price Administration, which in many instances are above the legal
maximum. 3 Thus the consumer continues to pay higher price than is justified
by supply conditions, and the producer suffers because this arbitrarily influenced
price level f u r t h e r backs up supplies and reduces the price a t the grower level.
This will be even more true in the f u t u r e than over the past 2 years. A return
to competition would correct these practices and injustices.
To summarize, we emphasize the tremendous supply of citrus f r u i t now available and the prospect for the f u t u r e . We f u r t h e r emphasize the necessity f o r
all factors in the industry to again become accustomed to competitive practices
so as to be in a position to develop better marketing practices, now largely dormant, in handling the ever-increasing size of our crop. This latter and necessary
objective of importance to all factors from the producer to the consumer cannot
be attained under the impediments of price control. Consequently, we return
to our original recommendation t h a t the Congress, by amendment, exclude citrus
a n d other commodities with similar supply and demand situations from price
control. This can be attained by outright exclusion, but in the absence thereof,
an appropriate yardstick should be established with the administrative decision
f o r its application being placed in the Department of Agriculture.
2
Price per dozen is used since this is the manner in which reported by the U. S. Department of Agriculture. It is recognized that the more commonly accepted pricing method
is 3by the pound.
See Wartime Price Control of Fresh Citrus Fruits, by J. Wayne Reitz, Journal of
Farm Economics, vol. XXVII, No. 3, August 1945, pp. 562-568.
1288
E X T E N D PRICE CONTROL A N D STABILIZATION ACTS OF 1 9 4 2
Mr. P A C E . In qualifying or explaining the qualifications of one of
my associates who will present our views, he is, I would like to say, a
graduate of Colorado State College, from which he received his
bachelor's degree. He received his master's degree from the University of Illinois, and a degree from the University of Wisconsin and
for a number of years prior to entering our employ was professor of
agriculture economics at the University of Florida.
With your permission, I now present Dr. J. Wayne Reitz.
Mr. R E I T Z . Mr. Chairman and members of the committee, I appear
here today on behalf of the United Growers and Shippers Association
with the belief that there no longer exists any need for continuing
price control on fresh citrus fruits.
STATEMENT OF J. WAYNE REITZ, ECONOMIC COUNSEL, UNITED
GROWERS AND SHIPPERS ASSOCIATION, ORLANDO, FLA.
Mr. R E I T Z . We take this position in accordance with the announced
policy of the former Administrator of the Office of Price Administration, Mr. Chester Bowles.
@FedFRASER