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DECEMBER 6, 7, 8, AND 11, 1950

Printed for the use of the Joint Committee on Defense Production


W A S H I N G T O N : 1950

(Created p u r s u a n t to Public L a w 774, 81st Congress)
B U R N E T R. MAYBANK, South Carolina,
P A U L BROWN, Georgia, Vice
J . W I L L I A M F U L B R I G H T , Arkansas
A. W I L L I S ROBERTSON, Virginia
C H A R L E S W. TOBEY, New H a m p s h i r e
R O B E R T D. L ' H E U R E U X ,






R A L P H A. GAMBLE, New York
H E N R Y O. TALLE, Iowa




Statement of—
Cain, Frank, general counsel, National Used Car Dealers Association. 133,148
De Wolfe, Harold, managing director, League of Mutual Taxi Owners,
Inc., Bronx, N. Y
Dworshak, Henry C , a United States Senator from the State of
Harvey, Ralph, a Representative in Congress from the State of
Hay ward, Ray, president, Nebraska Used Car Dealers Association. _
Holifield, Chet, a Representative in Congress from the State of California
Mallon, William L., chairman, public affairs committee, National
Automobile Dealers Association
McCabe, Thomas B., chairman, Board of Governors; accompanied
by Ralph A. Young, Director of Research; Frederick Solomon, Assistant General Counsel; and Woodlief Thomas, Advisor, Federal
Reserve Board
Mules, W. Russell, attorney for Commercial Credit Co., Baltimore,
Reuther, Walter P., president UAW-CIO
Wilson, Walter, president, National Used Car Dealers Association,
Dallas, Tex
Letters, telegrams, statements, etc., submitted for the record by—
Abies Motor Co., Denver, Colo.; Telegram to Representative Carroll.
Ahrens, A. R., Huntington Park, Calif.: Letter to Representative
American Finance Conference, Chicago, 111.: Statement
Augusta Motor Sales, C. P. Blouin and C. P. Blouin, Jr., Augusta,
Me.: Telegram to Senator Smith
Cain, Frank, general counsel, National Used Car Dealers Association:
Carroll, John A., a Representative in Congress from the State of
Colorado: Statement
Central Labor Council, Los Angeles, Calif.: Resolution opposing
regulation W
Central Motor Sales, T. J. Gilbert, Augusta, Maine: Telegram to
Senator Smith
Cleveland Used Car Dealers Association, S. A. Terrell, attorney:
Denver Used Oar Dealers Association, Richard B. McCoy, executive
secretary: Telegram to Representative Carroll
Greater Chicago Used Car Dealers Association:
Milton T. Raynor, general counsel, letter enclosing questionnaires.
Sol Steelman, president, statement
Hay ward, Roy, president, Nebraska Used Car Dealers Association:
Summary of questionnaires sent to Nebraska used car dealers
Advertisement from Omaha World Herald, November 26, 1950:
Brand new Buick for a $50 deposit
No deposits—no down payments
Hendrickson, Robert C , a United States Senator from the State of
New Jersey: Letter to Senator Maybank
Hoover, Glenn E., Mills College, Oakland, Calif.: Letter to National
City Bank, New York
Idaho Automobile Dealers Association: Memorandum




L e t t e r s , telegrams, statements, etc.—Continued
Jacksonville Automobile Dealers Association, Allen L. Poucher,
managing secretary a n d counsel: Letter to Mr. Lanford, manager,
Federal Reserve Bank, Jacksonville, Fla
J a m e s Motor Co., Denver, Colo.: Telegram t o Representative C a r r o l l .
K u r l a n d Motors, Denver, Colo.: Telegram t o Representative CarrolL
Los Angeles Motorcar Dealers Association, R o y S. Carrington, presid e n t : Letter t o Representative Holifield
Mallon, William L., chairman, public affairs committee, National
Automobile Dealers Association:
Telegram, October 4, 1950, t o Chairman McCabe
Telegram, October 14, 1950, to C h a i r m a n M c C a b e
Letter, October 17, 1950, t o Chairman M c C a b e
Letter of acknowledgement, October 27, 1950
M a y wood Ford, Inc., R o b e r t J . Switak, business manager, M a y wood,
Calif.: Letter to Representative Holifield
M c C a b e , T h o m a s B., chairman, Board of Governors, Federal Reserve
Comparison of new t e r m s of regulation W w i t h initial regulation _
C u r r e n t defense requirements, inflationary pressures, and selective
credit regulations
Chart No.:
1. Consumer credit
2. Installment credit, changes
3. Installment credit, monthly rates
4. Auto installment credit
5. Monthly p a y m e n t s , one-third down
6. Passenger car o u t p u t , a n n u a l rates
7. Passenger cars, production a n d registrations
8. Passenger car o u t p u t , weekly rates
"9. Used car prices
10. Appliance a n d furniture sales a t d e p a r t m e n t stores, 195011. Appliances a n d furniture a t d e p a r t m e n t stores, 1947
12. Appliance a n d furniture, physical o u t p u t
13. Consumer prices
14. Money rates
N e w passenger-car registrations percentage increase, November
1949 t o November 1950
Additional s t a t e m e n t as t o necessity for application of regulation
W t o used cars
Anti-inflation report, address by Governor Szymczak t o C h a m b e r
of Commerce of State of New York
G r e a t d a y for t h e dealer, profits of automobile retailer, etc.,
article in Fortune, November 1950
Used car prices in selected cities, 1949 models
Advertised cash prices on cars, Detroit, 1950
McNeil-Stanley, Inc., Los Angeles, Calif., telegram to Representative
Mosko, Max, Motor Co., Denver, Colo.: Telegram t o Representative
Mules, H . Russell, a t t o r n e y for Commercial Credit Co., Baltimore,
Md.: Statement
Nash, C. L., Los Angeles, Calif.: Telegram to Representative HolifieldNew York Used Car Dealers Association, Max J. Bloom, secretary:
Letter to Senator M a y b a n k
Nichols Auto Sales, F r a n k Q. Nichols, Augusta, Maine: Telegram t o
Senator Smith
Ostrom, H a r r y M. and Sons, Montebello, Calif.: Telegram t o Representative Holifield
P i a t t Motor Co., Lamar, Colo.: Telegram to Representative C a r r o l L Reed Auto Sales, Denver, Colo.: Telegram t o Representative C a r r o l L .
Reuther, Walter P., president, U A W - C I O : S t a t e m e n t
Rutledge, V. E., Los Angeles, Calif.: Telegram to Representative
Silver Motors, Los Angeles, Calif.: Telegram to Representative


Letters, telegrams, statements, etc.—Continued
Smathers, George, a Representative in Congress from the State of
Florida: Letter to Senator Maybank enclosing letter to Mr.
Smith, Margaret Chase, a United States Senator from the State of
Maine: Letter to Senator Maybank
Southern California Motorcar Dealers Association, Spencer T. Konig,
president, Los Angeles, Calif.: Letter to Representative Holifield
Stambaugh, Phil, Inc., Los Angeles, Calif.:
Telegram, December 4, 1950 to Representative Holifield
Letter, October 25, 1950 to Representative Holifield
Swayne-Marsh-Winbush Motor Co., Denver, Colo.: Telegram to
Representative Carroll
Urich-Nelson Motor Co., East Los Angeles, Calif.: Telegram to
Representative Holifield
Whitcomb Motors, Clay T. Whitcomb, Sterling, Colo.: Telegram to
Representative Carroll
Wilson, Walter, president National Used Car Dealers Association,
Dallas, Tex.: Proposed amendment


W E D N E S D A Y , DECEMBER, 6, 1 9 5 0

Washington^ D. G.
The joint committee met at 10: 30 a. m., pursuant to notice, in the
Interstate and Foreign Commerce Committee Room, United States
Capitol, Senator Burnet R. Maybank, chairman, presiding.
Present: Senators Maybank, Capehart, and Robertson, and Congressmen Brown, Patman, Hays, and Talle.
Also present: Senator Smith and Representative Holifield.
The CHAIRMAN. I will ask that the meeting come to order.
The committee is very pleased to have Senator Smith here with us.
A t her request, I will read the note she wrote m e :
I shall very much appreciate your serious consideration of t h e a t t a c h e d w i r e s
w h i c h a r e only a few of t h e m a n y coming to my office. You will remember t h a t
when t h e order went into effect similar appeals came in from all over t h e S t a t e
of Maine a n d were sent to you for your attention.

The CHAIRMAN. I will ask that the telegrams be made a part of the
(The telegrams referred to follow:)
AUGUSTA, M A I N E , December


S e n a t o r MARGARET C H A S E S M I T H ,

Senate Office Building, Washington,
D. C:
There will be a h e a r i n g on t h e regulation W t h e 6th, 7th, 8 t h of December
before t h e F e d e r a l Reserve Board. Would you please do a l l in your power
to h a v e this regulation changed to a maximum of 21 m o n t h s ? As i t s t a n d s
now i t definitely discriminates against t h e low-income people. I t also prevents
dealers from reconditioning used cars. F u r t h e r m o r e , used c a r s have a l r e a d y
heen manfuactured a n d do n o t d r a i n on t h e Nation's resources needed for n a tional defense.
C. P . BLOUIN AND 0 . P . B L O U I N , J r . ,

AUGUSTA, M A I N E , December


S e n a t o r MARGARET S M I T H ,

Senate Office Building, Washington,
D. C:
If possible please a t t e n d h e a r i n g regarding regulation W scheduled 6th, 7th,
a n d 8 t h of December 1950. W e feel regulation W is discriminating to t h e lowincome automobile buyer. Also t h e used c a r would in n o w a y affect strategic
m a t e r i a l needed in o u r defense program. T h e regulation W h a s caused a n inflation in t h e so-called j u n k . T h a n k you.

F R A N K R. N I C H O L S .



AUGUSTA, M A I N E , December





Senate Office Building, Washington, D. C. :
DEAR MRS. S M I T H : Would appreciate your attendance a t the meeting on regulation W t a k i n g place 6th, 7th, 8th. Kindly help the boys if you can. Us poor
people will be walking.

The CHAIRMAN. Gentlemen, the first witness we have today is Mr.
Mallon of the National Automobile Dealers Association.
Mr. Mallon, will you proceed in your own way, sir ?
Mr. MALLON. Mr. Chairman and members of the committee, before
I read the brief, I would like to make the statement that we of the
N A D A have been torn between conflicting emotions the past couple
of weeks; when we originally planned to appear before your committee world conditions were not what they are today, and due to
the fact that we appreciate the many, many duties that you gentlemen
have, we are endeavoring to curtail the brief as much as possibile,
but we do feel that we should present the few remarks we have as we
believe it will be beneficial to the committee.
The CHAIRMAN. We appreciate your attitude, Mr. Mallon. As you
say, conditions have changed since we talked to you in October.
Mr. MALLON. That is right.
The CHAIRMAN. YOU may go ahead, sir.
Mr. MALLON. I am William L. Mallon, for the past 37 years an
enfranchised new car dealer in Essex County, N. J.
I am appearing today as chairman of the Public Affairs Committee of the National Automobile Dealers Association, a post in which
I have served from approximately 10 years. This association presently has a membership of 34,300, which represents approximately
90 percent of the enfranchised dealers in the country. I t is therefore
self-evident that the National Automobile Dealers Association truly
represents and speaks for the enfranchised dealers of the country.
The National Automobile Dealers Association, functioning through
its public affairs committee, has always endeavored to adhere to the
policy of accomplishing administratively such results as we deem
beneficial to the dealers, to the public and to the economy of the country. Only after failing to accomplish such results through administrative channels, do we seek relief through congressional cooperation.
I would like to briefly recite for the benefit of the committee the
method in which regulation W was originally promulgated and then
further amended.
The Defense Production Act of 1950, which provided the authority
to establish credit controls, was approved on September 8, 1950.
While that bill was being debated in the Congress, the following
contacts w^ere made by representatives of the National Automobile
Dealers Association, with representatives of the Federal Keserve



August 2, 1950: N A D A President Haller, Managing Director Deo
and Assistant Managing Director Barnhart, visited with Mr. Dale
Lewis, and other members of his staff. At this meeting the representatives of N A D A informed Mr. Lewis that in view of the many statements contained in the President's releases that he intended to request
credit controls, NADA had in process at that time a preliminary survey as to the prevailing terms in the retail trade. They also informed Mr. Lewis that NADA would be glad to cooperate with the
Federal Reserve Board in the formation of any regulation which might
be under consideration.
September 5,1950: The above representatives of NADA were asked
by Mr. Lewis if NADA was interested in regulation W, and if so, a
conference would be arranged. That same day Messrs. Haller, Deo,
and Barnhart of NADA conferred with Messrs. Lewis, Jones, and
Pawley. That meeting lasted about 45 minutes and NADA representatives w^ere informed that other retail groups were also being conferred with on that day. As far as we are able to ascertain, this
conference on September 5 constituted the only move on the part of
the Federal Reserve Board to have any kind of consultation with our
industry. I t will be noted that this meeting was held prior to the
approval of the Defense Production Act of September 8.
The CHAIRMAN. I n other words, it is your contention that the
Federal Reserve Board did not follow the intent of the law of Congress because it did not have conferences with your industry before
the issuance of regulation W after the passage of the law; is that right ?
Mr. MALLON. Other than automobile dealers; do you mean?
The CHAIRMAN. YOU represent the National Association of Automobile Dealers. To your knowledge, did the Federal Reserve Board
have conferences with, say, the used-car dealers ?
Mr. MALLON. That I am not in a position to definitely state, Mr.
The CHAIRMAN. But you represent, I understood you to say, 34,000
dealers ?
Mr. MALLON. Yes; and enfranchised dealers; and enfranchised
dealers are new-car dealers.
The CHAIRMAN. YOU say there was no consultation held with these
gentleman by the Federal Reserve Board ?
Mr. MX\LLON. No, sir; except what I am enumerating here.
The CHAIRMAN. The conferences you are enumerating were prior
to the passage of the law ?
Mr. MALLON. That was prior to the passage of the law, but I have
some other information here as we go along, Mr. Chairman.
Regulation W was promulgated as effective September 18,1950. I t
provided for one-third down payment and 21 months in which to pay
the balance. The limitation of a 21-month maturity definitely curtailed the then prevailing terms in numerous sections of the country.
I n many instances terms of 24 to 36 months were necessary due to certain factors existing in various markets. I n spite of this limitation of
21 months, NADA did not register a definite objection.
N A D A was inclined to permit a sufficient experience under the 21month terms to develop definite facts as to the effect such limited
terms would have on the movement of cars at retail level, particularly
to those purchasers requiring safe and reliable transportation in order
to satisfactorily fill their jobs.



However, within a couple of weeks, N A D A heard rumors that the
Federal Reserve Board was preparing to issue an amendment to the
original regulation, further restricting the length of maturity.
October 4, 1950: NADA President Haller sent the following telegram to Chairman Thomas B. McCabe of the Federal Eeserve System:
Reports are reaching us that Federal Reserve Board is meeting to consider
tightening credit terms in regulation W. Any such action at this early date,
only 2 weeks after regulation in effect, seems premature. We respectfully request
that no action be taken on automobile terms until we have opportunity of discussing with you the effect of regulation on business retail automobile dealers.

N A D A received no acknowledgment to this telegram.
October 5, 1950: Messrs. Deo and Barnhart of N A D A talked with
Mr. Lewis, and Mr. Pawley, on technical questions in connection with
regulation W, as originally promulgated, and also talked on matters
pertaining to the NADA Official Used Car Guide Book. While the
majority of the discussion was on the above listed questions, Mr. Deo
distinctly recalls advising Mr. Lewis that the regulation should certainly not be changed without consultation with representatives of our
October 11-12, 1950: Throughout both days representatives of
N A D A endeavored to establish a contact with Mr. Lewis but were told
on each attempt that he was in conference. Contact was never made.
A t 4 p. m. on October 13 the Federal Eeserve Board released a statement announcing that amendment No. 1 to regulation W would become effective at 12:01 a. m., October 16, 1950, and that the amendment would reduce the terms of maturity from 21 to 15 months. This
allowed but 55 hours to elapse between the release and effective date,
and inasmuch as this period included a Saturday and Sunday, representatives of NADA were unable to contact any member or representative of the Federal Eeserve Board
October 14,1950: N A D A President Haller sent the following telegram to Chairman McCabe of the Federal Eeserve System:
On October 4 we wired you as follows:
"Reports are reaching us that Federal Reserve Board is meeting to consider
tightening credit terms of regulation W. Any such action at this early date,,
only 2 weeks after Regulation W was in effect, seems premature. We respectfully request that no action be taken on automobile terms until we have opportunity of discussing with you the effect of regulation on business retail
automobile dealers."
Consequently we are astounded at arbitrary and drastic action taken yesterday without giving the industry affected opportunity to present to you facts
indicating alarming slow-up in new and used automobile sales.
These new harsh terms will result in serious slow-down of entire automobile
industry with grave effect on Nation's economy. New regulation W terms represent most drastic economic regulations ever forced upon a free people and we
demand immediate rescission of the new automobile purchase terms as announced
on October 13.

N A D A received no acknowledgment of this telegram.
October 16,1950: Early on Monday, October 16, NADA President
Haller endeavored to arrange for a conference with Chairman McCabe. He was unable to contact Chairman McCabe personally, but
Mr. McCabe's administrative assistant suggested that President Haller
contact Governor Evans of the Board, under whose direct supervision
regulation W is administered. A meeting was held that afternoon.
N A D A was represented by President Haller, Vice President McKayy
Treasurer Dowd, Secretary Freed, and Managing Director Deo.



T h e Federal Reserve Board was represented by Governor E. M.
Evans, Mr. Elliott Thurston, assistant to the Board, and Messrs.
Dale Lewis and Theodore Pawley. Briefly, the outcome of this conference was to the effect t h a t Governor Evans appreciated the fact
t h a t the impact of this regulation, as amended, would be severe,
but he stated that inflationary forces had to be curtailed. Several of
the statements made by Governor Evans to the effect t h a t reports indicated regulation W had caused no hardship up to t h a t time were
challenged by the representative of N A D A. The period between
September 18 and October 16, the effective date of the amendment,
was far too short to even indicate what effect the regulation would
have on time sales of automobiles.
After approximately an hour's discussion, NAD A President Haller
appealed to Governor Evans to rescind this 15-month amendment
and allow sufficient time to elapse in order to determine the effect
of the original regulation. Governor Evans indicated t h a t while he
was only one of seven Governors, he did not believe there was any
possibility of changing the regulation at this time.
October 17, 1950: On this date, N A D A President Haller mailed a
registered letter to Chairman McCabe of the Federal Reserve System,
as follows:
The National Automobile Dealers Association is comprised of approximately
32,000 retail new car dealers, who represent 95 percent of the new car sales
volume of the country. More than 20 percent of all the retail trade in the Nation is automotive, according to data gathered from the latest United States
Census of Business. This industry employs one out of every seven persons who
are gainfully employed.
As president of this important segment of the industry of this country, I wish
to advise you that our entire membership is seriously disturbed over the recent
harsh amendment to regulation W, issued on October 13, 1950, by your Board.
Our membership feels that unless this amendment is immediately rescinded,
it will result in substantial numbers of them being forced out of business.
In view of this serious situation, we called an emergency meeting of the officers of the National Automobile Dealers Association here in Washington yesterday, and their first action was to attempt to obtain a meeting with you. Being
unsuccessful in this attempt and upon the suggestion of your secretary, we met
yesterday afternoon with Gov. R. M. Evans and his staff.
Our association has always enjoyed the most cooperative relationship with the
Federal Reserve Board. Prior, to the adoption of the original regulation W in
September 1941 our association was afforded an opportunity to present our
industry picture to the entire Board, and subsequent to that time, our association was consulted prior to the enactment of the various amendments to the
original regulation W which affected our business.
Therefore, we were amazed at the action of the Board in issuing a new regulation W on September 9, 1950, without giving our industry an opportunity of a
hearing before your Board. The terms of 21 months in this new regulation
were a substantial reduction from the current prevailing terms in effect at that
Immediately after the imposition of this new regulation we began receiving
protests from dealers in all parts of the country to the effect that the 21 months
terms had materially reduced new and used car sales.
Because of the above reports and due to persistent rumors of action by the
Board we wired you as follows:
"Reports are reaching us that Federal Reserve Board is meeting to consider
tightening credit terms of regulation W. Any such action at this early date,
only 2 weeks after regulation in effect seems premature. We respectfully request
that no action be taken on automobile terms until we have opportunity of discussing with you the effect of regulation on business retail automobile dealers."
You will furthermore realize that we were again dumfounded when on October
13,1950, your Board issued an amendment to regulation W reducing the maturity



limitation from 21 months to 15 months, again without any attempt being made
to consult with either our industry or our association.
It is the consensus of the dealers of the country that unless this amendment is
immediately rescinded it will result in many thousands of new car dealers being
compelled to discontinue their business. This arbitrary action also vitally
affects every person requiring essential transportation.

The CHAIRMAN. What would you suggest be done?
cussed further?
Mr. MALLON. Yes. [Continuing:]

Is that dis-

At our meeting with Governor Evans yesterday, we pointed out many facts
and figures to substantiate the above statement. We appealed to Governor
Evans for a rescinding of this harsh amendment, but we were told by him that,
in his opinion, the Board would not change its decision at this time.
On behalf of the new-car dealers of the United States, we appeal to you for
an immediate abatement of this drastic regulation until such time as your Board
can conduct a hearing, where our industry will have an opportunity to present
salient facts and figures from our industry for your consideration, giving the
Board authentic information which we are confident they did not have, and could
not have had, when this amendment was issued.

October 27, 1950, NADA President Haller received the following
acknowledgement from Chairman McCabe:
In reply to your telegram of October 14 and your letter of October 17 let me
say at once that I greatly regret that my previous appointments made it impossible for me to meet with you on October 16. I am sure you will understand.
I am very glad that Governor Evans was able to meet with you on behalf of the
Board at that time.
It is a source of real satisfaction to me, personally, and I am sure to all
of the members of the Board, to have the cooperative relationship with your
association that you mention in your letter, and I sincerely hope that it will be
in no way marred because of policy actions which the Board feels compelled to
take in the light of its particular responsibilities. I appreciate your problems
just as I think you do ours. I assure you that the Board has great regard for
the views of your association, and its representatives, and always endeavors to
give them the fullest consideration. We will be very glad to consider any facts
that you may care to give us to supplement what you have previously furnished.
While I will not undertake in the necessarily brief compass of a letter to go
over again the compelling reasons which led the Board to its recent decision
with respect to regulation W, I do want to emphasize that the Board undertook to take into account very carefully and paintakingly every conceivable relevant aspect of this difficult and unpleasant task with respect to the regulation.
As you know, we have had the benefit of numerous consultation with representatives of various industries, including representatives of your association. The
continuing information we received from the Federal Reserve Banks and other
sources in all parts of the country forced us to the conclusion that we could
not, in the public interest, postpone the amendment tightening the terms.
I want to reiterate for myself and all of my associates that we greatly value
the cooperation which has existed and I am sure will continue to exist with
you and your association in endeavoring to carry out governmental policies,
the objectives of which are as earnestly desired by you as they are by us.

The definite statement made by the chairman to the effect that—
the Board undertook to take into account very carefully and paintakingly every
conceivable relevant aspect of this difficult and unpleasant task with respect to
the regulation—

certainly does not coincide with the actual facts.
I herewith quote from section 709, Defense Production Act of
Any rule, regulation, or order, or amendment thereto, issued under authority
of this act shall be accompanied by a statement that in the formulation thereof
there has been consultation with industry representatives, including trade association representatives, and that consideration has been given to their recommendations, or that special circumstances have rendered such consultation im



practicable or contrary to the interest of the national defense, but no such rule,
regulation, or order shall be invalid by reason of any subsequent finding by
judicial or other authority that such a statement is inaccurate.

The Federal Reserve Board on September 8, 1950, announced the
promulgation of regulation W to become effective 10 days later, on
September 18,1950. Accompanying the publication of this regulation
in the Federal Register on September 12 was a statement by the Board
that in the formulation of this regulation and—
in accordance with the requirement of the aforesaid section 709, there has been
consultation with industry representatives, including trade association representatives, and consideration has been given to their recommendations.

However, it is our feeling that the above-mentioned conferences of
August 2 and September 5 did not constitute "consultation with industry representatives" as stated by the Board, and was not in accordance with the manifest intent of Congress as evidenced by the provisions of section 709. Particularly is this true in view of the fact
that neither of these conferences was attended by a member of the
Board of Governors, and no opportunity was afforded for trade association representatives to establish the probable effect of such a
Amendment No. 1 to regulation W was released on October 13,
effective at 12: 01, a m., October 16. Again, no consultation was held
between NADA and any representatives of the Federal Reserve Board
on the subject of this amendment prior to its issuance. To keep the
record straight, I wish to report to your committee that not until
October 17 did this amendment appear in the Federal Register, at
which time the following statement purporting to explain the Board's
action also appeared:
Special circumstances have rendered impracticable and contrary to the interests of the national defense consultation with industry representatives including
trade association representatives in the formulation of the above amendment;
and therefore as authorized by the aforesaid section 709 amendment has been
issued without such consultation.

The above-quoted statements, in view of all the facts, would appear
to be a gesture implying compliance with provisions of section 709.
I t is certainly a fact that the experience on automobile time payments
between September 18 and October 13 was not sufficient in any way to
warrant the imposition of the drastic terms of 15 months provided in
amendment No. 1.
During the period from September 1, up until 2 weeks ago, we in
NADA felt very definitely that no emergency existed which warranted bypassing the provision of section 709. Unquestionably, it
was the intent of the Congress that industry should be afforded every
opportunity to present its case to any governmental board or agency
concerned, prior to the imposition of any control on such industry.
During the 10-weeks? period mentioned above NADA is sure that they
were in a position to present facts and figures to the Federal Reserve
Board that would have been helpful in arriving at a fair and equitable
At the time we requested the privilege of appearing before your
committee to discuss this serious problem we felt warranted in asking
that all aspects of this matter be explored carefully and we had
planned to show that the imposition of amendment No. 1. to regulation W upon our industry, limiting maturity to 15 months, was pre



mature and imposed undue hardship upon our industry and upon the
buying public, particularly the lower-income groups.
Since the date of that request world conditions, particularly as they
apply to our country, have materially changed, accentuating the hardship this regulation imposes upon defense workers whose need for
safe, reliable transportation is essential.
I n view of the critical conditions in the w^orld today, rather than
impose upon the time of your committee to discuss figures and technicalities affecting any credit control on automobiles, we in NAD A, the
automobile dealers, earnestly request that through the efforts of your
committee we will be assured of the opportunity of a full and complete hearing before the Federal Eeserve Board, and that proper consideration will be given to our recommendations with respect to any
restrictive regulation imposed upon our industry. I t is evident that
we have not been afforded such an opportunity.
Today every loyal citizen must, and I believe does, stand ready to
play his part in this great national emergency.
We sincerely believe that the experience of many of our 34,000 members during World W a r I I will be valuable in helping to establish,
on a sound basis, any regulations that may become necessary.
The automobile dealers of the country are patriotic citizens, as was
well demonstrated during World W a r I I . They played a vital p a r t
in the national economy throughout that war, often under great handicap, but the fact remains that they did maintain essential transportation which was so necessary to the success of the war effort.
I t is not only our sincere desire but also our responsibility to play
our p a r t in the present national emergency to the best of our ability.
This can only be accomplished by complete cooperation on the part
of the Congress, governmental agencies, and we, the dealers, in the
automobile industry.
The CHAIRMAN. NOW, Mr. Mallon, have you any idea as to how the
law could be amended to take care of your statement on page 7,
paragraph 3, as follows :
have materially changed accentuating the hardship this regulation imposes upon
defense workers whose need for safe, reliable transportation is essential.

I wonder if the National Automobile Dealers Association, for the
record, has any thoughts for relieving such hardships that may be
presented to the Federal Eeserve Board—and I notice all you ask is a
hearing before them.
Mr. MALLON. Mr. Chairman, as I thought, in view of the present
conditions, and the many duties which you gentlemen in the Congress
have at the present time, that if it could be arranged so that we could
appear before the Board, and discuss with them all the facts, figures,
and pertinent matter which we have accumulated, and point out to
them the various results in the various sections of the country, we
should be able, the Board and we, in NADA, to come to a common
point, and an amendment could be effected by the Board to bring
about the desired results.
The CHAIRMAN. And the desired results you want for the war
workers ?
Mr. MALLON. That is correct, sir. Frankly, Mr. Chairman, the
dealers of the country from now on are not going to be profiteers,
I can assure you. As production cuts down, our overhead remains,



and we have our problems, but we believe we have a great responsibility in seeing to it that safe and satisfactory transportation is put
in the hands of every war worker, and everybody who is necessary
to continue to provide for the national economy.
Now, we are not all war workers, but the war workers particularly
need safe and reliable transportation, and we can't expect to give it to
them if we are not able to sell them the class of merchandise that they
should properly have to carry on their work.
The CHAIRMAN. Just speaking for myself, I do think that the military can get what they want under the law. The war workers are the
next most important group. I will say that in the last war my experience on this committee was that you dealers certainly did a good
Do you have any idea how we can take care of the war workers ?
Mr. MALLON. Yes, sir; I think if we can sit down with the Federal
Reserve Board, and go over all the figures we have, and point out the
experience of the past war, the mistakes that were made, and how we
had to change them, how we benefited by the changes, and suggest
changes at the present time, that we will be doing a very fine service.
The CHAIRMAN. Well, I think you will be, too. I can't speak for
anybody but myself, but I feel certain that this committee, when we
get through those automobile hearings, will surely give consideration
to the requests that you have made. Your request, as I understand it,
is for a hearing before the Federal Reserve Board in line with the spirit
of section 709?
Mr. MALLON. That is correct, sir.
Senator ROBERTSON. I want to endorse your statement that the automobile dealers of this Nation are patriotic and rendered great service
during World War I I in providing transportation to the extent that
the military effort permitted the manufacture and sale of cars, and I
agree with the chairman that I would be very glad for you to have an
opportunity to sit down at the Federal Reserve Board, and present
your side of this case. Frankly you haven't presented it to us. You
have complained of the regulation.
The CHAIRMAN. Would you yield a minute? My understanding,
Mr. Mallon, was that the real reason you didn't present arguments on
the merits of Regulation W to us was that you thought the Federal
Reserve Board had issued these regulations without consultation with
industry. That is what I understood.
Senator ROBERTSON. I don't know, I don't pretend to say who the
Reserve Board consulted with. I know Mr. McCabe told me he had
wide consultation with industry, and all the major manufacturers of
automobiles before he took any action, but that is a matter that he can
I want to ask this witness one or two questions, though, to develop
what the Federal Reserve Board is going to tell him when this conference occurs.
First, I notice with interest that you are a dealer in Pontiac automobiles.


Senator ROBERTSON. I bought a Pontiac in September 1948 I ha>%3?
driven it 32,000 miles, and it has given me mighty good service.



Mr. MALLON. Senator, I didn't advertise the car in the statement,
please note that.
Senator ROBERTSON. I didn't figure it would do you any harm.
Mr. MALLON. I appreciate it.Senator ROBERTSON. I paid about $2,000 for that car in September
1948. How much are you going to ask for that car in January 1951 ?
Mr. MALLON. Well, we are going to ask less than we are asking today.
Our figures disclose the fact that used-car prices are on a declining
curve at the present time.
Senator ROBERTSON. I am talking about a new car that you are going
to sell in January 1951. I heard over the radio last night that all of
them have advanced prices again. Now, how much are you going to
ask for that 1951 model, that is what you would call it ?
Mr. MALLON. That is right, sir.
Senator ROBERTSON. H O W much are you going to ask for it ?
Mr. MALLON. I t is supposed to be announced in a couple of weeks.
Senator ROBERTSON. I t is a four-door sedan equipped with just a
heater, no other gadgets, just standard equipment.
Mr. MALLON. Those words sound very familiar. Seriously, sir,
we dealers are in this position. We know the price of the car today.
We are advised by the factories that the new model will be announced
within 10 days, that the prices are going up, over-all, approximately 5
percent, but there will not be a definite price announced on any given
model until the day of the showing, so I can't answer you.
Senator ROBERTSON. What does that model sell for today ?
Mr. MALLON. I t varies in different parts of the country, of course,
sir. You appreciate that.
Senator ROBERTSON. Well, you are not so far from Virginia.
Mr. MALLON. Well, I think probably our price is comparable; the
four-door sedan, you say'?
Senator ROBERTSON. Four-door sedan, eight cylinder, heater, and no
unnecessary gadgets.
Mr. MALLON. I don't carry the exact price in my head, but it is
approximately $2,500 to $2,600. Where is my man? I can't carry
all those prices in my head. I want the guide-book price.
Senator ROBERTSON. For the salve of argument, let us assume it is
$2,600. Why are you asking $600 more for that car than you did
in September 1948'?
Mr. MALLON. They haven't gone up that much.
Senator ROBERTSON. Well, I am telling you what I paid for mine.
You are telling me what you are asking for yours.
Mr. MALLON. Could it possibly be you were on the end of the run,
and they figured it down a little, Senator?
Senator ROBERTSON. Well, in order to get quick delivery, I sent a
man to the Pontiac factory and he drove it in, but he charged me the
full freight rate on it. I saw the bill. He didn't charge me for his
time, and he used up my tires in driving it in, and he charged me the
freight rate, so that is the reason I thought it would probably be a
normal price.
Senator CAPEHART. Will you yield just a moment? It seems to me
the automobile manufacturers set the price of automobiles, do they not ?
Mr. MALLON. Well, the manufacturer—we refrain from mentioning it.



Senator CAPEHART. We are talking about the price of cars. The
manufacturer sets the list price ?
Mr. MALLON. The manufacturer, I don't know as I should say, sets
the list price, because the Department of Justice doesn't agree with
that, so what the manufacturer does is to suggest. He sets the
price of his car at the factory, f. o. b., factory, then he suggests to
his dealers, in the various parts of the country, zones as we call
Senator CAPEHART. H O W long would any one of the manufacturers
keep you as a dealer if you cut the price he suggests ?
Mr. MALLON. Forever; but if I raised it, they wouldn't like it.
Senator ROBERTSON. What I was trying to develop was the fact
that there has been a very big advance in the price of automobiles
in a year and a half, and I was asking the witness why the price of
automobiles had advanced.
Mr. MALLON. Well, that is because the price of material has advanced very radically, and the price of labor has advanced very
rapidly. The cost-of-living index has raised. Wages have raised
continuously, with the exception of one quarter.
Senator ROBERTSON. Then it hasn't been limited to automobiles. I t
affects everything that enters into our economy, and especially what
enters into the Bureau of Labor Statistics index on the cost of living
which has reached an all-time peak; isn't that correct ?
Mr. MALLON. Yes, sir.
Senator ROBERTSON. Then

we have inflation of a serious character,
is that correct ?
Mr. MALLON. Well, that is a controversial question. If it costs that
much for the goods, you have to have that much when you sell it.
Maybe you call that inflation, Senator, but it is necessary to get that
much mone}^ in order to operate and service the public.
Senator ROBERTSON. Well, when prices advance from September
1948 to September 1949, from September 1949 to September 1950, and
then in December 1950 they jump up again, and as I heard over the
radio, Ford is going to jump prices by $180.
Mr. MALLON. That is only on the big Lincoln, as I understand it.
Senator ROBERTSON. Well, when prices continue to go up, do you
call that inflation, or what do you call it ?
Mr. MALLON. N O ; I can't see how it is inflation, provided there is
a reason for it going up, and the reason for it going up is the increased
cost of material, and the increased cost of labor involved in manufacturing.
Senator ROBERTSON. Well, this headline in the New York Times this
morning, which prints all the news, I believe, that is fit to print, says,
"Prices are raised on cars by General Motors and Ford. Increased
cost of material and labor was cited by both. Raise is around 5 percent."
Materials are increasing, labor is increasing, and they have both been
increasing for 2 years.
Now, can you tell us about your conference with Mr. Evans yesterday ? That "yesterday" was some time ago, wasn't it ?
Mr. MALLON. October 16.

Senator ROBERTSON. That is like the "yesterday" that they tell you
when you go fishing and don't catch anything, "You should have
been here yesterday when they were biting."




Have you checked the statistics on inflation since that conference
with Mr. Evans?
Mr. MALLON. We have continuously sent out questionnaires, and
are endeavoring to keep the records as near up to date as possible on
the trend in the market. Now, when it comes to an advance in the
cost of new cars, Senator, that is something that the dealers of the
country do not in any way regulate.
Senator ROBERTSON. I am not questioning that. I am dealing now
with whether we face a serious inflation problem or not. If we don't,
you would be justified in saying certain curbs on credit are capricious,
arbitrary, drastic, wholly unnecessary, and very unfair and unjust.
But if, on the other hand, we face a very serious inflation threat, this
situation may take on a different hue.
You said in your conference with Mr. Evans if they didn't immediately repeal this regulation, thousands of new car dealers would
be forced out of business.
Is it true or not that in October of 1950, from 10 to 20 percent more
new cars were sold than in October of 1949 ?
Mr. MALLON. Correct, and there was that much more manufactured.
Senator ROBERTSON. I t is true that in 1949 the sale of new cars and
trucks exceeded all previous records by over a million units?
Mr. MALLON. By over a million units ?
Senator ROBERTSON. Yes; in 1949 over anything previous to 1949.
Mr. MALLON. That is right.
Senator ROBERTSON. I S it true that it is now estimated that in 1950
the sale of cars and trucks will exceed the high of 1949 by more
than a million units ?
Mr. MALLON. Yes, sir; that is right.
Senator ROBERTSON. I S it true that production in September had
reached the figure of approximately 9,000,000 units?
Mr. MALLON. An all-time peak.
Senator ROBERTSON. Neary 9,000,000 units for that month, speeded
up, of course, by the thought that after the war started in Korea,
they wouldn't be able to get automobiles, and everybody that needed
one, or thought at some future time he might need one rushed in to
place his order with the dealer. Isn't that correct ?
Mr. MALLON. Senator, what happened was this, as I see it, as we
see it in NAD A. When the Government first began to talk about
credit controls on automobiles, there is no doubt in the world but a
lot of people rushed in and bought.
Senator ROBERTSON. I n my home town, the one that my boy went to
see in August said, " I can't possibly deliver you before January, and
I don't know about that." I understand he is now ready to make delivery, but we are not ready to buy.
Mr. MALLON. YOU are not alone in that, sir.
Senator ROBERTSON. I n fact last summer he said " I will put you on
the list, but I can't deliver, I have got so many orders ahead of yours,
until some time in January, or later."
Now, you say that more cars were sold in October of 1950 than in
October of 1949, yet 1949 was the highest previous year in the whole
automobile industry.
Isn't it true that since the Korean War, consumer credit has been
increasing at the rate of $500,000,000 per month ?
Mr. MALLON. Not on automobiles alone.



Senator ROBERTSON. Not on automobiles, we will come to what they
cost, but consumer credit. Isn't it true consumer credit now exceeds
Mr. MALLON. I don't know the figures, Senator, frankly.
Senator ROBERTSON. I think they are the figures that the Federal
Reserve Board will give you when you go down there for your conference. Isn't it true that mortgage credit now exceeds $40,000,000,000 ?
Representative PATMAN. Senator, would you mind stating the part
that automobiles play in that picture.
Senator ROBERTSON. I will come to that in a minute. Isn't it true
that mortgage credit now exceeds $40,000,000,000 ?
Mr. MALLON. Senator, we automobile dealers are not economists.
Senator ROBERTSON. N O ; but you have got to face economic problems.
Mr. MALLON. We have our problems in facing the conditions that
exist in the automobile business.
Senator ROBERTSON. I am in sympathy with fair treatment for the
automobile dealers. I want them to do business, I want them to make
reasonable profits, but when you go down and challenge the necessity for credit curbs, you can't ignore the statistics on inflation, and
I am trying to develop some of them for you.
Isn't it true that bank credit, since World W a r I , has increased
by more than $18,000,000,000 ? ^
Mr. MALLON. That again, sir, I am not competent to answer.
Senator ROBERTSON. Isn't it true that bank credit, since July of this
year, increased by more than $2,000,000,000 ? You don't know those
Mr. MALLON. N O , sir; I am here to talk automobiles, sir.
Senator ROBERTSON. Well, do you admit that the cost of living has
reached an all-time high ?
Mr. MALLON. That is the report; yes, sir.
Senator ROBERTSON. Do you know the total of the sale of automobiles, passenger cars, in money, for 1949 ?
Mr. MALLON. I don't recall at the minute.
Senator ROBERTSON. I t was $8,000,000,000.

Mr. MALLON. I S there anything wrong about that, Senator?
Senator ROBERTSON. Not a thing in the world. Do you know how
much the American public spent for liquor in the same time ?
Mr. MALLON. No, sir; I only know what it cost me.
Senator ROBERTSON. They spent $8,500,000,000.
The CHAIRMAN. I think we ought to limit the questioning. The
Members of the House have questions they want to ask on automobiles.
Representative BROWN. May I ask you one question before you
proceed ?
Mr. MALLON. Yes, sir.
Representative BROWN.

Your request is a very simple one. All you
want us to do is to make an engagement with the Federal Reserve
so your association may present its views ?
Mr. MALLON. That is our basic interest.
Representative BROWN. I believe the Federal Reserve will give you
your hearing. As a matter of fact, I think the one-third payment
down is right, and I think you gentlemen ought to have at least
18 months for the payments.
Now, I don't see that that would affect inflation any more than 15
months. I do know the war workers and a lot of other people can



not pay the two-thirds in 15 months, but can pay it in 18 months.
Now, that is my feeling, but still we can't make the Federal Reserve
Board do anything, but I believe they will give you a hearing, and I
think we can get through these witnesses pretty quick and get back to
our other business.
Mr. MALLON. I would like to conclude.
The CHAIRMAN. Unless there are some questions.
Eepresentative PATMAN. Yes; I would like to ask some questions.
When this bill was before our committee, Mr. Mallon, I carefully
watched its provisions, because I didn't know that the Federal Reserve Board would be the right one to delegate this authority to, and
I personally resisted it. Other Members of Congress resisted it.
Mr. MALLON. I recall that, sir.
Eepresentative PATMAN. I resisted it because I was apprehensive
that they would not confer with the people, including trade associations, and other organizations, which should be done—based upon the
fact that we are in a democracy. Our country is a democracy and a
republic, and we believe in democratic processes. The Federal Reserve
Board is not obligated to Congress. The Federal Reserve Board
is not obligated to the President of the United States. The Federal
Reserve Board has gotten itself separate and apart from our Government. Originally the Secretary of the Treasury and the Comptroller
of the Currency, they were on that Board, but over the years they have
been gotten off, and now you have a Board composed of people who
serve for a term of 14 years, that is their term of office. They are under no obligation to the Congress or the President. They can't be
reached directly or indirectly by the sentiment of the people, and for
that reason, in a democracy, I think we should have somebody directly responsible to the people, at least indirectly responsible to the
people, to administer such drastic restrictions and regulations as will
necessarily be imposed in carrying out and furthering the public interest, and for that reason I oppose the Federal Reserve Board having this authority. I deplore the fact that they started off corroborating everything that I said by refusing to even listen to the representatives of your industry, when I know that during the Second World
W a r your industry cooperated 100 percent, and you furnished vital,
essential transportation. We were wondering a while as to how you
were going to furnish the essential transportation, but your industry
solved that, and you cooperated, and I know something about your industry, and you know that I do, over the }7ears. I regret that the Federal Reserve Board has started out by ignoring an industry that had
so much to do, and rendered such great service in World W a r I I .
Now this law expires next June 30. I think the cure for this is to
place the authority under the President of the United States, somebody who is directly responsible to the people, to carry out these rules
and regulations and restrictions, and I think that is the remedy, and,
even if the Board does give you a hearing, I am not so sure as to what
changes you might get made, if any. They can hear you, and still not
hear you. Because of the fact that they started out determined not
to hear you, not give you any consideration, I would be a little bit
apprehensive as to what consideration you might get now.
I think the remedy is to take it out of the Federal Reserve Board
and put it under the President of the United States, or somebody
who is charged directly or indirectly with carrying out the will of the



people as expressed in a democracy such as we have here, and there
is where I think your remedy is, to get it out of the Federal Reserve
Mr. MALLON. Mr. Chairman, I would like to just reply to these
statements. All that NAD A is trying to do is to work for the benefit
of the public, the people who need transportation, and naturally in
doing so we are endeavoring to obtain terms, as necessary, for the
survival of the dealers. We can't afford to lose 40 or 50 percent of
the dealers of the country, or there will not be enough people to furnish service to those who need transportation.
Secondly, while the Senator has mentioned the vast sale of cars, delivery of cars, may I point out, as long as it has been brought up—
and we didn't intend to bring up the details here—that those cars
were delivered to people who really didn't need them because the
person that had their orders on our books, and expected to buy them
on 24 months, we will say, or 30 months, had to cancel their orders.
They couldn't buy them; but the man that had a '49, which was a
perfectly good car and didn't need to trade, was the one that peaked
up our deliveries, and our point is that these stringent 15-month
terms are preventing cars going to that man who is necessary to the
economy of the country, and to the war effort, because of his limitations and his inability to meet the heavy monthly payments.
Congressman Brown here, I agree with him. Eighteen months
would improve it, but if we can sit down with the Board, and the
Board will be receptive at all and give consideration to the figures we
have, and permit us to point out how the automobile industry works,
I don't know about mortgage loans, frankly, I don't know about bank
credits, and all that—it keeps me busy keeping up with my little job
in the automobile business.
The CHAIRMAN. I can only say this. Mr. McCabe is coming down
here to testify, and I for one certainly will join with the others in a
request that your industry be given a proper hearing and proper consultation. I presume we are all agreed on that from what I hear.
If there are no further questions, I will ask Congressman Holifield
if he wishes to make his statement ?
Senator CAPEHART. Just a minute, sir. We understand that your
position is that all you are asking for is the right to appear before the
Federal Reserve Board and state your position.
Mr. MALLON. That is correct, sir.
Senator CAPEHART. And you have said to us that the Federal Reserve Board has refused you that right to date ?
Mr. MALLON. T O date.
Senator CAPEHART. And all you want is a right to appear before the
Federal Reserve Board?
Mr. MALLON. May I say this. I n 1941 when our regulation W was
about to be imposed, there was a large meeting room down there with
a very large mahogany table, and on one side the entire membership
of the Board sat, and we who were interested parties were on the other
side, and everyone was afforded an opportunity to say to the Board
directly just what they thought about the situation.
Senator CAPEHART. Let me say this. I am going to take what you
said at face value, that they have refused you a hearing, and I presume the facts will speak for themselves. I know they will. But if



they did refuse you a hearing, then of course in my opinion they were
wrong, and they should hear your association at the earliest possible
moment. I feel confident that, when these hearings are finished, they
will hear you.
Senator ROBERTSON. If the Senator will yield, I am not a special
pleader for the Federal Reserve Board, although so far as I know it
is the only agency that has done anything to curb inflation since we
passed the bill, and all the other powers under the bill were conferred
on the President.
Representative PATMAN. But the President designated the Federal
Reserve Board on some of these other powers.
Senator ROBERTSON. These dealers requested a hearing of the Federal Reserve Board, and after the November election they were offered
a chance to have a hearing, and didn't take that offer. Is that correct?
Mr. MALLON. NO ; that is not correct, sir.
Senator CAPEHART. I only have one thought, and that is the law
requires them to give you a hearing. Now, if they refused to give you
a hearing, they were wrong.
Mr. MALLON. I want to be perfectly fair, Senator Capehart. I
think the technical language does not require them to do it. I t does
require them
Representative PATMAN. I t was the intent of Congress. I believe
every member on the committee would say it was the intent of
Senator CAPEHART. I am sure it was the intent of Congress that
they give you a hearing.
Mr. MALLON. I have no doubt about that.
Senator CAPEHART. The intent of Congress was that they were to
give you a hearing.
The CHAIRMAN. Or any other industry before issuing a regulation
affecting that industry, unless special circumstances make that course
Senator CAPEHART. If they refused to give you a hearing, they were
wrong, and they should immediately give you a hearing.
I think the only thing before this committee at the moment is
whether or not they did refuse to give you a hearing, and if they did
then I think this committee ought to recommend to the Board, by
resolution, that they do give you a hearing.
Senator ROBERTSON. I n the latter part of October I conferred at
length with the Chairman of the Board, Mr. McCabe, and Mr. Evans,
and I told them I had so many complaints it looked to me like there
may be something wrong with their regulation, and would they give
consideration to easing it up some.
Mr. Evans told me they were going to keep in close touch with it.
If they found the regulation was unnecessarily drastic, they would
relax it, and we would be glad to hear industry at any time.
Now that is what he told me.
Mr. MALLON. Senator, may I emphasize this fact: that the Federal
Reserve Board in their judgment, and without consultation with
industry, established regulation W on the basis of a 21-month maturity, and within 3 weeks they arbitrarily cut it to 15 months, and I
would like to emphasize to you gentlemen the fact that in 3 weeks'
time the experience would render no indication of the effect of regulation W with 21 months' term in its effect on the industry.



Representative BROWN. Regardless of whether or not you have been
heard, I think the Federal Reserve Board and your association ought to
get together now. This committee doesn't want to decide whether
you had a hearing or not. Some say you haven't; some say you have.
Now is the time you should get together and see if you can settle it.
If not, come back here and we will pass some legislation.
Mr. MALLON. We in NADA are hopeful that through the good offices
of your committee, Mr. Chairman, you will be able to effect an arrangement whereby we can sit down with the Board and endeavor to work
out our problems.
Senator ROBERTSON. Mr. Chairman, I hate to take up so much time,
but it is inconceivable that the Federal Reserve Board would refuse
a hearing, and if the purpose of these hearings today is to request
us to compel them to do so, I think the proper position for us to take
would be that when we recess today you, Mr. Mallon, ask for the hearing, and if you are granted the hearing, and the other witnesses tomorrow or the next day are just to back up your request that we request the
hearing, there would be no point in our continuing these hearings ?
Representative PATMAN. I am not in favor of asking the Federal
Reserve Board for a hearing. We wrote that into the law. The law
is very plain. If they have arbitrarily gone against the law, that is
something we can consider when we write a new law, or we can introduce a new bill, or an amendment to the existing law. I think these
hearings ought to go ahead.
Representative H A Y S . At some stage, Mr. Chairman, we ought to
hear the Federal Reserve Board's statement as to the special circumstances which made consultation impracticable. I say that in the
interest of accuracy.
I agree thoroughly with what has been said about the intent of the
Congress, but, in the same paragraph in which we expressed our intent,
we gave them the power to say that special circumstances might have
made it impracticable, so that is an important part of the record, and
I will say that for their benefit.
Representative PATMAN. Senator, would you yield, briefly?
The CHAIRMAN. Certainly.
Representative PATMAN. On page 6 of Mr. Mallon's statement here,
he quotes the Federal Reserve Board as saying, "in accordance with
the requirement of the aforesaid section 709, there has been consultation with industry representatives, including trade association representatives, and consideration has been given to their recommendations."
That is what they said one time.
Another time they gave the excuse that was put into the law where it
was impracticable and they couldn't do it, so that is not consistent: is
it, Mr. Mallon?
Mr. MALLON. That is what we are claiming, Mr. Congressman. We
claim they have been inconsistent, and arbitrary, in changing within
3 weeks the provisions of the law.
Representative PATMAN. One time they said they did confer with
you; the other time they gave an excuse as to why they did not.
Mr. MALLON. I think NADA should be given credit where the
original regulation was issued for 21 months that we didn't object.
I t was our thought that we ought to try it out. We wanted to cooperate with the Reserve Board, and we started immediately sending



out questionnaires to see what the effect of the 21-month maturity
would be on the industry.
We didn't have replies enough. Nobody could get replies in 3 weeks'
time, because the first w^eek of the 3 weeks was a carry-over of business
that was closed before September 18.
The CHAIRMAN. Mr. Mallon, we are very appreciative of your
T h a t was the bell ringing, and unfortunately Congressman Patman
has to be on the floor.
I have two resolutions to introduce in the Senate. I n the meantime, we want to thank you for your testimony.
Mr. MALLON. We would like to thank you and your committee, sir,
for your patience and attention.
The CHAIRMAN. Congressman Holifield wishes to speak before Congress meets, I understand.
Representative HOLIFIELD. I hesitate to take your time after the
bell has sounded.
I come from the Los Angeles area of California; there are about
4,000,000 people in what we call the "metropolitan area." We have
many defense plants and industries there, and we do not have the
public transportation there which is found in many of the eastern
cities. Therefore, the per-capita ownership of cars in southern California, I believe, is the highest in the Nation.
NowT, while I was home, I was contacted by many of the automobile
dealer associations, and by many individuals. I want to bring up two
points here, particularly.
One point is the freight differential on the Pacific coast, and this
will also apply to Texas and other parts of the Nation that are far
removed from the Detroit and Flint automobile centers. I t averages
about $300 per car more than if it was in the area of production.
Therefore, that adds about $25 a month to the average individual's
car payment out there when you consider the amount of freight and
the interest, so you see that there is a disproportionate burden put on
the people wTho have to pay large freight bills, in contrast to those
that are near at hand.
Now^, in actual fact, I have many telegrams here which I will not
burden you with, but the telegrams and signed letters show that in
the month following the initiation of the 15-month regulation the
average drop in automobile sales was 50 percent.
The second point I wish to make is the necessity of a longer payment
The average increase in monthly payments on a car of approximately $2,300 was from $75 to $110 a month. I n a car in the class
of an Oldsmobile, a $3,000 automobile, the payment jumped from a
little over $100 to $140 a month. Most of the automobile dealers in
my area seemed to be fairly well satisfied with the one-third down
payment. They seemed to think that while it makes it a burden, to
be sure, upon the buyer, that it is a protection to the industry, and t h a t
the people who buy new cars should put at least one-third down; but
without exception, almost, they do believe that the reduction to 15



months' time period of payment has made it almost impossible for the
workingmen of our community to buy automobiles.
Most of the workingmen have an average take-home pay of about
$250 a month. I have in my district practically all of the big rubber
plants, the big steel mills, the automobile assembly plants, and other
types of manufacturing which are located on the east side of Los
Angeles, and I know of personal knowledge that the average takehome pay of those workers is around $250 per month.
Now, it is axiomatic if they pay over a fourth of that amount on an
automobile payment that it is too much. They can't live. If a fourth
goes to rent and a fourth to an automobile, you can see it leaves only
$120 a month for their family to live on.
Now, the result has been that the sales of new cars have dropped.
I know of a Studebaker agent in my district whose sales dropped from
26 in the previous month to 10 in the following month.
The CHAIRMAN. D O you want to put those telegrams in the record ?
Representative HOLIFIELD. N O ; they are not quite in shape to file,
but I will prepare them and file them later, thank you.
I would like to say that I believe some corrections could be made
in the interpretation of the regulation which would exclude freight
from the 15 months' period. I believe that would be a fair adjustment,
particularly to many parts of the country that are far removed from
Detroit. I think the monthly payments of within 15 months should
be increased at least to 21.
Many of our cars in the past were sold to the workers out there on
24- and 30-month payments, and it has been successful. I t is an established practice among industrial workers to buy on a 24- to 30-month
basis, so if a fair adjustment could be made I believe it would alleviate
for the time being the hardships that are being caused in most
instances, and it would also give the workers a chance to buy automobiles to get to and from work, which is absolutely necessary in
these areas where they do not have public transit facilities, as you
have in the eastern cities.
I n conclusion, gentlemen of the committee, if the Federal Reserve
Board refuses to extend the time payment period to the general public,
I believe that it is imperative to give special preference to workers in
our defense industries. I therefore suggest that a special priority
classification be set up by amending regulation W, so that workers in
vital war industries may have longer time payment periods than
nondefense workers.
The CHAIRMAN. We thank you, Congressman.
Representative HOLIFIELD. I n deference to the time limit, I will
conclude my testimony at this point, and extend it later in the record,
if I may.
The CHAIRMAN. Without objection, whatever you desire to place in
the record from your constituents may be submitted.
(The telegrams and letters referred to follow:)
Los ANGELES, CALIF., December


C o n g r e s s m a n C H E T HOLIFIELD,

House Office Building:
Due to credit regulations, n e w a n d used c a r sales have dropped 52 percent.
Only 11 percent of total sales financed by buyers. Average down payment on n e w
Oldsmobile in Los Angeles is $1,000; monthly payments average $140. F r e i g h t
in Los Angeles $300 higher t h a n Detroit area.


657 South


Los ANGELES, CALIF., December



House Office Building:
W e estimate loss of business, under new regulation W, to be 50 percent. Cont r a c t s w r i t t e n in November 26 a s compared to 46 in September. Any effort to get
regulation W modified will be appreciated.
V. E . RUTLEDGE, Buick



House Office Building, Washington, D. C:
Regarding regulation W, we a r e opposed t o present restrictions a s regards time
limit of 15 months, a s i t directly affects t h e w o r k i n g m a n who cannot afford high
monthly payments. T h e r e it h a s reduced our sales 30 percent.

L o s ANGELES, CALIF., December

4* 1950.


House of Representatives,
Washington, D. C:
Regulation W causing d r a s t i c reduction in c a r sales. Ten new c a r s sold September 18 to October 1 8 ; n o r m a l sales equal 26. Used cars sold same period, 12 ;
normal, 37. Continued enforcement of present regulation W will force c a r
dealers out of business.

472 South
E A S T L o s ANGELES, CALIF., December



House of Representatives,
Washington, D. C:
Request your representation in getting relief on Regulation W to a point w h e r e
w e c a n accommodate some of t h e 40 t o 50 percent of t h e people in this very
stable i n d u s t r i a l E a s t Los Angeles a r e a w h o a r e being denied t h e privilege of
owning a new c a r d u e to t h e limited payment schedule a s set forth in t h e present
regulation W.

Los ANGELES, CALIF., November


C o n g r e s s m a n C H E T HOLIFIELD,

5112 Whittier Boulevard, East Los Angeles, Calif.:
T h e Motorcar Dealers Association of southern California a n d t h e Los Angeles
Motorcar Dealers Association, representing approximately 600 new-car dealers
a n d in excess of 18,000 employees, wish to bring to your attention a n d vigorously
protest t h e action t a k e n by t h e B o a r d of Governors of t h e F e d e r a l Reserve System
in curtailing automobile contracts to 15 months m a t u r i t y .
We believe t h a t this a r b i t r a r y restriction seriously h a m p e r s t h e American
w a y of life a n d t h e n a t i o n a l economy. To s a y t h e least, a n d flaunts t h e l a w a s
passed by Congress commonly known a s t h e Defense Production Act of 1950, w e
call your attention p a r t i c u l a r l y t o —
" S E C . 709. * * * Any rule, regulation, or order, or amendment thereto, issued
u n d e r a u t h o r i t y of t h i s Act, shall be accompanied by a s t a t e m e n t t h a t , in t h e
formulation thereof, t h e r e h a s been consultation with industry representatives,
including trade-association representatives, a n d t h a t consideration h a s been
given to their recommendations. * * *"
I t is t h e opinion of o u r m a n y members t h a t t h e above section of t h e l a w w a s
not compiled with by t h e F e d e r a l Reserve authorities, a n d t h a t t h e lack of unders t a n d i n g h a s caused a great h a r d s h i p to t h e general public a s well a s to automobile dealers a n d their employees. I n some areas, new- a n d used-car sales
h a v e reportedly declined 50 percent since t h e imposition of credit controls of
September 18. P a r t i c u l a r l y here in t h e Pacific Coast States, w h e r e freight
r a t e s result in g r e a t e r down payments a s well a s higher monthly installments,
t h e h a r d s h i p on prospective new- a n d used-car p u r c h a s e r s h a s been especially



If we are in an all-out war effort, and the matter is competently discussed and
explained, we are sure the automobile dealers and the public will make whatever sacrifices are necessary. But, until such time as an effort of this kind has
been announced, we do not believe that the action taken is justifiable.
We urge you to action in this matter to protect our democratic form of government and the elimination of such unauthorized action.

President•, Motorcar Dealers Association of Southern



President, Los Angeles Motorcar Dealers Association.

Los ANGELES, CALIF., December 5, 1950.

United States House of Representatives,
Washington, D. C.
Our business vitally affected by regulation W. Sales away off; relief needed.
Sales August 18 through September 17, used 18, new 31; September 18 through
October 17, used 10, new 17; November sales also low, monthly payments too
high to permit mass buying.
Los ANGELES, CALIF, October 16, 1950.

East Los Angeles, Calif.:
Please use all your influence against the latest application of regulation W
cutting installment sale time on automobiles to 15 months. The previous application of 21 months time was sufficiently drastic to accomplish purpose. The
present regulation is especially hard on your Pacific coast constituents. Due
to freight differential they must pay an extra $35 per month over Eastern States.
Unless the latest application is relaxed at least back to 21 months the automobile
dealers will be closed out and many people forced to walk to work on war
jobs. Your supporters plead for your assistance.

HUNTINGTON PARK, CALIF., October 28,1950.
Representative CHET HOLIFIELD,

House of Representatives, Washington, D. C.
HONORABLE SIR: It is urged that you contact the Federal Reserve Board and
demand immediate rescission of the new terms of regulation W governing present
credit controls regarding the purchase of new and used automobiles.
The effects the present controls will have are indeed far-reaching in their scope.
The Nation's economy will be severely impaired as the automotive industry is
the largest that exists today. It is evident no serious deliberation or consideration was given by the Federal Reserve Board in establishing the present controls, and that those who are acquainted with the facts were given no opportunity to explain what the results would be.
To give example, following are statistics regarding past sales of used cars
of this dealership:
September . .
October (20th)




16, 575.00

As is evident, this agency is one that could not be considered a major distributor. Nonetheless, we feel that the above figures are indicative and will



prove t r u e w i t h all other dealers regardless of quotas or location. Both sales
a n d t o t a l dollar volume have dropped over 50 percent from normal volume.
W i t h o u t a doubt, t h e regulation should be corrected, a n d longer t e r m s be
p e r m i t t e d t h e purchaser, for reasons t h a t you can indubitably forsee. T h e r e fore, we again urge you to exert your influence to rectify a n unjustifiable regulation t h a t is imposing a n u n w a r r a n t e d a n d inexcusable h a r d s h i p on t h e e n t i r e
automotive industry.
Yours very truly,
A. R. A H R E N S .


May wood, Calif., October %k, I960.

Montebello, Calif.
DEAR MR. HOLIFIELD : W e urge you to protest vigorously, t h e action taken by
t h e Board of Governors of t h e F e d e r a l Reserve System, in curtailing automobile
We feel t h a t t h e new credit restrictions h a v e imposed a n unnecessary h a r d ship on dealers, a n d t h e general public. I t h a s been t h e cause of new c a r inventories increasing beyond normal requirements, a n d h a s forced dealers into
a position whereby they a r e offering excessive prices for trade-ins, in a n effort
to outbid each other for t h e few customers t h a t can qualify.
I t is o u r opinion t h a t a grave injustice h a s been done to t h e automobile indust r y by this u n w a r r a n t e d a n d a r b i t r a r y action. W e ask t h a t you take w h a t e v e r
action is necessary to protect our "American way of life" from edicts of this
Yours very truly,




Los Angeles,

Calif., October

2^5, 1950.


Los Angeles, Calif.
DEAR MR. HOLIFIELD: We, as a new automobile sales agency, urge you to do
everything within your power to obtain a modification of regulation W.
T h e situation now existing in t h e automobile business is appalling. If t h i s
situation is not corrected, a n d very, very soon, it will not only seriously undermine our own financial status, b u t will reflect upon all business.
Forced restrictions a r e always resented, but regulation W h a s presented even
more of a problem t h a n t h a t . T h e average m a n who h a s for years p a s t purchased h i s c a r on t h e time payment plan, h a s so budgeted himself t h a t i t is
quite n o r m a l to m a k e monthly payments of $45 a month for 24 months. Such
a figure is adjusted to h i s income, a n d h e is able a n d willing to p u r c h a s e on
such a plan. Now, regulation W is requiring t h e same m a n who h a s allowed
$45 for t r a n s p o r t a t i o n , to p a y $100 or more a month. Obviously, this is impossible. T h e only conclusion one can reach in view of t h e above is t h a t regulation
W, can, if continued, force a dealer out of business and also deprive t h e m a n
who needs a c a r of t r a n s p o r t a t i o n ( a n d believe us, a c a r is a necessity in Los
Angeles, not a l u x u r y ) .
To s u b s t a n t i a t e this, our new car sales have dropped 95 percent since regulation W changed to a 15-month basis on automobiles.
This is a critical situation t o say the very least. Will you please give us
your cooperation in having regulation W modified?
Sincerely yours,



W h e r e a s t h e F e d e r a l Government h a s p u t into effect by regulation W d r a s t i c
restrictions on time purchases of motor vehicles which provide for a 15-month
m a t u r i t y m a x i m u m with a one-third down payment, in consequence of which t h e



monthly installment on even the lower priced lines of new cars will exceed
$100 a month, making it impossible for the average worker to buy a new car or a
late-model used car; and
Whereas ownership of an automobile to the average worker has ceased to be a
luxury and is instead a necessity to meet transportation problems in going to
and from work; and
Whereas the imposing of regulation W will bring about a great curtailment in
the sale of motor vehicles, particularly new cars and late-model used cars, all of
which will result in the loss of employment to salesmen, mechanics, garage
employees, production workers, office help and others connected with the manufacture and sale of motor vehicles: now therefore be it
Resolved, That the Los Angeles Central Labor Council hereby goes on record
in opposition to said regulation W and urges that the 15 months maturity
maximum be extended to at least 24 months ; Be it further
Resolved, That publicity be given to this resolution and steps be taken to
obtain the support thereof from other organizations, and from individuals and
from our representatives in Government office.
Adopted in regular session of the Los Angeles Central Labor Council, November
.20, 1950.
W. J. BASSETT, Secretary.

The CHAIRMAN. I S Mr. De Wolfe here, from Bronxville, N. Y. ?
If you wish to be the first witness tomorrow, you may, but since you
are from New York you probably want to get back home. I am sorry
it is so late, but those things happen, you know, because we have to be
in the Senate at 12.
Mr. D E WOLFE. What I have to say will take only a few moments.
The CHAIRMAN. We will file any statement you have in the record.
Will you proceed in your own way, sir ?
Mr. D E WOLFE. Mr. Chairman, my name is Harold De Wolfe. I am
managing director of the League of Mutual Taxi Owners, and appear
on behalf of the board of directors, officers, and members of the League
of Mutual Taxi Owners, Inc., an organization representing over 2,000
individual taxi owner-drivers in the city of New York, I wish to bring
to your attention that part of regulation W, from the pamphlet, which
was issued to us by the Board of Governors of the Federal Reserve
System, titled "Consumer Credit," effective September 18,1950; to the
listed article known as "Taxicabs of less than 10 passengers."
I n group A of this regulation, the minimum requirement for the
purchase of a taxicab of less than 10 passengers is a down payment of
33% percent cash, and the maximum loan that may be secured on this
purchase is 66% percent of the purchase price. The time limit for the
repayment of such loan, which was recently amended by the Board
of Governors of the Federal Reserve System, is 15 months.
We feel that this section of the regulation works a tremendous hardship on the individual owner of small metered taxicabs. This section
of the regulation should be corrected or amended, so that small metered
taxicabs may be placed on the exempt list.
May we cite further reasons justifying our claim:
I n reviewing regulation W w^e find that exemptions are made for
trucks, busses, funeral cars, vehicles for hire of 10 or more passengers
and equipment for business purposes. Metered taxicabs are used for
business purposes only. We ask why the metered taxicab has not been
placed on the exempt list; why they have been overlooked.



The individual who owns and operates a metered taxicab is allowed
only, according to law, to carry a maximum of five passengers. We are
small-business men and when we have to purchase new equipment,
which means a new taxicab, we are doing this purely for business
These metered taxicabs are used exclusively for the purpose of transporting the public at a metered rate. We are never allowed, under the
regulations of the Police Department of the City of New York, to
use our taxicabs for pleasure purposes. We use our taxicabs strictly
for business. We cannot understand the reason in exempting trucks,
busses, funeral cars and, for that matter, large corporations in the
taxicab industry, but compel the individual taxi owner-driver to come
within regulation W.
The CHAIRMAN. YOU say they exempt large owners ?
Mr. D E WOLFE. Large corporations. That is, because we find a
large corporation has to purchase a certain amount of taxicabs. Their
loan would amount to so much that it would be on the exempt list
of the regulation W.
The CHAIRMAN. I see what you mean.
Mr. D E WOLFE. The individual owner would probably require a loan
of only $2,000, and would come within regulation W. Therefore,
there is discrimination against the single businessman in the taxicab
We would like to point out to this committee what regulation W,
as it stands today, means to the purchaser of an individual taxicab.
The purchase price for new taxicabs today ranges from $2,600 to
$3,000 per cab. According to regulation W, we must pay one-third
of the purchase price in cash. This means that we must pay from
$866 to $1,000, depending on the price of the cab we select. The balance would have to be borrowed from a credit union, bank, or some
other agency that provides for installment credits. The weekly payments, on the basis of a 65-week time limit, would therefore average
from $27 to $31 weekly, plus the interest charges.
You can readily see and appreciate the additional hardship that is
imposed on the individual taxicab owner-driver, the small-business
man of America, who is desperately trying to provide his family with
the necessary daily needs for decent living.
Under the present civilian defense program, here in the city of New
York, the taxicab is expected to play a very important part. We feel
that we can only perform our duties if we are definitely sure of operating a taxicab that is in first-class condition. If regulation W is maintained, as it stands today regarding metered taxicabs, we will find it
financially impossible to be sure of having the newest and best equipment. We must be in a position, without any restrictions, to be able
to purchase new equipment for our business so that the proper service
may be given to the public.
We therefore ask this committee to bring this matter to the attention of the Board of Governors of the Federal Reserve System, with
the purpose of having this discriminatory part of regulation W
changed, so that we, the small-business man in the taxicab industry,
may be free to conduct our business without having this additional
burdensome financial problem to contend with. If this change were
made, we would be able to arrange our credits in smaller notes and for



a longer period of time on our loans. We would have more dollars for
home use, which is so important in these times of high cost of living.
We trust that this committee will give this matter serious consideration, and that it will make certain the proper authorities are made
aware of his discriminatory section of regulation W.
The CHAIRMAN. Mr. De Wolfe, I will be only too glad to call it
to the attention of the Federal Reserve Board. I can see the possibility of discrimination where larger corporations are exempted and
smaller purchasers are not. I have asked the Small Business Subcommittee to make a study of the problem.
Are there any questions, gentlemen ?
If not, we will meet at 10: 30 tomorrow morning.
(Whereupon, at 12 o'clock noon, the hearing was recessed until
10: 30 a. m., of the following day.)



Washington, D. C.
The joint committee met at 10:30 a. m., pursuant to recess, in the
Interstate and Foreign Commerce Committee Room, United States
Capitol, Senator Burnet R. Maybank (chairman) presiding.
Present: Senators Maybank and Capehart; Eepresentatives Brown,
Patman, Gamble, and Talle.
Also present: Representative Harvey.
The CHAIRMAN. I will ask that the meeting come to order.
I understand, Mr. Congressman, you are in a hurry to get to another
Representative HARVEY. T h a t is right.
The CHAIRMAN. Proceed, please.
Representative HARVEY. Gentlemen of the committee, I appreciate
very much this opportunity to present the testimony that I have to
offer. As Senator Maybank has said I have hearings in my own committee in the House, and am anxious to get back to those hearings.
As United States Representative from the Tenth District of Indiana, I am appearing in behalf of the automobile dealers of our 10county area in east central Indiana.
The facts and figures to which I call your attention have been volunteered by the auto tradesmen of our Hoosier community. I shall seek
to present them without elaboration. I believe they warrant your
consideration because they constitute a cross-section report from the
Midwest and they graphically tell the story of what regulation W,
as currently in force, is doing to an important segment of the American business economy.
A total of 44 dealers is represented by the figures I have at hand.
They have set forth the data requested on a simple form prepared by
my own office. Seven of the group deal exclusively in used cars, but
the greater number are established dealers in new as well as used cars
and trucks.
During the period from September 16 to October 15, when regulation W was in operation, these dealers sold a total of 669 new cars
for a total gross value of $1,294,066.60. During the next 30-day




period, after the regulation was amended to make it more stringent,
their aggregate sales dropped to 461—a loss of 208—with a value of
$904,536.87, or a decline of approximately $390,000.
On a parallel time basis, the total transactions in the used-car market declined even more drastically. There, within the 60-day period,
sales fell off from 1,190 units to 783, a loss of 407. This loss figure
translates into $332,000.
My purpose in reciting these figures to you is not merely to substantiate the fact that the retail automotive business is suffering a severe
curtailment of its activities. That fact is well known and indisputable. I am more concerned with the hardships apparently in store
for the motoring public and for the many commercial activities whose
welfare is closely identified with that of the great automotive industry.
From many letters written by dealers in our Indiana area, I would
appreciate the privilege of quoting one in its entirety. I t came to me
from the city of Connersville, and I am satisfied it reflects the sentiments of auto dealers throughout the area. I believe, too, it is a
rational plea deserving rational judgment.
The letter is as follows:
DEAE SIR : This is an urgent appeal for you to use your influence to bring about
any possible easing of the Federal Reserve Board's credit-restricting regulation W.
When regulation W was originally put back into effect September 18, we immediately noticed a serious drop-off in our used-car business. Our sales for the
month of September were approximately 35 to 40 percent below previous months.
Recognizing the fact that it was undoubtedly for the good of the national
economy, we, of course, were more than willing to go along with this program.
The amendment, however, that was put into effect in October brought about
an additional decrease in our sales to the point that it is now becoming evident
that our used car sales will suffer by a decrease of at least 50 percent. This
regulation, in our opinion, is far too stringent for present conditions. Many
citizens who were prospective customers prior to the enactment of this regulation
are now unable to purchase automobiles because of the short-term time balance.
Many of these people, of course, are employed in industries which are or will
be engaged in defense production, and we feel that it is vital to the public welfare
to see that something is done to make it possible for such buyers to purchase
dependable vehicles. The present restrictions are as rigid as they ever were
during the worst part of the last war, as far as the purchasing of an automobile
is concerned, and it certainly has the appearance at least of being discriminatory
against the automobile industry.
We definitely feel that these restrictions must be eased for the good of the
entire automotive industry as well as the national economy and the public

That concludes my statement, gentlemen.
The CHAIRMAN. Mr. Congressman, we appreciate your interest in
the matter,, and we appreciate hearing from you.
Kepresentative BROWN. Mr. Chairman, I suggest that we set one
day to hear the Congressmen who may want to be heard.
The CHAIRMAN. I think it would be better for the Congressmen and
Senators, because we will have a better chance to question them. We
have these hearings sort of arranged in advance, but we were glad to
hear you this morning, Mr. Congressman. I wish you would notify
the Congressmen and Senators that we have decided in the best interest of all, we will set a special day aside for them, because there
are many that want to be heard. In the meantime, without objection,
I am going to ask permission to file in the record a letter from Senatorelect George Smathers, now Congressman, of Florida, enclosing a letter



from the Jacksonville Automobile Dealers Association. He asked
that it be put in the record.
(The letters referred to follow:)


H o n o r a b l e B U R N E T R.



on Banking


D. C, December



Washington, D. C.
DEAR SENATOR MAYBANK : T h e enclosed copy of a letter to Mr. Thomas Lanf
m a n a g e r of the Jacksonville, Fla., branch of the F e d e r a l Reserve Bank, is
w a r d e d for your consideration.
T h e Jacksonville Automobile Dealers Association sent me t h i s copy a n d
pressed their hope t h a t your committee's attention would be brought to
facts contained therein.
W i t h kind regards, I am,
Sincerely yours,





Fla., November

2!i, 1950.


Manager, Federal Reserve Bank, Jacksonville
Comer Hogan and Church Street, Jacksonville,
DEAR MR. LANFORD: I a m w r i t i n g you on behalf of the 21 new car dealers of
t h e Jacksonville Automobile Dealers Association concerning the disastrous effect
of regulation W as now amended on their business.
W e have compiled figures on new and used car sales and dealer inventories
for the months of September and October 1950 from the actual dealer records.
F o r t h e first 17 days of September prior to t h e effective date of regulation W,
these dealers sold 822 new automobiles a n d 953 used automobiles. This is an
average of 58.7 c a r s per day for new car sales and 63.5 cars per day for used
car sales for t h e 14 working days of t h a t period.
F o r the period beginning September 18, 1950, and ending October 15, 1950,
t h e period during which regulation W w a s in effect and prior to amendment No.
1, these dealers sold 986 new automobiles a n d 1,282 used automobiles. D u r i n g
the 24 working d a y s of t h a t period there w a s a decrease of 30 percent per day
in new car sales and a decrease of 15.8 percent per day in used car sales.
During t h e period beginning October 16, 1950, and ending October 31, 1950,
these dealers sold 482 new cars a n d 539 used c a r s during t h e 14 working days
in t h a t period. Thus, during this period new car sales declined an additional
11.5 percent down to 58.5 percent of t h e pre-regulation W volume, and used c a r s
declined an additional 23.7 percent down to 60.5 percent of the pre-regulation W
T h u s you will see t h a t both new and used car sales were greatly curtailed by
t h e original regulation prior to amendment No. 1, and t h a t after amendment
No. 1 the percentage of sales h a s declined by 41.5 percent off t h e pre-regulation
W period for new c a r s and 39.5 percent off t h e pre-regulation W period for used
cars. While these figures a r e bad enough within themselves, they do not tell t h e
full story. Many dealers a r e forcing sales a t greatly reduced profits or no
profits in an effort to move their inventory.
I n addition to the above, new car stocks a r e building u p a t a n a l a r m i n g r a t e .
On September 1, 1950, these same dealers h a d 345 new automobiles on hand in
their inventory. By October 1, 1950, they h a d 432 new cars on h a n d or a n
increase of 25 percent. On October 15, 1950, t h i s figure h a d increased to 553, a n
increase of 60 percent, and by the end of the first 16 days of amendment No. 1
to regulation W, these dealers h a d on h a n d 854 new automobiles, a n additional
increase of 87 percent, or 247 percent of t h e September 1, 1950, inventory figure.
F o r your additional information, a spot check reveals t h a t new car sales
have continued during t h e first 15 days of November a t 58.5 percent of the
September 1-17 figure, and inventories a r e greatly increased.
F o r your convenience I a m enclosing herewith a s u m m a r y of t h e above figures
which I t r u s t will be helpful.



Based on the foregoing you can see that the following conclusions are apparent:
1. In the Jacksonville area the original regulation W adequately curtailed
installment credit and adequately reduced the volume of sales of automobiles
both new and used.
2. That amendment No. 1 to regulation W was therefore unnecessary and the
drastic hardships created by amendment No. 1 to automobile dealers in the
Jacksonville area are unnecessary in order to produce the result desired by the
Federal Reserve Board, that is, to curb inflation by cutting down on the volume
of automobile sales and the volume of automobile consumer credits.
3. That unless amendment No. 1 is repealed, automobile dealers here will be
forced to curtail employment and many will be unable to operate their businesses
at a profit and some dealers will be forced out of business.
The members of the Jacksonville Automobile Dealers Association will appreciate your courtesy in forwarding the information contained in this letter to
the Board of Governors of the Federal Reserve System.
We sincerely urge that you recommend to the Board of Governors of the Federal Reserve System that amendment No. 1 to regulation W so far as installment
credit on automobiles is concerned, be repealed. It is apparent from the figures
furnished you that fully 50 percent of persons heretofore using automobile installment credit have been removed from the market by regulation W and amendment No. 1.
We are sure that you are aware of the fact that new and used car prices were
substantially depressed by regulation W during the approximately 30 days of its
operation prior to amendment No. 1. We felt that the original regulation was
stringent enough and sufficiently curtailed credit. We trust that after studying
these figures you can agree and so recommend to the Federal Reserve Governors.
Very truly yours,

Managing Secretary and Counsel.
S e p t . 1,1950,
S e p t . 17,1950
Total units
U n i t sales p e r w o r k i n g d a y
Sales per w o r k i n g d a y
U n i t decrease.__




Se pt. 18,1950,
Oct. 15, 1950



Oct. 16,1950,
Oct. 31,1950






Inventory of new cars

of u n i t s


S e p t . 1,1950.
O c t . 1,1950..
O c t . 15,1950.
O c t . 31,1950.



The CHAIRMAN. The first scheduled witness this morning is Mr.
Jleuther. Mr. Keuther, will you come up ?
Will you proceed in your own way ?



Mr. REUTHER. Mr. Chairman, my name is Walter P . Reuther. I
am president of the United Automobile Workers, XJAW-CIO. I am
appearing here in behalf of more than a million workers employed
in the automobile, aircraft, and the agricultural implement industry.
I appreciate this opportunity to appear before your committee,
and I have submitted a prepared statement, but I would like to take
this opportunity of elaborating on some of the more essential points
in that statement.
The CHAIRMAN. Without objection, the statement will be printed in
the record at the end of your oral statement. Will you proceed with
your comments, please ?
Mr. REUTHER. I appear here today with full realization that the
subject matter before your committee must be considered in the light
of the world situation. I am aware of the fact that we are living in a
period when free men and free institutions are being challenged by
the forces of tyranny in the world. I am also aware of the fact that
perhaps the American economy is freedom's greatest single asset, and
what we do with the American economy can be the decisive factor in
the world in determining whether we are going to make freedom and
democracy secure. And I want to present my discussion in the light
of an understanding of those overwhelming and compelling factors
that we have to deal with.
The CHAIRMAN. I would like to say this, Mr. Reuther:
I feel certain that all the members of the committee heartily approve
of your general appraisal of the situation, and we are here trying
to act in the light of that situation, currently more apparent. That
is also what we tried to do in the defense production bill on which
your organization testified some time last August or September,
Mr. REUTHER. That is correct.
I think you have to discuss regulation W in terms of its broad
implications and the broad aspects of the total economic job that we
are trying to do. You can't discuss regulation W, or any other single
aspect of the mobilization problem or the stabilization problem in an
economic vacuum. All of these things have to be evaluated and discussed in terms of their relationship to the total economic picture.
I happen to have the privilege of representing an industry which
has made a great contribution toward the creation of wealth in America. During the last war I think we perhaps produced a larger portion
of war production than any other industry. And I want to say to the
committee for the workers in those industries that we demonstrated
that free labor could outproduce slave labor the last time, and we are
prepared to demonstrate that again. We believe the American people,
the workers, the farmers, the people in every walk of life, are prepared to do the kind of job that must be done.
Now, regulation W, we believe, does not facilitate doing that job.
We think that regulation W makes our job harder, makes it more difficult to bring about the over-all direction and the coordination in the
economic mobilization job that we have, and we believe that essentially
we have to try to find a way to bring about the most effective mobilization of both our human resources and our material resources.
Our criticism of regulation W, and our criticism of some of the other
things that are being done down here, do not flow from the fact that



we believe we are being inconvenienced. We know that the job of
defending freedom in the world is going to require a lot of sacrifice.
Our objections are based on the fact that we don't believe the most
realistic, most effective job is being done. I t is on that basis that we
want to discuss regulation W, in terms of this broad picture of how
we get on with the practical job of mobilizing the economic power
of America to do this job.
Regulation W, essentially, was brought forward as an antiinflationary move, and we believe that the facts will indicate—and I
intend to develop some of those facts—that regulation W, with respect
to the basic job of controlling prices and dealing with the threat of
inflation, does not make an important contribution. I t is a very minor
factor, and to rely upon that as the major anti-inflationary weapon is
to flirt with disaster, in our opinion.
The CHAIRMAN. NOW, Mr. Reuther, I would like the record to show
that that statement is one with which I agree: That you can't stop
inflation simply by regulation W. We passed a control bill here,
known as the Defense Production Act of 1950, and you are very
familiar with that. We thought that that control bill, if properly
administered and used, would stop inflation. When the President is
going to put the general program in effect, I don't know. I might say,
as you know, on Monday of this week we had before the Senate Committee on Banking and Currency the Economic Stabilizer, and the next
day the Price Director, and both of them have been confirmed by the
Senate now. My information is that they are going to endeavor to set
up some sort of control machinery which will be in the best interest
of the war economy. I just want the record to show, as you know,
that we certainly did our share to provide the necessary control powers—the members of this committee did—and the members of this
so-called watchdog committee all took part in the hearings on the
control bill that was thoroughly considered for a month last September.
Mr. REUTHER. I want to comment on that bill a little later in my
testimony, and tell you what we think about it.
Now, regulation W, as I said, was advanced essentially as an antiinflationary move. I t was to try to reduce consumer credits, and
therefore take the pressure off a certain kind of consumer goods.
We don't believe it is doing that; we think it is a very minor factor
when other people consider it a major factor. I t is also, as we have
indicated, a shot in the dark. I t was issued without any real appreciation of the impact it would have upon the total productive effort
of this country, how much dislocation it would cause, how much unemployment, how much it would interfere with the real job of mobilizing
our productive resources in the face of this challenge to the world.
I t is going to bring about very serious wastage of manpower at a
time when we can't afford to waste one single man-hour. We need
every man-hour we have, and we need more on top of that, yet regulation W is a meat-ax approach to a very delicate economic operation.
We also believe that it tends to intensify basic economic inequities
in our country. We think that it prices out of the market millions
of American families who need necessities, who need the things American industry can produce. I t prices them out of the markets and
therefore further intensifies these very real and very substantial economic inequities in our present situation.



Now, when you rely on regulation W as a substitute for price control, you get into trouble. I think the members of this committee will
appreciate the fact that there are no substitutes for price control. The
only way you can control prices is to control prices.
Eegulation W, in our opinion, is the product of bankers' mentality.
Those people who think that you can sit up here in an ivory tower and
manipulate credit, and play with all the little mechanisms that get into
our basic credit structure, and in that way keep inflation under control—they are kidding themselves, and they are kidding the American
people, because the only way that you can really deal with inflation
is to begin to get to the guts of the problem, and that is the question:
What can we do to stop prices from running away in America ?
We believe that to rely on regulation W, and not to rely upon the
real mechanisms, such as price control, is flirting with disaster.
Now, aside from the inflationary problem, regulation W does create
some very serious problems with respect to our production and our
We believe that essentially we have two jobs: We have the job of
producing all of the war materials we need to meet the threat of communism on the battle fronts of the world, and at the same time we
need to achieve maximum production, within the limitations that our
defense program sets, of those civilian goods that we need to maintain
a healthy, functioning economy, so that we will be strong both on the
home front and strong on the battle front.
We think regulation W blocks some of those objectives.
Now^, I have listed in my prepared statement some of the specific
things that we think represent the important elements of what we
call an over-all plan and coordinated mobilization program. I am not
going to take the time to go into those—I have stated them there—but
I just want to say that we believe that we need an over-all, coordinated
approach to our basic production problem, and that we cannot rely
upon these makeshift things without getting into very serious trouble.
The CHAIRMAN. Don't you think we should go ahead and give the
President that power, Mr. Reuther? I mean, to put these agencies
together under one man, and not to divide the operations:
Mr. REUTHER. A S I understand it, the President is responsible for
making that decision. To date the President has chosen to decentralize this in a number of agencies. We disagree with that. We
believe that the challenge of the hour is so great, and the situation
is so grave in the world that we can't achieve any kind of over-all
direction and coordination unless we have a central agency.
I have been going around the circuit in Washington, and I find that
when I get up against a basic problem the person I am talking to says,
"Well, that is in another agency."
Then I go over to that agency, and I talk to them about that part
of the problem, and in the discussion of that part of the problem another phase of the thing comes up, and they say, "That is out of our
jurisdiction. You have got to go over here."
The CHAIRMAN. I am going to agree with you that the times demand coordinated effort. Some of the Senators have the same trouble,
being sent from one agency to another. All I say is we gave the
President the power in that control bill to get the job done, and it ought
to be done.



Mr. RETJTHER. Yesterday we were discussing the question of aluminum. Aluminum is one of the materials in very short supply. We
need more of it. I t is going to affect civilian production, it is going
to be a very serious problem trying to build adequate stockpiles of
defense aluminum so we will have some security.
I happen to know that in the automobile industry we can substitute
from 40 to 60 percent secondary aluminum for primary aluminum that
is now being used if we could get secondary aluminum.
There must be thousands of obsolete airplanes over the country.
Out in the Southwest they have acres of desert covered with those.
They are completely obsolete, they have no military value. I said,
"Why don't we go out and get that aluminum which is just standing
there, in which people have money invested, and get that into the production stream? I t will strengthen our military effort. I t will
strengthen our production effort."
H e said, "Well, that is not in my agency." I said, "Whom do we go
to ?" I couldn't even find out whom I had to talk to. I am going to
do that before the day is over.
My experience has been that we go over here and this fellow says,
"That is out of my bailiwick." That fellow there talks about a little
piece and says, "That is out of my bailiwick." You are put on a continuous merry-go-round, and we can't do the job we have got to do
with that kind of basic approach. We feel that we have got to get this
over-all direction, over-all coordination into our effort if we are to
achieve maximum mobilization.
The CHAIRMAN. Well, it is understood, as you know, that Chairman Symington is the over-all coordinator. But on that problem,
how are you going to coordinate before you get agencies set up ? Only
yesterday afternoon in the Senate, late yesterday afternoon, did we
confirm the Price Director, Mr. Di Salle.
Mr. RETJTHER. Well, I have a great respect for Mr. Symington,
and I have had the privilege of working with him, but you see, in the
present set-up, Mr. Chairman, he is sort of a glorified grievance committee. H e coordinates and tries to unravel the controversies and the
conflicts between the agencies after they happen. I would like to
see a fellow directing the matter to try to avoid those things from the
start, rather than try to unscramble the problem after it gets all tied
up in knots.
The CHAIRMAN. I thoroughly agree with what you have said about
Mr. Symington's capability, honesty, and integrity, and I hope he
will be able to get the control program going that he will get the
problems unscrambled, and I know he will do his best.
Mr. RETJTHER. NOW, we have got this kind of a problem facing us
because this fight that we are in is not of short duration. I t may last
a generation. We can't know that. The men in the Kremlin will
make that decision. No matter how long it takes, the American people
are determined to see it through, but we don't know how long it is going
to take, and therefore we have to plan on the basis that it may take
a whole generation before we get the world straightened out and
secure freedom and democracy in the world.
We have got to realize that if we move into the curtailment of
civilian production of items that are basic and essential to a healthy
economy, we may find that down the road, when we are putting more



and more of our effort into war production, that some of the items
we could be making now will be in very short supply and create very
serious problems.
Now, automobile production is one of those essential items.
would just like to point out to you that during the last war we had
a very serious transportation problem. W a r plants were dispersed,
and with some of the plans that are now being discussed in the military councils of dispersing and decentralizing our whole war production effort, it is going to mean that thousands and thousands of
workers are going to have to drive many, many miles to get to these
We had a good example right in Detroit. Workers in the Willow
Run bomber plant, where we made the B-24, had to drive 35 miles
each way, 70 miles a day, just to get to work. Obviously an automobile
in that kind of situation is not a luxury, it is a necessity. I t is a question of how do yo get people to where you need them to do the job.
The CHAIRMAN. I think that is one problem with which these
gentlemen here, who were on the committee during the last war, are
certainly familiar, we all recall the terrible shortage that occurred
in rubber and automobiles, and the long distances people had to travel
to work. When you get to Mr. Patman's State, 30 miles would be
close to get to work. Down in my State people used to go 75 miles
to get there, and couldn't get there without an automobile. They
don't have trains running frequently like you have here on the Pennsylvania Railroad.
Mr. REUTHER. When you get to the Southwest there where you have
greater distances, automobiles are going to be more important.
Representative PATMAN. Some people in my State commuted a hundred miles, two hundred miles a day.
Mr. REUTHER. We ought to go into this with the knowledge that
it is going to last a long time. We are in worse shape from the point
of view of transportation facilities than we were in the last war, and
yet that was of snorter duration.
The CHAIRMAN. And the plants are going to be more dispersed
this time.
Mr. REUTHER. That is right.
The CHAIRMAN. And the distance is going to be greater.
Mr. REUTHER. The distance is going to be greater, plus the fact
that we are going in with poorer equipment than we started out with
the last time. Here are the figures.
The average age of a car now is Sy2 years. I n 1941, when we got
ready to go into the other war, it was only 5y2 years, so there is 3
years greater age on the average car in America today. That means
that these cars have been used for 3 years more, and therefore are
much more nearly worn out than they were before.
At present 42 percent of all the automobiles in the United States
are 10 years or more old. I n 1941 there were only 17 percent that old—
42 percent compared to 17 percent. So when we talk about regulation
W, and the impact of that upon automobile production, we are not
talking about whether Mrs. Jones is going to have a shiny new automobile to park out in front of her house on Easter morning when she
goes out wearing her Easter bonnet. We are talking about transportation for the mobilization effort of this country, if we are going to do
our job.



The CHAIRMAN. That was the reason for our having these hearings,
to get down to the basic fact of providing automobiles for people who
do war work, not for people who just ride around the city. These old
automobiles you are talking about are not on the good city streets.
They are the ones the people are going to work in.
Mr. REUTHER. T h a t is right. If you look in the parking lots of
the biggest war plants and biggest factories in America, you will find
many jalopies, and not many Cadillacs. That is what we are talking
Representative TALLE. Mr. Reuther, w^hat percentage of credit
would you say is involved in regulation W?
Mr. REUTHER. Well, I am not certain I Understand your question.
Do you mean what element of the whole consumer purchasing power
is regulation W attempting to deal with, is that your question ?
Representative TALLE. Yes.

Mr. REUTHER. Well, based upon the information, and I do not profess to be an authority in this field, but based upon the information
which I have been given, the increase in consumer installment credit,
going up at the rate of $400,000,000 a month, added only 2 percent to
total consumer purchasing power.
Representative PATMAN. Does that include all consumer goods, or
just automobiles ?
Mr. REUTHER. This is the total of installment credit. I t added 2
percent to total consumer buying power. That is what we are dealing
with here, and that is what I say. This is not a question of getting
control of the dog's tail and trying to wiggle the dog. I t is a question
of trying to get three hairs on the end of his tail to wiggle the tail to
wiggle the dog. I t is completely unrealistic as a practical matter
Representative TALLE. The 2 percent you mentioned, does not then
relate to automobiles alone ?
Mr. REUTHER. N O , that is the total of all installment credit. I t
means washing machines, refrigerators, television sets. Automobiles
probably are the biggest single item, but it covers the whole scope of
consumer credits in the field covered by regulation W.
Representative TALLE. What part of the 2 percent would you guess
has to do with automobiles ?
Mr. REUTHER. Well, I really do not have the figures on that, but the
basic argument that is true of automobiles is also essentially true of
these other things. F o r example, the question of a refrigerator. A
refrigerator is not a luxury, because keeping your milk cool and your
foods well preserved so that you can maintain the health of your family
isn't a luxury, that is a necessity if we are going to have a strong
economy and are going to have people able to work and produce as
we need to.
Representative TALLE. I agree with you fully on that point.
Mr. REUTHER. If I may, I would like to get back to this set of
figures here and show you what is happening in the truck industry,
and there you are really dealing not with luxuries, but with the basic
question of transportation.
I n 1941, trucks averaged 5y2 years of age. I n 1948, they were 7.8.
I n 1941, 19 percent of the trucks were 10 years old and over, and,, in
1948, 34 percent are 10 years old or over, so that you are really dealing
here with a very fundamental question of where is America going with



respect to transportation of people, workers, and with respect to the
transportation of goods. T h a t is why this shot-in-the-dark approach,
which regulation W symbolizes in the worst kind of a way, is a tragic
thing; it begins to disclocate manpower and civilian production and
essential industries that ought to be trying to turn out as much goods
as possible. If these new cars can be put in the hands of people, they
will be there when we need them. The only way they can be put there
is that we have got to produce them, and regulation W is disrupting
that effort.
The CHAIRMAN. This general situation of production, price, and
wage trends confuses people. I am not one to tell the President what
to do, or even to suggest what he ought to do, but it has been my
personal opinion that certainly in the last month some national emergency ought to have been declared or similar action taken so that
the people know, in my judgment, just such conditions as you are
bringing out, the necessity for all these controls for these war workers
who are going to be dispersed all over the United States. Not only
with automobiles are we going to have trouble, but we are going to
have terrific trouble with housing.
Mr. REUTHER. YOU are not fooling. T h a t is where regulation X
comes in, which I will talk about, too, if you will permit me.
The CHAIRMAN. If there was a national emergency declared, I think
people wouldn't be complaining all the time about everything, and
would just get down to work.
Mr. REUTHER. That is the fundamental difference between an ivorytower-banker approach and the practical down-to-earth approach in
terms of the basic problems of production, manpower, housing, and
how do we get the job done. You can't meet these complex problems;
by some fancy credit manipulation in banker's ivory tower. You hav§
got to come down and do this job.
The CHAIRMAN. With regulation X on housing, you have got to
have sewerage and other utilities at the places where you are going to
do this job.
Mr. REUTHER. YOU have got to look at all the pieces and see that it
fits together in a total pattern, otherwise you are going to get 90
percent of the job done and find that the other 10 percent is blocking
the achievement of your goals.
The CHAIRMAN. I n Congressman Brown's district you are going to
build a plant—it has been in the paper—that is going to employ
30,000 people. Where are they going to put them ? They will have to
build houses, but before they do that they will have to build sewers,
water supply, and everything else. Where are the people going to
come from ? Eighty percent of them must come by automobile. They
have only got one train there that runs a day, I think, just a small
train. All you have got there is highways. Those people come from
50 to 100 miles away. As Congressman Patman says in Texas it is
not uncommon for a man to travel 200 miles a day.
Representative PATMAN. A hundred each way.
Mr. REUTHER. We have a sizable membership in some of the new
airplane plants in Texas. We had a plant in Dallas during the war,
and I know that people drove from all around there, and it will be
more so the next time.
Representative BROWN. W h a t is your suggestion to solve the
problem ?



Mr. EEUTHER. I want to talk about the inflationary situation, because that affects a lot of people. We can lose on the inflationary
front if we are not careful.
As I say, the people who dreamed up regulation W and regulation
X believed, maybe sincerely, that this was a substitute for effective
price control, and it is not. The only way to control prices is to
control prices.
Now, we believe that the Defense Production Act, which was passed
by the Congress of the United States to control prices, had some very
serious loopholes, and I would like to just point out what we think
are the basic weaknesses of that law in terms of the inflationary fight.
First, section 402, in a number of its various phases, deals with and
provides loopholes by which food processors can escape effective price
control. We are 100 percent behind the fellow who does the plowing
and the sowing and the reaping, the fellows who produce the food of
America. We are in there, and we have supported them. Every time
there has been a question, we have said that the farmers are entitled to
a decent price for their work, because we learned in 1932, when we
were on the streets in Detroit, that the farmers lost their farms to the
mortgage companies because we lost our jobs, and we lost our jobs
because they couldn't buy the things we made, and they were in
trouble because we couldn't buy the things they raised, and we recognized that the basic economic welfare and the prosperity of workers
and farmers are inseparably tied together, and we will not raise a
finger to fight farmers getting their fair share. We will fight to
support that. But the law, we believe, gives the processor, the fellow
in between—we have said for a long while, it is the fellow in between
who milks the farmer on one hand and the consumer on the other.
I t is the only cow in captivity that gives milk on both ends. This
processor is the fellow the law permits to jack up the price of food,
and food represents a high percent of the family budget. You cannot
have these big loopholes so the food processor can jack his price
higher and higher when food is 42 percent of the family budget.
T h a t is No. 1.
Rent control is a p a r t we have to plug up and plug realistically, or
it will get way beyond control.
There are many other aspects of the items that go into the family
budget that people have to buy to maintain a healthy family life
which are not protected under this act.
Then there is the question of the quality of goods. You see, if you
say "O. K., it is going to cost X cents for a can of goods," unless you
know what is in that can you may be getting the same can, but inside of
that can you are getting only half the value although it costs the same.
You buy a suit. Suppose a suit is made of 80 percent wool, and it
costs $60. They still sell it to you for $60, but they put only half as
much wool in it. I n other words, they are jacking the price up by getting the quality down, even though the money cost is fixed, so that these
are fundamental questions of price control not covered by this act.
You take a fellow who is buying a pair of work shoes; he is not only
interested in how much they will cost; he is interested in how long
they last, and if he gets a pair of work shoes that have paper soles, not
leather soles, and they wear out twice as quickly even though he pays
the same money, he will tell you he is paying twice as much for the
same pair of shoes—so control of the quality of goods is just as much



a part of fighting inflation as controlling the price of goods, because
the two are inseparably tied together.
We believe that that law has serious loopholes which have to be
looked at and plugged.
That law says specifically in section 709 that before any price can
be established on any product you have to talk to the people who make
it and the people who sell it. Yet there is not a word about talking
to the people who buy it. You see, now, the consumers have to have
something to say in here, because price control is, really, a protection
to the consumers, and the consumers happen to be the millions of
American families who are going to have to do this job, and who can't
do this job unless we protect their economic position, because if inflation robs workers of their living standards it is going to weaken our
economic power to produce the wealth that has to be produced,
We believe that there ought to be a very good look at that. You
know what happened in Detroit yesterday—or the day before yesterday. General Motors raised the price of their cars; Ford followed
suit very quickly. I never saw such quick action before in my life.
Ford was right behind them—three steps. The steel industry pulled
the trigger on this chain-reaction inflation, completely unjustified.
These people, in the face of their responsibilities for themselves and
for the people of the world who are fighting for every decent human
value in life, have just failed to accept their responsibility when they
pass these increases on, because they know if United States Steel won't
absorb the cost of wages out of their profits, how can the little man
down the line, who makes small items from steel—how can he expect
to do it? This thing is going to start piling up until we get right
around the whole cycle again, and it gets us into a very serious spiral.
We came right out and said we think the auto industry should not
have done this. Even though the steel industry was wrong, two
wrongs don't make a right. When Ford followed General Motors,
we said three wrongs don't make a right. Yet here we are, drifting.
We are not getting the effective price controls we need.
Now, the profits of these industries will absorb most of these things.
I am using a set of figures which illustrate that, and General Motors
is, of course, an extremely profitable company. They made $503,000,000 in profits in the second quarter of 1950; in 3 months they
made $503,000,000 in profits. Now, we got a wage increase out of
General Motors, some pensions, and medical program benefits that
cost them roughly $53,000,000 in that quarter, so that they came out
with $450,000,000 in profits after they paid for our wage increase.
They could have reduced in that quarter, the second quarter, the price
of all their products by 18 percent, which is $300 on a Chevrolet, and
still have made profits after taxes on their investment of more than
10 percent.
Now, I sajr in the face of that kind of thing that it is just a crime
that companies are raising the price of their products, and starting
this inflationary spiral going again.
I think it is inexcusable, and can't be defended by any moral or economic standards that are rational, in the face of the world challenge
that we face in this situation.
Senator CAPEHART. Would you recommend the Government freeze
all prices and all wages at existing levels ?
Mr. REUTHER. I certainly would not.



Senator CAPEHART. Then what are you talking about ?
Mr. REUTHER. I am talking about a very practical——
Senator CAPEHART. What are you complaining about ?
Mr. REUTHER. I am not complaining. I am stating facts. I am
stating, Senator Capehart, that we have to get our economy under
Now, I am not foolish enough to think that you can talk about wages
and profits and prices—talk about profits and prices without talking
about wages, but the question is, how do you get the equity into this
economic picture of ours? If you freeze prices up here, and wages
here, you do not have equity—and that is precisely where the situation
stands today. You look at the pay envelopes workers are taking
home—look at prices—and see what has happened to prices since
Korea, and see what has happened to wages.
You have to get equity into this situation, and after you get equity
between wages, prices, and profits, you have then to find out how free
people in a present society, who are making their contribution in the
production of wealth and the items we need, can participate and get
their equity out of the fruits of advanced technology.
Senator CAPEHART. Let me ask you one other question: Would you
recommend rolling back prices and wages to the day that the Korean
W a r started ?
Mr. REUTHER. My position is simply this: We in labor—I am talking now for myself, and I represent 1.2 million workers in three basic
industries, and I speak for those workers—our position is that we want
to take effective steps to control inflation, and we are for price control.
We know that there must be a relationship between wages, prices, and
profits. We are going to fight with all the power we have to get equity,
because we think the only way you can mobilize a free people is on
the basis of equality of sacrifice. We don't want to make money out
of inflation. That is w^hy back in 1945, Senator Capehart—it is a
part of the history of industrial America which everyone ought to
think about and look at, sometime—we fought for 4 months a costly
strike over a very fundamental principle. I n that strike we said we
don't want one penny of a wage increase that will increase the price
of cars, because we said we don't want to make progress at the expense
of the community; we want to make progress with the community, and
if you get a wage increase and then a price increase, all we do is rob
Peter to pay Paul. We don't want more money; we want more purchasing power, and that was the fight in 1945.
I t was that fight that laid the basis for what is the basic wage policy
of our union, which we incorporated in the General Motors contract
of 1948. W h a t is that contract? T h a t contract now covers more
than 750,000 workers—Ford, Packard, and dozens and dozens of other
We said, one, if inflation raises the price of goods, a worker is not
responsible for that, so he gets a cost-of-living adjustment. If prices
go down, and they did go down and our wages were lowered at times
during our 1948 contract, we didn't bellyache. We figured the few
Commies in our union who were still hanging around in a few spots
would try to make trouble. We went out and said to the workers :
"Look, when you got an increase we told you that didn't mean anything because if it takes more money to buy the same goods, and you



have more money, you are still going to buy the same goods," and
when the price index went down and we got a 2-cent cut, we said
"That is good; we would like to see it go way down, because you then
could not only buy the same goods with your pay, but the few dollars
you have in war bonds would be worth a lot more than if prices
keep going up higher and higher."
We took that reduction philosophically. When prices went up since
the Korean situation we have gotten 8 cents in General Motors, 8 cents
in Ford, 8 cents in dozens of other companies; we got 5 cents at the
September index, we will get 3 cents for the December index. That
doesn't make us happy, because those workers are being paid in
wooden nickels. They can't buy a single thing more.
Senator CAPEHART. 'In that circumstance, why wouldn't you be in
favor of rolling prices and wages back to the time the Korean W a r
started ?
Mr. REUTHER. What about a worker who was way behind at the
time of the Korean trouble %
Senator CAPEHART. I presume you would have to have a method
whereby you would take care of hardship cases. You always do in
any piece of legislation.
Mr. REUTHER. Not just hardship cases; it is a question of equity.
I t isn't a question of where a fellow is living on a submarginal diet.
I t is a question of equity. When you talk about mobilizing people, I
went through the last war and worked on this matter. I was on the
Manpower Commission here in Washington, and the War Production
Board, and when I went out I said to the fellows in the shop—really
on the production line, getting out the weapons with which our boys
were fighting on the battlef ronts, I said to them: "Look, fellows, everybody is making a sacrifice." When a man feels that everybody is
tightening their belts, he says, " I will tighten mine notch for notch."
H e doesn't care if his tongue hangs out when he tightens the last
notch when everybody else is doing it, too, but he doesn't want to be
played for a sucker.
That is what I mean by equality of sacrifice.
Senator CAPEHART. Isn't that the virtue of freezing all prices and
wages as they existed on the day war was declared ?
Mr. REUTHER. All I can say is there are two elements with which I
agree completely—speaking only for my union. One: With respect
to wages as they relate to the cost of living, we are willing to have our
escalator clauses. They are not inflationary. I read Mr. Valentine's
testimony the other day and he just hasn't thought about this enough,
because how could he say that the wages pushed prices up there?
What did it was that the prices went up, and our wages merely followed prices. He doesn't understand.
One. We insist upon the protection the escalator clause gives us, and
that is to make certain we are not penalized by inflation in our living
Two. We insist upon the right to make progress, based upon realizing our equity out of the increased production made possible by advanced technology. That is what we say. On that basis, we are prepared to work this thing out, because we think that is fair.
We think this is realistic; we think it is the key to economic stability.



Senator CAPEHART. One other question:
Do you think the Government at the moment should invoke, under
the 1950 Defense Production Act—that is the act we are considering
here—should invoke price and wage controls over all, completely,
straight across the board ?
Mr. REUTHER. I think the first thing you have to do is get prices
under control, and then sit down and look at the wage problem in terms
of equity.
Senator CAPEHART. W h a t you are saying is that they should control
prices at the moment, but not wages ?
Mr. REUTHER. Sure; because it is the price factor that is running
wild. The General Motors and Ford pictures indicate that. We
didn't negotiate a wage increase with General Motors since the Korean
War, but we got 8 cents. Why? Because the B L S Index, the cost
of living, is running wild. You have to do first things first. You have
to get the price problem under control, and then sit down and talk
about the wage picture.
Senator CAPEHART. Would you recommend, then, that the President
or the Congress invoke a complete, 100-percent price control at the
moment, but not wage controls ?
Mr. REUTHER. NO ; I would recommend that he invoke, first of all,
broad, selective price controls so that the machinery to do the pricing
job could be put into motion, and then broaden it as tight spots develop
in other parts not controlled, because it is a tremendous job.
Senator CAPEHART. But not selective wage controls ?
Mr. REUTHER. NO ; and then sit down and look at the wage picture
from the point of view of equity.
Representative BROWN. D O I understand you to say that if we have
selective controls on certain commodities you don't want to put it on
labor that produces that commodity ?
Mr. REUTHER. W h a t I am saying is that the basic problem now, and
the reason we are getting into trouble in the inflationary front is that
we are not controlling prices, and in most cases workers are fighting
to try to keep up with that price movement.
The first thing you have to do is get control over the prices, and
then sit down and look at the wage picture from the point of view of
Representative BROWN. YOU remember well that labor came before
Congress and requested increased prices on producing steel during
O P A days. Within 2 w^eeks the steel industry came in and requested
an increase. The steel industry is the richest industry in the world—
and those requests destroyed OPA.
Mr. REUTHER. I remember that distinctly; it was in the spring of
Representative BROWN. I took the position at that time that if you
increase the price of steel you would have to increase the price on all
other commodities.
Mr. REUTHER. That is the time when we were fighting a 4-month
strike on this principle of wage increases without price increases, because we knew—you see, there is no economic Santa Claus. There is
no use kidding workers. We know that the only way you can get a
higher living standard is not by manipulating wages' and prices but to
create more wealth, and then get your share of that wealth.



We want wage increases without price increases. We want more
purchasing power. We want to buy a bigger piece of this big economic
pie in America, and right now the whole question is that you have
prices up here, and wages down here.
Now, if it were reversed, if wages were up here and prices down
here, people wouldn't be talking about freezing that relationship, but
the wage earner is always on the short end of things. Why? Because a man who sells something, who sets the price, can sell that on
his own initiative. General Motors and Ford did that very well the
other day, but a worker can't set his wages. H e has to negotiate that
with the other p a r t y ; he has to get agreement.
Therefore, the price situation is also up here ahead of the wage
situation, and when you talk about freezing everything, you are
talking about freezing very serious economic inequities into our economic set-up. You are talking about freezing prices here and wages
here, and nobody is going to go along with that. I t won't work. I t
is not fair. I t will disrupt your basic economy.
The CHAIRMAN. Why can't they work out these inequities ? There
are not inequities everywhere. I think we will all admit that.
Mr. REUTHER. The inequities are greater than you realize, because
of what has happened to the price structure since Korea. We didn't
have that problem with General Motors. Our wages came right along.
Representative BROWN. NOW, when you work out a formula to control prices, at the same time you ought to work out a formula to control wages, and you should put them both in force at the same time,
not put prices in force and then wait on labor.
The thing to do is to get it all settled before we do anything. Work
out the inequities before we start.
Mr. REUTHER. Well, that is a pretty big job.
The CHAIRMAN. That is true.
Mr. REUTHER. I t isn't simple.
Representative BROWN. That is the fair thing to do.
Mr. REUTHER. My point is you should do first things first.
Representative BROWN. Let's get the formula for equity before we
put it in force.
Mr. REUTHER. YOU have to get equity.
Senator CAPEHART. Let me ask you this question:
All things considered, was there a fair relation between prices
and wages and profits in your industry before the Korean War started
on June 25 ?
Mr. RsurHER. Was there equity ?
Senator CAPEHART. Yes.
Mr. REUTHER. NO ; there wasn't complete equity. I think that we
had done a better job than any of the other big groups.
Senator CAPEHART. YOU feel that there wTas near equity in your
industry; that is, the industries where you had the unions ?
Mr. REUTHER. With respect to the wage-price problem, I think the
General Motors formula more nearly establishes equity with respect
to the right to improve; like the annual improvement factor, and that
sort of thing, but we do not believe we have gotten our full share.
Senator CAPEHART. But you weren't satisfied with the equity even
in that instance.
Mr. REUTHER. On the wage-price picture, I said I thought the General Motors formula was a satisfactory thing.




Senator CAPEHART. All things considered, was there a fair relationship between wages and prices and profits in the industries where you
controlled the unions as of June 25, when the Korean W a r broke out?
Mr. REUTHER. Let me put it this way:
W i t h respect to wages and prices,, we accept the General Motors
formula as being a reasonably equitable thing, but with respect to
wages and prices and profits, we think the profits were just scandalous.
I indicated what General Motors made in the second quarter—
$503,000,000 in 3 months—and what they could have done.
Senator CAPEHART. I am talking about June 25, the day we entered
the war.
Mr. REUTHER. Well, this second-quarter period took in the month of
June. I t was the second quarter of 1950.
Now I think that gets into this whole question of taxes. You can't
discuss economic equity just in terms of wages and prices and profits;
you have to talk about taxes.
The CHAIRMAN. Well, a large part of that profit might go with this
new tax bill.
Mr. REUTHER. I am for a very much larger share going than is now
contemplated, because I think there again you begin to deal with the
question of equity, and equity is the thing that either does or does
not get people pulling together.
A fellow will put up with just about anything if he knows everybody else is pulling their part of the load, but when he feels he is
carrying his share and the other fellow's share, too, you are in trouble.
That is what makes America great, that people have fought against
injustice; they have fought for equity and fairness.
Let's consider the tax picture, if we m a y :
We have said all along the tax structure has to be based upon equality
of sacrifice,, and ability to pay, and taxes ought to reflect the ability of
each economic group, whether it be an individual or a corporation, to
make its contribution.
Now, the people at the low-income level, the very people that regulation W prices out of the market, the very people who get in the
most serious trouble because their incomes are low, are currently paying the same rate of taxation they paid during the war. You have
reestablished—Congress has reestablished—their tax rate in line with
what they paid during the war. Those are the people of under $5,000
People over $5,000 are paying only 23 percent as compared with 29
percent during the war. The loopholes and everything else
Senator CAPEHART. Which war are you talking about ?
Mr. REUTHER. The last war.
Senator CAPEHART. The one we are in now, or World W a r I I ?
Mr. REUTHER. I am saying currently that income groups of under
$5,000 are paying the same rate of taxes now as they paid in the last
war. People $5,000 and over, the upper income, are paying 23 percent,
as compared to 29 percent.
Senator CAPEHART. I think that is correct.
Mr. REUTHER. That is No. 1.
Now let's look at corporation taxes. Corporations are earning about
60 percent greater profits now than they did during the war period,
and their profits during the war were very high. They are making



now, in the year 1950, at about the rate of $40,000,000,000 a year profit,
before taxes. Next year they will have more than $20,000,000,000 after
taxes; as compared with $4,000,000,000 before the war, 1936-39, the
base period, they were making around $4,000,000,000 after taxes, and
during the war they were making about $10,000,000,000.
The excess profits tax is siphoning off about $3,000,000,000, and it
ought to be increased to at least $5,000,000,000. Now, if the fellow who
works for General Motors finds that the corporations are paying higher
taxes, and paying their share, he is going to feel better about it than
if he finds that the top-income people are paying less than they paid
the last time, but the little guy is paying the same, and the corporations
are paying less than they paid last time.
You are just going to have to get some equity in this, or you are
going to have trouble. Everything is relative. You ask a man to
sacrifice, and his sacrifices are going to be measured by what the
other fellow is doing. I will say the American workers will make
whatever sacrifice is necessary, but they are going to fight with all
of their power to see that that sacrifice is made on the basis of equality,
because that is the only way it can be done.
Representative BROWN. D O you believe that, if price controls are
put into effect, wages stabilized equitably with reference to existing
prices, that wage controls might well be invoked then ?
Mr. REUTHER. If you can get into it the equity that I am talking
about with respect to wages and prices, and also the equity in terms
of this improvement factor—we don't want just to freeze them. If
corporations get the benefit of advanced technology, the worker should
get his share of that. You do that, and I say for my union we will
take that kind of approach, because we think that makes sense.
Representative BROWN. I think you made a good statement, so far
as equity is concerned, but I think we ought to start this formula on
both at the same time.
Mr. REUTHER. All I can say is, gentlemen, the hour is later than
you realize.
The CHAIRMAN. I agree with Congressman Brown, and what you
say about prices running ahead of wages. But since Korea on, suppose
we don't stop somewhere with some sort of a freeze, aren't prices going
to run even farther ahead of wages ?
Mr. REUTHER. If the runaway price is what is pulling our economic cart up on that incline, let's get hold of the horse and stop the
horse. Don't talk about stopping the wagon. Get the horse that is
pulling the wagon.
The price is the key to the thing. We have to do first things first. I
am not trying to kid anvbody. I say that any labor leader who says
you can talk about wages in a vacuum without relation to the prio-~
profit-taxation factor is kidding himself and kidding the workers he
I am not saying that. I say you have to talk about three basic factors in our economy: Wages, prices, and profits. They have to be
talked about together. I t is the question of the timing, which step do
you take first, and how do you begin to deal with first things first, so
you begin to get it in proper balance. I know it is an easy thing for a
labor leader to say: do all these other things; control prices, tax profits,
control rents and all these other things, but don't talk about wage con-



trols—I know that is a simple thing to do. I am not doing t h a t ; I
don't intend to do that.
Senator CAPEHART. Let me ask you this question:
When the 1950 defense production bill was being written on three
different occasions I offered an amendment in the committee to the bill,
and it was defeated each time, to freeze prices at existing levels at that
time, and not freeze wages.
If my memory serves me correctly, at no time did you come to my
rescue and say that was a good thing that ought to be done. I n fact
I think it was just the opposite.
Now, why weren't you in favor of it three months ago ?
Mr. REUTHER. I am not familiar with the amendment that you submitted there.
Senator CAPEHART. I t was in the newspapers—every newspaper in
the country. I offered the amendment three times. These gentlemenn
here will vouch that I offered the amendment to freeze all prices and
not freeze wages, but nobody came to my rescue.
Mr. REUTHER. Would you be willing to freeze all prices now, and
then get into this whole question of equity as to w^here the wage thing
ought to come ?
Senator CAPEHART. I would certainly be in favor of freezing all
prices at existing levels, even though you didn't freeze wages at the
moment, in order to get something going there that w^ould stop inflation.
However, I think we have advanced to the point now where we are
in a full-fledged war. You see, there is another factor you must keep
in mind here: While you represent a million men—and you do an
excellent job in representing them—we are also going to have several
million men now in the armed services.
Now, what about a little equity for them ? They are working for
$75 or $80 a month. They are out there—they are still Americans,
you knowT—and they are men out of your shops.
Mr. REUTHER. That is right.
Senator CAPEHART. And they have just been picked up momentarily
from the factories of the United States, and the farms, and placed in
the armed services at much less wages than they were getting in their
Now, aren't they entitled to as much pay for fighting as you and I
are for working at home ?
Mr. REUTHER. I am for giving them their full equity. I don't think
we give them enough, nor their families enough consideration, who
stayed behind, and I don't think we give them all the things they are
entitled to.
There, again, that is a question of equity. You will find that the
labor groups will go the limit in giving the men in the armed services
their full equity. But, comparing the G I in Korea with some of these
corporation executives, do you not think the inequity there is a much
more drastic thing than between a fellow doing 40 hours in a shop?
The factor of inequity is the key to the question. Unless you are prepared to deal with that realistically, we are in trouble.
Senator CAPEHART. D O you think it is possible now to control inflation in this country without the Government controlling prices ?



Mr. REUTHER. I do not. I think that is the basic weakness to date
in our fight against inflation. You can't control our economy unless
you begin to develop effective price control as the key.
There are other things: Taxation is a part of it; all of these things,
but the guts of the thing is price control, and that is where these
people who dreamed up regulation W have gotten us in trouble, because they thought that would do the trick without price control.
The CHAIRMAN. I want to say this, please:
I just received a note from the Senate, and I am going to have to
ask to be excused, and ask the vice chairman to take over, because we
have the rent-control bill coming up at 12 o'clock, as you know.
As chairman of the Banking and Currency Committee, I have to be
Production is a great item in this argument, too, and during the
last war, of course, the unions and all labor went along on the basis of
a 40-hour week. From what I understand, labor is going to be so
short, from what I have been told, I wish you would put something
on the record as to your judgment about the advisability of a 48-hour
Representative PATMAN. Before you leave, I would like to know
something about the parliamentary situation. Will you meet tomorrow morning at 10: 30; the same time ?
The CHAIRMAN. Yes; I understand so.
Representative PATMAN. And who will you hear tomorrow ?
The CHAIRMAN. The Federal Reserve Board Chairman.
Representative PATMAN. And then the automobile associations after
The CHAIRMAN. If it is the wish of the committee.
Representative PATMAN. And, if it takes up more than the morning,
we will put the national association over to Monday, and the trade
associations—let them go with the national, and not have each State
come in.
The CHAIRMAN. We have Nebraska on the list here today, and of
course the president of the organization came here from Nebraska, and
I hoped that he would file his statement. I t is rather embarrassing,
since several State organizations have asked to testify, and we figured
we wouldn't hear 48 State organizations, but propose to rely upon
the national association to present the case for the State organizations, too.
F o r your information, we scheduled this gentleman. I don't know
how he feels about it.
The next witness is the Commercial Credit Co. of Baltimore, Md.
Mr. REUTHER. Mr. Chairman, I will move along quickly, if I may.
The CHAIRMAN. I don't want to rush you too much, but the rentcontrol bill is coming up. The time for debate is divided between
myself, as chairman, and Senator Bricker, and I have to make arrangements for speakers on behalf of the bill in the Senate today.
Representative BROWN. Our rent control bill comes up in the House,
too, this morning, the first thing.
Senator CAPEHART. Mr. Reuther, I would like to ask you this
The President, Mr. Symington, Mr. Valentine, the Secretary of
Labor—have any other high Government officials discussed with you
the best method of stopping inflation during the last 90 days ?



Mr. REUTHER. I met with Mr. Valentine with a committee from the
CIO, where we talked about it in general. We never really got into
these things, because he was new to the picture, and sort of feeling his
I have talked to Mr. Symington briefly about this general problem.
I talked about war mobilization primarily, but indicated to him this
inflationary problem was a serious part of our total effort.
I have not seen the President for some time, and have not discussed
this question with him.
Senator CAPEHART. I S it your opinion that the high Government
officials are making the necessary plans, adopting the necessary policies at the moment, to control inflation and to put into effect the 1950
Defense Production Act ?
Mr. REUTHER. I t is my opinion that the administration does not have
adequate tools with which to do this job properly, and it is also my
opinion that they are not using the inadequate tools that they have
to the best possible use.
Senator CAPEHART. YOU mean by "adequate tools," manpower?
Mr. REUTHER. N O ; I mean the price-control law that Congress
passed. Because it has these very serious loopholes that I pointed
out, it does not really control the price of food, because of the processors' loophole; rent control is wide open, and the quality question is
not nailed down, and so forth.
I do not believe that the President has the kind of adequate tools
to deal with inflation that he should have. I also do not believe that
some of the agencies he has set up are using even the limited tools
they have as effectively as they might be used.
Senator CAPEHART. YOU feel that rent control should be continued?
Mr. REUTHER. I definitely do.
Senator CAPEHART. YOU feel it likewise should be changed to reflect
1950 costs, or do you think it should remain on the basis of the rents
being frozen as of 1940 ?
Mr. REUTHER. I think, where you can really justify adjustment,
machinery to make those adjustments should be provided; but I don't
think you should open the floodgates, because I think then you will
get in serious trouble. I am for the extension of rent control, because
I believe unless we get it we are going to have very serious warhousing problems in the big industrial centers.
Senator CAPEHART. Well, my question is—or thought is: You are
for rent control, but you understand that rent control—the present law,
of course—is based on freezing rents at the rentals of about 1940.
Now, you know, of course, and we all know, that wages and costs
and profits and everything else have gone up materially since that time.
Don't you think that, if we are going to extend rent controls, we
should do it and write a new law, and be realistic about it, and base
rentals on 1950 costs ?
Mr. REUTHER. Well, I think, Senator Capehart, if you will get into
it in detail, you will find that a lot of people renting homes today are
doing a lot of things in addition to paying rent. They are redecorating, fixing this up, fixing that up, and doing a lot of things at
their own expense that the owners used to do before rent control was
put in effect.
Senator CAPEHART. I think there are isolated cases of that kind.
Mr. REUTHER. I t is a pretty general thing.



Senator CAPEHART. What is your answer to my question ?
Mr. RETJTHER. The fixed thing is the better way to do it. I think
there has to be machinery for hardship cases.
Senator CAPEHART. YOU are opposed to rewriting the bill and facing
realities as they exist ?
Mr. RETJTHER. I think you are going to open the floodgates, and I
am opposed to opening the floodgates. I am for machinery to meet
hardship cases. I would think that people owning great, big apartment houses are not hardship cases. They are getting by, all right.
Senator CAPEHART. Why do you take that position when you have
been standing here all morning, and no one, certainly can ever disagree with a man who stands on principles and equity—you have been
talking about equity for the worker and equity for the farmer; but, as
to the 7 or 8 million small property owners of the United States, you
don't seem to be much interested in equity for them.
Mr. RETJTHER. The small property owners are not the problem.
You just go into New York City and find what percentage of the apartments in New York City are owned by small property owners. I am
for protecting the little fellow who has a hardship case, who maybe
saved all his money and bought a new duplex, lives in one half and
rents the other half.
Senator CAPEHART. There is a lot of that.
Mr. RETJTHER. I am for protecting that fellow by hardship machinery, but I am not for using that fellow who owns the duplex as a nice
front for the fellow who owns apartments in which 25,000 families
live to hide behind to get a rent hike.
Senator CAPEHART. Your thought, as I gather, has been that the
perfect arrangement, of course, is equity between wages, prices, and
profits; and no one, certainly, can quarrel with that.
Now, it seems to me as if Congress has the same situation to solve
here with respect to rent; to get equity between the property owner
and the wage earner, and the man who pays the rents and the profits.
We have a law at the moment, of course, which was based upon 1940
realities, meaning 1940 costs, and so forth.
My question was: Don't you think that if we are going to continue
rent control, and we certainly will have to continue rent control if we
are going to continue to control wages and prices in the United States,
that we ought to do it on a realistic basis in order to maintain that
equity that you have been speaking about, and there are hundreds of
thousands of former wage earners that saved money and bought a little
home or bought a duplex, and are now renting, and my observation
in my State has been that they are the fellows who are really suffering
under existing rent control. I t isn't the big fellow in my State; it is
really the little fellows who suffer.
Mr. RETJTHER. A S I say, I am for the kind of machinery that would
make it possible to work out equitable adjustments for the little guy,
but I am opposed to opening the whole thing, because I know what
will happen. You will get the floodgates opened up, and the big realestate interests, the people who own millions of dwellings, will get
the benefit of what looks like an attempt to give justice to the little
Senator CAPEHART. I t looks to me like your philosophy is the big
fellow is always dishonest,, and the little fellow is honest.



Mr. REUTHER. I t is a matter of equity. There is a difference between
honesty and equity, Senator.
Senator CAPEHART. The big fellow is inequitable?
Mr. REUTHER. The fellow can have a million dollars and be honest.
Senator CAPEHART. And he could be equitable.
Mr. REUTHER. If you were talking about the fellow with $100, he
might be honest, too, but you are talking about the difference between
a million dollars and a hundred dollars, not the difference in honesty
or dishonesty. They are two different things. I am for the little guy.
Senator CAPEHART. I understand that. Your unions deal with the
extremely large corporations in America. You deal with the biggest.
Mr. REUTHER. That is right.
Senator CAPEHART. And I don't know that you have any unions
dealing with the smallest manufacturers, and small employers, of
which there are literally tens of thousands, and you are inclined, of
course, in your thinking, to think in terms of firms that do a billion
dollars' worth of business a year, rather than firms that do $50,000 or
$75,000 or $100,000 a year, and one can well understand that, because
you are in that atmosphere.
You deal in that sort of thinking, and not with tens of thousands
of small firms in the United States.
Mr. REUTHER. We have a lot of small firms, but we do have the bigger
ones; I agree.
Senator CAPEHART. YOU think in terms of the big fellow.
Mr. REUTHER. That is right.
Representative BROWN. Mr. Reuther, I want to congratulate you on
this, escalator clause.
Now, if we could ever get equity for labor and for business, and get
that adjusted properly, then I think your escalator clause is a grand
one. You put a lot of study in it, and I want to congratulate you
on it. I t is fair.
Now, do you wish to comment on the 48-hour law ?
Mr. REUTHER. The 48-hour law, or the 48-hour week ?
Representative BROWN. T h e 48-hour week.
Mr. REUTHER. There is no question that before this job is completed
we are going to have to work more than 40 hours a week, and I don't
think there is any argument about that.
We worked longer than 40 hours the last time, and are going to
have to do it all over again. I think you will find the American
workers prepared to work as many hours as are necessary.
The point of controversy is: do they get paid overtime for the
hours beyond 40 in the week, and beyond eight per day? That is
the whole controversy. I t isn't whether they are willing to work more
hours; the question is will they get their overtime compensation ?
There again I take the position that so long as corporations are
making profits out of these workers' labor, the workers are entitled
to their fair share of the extra wealth that is created.
When you increase the workweek from 40 hours to 48, you are
increasing the number of hours 20 percent; that is what the increase
is in the number of hours. You are increasing the hourly wage about
8.4 percent per hour. That is what the increased cost is.
Now, that means you are getting 20 percent more production, but
the hourly wage bill is increased only 8.4 percent. Actually, we can



bring you the statistics to prove that the ratio of corporation earnings
goes up very fast in a period of overtime hours, because the over-all
cost of operation, the normal carrying charges, remain fixed, but they
are getting more production, 20 percent more production, over which,
to spread those fixed overhead charges.
I t all gets back to the question of equity again. If the companies
are going to make higher profits out of overtime hours, then the
workers are going to get their overtime provisions. There is no
question about it. At the point where American industry is prepared to
say "We won't make any profits on any hours worked," then at that
point you can talk about the workers working their overtime without
any overtime.
Senator CAPEHART. Let me ask you this question: Do you think that
a man working, building a tank for the boys to use in fighting in
Korea or some other foreign country, is any more entitled to overtime
pay than the boy is over in Korea, some place, who is driving that
tank, or using that tank ?
Mr. REUTHER. N O ; I don't. I do not. I do not think a fellow on
the production line is entitled to one consideration that a fellow on
the fighting line doesn't get, but that is not the problem. The problem
is this: let me talk about a tank plant. Chrysler Corp. made tanks
during the last war, the M-4. They made them in the Chrysler tank
arsenal. Now, you have to compare the worker in the Chrysler arsenal
with the Chrysler executives; not the GI. Take the corporation
executives and compare with the GI. Mr. Keller is entitled to every
penny they pay him, so far as I am concerned. H e made $412,000
last year, the president of Chrysler Corp. and, based on a 40-hour week,
that is $206 per hour.
Senator CAPEHART. I S that before taxes ?
Mr. RETJTHER. That is his income—salary and bonus. When the
worker gets paid, that is also before taxes; when we talk about our
hourly rates, that is before taxes, too. He made $206 per hour.
Now, if you are going to talk about equity, let's get them all down.
Let's put the GI down, let's put the Chrysler worker down who is
building that tank, and let's put Mr. Keller down. The Chrysler
worker gets $1.75 an hour, Mr. Keller gets $206, and I don't know what
the G I gets.
Now, let's talk about those three things, not just the G I and tank
workers—Mr. Keller takes part in that process, because it is the tanks
we are making out of which he gets his salary. This is the guts of this
whole problem.
You can't kid workers by talking about the GI's unless you are prepared to talk about Mr. Keller at the same time. When you talk about
GI's, Mr. Keller and the tank worker, then you will be talking the
kind of language they understand, and will go along with.
Senator CAPEHART. If Mr. Keller would work for $1 a year, would
the Chrysler employees immediately take a cut in wages? That is
your theory; that because Mr. Keller gets $400,000 a year that nothing
can be worked out; no equity.
Mr. RETJTHER. He is not the highest paid executive in our industry.
Senator CAPEHART. I t seems to me your entire argument here is that
you always get back to what I term a socialistic scheme. I n other
words, you are opposed to the private enterprise system making a



profit. You are opposed to one man getting more money than somebody else does.
Mr. EEUTHER. That is where you are wrong.
Senator CAPEHART. What is your salary ?
Mr. EEUTHER. I don't think, as a matter of logic, it follows if you
say you are talking about equity between a G I and a tank worker—
and I say let's talk about equity between a tank worker and the G I and
an executive—it has anything to do with socialism.
Senator CAPEHART. What is your salary ?
Mr. EEUTHER. $10,000 a year.
Senator CAPEHART. Why do you get $10,000 a year when the man
on the tank line gets only $1.75 an hour, or are you worth $10,000 a year
when he is worth only $1.75 an hour?
Mr. EEUTHER. NO ; that isn't it. I t just so happens that in our industry we have the wages set for our leadership a little above what
the top people in our industry make. I n my trade, I could make—or
during the war I could have made, with the overtime—pretty close to
$8,000 or $9,000 a year. I am a skilled tool and die maker. I get a
little more than what I would get if I worked at my trade, although I
have always believed that the salaries of trade-union leaders, labor
leaders, should never be much above what the men in the shop get
paid. That is my philosophy. I am in this business not because of
what I get paid, but because I believe in it, and I worked for nothing
for a long time.
Senator CAPEHART. I t seems to me all your arguments are based on
a socialistic scheme to destroy the private-enterprise system.
Mr. EEUTHER. Socialism is a matter of ownership. What has this
to do with ownership ? You tell me.
Eepresentative GAMBLE. What has that to do with regulation W,
too, when you get right down to it ?
Mr. EEUTHER. I think that is a very pertinent question. But the
Senator raised the question of socialism, and it is one of those scare
words that has no meaning in this situation.
I am not against free enterprise. I am for making free enterprise
work for all the people, not just for a few people.
If I may, I would like to conclude my discussion of regulation W,
Mr. Chairman.
I n my prepared statement I indicated the impact of regulation W
on the employment situation; I used Kaiser-Frazer as an example,
and that is all in there.
I have documents here from various organizations throughout the
country indicating that the impact of regulation W has cut the sales
of new cars from 40 to 50 percent, in various parts of the country, and
the sales of used cars as high as 65 percent. I won't bother you with
the documents, but it can be documented to prove that that actually is
taking place out in the field.
Now, as I said before, the little fellow is being priced out of the
market. The fellow who buys a Cadillac has no trouble; he can get
his Cadillac. I t is the fellow who needs a car for transportation that
is being priced out of the market.
If the Federal Eeserve Board were really concerned with trying to
reduce the amount of consumer credits, and the amount of money
available that is being spent—if that is the pressure on the index that



is creating inflation, then they should have dealt with the really basic
problem, and at the end of my prepared statement, I have a chart
showing the distribution of income. You will find there that the
highest tenth of family groups make expenditures of $43,000,000,000
a year. The lowest tenth only 3.7 billion. The lower one-half of
American families spend almost the same amount as the top tenth.
Now, why penalize the fellow who is down there where they have an
awful time making ends meet, when regulation W leaves the fellow
on top completely in the clear.
Now, it is a strange thing that the Federal Reserve Board
Representative BROWN. D O you desire to have this incorporated in
the record ?
Mr. RETJTHER. That is in my prepared statement; yes.
The Federal Reserve Board move on the little fellow with its regulation W, and they price him out of the market, and that is supposed
to be the method by which they minimize the amount of purchasing
power, the amount of consumer credit, and therefore they will alleviate some of the pressure on the cost-of-living index.
Representative BROWN. I made the statement yesterday that if you
made it 18 months instead of 15 months, I did not think that it would
affect inflation at all. What do you think about that ?
Mr. REUTHER. Of course it would not. The point is that if a fellow
buys a car, and he pays down, say, $200, and he has got, let us say, $1,800
to pay—let us just use those figures. If he pays it off over a period of
time, while he is making those payments, that is eating up his purchasing power. That is not inflationary, and the real measurement
is how much more purchasing power does the absence of regulation
W permit to come into being. I t is 2 percent, and that 2 percent is
not an important factor, and that is why I want to point out to you
that while the Federal Reserve Board puts on consumer credits in
the form of regulation W and regulation X on housing, they do not
put on bank credits, and bank credits are the source of the real
pressure with respect to causing higher prices.
Since Korea, consumer credits have been going up around 400 million dollars a month, but bank credits have been going up at the
rate of iy2 billion dollars a month, four times as great. Now, in 1947,
Mr. Eccles, who was then Chairman of the Federal Reserve Board,
appeared before Congress and asked that the law be amended so that
he could begin to deal with what he then saw was a very threatening
situation, and that was the unlimited bank credit being passed out by
the banks. I think the banks have around $65,000,000,000 worth of
Government bonds that they accumulated during the war because
they were the Government's fiscal agents. Now, with that $65,000,000,000 worth of bonds, they can just pass out unlimited bank credit, and
they are passing that bank credit out at a rate four times greater than
the increase in consumer credit, and yet Mr. McCabe does not raise
a finger about that. That is a strange situation. Here is bank credit
expanding four times as fast as consumer credit, and nobody says
a word about that, and yet they act against the consumer credit which
is expanding only one-fourth as fast.
The whole idea is wrong, and these fellows ought to be made to
understand it is basically incorrect.
Senator CAPEHART. Would you be satisfied with 18 months? Do
you think 18 months would help solve the problem ?



Mr. REUTHER. I think it certainly would be a considerable improvement.
Senator CAPEHART. D O you think it ought to be more than 18
months ?
Mr. REUTHER. Well, 18 months would certainly be better than 15
Senator CAPEHART. There is no question but what they did eliminate the man on a limited income from buying an automobile. T h a t
is as obvious as my big nose.
Mr. REUTHER. I think 18 months is too short. I do not know why
you cannot go back to 21 months. The point is you are dealing here
with an essential commodity the people need. They are not luxuries.
Senator CAPEHART. That is why I was opposed and wanted to
eliminate regulation W after World W a r I I .
Mr. REUTHER. I think you ought to go back to a longer period.
Suppose a fellow has an income of $60 a week. Now, he spends part
of that, approximately 40 percent for food, and those items. He spends
so much for clothing. Now, he takes a part of that out for his automobile, or refrigerator or whatever it is that is controlled by W. Now>
while he is buying these things he is spending his money buying that
back. That is not inflationary. Now, you price him out of the market for an automobile or a refrigerator, and he then is going to start
spending that money for more food and clothing, and he is going
to exert more pressure on those items, and that will create inflationary
pressure there, so I would go back to the longer period. I don't know
why you cannot go back to 21 months. I personally do not think that
is a serious problem.
Senator CAPEHART. I think it is obvious that you hurt the little
fellow when you make the terms short.
Mr. REUTHER. Let me finish by saying that another part of this
problem which we are worrying about is these material orders, and we
deal with that in our statement, and we hope that this material thing
can be worked out. Now, for example, in the auto industry if a 35
percent aluminum cut across-the-board on a flat basis stands and is not
modified there can be mass unemployment in our industry. F o r d
Motor Co. has given me figures as late as this week which they claim
are as accurate as they can project them and the figures indicate in the
Ford Motor Co. alone, if we had a mechanical application of the flat
across-the-board 35-percent cut in use of aluminum for civilian production, it would mean 40,000 workers would be laid off just in the
Ford plants themselves, and if you translate that into the whole
auto industry on the same ratio, and also in the agricultural implement
industry because they make engines comparable to automobile engines,
it would mean in our industry we would be laying off around 320,000
auto workers, and 64,000 agricultural implement workers, or approximately 384,000 workers.
That would be, I think, a real catastrophe if that happened, because
we need this civilian production.
Senator CAPEHART. I t would be a catastrophe unless they can take
up the slack in war production.
Mr. REUTHER. We have only 3-percent war production in the auto
industry now. I t would mean a waste of millions of man-hours. I t
would mean we would not be making the automobiles we will need in



the long pull in order to have defense transportation for workers, and
so forth. What we have got to do is get away from this flat across-theboard approach. We have got to begin to allocate materials in short
supply based upon whether the end product is essential. If it is nonessential, they have got to not give it the same treatment as the essential product.
Senator CAPEHART. What you are saying is they must allocate on
the basis of the end product rather than the horizontal allocation of
x amount of aluminum, or x amount of copper, or any other.
Mr. EEUTHER. Look at the aluminum on pistons. With the exception of Chevrolet and Pontiac, all the cars use aluminum pistons.
Now, if they cut aluminum 35 percent on pistons, then the production
of pistons drops 35 percent, and that item regulates the level of the
production. You do not do anything about it. You cannot leave a
couple of pistons out of an engine. Now, if you save, under the mechanical application of their flat across-the-board order, if you save
all the aluminum you are using on five items by substituting other
materials, you cannot then use that extra aluminum for pistons. I t is
just completely unrealistic.
Now I might say yesterday I talked to Mr. Sawyer and Mr. Harrison
about this thing, and I went over it with them in great detail. After
we finished the discussion, Mr. Harrison said, " I realize that is a
problem. I want to give you assurance," and he made the very definite commitment that he would take steps to meet this piston problem,,
which is the most serious thing, or any other tight item like that, to
avoid the severe cut in automobile production that would follow if you
had a mechanical application of this 35 percent item right across the
board. H e has made that commitment. I think that is the key to the
whole question.
Senator CAPEHART. I think they realize that.
Mr. EEUTHER. I hope we have gotten them to realize that, because
it can be disastrous if we do not move. H e said he would. I am going
back to Detroit, and he told me I could tell the pepole in the automobile industry that he would take steps to meet this problem on
pistons or any other single item that would mean a drastic cut in
Eepresentative TALLE. Mr. Chairman, recalling your earlier statement, Mr. Eeuther, about obsolete airplanes, of which there are very
many, why is nothing being done about recovering the aluminum in
Mr. EEUTHER. That is what I asked yesterday, and I am going to
find out why something is not being done. That is a little project
I am going to work on while I am down here. F o r example, the
Ford Motor Co. said to me in my meetings this week, they said if we
could get a greater supply of secondary aluminum, that is aluminum
that has been used and remelted, we could save from 40 to 60 percent
of the primary aluminum, that is the item in short supply. I said,
"Well, what about these airplanes?" They said that would more than
take care of our problem, but there they are sitting out in the desert.
I want to know why we are not scrapping them, why do we not get
some of the unemployed in America out there, set up some temporary housing, an Army commissary to feed them, and let us tear these
things down. There is all kinds of scarce material in those planes.



They have no military value. They are just old boxcars. We could
not send our boys out to fight with them. The stuff t h a t can be used
is something else. I am talking about stuff that is completely obsolete.
There are millions of pounds of aluminum there t h a t we could recover
and get into our production process. T h a t is the problem. I say to
the fellow, "What about this?" H e says, "That is not my department, t h a t is somebody else's department." I don't know whose department it is in, but I am going to find out before I leave town.
Representative TALLE. If you get the answer early enough, will you
supply it for this record ?
Mr. REXTTHER. I should be very happy to. I can make no promise.
I t may be as hard to find as a needle in a haystack, but I am going to
work on it.
Representative BROWN. We have a roll call in the House, Mr.
Mr. REUTHER. W e believe, gentlemen, that regulation W is not the
way this problem ought to be handled, and we believe sincerely it
ought to be set aside so we can really get on with doing this job on
a proper coordinated basis rather than this stab-in-the-dark method
which regulation W typifies in our opinion.
Representative BROWN. Thank you, very much.
(Mr. Reuther's prepared statement follows:)

At this juncture in world affairs with our Nation and all free peoples in a
situation of unparalleled danger, we urge the speedy adoption of planned, orderly,
and effective mobilization of the Nation's productive power.
UAW-CIO and its 1,000,000 members have been, and are, prepared to make
their full contribution in an all-out mobilization of the Nation's resources. We
believe that such mobilization, to be successful, must be realistically planned and
coordinated under a central responsible authority. For nearly 6 months, uncoordinated piecemeal measures have been our only answer on the domestic front
to aggression in Korea and the challenge to freedom throughout the world. They
will not do the job. Such measures make the job harder, not easier, to do.
You have called these hearings to consider regulation W—Automotive. I
shall talk about regulation W—Automotive. But I know, and you know, that
this type of regulation is not the answer to the grave and urgent questions which
we must face up to at this time. At best, regulation W will not do the job
that must be done by price control, for which it was issued as a quick and easy
substitute. At worst, it will do far more harm than good, disrupting employment,
dislocating manpower, and wasting irreplaceable and therefore priceless manhours of vitally needed production. The brainchild of monetary theorists in the
Federal Reserve Board, it found favor with those who hoped that stabilization
of prices and mobilization of production could be operated by remote control
through the manipulation of a few fiscal push buttons.
If there was ever any hope the task would be simple, there certainly can be
none today. The job we have on our hands requires large-scale planning and
practical, vigorous, realistic execution. It requires that all parts of the defense
and civilian program be tied together. If regulation W has any part in this
over-all plan, it is a minor part and I shall discuss it in connection with ilie
larger job that is to be done.
With regard to the elements in a planned and coordinated mobilization program, now that we know for certain the nature and the magnitude of the job—
and this is true whatever the diplomatic and military developments of the next
few days and weeks—we should be able to reach agreement on, first, the imperative necessity for an all-out democratic mobilization of our material and human
resources for maximum production of military and essential civilian goods and
services, and, second, a planned mobilization program that, by taking account in
advance of all essential military and civilian needs and resources, will get that
maximum production without waste and without delay.



It seems to me that the worksheet for such a planned mobilization program
should have certain essential elements. I list them to show the contrast with
the uncoordinated piecemeal steps that have been taken to date under the Defense
Production Act.


1. Needs.—List actual or provisional targets for materials, manpower, plant,
and transportation facilities to meet military requirements; schedule dates of
2. Resources.—List total material supply and production potential for military, essential civilian, and export needs.
3. Deficits.—List the resulting scarcities under present conditions of supply and
4. Civilian essentials.—List ways to relieve these scarcities by reducing or
eliminating obviously nonessential civilian uses.
5. Expand resources.—Determine largest possible increases in materials supply both here and from abroad. Nation-wide drives to recover scrap aluminum,
copper, steel, and other scarce materials.
6. Direct imports.—Establish Government monopoly over all purchases of
scarce materials from foreign sources in order to obtain better prices on purchases, to eliminate tariff cost, to give Government stockpiles first claim, and
to assure materials for small or nonintegrated manufacturers.
7. Expand production.—Fix, schedule, and start work on the necessary increases in production capacities for scarce materials and finished products.


This mobilization may last a generation. It requires full utilization of every
production facility and every available man-hour of labor. Any essential
civilian production that is lost now by shutdowns prior to change-over to defense
production is a costly waste that will have to be made up later when greater arms
production could otherwise be turned out.
We cannot afford a single wasted factory-day or man-day brought about by
premature or uncoordinated curtailment of materials. Up to the time defense
orders and production can be spliced in, we should continue to roll out essential
civilian goods for the long years ahead when military needs will be demanding
greater and greater proportions of our total output. It is imperative that we
keep our productive machine going full speed, changing over to defense production with the least possible loss of plant-hours or man-hours.
8. Priorities and allocations.—Instead of the present shotgun methods of uniform across-the-board restrictions on use of scarce materials—
(a) Use a controlled materials plan to allocate scarce materials to defense
contracts as required, with balance to essential civilian uses and to stockpile.
(b) Base civilian allocation upon—
(1) Essentiality of the end product.
(2) Possibility of substituting other materials.
(3) Continued use of plant and manpower, considering present and scheduled defense needs.
(4) Building stockpiles of essential items to ease future shortages.
We enter this emergency period with cars on the road averaging 8% years
old; in 1941 the average age was 5% years. Today 42 percent of the cars are
10 years old or older; in 1941 only 17 percent were that old. Clearly there is
need to build up the inventory of new cars and trucks to provide for essential
transportation needs after conversion of much of the auto industry to defense
(c) Regulate strictly all inventories of scarce materials.
9. Procurement.—Amend the law to authorize and direct use of negotiated
contracts, so that placement of defense contracts can be geared to available
facilities and manpower as well as to cost. This is necessary to minimize
dislocation of labor force and undue concentration of defense work in a few
major corporations.
10. Manpower.—Trained manpower now at work should continue to produce
essential civilian goods until defense contracts are either spliced in or replace
such production. Public employment offices should tie made part of a national
system at once, to make the best use of all available unemployed manpower.



Congress should provide for transfer of unemployment benefit rights so that
workers asked to move to other States will not lose these earned rights.
Defense Manpower Director Robert C. Goodwin is reported to have advised
public employment offices to differentiate, to discriminate, * 'between those unemployed who will return to their former employers when production change-overs
are completed, and those who can be regarded as available labor supply for
expanding defense production." He expects full employment by early summer,
In plain words, Mr. Goodwin suggests that some workers shall get the services
of tax-supported public employment services and others shall not get those
services. He seems to assume that American workers can be pushed around
at the convenience of public officials, that they can be put in the deep-freeze
lockers of unemployment insurance and thawed out and put to work in their old
jobs whenever defense contracts are awarded their former employers. Mr.
Goodwin's recommendations to public employment offices simply will not work.

Instead of relying on credit restrictions that hit exclusively workers and other
low-income families, provide for—
11. Control of oig credit.—Authorize and direct the Federal Reserve Board to
impose special reserve requirements on banks sufficient to halt the expansion
of business loans for speculative bidding up of prices and building up of
12. Control of prices on commodity exchanges.—Continued speculation and gambling in commodities expressly permitted by Congress in the amendment eliminating regulation of exchanges from the Defense Production Act, has contributed to the 9-percent rise in wholesale commodity prices (since Korea) which,
increasing as it goes, will hit consumers with stunning force next spring.
13. Genuine price controls.—The so-called price control provisions of the present Defense Production Act will not control prices. They provide not for stabilization of prices but for chronic, continuing inflation. When Economic Stabilization Administrator Valentine told you on Monday that escalator clauses in
wage contracts might cause inflation, he then and there admitted that he does
not expect to stabilize the cost of living.
Announcement by General Motors of a totally unjustified and unnecessary
price increase on the heels of a similar increase in the price of steel reemphasizes and underscores the need for decisive action by the Government to stop
runaway inflation and protect the living standards of the American people.
The UAW-CIO has been calling for such action ever since the Korean situation
accelerated the upward movement of the cost of living. We pointed out 2 months
ago that any contemplated increases in automobile prices or the prices of materials and parts to automobile companies would be thoroughly unjustified. That
is still true.
The General Motors increases announced are the second step in the inflationary
spiral touched off by the management of the steel industry last week when it
announced a price increase with the false claim that an increase was necessary
to pay the wage increases won by the steel workers.
However, even though the steel industry committed the original wrong, two
wrongs don't make a right. General Motors could have absorbed the steel
price increase, all other materials price increases and its increased labor costs,
and still have made a tremendous profit.
Company and Government figures show that 17 major steel companies were
making an average of more than 18 percent profit on investment after taxes
in 1950. Their second-quarter 1950 profits established new records. The steel
industry could have paid the wage increases they granted last week without
increasing the price of steel and without increasing the costs of automobile
producers—the largest consumers of steel.
On the basis of its third-quarter figures, General Motors could have absorbed
all its increased material and labor costs since the beginning of 1950 and still
would have made an annual return of more than 30 percent on investment after
In the absence of any kind of price controls, the steel industry is taking
advantage of the international crisis and our national peril to pass on to the
automobile and other industries cost increases which the steel industry is perfectly capable of absorbing.



The steel industry must accept the major responsibility for pulling the trigger
that sets off this chain reaction of inflation. However, this does not excuse
General Motors, the wealthiest and most profitable corporation in the world, for
passing on this increased cost to automobile consumers where it will be
reflected in reduced purchasing power. In both cases, management is acting
out of a completely selfish interest to protect profits which have already risen
to the proportions of a major national scandal. With these corporations, it is
profits first, and the welfare and security of American families second.
Approximately 750,000 UAW-CIO members and their families, covered by
cost-of-living escalator clauses, will be protected against the increased living
costs that will flow from these price rises. But we in the UAW-CIO are
concerned with the welfare of the whole Nation and the living standards of
the millions who have no such protection.
Since these basic private industries have refused to assume their social
responsibilities to the Nation, the American people have no choice but to demand
that the Government take immediate and effective action to protect our living
standards against the onslaughts of profiteers.
14. Rent control and essential housing.—Establish effective Nation-wide rent
control for all areas of housing shortages. Provide now for allocation and
priority of materials and construction of essential defense housing to relieve
shortages already described to you by NSRB Chairman Symington and Housing
Expediter Tighe Woods.
15. Taxation.—We must go as far as possible to pay as we go, but the burden
must be imposed equitably. Income taxes are the most equitable, but the loopholes in the present tax law which favor wealthy taxpayers must be eliminated,
and exemptions must be raised so that no family shall be taxed below a decent
level of subsistence. While low-income families are now being taxed at the wartime rate, upper-income families and corporations are paying at lower rates than
they paid in the war. The so-called excess profits tax passed by the House is
more lenient on corporation profits than the wartime tax law, although corporation profits are already 60 percent above war profits and are still going up.
Regulation W—automobiles: The immediate effect of Regulation W has been
to curtail sales of automobiles. This has been offset somewhat by the scare
buying stimulated by the turn of events in Korea. But the fact is that dealers'
stocks are increasing and production cut-backs are bound to follow. Edgar
Kaiser of Kaiser-Frazer Corp. recently told a press conference what it is doing
to employment in his company. On October 14 they were employing 17,000
people. Today their payroll has been cut to 12,000; it will be down to 10,000 next
week, and is expected soon after the first of the year to reach 8,500. This company estimates that, including its vendors and dealers, 60,000 people were employed in October, and that this figure, too, will be cut in half when the regulations
take full effect—a lay-off of 30,000 people.
It appears to be true that some dealers have offset the initial impact of regulation W on the demand for cars by slashing their margins and selling new cars
at bargain prices. This is only a temporary expedient, From various parts of
the country dealers report a 40 to 50 percent drop in new car sales and a 60
percent drop in sales of used cars.
Dealers report also that regulation W has hit hardest at buyers with small
incomes and no cash reserves. This was to be expected. When the Federal
Reserve Board instituted these credit restrictions as a substitute for price controls, it knew that their effect would be to force low-income buyers out of the
market while allowing well-heeled buyers with ample cash resources to buy
as much as they choose.
Price control gives every class of buyer the same protection. Credit controls,
like sales taxes, deliberately impose the burden upon the low-income people who
can least afford to carry it. Yet the automobile is not a luxury. It is a necessary means of earning a livelihood for millions of workers in every industry.
I call your attention to the attached table, showing how consumer expenditures
are concentrated in the upper tenth of the population on whom regulation W
has little, if any, effect. That one-tenth makes more than one-fourth of the
total expenditures. The entire bottom half of the population will be severely
penalized by this regulation, although as a whole it spends only slightly more
than the upper one-tenth. Regulation W is a rich man's racket. It tells the
workers and low-income families to pull in their belts in the worthy cause of
protecting the country from inflation, but it leaves the well-to-do and the wealthy
free to keep feeding the fires of inflation by spending as usual.




The Federal Reserve Board knows all these facts. The figures I present to
you come from their statisticians. But equality of sacrifice is not the principle
it operates on. If it were concerned with equity, it might propose, for example,
to tax the upper tenth of the population so that their expenditures would be
brought down merely to the level of the second tenth. They would still be better
off than 80 percent of the people but, as the table will show you, this one measure
would cut consumer expenditures by 18.5 billion dollars. Yet the Federal Reserve Board would try to have you believe that the only sound way to relieve
the inflationary pressure of consumer spending is—work up from the bottom
and don't go too near the top.
While the Federal Reserve Board was straining at the gnat of consumer credit
it was simultaneously swallowing the camel of bank credit. Since Korea, consumer credit has been increasing at a rate of about 400 million dollars a month;
bank loans have increased more than 1.5 billion dollars a month. But no realistic steps have been taken to check this inflationary extension of credit for the
purchase of scarce materials and the financing of swollen business inventories.
On November 19 Federal Reserve Governor McCabe asked the banks to restrain
their eager borrowers. On the next day the Wall Street Journal said, in effect,
the banks wouldn't, indeed couldn't, comply with his request. For low-income
consumers, a regulation that prohibits them from buying durable goods or new
houses; for banks, a polite plea which nobody expects them to listen to.
When looked at in the light of the total mobilization job we have to do, as I
have tried to outline it above, regulation W makes practically no sense. It
will throw thousands of people out of work for whom no defense jobs are yet
available. It will disrupt the labor force of many plants, forcing them later to
recruit labor when defense contracts come along. Worst of all, no one, least
of all the Federal Reserve Board, knows how, when or where its blows will
fall. Against the urgent necessity of keeping our plants and manpower as fully
employed as possible, and the need of channeling materials and manpower to
defense products and to civilian products that are essential to a strong and
vigorous economy, this meat-ax regulation strikes without plan or purpose. It
is a colossal blunder, and the sooner it is cut down to size so that it may exercise
its proper but very limited function within the framework of the over-all job,
the sooner we will get on with the big job we all have in hand.
Regulation X is performing the same kind of disruption and disservice in the
housing field. Note, for example, what happened to construction in the first
month after this regulation went into effect. Private residential construction,
of which there is a severe shortage, especially in the lower-priced brackets, went
down 10 percent, compared with October. Construction of stores, restaurants,
and garages, on the other hand, rose 10 percent. Other commercial construction
rose 5 percent. Recreational structures declined only 4 percent, much less than
home construction went down, while construction of military and naval facilities
fell 6 percent.
This senseless failure to attend to first things first is the result that is to be
expected when we rely on push-button controls instead of getting down to the
business of allocating materials and labor to the things that are needed most
to carry us through the long emergency period ahead of us.
As to metal cut-backs, the same haphazard, uncoordinated disruption of production, without regard to availability of defense contracts, without regard to
essentiality of civilian products, without regard to stability of the labor forces,
will result from the limitation orders now being issued on aluminum, nickel, zinc,
cobalt, copper, and other metals. As is the case with the Federal Reserve Board
and its credit regulations, the National Production Authority itself does not know
what effect its across-the-board restrictions of metal use will have on production
or employment.
We can tell you what a 35-percent cut in aluminum will mean to the automobile
industry. Ford Motor Co. has given us the figures for its own operations. It
will mean that 36,000 hourly workers will be laid off. This is 35 percent of the
109,000 workers employed by Ford on October 31. This will be followed by a
reduction in clerical and salary workers. Ford Motor Co. estimates that a
minimum of 40,000 people in all will be laid off when aluminum is cut 35 percent.
General Motors truck and coach operations will be hit even more drastically.
It has scheduled production of 400 motor coaches in January. On the basis of
the announced cut of 35 percent in aluminum beginning January 1, it stated
that only 70 coaches would be built in that month—a reduction of more than 80
percent. General Motors says this aluminum cut will reduce its production
schedule of GMC trucks by 45 percent.



On the basis of such announcements by the auto companies, we estimate that
the 35 percent aluminum cut will force 321,000 factory and office workers out
of employment in the auto industry, and 63,000 in the agricultural implement
industry, a total of 384,000 forced into unemployment of indefinite duration.
Aluminum pistons are the key to this problem. Eighteen makes of passenger
cars have engines designed for aluminum pistons. Only Chevrolet and Pontiac
are exceptions, using cast iron and chrome-nickel pistons, respectively. Pistons
are the key to production in power-driven farm machinery as well. A power
plant using aluminum pistons must be redesigned before a heavier piston can be
used. Eight to fourteen months would be required to retool automobile engine
factories tormake this change,, imposing an additional burden on the machine tool
industry which already will be under terrific pressure to tool factories for defense
Here you have an example of the havoc wreaked by the meat-ax approach to
a conversion job that should be performed on the basis of facts, blueprints, and
precision tools. Cars, trucks, busses, and agricultural implements are vitally
necessary to the operation of our economy. Reduction in their output should be
geared as closely as possible into the change-over to defense production. Meanwhile, the national inventory of these essential civilian products should be built
as large as possible. Furthermore, the work force in auto and agricultural implement plants is as valuable as an asset to the mobilization job as are the plants
themselves. Every effort must be made to prevent the dispersion of this valuable
manpower, forcing employers later to recruit new workers and forcing workers
to move from one area to another trying to find places to work and places for
their families to live.
A realistic approach to this aluminum shortage as it affects the auto industry
would include these steps :
1. Expand aluminum production as quickly and as far as possible. We must
raise our sights on what the Nation needs and will continue to need in this and
other basic materials. We should cooperate closely with Canada in assuring
adequate aluminum supplies for both nations and our allies.
The St. Lawrence seaway and power project should be approved and pushed to
rapid completion to ease the power shortage that holds back expansion of aluminum production.
At the same time we should halt the senseless dismantling of German aluminum
plants, like the Toeging works in Bavaria where a plant employing 1,000 workers
producing aluminum is about to be totally wrecked.
2. Launch immediately a comprehensive, realistic scrap collection campaign
to increase the supply of secondary aluminum that can be substituted for a large
part of the present consumption of virgin aluminum, permitting the virgin aluminum to be stockpiled.
The thousands of planes left on our hands from World War II and by obsolescence should provide a tremendous source of scrap aluminum.
Auto manufacturers say that from 40 to 60 percent of the virgin aluminum
they are now using could be replaced by the secondary metal if it were made
3. Allocate the total supply of virgin and secondary aluminum on the basis of
national needs. After defense needs are met, allocation to civilian use should be
on the basis of essentiality. Products which can be made with less scarce materials, or products which are wholly nonessential, should not use aluminum.
4. Adopt a practicable plan for building up the necessary stockpile. If the cut
in aluminum use by auto manufacturers were to start at 15 percent for January
and February, increase to 20 percent in March and April, to 25 percent in May
and June, to 30 percent in July, and to 35 percent in August, I am told that the
industry might adjust itself to this scale of curtailment without serious effect
on its output. Cuts greater than 35 percent could then be made in later months
so that in. 15 months we will have built up the stockpile which the present unrelated and uncoordinated program is designed to provide. Then we would not
have lost the production of cars and trucks we are going to need before this emergency is over.
5. Maintain all necessary supplies of aluminum to the replacement parts industry. Application of the flat cut-back percentage to the production of replacement parts for motor vehicles is totally senseless. Production of new cars
and trucks will be reduced for a long period of time. Average age of cars and
trucks now on the road is high. Obviously we shall have to be sure of more,
not fewer, replacement parts to keep cars and trucks running. We learned this




in the last war, when replacement parts finally were given high priority. Do
we have to start fresh this time and pay the price of making the same mistake
over again?
I suggest that the committee explore with manufacturers this and other ways
in which the national need can be met by methods which do not at the same
time create other difficulties that severely interfere with the whole mobilization
UAW-CIO criticizes the controls that have been imposed to date not because
we wish to hurt or hinder the mobilization program, but precisely because we
want to see that program move forward with more speed, more direction and
larger and more certain results.
For 6 months much time and effort has been spent in trying to find ways of
avoiding controls, over-all planning and unified direction. The facts of the
world have now forcefully served notice on us that it is time to get down to
Our union is prepared to assist in every way we can in shaping the kind of
plans and programs that are necessary to gear out economy to the long, hard
job ahead. And when the plans and programs are made and put to work, we will
roll out the production as was done in World War II.
Distribution of personal income and expenditures, 1948
.Spending units ranked according to income

Range of money

income after
Net savings Expenditures
taxes l
Billion dollars




O rfiedCCIMC^fMT-lOOK-.

Highest tenth







i Excludes income in kind and change in value of farm inventories.
Based on income and savings estimates of Department of Commerce, and on distribution of income and
savings estimates in Federal Reserve Board Survey of Consumer Finances.

Representative BROWN. Mr. Mules is next. Would you like to file
your statement, or come back in the morning ?
Mr. MULES. We have a prepared statement which we will be glad
to file, but I would like to just emphasize one or two points, if you
might give me 2 or 3 minutes.
Representative BROWN. We can give you 2 or 3 minutes, or all the
time you want in the morning.
Mr. MULES. My name is W. Russell Mules, of Baltimore. I represent Commercial Credit Co. I would just like to amplify and point
out what we have said in our statement. We think that this committee should not consider automobiles alone in considering whether
or not the terms for the items which are sold on time—you gentlemen
should also consider the refrigerators, the washing machines, the
matter only of degree as to need.
Eepresentative BROWN. We understand that thoroughly, yes.



Mr. MULES. We hope that you will consider that. The second point
we would like to stress is that installment credit plays such a small
part in the economy that regulation W cannot do much toward controlling inflation by controlling only installment credit.
For instance, as to disposable income, in relation to installment
credit, there is only about a half of 1 percent increase over 1940.
Representative IDROWN. That is in your statement.
Mr. MULES. That is in the statement.
We do think and we strongly recommend that the terms for the
purchase of all articles, automobiles, and other listed articles, be
extended beyond 15 months. Thank you, sir.
Representative BROWN. Your statement will be filed.
(Mr. Mules' prepared statement follows:)

Commercial Credit Co. began business June 12,1912, and, with its subsidiaries,
is engaged in financing commercial open account and installment receivables, in
insurance more or less directly connected therewith, and in manufacturing. The
company has been continuously active since 1916—34 years—in acquiring installment contracts arising out of the sale of automobiles, appliances, and articles
usually sold on the installment plan throughout the United States and Canada.
These operations are being conducted through nearly 300 local offices and almost
5,000 employees. The consolidated resources of the company are about $800,000,000, with invested capital approximating $115,000,000, owned by some 28,000
stockholders. During the 10 months ended October 30, 1950, the company acquired nearly $2,000,000,000 of various receivables, of which $930,000,000 covered
the financing of automobiles and appliances for distributors and dealers awaiting
retail sale—current outstandings approximating $93,000,000; and $494,000,000
covering the retail installment sales of these articles, with current outstandings
approximating $454,000,000.
The officers and employees of the company and its finance subsidiaries are
necessarily thoroughly experienced with all problems incident to the sale and
financing of automobiles and other articles usually sold on the installment plan,
including operations, restrictions, and their effect under regulation W, which
now seeks to control only the installment portion of consumer credit. The company has striven for 34 years not only to steer its own activities, but also assist
in guiding the installment sales financing industry generally along a course of
safe and sound credit terms. The company has always endeavored to offer to
the public an efficient installment plan with reasonable financing rates for purchasing automobiles and other articles out of current income, with adequate
down payments and reasonable terms of repayment. The profitable operation of
financing current receivables requires the ability to borrow large sums of money
in proportion to invested capital, for short term and long term, from banks,
insurance companies, corporations, and other investors. This means that the
receivables acquired must be upon basically sound and stable credit terms, with
adequate minimum down payments and proper maximum maturities.
Commercial Credit Co. believes that your committee should review existing
credit restriction under regulation W as to maximum maturities of 15 monthly
payments covering the sale, not only of automobiles, but also of other listed
articles included thereunder, as otherwise discrimination may well be claimed.
As there have been so many statements and misstatements as to the past and
present attitude of Commercial Credit Co. toward regulation W, the company
desires hereby to restate and clarify its position.
Regulation W was first put into effect August 21, 1941, and discontinued
November 1, 1947; then reinstated September 20, 1948, and discontinued June
30, 1949; and again reinstated on September 18, 1950. Current regulation W
affects only the total installment credit of $13,329,000,000 outstanding September
30, 1950, or around 69 percent, leaving $5,964,000,000, or around 31 percent, of
the total consumer credit outstanding in single-payment loans, charge accounts,
and service credit entirely unregulated, although each of these was regulated
under the regulation W which was discontinued November 1, 1947. Why?



Commercial Credit Co. has never felt and does not now feel that the small percentage of the total sales of merchandise on the installment plan in proportion
to the total retail sales of merchandise, or to the annual total disposable personal income of our country, could have or has had any material effect in bringing on or in prolonging any general business depression, or that the total installment credit outstanding has been or is now large enough to cause serious concern, or to add much to any trend toward inflation. Recurring wage increases
with resulting higher prices, both uncontrolled, and deficit spending are the
primary causes of inflation.
According to Federal Reserve statistics:
Prior to World War II the largest annual total disposable personal income
was $92,000,000,000 for 1941, and the largest total installment credit outstanding
was, on December 31, 1941, $5,887,000,000, or only 6.39 percent of such income.
The total disposable personal income for the second quarter ended June 30, 1950,
tvas at the annual rate of $195,500,000,000 (latest released figures) with total
installment credit outstanding September 30, 1950, of $13,329,000,000, or only
6.81 percent of such income—a very slight increase.
The monthly average total retail sales during 1941 were $4,024,000,000 (Department of Commerce)—annual rate approximating $55,500,000,000—with total installment credit outstanding December 31, 1941, of $5,887,000,000, or only 127.31
percent of the monthly average total retail sales and only 10.60 percent of the
total retail sales during 1941. The monthly average total retail sales for the 9
months ended September 30, 1950, were $12,496,000,000 (Department of Commerce preliminary figures)—the estimated annual rate approximating $150,000,000,000—with total installment credit outstanding September 30,1950, of $13,329,000,000, or only 106.66 percent of the monthly average total sales and only
8.88 percent of the total estimated retail sales for 1950—substantially less in
each case than prevailed in 1941.
From the above, it is obvious that the annual total disposable personal income estimated for 1950 will be 112.50 percent greater than for 1941; and that
the total estimated retail sales for 1950 are 170.27 percent greater than the
total retail sales during 1941. On the other hand, the total installment credit
outstanding on September 30, 1950, was only 126.41 percent greater than on
December 31, 1941.
The total installment credit outstanding September 30, 1950, would have to
increase by $2,583,000,000, or 19.37 percent, that is, from $13,329,000,000 to
$15,912,000,000, to be in the same proportion to the total retail sales estimated
for 1950 as compared with 1941.
The above statistics justify our position that installment credit has but little,
if any, inflationary effect on our national economy.
Commercial Credit Co. would much rather permanently adjust its operations
to regulation W with reasonable restrictions to cover all consumer credit, than
to have its business and its stockholders upset periodically by having regulation W in effect in some form and discontinued, then reinstated and discontinued,
and again for the third time reinstated to cover only installment credit, with no
restriction on single-payment loans, charge accounts, and service credit. The
company does not believe that sufficient time was permitted to elapse to gage the
effect of the restrictions of September 18,1950, before establishing the restrictions
of October 16, 1950—less than 1 month. The company is convinced that 15
months' maximum maturity on all installment sales of merchandise discriminates
unfairly against those desiring to buy and pay for out of their current income,
automobiles and listed appliances. Further, that the 15 months' maximum maturity is causing new automobiles and listed appliances to back up unnecessarily
with distributors and dealers and curtail their production by manufacturers, and
thereby will bring about a sizable amount of unemployment prior to the time
such manufacturers can begin the production of articles connected with the
rearmament program of our country.
Commercial Credit Co. believes that in due time the production of new automobiles and new listed appliances will be substantially curtailed by controlled
production and the inability of the manufacturers to obtain sufficient materials,
due to the necessities of our rearmament program. This, in turn, will in a
normal way reduce the total of installment credit outstanding. The current
volume of time-payment sales of automobiles and other articles usually sold on
the installment plan must necessarily move up or down in a reasonable proportion
to their current production. The company does not believe that the present
economic situation and outlook justify the restriction to a maximum maturity of



15 months on all sales of automobiles and restricted appliances on the installment
Commercial Credit Co. believes that the present regulation W, which restricts
only installment credit instead of all consumer credit, discriminates unjustly
between different classes of consumer credit buyers, and with the maximum
maturity of 15 months on automobiles and restricted appliances, discriminates
unfairly between time-payment buyers and cash buyers. Workingmen, salaried
men, and professional men who really need an automobile to help them to make
a living for their families, as well as those with fixed incomes, find themselves
unable to buy an automobile or a needed listed appliance and adjust their
monthly payments thereon to an amount which they can conveniently pay out
of their current income.
Restriction of the production and sale of articles usually sold on the installment plan, when in the public interest, should begin with the manufacturer by
controlled production and the allocation of materials, and not with the retailer or
with the time-payment financing of such articles.
After making the down payment of one-third of the delivered time price of any
of the lower-priced new automobiles, the balance, when payable in 15 monthly
payments, will average from $85 to $95 per month, with much larger monthly
payments on higher-priced new automobiles. The average workingman, salaried
man, professional man, and many with fixed incomes, simply cannot make such
large monthly payments out of their current monthly income. They must either
spend their savings, cash their E bonds, if they have any, or do without—
possibly at great inconvenience, while the cash buyer and those with charge
accounts or the ability to make single-payment loans are under no restrictions.
Commerical Credit Co. generally has been favorable to reasonable restrictions
on the extension of credit, but has to admit frequent disagreement with their
administration under regulation W. We do not now agree that even under
existing economic conditions the maximum maturity on automobiles and appliances listed thereunder should be restricted to 15 months. Regulation W, when
practically administered, establishes a helpful trade custom as to minimum down
payments and maximum maturities and thereby stabilizes the sale of merchandise on the installment plan, prevents undue expansion of outstandings, and
keeps the installment credit structure fundamentally sound, which should be the
primary reasons for the regulation. It also produces an equitable and standard
basis for competition among manufacturers, distributors, dealers, financing institutions, and banks, all of which redound to the over-all benefit and credit of
the entire industry, the public, and our general economy. It prevents demoralization as to down payments and maturities, which was occurring just prior to
World War II and also, to a less extent, just before the Korean War broke out.
Installment sales financing is a very necessary link in the high level of production and retail distribution of merchandise throughout our country. The
company has always cooperated, as far as possible, with governmental agencies
to keep its activities and operations within sound, general business and economic
conditions for the best interests of all concerned.
In view of the above, Commercial Credit Co. would like to see regulation W
amended promptly to extend the maximum maturity on automobiles and other
listed appliances beyond 15 months, and, also, to include again single-payment
loans, charge accounts, and credit service—all consumer credit—within its terms.

Eepresentative BROWN. The committee will now recess to meet tomorrow at 10 : 30 a. m.
(Whereupon, at 12:15 p. m.? the hearing was recessed until 10:30
a. m., of the following day.)



Washington, D. C.
The committee met at 10:30 a. am., pursuant to recess, in the Interstate and Foreign Commerce committee room, United States Capitol,
Senator Burnet R. Maybank (chairman) presiding.
Present: Senators Maybank, Eobertson, Tobey, and Capehart;
Representatives Brown, Patman, Gamble, and Telle.
The CHAIRMAN. The committee will come to order.
Mr. Hay ward, will you come up now, sir ? We are only too glad,
Mr. Hayward, to put anything in the record you want. As I stated
yesterday, it is rather odd to have 1 State witness and not have all
the 48, and the National Association of Used Car Dealers is supposed
to represent all the 48.
Senator Wherry telephoned me, and told me you had taken the
trouble to come here from Nebraska, so we will hear you for a few
minutes. We will be glad to put anything you wish to have in the
record. Please understand the situation we have been in. If we had
all 48 States, that would require 2 weeks more of hearings.
Mr. HAYWARD. I understand that fully, and with your permission,
I will brief my remarks very greatly.
Mr. HAYWARD. My name is Ray Hayward of Omaha, Nebr. I have
been engaged in the automobile business in Omaha for the past 34 years
and am owner and operator of Ray Hayward Motors located at 2502
Farnam Street, Omaha, Nebr., and am engaged exclusively in buying,
selling, and servicing used cars. I am president of the Nebraska Used
Car Dealers Association and have been since its formation in 1946.
The purpose of my appearance before this committee is to protest
against amendment No. 1, regulation W, limiting the pay-as-you-go
period in the purchase of used automobiles to 15 months, to present
facts to this committee which will demonstrate that the amendment
was unnecessary and unwise and to urge that corrective action be taken
promptly to avert further unnecesary hardship to the used car industry and to the public.
I t is our firm belief that, first, the amendment was and is unnecessary
either as an inflationary control measure or as a national defense




measure. That the amendment caused extreme stagnation in the used
car industry and, unless modified or repealed, will bankrupt a large
segment of that industry and adversely affect the entire national
economy. That the amendment is unjust and discriminatory, and that
the amendment imposes a severe and unnecessary handicap on the
efforts of the modest-income family to solve their transportation
The justification advanced for amendment No. 1 of regulation W
is that it was necessary for the control of a dangerous inflationary
trend in the used car market. The facts, however, do not support this
contention. Not only was there no inflationary trend in the used car
market when the amendment was put into effect, but commencing with
the second week in August of this year and continuing to the present
time there has been a steady decline in used car prices.
We are fully aware that the Korean situation which broke late in
J u n e of this year caused considerable scare buying in our business as
well as in many other lines. I t is a fact, however, that by the middle
of August used car prices started down and continued downward
through the months of August and September and have continued
downward to the present time.
The announcement of regulation W on September 8, to be effective
September 18, caused a flush in buying, but at little or no increase in
prices. Many purchasers wished simply to take advantage of a smaller
down payment and a longer time to pay.
From September 18 on the decline in both cash and installment
business continued. We feel certain that had sufficient time been permitted to elapse so that actual price and volume figures could have been
obtained, the Federal Reserve Board would have deemed amendment
No. 1 both unnecessary and inadvisable.
The figures which the Federal Reserve Board used in justifying the
amendment, included, according to their own statement, the flush
period from September 8 to September 18. The deflationary trend
commenced again on September 18 and has continued unabated since
that time.
I n an effort to obtain the actual facts, our association mailed a questionnaire to all used-car dealers in our State. The answers which we
received were from the largest down to the smallest dealers in the State
and covered the entire area of the State so should reflect a true picture of the situation in Nebraska.
I n compiling our figures every returned questionnaire has been used
and no questionnaire has been excluded. Here are the facts and figures
disclosed by those questionnaires.
I will brief that, if I may, and give you the conclusions very quickly.



(The information referred to follows:)
Total used-car sales Aug. 18 to Sept. 18:
Number of cars sold
1> 269
Total selling price
Number of cars
Total amount
Total used-car sales Sept. 19 to Oct. 16:
Number of cars sold
Total selling price
65.8 percent minus 34.2 percent.
Number of cars
Total amount
47.9 percent minus 52.1 percent.
Total used-car sales Oct. 17 to date:
Number of cars sold
Total selling price
$448, 662. 48
40 percent minus 60 percent.
Number of cars
Total amount
$110, 457. 56
23.4 percent minus 76.6 percent.
This information will be held strictly confidential.
Only the total figures of these reports will be used at the forthcoming hearing.
Fill out and mail t o : Nebraska Used Car Dealers Association, 2502 Farnam
Street, Omaha, Nebr .

The CHAIRMAN. Thank you, Mr. Hayward.
Mr. HAYWARD. The total volume of business for the period of from
September 19 to October 16 dropped off 34 percent. The total finance
business, pay-as-you-go installment business, dropped off for that first
month, 52 percent. F o r the third period, that from October 16 to
November 15, the total business dropped 60 percent, and the finance or
installment business dropped 65 percent.
We want to call your particular attention to the fact that the foregoing figures come first-hand from the dealer's own place of business. They are undiluted by those of any other industry. They need
not be unscrambled from the mass of figures gathered by the Federal
Reserve Board. They come from the firing line. They are grassroot figures, if JOVL please.
We are all painfully aware of the recent developments in Korea and
the threat these developments present to our country. Even though
there is absolutely no basis for the amendment to regulation W from
the standpoint of controlling inflation in the used-car market, we would
not be here protesting if the amendment now appeared to be reasonably required as a defense measure. However, this is not the fact.
We wish to call to your attention the fact that the used-automobile
market does not require the use of strategic materials or labor for the
reason that the cars have already been manufactured. Moreover,
civilian transportation becomes an extremely important factor in modern war production activity. The modest income group in our Nation
supplies the bulk of the labor required in defense facilities. Because
of the necessity of decentralizing industry as a result of modern warfare, transportation of these workers to defense facilities becomes an
important problem. The passenger automobile solves a good part of
this problem.
We should also keep in mind that the public owns 95 percent of the
used cars in the country and that they have suffered a loss of many
millions as a result of the reduction in values as a result of amendment
No. 1 to regulation W.



Senator CAPEHART. May I ask a question ?
What do you suggest that we do to control inflation?
Mr. HAYWARD. T O control inflation ?
Senator CAPEHART. Inflation.
Mr. HAYWARD. Well, it depends on the definition of what you call
Senator CAPEHART. W h a t do you suggest that we do with regard to
regulation W? Do you have any specific recommendation?
Mr. HAYWARD. I might answer your first question this way: T h a t
in our business, in the used-car end of the business, there is no inflation, there is a very definite deflation, very definitely.
Senator CAPEHART. And you think when the production of new
automobiles is reduced, say by 25 to 3 3 % percent, there will still be a
reduction in the value of used cars ?
Mr. HAYWARD. I doubt if there will be much of a continued reduction from this point. I think we have probably reached a steadier
point. However, we cannot anticipate what is going to happen.
Senator CAPEHART. What terms do you recommend at the moment?
Mr. HAYWARD. We recommend the complete elimination of amendment No. 1.
Senator CAPEHART. Have no control at all ?
Mr. HAYWARD. NO ; of amendment No. 1 to regulation W.
Senator CAPEHART. A t what terms do you wish to sell ?
Mr. HAYWARD. Back to 21 months with a third down.
The CHAIRMAN. Mr. Hayward, we will put all that in the record
for you just as you had it.
Without objection, your statement will be inserted in the record at
the end of your remarks.
Mr. HAYWARD. The bulk of the customers in a used-car market are
unable to pay cash for a car. They must budget their earnings and
pay for their car while they are using it and getting the benefit from
its use. Many of them need a car in their business or work, and this
will be true of defense workers. When the amendment to regulation
W took these people out of the market, it took away a large percentage
of the customers of the used-car industry. As a result, every usedcar dealer in the country has suffered a heavy loss and many of them
are being forced into bankruptcy.
No industry can have its business cut off by over 60 percent in a few
short months and survive. As we have seen there has been a reduction of 76.6 percent in pay-as-you-go buying of used cars in Nebraska
since September 18.
Few governmental regulations have caused more widespread and
severe loss to an industry than has the amendment in question. The
amendment came when prices in the used-car market were steadily
declining. I t greatly accelerated that decline and sharply curtailed
the volume of business. The amendment came without notice and
without hearing and dealt the industry a hard blow at a time when
it was trying to survive a steadily declining price level. Is there any
wonder why the amendment has met with angry and universal protest?
Those in the automobile industry realize that the sale of used cars is
the bottleneck through which the larger part of the production in the



industry must pass. W e know that 214 used cars must be sold before
one new-car sale can be considered complete. We feel that continued
stagnation in the used-car industry will soon bring about a curtailment in new-car production far greater than that being asked of any
other industry and greatly in excess of that declared to be necessary
at this stage of our defense effort.
We wish to point out also that the provisions of the present regulation W and amendment No. 1 thereto are much more severe than the
provisions in effect during World W a r I I and the postwar years of
1946 to 1948.
We also wish to offer in evidence two advertisements which appeared in the Omaha World Herald on November 26, 1950. One is
headed, "Brand new 1950 Buicks for a $50 deposit."
The other ad relates to used cars and is headed, "No deposits—No
down payments." Under the plan therein referred to, either a new or
used car is delivered under a lease agreement. The reason that we
call this to your attention is to emphasize the severity of regulation
W together with amendment No. 1. Apparently this dealer found
it necessary to devise this plan which circumvents the spirit if not the
letter of the regulation. I t is obvious that the small dealer who
cannot tie up his capital in a plan of this kind will not be able to compete with the larger dealers who can.
(The advertisements referred to follow:)

Immediate delivery of a brand new current model Buick including radio and
heater for monthly payments of only $72.
Lied Buick supplies the State license, safety sticker, and pays the taxes. All
service operations (except gas, oil, and antifreeze) will be provided by Lied
Buick without further cost. Your only requirement is to furnish collision and
liability insurance.
Take advantage of this sensational lease offer today. Eliminate worry about
depreciation, finance charges, taxes, license fees, service costs, resale trade-in
value, etc.
Many large corporations as well as individuals are turning to this sensational
lease plan. We solicit your inquiry and will welcome a telephone call to our
representatives: Mr. Schertz, Mr. Donahue, Mr. Fisher, and Mr. Wells.

Harney at 27th Ave.

Atlantic 4100

Farnam at 26th


Now makes it possible for you to take immediate delivery of any of the following
used cars under our new sensational lease plan.




Select your car. Make your first weekly payment as indicated below and drive
it home.
'50 Studebaker (green 4-door sedan, overdrive)
$18. 00
'50 Buick (maroon, Dynaflow sedan, radio, heater)
'50 Ford (blue tudor)
'50 Chevrolet (green 4-door)
'49 Ford (green tudor)
'49 Chevrolet (tutone grey-blue, radio, heater)
16. 50
'49 Buick (Super Sedanette, radio, heater)
'49 Kaiser (blue Traveler, radio, heater)
'48 Buick (blue 4-door, radio, heater)
13. 25
'48 Pontiac (blue-grey 4-door, radio, heater)
'48 Frazer (maroon 4-door, heater, overdrive)
'48 Dodge (green, 4-door, radio, heater)
13. 00
This is a genuine, bona fide offer by Nebraska's largest car dealer.
Take delivery today I
Call Mr. Schertz, Mr. Donahue, Mr. Fisher, Mr. Wells.

Harney at 27th Ave.

Atlantic 4100

Farnam at 26th

The amendment is certainly unfair to the modest-income group who
are unable to pay cash for the cars they need. And, of course, it is
unfair to those engaged in the business of supplying transportation
wherever and whenever it is needed, the used-car dealer. The middleincome group is deprived of the right to spread the pay-as-you-go
payments over a sufficiently long period to meet their budgets and
are consequently forced into buying lower grade transportation which,
through expensive maintenance, will cost them more in the long run.
I t should also be pointed out that while the regulation requires a
down payment of 3 3 ^ percent, the effect of the 15-month limitation
is to make a down payment of 50 percent a practical necessity. The
down payment has to be that large in order to keep the monthly payments on the balance within the purchaser's budget.
I n conclusion, then, I wish to summarize this matter as we see it.
First, there was no need for amendment No. 1. When it was put
into effect the price level and dollar volume of used-car sales were
steadily declining and had been for some time. Using the period
from August 18 to September 18 as a base, the decline for the month
ending October 16 was 34.2 percent in dollar volume and 52.1 percent
in pay-as-you-go installment volume. For the month ending November 15, the decline was 60 percent in dollar volume and 76.6 percent
in pay-as-you-go volume. From the middle of August to the middle
of September prices declined from 20 to 25 percent without any regulation and the effect of the regulation was to accelerate this disastrous
Second, the amendment has caused a severe and unnecessary loss to
the used-car industry and to the public.
Third, the amendment is unjust and discriminatory.
Fourth, the amendment discriminates against the middle-class
huyer. I t deprives him of his right to improve his transportation
which has become increasingly necessary in our economy due to the
decentralization of industry. The upper-class buyer with accumulated funds is unaffected.



May we request that this committee consider carefully the facts
and figures above set forth and that they use their utmost effort in
bringing about the nullification of amendment No. 1 to regulation W
as affecting automobiles.
The CHAIRMAN. We thank you very much, sir.
(Mr. Hay ward's prepared statement follows:)

Senator Maybank, chairman, members of the committee, and gentlemen, my
name is Ray Hayward, of Omaha, Neb. I have been engaged in the automobile
business in Omaha for the past 34 years and am owner and operator of Ray
Hayward Motors located at 2502 Farnam Street, Omaha, Nebr., and am engaged
exclusively in buying, selling, and servicing used cars. I am president of the
Nebraska Used Car Dealers Association and have been since its formation
in 1946.
The purpose of my appearance before this committee is to protest against
amendment No. 1, regulation W, limiting the pay-as-you-go period in the purchase of used automobiles to 15 months, to present facts to this committee which
will demonstrate that the amendment was unnecessary and unwise and to urge
that corrective action be taken promptly to avert further unnecessary hardship to the used-car industry and to the public.
It is our belief—
1. That the amendment was and is unnecessary either as an inflationary
control measure or as a national defense measure.
2. That the amendment caused extreme stagnation in the used-car
industry and, unless modified or repealed, will bankrupt a large segment
of that industry and adversely affect the entire national economy.
3. That the amendment is unjust and discriminatory.
4. That the amendment imposes a severe anld unnecessary handicap on
the efforts of the modest income family to solve their transportation problem.

In our country, a buyer and seller can ordinarily fix the time of payment
to fit their convenience. Certainly there must be some pressing public need
to justify the taking away of these ordinary fundamental rights of ownership.
The justification advanced for amendment No. 1 of regulation W is that it
was necessary for the control of a dangerous inflationary trend in the used-car
market. The facts, however, do not support this contention. Not only was there
no inflationary trend in the used-car market when the amendment was put
into effect, but commencing with the second week in August of this year and
continuing to the present time there has been a steady decline in used-car
We are fully aware that the Korean situation which broke late in June of this
year caused considerable scare buying in our business as well as in many other
lines. It is a fact, however, that by the middle of August used-car prices
started down and continued downward through the months of August and
September and have continued downward to the present time.
The announcement of regulation W on September 8, to be effective September
18, caused a flush in buying, but at little or no increase in prices. Many purchasers wished simply to take advantage of a smaller down payment and a longer
time to pay.
From September 18 on the decline in both cash and installment business continued. We feel certain that had sufficient time been permitted to elapse so that
actual price and volume figures could have been obtained, the Federal Reserve
Board would have deemed amendment No. 1 both unnecessary and inadvisable.
The figures which the Federal Reserve Board used in justifying the amendment, included, according to their own statement, the flush period from September
8 to September 18. The deflationary trend commenced again on September 18
and has continued unabated since that time.
In an effort to obtain the actual facts, our association mailed a questionnaire
to all used-car dealers in our State. The answers which we received were from



the largest down to the smallest dealers in the State and covered the entire area
of the State so should reflect a true picture of the situation in Nebraska.
In compiling our figures every returned questionnaire has been used and no
questionnaire has been excluded. Here are the facts and figures disclosed by
those questionnaires. The total used cars sold by reporting dealers from August
18 to September 18 of this year were 1,269 cars for a total sale price of $1,102,344.15. From September 19 to October 16 there were 950 units sold for a total sale
price of $726,221.09 which represents a decline of 34.2 percent in dollar volume
from the August 18 to September 18 period. From October 16 to November 15
the total number of cars sold was 693 and the dollar volume was $448,662.48, representing a decline of 60 percent from the sales during the period from August 15
to September 18.
The total number of cars financed during the period from August 18 to September 18 was 609 in number and $475,986.59 in dollar volume. The number
financed for the period from September 18 to October 16 was 420 for a dollar
volume of $227,488.43, which represents a decline of 52.1 percent in dollar volume
from the August 18 to September 18 period. The number of cars financed during
the period from October 16 to November 15 was 244 for a dollar volume of
$110,457.56 or a decline of 76.6 percent as compared with the figures for the period
from August 18 to September 18.
We offer in evidence the questionnaires from which the above summaries were
(The questionnaires referred to may be found in the files of the committee.)
I want to call your particular attention to the fact that the foregoing figures
come first-hand from the dealers' own places of business. They are undiluted by
those of any other industry. They need not be unscrambled from the mass of
figures gathered together by the Federal Reserve Board. They come from the
firing line; they are grass root figures, if you please. They come from the retailers of used cars through whose hands must pass the larger part of the car
From the information I have been able to obtain the situation in Nebraska
reflects the general situation throughout the country. Thus we have a drastic
regulation justified on the ground that it is necessary to control inflation in the
used car market being applied at a time when both prices and unit sales are
steadily declining in that industry. It is simply a case of kicking an industry
when it is down.
We are all painfully aware of the recent developments in Korea and the threat
these developments present to our country. Even though there is absolutely no
basis for the amendment to regulation W from the standpoint of controlling inflation in the used-car market, we would not be here protesting if the amendment now appeared to be reasonably required as a defense measure. However,
this is not the fact. We wish to call to your attention the fact that the usedautomobile market does not require the use of strategic materials or labor for
the reason that the cars have already been manufactured. Moreover, civilian
transportation becomes an extremely important factor in modern war-production
activity. The modest income group in our Nation supplies the bulk of the labor
required in defense facilities. Because of the necessity of decentralizing industry
as a result of modern warfare, transportation of these workers to defense facilities becomes an important problem. The passenger automobile solves a good
part of this problem.

We in Nebraska are faced with a degree of stagnation in our business which, if
it continues and reflects the general condition in the industry throughout the
country, will seriously and adversely affect the economy of the entire Nation.
We should also keep in mind that the public owns 95 percent of the used cars
in the country and that they have suffered a loss of many millions as a result
of the reduction in values as a result of amendment No. 1 to regulation W.
The bulk of the customers in a used-car market are unable to pay cash for
a car. They must budget their earnings and pay for their car while they are
using it and getting the benefit from its use. Many of them need a car in their
business or work, and this will be true of defense workers. When the amendment to regulation W took these people out of the market, it took away a large
percentage of the customers -of the used-car industry. As a result, every usedcar dealer in the country has suffered a heavy loss and many of them are being
forced into bankruptcy. No industry can have its business cut off by over 60



percent in a few short months and survive. As we have seen there has been
a reduction of 76.6 percent in pay-as-you-go buying of used cars in Nebraska
since September 18.

Few governmental regulations have caused more widespread and severe loss
to an industry than has the amendment in question. The amendment came when
prices in the used-car market were steadily declining. It greatly accelerated
that decline and sharply curtailed the volume of business. The amendment came
without notice and without hearing and dealt the industry a hard blow at a time
when it was trying to survive a steadily declining price level. Is there any
wonder why the amendment has met with angry and universal protest?
Those in the automobile industry realize that the sale of used cars is the bottleneck through which the larger part of the production in the industry must pass.
We know that two and one fourth used cars must be sold before one new car
sale can be considered complete. We feel that continued stagnation in the usedcar industry will soon bring about a curtailment in new-car production far
greater than that being asked of any other industry and greatly in excess of
that declared to be necessary at this stage of our defense effort.
We wish to point out also that the provisions of the present regulation W and
amendment No. 1 thereto are much more severe than the provisions in effect
during World War II and the postwar years of 1946 to 1948.
We also wish to offer in evidence two advertisements which appeared in the
Omaha World-Herald on November 26, 1950. One is headed, "Brand new 1950
Buicks for $50 deposits." The other ad relates to used cars and is headed "No
deposits—no down payments." Under the plan therein referred to, either a new
or used car is delivered under a lease agreement. The reason that we call this to
your attention is to emphasize the severity of regulation W together with amendment No. 1. Apparently this dealer found it necessary to devise this plan which
circumvents the spirit if not the letter of the regulation. It is obvious that the
small dealer who cannot tie up his capital in a plan of this kind will not be able
to compete with the larger dealers who can.

The amendment is certainly unfair to the modest income group who are unable
to pay cash for the cars they need. And, of course, it is unfair to those engaged
in the business of supplying transportation wherever and whenever it is needed—
the used car dealer. The middle income group is deprived of the right to spread
the pay-as-you go payments over a sufficiently long period to meet their budgets
and are consequently forced into buying lower grade transportation which,
through expensive maintenance, will cost them more in the long run. It should
also be pointed out that while the regulation requires a down payment of 33%
percent, the effect of the 15-month limitation is to make a down payment of 50
percent a practical necessity. The down payment has to be that large in order
to keep the monthly payments on the balance within the purchaser's budget.

In conclusion, then, I wish to summarize this matter as we see it.
First, there is no need for amendment No. 1. When it was put into effect
the price level and dollar volume of used car sales were steadily declining and
had been for some time. Using the period from August 18 to September 18 as a
base, the decline for the month ending October 16 was 34.2 percent in dollar volume and 52.1 percent in pay-as-you go installment volume. For the month ending November 15, the decline was 60 percent in dollar volume and 76.6 percent in
pay-as-you-go volume. From the middle of August to the middle of September
prices declined from 20 to 25 percent without any regulation and the effect of
the regulation was to accelerate this disastrous decline.
Second, the amendment has caused a severe and unnecessary loss to the used
car industry and to the public.
Third, the amendment is unjust and discriminatory.
Fourth, the amendment discriminates against the middle class buyer. It
deprives him of his right to improve his transportation which has become increasingly necessary in our economy due to the decentralization of industry The
upper class buyer with accumulated funds is unaffected.




In conclusion may we request that this committee consider carefully the facts
and figures above set forth and that they use their utmost effort in bringing about
the nullification of amendment No. 1 to regulation W as affecting automobiles.

The CHAIRMAN. The next witness is Mr. McCabe, Chairman of the
Federal Eeserve Board.
Mr. McCabe, will you testify in your own way ? You have a prepared statement; have you not ?


The CHAIRMAN. NOW, I don't know how long this hearing will last,
but is Mr. Cain here ?
Mr. C A I N . Yes.

If we don't get through by 12 o'clock, we have important business at the Senate today, and we will have to recess this
I t has been suggested that we go on over to Monday on this hearing,
if we can't finish today. I am hopeful we can get through by 12
o'clock. I won't be here Monday, but I have asked Congressman
Brown, the vice chairman, to hold a hearing then, if one is needed.
Mr. C A I N . Mr. Chairman, the National Used Car Dealers' Association has devoted some 3 months of very intensive study to this, and
we would like a full hour and a half, because we don't agree with one
thing that is going on here, and we intend to prove it and answer every
question put by your committee.
Congressman PATMAN. We can't do that this afternoon on the
House side.
The CHAIRMAN. There is a rent-control conference at 3 o'clock. I
brought this up because I know we have Mr. McCabe scheduled as
the first witness, and Mr. Cain as the second. If Mr. Cain's testimony
is going to take an hour and a half, the Senate will be in session before
he concludes. A t 3 o'clock we have a rent-control conference, plus the
Kef auver resolution to be considered in the Senate.
Mr. C A I N . I should like to have an hour and a half on Monday
morning, then.
The CHAIRMAN. All right; I will speak to Congressman Brown
when he gets here.
Mr. McCabe, will you proceed in your own way, please ?
Mr. MCCABE. The Board of Governors of the Federal Eeserve System welcomes this opportunity to report to your committee on its
regulation of consumer credit and particularly automobile installment
credit, as authorized by title V I of the Defense Production Act of
A t the outset, I should like to emphasize that the Board has viewed
its stewardship under the Defense Production Act in the light of its
responsibilities for monetary and credit policies that will help maintain a stable value for the dollar and preserve a strong economy. I n
carrying out its responsibilities under the act the Board, of course,



has also been guided by the observations of the House and Senate
Banking and Currency Committees concerning the inflationary role
of consumer and mortgage credit under current conditions, made in
their respective reports on the Defense Production Act.
The CHAIRMAN. NOW, Mr. McCable, before you go too far into your
statement; I know you don't mind being interrupted?
Mr. MCCABE. N O , sir.
The CHAIRMAN. The main

testimony here yesterday about the Federal Eeserve Board was that it didn't follow that section of the law
which required consultation with industry and trade association
Representative PATMAN. Section 709.

The CHAIRMAN. And the charge was made that two statements
the Board made were contrary—there is nothing personal about this—
but one statement made by the Federal Reserve Board at one time
was to the effect that it was going to have a conference, and at another
time that time was of the essence and a conference couldn't be had.
I don't have the testimony of the witness before me, but the committee members all felt that the trade association should have a hearing.
I think that was the unanimous opinion of all of the committee
members. I t was stated by the president of the National Automobile
Dealer's Association that you hadn't given them a hearing; that you
had only called them up after the amendment to regulation W went
into effect.
The committe members are friendly toward the Federal Eeserve
Board, and some are friendly toward the regulation, but even they
expressed themselves unanimously to the effect that the association
should have been heard.
Representative PATMAN. That is correct, sir; and section 709 is the
section referred to.
Senator ROBERTSON. YOU will recall that I said at the hearing on
Wednesday that it is inconceivable to me that the Federal Reserve
Board would refuse granting this industry a hearing on the regulation W, especially with respect to the time limit, on the down payment of automobiles, but the witness on page 2 of his prepared statement says that in all some 750 trade consultations were involved in
this preregulation exploration. I suggest that we let him
The CHAIRMAN. I don't question that.
Senator ROBERTSON. I suggest we let him present his prepared statement, and then if it doesn't cover the issues raised Wednesday, that
he didn't carry out the law with respect to consultation, we can ask
him specific questions on that point and give him an opportunity to
expand anything.
I just happened to look on page 2, and saw that one statement.
The CHAIRMAN. That is correct; I notice it so states on page 2, but
the only reason I raised this question now is so that when Chairman
McCabe gets to page 2 , 1 hope he will expand that point. I t is not a
question of the Federal Reserve Board conferring only with banks
in the West, or somebody here or somebody there. As I understand,
the National Association of Automobile Dealers is an association of
some 34,000 members, and they know more about automobiles than
other people. They said they were not allowed to be heard.
That is the point I wish to bring up.



Mr. MCCABE. Senator Robertson, in view of the fact that that is
a very important point for this committee, I wouldn't object
Representative PATMAN. And there is a direct charge that at one
place you said you had conferred with them, and later on said that
you had not conferred with them, and gave as your reason the language
of the statute. I t would be well to clear that up.
Senator ROBERTSON. T h a t will be entirely satisfactory to me. H e
can state his case in any way he sees fit, so far as I am concerned.
Mr. MCCABE. The statement was quite a surprise, because of statements made in the NADA magazine, dated October 1950. I would
like to read from the lead article, in this issue of their official
NADA officials did a great deal of work and cooperated closely with the Federal Reserve Board during the period that the new regulation W was being
drafted. They compiled and presented data showing that the terms should
not be so strict that they would work a needless hardship on persons who have
the greatest need for reliable transportation.
NADA is continuing its frequent contracts with the Board, which has been
working on interpretations necessitated by special problems that have arisen.

Now, that was in their official magazine.
[Representative PATMAN. What is the date of that, Mr. McCabe?
Mr. MCCABE. This is October 1950.
Representative PATMAN. When did your second regulation become
effective ?
Mr. MCCABE. The second regulation, or the amendment, became
effective on October 16, sir.
Eepresentative PATMAN. October 16?


Now, I can give you the chronological order of our contacts with
the NADA.
Representative PATMAN. I think that would be interesting, Mr.
Mr. MCCABE. O H August 2, Mr. Haller, president of t h a t association, and Mr. Deo, and Mr. Barnhart held a conference at our Board
with the members of our staff.
On September 5, there was another conference with some of the
gentlemen from that organization.
On October 4, we received a telegram which was put in the record
here the other day. The following day Mr. Deo and Mr. Barnhart
of that organization called on our people at the Federal Reserve. I
can't recall whether that specific telegram was answered; I think he
said it wasn't. B u t our people understood that it was not necessary
from the fact that they called the following day. They considered the
call a sufficient answer to the telegram.
The CHAIRMAN. Will you repeat that, sir ?
Mr. MCCABE. They sent a telegram on October 4
The CHAIRMAN. YOU say the telegram wasn't answered ?
Mr. MCCABE. The gentlemen here, Mr. Deo and Mr. Barnhart, called
at the Federal Reserve the following day, after the telegram was received, so that the record will show that they were in communication
with us, personal communication, after they sent the telegram.
The CHAIRMAN. That is true, Mr. McCabe, but don't you think in
justice to an association that big that the Federal Reserve ought to at
least answer the telegram ?



Mr. MCCABE. If you can manage. At that time, sir, we were just
flooded. We answered by meeting with them as they asked us to do.
The CHAIRMAN. You should come around to a Senator's office when
we are going to pass rent control and see how many telegrams we get,
and that we have to answer.
Mr. MCCABE. Then on October 16, they called again. This time Mr.
Haller, Mr. Deo, and other officers met with Governor Evans of our
Board, and members of our .staff. Subsequently I addressed a communication to them, a letter which was put in the record here the
other day, in which I invited them to submit to us fully any facts
that they wanted to present.
I have no recollection that we received any facts in answer to the
request, of my letter. We received nothing from them whatsoever.
The week preceding October 11 we invited them to participate in
a conference where we were considering credit terms on open accounts
and single-payment loans. Over the past there has been the closest
kind of relationship with their Washington representatives. I can't
recall, and in talking with our staff they can't recall, that they were
turned down on any request to come in, with one exception, I think.
They called one day when we were having protracted conferences
on open accounts, and single-payment loans. On the whole, I think
the record clearly shows, Senator Maybank, that our doors have been
open to receive any of their delegations as well as from other organizations. I would just like to state this for the record.
The CHAIRMAN. I brought it up because that was mentioned in the
Eepresentative BROWN. Mr. McCabe, will you pardon me?
I received some 30 or 40 petitions and letters from automobile
dealers which were promptly answered. My objection to it is I
didn't get any results.
Mr. MCCABE. I can appreciate that, sir. I might go on to say——
Eepresentative PATMAN. J u s t a minute, Mr. McCabe. You have
seen Mr. Mallon's statement; have you not, Mr. McCabe?
Mr. MCCABE. I think I have the complete statement.
Eepresentative PATMAN. Can you reconcile the statement he made in
one case where you stated in an order, if he is correct, that you conferred with the representatives, and then in another place he said
that you said, as Chairman of the Board, that you have not conferred
with them for the reason that you didn't have the time, or it wasn't
practicable, or something like that.
Can you reconcile those two statements issued by the Federal Eeserve Board ?
I am just quoting from memory.
Mr. MCCABE. Yes; one related to the original regulation, and the
other related to the amendment.
You see, the original regulation became effective on September 18.
We announced the amendment on October 13,1 think he referred there
to the period between September 18 and October 13.
I would like to say t h i s : That even before Congress passed the Defense Act, we started conferences over the country with people that
might possibly be affected by regulation W, because it seemed very
clear to us that the Congress was going to act on it, but we tried not to
lose any time. Within an hour after the President signed the act we
had the regulation out. We felt it was important to act promptly.



I have a rather complete report here on conferences, if you are interested. I don't believe any Government agency ever in the period of
time since we began to hold these conferences ever held, in reference to
a prospective regulation, as many conferences as we have throughout
the country on this regulation in a similar period of time.
The CHAIRMAN. The protest is mostly about the amendment; is
it not?
Mr. MCCABE. About the amendment;.yes. Shall I go on with my
The CHAIRMAN. Yes; go ahead.
Mr. MCCABE. There has been a great deal of misunderstanding and
confusion on this subject of consultation and I would like to outline
some of the considerations on this subject. I believe it will help to
clarify the question.
Section 709 of the Defense Production Act states in part t h a t :
Any rule, regulation, or order, or amendment thereto, issued under authority
of this Act shall be accompanied by a statement that in the formulation thereof
there has been consultation with industry representatives, including trade association representatives, and that consideration has been given to their recommendations, or that special circumstances have rendered such consultation
impracticable or contrary to the interest of the national defense, but no such
rule, regulation, or order shall be invalid by reason of any subsequent finding
by judicial or other authority that such.a statement is inaccurate.

AH aspects of regulation W were thoroughly explored with representatives of various industries before the original regulation was
issued effective September 18,1950. That fact was set forth when the
regulation was published in the Federal Eegister.
The Board fully recognized at that time that trade representatives
favored terms even easier than those prescribed in the original regulation. As a result of those consultations the Board also was well aware
that many sellers and lenders would not be in sympathy with the
October 16 amendment. After giving careful consideration to those
facts, the Board concluded that the terms issued effective September 18
and as amended effective October 16 should be presented in the public
interest in order to help in protecting the national economy and the
defense effort against the disastrous consequences of further inflationary pressures.
The Board was also faced with the fact that in the period prior to
the September 18 effective date of the original regulation there had
been a large expansion of credit as a result of forward buying and
high-pressure selling based on the anticipated terms of the new regulation. I n addition to the fact that the Board was fully cognizant of
the view of the industry and gave them full consideration, the publicity
attendant upon further consultation with the trade would have raised
serious danger of further expansion of credit similar to that which
preceded the September 18 effective date.
I t would be hard to imagine a clearer case in which further consultation would be impracticable. As Senator Sparkman stated on
August 10, 1950, in explaining the provision regarding consultation
(Congressional Record, p. 12378) :
The bill would require consultation wherever practicable. Of course, there
will be some occasions where it would not be appropriate to consult in advance.
There may not be time, when speed is vital. Sometimes giving advance notice of
a proposed restriction would defeat the purpose of the restriction, or consulting



a few people in an industry would give them an unfair advantage over the rest
of the industry.

I n the circumstances, the Board was convinced, and stated in publishing the amendment in the Federal Register, t h a t : "Special circumstances have rendered impracticable and contrary to the interest of the
national defense consultation with industry representatives, including
trade association representatives, in the formulation of the above
amendment; and, therefore, as authorized by the aforesaid section 709,
the amendment has been issued without such consultation."
Senator ROBERTSON. I would like to ask one question.
As I gather, the chief complaint made to us was that a hearing
before your Federal Board was not granted. Did you ever get a
request for.a hearing of the automobile interests; either used car
dealers or new car dealers, before the full Board, that was turned
down ?
Mr. MCCABE. I have no recollection of a formal request of that kind,
Senator Robertson, until the past few days. There is one request for
a formal hearing pending now, that came through this committee.
The CHAIRMAN. Yes; we thought they should be given a hearing.
Mr. MCCABE. May I explain that the Board members have specific
assignments; that is, Governor Evans has Regulation W, Governor
Norton has Regulation X , another member of the Board will have
margin requirements, and another will have reserve requirements.
We cover quite an area, and in order to facilitate our work we assign different governors to the different areas. They in turn report
to the Board.
Senator ROBERTSON. Then I understand you recall no specific request
for a meeting of the full Board, and even if it had been made, it was
not in keeping with the procedure of your Board to have every member sit on every detailed issue that is handled by the Board.
Mr. MCCABE. T h a t is right.
Senator ROBERTSON. But the member of the Board in specific charge
of that conducts the hearings, and makes a record which then becomes
available to the full Board, and the action that is ultimately taken is
the action of the full Board ?
Mr. MCCABE. That is right, sir.
Senator ROBERTSON. Based upon the evidence that had been as
sembled by the member that conducts the investigation.
Mr. MCCABE. T h a t is very well put, Senator Robertson.
Senator CAPEHART. Mr. McCabe, are you going to give in your statement the justification for reducing the 21 months to 15 ?
Mr. MCCABE. I think so. If you want to bring it out by questions
Senator CAPEHART. I think we are interested at the moment in why
you reduced the terms from 21 months to 15 months.
Mr. MCCABE. I think you will get that fairly clearly in the statement, sir.
The Federal Reserve has acted to carry out its assignment in the
light of its understanding of the objectives that Congress had in
mind. As long as you leave the responsibility with the Federal Reserve we believe you will expect us to do our duty in accordance with
the objectives of the Congress.



During the period the Congress was deliberating and acting on the
Defense Production Act of 1950—from July 19 to September 1—
business and consumer markets were being swept by hysterical buying,
prices in practically all sectors of the economy were advancing sharply,
and inflationary pressures were generally rampant. The Congress,
the administration, and the public were very apprehensive about these
developments both because they threatened the very foundations of
our free enterprise society and because of their adverse effects upon
our preparedness efforts. I can assure you that we at the Federal
Eeserve System were very deeply concerned. I n the light of this background, the intent of Congress with respect to title V I of the Defense
Production Act seems to me clear. Let me here state briefly my beliefs
in this respect:
One, I believe the Congress at that time was deeply conscious of the
concern felt by the American public over the value of their dollars,
and wished to take every practical step to preserve the integrity of our
Two, I believe also the Congress intended that adequate taxes and
general and specific credit controls should be the first reliance in
maintaining the value of the dollar.
Three, I believe the Congress intended that the powers to regulate
consumer and real-estate credit should be used to the fullest extent
practicable, as a means of limiting demand to the available supply in
the affected fields, thus restraining further price increases
Four, I believe also that the Congress had in mind that the use of
these powers, in limiting demand, would help in the transfer of
resources from the production of civilian goods to the production of
military goods without unnecessary price inflation.
Representative PATMAN. Can you deal with credit controls and
taxes without also considering profits, Mr. McCabe ?
Mr. MCCABE. YOU mean without Congress considering profits ?
Representative PATMAN. Yes.

Mr. MCCABE. I think Congress has a bill before it now to deal with
that, sir, if I read the press correctly.
Representative PATMAN. Should you consider and make recommendations concerning profits ?
Mr. MCCABE. Concerning the profits tax ?
Representative PATMAN. NO ; not profits tax—profits; and also the
profits tax.
You see, if you carry out an inflation-control program, you would
have to deal with all angles; wouldn't you ?
- Mr. MCCABE. The primary element we are dealing with now is
credit. That is as far as our function goes.
Representative PATMAN. All right.
Senator ROBERTSON. May I ask a question there ?
- I s it true that Governor Szymszak made a speech in the south in
October in which he very fully discussed the subject of inflation, and
the very phases of it outside of the jurisdiction of his board that ought
to be tackled by the Government ?
Mr. MCCABE. Well, we have made several statements on it, sir.
The CHAIRMAN. Was that speech ever put in the record ?
Senator ROBERTSON. I promised to put it in. I have been a little
disturbed over the war in Korea, and as a matter of fact I thought



maybe the picture had changed enough between October and December
that maybe we could get a better statement in, though that was mighty
good at the time.
The CHAIRMAN. H e sent one to me. I t may, without objection, be
inserted in the record at the end of Mr. McCabe's statement.
Kepresentative BROWN. Mr. Chairman. I suggest that the witness
complete his statement, and then we ask him our questions.
The CHAIRMAN. All right, sir.
Mr. MCCABE. During the period when the Defense Production Act
of 1950 was under study by the Congress, the Board and its staff, in
collaboration with officials of the 12 Federal Reserve banks and their
24 branches, carried on intensive studies of the consumer-credit business, including numerous consultations with the major segments of the
trade. I n all, some 750 trade consultations were involved in this preregulation exploration. Officers of the 12 Federal Reserve banks conducted a total of 725 of these regional conferences with trade groups
and businessmen prospectively subject to consumer-credit regulations.
The Board and its staff consulted on 25 different occasions with such
groups, including the major national trade associations affected.
As evidence of the way in which the Board has consulted with the
interested public while making decisions regarding regulation W, I
should like to quote from the October issue of the official magazine
of the National Automobile Dealers Association. The Auto Dealers
NADA officials did a great deal of work and cooperated closely with the Federal
Reserve Board during the period that the new regulation W was being drafted.
They compiled and presented data showing that the terms should not be so
strict that they would work a needless hardship on persons who have the greatest need for reliable transportation.
NADA is continuing its frequent contacts with the Board, which has been
working on interpretations necessitated by special problems that have arisen.

Against this broad background of study and consultation, a draft
of the rgulation was prepared and considered by the Board after submission to all of the Federal Keserve banks. Thus, the Board was
ready for formal action once authority to regulate consumer credit
was enacted into law.
The Board issued regulation W on September 8 within the hour
after the President signed the Defense Production Act of 1950. This
interval was considered the minimum period for placing the regulation in the hands of registrants and enabling them to adjust their operations to it. The Board's decision as to the terms of the consumercredit regulation was based on the practical consideration that the
regulation should restrain consumer demand and credit growth in the
most volatile segment of the field: namely, the installment-financing
Taking the field of installment credit as a whole, however, the initial minimum down payment and maximum maturity requirements
under regulation W were only moderately restrictive in relation to
practices generally prevailing in the installment-financing trade. I n
the used-car field, particularly for older models, and also in some
appliance lines, the regulatory terms were more liberal than those
practiced by the conservative trade. Data supplied by the trade indicated that the bulk of the transactions being written on new- and latemodel automobiles and on other items of relatively high unit price in



the months just prior to the regulation were somewhat more liberal as
to down payment, maturity, or both, than the introductory terms of
the regulation. Information subsequently obtained by the System's
own field investigators has confirmed this basic finding.
I n announcing the new regulation W to the press, the Board expressly stated that, if the terms established did not provide an adequate restraint on consumer demand, as well as on further rapid inflationary expansion of installment credit, the Board was prepared to
reexamine its regulation and establish more stringent terms. On
October 13, 5 weeks after the issuance of the original regulation, the
Board announced amendment No. 1 to regulation W establishing,
effective October 16, minimum down payments and maximum maturities substantially stricter than those which became effective on September 18. This action was taken 3 days after the Board had issued
regulation X , to be effective October 12, establishing down payment
and maturity terms on mortgage credit to finance newly constructed
houses. The attached table compares the new terms of regulation W
with those provided in the initial regulation.
(The table referred to follows:)
Minimum down payments and maximum maturities under regulation W
Minimum down Maximum maturity
payment l (percent)
Listed articles and loans
Sept. 18Oct. 15
Listed articles:
Passenger automobiles
Major appliances 2
Furniture and floor coverings
Home improvement materials, articles, and services 3 .
To purchase listed:



Sept. 18Oct. 15

Oct. 16-

33 J4





i Exemptions: Sept. 18-Oct. 15, listed articles costing less than $100; beginning Oct. 16, those costing less
Includes radios, television, refrigerators, food freezers, phonographs, cooking stoves, ranges, dishwashers,
ironers, washing machines, clothes driers, sewing machines, suction cleaners, room-unit air conditioners, and
Includes heating, plumbing, and other household fixtures.
< Requirements same as on installment sales of the respective articles.

I should like to make entirely clear three aspects of the Board's
amendment No. 1 to regulation W. First, the Board's amendment action was taken in the light of the total economic and credit situation.
I t was taken not primarily because of developments in the specific
fields during this period but because the magnitude of the general inflationary problem became more clear. I t reflected the Board's apprehension over the continuing strong inflationary trends in the economy
generally as well as over the continuing strong consumer demands for
durable goods and accompaying expansionary trends in installment
credit. Figures now available show that loans of commercial banks
expanded 5.7 billion dollars from the end of June to October 25 of this
year, the largest loan expansion in such a short period of time in the
country's history. More than 25 percent of the loan expansion was
the direct or indirect result of growth in consumer credit and another
fifth was due to a rise in bank holdings of real-estate mortgages. This



loan expansion was accompanied by a further increase in bank holdings of corporate and municipal securities. The total expansion of
bank holdings of loans and non-Government securities was the immediate cause of a 3-billion-dollar increase in the economy's already large
supply of money.
Second, the Board was seriously concerned, as were other agencies
of the Government, over the undesirable and hindering effects of inflationary pressures generally on the rearmament, stockpiling, and industrial-expansion programs. Appropriations for national defense
were able to buy far less this fall than contemplated when Congress
passed them.
Third, the Board took its action only after consultation with other
interested agencies of Government.
I should now like to report on what I think the effects of regulation
W have been. To report first in general terms: the regulation has
limited the rise in prices in the durable-goods field; it has limited
somewhat the further expansion of the money supply; because of
these two effects, it has limited the advance of prices generally; and,
lastly, it has removed some of the pressure which would have hampered diversion of materials and manpower to the military effort.
These results have been of great benefit to the American people.
Let us now examine the effects of the regulation in the automobile
field, with which your hearings are particularly concerned. A t the
time the Congress was deliberating the Defense Production Act, new
cars were not generally available at list prices; that is, unloaded of
extra equipment or special premiums, to the great bulk of the people
who wanted to buy them. W i t h respect to used cars, average retail
prices of a representative popular priced 1949 model car rose from
approximately $1,430 in June to $1,635 in August. On the average,
monthly payments to buy the 1949 model used car had risen from $56
to $63. I t is clear that inflation in the retail automobile markets was
impinging adversely on both those who bought higher-priced cars and
those who bought lower-priced cars.
Let us look at the retail automobile market today compared with
August. News care are available to the buying public at list prices,
without required extras or premiums. On the basis of advertised
prices, a popular-priced 1949 model used car could be purchased in
leading cities in November for $1,280, compared with $1,635 in August.
The buyer of such a model had to pay one-third down or $545 in
August. The unpaid balance in August was on the average paid off
in 21 months at the rate of $63 per month. I n November the balance
was required to be paid off in 15 months or at the rate of $67 per
A great proportion of the cars bought by consumers in the United
States are used cars. I n 1949 it is estimated that 6.9 million used
cars were bought by consumers as compared with 4.5 million new
cars. Old cars predominate in the holdings of the population. I t
is estimate that 69 percent of the passenger cars in operation are
more than 3 years old. The man of average income typically buys
a used car. I n helping to keep used cars at a reasonable price and
to make new cars readily available at effective prices at or below the
list, regulation W has been of great service to the American consumer. I t has done a great deal to combat the price inflation which
seemed last summer to be getting completely out of hand.



A t the present time about 20 million out of our 38 million privatelyowned cars are prewar cars, and when sold as used cars have a price
of around $500 or less. Before imposition of regulation W, if a
purchaser bought a $450 car on a basis of one-third down, he paid
$150 cash and paid off the balance at a rate of $24 to $28 per month,
depending on whether the maturity was 15 or 12 months.
Regulation W has not affected the typical terms of payment for
these cheaper cars. One-third down and 12 or 15 months to pay, if
dealers will finance on these terms, are still permitted. Good usable
cars for performing a great portion of the daily travel of the public
continue to be available under regulation W on purchase terms of
about $25 a month or less. These are the cars which are customarily
bought and used by large numbers of our working population who
are looking for transportation and not for the latest style and gadget.
Supply developments in the retail automobile market following
the introduction of regulation W and its subsequent tightening are,
of course, not all attributable to the regulation. Some buying that
would otherwise have been done this fall was accelerated and done in
the summer months. The fall is typically a season of declining automobile travel and softened demand for cars. The industry has been
preparing new models, and this fact has no doubt induced some deferment of new-car buying by purchasers who would otherwise be in the
market. But the important fact for these hearings is that the market
with regulation W is less inflationary and more competitive than it
was. I t is more of a buyers' market and less of a sellers' market. I t
is in every respect a more normal market situation. Despite the
role of other influences, I believe that regulation W has contributed
significantly to this more healthy market condition.
Inventory of new cars was at an abnormally low level when consumer-credit regulation was inaugurated. This enabled manufacturers to go ahead full tilt at high levels of output despite the regulation. I n recent weeks production has been down from earlier peak
rates, the lower level reflecting primarily model changes, but the current rate of output of about 120,000 cars a week is still, historically
speaking, a very high rate. Some inventory accumulation by dealers
has recently taken place, but new-car inventory for the new-car dealer
trade as a whole is still not above traditional relationships with sales.
The latest retail sales reports with respect to new cars indicate t h a t
November sales were probably one-tenth above a year ago. Sales a
year ago were in large volume. The rise in retail inventory of new
cars probably tapered off considerably in November.
The foregoing observations relate to the automobile market as a
whole. The situation will vary for different makes of cars, and among
individual dealers. Such differences are matters for competition and
not regulation to iron out. Regulation W affects the general terms of
sale on all credit.
W i t h respect to the size of the current automobile inventory, trade
sources estimate inventory of new cars at about 500,000 on November
1, with output at an annual rate of over 6 million cars now, with
dealers generally in the best financial condition of the automobile industry's history, and with the use of materials already ordered curtailed, it would seem that inventories are not excessive.
I t has been argued that regulation W will throw men out of work.
But to date unemployment has been at a low level and employment



has reached a new high level. If some unemployment does develop,
the principal cause will be the dislocations that are inevitable in the
transition to military production, and not regulation W.
I t is sometimes claimed that regulation W has prevented the American workingman from buying the automobile that he needs to provide his transportation. I t is said that regulation W favors the rich
as against the poor, that it bars from the market the low income man
with his credit and leaves the high income man free to buy with his
cash. The truth is that regulation W has helped rather than penalized the person of moderate or low income. I t helps him where he is
most in need of help—in his pocketbook.
Cars, new or used, are available at various prices to meet the
budgets of practically all workers who want or need cars. And these
cars cost less than they would have cost in the absence of regulation W.
Furthermore, prices are lower for other articles listed in the regulation, and also for articles not listed, than they would have been without regulation W. The American consumer is better off as a result
of regulation W.
We must of course bear in mind that the borrower is getting credit,
not a gift. This credit must be paid back, and with finance charges
added, too. I n other words, when the consumer increases his expendable income of today by borrowing, he is, at the same time, reducing his expendable income of tomorrow. The thing that limits
the man of low income is his income. H e doesn't get something for
nothing by borrowing to go into the market to bid against others for a
limited supply of goods. H e merely helps to push up the price of that
limited supply of goods and increases the burden that he must meet
OUT: of his same income.
To encourage the man of low income to do that under present
conditions is to encourage him to engage in a contest where he is at
the greatest possible disadvantage. The wealthy can always meet
high prices more easily than can those of lower incomes. Price is
exactly the field where the man of low income is at greatest disadvantage. Under current conditions, the low-income man will find that
the bait of easier credit is carried on a hook of higher prices.
I t is of the very essence of regulation of consumer credit that the
business of those financing consumers will be affected. If their business
were as great under regulation W as it would be in the absence of the
regulation, then there would be no point to having the regulation.
Any contraction of the business of these financing agencies is not an
end to be desired as such. But it is a necessary consequence of
limiting demand by these means. The sacrifices of those called into
the armed services are not in themselves desirable but they are necessary.
By and large the consumer finance agencies have proved themselves
extremely adaptable. I n time of peace they have facilitated demand
which has contributed to our great production and to our high standard of living. I n war they have proved their capacity to adopt themselves to new conditions and stand by till a day when they can again
serve their basic function.
We must continually remind ourselves, and others, that we cannot
get something for nothing. W e can't buy more goods than can be
produced. To weaken or abolish regulation W will not produce more



goods. If we are to succeed in maintaining stable prices and preserving confidence in the value of the dollar, we must make a determined effort to mop up all sources of excess buying power which tend
to make the demand for goods greater than available supplies. Otherwise, we know from past experience what to expect.
I n conclusion, I would like to make this point clear: that selective
credit controls including regulation W will not of themselves check
all of the inflationary forces. More fundamental than selective credit
controls is an adequate program of fiscal and general controls that
restrains all types of bank credit and thereby curtails the total dollar
volume of private expenditures.
The CHAIRMAN. Mr. McCabe, I want to make one suggestion. Having been on this committee all during the last war, I suggest that no
regulation should be made effective before the day on which it is
published in the Federal Eegister. Amendment No. 1 to regulation W
was made effective the day before. That is what we were told yesterday. During World W a r I I failure to follow this practice caused
so much confusion because the people affected by the regulations
cannot abide by them until they know the terms of the regulation.
I t caused so much trouble in 1942, 1943, and 1944 when these regulations were put into effect before they were published. I do hope we
can work together on that so we will not be asked about a regulation
that is not printed, that we can cannot answer, and when the people
themselves do not know what is included.
Mr. MCCABE. When we issued the regulation originally in September, there was a 10-day lapse between the announcement and the effective date. Now, many in the trade begged us, said to us, "the next
time you amend this, do not give a 10-day lapse."
The CHAIRMAN. I did not mean that. I mean if you can put it into
effect the same day. Of course, the Register is printed on certain days.
One time I remember how the potato situation was so badly affected.
There was an order issued on potatoes, the Eegister did not come out,
and so it went for a couple of days. People did not know about it,
and were charged with violating the law. The problem went to court,
and they could not do anything about it. I t just caused a lot of confusion.You will save yourself a lot of headaches, and surely save us
some if you can do that.
Mr. MCCABE. The answer here is the one you indicated—the Register
is published only on certain days. The amendment was filed by the
16th, but there was no issue until the 17th.
Recently a statement was prepared by the technical group of interested agencies in Government in cooperation with the research staff
of the Board of Governors of the Federal Reserve. This statement
is concurred in by Mr. Symington.
The CHAIRMAN. D O you wish to read that, sir?
Mr. MCCABE. I will be glad to read it, or put it in the record, at your
pleasure. I think it is a very pertinent statement, and should receive
the very serious consideration of this committee.
Senator ROBERTSON. Could you in a minute or two summarize what
it deals with ?
The CHAIRMAN. H O W long is it, Mr. McCabe?
Mr. MCCABE. Six pages.



Senator KOBERTSON. I would have no objection to it being printed in
the record, but for the benefit of the committee, if you could give us
the highlights of it.
Mr. MCCABE. The statement reads as follows:

Developments in Korea have conclusively demonstrated the extremely acute
danger confronting the free domestic world. Consequently the United States
is now striving to build rapidly both its military and economic strength. To
do so under circumstances of high business activity and full employment is not
simple. I t necessitates some Government intervention in the affairs of business
and sacrifice on the part of all groups of our people.
Recognition of these facts resulted in the passage of the Defense Production
Act which was signed by the President on September 8, 1950. This act provides authority for a system of priorities and allocations for materials and
facilities, authorizes requistioning, provides for financial assistance for expansion of productive capacity and supply, provides for price and wage stablization, provides for the settlement of labor disputes, and authorizes special controls over consumer credit and real estate construction credit. These measures
were authorized to facilitate the production of goods and services necessary
for the national security, with minimum dislocation of the country's economc
organization and price structure.
Immediately prior to the outbreak in Korea the economy was beginning to
show signs of inflationary strain. Prices were rising, business was rebuilding its
inventories, and industrial activity was at a new peacetime peak. The action
of the United Nations, together with the strong support of its policy by the
United States, made it clear that inflationary pressures would be continued and
intensified. Accordingly, businessmen and consumers began actively competing
for goods.
Desire for goods was stimulated by prospective large military expenditures
and the fear of shortages. Congress appropriated nearly $17,000,000,000 additional for the Defense Department, the Mutual Defense Assistance Pact, stockpiling, and atomic energy. This appropriation, together with the similar amount
originally appropriated for these purposes in fiscal 1951, brought the total to
$33,000,000,000. A second large supplemental defense appropriation for fiscal
1951 just submitted to Congress would bring the total to over $50,000,000,000.
From the beginning of the Korean development, Government agencies have
been closely following its effects on the United States economy. Abrupt and
drastic changes have already taken place and further significant changes are
in prospect. In the brief period of 4 months from June to October personal income (annual rate) increased over $10,000,000,000, or 5 percent. Mining and
manufacturing production increased 8 percent. Unemployment decreased from
3.4 million to 1.9 million in October and 2.2 million in November, a level which
is not far from a minimum when workers are free to shift jobs. Many basic
industrial materials are in acutely short supply despite increased domestic
output and larger imports.
The pressure of increased consumer and business spending has been strongly
registered in primary market prices for these industrial materials. From May
to the end of November the following price advances have been recorded:
copper, 26 percent; steel scrap, 34 percent; zinc, 47 percent; lead, 47 percent;
wool tops, 64 percent; tin, 80 percent; and natural rubber, 157 percent. These
increases do not, however, tell the entire story. Significant premiums are being
paid for delivery of critical materials in the gray market. In the case of zinc,
for example, the spot price is 1 7 ^ cents per pound but gray market prices of
more than double this amount have been reported.
All this has happened even before accelerated Government procurement has
had time to make a significant direct impact on the market. As Government
procurement is stepped up and as expansion of industrial capacity continues
to accelerate, shortages and inflationary pressure will be greatly intensified.
Despite the great growth in our industrial capacity during and subsequent to
World War II, our capacity was hardly sufficient before the Korean outbreak
to meet the needs of a dynamic and fully active economy already profoundly
affected by our changed position in world affairs. On top of an already tight



situation in June there has been "abnormal" buying on the part of business ana
consumers to accumulate inventories. Capital expansion has also accelerated.
The urgency of accumulating critical materials for strategic stockpiles has increased and a start has been made on a greatly increased Government procurement program. These developments have tremendously overtaxed the capacity
of our economic system at many points and resulted in very great inflationary
pressures. Thus for many basic materials, available supplies have already become seriously inadequate to meet combined civilian and military demands.
Despite all efforts to expand output of critical materials, the supply-demand gap
may be expected to widen as defense production picks up speed. Furthermore,
since complete priority must be accorded to military needs, the full impact of
supply deficiencies is registered in the civilian sector of the economy.
To meet this situation of developing material shortages and inflationary pressures, action has been taken along several lines. Taxes on individuals and corporations were raised last summer and an excess-profits tax is now under consideration by Congress. Various actions have been taken in the credit field, including the adoption and strengthening of regulation W, relating to installment
credit terms on passenger automobiles and various other consumer durable
goods, and adoption of regulation X, relating to terms of borrowing for the purpose of building one- and two-family houses. These regulations conformed to
the needs of the situation as appraised by the responsible agencies. These regulations went into effect quickly and have already had important effects in limiting demands and checking inflationary developments. Thus in the field of consumer durable goods, partly as a result of regulation W, sales have declined and
distributors have been able to replenish their stocks and market conditions have
become more normal. The amount of installment credit, moreover, in October
showed little increase for the first time in many months. In the residential
building field the volume of building being started is below what it was earlier
in the year and probably below what it would have been without changes in
credit terms, including changes in FHA and VA terms beginning last July as
well as adoption of regulation X and related further changes in FHA and VA
terms in mid-October.
Although fiscal and credit measures have been having an important influence
in restricting civilian demands for finished goods, consumption of materials has
continued at very high rates. With the materials supply situation tightening
further as military demands increase, direct restrictions on the use of various
important materials have recently been ordered by the National Production
Authority. This will result in a reduced flow of finished durable goods to consumers and under these circumstances consumer demand will need to be curbed
to prevent bidding up of prices. Selective credit restrictions will be useful for
this purpose and also for the broader purpose of limiting the supply of money
available for the purchase of all types of goods and services.
Curtailment ordered in use of various critical materials for civilian consumption as a whole is substantial. Civilian use of nickel in the first quarter of 1951
has been ordered cut 35 percent below average consumption in the first half of
1950; civilian use of aluminum has been cut 20 to 35 percent; zinc, 20 percent;
and copper, 15 to 20 percent. It may be noted that these reductions are figured
on actual consumption during the first half of 1950 as a base period. In most
cases, consumption of materials has increased substantially since that time, so
that the cut-backs from current levels are considerably sharper than indicated
by the above percentages. As yet, no similar restriction has been placed upon
civilian use of steel, but in the regulations providing for military priorities, percentages ranging up to 25 of the output of some steel products are reserved for
direct defense orders.
In addition, steps are being taken to assure the allocation of steel and other
materials to special programs of capital expansion deemed vital to the defense
effort. In this connection, substantial tonnages of steel, particularly of plates,
have already been scheduled for the production of freight cars and lake ore
carriers. Action to assure materials for expansion programs in other defensesupporting industries are under consideration.
The underlying forces in the current economic situation are continuing to
create strong inflationary pressures, which must be curbed because inflation has
such disastrous effects. One of the most serious consequences of inflationary
development is to misdirect the utilization of resources. Another is to greatly
increase the dollar cost of the entire defense effort. Yet another is to distribute
unfairly the economic sacrifices arising out of the national security program
and to undermine morale.



A broad general fiscal and monetary program is of critical importance in
helping to bring demand into line with available supplies, and thereby hold down
inflationary pressures while facilitating the defense program. Strict controls
on consumer and home mortgage credit, such as are provided by regulations W
and X in their present form, are an integral part of this general program, and
will be essential in the period immediately ahead. We believe that the restrictive
terms which have been set are no more restrictive than is called for by the
national defense program and the current and prospective economic situation.
The most recent developments in Korea have emphasized the necessity for increasing our defensive strength quickly and preventing disruptive inflationary

The CHAIRMAN. Mr. McCabe, you say in your statement that there
are going to be large numbers of war workers moved, and the war
industries are going to be decentralized, and so forth. Have you given
any thought to what effect it might have on the poorer type of automobile purchaser w^hen that happens? I n other words, have you
given any thought to the necessity of maybe raising this repayment
limit in regulation W to 18 months, or giving a longer repayment
period than 15 months in cases where by certificate a man actually
shows he has to have a car ?
Mr. MCCABE. We have given consideration, Senator Maybank
The CHAIRMAN. I mean for war work, not to buy a pleasure car.
Mr. MCCABE. We have given consideration to all the suggestions
which have been made. The one of giving a certificate of necessity is
very difficult administratively. There have been a number of suggestions. One suggestion that was made recently was that we exempt
all of the prewar model automobiles from the regulation.
The CHAIRMAN. YOU mean World W a r I I ?
Mr. MCCABE. Yes. The argument there was that since the working
man in the main buys a second-hand car and that, if they were exempted he could make any terms that he saw fit with his dealer.
Now, from a practical standpoint, I am afraid there would not be
too much of a benefit in such an exemption. The finance comapnies
and the dealers in the past have insisted on fairly short maturities
on prewar cars.
Senator EOBERTSON. Did the price of used cars go up after the
Korean war started ?
Mr. MCCABE. I have a chart here (chart No. 9, p. 94), that will show
you, sir.
Senator KOBERTSON. Well, just give us what the chart shows.





(The charts referred to follow:)



Millions of Dollars

Billions of Dollars
End of Month

fotal J




Instalment. s_

i ^ * -

-'"' 1


/ 1


/ 400
"-^ 1949




Charge Accounts

Federal Reserve estimates of outstandings
at the end of the month ; included in total
but not otherwise shown are single payment loans and service credit. Through

Changes in installment credit outstanding
from month to month derived from. Federal Reserve estimates of total installment credit outstanding. Through October.




Billions of Dolla rs
Monthly Rates



Millions c f Dollars

( irailed









Federal Reserve quarterly totals at monthly
rates of installment credit extensions and
repayments during period through the
third quarter 1950; dots shows data for

J F M A M J J A S O N D 2 0 0
Changes in total automobile installment
credit outstanding from month to month,
based on Federal Reserve estimates of installment sale credit and loans. Through






Millions of Cars 1
Annua! Rates

One-tbird Dtwa

Car Price(Del)

Months to Pay



J5 | 1


$ 9 0 88 61



117 88 79


142 106 95


Federal Reserve a n n u a l index based on factory sales d a t a compiled by D e p a r t m e n t
of Commerce through 1939 and by Automobile Manufacturers Association for
subsequent years ; the dot for 1950 represents the a n n u a l r a t e for t h e first 10

F e d e r a l Reserve computations of average
monthly payments required for installm e n t purchases of new passenger cars ;
allowance is made for equipment, finance
charges, and estimated average insurance








Thousands of Cars
Weekly Rates





Association monthly figures of factory
sales from p l a n t s in t h e -United States
to domestic distributors. Through October ; November e s t i m a t e d by Federal Reserve. Registrations : R. L. Polk & Co.
monthly figures of new passenger car
registrations. Through October ; November estimated by Federal Reserve on basis
of Polk figures for leading cities.

v t







IW '


Automotive News weekly production figures ; all weeks including major holidays
adjusted by Federal Reserve to allow for
holidays. Through December 5.


CHART N O . 10



Ratii Scale



at Dept. Stores
JIBP 1950=100



\ 1951 A





Weekly compilations of advertised offerings
of F o r d s , Chevrolets, and Plymouths in
Sunday newspapers in 18 cities. Through
November 26.

C H A R T N O . 11


F e d e r a l Reserve seasonally adjusted monthly indexes of sales and stocks of items
listed above. T h r o u g h October.









F e d e r a l Reserve weekly indexes, J u n e 1950
= 100, of sales a t d e p a r t m e n t stores of
including m a t t r e s s e s
springs, domestic floor coverings, major
appliances, radios, phonographs, and
television sets. Through November 25.
CHART N O . 12


Federal Reserve seasonally adjusted m o n t h ly index, 1947 = 100, including radios,
television sets, refrigerators, washing machines, cooking stoves, furniture, including mattresses and springs, and wool
carpets and rugs. Through October.













Appli an res




Bureau of Labor Statistics indexes for furniture, rugs, and major household appliances;
data are for March, June, September, and December through June 1950 and monthly
thereafter through October.










Representative PATMAN. Where are the installment purchases
shown on these charts, the amounts ? I n other words, I am trying to
separate installment purchases of automobiles from durable goods
Mr. YOUNG. Such a chart is not in this group.
Representative PATMAN. D O you not think that is important?
The CHAIRMAN. Can you produce that ?
Mr. YOUNG. YOU mean the proportion
Representative PATMAN. Not proportion, the amounts, and of
course with the amounts stated we could determine the proportion.
We are told here that there is a certain amount of increase in installment purchases of durable goods. The important part we are considering, is insofar as it relates to automobile purchases, and that
information I think would be very material.
Mr. YOUNG. This chart here, sir (chart No. 4, p. 92), on auto installment credit, may be what you have in mind. I t is the changes
in automobile credit outstanding, which is the fourth chart, sir, but it
does not give the figures on cash buying.
Senator ROBERTSON. I doubt very much if the picture on automobiles has changed as radically as some other types of durable goods,
because one of the biggest dealers in Virginia told me in October that
for years his average time had been 18 months, that they did not
feel it was safe to go 24 months like a few people did, that they found
they could do all the business they wanted in 18 months, and felt it was
safer on that basis than on a longer time.
Representative PATMAN. I do not understand that fourth chart
there, Auto Installment Credit. I t says, "Changes, millions of dollars." I t has 1950 before 1949.
Senator ROBERTSON. Will the gentleman from Texas be willing to
have him answer my question first?
Representative PATMAN. Certainly. Pardon me, Senator.
Mr. MCCABE. Could I get your question ?
Senator ROBERTSON. I want you to give me two figures. First, how
much the price of used cars had advanced after the Korean W a r
started, and second, how much they came down after regulation W,
as amended, was put into effect.
Mr. MCCABE. I n the statement I think you got the specific figures
for a 1949 car and on the chart here (chart No. 9, p. 94), you will see
that beginning in August, the average price for a 1950 car, Senator
Robertson, was at this point here, about $2,000,1 would say, and then
in September, it was down, as shown in the chart. I n November it
was down further to about $1,600.
Senator ROBERTSON. Would you translate that for the record into
specific figures. Question 1, How much did the average price of used
cars quickly advance following the commencement of fighting in
Korea ? I have heard that when the Korean War started the price
of used cars went up on the ground that you could not get many cars,
and therefore they were going to be worth more.
Mr. MCCABE. About $225 for a 1949 car.
Senator ROBERTSON. That is what I previously heard. Then how
much, after regulation W was imposed and it became apparent that
there would still be a reasonable number of cars, used and new, available for the market, how much did it come down again ?



Senator TOBEY. $350. I t is on page 8 of the statement.
Mr. MCCABE. That figure represents the total decline from the
August peak to the end of November. The decline after regulation
W was imposed on September 18 to the end of November was $225
and after the amendment of regulation W on October 16 to the end
of November was $150.
Senator ROBERTSON. On the basis of the war they went up $200, the
same car jumped $200, and then under the impact of regulation W,
apparently, they lost all of that gain, plus $150.
Now, I was not here yesterday, but I was informed that Mr. Walter
Reuther ridiculed the effect of a curb on consumer credit on the
ground that consumer credit was a very small proportion of the total
purchasing engaged in by the American people.
Did you read some 10 days ago about a gas pipeline blowing up
in Culpeper County ?
Mr. MCCABE. Yes, sir.

probably know that these gas lines are
built to carry a normal pressure of not exceeding 500 pounds per
square inch, but engineers building gas lines, like bridge engineers,
always want a wide margin of safety, because when people become
dependent for heat cooking on gas they do not want to be cut off by
a failure in the pipeline. They decided to test this pipeline up to 800
pounds. Well, it held at 700 pounds. I t held at 750 pounds. I t held
at 799 pounds, but it blew up at 800 pounds. Now, that last pound
was only one eight-hundredth of the whole pressure, but that is when
it blew up.
I will not elaborate on that point.
Senator TOBEY. What is the blowing-up point of a Senator ?
Senator ROBERTSON. After 17 years, I would say it is pretty high.
Representative PATMAN. Have you finished, Senator ?
Senator ROBERTSON. I have not finished, but I do not want to monopolize it.
Representative PATMAN. Oh, go ahead.
Senator ROBERTSON. I took the liberty, believing that we have a
serious inflation threat, in setting a few figures in the record from
memory, on Wednesday. I understand this morning a witness says
he can refute all of them. I just want to get your opinion about this.
When the buying spree started after the war in Korea commenced,
at a time when the producing income of this Nation was at an all-time
high, did purchasers also cash E bonds in excess of the purchases of
new ones, and at the same time draw down their savings accounts ?
Mr. MCCABE. Yes, sir.
Senator ROBERTSON. During

June and July, how much were savings
accounts drawn down?
Mr. YOUNG. During July and August, savings accounts at banks
together with building and loan accounts declined between 600 and
700 million dollars.
Senator ROBERTSON. W h a t figure did you give ?
Mr. YOUNG. $600,000,000 to $700,000,000.
Senator ROBERTSON. I think $700,000,000 would be the more realistic figure. That trend was fortunately stopped, I believe, in October,
or was it in September that the draw-down of savings was stopped ?
The Board advised me that the draw-down of savings was stopped.



Mr. YOUNG. That has been in recent weeks, sir.
Senator EOBERTSON. NOW, is the redeeming of E bonds still exceeding the sale of E bonds ?
Mr. YOUNG. Yes, sir; I believe so.

Senator ROBERTSON. I S it true that has been running $200,000,000 or
$300,000,000 a month?
Mr. MCCABE. Yes, sir; total redemptions have been running over
$300,000,000 a month, but redemptions in excess of sales have only
been running on an average of about $60,000,000 a month.
Senator ROBERTSON. H O W much has consumer credit been increasing, at what rate since the war in Korea started ?
Mr. YOUNG. I t is shown on this chart, sir (chart No. 1, p. 92).
Senator ROBERTSON. I S the figure $500,000,000 a month?
Mr. YOUNG. Installment credit was up about $500,000,000 in July,
Senator ROBERTSON. And does the total now exceed $21,000,000,000 ?
Mr. MCCABE. Not of installment credit.
Senator ROBERTSON. I did not say installment credit. I said consumer credit.
Mr. YOUNG. A little under $20,000,000,000, sir. The figures have
been recently adjusted back.
Senator ROBERTSON. They were figured at a little above $21,000,000,000.
Mr. MCCABE. That is right.
Senator ROBERTSON. But it has been adjusted back ?
Mr. MCCABE. That is right, sir.
Senator ROBERTSON. And it is now around $20,000,000,000?
Mr. YOUNG. That is right.
Senator ROBERTSON. Well you have told me that mortage credit
had gotten up to $40,000,000,000. H a s that been adjusted back, too?
Mr. YOUNG. N O , sir; at the end of September it was even higher than
that, perhaps between 42 and 42.5 billion dollars.
Senator ROBERTSON. YOU told me some weeks ago that bank credit,
since the war started, had increased by, as I recall, $2,000,000,000, but
the figure this morning was over $5,000,000,000.
Mr. YOUNG. That is $5,700,000,000 from the end of June to the 25th
of October.
Senator ROBERTSON. And that, you say, is an unprecedented
Mr. YOUNG. Yes, sir.

it true that bank credit since the end of
World W a r I I has increased over $18,000,000,000?
Mr. MCCABE. From the end of 1945 to the end of November 1950 it
was $25,000,000,000. From the end of 1947 to the end of November
this year, it was approximately 13.5 billion dollars.
Senator ROBERTSON. I S it true we now have about three times as
much money in circulation as we did before World W a r I I ?
Mr. YOUNG. Yes, sir.

it true that in volume production has increased about 67 percent, not talking about money value, but in
volume ?
Mr. YOUNG. Approximately; yes, sir.



Senator ROBERTSON. Then when you make allowance for what lias
gone into savings, you have had more than $2 of new money going into
the market place for each one unit of production.
Mr. YOUNG. Yes.

Isn't that in simple terms the essence of inflation?
Mr. YOUNG. That is correct, sir.
Senator ROBERTSON. The money supply has exceeded the supply of
goods, and therefore you pay more money for the same goods because
of that competition.
I just felt, Mr. Chairman, that since there is some question involved
in these hearings as to whether these regulations were wholly capricious and unnecessary and too drastic, and all, that the record that we
make should show some general picture of inflation, because you can't
ignore any major factor of this situation if you are going to control
the whole problem.
Representative PATMAN. Mr. Chairman, Mr. McCabe doesn't have
the information which I think is very important that we have: separating automobile paper from durable goods.
I want to interrogate Mr. McCabe along several lines, and I don't
have time before the House meets, or before the Senate meets. I wondered if it would be asking too much to ask if Mr. McCabe can come
back for cross-examination ?
The CHAIRMAN. I would ask Mr. McCabe.
Mr. MCCABE. Congressman Patman, I would like to, but I am
scheduled to make three speeches in the South. I plan to be in Birmingham, Ala., on Monday, and in Chicago on Thursday. The first
day J plan to be back here will be Friday.
Representative PATMAN. Don't you think this is more important
than speech making, right now, Mr. McCabe ?
Mr. MCCABE. I am at the command of this committee, sir.
Representative PATMAN. What about tomorrow? Saturday?
I don't know what the committee members would say about tomorrow.
Senator CAPEHART. I t suits me.
The CHAIRMAN. I t suits me, all right, because I would like to suit
Mr. McCabe's convenience.
Congressman Brown could hold the meeting. I did commit myself
to be at the Appropriations Committee meeting tomorrow.
Senator ROBERTSON. I t would be perfectly agreeable to us for the
House members to meet tomorrow, because they want to make a record.
The CHAIRMAN. Why don't you do this—I'm just thinking out
loud—we have a conference here at 3 o'clock today regarding which
I talked with Congressman Spence. We could ask Congressman
Spence to put that off if it is agreeable to the committee, and meet
with Mr. McCabe this afternoon.
Representative PATMAN. That would be satisfactory with me.
I don't mean to say that speech making is not important, Mr. McCabe, and I know you make good speeches, but I think this is more
important right now.
Mr. MCCABE. Congressman, my only embarrassment there would
be in Alabama, where the group to which I am speaking will have its
annual meeting Tuesday night. I accepted the invitation some 3



months ago. I t would be rather embarrassing to turn that down at
this time.
^Representative PATMAN. I am perfectly willing to do anything that
would meet wTith your approval. This afternoon will be satisfactory
with me; tonight, tomorrow, or any other time.
The CHAIRMAN. Suppose we meet here at 3 o'clock this afternoon,
and I want to say for the record that I have talked to Congressman
Brown. I have to be out of the city Monday, and Congresman Brown
says he will hold hearings here at 10: 30 Monday morning.
Representative PATMAN. The National Used Car Dealers, I think,
will be on Monday morning at 10: 30.
The CHAIRMAN. We will meet at 3 o'clock this afternoon, in this
(Whereupon, at 11:45 a. m., the hearing was recessed, to reconvene at 3 p. m., of the same day, in the same room.)


(Whereupon, at 3 p. m., the hearing was resumed, pursuant to the
taking of the luncheon recess.)
The CHAIRMAN. The meeting will come to order.
Senator CAPEHART. Mr. McCabe, do you think all price controls and
all wage controls will be invoked in the next 30, 60, or 90 days ?
Mr. MCCABE. I do not know, sir. What we are trying to do is
carry out what we think is the will of Congress, on the indirect controls, make them effective, not make them stringent to the point that
it would destroy a segment of the economy, because I think it is
wrong to do that.
Senator CAPEHART. D O you think we can control the inflation and
rising prices in the face of the Korean War by so-called selective
controls, and that is what regulation W is ?
Mr. MCCABE. The key, Senator Capehart, to the question that you
asked, is the amount of the defense budget. I certainly felt until the
last few days, and felt strongly that we could fight it out along; the
lines we were traveling, provided Congress at this sesssion enacted the
necessary legislation to put us on a pay-as-you-go basis, because I
think a sound fiscal program is fundamental, and comes first. The
key is the size of the defense budget, and until that is determined,
there is nothing more that we can do except we must carry out what I
think was expressed very clearly to us by the Congress in the reports
on the Defense Act.
The CHAIRMAN. That is our wish.
Senator CAPEHART. If w^e are going to spend $60,000,000,000 for
national defense, and add to it another $20,000,000,000 for other governmental expenditures, that is $80,000,000,000; to be on a pay-asyou-go basis means you are going to have to collect twice as much in
taxes as you are collecting at the moment.
Mr. MCCABE. That is right.
Senator CAPEHART. NOW, that possibly cannot be done, so I think
you are right when you say that much depends—but you have no
idea at the moment as to whether we will or will not go into all-out
controls, within 10 days or 90 days ?
Mr. MCCABE. NO, sir, I have not been told.
Senator CAPEHART. Has it been discussed with the Federal Keserve



Mr. MCCABE. We serve on the Symington working committee, but
there that specific question has not certainly reached any determination in that committee.
Senator CAPEHART. I n other words, if we are going on all-out
controls, then I think we are debating and arguing today about something that amounts to very little, because if we go all out on price
control and wage control, allocations, and rationing and O P A, and
so forth, we know, of course, that what we are talking about today
simply fades away in the wind.
Now, it seems to me as though the head of the Government, and
the Government itself, is going to have to make up its mind whether
or not it is going on all-out controls before you can possibly make
up your mind whether it is 15 or 18 months. I cannot see that it
makes much difference whether it is 15 or 18 months, but you have the
facts and figures and ought to know. I know you are sincere and
conscientious in wanting to control inflation, if you possibly can, by
controlling consumer credit, mortgage credit, and bank credit; and
I have been trying to do it. I t seems to me that your decision in this
matter will almost have to wait or will rest with the decision as to
whether or not we are going to have complete, hundred-percent war
mobilization and all-out controls in this country or whether we are
not. Is that not a fair analysis of it from your standpoint ?
Mr. MCCABE. I think you have made a very fair analysis. I would
like to say, however, that even if we move into a harness of direct controls we will still need a strong program of fiscal and monetary measures, because these strike at the source of the inflationary problem and
are a necessary backstop for direct controls. Direct controls suppress
and defer spending of excess buying power; they do not deal with the
root causes of excess buying power.
Senator CAPEHART. I gather it is something that cannot be decided
in a week, 10 days, or even 2 weeks ?
Mr. MCCABE. NO ; and, even if the Government decided to go on allout control, the organization job alone—to get that organization into
being and in operation—would be a considerable task.
The CHAIRMAN. I have been talking to Congressman Brown and
Congressman Patman, and we have been talking about the Commerce Department and Mr. Harrison, of the National Production
Authority, so, if it is agreeable, on Tuesday we will have Mr. Sawyer
and Mr. Harrison, and on Wednesday we will send for Mr. Symington.
I only want to ask Mr. McCabe this. Since Senator Capehart
asked him about all-out controls, I would like to ask if the Federal
Keserve Board has any idea of putting in any additional new controls,
selective controls, insofar as merchants are concerned, or stores, or
what have you, before you get any other control. I want to know
what you own thinking is. You did a good job by getting to work
promptly. We might not agree on 15 months as the proper limit at
this time for installment payments, but at least you followed the intent of Congress and went to work the next day after the Defense
Production Act of 1950 became law, and I appreciate it.
Mr. MCCABE. I t is what we thought was the intention.
The CHAIRMAN. We disagreed on whether the maximum time for
repayment of automobile installment loans should be 15 or 18 months,
but that is an honest difference of opinion between our group here



and your Board in trying to stop inflation. Inflation can ruin this
country quicker than anything else, and we have already got it.
Senator CAPEHART. I would like to say this. Unless we are going
to have all-out controls within a short period of time, I would like
to recommend on automobile credit that you do give them 18 months.
T h a t is merely a recommendation. I think, if we are not going to have
all-out controls, that is possibly a more sound approach to the situation at the moment than maybe the 15 months. My experience in
credits—you have a different problem here in that you want to control inflation, but ordinarily credit is based on ability to pay rather
than anything else, but here you have an entirely different problem,
and that is to control inflation, and I do not believe the difference
between 15 and 18 months is significant.
The CHAIRMAN. What about these new controls now ?
Mr. MCCABE. Could I just comment a second on Senator Capehart's
comment, and then I will come right back to that ?
The big question, Senator Capehart, is the supply of automobiles
versus the demand for automobiles. If the supply of automobiles is
going to come down constantly, and at the same time we relax regulation W and increase the demand for automobiles, then the country
could easily get back wThere it was last summer, with the people bidding up the prices of a decreasing available supply. That is the big
question which we have to face.
I should also like to say, Senator, that the installment credit terms
now required for the purchase of an automobile are not as restrictive
as these required during World War I I . Although automobile prices
are now higher than they wrere in that period, their rise has not kept
pace with the increase in consumer incomes. Between 1941 and the
summer of 1950 the cost of a popular-priced automobile increased by
about 82 percent, while the average weekly earnings of industrial
workers increased by about 94 percent. As a percentage of weekly
take-home pay, monthly payments on a low-priced car are slightly
lower under the present terms of regulation W than they were during
World W a r I I . We estimate the present regulation to be but little
more restrictive than the 1941 regulation, which required terms of
one-third down and 18 months to pay.
Senator CAPEHART. I see that, and I think the thing that possibly
many people dislike, and possibly this committee dislikes—maybe not
as a whole, but as individuals—is the fact that here we have a system
to control inflation, and it is certainly doing it, because according to
the testimony of those in the business it has reduced their sales, but it
does it at the expense of the people with the least purchasing power,
on the small salaries, which is the thing we dislike about it. We want to
control inflation, but maybe there is some better method of distribution so the poor fellow that only makes $200 or $300 a month can still
buy an automobile, and is not taken completely out of the market.
That is, I think, the thing that we as individuals do not like.
Mr. MCCABE. I would like to say for Congressman Brown and Senator Capehart's benefit that we get figures from the Polk service on
new passenger-car registrations. We also get confidential reports from
the automobile manufacturers as to their dealers' sales and inventories. I think it is rather interesting that the available figures indicate that sales of new passenger cars for 30 cities during the month
of November 1950, as compared with November 1949, were up 13



percent. I should like to introduce into the record a table showing
these figures on the basis of the over-all sales of new cars in these
particular cities during the month of November.
(The table referred to follows:)
New passenger-car
New York CityCharlotte
Portland, Ore__
Los Angeles
St. P a u l

1949 to November 1950
_ .


Des Moines
K a n s a s City
Salt Lake C i t y .
St. Louis
New Orleans
0 „ , 38 cities-


N O T E . — B a s e d on R. L. Polk & Co. reports covering whole month of November for 21
cities and 7 to 28 days for 17 cities.

I do not feel that new-car dealers have suffered very much. True,
experience was spotty. You can see here that at one extreme Boston
was up 229 percent, and at the other extreme Miami was down 41 percent. Of course, sales experience changes from month to month.
You can also see from this chart (chart No. 7, p. 93), showing passenger-car output compared with new-car regulations, that, relatively
speaking, the industry as a whole is in a pretty healthy condition.
Senator CAPEHART. Let me state just the concrete experience I had,
which sums up my feelings and, I think, sums up the feelings of all
of us.
I am in the market for a new car. I will buy a new car, and I will
pay cash for it. One of the young fellows working for me has got a
very, very old car. He was going to buy one; he did not buy it. He
came to me the other day and said, "Now I cannot do it because I cannot make the monthly payments.'' Therefore he has to continue to
drive his old car, and he very badly needs one.
Now, that I think is the crux of my feeling in it. Is there some
way of working out a plan where we can still control inflation and yet
by some way afford the fellow with limited means and income an opportunity to buy a new automobile, either new or used ?
Eepresentative BROWN. I think you have reached the point when
you provide the one-third down payment. I think that is the controlling part of your regulation, and I think we will all agree with
The CHAIRMAN. What about my question?
Senator CAPEHART. They trade in their old cars to make up the
one-third down.
The CHAIRMAN. I look at it this way: I wTorked on the rent-control
bill yesterday, to stop inflation. I believe that was the long-range



thing to do because the situation in this country has changed so much
since June, but so far as control is concerned the automobile people
are controlled and the real-estate people are controlled, but no one else
is being controlled, and these other fellows are making more money
from other things than they ever dreamed of.
I appreciate what the Government did yesterday. I don't know
how far they are going to get with it, but what you say about strategic
materials is correct. They ought to be more controlled.
I was in a navy yard a while ago, and they laid off several hundred
people because they didn't have materials.
Mr. MOCABE. NOW, to answer your first question, Senator Maybank, about additional controls. We have gone quite thoroughly into
the question of charge-accounts credit; we have gone into the question of single-payment loans; we have gone into the question of the
possible control of sale credit on jewelry, fur coats, and many other
items. I assume that is what you had in mind.
The CHAIRMAN. I certainly did. I remember the debate in the Senate about 8 years ago when Senator Overton and someone else got onto
the subject of fur coats, and it was the consensus of opinion at that
time that the working girl should be able to buy a fur coat.
Mr. MCCABE. Note this chart (chart No. 1, p. 92) showing the trend
of charge-account credit. Our first consideration is its volume. You
will see that is in the neighborhood of $4,000,000,000, as compared with
a total for installment credit of over $13,000,000,000 and with a total
for all consumer credit of nearly $20,000,000,000. The line runs fairly
level on charge-account credit. We are watching that closely, because
if there should be a strong indication that the people are shifting
from installment credit to charge-account credit we would certainly
want to deal with the problem.
At this particular stage—that is, as of today—we haven't felt disposed to touch charge-account credit, because the average charge account is paid off in a period of about 60 days. Charge-account credit
isn't long-term credit.
We have also gone into the question of single-payment loans rather
exhaustively, and again here we have felt that the problem was not
ripe for action.
Concerning the question of jewelry, we have studied the total volume
of credit outstanding and the terms of payment. We find that the
volume is not so significant as compared with other types of installment
credit and that in the main jewelry is paid for in a maximum of 12
Now take fur coats. Credit is extended here for relatively short
periods of time; that is, for the woman who buys a fur coat now, the
requirement is that she has to pay for it before the next season starts.
The CHAIRMAN. Who did that—the industry itself ?
Mr. MCCABE. The industry itself.
W h a t we have to weigh is the volume and the trend of the credit in
the particular area before we determine whether it is practical to
establish a control. I n the case of charge accounts the administrative problem of control would be a very difficult one because of the
vast number of people to be covered.
I t is difficult to administer in a department store because it applies
only to the items that are listed. The stores have to separate out those
items that are on our list from the items that are not covered.



I n summary, what I am saying is that we have all of the various
credit areas under constant study and that we won't hesitate to touch
any area if we feel that it is ballooning because of strong inflationary
(The following was later submitted for the record:)

I t h a s been suggested t h a t used cars should not be subjected to t h e requirements of regulation W because they do not use m a t e r i a l s a n d manpower and
consequently controlling them makes no contribution to the production of
military goods.
A number of points should be considered in connection with
this suggestion.
1. Expansion of credit for t h e purchase of used cars is inflationary. I t contributes to high prices for used cars. F u r t h e r m o r e as t h e additional purchasing power is spent it contributes to increased prices for other goods as well.
2. High prices for used c a r s contribute to great demand for new cars in two
ways. First, t h e higher t h e prices allowed on used c a r s t r a d e d in for new
cars, t h e less effective are t h e t e r m s of regulation W as applied to new cars.
Second, inflation of the prices of used cars would increase t h e demand for new
cars since t h e chief reason people buy used cars is t h a t they a r e cheaper.
3. If used cars were not subject to regulation W or if more lenient t e r m s w e r e
applied to used cars, widespread evasion of the regulation as applied to new
cars would occur. Cars which were actually new would appear in the m a r k e t
a s ostensibly used cars.
4. High prices for used cars a r e harmful to t h e lower income groups who
customarily buy them and to workers who must h a v e t r a n s p o r t a t i o n .

The CHAIRMAN. NOW, we have been very unfair to Congressman
Patman in asking questions. He is the one who really wanted to ask
some questions, so, without objection, I will turn the meeting over to
Congressman Patman.
Kepresentative PATMAN. Mr. McCabe, did you get up the table
requested on the ratio between purchases of automobiles and other
durable goods ?
Mr. MCCABE. During the lunch period we checked those figures.
Total sales of durables other than automobiles amounted to 15.9
billion dollars in 1949. Sales of automobiles—that is, new automobiles—amounted to 9.9 billion dollars. Those were the most convenient figures for us to get.
Representative PATMAN. YOU do not include used cars in that?
Mr. MCCABE. Used cars amounted to 5.2 billion dollars.
Representative PATMAN. That would mean about $15,000,000,000
just for cars, alone?
Mr. MCCABE. For new and used cars, but you have a complicated
factor there, Congressman Patman, because the used cars in many
instances, you see, are traded in on the new cars.
Representative PATMAN. I know that.
Mr. MCCABE. A S to the breakdown of the figures, it is 15.9 billion
dollars for durables other than automobiles, 9.9 billion dollars for
new automobiles, and 5.2 billion dollars for used.
Representative PATMAN. That would make $30,000,000,000.
Mr. MCCABE. $31,000,000,000.
Representative PATMAN. I thought all durable goods amounted to
less than $20,000,000,000.
Mr. MCCABE. Are you talking about credit rather than sales ?



Representative PATMAN. Yes; I am talking about credit. That is
all we are dealing with, you know.
Mx% MCCABE. I thought you wanted sales volume.
Representative PATMAN. NO ; Ave are interested only in credit.
Senator CAPEHART. Can't-fou just subtract the one-third down?
Representative PATMAK. I want you to give me comparable figures
to the ones you hare on consumer credit. That is mostly credit;
isn't it?


Representative PATMAN. I want you to give me comparable figures
concerning used, and new cars. I n other words, the credit
Mr. YOUNG. We don't have them separated between new and used
Representative PATMAN. Well, do you have the total of new and
Mr. YOUNG. Total sales automobile credits outstanding is 5.579
billion dollars.
Representative PATMAN. That is new and used ?
Mr. YOUNG. New and used together, directly attributable to automobile purchases.
The CHAIRMAN. $5,000,000,000.
Mr. YOUNG. Out of a total of 13.4 billion dollars of total installment credit.
Representative PATMAN. That is in addition to the $13,000,000,000;
isn't it?
Mr. YOUNG. N O ; it is part of the $13,000,000,000, that part outstanding against automobiles.
Representative PATMAN. YOU are talking about installments only?


Representative PATMAN. All right; we will take installments only.
Now, $5,000,000,000, how does that compare to the total retail sales
in 1919? Those are 1949 figures, or 1950 figures you are giving me?
Mr. MCCABE. The last figure I gave you was for 1949.
Representative PATMAN. What were the total sales of all kinds
and types, say, in the year 1949 ?
Mr. YOUNG. Roughly, retail sales amounted in 1949 to $124,000,000,000.
Representative PATMAN. And you are dealing with about $5,000,000,000 out of $129,000,000,000. That is all sales, credit, and
everything else.
Mr. YOUNG. We are in some confusion, I think, Mr. Congressman.
You want to compare against sales the total amount of consumers
credit granted. Now, the total amount of sales of automobiles
amounted to about $10,000,000,000.
Representative PATMAN. I S that new cars?
Mr. YOUNG. That is new cars.
Representative PATMAN. And how much used?
Mr. YOUNG. Used cars about $5,000,000,000.
Representative PATMAN. About $15,000,000,000.
So you are dealing with about one-third of the purchase price of the
two, new and used, in your credit regulations. That is right; isn't
it $5,000,000,000? That is what you have now. That is correct; isn't



Mr. MCCABE. Well, I ihink there that isn't quite the right conclusion, because you would have to determine what proportion of the
$15,000,000,000 of new and used cars sold was sold on the installment
plan. You want to get the credit.
Representative PATMAN. That is right.
Mr. MCCABE. He gave you th« ojjfcstanding amount of credit; that
is, the cumulative.
Representative PATMAN. I am not interested in going into that
further. I just wanted to show that it amounts to so little in our
total transactions per year. I n fact, we have about 2 trillion dollars of
transactions a year; don't we, Mr. McCabe ?
Mr. MCCABE. I couldn't answer that. Maybe an economist could
answer that.
Representative PATMAN. This is a very small amount compared
to our total transactions in the course of a year. I don't mean just
merchandise, I mean all transactions would aggregate about 2 trillion
dollars a year. Interest rates can be inflationary, too; can't they, Mr.
Mr. MCCABE. Oh, yes.
Representative PATMAN.

If you increase the price of an automobile,
that is inflationary. If you increase the price of interest, that is inflationary, too; isn't it ?
Mr. MCCABE. If interest goes up ?
Representative PATMAN. Yes.

Mr. MCCABE. Well, if interest goes up, it should be non-inflationary.
Representative PATMAN. I t should be noninflationary; if interest
goes up?
Mr. MCCABE. Yes; that is, if you make money dear to the man
who borrows it, that should be noninflationary.
Representative PATMAN. YOU mean artificially or naturally dear?
As it is now, money is plentiful. You said this morning you had three
times as much money as we normally have. Well, under the law of
supply and demand, if that operated fairly, interest rates would go
down; wouldn't they ?
Mr. MCCABE. I should think it would be the amount that you had
available for lending. As a matter of fact, the level of interest rates
reflecting the large supply of funds, is low and has been for a long
Representative PATMAN. I know, but there is more available for
lending than ever before, so why don't the interest rates go down
instead of going up ? Isn't it a fact that the Board has arbitrarily
fixed a policy that would compel an increase in interest rates ?
Mr. MCCABE. Well, Mr. Congressman the Board in its policy—I
assume you are talking about the recent rise in the short-term rates.
You have to remember that there are demand factors too.
Representative PATMAN. Short-term paper from three-eighths of
1 percent to about 1.75 percent, which costs the people about $300,000,000 and $400,000,000 a year extra ?
Mr. MCCABE. That is right. Short-term rates have risen, but not
quite as much as your figures indicate.
Representative PATMAN. The only reason that came about annually was because of the arbitrary action of the Federal Reserve Board;
wasn't it ?




Mr. MCCAB,E. Well, I would not say arbitrary action. There are
market demand factors to be taken into account.
Representative PATMAN. Well, deliberate action.
Mr. MCCABE. YOU have had the laws of supply and demand
Representative PATMAN. D O you really insist on that, Mr. McCabe;
that the law of supply and demand is working on that ?
Mr. MCCABE. Yes; because I think in the market place for money,
you certainly have the law of supply and demand operating.
Representative PATMAN. I thought the Federal Reserve Board was
requiring that you, in the open-market purchases, could control that
situation; could you not, and compel an increase in interest rates?
Mr. MCCABE. What you had there, Congressman, was a situation
where banks were selling their Governments to the Federal Reserve.
Representative PATMAN. Yes.

Mr. MCCABE. A S for interest rates, we were more reluctant buyers
of those securities. That resulted in short-term interest rates going
Representative PATMAN. But, Mr. McCabe, you wouldn't seriously
contend that you didn't deliberately increase those interest rates by
an action of the Federal Reserve Board; would you ?
Mr. MCCABE. Well, what I say is
Representative PATMAN. Wouldn't you admit that you did deliberately increase them?
Mr. MCCABE. Let me answer you this way, sir; I think the more
reluctant a buyer of Government securities on the Open Market
Committee is, the
Representative PATMAN. The higher up the price would go.
Mr. MCCABE. The higher short-term interest rates would go, the
lower prices on short-term securities would go.
Representative PATMAN. And you were dealing with Government
credit entirely in your open market transaction; weren't you?
Mr. MCCABE. Yes; the law requires that we limit our open-market
operations to Government securities.
Representative PATMAN. That is the only money; it is Government
credit, and you were using Government credit to force up the interest
rates, were you not ?
Mr. MCCABE. Our operations in the money market were part of our
general anti-inflationary policy.
Representative PATMAN. YOU say, "anti-inflationary policy?"


Representative PATMAN. T O increase the price of an automobile is
inflationary, to increase the price of interest is not inflationary, is
that right?
Mr. MCCABE. Could I spell that out for you ? I think I can make
it clearer.
The more reluctant the open market committee is in buying shortterm Government securities, the more there is a tendency for shortterm rates to rise and prices to go down. Now, as rates went u p ,
and prices went down, the banking system became more reluctant to
sell their short-term securities to the Federal Reserve. For example,
if a bank with a portfolio of Government securities wants to raise



funds with which to make loans, it sells its securities indirectly to the
System open market account with which to get the funds.
Now, if it has to sell those securities to the Federal Keserve at a loss,
it becomes a more reluctant seller. That is the point I am making.
Kepresentative PATMAN. Of course, Mr. McCabe, the Federal Keserve open policy committee has deliberately forced an increase in
interest rates, justified on the theory that it is anti-inflationary, which
I do not agree with.
Senator CAPEHART. Will the Congressman yield there just a
moment ?
Another reason you do that, is it not, is to maintain the Government
bond, to require par value of Government bonds ?
Kepresentative PATMAN. I t should not have anything to do with it.
Mr. MCCABE. YOU are now getting into a very big question, Senator
Capehart. We have a very sizable marketable public debt, and the
Federal Reserve has a responsibility of maintaining orderly conditions in the Government bond market. That I assure you is a gigantic
task. We must operate in such a way that the Treasury can readily
do its refunding and that the public maintains its confidence in the
Government securities market.
I t is my own feeling that our job has been well done. Public
confidence in the Government securities market has been maintained.
I think also that our actions in the short-term market have had the
desirable effect of restraining sales of Government securities to the
Federal Reserve System.
Our figures show that there has been some increase in the System's
portfolio. The question is how much larger that increase would have
been if we had not moved to exert a restraining influence.
Representative PATMAN. I do not agree with Senator Capehart on
Now, on the long-term securities, you are trying to keep them above
par, like the 1967-72,1 believe.
Mr. MCCABE. The longest are the 1967-72, at 2y2 percent.
Representative PATMAN. And you have been keeping them above
par? Those bank eligibles are about 103, something?
Mr. MCCABE. Over 103, something.
Representative PATMAN. And the others are just above par, and you
do not intend to let them go below par, do you, Mr. McCabe ?
Mr. MCCABE. I can only point to our record to date, sir.
Representative PATMAN. Yes, sir; and I know that your obligation,
at least I feel like it is an obligation, because when the Ways and
Means Committee considered the legislation to finance World W a r I I ,
I think that was written into the law, not into the law necessarily, but
in the hearings, that we never intended for people to suffer again like
they did after World W a r I by being forced to sell their Government
bonds at distress prices below par.
Mr. MCCABE. YOU could not be critical of what we have done on that,
could you, sir?
Representative PATMAN. NO, it could not be. You have kept them
above par, and I certainly hope you continue to do that. You will
break faith with the American people who own those bonds if you
permit them to go below par.



Mr. MCCU&E. We think ouf actions to date have reflected the intent of Congress, sir.
Representative PATMAN. Yes, sir. On inflation, I want to assure
you, Mr. McCabe, that I am very much in favor of stopping inflation. You know my record during World W a r I I was pretty good
on price controls and things like that. I realize thai our dollars could
become worthless, and they can still become worthless. If they do
become worthless, people will not wTork for worthless money, and it is
possible we could even lose the war by reason of worthless money.
We must keep that money stable.
But on this particular question, I just wonder if you have been
dealing with the minor part of our economy at a time when you
could deal with a major part more effectively.
I n particular I refer to the reserve requirements of banks. You
have not touched the reserve requirements of banks in your indirect
operations, have you ?
Mr. MCCABE. That is right, sir.
Representative PATMAN. I S there any good reason why you would
deal with the installment credit, in what I would consider to be a
pretty drastic manner, and not deal with the reserve requirements in
a way that could be direct as well as indirect and freeze more credit
with one stroke of the pen than you could in a hundred years with
automobile credit?
Mr. MCCABE. I think you have asked a pretty pertinent question,
sir. As I brought out in my statement this morning, of the increase
in bank loans since the middle of the year, roughly half have been to
finance consumer loans, including not only installment loans, but
also home mortgage loans. We have acted in. both of these fields,
which account for roughly half of the increase in bank loans.
I n that connection, I think you might be interested in a survey we
recently made to determine what the recent increase in bank credit
was for. I have here the results of this survey.
Representative PATMAN. Let me ask you specifically about these
reserve requirements. Now, under the law you have a right to raise
the reserve requirements up to a certain amount for three classes of
banks. Is that correct or not—country banks, Reserve city banks, and
central Reserve city banks ?
Mr. MCCABE. Demand deposits in central Reserve city. Reserve
city and country banks, and in addition time deposits at all banks;
that is, all member banks.
Representative PATMAN. Well, I recall in 1936 when the veterans of
World W a r I were paid about a billion dollars, a little bit more, the
Federal Reserve Board was very much alarmed and disturbed to the
extent that they ordered that the reserve requirements be doubled, and
they w^ere doubled for the first time in history I believe that it wTas
ever done, and that caused a pretty good recession and a deflation in
1937. You recall that, do you not ?
Mr. MCCABE. Yes, sir. I recall a recession, but there are differences
of opinion as to what caused it.
Representative PATMAN. NOW, then, at this time what are the reserve requirements of country banks ?
Mr. MCCABE. The reserve requirements of country banks are 12



Representative PATMAN. In other words, they can extend loans equal
to about eight times as much as they have in money under their reserve
Mr. MCCABE. The 12 percent we require to put up against their demand deposits,
Representative PATMAN. NOW, you could increase them to 16 percent, could you not I
Mr. MCCABE. Not the country banks. We can go up another two
Representative PATMAN. Another 2 percent. An one time you raised
them to 16 percent.
Mr. MCCABE. Congress gave us temporary authority, you will remember.
Representative PATMAN. But normally it is 14 percent.
Mr. MCCABE. Fourteen percent is the limit of our statutory authority.
Representative PATMAN. NOW, if you were to increase the reserve
requirements from 12 to 14, how much idle credit would that freeze ?
Mr. MCCABE. If we increased them up to the maximum authority we
now have which would be four more points in New York and
Representative PATMAN. NO ; I am not talking about New York and
Chicago. I am talking about country banks. If we increased the
reserve requirements, if the Board did, from 12 percent to 14 percent,
how much credit would that automatically freeze that the banks can
now, under existing law, extend if they desire?
Mr. MCCABE. Country member banks ?
Mr. THOMAS. Reserves of country member banks would be increased
by about half a billion dollars, I think that is the figure.
Representative PATMAN. $500,000,000?
Mr. THOMAS. $600,000,000 to be more exact.
Representative PATMAN. NOW, under existing law, those banks can
buy $600,000,000, say of Government bonds, and create the money on
the books of the banks to buy them, which is the most inflationary
dollar that you could put out, is it not? Is that not the most inflationary money we have, the money that is created by banks through
the purchase of Government bonds ?
Mr. MCCABE. Not through the sale of Government bonds ?
Representative PATMAN. Through the purchase of Government
bonds ?
Mr. MCCABE. If you are talking about the purchase of Government
bonds on a new issue of the Treasury, where the Treasury leaves the
deposits with banks, that is one thing; but if the country banks purchase securities from the Federal Reserve, that tends to be noninflationary, because they are utilizing their funds.
Representative PATMAN. I am not talking about that, Mr. McCabe.
I am talking about Treasury issues, if country banks buy $600,000,000
in Government bonds.
Mr. MCCABE. On a new Treasury issue ?
Representative PATMAN. That is right. That is highly inflationary,
is it not ?
Mr. MCCABE. YOU see in that case a deposit would be created and
then of course the Treasury would gradually draw down that deposit
and pay it to somebody else who would deposit it in some other bank.



Eepresentative PATMAX. But in the bank's system as a whole, that
amounts to $600,000,000, does it not?
Mr. MCCABE. If Government deficits are being financed through the
banking system, it would be inflationary in character.
Eepresentative PATMAX. Well, we are doing that right now, are we
Mr. MCCABE. I n the current situation, we do not have deficit
Eepresentative PATMAX. Mr. McCabe, I do not want to argue with
you, but I do not see how you can object to answering this affirmatively, ,that it is highly inflationary for these banks to buy Government bonds in that way, and it is about the most inflationary money
that we have today, is it not?
Mr. MCCABE. N O , I wouldn't say that. The Treasury, for some
time, except on its refunding issues, has not sold securities directly to
the banks.
Eepresentative PATMAX. All right. This 12 percent, if you increase
that to 14, that would destroy the ability of the country banks to issue
$600,000,000 in additional credit, That is right, is it not?
Mr. MCCABE. What the country banks would do in that case, Mr.
Patman, if we announced tonight, for example, that we were increasing the reserve requirements by two points on the country banks, is
this—in order to comply, they would either sell us $600,000,000 of
Government securities, which they have in their portfolio, or
Eepresentative PATMAX. If they had already extended all the loans
they could?
Mr. MCCABE. That is what I was going to say, or take it out of their
balances with correspondent banks, or call in some of their loans and
meet part of it in that way.
Eepresentative PATMAX. NOW let us go to the central reserve city
banks. What is the present reserve requirement there ?
Mr. MCCABE. I t is 22 percent.

Eepresentative PATMAX. And what is the maximum ?
Mr. MCCABE. Twenty-six.
Eepresentative PATMAX. That is four points?
Mr. MCCABE. Four points.
Eepresentative PATMAX. NOW, if you were to increase the reserve
requirements four points, how much inflation would that prevent ?
Mr. MCCABE. Well, if we increased it four points they would have
to put up—how much?
Eepresentative PATMAX. Suppose they did not have to put up any,
suppose they had not extended loans to amount to that four points?
Mr. MCCABE. The chances are they would meet a large portion by
selling Government bonds.
Eepresentative PATMAX. Let us assume they have extended loans
only to the present requirements, they had not extended loans up to
the four additional points. How much is the difference in the present
requirements and these four points that you could freeze? What is
the difference there in money dollars, just like you gave it on the
country banks?
Mr. THOMAS. Nearly a billion dollars.
Eepresentative PATMAX. All right, now, then, let us see about the
central banks.



Mr. THOMAS. These were the central reserve city banks.
Representative PATMAN. I am talking about the reserve city banks.
Mr. THOMAS. There would be only two points increase available at
reserve city banks. That would remain an increase of another
Representative PATMAN. All right, now, the central banks; what is
the present reserve requirement there ?
Mr. MCCABE. On the central reserve, that is New York and Chicago, the present is 22 and the statutory authority is a maximum of 26.
Representative PATMAN. All right, suppose you made it 26. What
is the difference in 2'2 and 26.
Mr. THOMAS. That is a billion dollars.
Representative PATMAN. That is just how many cities there; two?
Representative PATMAN. T W O

cities. All right, there is $2,200,000,000 in potential inflationary credit that you have not touched,
have you, Mr. McCabe?
Mr. MCCABE. YOU say inflationary credit. You will find these New
York and Chicago banks own over $12,000,000,000 of Governments.
They could meet that increase in reserve requirements simply by
Representative PATMAN. Selling the bonds to the Federal Reserve
System ?
Mr. MCCABE. Selling part of the $12,000,000,000 of Governments
to us. Of course, that would be restrictive because all banks dislike to
give up liquid assets and, of course, their short term Governments
are considered a very highly desirable liquid asset.
Representative PATMAN. Well, suppose you bought those under the
present law. You are authorized to purchase through Federal Reserve
banks up to, I believe, $5,000,000,000 direct from the Treasury; aren't
Mr. MCCABE. Yes; that is right.
Representative PATMAN. I S that inflationary or noninflationary ?
Mr. MCCABE. That authority is used only when the Treasury has
a refunding coming up and temporarily needs that credit. I t is considered a temporary form of credit.
Representative PATMAN. But suppose they were to have an issue of
$5,000,000,000, and you just bought them through the Federal Reserve
banks? Would that be inflationary or noninflationary, as compared
to the purchase by the commercial banks ?
Mr. MCCABE. If the Treasury were raising new money, it could be
very inflationary.
Representative PATMAN. I t could be very inflationary as compared
to the purchase by commercial banks ?
Mr. MCCABE. Because, you see, it would create $5,000,000,000 of
bank reserves.
Representative PATMAN. All right; I am afraid you are overlooking
the last part of my question. I said as compared to the purchase by
commercial banks.
Mr. MCCABE. Yes; I will tell you why, Congressman Patman. The
commercial banks have to carry reserves against their deposits.
Representative PATMAN. During World W a r I I they didn't on all
of them, on the purchase of bonds.



Mr. MCCABE. NO ; but if the Treasury sells securities to the banking
system in that way
Representative PATMAN. They have to have a reserve on that, and
the Federal Reserve would not have to have the reserve.
Mr. MCCABE. Then to buy the securities the banks would have reserves.
Representative PATMAN. They would have to have reserves; that is
correct. But the interest would be to that extent inflationary; wouldn't
it? The interest that was paid as distinguished from the payment
to the Federal Reserve banks which would flow back ino the Treasury ?
I n one case the Treasury gets it back; in the other case it stays in
the channels of trade and distribution.
Mr. MCCABE. Well, if you want to carry that to ail extreme, assume
that the Treasury does all its financing through the Federal Reserve,
but carries deposits in the banks.
Representative PATMAN. Well, I wouldn't favor that. I would
favor the banks having a fair ratio of Government bonds at all times,
as a backlog. I believe that we need that, but over a certain amount,
I think that you could, in an orthodox way, have the Federal Reserve
banks purchase these bonds and save the interest on that part of the
Government debt.
Mr. MCCABE. Of course, you know in a lot of countries where they
have very unsound financing they have used the central bank in such
a way.
Representative PATMAN. I am not advocating that. I am just advocating that where the banks have their limit, and the Federal Reserves
could carry a certain part of this and save the interest on that part to
the taxpayers, you certainly could not contend that you have to pay
interest in order to keep it from being inflationary.
If it is paid to the Federal Reserve banks and the banks pay it into
the Treasury, that is just as anti-inflationary; in fact, more so, than
for the commercial banks to collect the interest and keep it in
Mr. MCCABE. If you did that to any extent you certainly would be
creating high-powered money.
Representative PATMAN. I think we have pretty high-powered
money now in some channels.
Now, on this increase in interest rate, w^hat are you going to do with
savings? Under the present law the Federal Reserve Board fixes the
maximum amount that savings banks and commercial banks with
savings accounts can pay on savings.
Now, you had fixed limits on that heretofore. I t used to be 3 percent before that law, but after that it reduced to 2.5, and now it is
down as low as 1 on short-term; but, if you increase the interest rates
to the banks, are you going to increase the interest rates to the people
who have savings accounts ?
Mr. MCCABE. We haven't taken any action on that.
Representative PATMAN. Have you considered action on it, Mr.
Mr. MCCABE. I t has been discussed. All of our regulations are
under constant review.
Representative PATMAN. But that would logically follow, wouldn't



it? If you are going to give the commercial banks more interest,
wouldn't it logically follow that the people who have their savings
accounts in these banks should have more interest ?
Mr. MCCABE. There is one thing that I think you should understand, and that is that there has been only a moderate increase in shortterm rates.
Representative PATMAN. YOU mean in the bills ?
Mr. MCCABE. Bills, certificates, and notes.
Representative PATMAN. That is right; that is in the rates paid to
the banks, but I am talking about the rates the banks will pay.
Mr. MCCABE. Here is a chart (chart No. 14, p. 95), to show you the
trend of interest rates, sir.
Representative PATMAN. Yes; I am not too familiar with this, but I
know they have gone up considerably.
Mr. MCCABE. Yes, only moderately.
Representative PATMAN. SO, since you have increased the rates
that the banks receive, you might say 200 percent in the last 2 years,,
from three-eights of 1 percent to 1.5 or 1.75; that is about 200 percent
or more.
Mr. MCCABE. That three-eighths of 1 percent was only on bills in
the war period.
Representative PATMAN. I know it was; but, if you are going to
increase the rates that the banks receive, wouldn't it logically follow
that you should also increase the rate that the banks pay the people
who have savings accounts ?
Mr. MCCABE. I think you have some logic there. However, under
the present regulation, banks can pay up to a maximum of 2.5 percent.
Representative PATMAN. T h a t is right; on long-term.
Mr. MCCABE. I think they only pay around 1 percent in my area.
Representative PATMAN. What do you mean "my area"?
Mr. MCCABE. I mean the Philadelphia area, where I live.
Representative PATMAN. That is right; in other words, you fix
the maximum rates, the Federal Reserve Board. They can even pay
nothing if they want to.
Mr. MCCABE. T h a t is right. There is some tendency for those t o
go up now. I have noticed rates advancing in some of the western
Representative PATMAN. And on demand deposits, of course, it
is unlawful to pay any interest at all; isn't it?



Representative PATMAN. I t is against the law ?
Mr. MCCABE. That is right.
Representative PATMAN. The Federal Reserve Board as now constituted consists of seven members; is that right?
Mr. MCCABE. That is right, sir.
Representative PATMAN. And they are appointed for 14 years?
Mr. MCCABE. T h a t is right.
Representative PATMAN. The appointments are staggered?
Mr. MCCABE. There is a term expiring every 2 years.
Representative PATMAN. And, formerly, when the Federal Reserve
Act became law, say, December 23, 1913, on that Board there were
seven members; but, in addition, the Secretary of the Treasury, the
Comptroller of the Currency, and wTho else?—there were three.



Mr. MOCABE. There were six, plus the Secretary and the Comptroller.
Representative PATMAN. That is all in addition to the Board.
Mr. YOUNG. Eight altogether, including those two.
Representative PATMAN. NOW, there are still seven, but they are off ?
Mr. MCCABE. That is right.
Representative PATMAN. The observation I want to make in asking
this question is t h a t : As it is now, the Federal Reserve Board has been
become disassociated from the Government, the United States Government, upon whose credit the Board and all the banks operate.
That is, you are under no obligation to the President of the United
States. He appointed you; you are obligated as a patriotic citizen to
do your duty and do what is right, but you have no direct obligation
to the administration in power, regardless of party, or to the President, or to the Congress; no direct obligation, and your Board and
Open Market Committee can cause to be issued Federal Reserve notes
which constitute about 95 percent of the currency; does it not, Mr.
Mr. MCCABE. 95 percent of the currency, not the money supply.
Representative PATMAN. I mean 95 percent of the currency outstanding; I don't mean to say total demand deposits, and things like
that. Of course, they could be converted into Federal Reserve notes.
Now, who except the Federal Reserve Board and the Open Market
Committee, causes Federal Reserve notes to be issued, Mr. McCabe ?
Mr. MCCABE. No one.
Representative PATMAN.
Mr. MCCABE. The Board
Representative PATMAN.

Not even the Secretary of the Treasury?
determines that, sir.
The Board determines it. I n other words,
the Board and the Open Market Committee operate exclusively upon
the credit of the United States. I n fact, every Federal Reserve note,
I believe, says that the Government of the United States promises to
pay upon demand so many dollars; not the Federal Reserve banks,
not the Federal Reserve Board, but operates upon the mortgages of
the people of this country, upon all their property, their earnings
and everything else. They pay taxes to do that. Nobody else can
issue those notes except the Federal Reserve Board.
The Secretary of the Treasury can't do it. The Comptroller of
the Currency can't do it. Nobody connected with the Government can
do it except this Board that is appointed for 14 years, and under no
direct obligation, according to law, to the President of the United
States and the administration now in power, or to the executive
branch of this Government.
Is that correct, or not correct ?
Mr. MCCABE. Well, that might be. I would say, however, that it is
an extreme way of stating it. I n practice, I wouldn't say that. I t
certainly isn't literally correct.
I n the first place—and I would like to make this very clear—the
Federal Reserve Board of Governors, in fact, the whole Reserve System—is a creature of this Congress. The Board reports to the Congress. I doubt if there is any agency of Government that maintains
a closer contact with the interested committees of Congress. Certainly there is a very close relation between the Federal Reserve
Board and the respective Banking and Currency Committees of the



Congress. Important questions are discussed with the chairmen of
the respective Banking and Currency Committees of the House and
Senate. The Board is constantly alert to its responsibility andj
obligation to the Congress.
If you go back and read up on the history of the establishment
of the Federal Reserve System, you will find that it was the desire
of the founders that it be set up that way; that it occupy the role
which it does occupy, and be responsive to the wishes of this Congress.
Representative PATMAN. And that is the reason why the Secretary
of the Treasury and the Comptroller of the Currency were on there—
to have some direct connection between the Government and the
Federal Eeserve Board.
Mr. MCCABE. That was the original concept. You will remember
that it was changed in the Banking Act
Representative PATMAN. F o r some reason unknown to me they were
both taken off. I know it was done in a conference committee. I
looked up the history of it one time. I don't believe there was a
single word of discussion in either House on it.
Mr. MCCABE. I t is my recollection that Senator Glass, who as a
Secretary of the Treasury had sat by law on the Board, felt strongly
on the question. I t was his strong wish that the Secretary of the
Treasury not be a member of the Board.
Representative PATMAN. Anyway, according to the original intention of Congress, there would be some connection there between the
money-issuing powers of the Federal Reserve Board and the Government of the United States, and they put the Comptroller of the
Currency and the Secretary of the Treasury on the Board. .
The point I am trying to make now is that, since they are both
off the Board, you have people wholly disassociated from the Government ; they are a separate and independent agency. I t is true you
cooperate with the members of our committees on both sides; but
for administrative purposes you are under no obligation to either
the executive or the legislative branch. You can administer your
affairs as you see fit and proper, and as the Board directs, without
reference to either Congress or the Executive.
Mr. MCCABE. If you went to that extreme, you could, sir. On the
other hand, I will say again that I doubt if there is any agency of
Government that coordinates its efforts better with other agencies
of Government than the Federal Reserve Board.
Senator CAPEHART. Who took the Secretary of the Treasury and
the Comptroller off?
Mr. MCCABE. The Congress.



By law.

Who could put them back?

Mr. MCCABE. Congress.

Representative GAMBLE. Not by regulation W.
Senator CAPEHART. When were they taken off ?
Mr. MCCABE. I n the Banking Act of 1935.

Senator CAPEHART. Why?
Mr. MCCABE. As I say, Senator Glass played a very important part,
in revising the Banking Act, as I understand it.
Senator CAPEHART. Who was Secretary of the Treasury at the time ?
Mr. MCCABE. Mr. Morgenthau. H e took that same position.
Representative P'ATMAN. They took the position, I understand, that
they seldom attended, anyway, and the public-debt transactions had



not reached the point to where they felt like they should, but I think
there is an entirely different situation now, when our public debt is
over 250 billion dollars, as compared to a few billion dollars at that
time. I think there should be some connection between the Government and the money-issuing power of this country, but the main
point I want to make, and then I will be through, is that in a democracy we are subject to the will of the people; we should be, at least.
"A democracy and a republic," I believe William Tyler Page said it
should be called.
Mr. MCCABE. That is correct.
Representative PATMAN. And in this case I think that any drastic
power that is exercised in the direction of regimentation, like all credit
controls happen to be, should be exercised only by somebody directly
or indirectly responsible to the people.
Now, if you had the Secretary of the Treasury and the Comptroller
of the Currency on there, who are appointed directly by the President
of the United States, and can be removed at his will, and then if that
Board did something clearly against public interest, the executive
department could see that something was done to change it. But with
the Comptroller of the Currency off, and the Secretary of the Treasury
off, the Federal Reserve Board is separate and distinct from the Government; under no direct obligation to the people, not one member
of the Board, and I can see where they would be in a position to do
most anything they wanted to without regard to the public welfare—
not the public welfare but to the public sentiment of the people.
Mr. MCCABE. Let me say in that connection, sir, that it was this
Congress i n the Defense Production Act that spelled out that the
Federal Reserve was to administer regulation W.
Representative PATMAN. Over my opposition, you see.
The CHAIRMAN. Well, I will add only this statement: It was over the
opposition of Mr. McCabe, too.
Representative PATMAN. I think this was well known; the newspapers carried it at the time, the House fixed it so that the President^
the Executive, who is under obligation directly to the people, would
have absolute control. The Senate changed that so that the Federal
Reserve Board had control over both regulation X and regulation W,
so we finally got a compromise, the best we could get; those of us who
didn't want the Federal Reserve Board, succeeded in placing regulation X under the President, with permission, of course, to delegate
that to anybody he wanted to, but he is charged with it, and regulation
W was placed directly under Federal Reserve.
But you will find a little sentence in there that he can take it off
any time he wants to. That is the only thing we got in there.
Mr. MCCABE. Congressman Patman, maybe you would have done us
a favor if you had won.
Representative PATMAN. I am sure we would have.
The CHAIRMAN. Have you any further questions, Congressman ?
Representative PATMAN. N O ; that is all.
The CHAIRMAN. Without objection, a copy of a letter I have here,
dated October 6, 1950, from Mr. Glenn E. Hoover, of Mills College,
Oakland, Calif., to the National City Bank, New York City, will be
incorporated in the record at this point.



(The letter referred to follows:)

Oakland, Calif., October 6, 1950.

New York, N. Y.
DEAR SIRS: In your monthly letter (September 1950) you discussed the inflationary effects of Federal Reserve bank purchases of governmental securities.
Economists share your concern over present inflationary policies we are now
pursuing, but not all of us will follow the commercial bankers in supporting only
those antiinflationary measures which would make the banking business more
You apparently would curb inflation by having the Reserve banks restrict
their purchase of Government securities, or, in any event, have them support
the prices of such securities at lower levels. This would result in a general
rise in the interest rates which the Government—and all other borrowers—•
would have to pay. This is the anti-inflationary program generally supported by
commercial banks, but, despite its considerable merits, there are those who fear
that it is advanced as much in the interest of the commercial banks as in the
interest of our country.
You do not claim that higher interest rates would discourage governmental
borrowing. If, then, the Reserve banks are to hold less of the Government
debt, the commercial banks, presumably, will hold more of it, and at higher
rates of interest. Such a program would make the commercial banking business,
already an almost riskless one, even more profitable. As you know there are
many economists, as well as members of the Federal Reserve Board, who
would prefer anti-inflationary measures which would not result in profits for
commercial banks for which we can find no justification whatever.
As you very rightly observed, Federal Reserve bank purchases of Government
securities in the open market "is just as inflationary as direct lending by the
Federal Reserve to the Treasury." You could have expressed the same idea by
saying that direct lending by Federal Reserve banks to the Treasury is no more
inflationary than open-market purchases by these banks. Perhaps you share the
notion that the possibility of making such direct loans should not be openly
discussed for fear that the public, including possibly some Congressmen, might
learn of the way in which the Treasury could obtain funds without paying
millions in interest each year to the commercial banks of our country.
You will have noted that when so respectable an authority as Dr. E. A. Goldenweiser, former Director of Research and Statistics of the Board of Governors of
the Federal Reserve System, discussed this possibility of direct loans from the
System to the Treasury (the Wall Street Journal, August 8, 1950), his proposals
were condemned by Prof. Walter Spahr in Monetary Notes (September 1) as
nothing but "John Lawism brought down to date." If there are economists who
lose their temper and their professorial manners when direct lending of the
System to the Treasury is suggested, the reaction of the commercial bankers
can only be imagined, for they might lose as much as a billion dollars a year in
interest if the Treasury borrowed only from the Reserve banks.
You will understand, I am sure, that I am writing as a firm believer in the
free-enterprise system. I do not want the Government to own or operate our
banks, or any other segment of our economy, unless private operation proves
quite feasible. In my classes I have always defended the ethical claim of the
lender to interest on loans whenever the granting of the loan involved some
sacrifice by the lender. However, candor compels me to say that I cannot see
what sacrifice is made by commercial banks which are permitted to "create" the
money they lend to the Treasury.
The motion that commercial banks "create'' money cannot be dismissed as
merely a professorial aberration. Permit me to quote from The Economics of the
Money Supply, issued in 1948 by the Chamber of Commerce of the United States:
"So long as banks are able to make loans on fractional reserves, they will be
able to create money; and this is, today, one of their most important functions"
(P. 8).
"It has already been seen that a commercial bank does not merely receive
funds from one person and lend those same funds to another; the making of
loans creates new money, new deposits, based on fractional reserves. It is the
loan which creates the deposits. It is the loan which expands the money supply"
.(p. 10).



I should like to conclude by asking three questions:
1. Do you believe that if the Treasury were compelled to a pay higher interest
rates, that governmental borrowing would be appreciably curtailed?
2. How can I justify to my students the payment by our Government in recent
years, of billions of dollars of interest to commercial banks, if the needed funds
could have been ''created" and loaned by the Reserve banks free of interest, or,
if interest were charged, it would revert to the Treasury as part of the earnings
which the nonprofit Reserve banks return to the Government?
3. If the commercial banks were deprived of the opportunity to earn interest
on Government securities, could they continue to operate? If not, would a
direct subsidy be preferable to allowing them to earn interest on money which
they first "create"?
This letter is sent in the belief that nothing is more important for the development of sound economic policies in the United States than a closer agreement
between bankers and economists on the major issues of our time.
Sincerely yours,

The CHAIRMAN. Mr. McCabe, we want to thank you for your statement.
Mr. MCCABE. Thank you, Mr. Chairman. I have some material
here that might be of interest if placed in the record.
The CHAIRMAN. Without objection, it will be inserted in the record.
(The material referred to follows:)

(Address by M. S. Szymczak, member, Board of Governors of the Federal
Reserve System, before the one hundred and eighty-second annual dinner of the
Chamber of Commerce of the State of New York, Waldorf-Astoria Hotel, New
York City, November 16,1950.)
I can only report on certain phases of this battle. As I see it, any report on
our battle at home against inflation should begin with a broad consideration of
its background. We know that international tensions have mounted steadily
over the past 3 years. The Korean War is only the most recent of a series of
crises. Korea, however, established the intention of the United States to support
United Nations policy with force. It also brought to light inadequacies in our
defense establishment in relation to our .diplomatic and moral commitments to
the free world. As a result, we are now greatly expanding our defensive power.
The international situation continues tense. Potential trouble spots are scattered throughout the world. In these circumstances, we must maintan a vigorous
and integrated foreign policy consistent with the aims of the United Nations.
This means for an indefinite time a much larger defense establishment than we
have ever known in peacetime to meet our international commitments and to
secure our own defense.
We do not know, at this time, how much an adequate defense program may
ultimately cost. Nevertheless, actions already taken clearly indicate that present and forthcoming programs will exert a heavy strain on our economy and
that we must gear our economic policy to the new situation. The President has
stated that the size of the Armed Forces will double from the pre-Korean level of
1.5 million to 3 million men. Congress has appropriated an additional $17,000,000,000 for defense, military aid abroad, and an expanded stockpiling program.
In men and dollars, this more than doubles the pre-Korean defense program, and
indications are that further supplements may be needed.
The new sitution has serious implications for economic stability. Great
pressures are placed on our capacity to produce and our price structure is put
under severe strain.

Even before Korea, business and consumer demands were very high. Output
of goods and services was at record levels both in terms of physical volume and
expenditures. Unemployment was relatively low. In many key industries, output was at or close to capacity and further output depended on new additions to
plant and equipment.
Now a greatly expanded defense program has been superimposed upon these
large civilian demands. As the defense program accelerates total output will also



rise with the increase in capacity, productivity, the length of the work week,
and employment. Total production, in fact, may expand by as much as 8 or 9
percent over the next year, but it is not likely to rise as rapidly as the takings of
the defense program. While total supplies of commodities and services available to civilians may show little change, or even increase somewhat, over the
coming 12 months, in some areas, especially metal-using industries and residential construction, supplies may be sharply curtailed.
The attainment of such an increase in over-all production would exert severe
strains upon our available supply of labor as well as on industrial capacity and
supplies of scarce materials. It would seem conservative to estimate manpower
requirements for defense production and the Armed Forces at 8,000,000'persons
by the end of 1951, or about one-eighth of the labor force of 65,000,000. This
allows for 5,000,000 workers in defense activities, about 3,000^000 more than at
present, and an increase in the armed services to a total of 3,000,000 men. Since
unemployment is now at low levels, the additional workers will have to come
mainly from a greater than normal expansion in the labor force and transfers
in employment from civilian to defense activities. If in the next year the labor
force increases by 1,500,000 instead of the normal 600,00, it would still be necessary to shift some or two or three million workers away from production of
civilian goods. In addition, it is likely that the work week will also have to
be increased further.
As long as we are obliged to maintain a garrison economy, the volume of goods
and services available to civilians will be limited by the size of defense programs
relative to our ability to increase production. Much of our national strength in
the past has arisen out of our capacity to expand our production and at progressively lower cost per unit in terms of man hours employed. This has been
the result of rapid technological progress, intensive use of capital equipment,
unique managerial genius, and a trained and intelligent labor force. The survival of our democratic way of life depends in no small measure on our ability
to maintain and possibly improve our past record in this area. This means
that technological research must continue to have a high priority. Modern war
is a war of technology as well as of men.
Increased production, however, will not be enough by itself to avert inflationary dangers as defense programs expand. The nature of the problem may
be indicated by illustrative figures. Let's say that total gross national product
in terms of third quarter 1950 prices might be increased by $25,000,000,000, or
almost 9 percent from the third quarter of 1950 to the third quarter of 1951.
But if, for example, defense takings account for $20,000,000,000 of the total
increase, then only $5,000,000,000 would be left for additional private civilian
and regular Government expenditures. Meanwhile, private incomes before taxes
would be increased by $25,000,000,000. These rising incomes, unless drained off
by a pay-as-we-go fiscal policy, will result in rising demands which cannot be
satisfied and which will exert strong pressure on prices. Unless restrained,
price advances under such circumstances will breed further price increases in
an inflationary spiral.
The inflationary potential is further aggravated by the fact that both businessmen and consumers can increase their expenditures by reducing holdings of
liquid assets and by making use of credit. These demands are in addition to
those arising out of incomes earned through current production. Furthermore,
as prices rise, incentives become stronger for shifting out of cash or its equivalent into real assets, that is, people buy goods and invest, and demand for credit
becomes more urgent.
Rising prices raise material costs and stimulate wage increases. With high
employment, tightening pressures upon manpower supplies, rising living costs,
and expanding profits, workers are in a position to ask for higher wages. At
the same time, employers must bid actively for labor by offering extra inducements to workers. Advancing profits tend to lower resistance to wage increases.
With demand strong, business is able to raise selling prices to cover additional
expenses. Thus, higher prices lead to higher wages, incomes, costs, and expenditures, and to higher prices again.
Developments in the third quarter of 1950 illustrated the nature of the inflation process. Defense expenditures rose only very moderately. Nevertheless,
prices, incomes, and expenditures advanced very sharply. Incentives for accumulating inventory were very strong. Business revised sharply upward its plans
for, investment in plant and equipment. Consumers engaged in a buying spree
of commodities which might eventually be in short supply. Consumer holdings



of liquid assets were reduced and bank credit, reflecting especially loans to
business and to individual buyers of consumer durable goods a n d houses, expanded a t record rates. These developments were based primarily on changed
expectations. A higher price, cost, wage, income, and credit structure w a s built
into t h e economy even before the real pressures of the defense program on our
available resources were felt.

W h a t is the economic situation in prospect? I t is not one of all-out w a r f a r e
expected to last for a limited period of time. R a t h e r , w h a t we may face is a
condition of Government expenditures which a r e expected to be high but below
w a r t i m e levels for a number of years in the future.
I n such a situation, direct controls like price and wage controls and rationing a r e both less necessary and less workable t h a n in a period of all-out w a r f a r e .
On t h e other hand, sopping u p t h e excess purchasing power through t a x e s a n d
monetary measures is much more feasible t h a n under conditions of all-out warfare. Certainly as long as consumer durable goods a r e available in a n y t h i n g
like the volume we can still expect, the task of allocating them among us would
be exceedingly difficult. F u r t h e r m o r e , the longer direct controls are continued,
t h e more difficult their administration becomes and the more likely it is t h a t
controlled prices will develop serious economic distortions as conditions of production change in the different industries.
Steps have to be taken, of course, to conserve a n d allocate certain strategic
m a t e r i a l s which are in scarce supply. B u t a h a r n e s s of direct controls, including controls a t the retail level, should be accepted only if needed as a last resort.
I n a n y case, even if direct controls should be adopted, it will be necessary cons t a n t l y to mop u p excessive funds so t h a t the controls themselves will not
become a sham while inflationary processes find their real expression in black
m a r k e t s and concealed transactions.
To say t h a t we face an extended period of more or less chronic inflationary
pressures does not mean t h a t we face a period of progressive deterioration in the
purchasing power of the dollar. It does mean t h a t fighting inflationary dangers
will be our continuing problem. I t doesn't mean t h a t we need to lose t h a t fight.
B u t fighting inflation cannot be painless. If we a r e to do it successfully, with
or without a comprehensive h a r n e s s of direct controls, we must accept the financial measures which a r e necessary to do t h e job.
I t should be recognized t h a t t h e prospect of an extended battle of fighting
inflationary trends does not imply t h a t business trends will follow a steady
u p w a r d course. A garrison economy will have many difficult problems of balance
in production, prices, and employment. Unbalanced conditions may develop
which can only be corrected by temporary setback of activity. A continuing
danger will be t h a t of speculative excesses, which from time to time could go
much too far. We could then even witness t h e spectacle of deflationary reversal
a t a time when underlying forces were on t h e whole inflationary. History of
inflationary periods is filled with examples of t h a t kind of economic development.

A dynamic economy requires enough money to permit a level of production which
is compatible with a high level of employment.
If, however, the amount of
money in the economy is far in excess of available supplies of civilian goods,
the saver may lose faith in the future purchasing power of his dollar. I t is
the t a s k of monetary policy to see t h a t the money supply is adequate for a fully
functioning economy but not so large as to cause inflation with all its misdirection
of h u m a n effort and other productive resources and its inequitable redistribution
of real income and real wealth.
In the long run, an expanding money supply is required by an expanding
economy with an increasing working population, increasing capital investment,
and increasing productivity per worker. Our banking system has done a splendid
job of supplying the financial resources to keep pace with our increased production.
B u t to keep the economy on an even keel from month to month and year to
year requires constant vigilance.
There a r e always incipient movements in
the.economy which, if allowed to develop, might result in run-away inflation or
deflation. W h a t e v e r the initial cause of such developments, actions by t h e Federal Reserve can serve a s an important offset. If a general price swing is caught
early, it may t a k e little to restore the economy to an even keel. I t is much
easier to check an inflationary or deflationary movement before it h a s become



cumulative and before one-sided anticipations of business and consumers have
begun to reinforce it.
It is just these incipient movements which monetary policy is best adapted
to attack. Monetary policy is flexible. It can be applied rapidly, it can be
applied gradually in experimental doses, and it can be easily reversed.

Monetary measures include actions that influence the availability and price
of funds to lending institutions and actions that directly define terms of lending—
such as down-payment and maturity requirements—in certain fields of credit.
The former measures affect primarily supply conditions for credit, the latter
mainly demand conditions.
: ,.
The availability and price of funds to lending institutions are influenced by
open-market operations, changes in the discount rate, and changes in reserve
requirements. These actions all have their major effect on bank reserve positions, although they may also immediately affect the lending ability of other
groups of lenders.
Even at the risk of appearing either too elementary or, on the other hand,
too technical, it seems appropriate to me, at this time, to define a little more
clearly what is meant by bank reserves and reserve requirements. The term
"reserves" may refer to any cash assets held by banks. For member banks of
the Federal Reserve System, however, it refers generally to the deposits of
commercial banks with the Federal Reserve banks. At the present time, country,
Reserve city, and central Reserve city banks are required to hold reserves equal
to 12, 18, and 22 percent, respectively, of their demand deposits and reserves of
5 percent of their time deposits. Thus member banks can now have demand
deposit liabilities equal to about six times their reserves. If there is a change
in either the amount of reserves or the percentage reserve requirements, then
the amount of deposits the reserves will support is changed. This will change
correspondingly the amount of credit that banks may extend, since, as you know,
when banks increase their credits they increase their deposits and when they
reduce their credits they reduce deposits.
Open market operations
Now let us consider the effect of open market operations, changes in discount
rate, and changes in reserve requirements on the reserve position of banks.
The Federal Reserve may at any time either purchase or sell United States
Government securities. If the Federal Reserve shows a willingness to purchase
Government securities at favorable prices and low yields, it encourages holders
to sell them in order to secure funds to lend on more favorable terms to private
horrowers. These funds thus find their way into the expenditure stream.
The sellers of securities to the Federal Reserve may or may not be commercial
banks. In any case, Federal Reserve purchases will supply banks with reserves
which, as I have indicated, may be the basis for multiple credit and deposit
expansion. Any seller will be paid with a check on a Federal Reserve bank.
If banks are themselves the sellers of securities, then they obtain reserves directly
as a result of the sales. On the other hand, if the sellers are nonbank investors—
say, insurance companies—they will deposit the proceeds in banks, since the
Federal Reserve banks do not hold deposits for the general public. Thus in
this case, too, banks will obtain increased reserve balances at the Federal Reserve.
In either case, banks will find themselves with reserves in excess of legal requirements and will be able to increase their loans and deposits. As the deposits
thus created are spent, other banks will find themselves with excess reserves.
For the banking system as a whole, the increased excess reserves may form the
basis for an increase of five or more times credit and deposit expansion.
It is easy to see, therefore, that if the Federal Reserve can avoid buying
securities in the market it puts a powerful brake on the further expansion of
bank credit. Moreover, if the System can sell securities from its portfolio it
may set the stage for multiple contraction of such credit. When the Federal
Reserve shows a willingness to sell Government securities at low prices and
high yields, it encourages purchasers to buy them. Bank reserves will be drawn
down either because the banks use them to purchase securities themselves or
hecause depositors write checks on the banks to pay for securities purchased
from the Federal Reserve. Unless banks as a group have started out with
excess reserves, the banking system must either decrease loans and deposits by
five or more times the decline in reserves or it must borrow reserve funds from




the Reserve banks. Banks do not like to be borrowers except for very temporary
periods, and so they make every effort promptly to adjust their affairs and to
liquidate such indebtedness. The readjustment may involve contraction, of
lending, sales of investments, or both types of action.
However, it is important to point out here that the Federal Reserve does not
carry on open-market operations only to bring about a net increase or decline
in bank reserves. It may act merely to offset the effect on bank reserves of
other developments, such as gold and currency movements. Furthermore, both
the type of securities which are purchased and sold, and to some degree the
extent of open-market operations, may be determined partly by conditions in
the Government security market.
Decisions to purchase or sell Treasury securities are made with primary
consideration to general economic conditions. But the Federal Reserve cannot
ignore conditions in the Government security market, and the vigor and scope of
open-market operations must always be tempered by the necessity for maintaining
an orderly, functioning market.
Discount rate
Changes in the Federal Reserve bank discount rates are the second measure
available to the Federal Reserve to influence availability and price of credit in
general. The discount rate is the rate at which the Federal Reserve banks
lend to member commercial banks. This measure is really a joint instrument
with open-market operations. This is because it is desirable to adjust discount
rates in accordance with the direction of open-market operations. If banks are
losing reserves as a result of open-market operations, it may not be desirable to
permit them to replace those serves by borrowing at the Federal Reserve banks, a t
least, not without an additional penalty by way of paying an increased discount
rate. This additional penalty is both a deterrent to member bank borowing and,
if borrowing is done, an incentive to repay the indebtedness at the earliest possible time. At the present time banks adjust reserves more frequently by purchasing and selling short-term Treasury securities than by borrowing from the
Federal Reserve and repaying such credit. However, the terms on which banks
can borrow from the Reserve banks may be important at certain times. Furthermore, changes in the discount rate are looked to as one evidence of the opinion of
the Federal Reserve regarding the general credit situation.
Reserve requirements
Changes in reserve requirements are a third means of influencing bank
reserve positions and thus the ability and willingness of banks to lend. Changes
in reserve requirements do not lend themselves to flexible adjustments as do open
market operations and discount rates. However, there are times when because of
large Treasury borrowing needs or other special circumstances in the market,
open-market operations and discount changes may not be feasible on a large
enough scale to bring about the desired change in bank reserve positions. Under
such circumstances, an increase or decrease of reserve requirements may be
appropriate. The Federal Reserve now has the power to vary requirements on
demand deposits between minimums of 7, 10, and 13 percent for country, Reserve
city, and central Reserve city member banks, respectively, and corresponding
maximums of 14, 20, and 26 percent. In the period August 1948 to June 1949
it had authority to raise them to maximums of 18, 24, and 30 percent.
If reserve requirements should be raised from an average of, say, 17 percent
to an average of 20 percent, each dollar of reserves would become the basis for
$5 rather than $6 of deposits. Unless the banks had excess reserves to begin
with, they would be forced to decrease their loans and deposits correspondingly
or to raise new reserve balances by selling securities. The fact that they need
to sell securities or borrow imposes a penalty on banks and acts as a deterrent.
Furthermore, each new dollar of reserves received would form the basis for a
smaller amount of deposit and credit expansion.
Selective credit measures
In certain fields of credit the Federal Reserve sets the terms of lending, and
as I said before, these terms directly affect the demand conditions for the affected
credit. ' These fields are stock-exchange credit, where margin requirements are
set; and consumer and real-estate credit, where, under emergency authority
down-payment percentages and repayment periods are regulated. These fields
lend themselves particularly to this type of regulation because terms of such
loans can be standardized. By an increase in margin and down-payment requirements and by a shortening of the period of repayments of real-estate and consumer



loans; some purchases are prevented. Those purchasers who are able to meet
the requirements are more likely to have to cut down on other expenditures to
make the larger payments both at the time of purchase and subsequently.
All of the actions of the Federal Reserve are taken under the authorization
of Congress, and the Federal Reserve endeavors to keep Congress informed on
the measures applied. In its annual report to Congress the Federal Reserve
summarizes the steps taken and the economic conditions giving rise to them.
Furthermore, the members of the Board, the officials of the Federal Reserve
banks, and the System's economic advisers are always ready to go before Congress to explain the actions taken and to express their views on the economic

I am not suggesting for a moment that monetary policy can operate independently of other policies, particularly tax and fiscal policy and debt-management
policy. For maximum effectiveness, monetary, fiscal, and debt-management
policies should work hand in hand.
The level of prices and of economic activity is greatly influenced by the relationship between Treasury receipts and expenditures—that is, by whether there
is a surplus or a deficit. Whether Treasury securities, both new and refunding
issues, are being sold to bank or to nonbank investors likewise has an important
effect on the economy. A cash surplus on the part of the Treasury can be a very
potent measure in combating inflation. This is particularly true if the excess
of taxes over current expenditures is used to retire bank-held debt and thus to
reduce the supply of money in the economy.
There are circumstances, of course, under which it is impossible for fiscal
policy to serve in the desired manner. For example high expenditures required
by a defense or war emergency may be responsible for an inflationary movement.
In such a situation it may be unrealistic to expect a Treasury cash surplus.
Even when fiscal and debt-management policies are fully appropriate to the
economic situation, however, monetary policy still has an important part to play
in maintaining economic stability. Monetary policy alone is especially designed
to influence the extent of private spending with borrowed funds. Furthermore,
the flexibility of monetary policy makes it a desirable part of any program for
achieving economic stability. It is possible for the Federal Reserve to act while
the means for increasing taxes and expenditures are being decided upon. It is
possible for the change to be in much smaller steps and to be reversed if conditions change. Although debt-management policy can be more flexible than taxation and expenditure policies, debt-management policy is limited by the structure of the debt outstanding as well as by a relatively narrow scope as compared
with monetary measures.

A number of important actions in the monetary and fiscal area have already
been taken to combat the present inflationary situation by curbing private expenditures. One of the most important has been the increase in individual
income taxes, by which some of the excessive purchasing power is being absorbed.
This tax increase is a proper beginning, but further increases will be necessary.
There is no reason under present circumstances why tax increases should not
keep pace with increases in expenditures so that a balanced budget will be obtained. Considerations of economic stability certainly demand that Government
receipts at least equal expenditures. With present income levels, we can and
we must cover by taxation the level of expenditures anticipated for the next
few years.
But even if we should have a balanced budget, monetary and credit measures
are not automatically eliminated. Some of the taxes will be paid with funds
which would otherwise have been saved rather than spent, while Government
expenditures will all find their way into the expenditure stream. Furthermore,
there will be increased private expenditures for plant expansion, which will swell
the total expenditure stream. These additions to expenditures must be offset
by monetary and credit measures. To the extent that the budget is not balanced,
however, monetary measures become much more important. Some steps have
already been taken in the application of monetary and credit restraints, and
others may prove necessary in the future.
With a view to limiting the availability to credit and affecting its cost, the
Federal Reserve banks increased their discount rate from iy2 to 1% percent in



August. As a result of the system's anti-inflationary open-market operations,
interest rates in the market rose, with yields on short- and intermediate-term
Government securities up generally about one-fourth of 1 percent since the middle
of August.
Steps also have been taken to control the granting of consumer and real-estate
credit directly by the establishment of minimum down payment requirements
and maximum terms to maturity under authority of the Defense Production Act
of 1950. Effective September 18, the Federal Reserve issued regulation W setting
minimum down payment and maximum maturity for consumer credit. As revised on October 16, it provides for minimum down payments of one-third on
automobile purchases, 25 percent on household appliances, and 15 percent on
furniture, and sets the maximum period for repayment generally at 15 months.
Effective October 12, the Federal Reserve issued regulation X defining the terms
of real-estate credit of private lenders. At the same time, the terms for Federal
Housing Administration and Veterans' Administration loans were tightened.
Minimum down payments now range from 5 percent on houses for veterans costing
under $5,000 to 50 percent on houses for nonveterans costing over $24,250. On
a $9,000 house, the minimum down payment is set at about 11 percent for veterans and 21 percent for nonveterans. The maximum time for repayment is
generally 20 years.
Over the period ahead fewer cars and other durable items and fewer new
homes can be built if our defense needs are to be met. Regulations on consumer
and real-estate credit are designed to bring demand for consumer durable goods
and housing into line with the necessary lower levels of production of civilian
goods. If these credit controls were not in effect, other devices would have to
be developed for accomplishing the same result or we would have spiraling
prices, crippled war production, and black or gray markets.
Monetary expansion also can be kept down by appropriate debt management
policy. At the present time the economic situation calls for sales of securities
tQ nonbank investors. Should new borrowing be needed under present circumstances, the funds should be obtained if possible outside the banking system.
As much refunding as possible should be done through sales to nonbank investors.
The offering of securities which are attractive to such investors as insurance
companies will decrease their willingness to make business and real-estate loans
and to purchase corporate and local government securities. At the same time,
it will decrease the necessity for the sale of Government securities to banks with
accompanying monetary expansion. A beginning has been made in this direction
through the opening up this fall of more series F and G savings bonds to institutional investors.

Steps taken to combat inflation are not painless for consumers. Taxes are
not painless. Neither are the restrictions on purchases involved in the regulation of credit. But taxes and credit measures are much more equitable than
inflation itself. They are also much more compatible with our free enterprise
economy than are price and wage controls and rationing. They leave a maximum
amount of freedom for market processes to operate. They stabilize the general
price level by influencing the total amount of expenditures. At the same time,
they leave prices of individual items free to fluctuate in accordance with changes
in demand and supply. Through the pricing mechanism, goods are still distributed to purchasers with the strongest demand and manpower and materials are
attracted to the production of goods for which demand is greatest in relation to
It is too early to judge the effects of the various indirect measures which have
been taken to combat inflation. If the steps which have been taken thus far
prove to be insufficient, then further measures must be taken promptly. It seems
clear that taxes will need to be increased substantially before many months.
Additional monetary and credit actions may also be needed and for this purpose
it may become necessary to request additional authority of Congress in order
to restrict the availability of reserves on which multiple expansion of bank
credit can be based. As the future unfolds we will know more fully what measures will be required to meet it and we must be prepared to obtain authority
for and to apply necessary measures. With resolute and timely action we can
win the battle against inflation and keep our economy free.



[From Fortune magazine, November 1950]

Some people may remember the typical United States automobile dealer of 20
years ago—a bluff and breezy, eager-to-please entrepreneur who stepped right
lively for his living and often had to talk fast and earnestly to the local banker
in order to tide over his accounts payable during the slack season. The same
fellow today, grown aloof and even furtive at the surge of supplicant customers,
sometimes finds it a strain merely to be civil. Now it is the banker who talks
fast and earnestly to him, if, indeed, the dealer himself is not the local bank's
big wheel.
For there is scarcely any secret about the fact—though specific figures are off
the record^-that dealers are reaping an undreamed-of harvest. If you rule out
the Texas Big Rich and a few other financial freaks who have made speculative
killings, you will go a long way before finding a class of legitimate businessmen
that has made so much money so easily as the automibile dealers of America in
recent years. The chart on profits runs from surprisingly good during the last
war, to fabulous for the postwar years 1947-49, to out-of-this-world for 1950 when
a combination of unprecedented production of new cars plus a wave of war-panic
buying last summer and fall resulted in another, totally unlooked-for bulge in
dealer earnings. There's no mystery about the source—the markup was designed
to compensate the dealer for used-car trading losses that he no longer has to
take; the consumer, not the manufacturer, is paying for this round.
From known factors it can be roughly estimated that the aggregate net earnings
of United States automobile dealers are now running beyond 1.5 billion dollars,
which would indicate that the average earnings per dealer hover somewhere
between.$40,000 and $50,000 per year. Since there are many marginal dealers
with poor territories and low factory allocations, at the other end of the scale
there are dealers who earn, with some consistency, as much as $50,000 per month,
and have indeed known a number of months when their net ran to $100,000 or
more. As a "small" independent business, a good automobile franchise is beyond
comparison with anything else in the retail field for value and opportunity. It
could be, indeed, too good for the ultimate health of the industry. In what other
enterprise, for example, could a man with a modicum of experience invest less
than $50,000 at the end of the war, earn back his outlay in the first year, and in
the four succeeding years pile up enough profits to turn in his chips and retire?
Many opportunists, to the anguish of Detroit sales managers, have done so. But
thousands more have remained loyal to the fountainhead, and some have expressed their gratitude in rather amusing ways.
Back in the fall of 1946 when the Ford Motor Co., in a smart public-relations
gesture, announced that its operations for the year, owing to reconversion costs,
had resulted in a loss of $50,000,000, one Ford dealer was so moved that he
promptly mailed a check for $11,000 to poor Henry Ford II, explaining, "This
represents one-half of my last month's profit, which was more than I had hoped
to earn for the entire year." Early in 1950, when Chrysler workers walked out
and John L. Lewis grandiosely offered to loan Walter Reuther's United Automobile Workers a million dollars to nourish the strike, a loyal Chrysler dealer
trumped him by offering the company his check for $10,000 as a gift and volunteered to collect a like amount from 9,999 other Chrysler dealers. Although
the offer was declined, Chrysler had no reason to doubt the dealers' sincerity,
nor, for sure, their capacity to deliver.

For that matter, the dealers are not above enjoying an occasional family joke
on the state of their fortunes. In June, 1949, several hundred General Motors
dealers foregathered at the Hotel Statler in Detroit for a testimonial dinner to
General Motors' Chairman Alfred P. Sloan, and Donaldston Brown, chairman of
the corporation's finance committee. These dealers were alumni of the Motors
holding division, which was organized early in 1930 by General Motors to supply
loans to needy dealers. All present, therefore, at some point in their careers had
either been bailed out or shored up by this special General Motors apparatus.
But they made a fine body of men on this June night in 1949, and as the toastmaster, a witty dealer from Dallas, looked out over the sea of stout and shining
faces he said, "Gentlemen, I realize it is not in good taste for an automobile
dealer to talk about profits today, but I can tell our honored guests very frankly



that for the first time in the history of the automobile business, dealers are afraid
that they might be kidnaped and held for ransom." The Statler rafters rocked.
Now it was fitting that the guest at this feast should be Alfred P. Sloan; and
not only Motors' holding alumni but all dealers of all companies should salaam
at the sound of his name. For to understand the reasons for the boundless
prosperity of dealers today, it is necessary to revert briefly to their wretched
estate of a quarter-century ago, and to the reforms then started by Mr. Sloan at
General Motors and ultimately adopted by all auto manufacturers.
In general, the dealer operated under a franchise which could not be canceled
without cause or notice by the company; he had no territorial rights or guaranties
to speak of, and his discounts on new cars ranged from 17 to 21 percent. Worst of
all, the manufacturers' production schedules were based not on careful market
analysis, as they are today, but on rough judgment or hunch. As many cars as
the hammer-happy factory elected to make, it shipped, and the dealers customarily took them for fear of losing the franchise. In order to sell such a volume of
new cars, the dealer frequently traded away his entire profit by granting exorbitant allowances on used cars.
Even in 1928, when General Motors enjoyed its greatest prewar year with a
production of nearly 2,000,000 units and profits of more than $276,000,000, General Motors dealers as a whole, for all their frenzied selling and swapping of
cars, banked comparatively little. And the year 1929 for them was less profitable.
Thus, the automobile dealers were already down and some of them nearly out
when the great depression settled on the United States. At the end of 1932,
General Motors dealers as a body (who were certainly doing at least as well as
the average) had nothing to fear but fear itself and the knowledge that in the
preceding 12 months they had lost a cool $27,000,000.
Alfred P. Sloan, believing that General Motors Corp., for all its production
prowess, would ultimately prove to be no better than its distribution system,
had for many years pounded away at this problem of dealer instability. In the
early twenties he conceived the idea of hiring the R. L. Polk Co. to furnish the
industry with monthly reports of new cars registrations, and later he instituted
the 10-day dealer report and a compulsory, uniform accounting system for dealers.
Once the industry was established on this elaborate "figure basis," the dealer's
situation gradually began to clarify and hence improve. Factory production
schedules could now be tied in more closely with actual sales trends, thus minimizing the danger of a sudden glut in dealers' stocks. Also, the new figures and
facts at hand enabled the manufacturer to use a litle science in the placement
of dealerships: instead of flooding a territory with franchises, and thereby encouraging dealers to tear each other apart competitively, dealerships were
deployed, in protected territories, on the basis of known market potentials.
In the deep desperation of the thirties, the manufacturers intensified their
efforts in this direction. Most of them had already followed General Motors*
lead in boosting the discount on new-car sales to 25 percent or more. Now Mr.
Sloan forged still further ahead in the way of financial adjustments and contractual reforms. He instituted the so-called 3-percent rule, by which the factory,
at the end of each model year, agreed to grant a rebate on all old-style cars—in
excess of 3 percent of his current annual purchases—that were left on the dealer's
hands. Provision was also made for adjusting the losses of dealers caught in the
middle of factory list-price reductions. The manufacturer, in short, was finally
volunteering to share with the dealer the penalties for mistakes in the manufacturer's judgment. Most important of all, perhaps, the manufacturer sat down
with the dealer in an effort to work out some answers to the treacherous usedcar problem.
In approaching this problem the manufacturer was guided by a tenet that was
universally held at the time, namely, that the automobile business had reached a
point of maturity, or, if you please, saturation, and that the market of the future
would be largely a replacement market. It was a contention that—who knows?—
may still prove out over the long run. But for the short run, and in the light of
an unforeseeable war, it was a major miscalculation from which the automobile
dealer has benefited mightily. For it followed from such a belief that the usedcar problem was a permanent affliction, and that the dealer would always lose
money—and not just a little but a lot—on his trade-ins. Dealers were taught, in
fact, not to haggle over allowances on used cars, nor to hoard them for speculation. They were counseled to pay the going price, unload them quickly, and build
their earnings by the increased sales of new cars. It was estimated that under
the liberalized, protective contract, the 25-percent discount on new cars, and the



40-percent allowance on parts and accessories, the dealer could stake quit a lacing
on the used-car trade and still make a reasonable over-all profit.
And so he could. Prewar, it was not uncommon for a dealer to expect that of
•every dollar of gross profit he made on sales, as much as three-quarters of it
would be written off as trading loss. But if he was any kind of manager and
had a service absorption (i. e., ratio of parts-and-service income to running expenses) of 70 percent or better, he could still enjoy a reasonable profit. Most
manufacturers felt that the average dealer, selling 100 new cars a year, plus a
proportionate volume in parts and service, could take such a trading loss and
still net 2y2 percent on sales, or to put it another way, earn 15 percent a year
on his investment over the cycle. On this basis, the dealers began to work their
way back to solvency and security. In 1936, for example, the General Motors
•dealer body, though somewhat smaller in numbers than in 1932, earned an estimated aggregate profit of $51,000,000, and many individual dealers made more
money in 1936 than they had in the great production years of 1928 and 1929.
But when the United States became embroiled in World War II, and the manufacturer of passenger automobiles ceased as of February 1,1942, the dealer again
hecame an object of sympathy and concern. It was expected that dealers would
-quit the business in droves, and in an effort to halt the disintegration, manufacturers were willing to promise the dealers the moon, postwar, if they would
stand by for the duration. General Motors, for example, besides offering to take
back for cash the heavy stocks of new cars their dealers were carrying in the
winter of 1942, pledged that dealers who remained in business would be allocated
<?ars, postwar, on a scale proportionate to their prewar sales, and also assured
them that, come peacetime-, General Motors would refrain for at least 2 years
from appointing new dealers other than replacements.
What actually happened, after the panic subsided, was that dealers buckled
down to a profitable wartime business. They found that their stocks of used cars,
with which they had become well loaded in the fall of 1941, could be sold for a
neat profit, while those who held on to their new cars received an unexpected
bonanza when they began to sell them off to essential users—the OPA's escalator
clause permitted a rise in price of 1 percent for each month the car was held by
the dealer. But most important, the dealer, taking a new approach to the partsand-service end of the game, became a crack businessman, and not just a salesman
or horse trader. As his managerial ability developed, he found to his amazement
that there was a clean profit to be made in the automobile business even though
there was not a single new automobile to sell. Prewar, the dealer who could cover
as much as 80 percent of his running expenses and overhead from his parts-andservice profits was considered a top operator, but during the war the average Ford
dealer, for example, boosted his service absorption to 141 percent. At war's end,
consequently, the dealers were at a peak of efficiency and financial strength.

Thus, in apparent innocence, was the stage set for the almost unconscionable
boom in the retail automobile business that began with the resumption of car
manufacturing in 1946 and has continued ever since. How, indeed, could the
dealer miss? Take the 100-a-year car dealer noted above who was geared to
making a reasonable net in the thirties even though his trading losses ran to 75
cents or more out of each dollar of gross profit. Under the new economics that
75-cent loss was automatically transferred into profit, and the dealer proceeded
from that new level to take the going profit on the resale of the used car. In
1946 this profit started as high as 27 percent—more than the profit the dealer
could legitimately take on his new car—and averaged out for the year at around
20 percent. In 1947 and 1948, better than 15 percent was realized on used-car
trades; in 1949, 1 or 2 percent. In early 1950 the dealer was resigned to losing
a few dollars on the deal. Then the Korean crisis reversed the trend and shot
this profit up to 10 percent in the summer months.
So it can be readily seen that the "average" dealer, who netted 2 ^ percent on
sales prewar, made a lot closer to 15 percent in 1946 and 1947, and even now, when
he's approximately breaking even on used-car trades, is good for 6 or 7 percent a
year on sales. But that's only part of the story, because, of course, he's selling
nearly twice as many cars per year as he did prewar. For the manufacturers
have kept their promise. Despite an increase in unit production of more than
50 percent over 1941, the number of dealers has remained approximately the same.
The manufacturer, for that matter, does not appear to be concerned, as yet,
about the spectacular earnings of his dealers. Having finally devised a system of



distribution that would give the dealer safe conduct over the cycle, he is not of
a mind to tamper with it during this abnormal or "transitory phase," as he regards
it, when the dealer is making so much money he can hardly roll over in bed.
As for the dealer himself, he is not without his doubts and apprehensions and
the assorted neuroses that often afflict the rich. Like the manufacturer, he believes that he is going through a transitory phase that is too good to last. Since
1949 he has been haunted by the approach of the buyers' market, and at the
Atlantic City convention of the National Automobile Dealers Association in
January 1950, the members angrily called on the manufacturers to curb their
patent overproduction; some said cars would be running out of the showrooms
and into the alleys by spring. But the manufacturers went on to make 25 percent
more cars than in 1949, and the dealers enjoyed the greatest year in history.
In the early fall of 1950 all alleys, and a good many showrooms, were clean.
Perhaps the dealer has been oversold on the hazards of his profession by the
exaggerated exhortations of the factory sales managers and fieldmen who have
had nothing better to do, during the long-drawn-out bull market in automobiles,
than pump up an artificial sense of urgency about the need for harder selling,
better bookkeeping, closer attention to service, etc. The sales manager knows, of
course, that after nine noncompetitive years the dealer has grown a little soft,
and the only way he can be galvanized is to threaten him with the horrors of an
imminent buyers' market.
Buyers' market or no, it shouldn't be too tough for dealers in the immediate
future. Even the threat of total war, or the curtailment of production in the
course of preparing for war, should not work any disproportionate hardship on
If the automobile market should, from natural causes, slip as much as 25 percent in 1951, where would this leave the dealer? It would put him, approximately,
in his 1949 position—hardly a cause for tears. If, on the other hand, automobile
production were cut back 25 percent by order of the new National Production
Authority, it might well result in a substantial rise in dealer profits. For if
production in 1951 is forced back to 1949 levels and demand continues at the 1950
pitch, the automobile dealer would be right back in the 1947^8 groove, taking a
$300-to-$400 profit on each used car, and a full discount on new cars. All of
which means that he would make as much money on 5 cars as he now makes on 20.
But he would still have a lot of cars to sell—remember that 1949 production was
in excess of 5,000,000 passenger automobiles—and it is probable that his profits
would exceed anything ever experienced, including 1950.


In the fall of 1950, Detroit automobile manufacturers, who are as well versed
in the problems and plans of war production as any group of industrialists in
the United States, did not know the dimensions or the timetable of the United
States rearmament program. Short of all-out war, however, they could envision
no call to pull the switch on automobile assembly lines. Of course, production
might be curtailed to release not capacity but manpower and materials, though
the car makers earnestly hope that Washington will not be hasty with such
orders and heave people out of work before the long process of firming blueprints
and setting up assembly lines for war orders is completed. Considering the
10,000,000 units per year rate at which the automobile industry is now roaring,
a 25 percent cutback, either a decline in demand or by flat, would release
sufficient steel for a terrific amount of ordnance—more, no doubt, than the Pentagon is prepared to place firm and specific orders for until many months have
The automobile industry is very much alive at present, therefore, and with its
customary advanced planning, is scheduled for high output throughout the first
6 months of 1951. If this gives the dealer the jitters, he should reflect, for a
moment, on the odds involved. If the manufacturer has been overoptimistic, the
dealer, of course, can expect to take something of a trimming. But the manufacturer, it must be remembered, can cut back production almost overnight, whereas
if he is caught with an nsufficiency of cars it will take him months to marshal
the labor, materials, and parts to increase output. An overproduction of 15,000
cars would mean, in the reverse, a shortage of 50,000 cars. Any good crapshooter
w^ould know what to do in a case like that.
Finally, if all-out war comes, and automobile production is stopped forthwith,
there should be no disposition on the part of the dealer, this time, to take to the
hills. What he did before he can do again, and he would face this emergency



with triple the financial strength, and 10 times the know-how, that he brought to
the problem in 1942.
Is it time, perhaps, for the automobile manufacturer to take another look at his
distribution system ? In the early days, when the industry encountered a chronic
sellers' market such as we have today, the manufacturer did not hesitate to
readjust the system radically. It will be recalled that automobiles were first
marketed in the United States through large distributorships, and people still
talk about the legendary fortunes made by men like C. S. Howard (who raced the
great Seabiscuit), Inglis Uppercu, the New York sportsman, and Earl C. Anthony,
whose Packard agency controlled all California. When these distributors in the
early twenties began to make vastly larger profits than the manufacturers themselves, the manufacturers broke up the deal, became their own wholesalers, and
turned to marketing their cars through independent dealers almost exclusively.
The parallel with the current situation is rather intriguing: for all the astonishing profits General Motors Corp. is rolling up today, it's a good bet that the
aggregate profits of General Motors dealers are topping them.
When the economy reversed itself in the thirties, and dealers were beingsqueezed to death in a buyers' market, Mr. Sloan's farsighted reforms undoubtedly saved the day. It was a brilliant accomplishment, and the formula was
expertly tailored to conditions then existing and to the future as well, if the
cyclical character of the business persisted as everyone thought it would. Right
now, however, it is out of joint. Dealers are making more than they deserve,
consumers are paying too much for their automobiles, and who can say that
the end is in sight? Judging from the generous 5-year contract that GM just
signed with its factory workers, it would scarcely seem that the manufacturers
are selling the United States economy short. Why is not the same confidence
extended to the durability of the dealer's prosperity?
It is certainly not suggested that they should proceed to tear down the wonderful house that Mr. Sloan, and others of his stature, built. Merely to cut the
dealer to size would, apart from satisfying the sadistic have-nots, solve nothing,
unless it accomplished either a reduction in price to the consumer, or an improvement in service, or both. Considering the character of the market up to now, it
is hardly likely that an increase in the dealer body would serve either of these
purposes. The problem has been a shortage of cars, not dealers, and the fact
that the capital investment of dealers is now three times what it was in 1941
is perhaps proof that facilities are adequate.
The short answer would seem to be a reduction in the discount, provided it
was directly passed on to the consumer. But the automobile manufacturer likes
to think that the does not really "fix" prices, but that the prices of automobiles
automatically adjust themselves to proper economic leevls through the variables
in allowances on used cars. It is a perfectly sound theory, and nothing can be
said against it except that in practice it has been inoperative for the past 9
years. And as far as many dealers are concerned, it will never be operative
again, if they can help it. There have been some fundamental changes not only
in the size of the market but in distribution practices, including the growth and
influence of used-car dealers who have provided new and rapid outlets for the
disposal of used cars. Franchised dealers do not desire and may not be required
to return to the old trading routine.
If this is the prospect, it would seem to call for a reappraisal of the discount,
not only in the interests of the manufacturer and consumer, but in the long-run
interests of the dealer himself. He is indeed a useful American and almost the
last independent merchant on Main Street, and it would be a shame if the zest
went out of his life and work. Last August, for instance, when the Korean conflict started the motor merry-go-round all over again, a harassed and disconsolate
Oldsmobile dealer turned his key in the door. "I'm going away," he said. "I
don't want to see any customers. I've sold enough cars." After all, it's only


Used-car prices in selected cities, 1949 models


June 18

. _ . Chevrolet




_ ChevroletFord.

_._ .










August 13

Dec. 3







DECEMBER 11, 1950.

From: Detroit.
To: Heath.
Advertised cash prices on cars as follows:
May 14

Aug. 13

August 20

November 19 December 10

Num- Price Num- Price Num- Price Num- Price Num- Price
Chevrolet sedans
Ford sedans
Plymouth sedans











No differentiation made in ads of two- or four-door or ordinary or de luxe
models. All cars 1948 models.
Three big Chevrolet dealers show 1948 Stylemaster, May and August, 1,100;
December, 847; Fleetmaster, May and August, 1,261; December, 898. Plymouth
sedans, August 13, 1,071.
Dealer comment indicates high average in December previously reported caused
by padding both ends of deal to make down payment.
Average terms prior to regulation W; 25 percent down payment; 21 months

The CHAIRMAN. The hearing is recessed until Monday at 10: 30 a. m.,
in this room.
(Whereupon, at 4:15 p . m., the hearing was recessed until 10:30
a. m., Monday, December 11,1950.)

MONDAY, DECEMBEK 1 1 , 1 9 5 0

Washington, D. C.
The committee met at 10: 45 a. m., pursuant to recess, in room G-16,
the Capitol, Representative Paul Brown (vice chairman) presiding.
Present: Senator Capehart and Representatives Brown and Patman.
Representative BROWN. The committee will come to order. Our
first witness is Mr. F r a n k Cain.
Mr. CAIN. Mr. Chairman, my name is Frank Cain, general counsel
of the National Used Car Dealers Association.
Representative BROWN. Will you pardon me just a moment. Mr.
Patman desired to be here. He had to go to the hospital, but thinks
he will be here by 10: 45. You may proceed.
Mr. C A I N . Thank you, sir. We would like to put this case on. I
have here Mr. Ray Hayward, president of the Nebraska Used Car
Dealers Association, and Mr. Walter Wilson, who is president of
the National Used Car Dealers Association.
As you know, we were scheduled originally to testify Friday. Time
would not avail us of that opportunity. We had at that time some
fifty-some-odd dealers here in the Capitol, representing all the areas
in the United States. They brought very short speeches with them.
I would like to introduce some of them at this time into evidence.
They are as follows: A statement by Mr. S. A. Terrell, general
counsel for the Ohio State Used Car Dealers Association, and of
the Cleveland, Ohio, Used Car Dealers Association; also the testimony, together with a sampling survey of the Chicago Used Car
Dealers Association; and a statement by Mr. Sol Steelman, president
of the Greater Chicago Used Car Dealers Association, all of which
we present for the record.
Representative BROWN. They may be inserted into the record.
(The statements referred to are as follows:)

T h e Cleveland used-car dealers consider it their patriotic duty to acquaint
t h e i r Government w i t h evidence gathered in their community indicating t h e
adverse effects of consumer credit control, known as regulation W.




We believe our evidence will show that if the purpose of the regulation is
to halt inflation by preventing installment purchases of nonessentials and
further conserve necessary materials and metals, such regulation has failed.
On the other hand we believe that our evidence will indicate that if the
purpose of the regulation is to discriminate wrongfully against one segment
of American business—the used-car industry, then the regulation has succeeded.
If its further purpose is to confiscate the property of the used-car dealer,
to prevent the ordinary citizen who most needs it from having cheap, proper,
rapid, and adequate transportation, and to divert funds from purchases of
necessaries to purchases of luxuries, then the regulation has succeeded.
We say that the practical effect of regulation W as to used automobiles is
detrimental to its own purpose and therefore must be altered.
For evidence we submit the following:
1. The Cuyahoga County clerk's office has issued the following number of
used passenger car certificates of title from July through November 1950:
Number I


6, 806 October
4, 881
6,246 November
5,197 I
For the period from July 1,1950, to September 18, 1950, prior to regulation W
the Cuyahoga County clerk's office indicates 16,170 used-automobile titles issued.
From September 18, 1950, through November 30, 1950, when the first effects of
the regulation and its subsequent further restriction became evident, the clerk's
office shows 10,986 used vehicles transferred or a drop of 5,184 cars, a per centage
decrease of 32 percent, unadjusted for seasonal variations. This means that one
out of every three persons could not afford to purchase a used motor car after
the advent of regulation W.
2. A survey of Cleveland used-car dealers indicates the severe loss of business
following the regulation. For analysis purposes the volume of business of four
Cleveland dealers, representative of the group, have been used. These are:
State Auto Sales, Inc.; Finance Auto Sales Co.; Ohio Auto Sales, Inc.; and
Main Street Motors, Inc.
Their combined figures indicate that from July 1, 1950, to September 18,
1950, 1,831 used vehicles were sold. In an approximately equal period from
September 18, 1950, through November 30, 1950, following regulation W, they
transferred 972 cars, a decrease in business of 47 percent. Where these concerns
were selling in the aggregate 23 vehicles per day, they now are reduced to 13
vehicles per day.
3. Cleveland firms financing the sale and purchase of used automobile report
losses in volume varying from 11 to 30 percent subsequent to regulation W.
Regulation W undoubtedly intended and anticipated the decided reduction
in the sale and purchase of used transportation vehicles, which though confined
to a local community, undoubtedly reflects a national situation. But the proponents of the regulation could not have anticipated the disastrous impact upon
the used-car dealer and the segment of our population who constitute the
purchasers and consumers of used automobiles.
The used-car dealer, by virtue of the regulation, finds himself deprived of a
market for his merchandise and, as a result, has suffered a serious loss of
income and reduction in the market value of his inventory. His costs of
operation remain constant and are not affected by the volume of his business.
His rent, salaries, maintenance, and depreciation continue unaffected by Government regulations of his means of producing income. Inventories costing the
used-car dealer $100,000 prior to September 18, 1950, are now worth $70,000.
The Government has thus deprived the used-car dealer of his income, his market,
and the value of his inventory without compensation or remedy. Normally,
when this Government deprives its citizens of their property rights it makes
provision for repayment of property losses either directly, or by grants of
subsidy. Through regulation W, the Government has taken property from
the used-car dealers and has failed to compensate them. The used-car dealers
of Cleveland submit that this action constitutes confiscation of property, is
discriminatory, and arbitrary.
The great bulk of our population require cheap, safe, adequate, and rapid
transportation to their places of employment as well as to shopping centers for
purchases of necessities and for such recreational and social activities as are



necessary to a well-balanced economy. An analysis made by the used-car
dealers of Cleveland indicates that the average purchaser has an income of
approximately $300 per month. This modest income removes him from the newcar market, leaving him only the alternative of purchasing a used car or
employing public transportation. Public transportation in our major cities
is already vastly overburdened and understaffed, ill equipped to provide for the
needs of the community. This situation is especially true in times of national
emergencies. The average citizen is thus unable to buy new transportation and
must suffer the inconvenience and waste of time of public transportation unless
he is able to buy a used automobile.
It is not a function of Government to deprive this large mass of the American
community from adequate transportation, but it is the Government's obligation
to assist its citizens or not to impede them in their quest to procure necessary
The automobile, and particularly the used automobile, is no longer a luxury
but a necessity to the American community. The average man, under regulation W, has been priced out of the used-car market, thus leaving the purchase
of such durable goods to the upper income group. The Government is, therefore, discriminating against those persons who most need to be protected. xVs
a result, funds that would normally go into the purchase of such transportation are being diverted to the purchase of nonessential luxuries. Thus, contrary
to the purpose of the regulation, necessaries are being supplanted by luxuries,
Since regulation W precludes the average man from purchasing a new or late
model used automobile, his only recourse is to buy a much older and cheaper
vehicle. These older automobiles are generally unsafe, in poor condition, and
require constant repair.
The effect of the regulation, therefore, is to protract the lives of older vehicles
and maintain on our streets old, dangerous, and dilapidated autos. These
vehicles will require constant repair and thus will make great demands upon
our supplies of tires, parts, and accessories which are intended to be conserved. Thus the intent of the regulation will be frustrated.
The Government will note that the late model used auto is an item of
merchandise which is in existence. Its sale and distribution does not and
cannot affect the use of essential materials or manpower which must be devoted
to other purposes.

A realistic approach to consumer credit restrictions indicates that regulation
W as presently constituted does not operate, so far as the used-car dealers are
concerned, to conserve materials or manpower. It has had no real effect on
the inflationary tendencies of our economy, but has succeeded only in a seizure
of private property without compensation. It has unnecessarily decreased
the income and market of one class of our citizenry and has thus resulted in
discrimination beyond a reasonable necessity. In order to encourage compliance, the regulation should be altered or amended to provide at least a 24-month
period in which installment payments may be made, and a reduction in the
amount of the down payment required to a minimum of 25 percent.
The used-car dealers of the city of Cleveland, as well as other used-car dealers, have large investments in their community. They stand ready to comply
with all the laws and regulations of their Government, but strongly urge a
reconsideration of regulation W to the end that its discriminatory and confiscatory provisions will be ameliorated.

CHICAGO, I I I . , November 28, 1950.

Washington, D. C.
DEAR MR. MCCARTHY : Please be advised that I am sending you under separate
cover the results of a survey search which we took from the members of our
association regarding regulation W.
I sincerely hope that this information will be of some assistance to you in the
coming hearings, and I would greatly appreciate your returning this material
to me when you have finished with same.



How do things look? How do things look relevant to regulation W? I would
deeply appreciate your keeping me posted on developments so that I cam pass
the information on to my members.
Sincerely yours,

MILTON T. RAYNOR, General Counsel.

(The questionnaires referred to may be found in the files of the

Gentlemen of the committee, my name is Sol Steelman. I am president of the
Greater Chicago Used Car Dealers Association and I am here representing the
used-car industry in the Greater Chicago area.
We preface the remarks contained in this presentation with the statement that
we have taken into full cognizance the grave crisis in which our great country
now finds itself as well as the serious responsibility of each and every citizen
in dedicating himself to the preservation of those fundamental rights we prize
so highly.
We graciously acknowledge the tributes which have been here made to the
automotive industry for its vast contribution toward the last war effort. Lest
that effort be minimized in anyone's mind, let us remind you that during the
last struggle the manufacturers of automobiles completely converted their mass
production lines from motor vehicles to the instruments of war, and not a single
motor vehicle was produced in this country during the years of 1943, 1944, and
1945. As a consequence, the franchised new-car dealer completely converted his
operation to that of servicing automobiles, and, in some few instances, to the
buying and selling of used cars.
This virtually thrust the entire burden of civilian defense transportation onto
the shoulders of the used-car dealer—who accepted the challenge vigorously and
performed the task in an efficient and miraculous manner. We use the word
"miraculous" advisedly, since it was felt in many quarters that only through a
miracle could the job be accomplished. Yet it was done and done well.
As we all now know from past experience, the last war greatly accelerated
the decentralization of industry. Automobiles were needed by defense workers
to get to and from work, sometimes traveling 70 to 80 miles per day. This
required the availability of safe and economical transportation for the defense
laborer. Suffice to say, our war workers were kept rolling on wheels throughout
the conflagration and peak production was maintained.
This entire problem was further complicated and emphasized by the housing
shortage which existed during the last war, and still exists. This caused the
laborer, in many instances, to live far from his place of employment despite the
fact that the plant in which he worked may have been located in the heart of
industrial areas in our major cities.
The magnitude of our job was further increased by the problem of relocating
vast numbers of vehicles from certain areas to new territories where they were
in desperate need. Localities which were extremely small in population suddenly sprang into densely populated areas because of the introduction of tremendous defense production within its confines. There were inadequate stockpiles or inventories of motor vehicles in that surrounding locality. It therefore
became imperative to move large inventories of automobiles from established
markets to these newly created markets—a matter which was vital to production
and which had to be done quickly and efficiently. Again the job was accomplished.
We, the used-car industry, stand ready to vigorously accept this new challenge,
and we once again assure our Nation that civilian defense transportation will
be handled even more expeditiously and efficiently than in the last war, since
we now have the benefits of considerable experience to add to our reservoir of
ability, sincerity, and energy. The above is said with the full knowledge that
the demands of the present crisis will far exceed those which were in existence
throughout World War II.
However, the willingness of our industry to assume its full share of the burdens
which a wartime economy impose upon it does not necessarily carry with it the
corollary that we should be willing to assume unjustifiable burdens dreamed up by
economists using fallacious and unrealistic theories as a foundation for their



imposition. Regulation W, and the amendment thereto, allegedly, or were intended, to perform two purposes and functions, namely: (1) free labor and materials for defense, and (2) cheek inflation. It accomplished neither with relationship to our industry.
Since we are concerned only with used automobiles, the matter of labor and materials is not involved. Our product has been produced, and is already in being.
As to the second point, relevant to inflation, we were faced with the problem
of a rapid deflation, a declining market which started in the month of August
1950. This fact is not disputable. All of the statistics bear this out. The
promulgation of regulation W on September 18 merely accelerated this deflationary trend. The spiral was working in reverse, and continued throughout the
period from September 18 to October 13.
Despite this economic fact, the Federal Reserve Board announced amendment
I, to become effective on the 16th, further restricting maturities on installment
contracts to 15 months. The Defense Production Act of 1950 never intended that
governmental instrumentalities be used to either precipitate or perpetuate a
deflationary condition in any one industry. Yet, this was done.
As part of this deflationary trend, not only were the prices of automobiles
on used car lots rapidly declining, but correspondingly, the moderate wage earner
was undergoing the same experience. Were it not for regulation W, the value of
his car, represented in dollars and cents, would have leveled off and remained
constant, subject to normal depreciation, thereby preserving the value of the
most important piece of property the worker usually owns. To the worker, his
savings, accumulated through years of toil, had been translated into a motor
vehicle. When the Federal Reserve Board swung its ax against the automobile
industry, it chopped off over 20 percent from the savings accounts of the laborer.
We admit the action was not as direct as stated above, but the results were the
same. The Federal Reserve Board would never dare issue an order confiscating
20 percent of the savings accounts of the lower income bracket wage earners for
fear the small man would rise as a unit to destroy the scythe which was arbitrarily
and discriminatorily cutting him down. Yet, surreptitiously and by indirection
the same thing was done. The repercussions should have been the same, but
the public has been fooled by the subtleties used in invoking the present regulation W. Mr. Public will become aware only when he brings his car into a dealer
for sale or for trade-in purposes—then he will find out that part of his property
has been confiscated unbeknown to him, not only without due process of law, but
without his even being told that he was being so gloriously taken. Another interesting economic phenomenon is taking place because of the invoking of regulation W. Although our industry has been in a steady deflationary spiral for the
past 4 months, within the last 20 days prewar cars, those 1942 or older, many of
them unsafe and needing constant repairs and the replacement of parts because
of their vintage, parts which must be conserved for the war effort, have begun
to rise in price. Thus again the lower income bracket wage earner gets the short
end of the stick. The answer to this fact is clear: Despite regulation, we are still
a country operating under the fundamentals of free enterprise, and as a result
the laws of supply and demand still apply. The modest wage earner has been
virtually priced out of the automobile market. There is left available to him for
purchase only prewar cars. He can't afford anything better out of his wages
because of the short maturity period.
Consequently this whole segment of the consumer market has been limited
to the purchase of prewar automobiles, creating a vast new market for these
cars—a market which did not heretofore exist since it was spread over 1946,
1947, and 1948 automobiles as well. This concentrated demand on this prewar
type of car has caused the prices of those vehicles to rise, therefore doubly penalizing the small wage earner.
Firstly, the worker must now buy a prewar car whereas before the regulation
he could have purchased a later model car, which was safer and more economical
since it required less repairs and replacements. Secondly, he must pay more
for the prewar car than its normal value would dictate were it not for the
In closing we would like to point out that current statistics indicate that since
September 18, 1950, the date regulation W came into being, the savings accounts
of laborers, or of all of the people of the United States, have not appreciablyrisen. Similarly, the purchase of war bonds has not substantially increased.
Since regulation W has curtailed the spending power of the consumer for necessi-



ties, such as used cars, where is that money now going? Unfortunately, the intent of regulation W has been dissipated, since obviously the money is being
spent anyhow—only now it is going into the purchase of luxuries, over which
there are no credit controls. This is even worse than robbing Peter to pay Paul.
In this case, both Peter and Paul are being robbed simultaneously.
We sincerely request that this committee urge the elimination of credit controls in their entirety. However, if this committee is convinced that free enterprise must be sacrificed on the altar of war emergencies, then we urge a relaxation of the present harsh controls to the point that time-payment contracts have
a maturity of 24 months.

Mr. C A I N . I believe we can conserve time, and I know wTe are going
to attempt to answer all of the questions in direct testimony here, if
the committee would and does feel disposed to withhold their questions
until after both of us have testified—I will sum up after Mr. Wilson—
J think it will expedite the matter and at the same time keep the record
very clear. That is just our request.
At this time, I would like Mr. Walter Wilson, president of the
National Used Car Dealers Association, to present the technical side of
this picture of the sale of the used cars as affected by regulation W.
Representative BROWN. All right, Mr. Wilson; you may proceed.
Mr. WILSON. Thank you. Mr. Chairman, gentlemen of the committee, I am Walter Wilson, of Dallas, Tex., where I have been engaged
in the used-car business for many years.
My appearance here today is in my capacity as president of the
National Used Car Dealers Association, and I am authorized to speak
on behalf of the entire membership of that organization.
I should like to preface my remarks by extending assurance that
used-car dealers throughout the Nation are prepared to assume their
full share of the burdens, responsibilities, and sacrifices that all our
citizens must willingly bear in these critical times. We do feel, however, that the existing restrictive amendment No. 1 to regulation W, as
it affects the sale of used cars, does not accomplish the purpose for
which it was intended. On the contrary, we consider it discriminatory
in its application to our industry and it is deemed by us to be confiscatory insofar as the public is concerned.
The Federal Reserve Board has stated that the restrictions are
accomplishing their purpose because the rules have lessened demand
and, by virtue of that condition, have caused a reduction in the price
of used cars more in line with what the Board considers they should
be as related to new cars. Was it the intent of Congress that the purpose of regulation W should be to reduce the price of used cars? I f
that was the purpose of the regulation, then I submit that the Board
of Governors have changed their minds, because they announced originally that the purpose was to check inflation and to free labor and
material for the defense effort. We are not only in entire accord with
that laudable objective, but stand ready and willing, as responsible
used-car dealers and citizens, to make every sacrifice possible to attain
it. But let us observe whether or not that is or has been the case insofar
as justifying the imposition of more restrictive rules than those which
existed prior to the promulgation of amendment No. 1, when purchasers were given 21 months within which to pay off balances due.



There are approximately 34,000 used-car dealers operating in the
United States at this time—at least, there were that many prior to
October 16, 1950. W i t h a view of conducting an intelligent survey
of their experiences under regulation W, we selected 15,000 dealers to
whom we sent questionnaires in which the following questions were
asked :
Question No. 1: "What percentage of your sales are normally financed?" Replies showed that such type sales averaged 71.1 percent,
with over 38 percent placing the figure between 80 and 95 percent.
Question No. 2 : "Normally, what were your predominant terms of
finance before regulation W first became effective in September 1950?"
Responses showed that on 1949 and 1950 models the down payment
averaged 29.13 percent, with the balance extending over 24.7 months.
On 1946, 1947, and 1948 models the down payment averaged 29.87
percent with balances over 21.60 months.
On prewar models the down payment averaged 32.01 percent, with
balances over an average term of 14.11 months.
Question No. 3 : "What percentage of your customers indicated at
time of purchase that they used their car primarily for business, which
includes going to and from work?"
Replies indicated that the average here was 87.16 percent.
Question No. 4 : "What is the trend of used car prices in your area ?"
To this query the answers were that, since regulation W was imposed,
the average decrease as to models was as follows:
1950 models
1949 models
1948 models
1947 models
1946 models


23. 62
21. 03
19. 03

But they presented a different picture as to prewar models, with
over 30 percent indicating an average increase of 15.52 percent.
I would like to deviate slightly here and refer to a situation that we
know has developed since this test was made. You notice there that
prewar models went up 15.52 percent, while the others were going
I would like to refer to Mr. McCabe's speech at this point, where he
Good usable cars for performing a great portion of the daily travel of the
public continued to be available under regulation W on purchase terms of about
$25 a month, or less. These are the cars which are customarily bought and sold
by a large number of our working population who are looking for transportation
and not for the latest style gadgets.

I would like to point out that while the other cars were going down,
those fjrewar models, or $25 a month automobiles, were going up. I n
our opinion now, since we know that they have gone up much greater
than the 15 percent, these cars which Mr. McCabe referred to in his
speech there have advanced from two to three hundred dollars since
regulation W. Consequently, the amount of the down payment today
is almost as much as the total selling price of the car prior to regulation W.
Representative BROWN. NOW, what cars were those ? Prewar cars ?
Mr. WILSON. That is right. Well, I suppose. He didn't qualify.
H e was speaking of the automobiles that could be bought for $25 a




Senator CAPEHART. YOU say they went up in price. Why ?
Mr. WILSON. My answer to that would be that, of course, they didn't
come under regulation W ; and we have a certain class of buyers that
are limited to the amount they can pay so they are forced to buy whatever is available on those terms. Consequently, those prices, I guess,
are justified.
Senator CAPEHART. YOU say they are not under regulation W ?
Mr. WILSON. NO. The regulation—my understanding of it—
doesn't cover automobiles from 1942 models back; except the third
down payment does apply.
Senator CAPEHART. But the terms do not apply ?
Mr. WILSON. I think that is correct.
Senator CAPEHART. Doesn't regulation W cover the sale of all automobiles?
Mr. WILSON. YOU do not have to use the guidebook. We cover that
a little bit further down in here, where you may be forced to pay as
much as 50 percent down on some of those automobiles; but you can
finance two-thirds of the sale price of those 1941 models back, 1942.
Senator CAPEHART. I think you have a point there. Of course, Mr.
McCabe was trying to show that the lower-price cars, the used cars,
had gone down in price, I believe he said.
Mr. WILSON. I appreciate that.
Senator CAPEHART. NOW you say they have gone up. H e says that
that is the class of cars that are bought by the working people.
Mr. WILSON. T h a t is right.
Senator CAPEHART. NOW, he said they went down in price. You
say they went up in price.
Mr. WILSON. Well, I don't know that he said that that particular
classification of cars did go down.
Senator CAPEHART. But you say they have gone up in price.
Mr. WILSON. Correct.

Senator CAPEHART. NOW, as a result of regulation W, if that class of
car, which Governor McCabe, himself, admits are used by the great
majority of workingmen, have gone up in price, you might well have a
point. I want to know why did it go up, as a result of regulation W?
Mr. WILSON. I know our statistics and sampling show they did go
up. T h a t was the answer sent in. I know on the firing line, at our
used-car places, that these automobiles have gone up. I n fact, they
are much above, as I quoted a few minutes ago, the 15.52 percent now.
I think I covered that. The increase of demand and the fact t h a t
they were in the classification that more people could buy and pay for,
I think, would automatically give you the reason why they did
Senator CAPEHART. I n other words, they were at a price and on
monthly payments that more people could pay for them and, therefore, more people wanted to buy them. I s that the reason they
went up?
Mr. WILSON. That would be my impression of i t ; yes, sir.
Senator CAPEHART. I n other words, they couldn't make the high
monthly payments on new cars or better'class used cars, but they
could pay $25, $30, or $40 a month. That is the reason why they
went up.
Mr. WILSON. T h a t class buyer—I don't know how you want to put
that—but we have people that have always bought automobiles. Say,



their budget would only permit $25 or $35 a month. They couldn't
buy a new automobile unless they could get it for nothing down and
scattered out.
Senator CAPEHART. On a $450 car, he pays a third down; that leaves
$300 to be financed. On 15 months, that would be what, $25 a month?
There are more people with $25 a month than there are with $100 a
Mr. WILSON. My point there—I think you have caught the point
already, however—is not through any effort of the Board, I don't
mean to imply t h a t ; but through this situation, that those automobiles
could have been purchased prior to the regulation, the full purchase
price, for much less than they can now; so in some instances, the $25
a month they pay now would be in addition to what they would have
had to pay before that.
Senator CAPEHART. YOU said you sent a questionnaire to 15,000
people, 15,000 dealers. How many did you hear from?
Mr. WILSON. I don't know those statistics, how many we got back.
Mr. CAIN. About five or six hundred. I t was from a well-scattered
area, all over the whole area.
Mr. WILSON. A sampling test.
Senator CAPEHART. Pretty well scattered all over the United States ?
Mr. CAIN. All over, in every section.
Mr. WILSON. Any more questions ?
Representative BROWN. All right, you may proceed.
Mr. WILSON. Thank you.
I n question No. 5, dealers were asked to make a comparison in sales.
I n comparing sales between September 18, 1949, and October 16,1949,
as compared with the same period in 1950, dealers reported sales were
down 47.77 percent.
And in a comparison of sales between October 16, 1949, to November 16, 1949, with the same period in 1950, dealers reported that sales
had decreased 64.91 percent.
If I may deviate again, that is completely in accord with the chart
which has been furnished by the Federal Reserve Board. The only
point I would like to make there is that you can readily see that the
situation was well on the way to correcting itself.
Here [indicating] is the peak which represented about 12 or 15
days of the scare buying that we had there, not only in automobiles,
but in sugar and items that were on short supply in the last war.
There was a scare buying, as indicated by their chart.
I t is also indicated by their chart that the sale is dropping very
rapidly there; and on September 15, it was down almost back to the
level of prices that prevailed prior to the Korean situation. The
21 months went on then; and at the time that the 15 was slapped on,
they were well below the prices that existed prior to the Korean
situation, according to their own chart.
Needless to say, the question concerning comments by both the
dealers and their customers brought bitter criticism against amendment No. 1, due to the fact that the original rules made effective
September 18, 1950, had proved to be entirely adequate for their
Now, for the record, let us see who really suffered this loss in value
of used cars, averaging over 20 percent. I n Chairman McCabe's



speech of September 21, 1950, delivered in Boston, Mass., after outlining what had to be done to check inflation, he said, "That means
we must cut down the spending power of all but the lowest income
group." I n that behalf, I am reminded of the comment made by a
candidate for public office, when he said, " I love all the poor people
because there are so many of them." I t is an elementary fact that by
far the majority of the low-income groups have their greatest asset
invested in their automobiles. The automobile serves many purposes
besides providing transportation only. I t represents ready collateral
for the many emergencies which arise constantly in the normal life of
a family unit.
Out of the 34,000 used-car dealers in the United States, over 95
percent have less than $10,000 invested in their business. They are,
for the most part, able to carry only a small number of cars in stock
for sale. Their profits depend upon the turn-over of stock. I t is
absolutely ridiculous for anyone to say there is a large profit in the
sale of the average used car. Regardless of whether the price be high
or low, the margin of profit remains the same to the dealer. Of course,
the dealer, when caught flat-footed with whatever stock he had on
hand when the October 16 amendment was, without notice, imposed,,
suffered some loss in the sudden drop in value of the car, but not
nearly as much as one would suppose. He didn't have to be overly
brilliant to foresee this immediate drop in value, and with over 75
percent of his sales involving the taking in of trade-ins as all or part
of the down-payment on his sale, you can bet your life, if he was
any businessman at all, he didn't allow the value of the trade-in to exceed the drop in market value. So who suffered this loss in value but
the public, itself, and what group suffered the greatest injury? I
wonder how those millions of workers who have as their largest investment an automobile would react if, instead, the value of that automobile had been invested in a savings account and the Federal Eeserve
Board suddenly announced that it had been very successful in taking
20 percent of it away from them ? I t is probably just as well that the
laboring man doesn't fully realize what has been done to him because I
am afraid that public indignation would cause the Federal Reserve
Board to hesitate in publishing its recent report and, I believe, would
make it regret the course it has followed.
The average used-car dealer is just about out of business because
of this latest action of the Board. Of course, we would not complain
as patriotic citizens if the Board had carried out the intent of Congress. But it failed to take into consideration the fact that when
amendment No. 1 to the regulation was put into effect it automatically
placed a price ceiling on used cars. We must realize that used cars
are normally sold at the market value. Their price in an unregulated
market is not fixed by the producer as are new cars and other consumer goods. The terms of the installment sale is set under regulation W by recognized guide book values. So actually the Federal
Reserve Board has placed a credit ceiling on used cars. The used-car
industry is the only segment of the different commodities coming
under the rules of regulation W that has been placed under the credit
ceiling. Radios, televisions, real estate, new automobiles, et cetera,
may be financed from 66% of their selling price to as high as 90
percent of their selling price. Such is not the case with the used car.



The regulation provides that a used car can only be financed for
two-thirds of the appraisal guide book value of the particular year,
make, and model of automobile. Bear in mind that this guide book
is made up by striking the average value of the particular car. I n
other words, the old wreck that is sold to the junk dealer, the highmileage automobile and the low-mileage car, are thrown into one
classification and the average sale price for the lot becomes the ceiling.
Consequently the customer buying the low-mileage automobile may be
required to pay as much as 50 percent down instead of the one-third
down payment required on a new automobile, for if the selling price
of the clean car is $200 above the average, that amount must be, according to the terms of regulation W, added to the down payment. Consequently, whether the dealer wants to increase the price or not, he is
not able to do so because he must sell on the basis of the determined
value specifically set forth in the guide book. H e may go down in
price, but he cannot go up under regulation W.
I t must be realized by the Board and other agencies of Government
that the sale of used cars calls for an entirely different method of
merchandising than applies to the sale of new cars.
Amendment No. 1 to regulation W was certainly not necessary nor
justifiable in preventing the spiraling rise in prices, which, of course,
is the main factor in any inflationary economy.
Certainly it cannot be argued successfully that amendment No. 1
served any purpose in freeing labor and material for the defense
effort. The material in a used car is already expended insofar as the
defense effort is concerned, and over 90 percent of the used-car dealers
have only a two-man operation. I t is conceded that the manpower
involved would be entirely negligible when it is remembered that most
used-car dealers are men well beyond draft age.
Gentlemen, the establishment of regulation W on September 18,
1950, which permitted balances on purchases of automobiles to be
paid off in 21 months, served the purpose of checking any possible
contribution to further inflation through the sale of used cars. Statistics are clear and convincing on that point. Amendment No. 1 is
nothing more or less than a discriminatory regulation against the
low-income group; and it certainly has been and is a confiscatory
measure insofar as the public is concerned.
The association's general counsel, who will complete the testimony
oil behalf of the National Used Car Dealers Association, will present
specific recommendations to this committee as to how the injustices
complained of can be corrected in the public interest.
Thank you.
Eepresentative BROWN. I recognize Senator Capehart now.
Senator CAPEHART. Well, the question I wanted to ask was this: You
say your general counsel is going to cover it, but I think we might like
to hear from you; what do you recommend be done?
Mr. WILSON. I n what instance?
Senator CAPEHART. Well, what terms do you recommend ?
Mr. WILSON. Well, I appreciate the recommendation that this committee had made to the Federal Eeserve Board. Any relief we can get
at all will be appreciated.
Senator CAPEHART. Let me put my question. W h a t do you think
would be fair and equitable, fair to the buyer, fair to the dealer, and



fair to the Federal Reserve Board in trying to check inflation ? W h a t
terms do you recommend ?
Mr. WILSON. Well, in order to answer that, I would have to go
against our theory, and the theory is that we don't have an inflationary
situation so far as used automobiles are concerned. That could go
into quite a lengthy discussion.
Senator CAPEHART. I don't care what your answer is, excepting you
are in the business; you are the president of the association.
Mr. WILSON. That is correct.
Senator CAPEHART. YOU know your business; I do not. You are objecting to what the Federal Reserve Board did. What do you recommend that the Federal Reserve Board do ? I think that is the way to
get at this answer. They did one thing. You think it is wrong. W h a t
do you think they ought to do ?
Mr. WILSON. We are not asking that they abolish their regulation W
completely. We are asking for relief under the regulation.
Senator CAPEHART. What do you think the relief should be ?
Mr. W I L S O N . Certainly not less than 24 months, in my opinion^
would be adequate.
Senator CAPEHART. I n other words, you recommend a third down
and 24 months on all types and kinds of cars ?
Mr. WILSON. Yes.
Representative BROWN. That is the
Mr. WILSON. Yes, sir.
Senator CAPEHART. Mr. Chairman,

amendment you prepared ?

I have a wire here they wished
made a part of the record from the New York Used Car Dealers Association, Max J . Bloom, secretary.
Representative BROWN. YOU might read it, Senator.
Senator CAPEHART. W h y not just read the part that he recommends,,
Mr. Chairman.
Representative BROWN. All right.



(reading) :

This regulation is both discriminatory and arbitrary and urge its elimination.
We further urge as an alternate the following finance plan: 15 months on pre«
war models, 18 months on 1946 and 1947 models, 21 months on '48 and '49 models,,
and 24 months on '50 and '51 models. We kindly ask that this statement be
read into the record of your hearings.

Mr. Chairman, may we have placed in the record the entire wire?
Representative BROWN. The telegram will be inserted into the record.
(The telegram referred to follows:)
NEW YORK, N. Y., December 8, 1950.

Chairman, Senate Banking and Currency Committee, Senate Building:
DEAR SENATOR : A survey of the New York State dealers regarding amendment
to regulation W is showing economical catastrophe to both automobile dealers
and lower-income wage earners who are in need of good transportation for de*
fense work and business. This amendment is completely unnecessary as an
anti-inflationary measure since the market had been declining prior to the
promulgation of the regulation causing inventory price decline of more than 30
percent. This curb is without purpose except to serve the wealthy and cause
panic amongst buyers with small incomes and who are in need of transportation
and who do not have cash reserves. This is indicated by the present reduction
of used-car buying of between 50 to 65 percent from normal purchasing power.
Past experience and records indicate this type of buyer as needing longer terma
of financing to help stabilize our national economy. This regulation is both,
discriminatory and arbitrary and urge its elimination. We further urge as a a



alternate the following finance plan: 15 months on prewar models, 18 months
on 1946 and 1947 models, 21 months on 1948 and 1949 models, and 24 months
on 1950 and 1951 models. We kindly ask that this statement be read into the
records of your hearing.
MAX J. BLOOM, Secretary.

Senator CAPEHART. YOU recommend straight 24 months, rather than
what these gentlemen recommend ?
Mr. WILSON. I might say in that connection, we have all kinds of
suggestions from different dealers over the country.
Senator CAPEHART. Yes; I appreciate that.
Mr. WILSON. The association as a whole wants to be fair about the
thing. There could be a sliding scale. I t would show, according to
our own charts, a sliding scale, if such was to be worked out and
wouldn't be too involved, would be all right.
Senator CAPEHART. YOU understand I do not know whether the
Federal Reserve Board is going to change their rule or not; but we
are holding hearings for the purpose of gathering information for
them; and we hope they will pay some attention to it.
That is why I asked the question as to just exactly what do you,
as president of the National Used Car Dealers Association, recommend that they do? I think you ought to have a recommendation.
Mr. WILSON. Yes; the recommendation is here.
Senator CAPEHART. Under the law, you see, they are required to
consult with you before promulgating any of these regulations. Now>
in consulting with you, I think it was the intention of the law that
you were to make recommendations.



Senator CAPEHART. T h a t you were to make recommendations as to
what you thought should be done. I think it was the intent of the
Congress if, in the opinion of the Federal Reserve Board, that was
the thing to do, they should do it. A t least it was the intent of
Congress if, in the opinion of the Federal Reserve Board, that was
Mr. WILSON. The recommendation is here.
Senator CAPEHART. T h a t is why I asked you the question. Now>
just what are your recommendations ?
Mr. WILSON. Would you like me to read it off?
Senator CAPEHART. Yes.
Mr. WILSON. A t this time?
Senator CAPEHART. Yes.
Mr. WILSON. I t is a little dim. This is about the third or fourth
copy and it is a little difficult to see.
Representative BROWN. Here is one you can read.
Mr. WILSON. Thank you. This is the amendment proposed by the
National Used Car Dealers Association:
Provided, however, That the installment terms on the sale of used cars shall
not be made more restrictive than one-third down payment of the sale price
and twenty-four months to pay the balance: Provided, That the installment
terms shall never be made so restrictive as to affect the ability of the low-income
group to purchase said used cars on installment basis. That said price controls
as authorized in said Act shall never apply to the sale of used cars.



What do you mean by the last sentence—

That said price controls as authorized in said Act shall never apply to the
sale of used cars.



Mr. CAIN. Senator Capehart, may I interrupt ? You see, I intend
to cover every bit of that. When he speaks and I speak, we speak as
one voice. We don't speak as separate voices at all. I have all those
answers for you; I will answer everyone of them, if you please.
Senator CAPEHART. I have great respect for you as general counsel;
but being a businessman, I would likewise like to hear from the man
who is on the firing line selling the cars, that is in the business, because
he ought to know more about it than you do.
Mr. C A I N . Senator Capehart, the National Used Car Dealers Association, in collaboration with the State used-car dealers, and used-car
dealers all over the United States, wrote that amendment. I didn't
write it. That is what we are talking about.
Senator CAPEHART. A S far as I am concerned, I understand the
problem at the moment. I understand who is hurt. I understand the
whole thing. I think we are down now to the problem of what we, as
a committee, should recommend to the Federal Reserve Board, and
what you, as representing the used-car dealers, want to recommend
to them.
Mr. WILSON. Our thought, if I may add to that, on the 24 months
is this: After all, a used automobile has a certain collateral value.
Then the sliding scale would be more or less taken care of by the loan
value of the car.
Senator CAPEHART. D O you have any recommendations on the
changing of the terms on new cars ?
Mr. WILSON. No; I haven't.

Senator CAPEHART. W h a t percentage of your 34,000 dealers handle
new cars ?
Mr. WILSON. I don't have the statistics showing that, sir.
Senator CAPEHART. But it is a big percentage; is it not?
Mr. WILSON. By number of dealers, do you mean ?
Senator CAPEHART. Yes.
Mr. WILSON. Or volume of business they do along that line?
Senator CAPEHART. Every new-car dealer handles used cars; does
he not ?
Mr. WILSON. I wouldn't say every one, no.
Senator CAPEHART. Does not every new-car dealer trade in used cars ?
Mr. WILSON. I don't follow your question there.
Senator CAPEHART. My point is, every new-car dealer is, likewise,
a used-car dealer.
Mr. WILSON. Oh, that way. I thought you had it reversed.
Senator CAPEHART. D O you handle new cars ?
Mr. WILSON. Yes, sir. Nonfranchise, however.
Senator CAPEHART. YOU are both a new- and used-car dealer?
Mr. WILSON. That is correct.
Senator CAPEHART. W h a t do you recommend the terms be on new
Mr. WILSON. I think our maximum, our 24, would adequately take
care of it. The higher price, and the lower price back of it would be
more or less adjusted by its collateral value.
Senator CAPEHART. There has been some suggestion that the terms
ought to be 21 months.
Mr. WILSON. Well, I say, a maximum of 24—21.
Senator CAPEHART. The original order was 21 months?
Mr. WILSON. That is correct.



Senator CAPEHART. A S I gather from the testimony here, without
consulting with you gentlemen, meaning the industry, they changed
it to 15 months?
Mr. WILSON. That is correct, sir.
Senator CAPEHART. Were you satisfied with the 21 months ?
Mr. WILSON. I could only answer that from an individual's standpoint.
Senator CAPEHART. I t certainly would be better than 15.
Mr. WILSON. Pardon?

Senator CAPEHART. I t
Mr. WILSON. Yes.
Representative BROWN.

certainly would be better than 15 months.

This is off the record.
(Discussion off the record.)
Mr. WILSON. I hope I qualified that by stating, it shows in our
-sampling here, that even when there were no restrictions whatsoever,
that our older models only required 14 months. If you have 24, that
doesn't mean that you are going to use it. I t is our feeling that the
collateral value of the older automobiles would take care of itself
without specifically stating whether they should be financed over a
period of 12 months, 15 months, 18 months, or what have you. T h a t
was my thinking along that line.
Eepresentative BROWN. All right, Senator.
Senator CAPEHART. I have no more questions.
Representative BROWN. I recognize Mr. Patman now.
Representative PATMAN. Did the Federal Reserve Board consult
your association before imposing the first regulation?
Mr. WILSON. Not to my knowledge, sir.
Representative PATMAN. YOU were president of the association;
wTere you ?
Mr. WILSON. I was not. I have only been president since November
Representative PATMAN. Was Mr. Cain your counsel at that time?
Mr. WILSON. Not of the national association.
Representative PATMAN. Who could tell us about that ? Who knows
whether or not you were consulted ?
Mr. WILSON. Mr. Hayward could tell us.
Mr. HAYWARD. Mrs. Corell, the executive secretary, is here. She
could answer that question.
Representative PATMAN. I S he going to testify ?
Mr. HAYWARD. N O . I t is she.

question ?

Chairman, may I

ask her that

Representative BROWN. Yes.

Representative PATMAN. Will you stand up, please?
secretary of the association ?

You are the

Mrs. CORELL. Yes, sir.

Representative PATMAN. Was your association consulted before the
imposition of this first order ?
Representative BROWN. Give your name for the record.
Mrs. CORRELL. Margaret Corell. Our counsel at that time was Mr.
McCarthy, here in Washington; and I think he would be better qualified to answer that.
Representative PATMAN. All right, thank you. Is he here?



Mr. CAIN. H e will be here. I can tell you, though, that they were
consulted before the regulation was imposed at all.
Representative PATMAN. On the first regulation ?
Mr. CAIN. On the first regulation.
Representative PATMAN. Were you consulted before the imposition
of the second regulation?
Mr. CAIN. NO, sir; not whatsoever.

Representative PATMAN. Was any excuse given to you as to why
you were not consulted ?
Mr. CAIN. Yes, sir. Mr. Evans, himself, said that he was trying to
prevent inflation and not create i t ; that a notice of hearing to see
whether or not they should be increased would have created an inflationary situation; and that was the reason why they didn't give the
That statement was made in the presence of Mr. Solomon, Mr.
Lewis, and Mr. Pauley on November 1,1950.
Representative PATMAN. Since Mr. Cain is general counsel and will
testify later in detail, I will forego asking any more questions at this
time of the president.
Representative BROWN. Thank you very much, Mr. Wilson.
W h o is your next witness, Mr. Cain ?
Mr. CAIN. I will wind this up.
Representative BROWN. All right.
Mr. CAIN. Gentlemen of the committee, I have filed a formal statement. I am not going to talk from it. I will cover the exact substance
in that statement; but I prefer to talk to you rather than to read the
statement, itself, with your permission.
Representative BROWN. Your statement is already filed ?
Mr. CAIN. Yes, sir; the statement is filed. I want to take the opportunity, on behalf of the National Used Car Dealers Association, on
behalf of the used-car dealers of America, of thanking you gentlemen
for giving your time and consideration to this matter, and giving us a
public forum at the time when it has been so urgently important.
I, myself, am a veteran of the present World W a r I I , that continues
to go on. I have the distinction, some way or the other, of being about
the only person that I have ever heard of that belongs both to the Army
Reserve and Navy Reserve, so I imagine my civilian life won't be very
long; but I want to talk to you about something I feel is extremely
important in covering and going into this used-car matter.
We are mindful of the fact that we face a full mobilization, and the
terrific responsibility of building up a war machine second to none.
I n doing so, though, wTe also are mindful of the fact that we create
in this country one of the most serious economic situations that has
ever gone before.
There has never been, in the history of this world, a country that
has survived that situation in their economy. Every economy has
been destroyed by virtue of it.
We know that the destruction of this country can come right now,
actually from within. The danger in this country is as great within,



a n d probably greater within, than it is without right at the present
Now, a small man, as I am, if I were fighting Senator Capehart here,
the only way I would try to do it would be to wear him out. I would
try to get him so weak that he couldn't hit. Then I would come in
with the might that I might have; and he would be finished very
Unfortunately, we have been worked into a very, very serious situation. We have found an enemy that we can't fight back. We can't
fight back without becoming attached to the name of an aggressor;
because this enemy has been able to effectively use other people's, as i t
were, war machine, and let them take the brunt of it.
Well, you can't fight a phantom enemy. A t the same time, we know
who that enemy is; and, consequently, we are faced with a problem
we never have been faced with before. We never have been faced with
this before.
Now, gentlemen, I want to tell you what we consider. W e consider
t h a t there has grown up in this country a complete false sense of inflation ; and particularly has there been created a false sense of installment buying.
Now, don't misunderstand me. We have no criticism of anyone.
A s a matter of fact, there is too much criticism going on in this country of late, and not nearly enough constructive suggestions being
made. We are all just limited by our capacities, no matter what position we hold.
We are going to cover this field on the basis of used cars; and I
believe that, by the time we have finished here, you will see where
terms and prices on used cars have not one single solitary thing to do
with inflation. I think we will definitely prove that to you.
Would you go with me back over a little history ? The only way we
can learn our lessons, as I see it, is to follow history, is to go back over
t h e past and see what occurred.
Let's go back to 1927. I n 1927,1 was a young boy out on a highway,
coming to Dallas, with a mother and sister, and holding under my arm
three books: One of Abraham Lincoln, one of Thomas Jefferson, and
one of Alexander Hamilton. One created a faith, hope, and determination. I n the other was a free government. The other was a
sound business principle.
Well, you recall that. We were enjoying a moderate prosperity,
primarily brought about by new industry, new invention. All of a
sudden, in 1929, there was, up on Broad and Wall Streets, a sudden
explosion because there were a lot of people that were issuing paper
stocks but they forgot to look behind those stocks to find out what was
represented by them.
So, one day they woke up and found that there wasn't anything
behind those stocks. There wasn't any product; there wasn't any
value; there wasn't anything you could use. So what happened?
T h e thing fell a]l to pieces.
We shouldn't have gotten scared and broken all our economy. We
happened to have a genius, some people think, in the White House
at that time; he had just gotten there. H e did the very brilliant
thing of saying we had to cut Government expenditures; and he started
slashing salaries; and what he couldn't slash, he fired.



Well, employers thought that was a very salutary lesson to follow;
and they started slashing salaries; and what they couldn't slash, they
had to let off.
Men began to bid against one another for jobs; and I saw and you
saw men working for 10 cents a hour, day in and day out. We, at
that time, were all ill-fed, ill-housed, and ill-clothed people, just as
they are in Europe, all over this world, and at that time nobody doing
anything about it.
Why, you can even remember when they had debates, college debates
fts to whether or not this little government led by Mussolini was a
better form of government than what we had. You remember it. I
heard it. You heard it.
Now, what did we do? There were men then that were willing
to do anything to get us out of that mess. Well, we found a man, a
great man. I like to refer to him as a very great man, because that
man could get on the radio and he could instill confidence in the people.
H e could s a y , " There is no fear, or nothing to fear, but fear itself.
He did what? H e started people back to work. H e started people
"to work; and you saw a confident people compel employers to increase
salaries from 10 cents to 35 cents an hour overnight. I heard employers hollering all over the Nation, "We are going to go broke. You
can't do it. We are going to go broke."
They didn't go broke, of course, because that money turned right
around and bought produce. I t was produce; we work; we
had produce. We began to have shoes.
T h a t is when installment buying caught on. Even the banks, for
the first time, really woke up about that time; woke up to the fact
that you could buy a home on a long-term basis, because most homes
lasted 21 years; and made it possible for people to own their own
homes. They found out you could sell cars on a long-term basis, because of the fact that it didn't make any difference how much it cost,
as long as it had a usable value for the life of the payment.
Now, those people found that installment buying. I t is the greatest
blessing that the world ever had. Let me ask you gentlemen just
t h i s : What do you buy a car for? To look at? You buy a car to use.
Use. That is what you do; and the use of it is the thing. The only
time that product will ever be inflationary will be when you have extended a credit on it beyond its usable value. Then it is inflation, because you haven't got the product any longer, and you still have the
debt. Now, when you have that, you have inflation.
Well, about that time, you will recall, we found there were a lot of
theorists and day-dreamers who began to infiltrate from these colleges into this Government. They could remember the depression;
they read about it, anyway; and they said that what caused the 1929
debacle was overextended credit.
Gentlemen, if you will go back and read on installment selling, you
will find that the economists have always been scared to death of it,
because of the fact that they say,. " I t will just destroy you; it is the
worst inflationary thing in the world," which is the most ridiculous
thing that was ever said.
So they decided that the best way to answer that, to get real security, was to create security. So what did we start doing? They sold
the great President on a lot of things, a social program. Of course,
some of the social program was good. I t was constructive. There



isn't any part of it, though, where you are giving money away and
not getting produce from it that is any good; because when you give
money away and you don't get anything for your money, you are
just adding to the overhead and you are not increasing the usable
Well, we started this business. I will mention a few. We started
unemployment compensation, subsidizing of goods, and expanding
the Government ahead. Every time we put on a new bureau, we had
to get more overhead. We still are in a production. Now that is inflation in its true sense.
I n other words, what happened here was, people began to find out
they could not work, not produce, and yet get paid; and there was a
large segment of our population that never would work.
You remember when President Eoosevelt constantly was trying to
prime the pump to get started. H h a t took up to 1938. I n 1*938 we
began, however, to have this fear of war, and we began to pick up
in supplying, becoming the arsenal. We began to produce again.
I n 1941, of course, we were attacked; and then at that point, of
course, we were found very scarce of materials. We were attacked in
very vulnerable spots; and temporary controls at that time might have
been necessary to kill that hysteria. I doubt very seriously that controls, themselves, actually contributed to what they were intended to
do even then, except to stop hysteria.
Now, even there, the prices soared, inspite of the fact of controls.
Finally, they leveled off, of course, because we had a lack of goods and
people couldn't buy anything.
However, there is one little thing that we forgot. We kept taking
one side of the proposition. You remember Senator Robertson
brought up this little subject the other day about having too many
dollars in circulation over here and not enough goods over here. H e
said, "What are you going to do to take care of i t ? "
The way we have been doing, we start operating on the goods side
and don't do anything about the dollar side. The dollar side is the
thing that is the evil; and that is the place to go to work.
During World W a r I I , when you were selling people on taking
those large earnings and savings and putting them in savings bonds,
do you think for one instant that you weren't creating inflation in the
greatest sense in the world right then and there; because you were
placing money in circulation and you didn't have any goods at all.
So what happened? When the war stopped, of course, the first
thing that came off—which is just a natural thing—was wage controls;
and, naturally, people went to producing goods because they needed
goods; and people had money in cash savings; so they took the cash
savings, and the first thing you know, the prices went up so high it
busted OPA. They couldn't stand the strain of it at all.
Prices soared; they went up terrifically from 1946 up to 1948, until
the supply started catching up with demand, and then leveled off.
You check your charts there. Check all the data with the Federal Reserve Board. Follow each and every cycle, like savings. They all
follow a cycle; all go up and down together.
That is what happened when we got out of the last war. I n the first
place, we put that regulation W back on in September 1948 and, of
course, we went so far on the hysterical end of it, because prices had



gone up so fast. We always seem to be about 4 or 5 months behind
what is happening today. They got them on. I t is nobody's fault,
in particular. If anything, it is business' fault for not getting the
actual facts right here and taking more interest in the Government
Now the thing is that in 1948 they were on; and you know by the
first part of 1949 they weren't even needed any longer, because they
were even scared of a depression. But, all of a sudden, we caught
on again; and this war began to be more and more of a scare; and
we began to go up again.
Now one of the things that happened that wasn't a war scare in
1949 as much as it was a new big industry—and new industry can
do a great deal to your economy—and that is, television—television
jumped in here and really began to soar, and it became a great factor.
The freezer industry began to catch on more and more; and it became
a great factor. We learned more about freezing foods.
I wish I had a lot more time to tell you about that, too. I would
tell you how to reduce prices of foods from 25 to 40 percent, also,
by just using good common horse sense.
So here we come along; we get to thinking about installment buying;
installment credit getting way out of hand.
By the way, I forgot one thing I covered in my prepared speech
that I want to cover here. Back when I was in the Navy, I got to
thinking about some of the newfangled economics that we are talking about here, about the national debt that was always hitting, and
I decided to read something about economics. I got over to page 50,
and this was supposed to be one of the most reputed economists of
this country, and I was reading his book. Do you know what he
said? H e said, "If we ever reach a national debt of over 60 billion
dollars, we will face economic ruin." Eight then I just closed the
book, because the thing was over 125 billion dollars right then, and
we were still getting along fine.
W h a t did we have for it? We had a war machine. We had one
of the best war machines we had ever built u p ; and that was an asset.
The only thing is, we let a lot of boys destroy that asset.
I saw blankets burned. I saw tractors. I had men testify there
to us, and tell about good, usable material that would be good today
that was run off into oceans.
That is the kind of thing that would need to be investigated pretty
well. Not that you can cure the inflation, that was created by the
destruction of the goods. The usable value went out faster than the
debt went down.
That might be inflationary, but we can catch up with that. We
are going to get more goods. We have Korea. When you get into
something like that, everybody saw overnight we went into another
world war. Not another one; we haven't quit this one. We just woke
up. All the GI's I talked to and interviewed coming back from
Germany in 1945 told me it wasn't over; they knew it wasn't over;
just a vacation, as far as they could see, for the time being. That is
all it ever has been.
We have a little battle which is not a little battle. One of the little
boys that I raised has already been killed. So it is war, all right.
Now, we have got to build a war machine. On our debt, we just



borrow from one another, as people. A government is nothing but
the people. We borrow on an individual basis and we pay out on an
installment basis; but, if we won't waste our war machine, we can
build up a good one.
We can be more harmed by the hysteria that is constantly being
aroused here by throwing on this kind of control, or saying, we are
facing a big crisis.
If you checked the history of Eussia, you would find they never
attacked anybody aggressively that they have ever been able to be
successful in it; and, anyway, why should they ? They are winning
the whole world without touching anybody or firing a shot.
But that is a wonderful thing, because that is a philosophy of government we are fighting. We can't defeat that philosophy of government with guns. We have got to defeat that philosophy of government by an idea that we have to sell. We can do it.
If we will follow these processes of making and producing goods
and letting the people be able to buy them, and the credit never getting
over the usable value of that product—and it won't be; it won't b e ;
it never gets over that, not if you let competition, within itself, handle
it—if you do that, why you can even bring these people out of the
slums, out of their poverty-stricken areas all over the world. They can
do that if they will go to work; but they have to produce; they have
to produce usable goods.
Now, then,' gentlemen, we have gone along, and we have this
Representative BROWN. Mr. Cain, would you pardon me just a
Mr. C A I N . Yes,


Representative BROWN. We are going to conclude the testimony
Mr. C A I N . I am going to get right into the used cars.
Representative BROWN. I am going to give you all the time you
want. We have a Senator who has a committee meeting, and he wants
5 minutes. Would you object to allowing him to testify at this time?
Senator DWORSHAK. H O W much more have you got ?
Mr. C A I N . Just a very few minutes.
Senator DWORSHAK. GO ahead.
Representative BROWN. I am not trying to hurry you. Take your
Mr. CAIN. NOW, what are we doing? Let's think this over. On the
one side, we have already got too many dollars; and we have a short
supply of goods, to a great extent. At least, we anticipate a short
supply, because that is common sense.
We are going to be building up one side and going to be cutting
it off on the other side. Now the answer has always been to say, put
on controls, control everything, control the whole works.
Well, listen. If you do, you can bet your life you are going to
live with them the next 20 years; maybe some of us will never see
them off again. T h a t is exactly what every one of these other countries followed, and look at them today.
All right, what are we doing right now? I said, we are adding
dollars. No. 1, one of the worst things we are fixing to do, we are



fixing to take over 60,000 people out of a producing society and
hand them over to overhead in the O P A deal. T h a t is what controls
are going to take. T h a t is just adding once again to your overhead
without producing the goods.
Now, then, the wage raises have already started u p ; and that is
putting more dollars into the market.
This business of constantly not seeing this thing as a long-period
situation; that that is just one battle in Korea; that this is a long
over-all situation, and creating it because of what we call a major
defeat today on a battlefield is a ridiculous thing, because we certainly
have suffered no major military defeat. We suffered the loss of a
battle; and we haven't even lost that yet. B u t the hysteria that we
create is the worst enemy to our balanced economy that we have.
Of course, if you create so much of it, you start people bidding
against each other and create that demand, the urgent demand, far
more than you can get goods, the prices go up, like the prices have
gone up in food and rubber, and a lot of other things. I t is just
a normal reaction to that.
If we go at this thing right, then we will certainly not need these
controls. I t will calm down.
Now the next thing is on the used cars. The used cars are one
t h i n g ; the used cars are already here with us. Now last time
we created an outright inflation in the used-car market ourselves
because we held a false value when there was none; W e had to
let the controls down sometime, and the minute we did, we had
all those dollars, and we still didn't have any more used cars. When
we did, we pushed that used car up so fast, by bidding against one
another, as you might see, that at one time you paid more for a
used car than you did for a new car; because we had built up on
one side and we had cut down on the other. We have got to build
up the minus side; and we have got to always work on that plus
side of money as our problem.
Now, in the used cars, we already have those cars here. We already
have them here, the materials applied to them. They must be placed
into the hands of the people who need them.
You can bet your life that no businessman is going to extend credit
beyond the usable value of that used car. The businessman will look
at the value of that car, as to how long can it be devoted to use,
and that, within itself, is going to control prices and terms within
itself on the used-car market.
However, even though we realize that that is a very broad over-all
picture of it, we realize that we have gone a long ways in the other
direction. F o r that reason, we know, m all probability, that we are
going to have to live under this National Defense Production Act,
which is really a national control act, probably for a long time.
Now, then, we are proposing this amendment to the act, itself. I
won't read it over; but I want to answer the question asked awhile
ago, Senator Capehart; and that is this: That the maximum shall not
be more restrictive than one-third down of the sale price, and 24
months to pay the balance; but we have a proviso on t h a t :
Provided, That the installment terms shall never be made so restrictive as to
affect the ability of the low-income group to purchase said used cars on installments basis.



Now the reason, as far as the price-control end of it is concerned,
is that automatically, when you put on regulation W, itself, you
placed price control on the used car, because it has always used it
through that guide book.
To prove that to you, I have some ads here, which you may be>
interested in seeing at a later time, as to how easy it is that dealers
will find, through the lease method, that they are going to meet the
problem by going to the very essence of it. T h a t is a sound plan, a
very sound plan of leasing automobiles; because that will get to the
usable value. I t will still be paying for its use; and that is all you
ever pay for on an automobile, anyway. You don't buy the refrigerator because you like the refrigerator; you want the refrigeration.
Representative PATMAN. I t is impossible to buy a telephone; isn't
Mr. CAIN. That is right. You never pay for a telephone; you never
pay for a railroad; you never pay for a utility. You pay for the use.
You never will pay for it. That is exactly the same thing. As long
as j^ou have government, itself, you are going to have a national debt.
Representative PATMAN. On this lease basis, that is tax-deductible,
Mr. CAIN. Absolutely. This has created more faults, this very
regulation. We are not going to try to ask for the whole thing. We
do ask that you give very careful consideration to this amendment;
because we feel that we will have trouble with the Board.
Senator, I will yield.
Representative PATMAN. You mentioned the national debt.
Mr. CAIN. Yes,


Representative PATMAN. YOU know now, in speaking of dollars and
values, you are always referring to the dollar compared to 1939
Mr. CAIN. T h a t is right.
Representative PATMAN. The only consolation I guess we have out
of this inflation is the fact that the 60-cent dollar makes our national
debt $150,000,000,000 instead of $250,000,000,000.
Mr. CAIN. T h a t is right.
Representative BROWN. Senator Capehart, do you desire to interrogate this witness?
Senator CAPEHART. Not at the moment, no. Has he finished ?
Mr. CAIN. Yes.

One question. I n other wTords, your recommendation is that the Federal Reserve Board adopt this method?
Mr. CAIN. Our recommendation is that Congress amend that act
so the Federal Reserve Board will have somebody to answer to beside
just their own explanation of that chart. When the thing was going
down, and they could read clearly their own charts; and then to
put on something that has become nothing in the world but a confiscatory measure to the public, themselves, and taking over 23 percent
of the assets of the public right away and just casting it aside. I
think that was a very bad piece of judgment in putting in the
October 16 amendment.
Senator CAPEHART. D O you think Congress showed bad judgment
in passing the 1950 Defense Production Act ?
Mr. CAIN. I could spend an hour on that, if you please.




Senator CAPEHART. D O you think they did or did not?
Mr. CAIN. I can't say that, because there are certain things in that
Defense Production Act that I think a great deal of. T h a t is personal opinion, however.
Senator CAPEHART. D O you think the Congress made a mistake in
incorporating in the act a return to regulation W?
Mr. CAIN. Y es, sir; I surely do.

Senator CAPEHART. Then your criticism is really directed toward
Congress, not the Federal Reserve Board ?
Mr. CAIN. I don't criticize Congress at all. We don't mean to
criticize Congress.
Senator CAPEHART. YOU have a perfect right to. I don't know why
you don't criticize it. I do.
Mr. C A I N . We certainly criticize it this way. Congressman Patman's amendment certainly should have been adopted.
Senator CAPEHART. What was that?
Mr. C A I N . That whoever ruled and set up these arbitrary rules was
responsible to the people; so we could come over here and do a little
complaining; instead of having some people completely divorced from
this Government exercising uncontrolled authority, as he pointed out
very clearly the other day.
Senator CAPEHART. The President could have done a better job?
Mr. C A I N . A t least we could have complained to the President.
D i d it ever occur to you what may have happened to the Democratic P a r t y on these very rules and regulations? You know the
Honorable Secretary of the Treasury and the Federal Reserve Board
are just like that [indicating]. You know Stuart Symington has been
sitting over here hollering about we have to have more rigid controls
on everything. These boys sitting over there and saying, "This might
be a very good time to kind of give them some rigid controls." About
1 week before election, they slap on all of these controls; and who
does it hit in the face ? The poor man, the guy that was voting; and
he went to the polls with the greatest of indignation, too. I t might
have been just a little bit of a double cross, if you want to know something.
Senator CAPEHART. The trouble was they didn't go there in strong
enough numbers. They missed by two in the Senate.
Mr. C A I N . Of course, you understand that last was my own personal opinion; and the press must remember that has nothing to do
with the National Used Car Dealers Association.
Eepresentative PATMAN. One other question about the Federal Reserve Board. I brought out the other day that the Federal Eeserve
failed to use the reserve requirements feature for commercial banks,
and thereby continues to permit the extension of inflationary credit
to the amount of $2,200,000,000, at least. I n addition to that, they
have 50 percent marginal requirements on the purchase of stock; and
t h a t has never been tampered with, either.
I t occurs to me that they are letting a lot of the big ones go and
chasing the small ones.
Mr. CAIN. T h a t is the way we feel.
Senator CAPEHART. May I say t h i s : Congress has a perfect right
t o pass your amendment. The Congress has a perfect right to pass
a law correcting what Congressman Patman is objecting to. Congress



has a perfect right, of course, to put the Secretary of the Treasury
and the Comptroller of the Currency back on the Board. Congress
can do anything they want to with the Federal Eeserve law.
Mr. C A I N . That is exactly right. I hope to God for the sake of our
country they do.
Senator CAPEHART. Congress has a perfect right to make any change
they want to make in it anytime they want to make it.
[Representative BROWN. Off the record.
(Discussion off the record.)
Mr. C A I N . We have filed an application for hearing. We don't know
whether we will ever get it or not; but it probably won't do any good.
T h a t is the whole troufrfe. T h a t is the reason we are over here beforce Congress, to change the thing so the Federal Eeserve Board
will have at least to listen to it and follow the common-sense dictates
of their own charts.
Representative BROWN. D O you have anything else for the record?
Mr. CAIN. T h a t is all. I think every one of you has been sent
this [indicating]. I t has been sent to each of your offices.
Eepresentative BROWN. We have that. Thank you very much.
(The prepared statement submitted by Mr. Cain appears in full as

Gentlemen of the committee, my name is Frank Cain of Dallas, Tex. I am
here representing the National Used Car Dealers Association.
In concluding the case of the Used Car Dealers of America, on behalf of the
members of this our association and the members of this large American industry,
I want to express our gratitude for the time, courtesies, and consideration given
>us and our cause.
I am a veteran of World War II which we are still in, and as a matter of fact,
as I understand it, I am probably one of the few people that is a Reservist in
both the Army and Navy, so I imagine my civilian days are quite indefinite.
We are faced with full military mobilization as we have been for some time.
The problem facing us is really a new one. We know who our real enemy is;
but we cannot, militarily speaking, strike back without becoming what we might
term as aggressors. Russia will never directly attack any country that will
ithrow her into an aggressive war. She will continue to provoke us into attacking
her. This we should never do and I don't believe we will. Therefore, the
problem will be of long duration. This creates a very serious problem.
We must build our military strength second to none. At the same time, fche
economic problem created thereby will threaten our very existence from within.
"We, therefore, have full realization of the serious nature of our inflationary
We have no criticism of any group and our remarks here are not for that purpose. We believe the whole premise upon which this problem is being approached
is not only wrong, but is false. There is either a complete misunderstanding of
installment buying or a total disregard for reality.
With your indulgence, I am going to try to prove to you that to put regulations
on the sale of used cars, including price controls, is to create nothing but a false
value which inevitably results in just exactly the opposite that the controls are
p u t on to prevent
Back in June 1927 I found myself with $13 in my pocket representing a week's
work picking cotton. I was out on a highway with a mother and a sister. We
were hitch-hiking our way to a big city called Dallas. Under my arm, I had
three books, one was the Life of Abe Lincoln, another was Thomas Jefferson,
and another Alexander Hamilton. In one of these I found hope, faith, and determination ; in another a sensible, sound, and free philosophy of government; and
in the latter what appeared to me to be a conservative but sound businessman.
A.t that time I saw a relatively good prosperity, particularly among some men,



but mostly w h a t appeared to me to be caused through t h e founding of new
Suddenly in 1929, while working my way through school, in one of these g r e a t
but brand-new industries, I suddenly h e a r d a big explosion up a r o u n d B r o a d a n d
W a l l Streets of New York. I t seems a bunch of guys u p t h e r e were printing a
lot of paper called stocks, but for the most p a r t they forgot to see w h a t kind of
factory w a s represented by t h a t stock A bunch of them jumped out windows,
a n d there w a s another fellow up here in the W h i t e House then, who h a d j u s t gotten
there. H e got so scared he decided to cut everybody's salary a n d those h e
couldn't cut, he fired. Well, t h a t h a d a very s a l u t a r y effect on a lot of employers
so they began to follow this brilliant m a n and they fired everybody they could.
Now, most of u s have t h e peculiar habit of eating, so I saw men bidding against
one a n o t h e r for jobs. I saw many men working day in and day out for 10 cents
a n hour. H e r e w a s a people ill-fed, ill-housed, and ill-clothed, and nobody doing
a n y t h i n g about it.
Many of t h e men t h a t I h e a r d then were in favor of sending Congress home
and j u s t getting anyone who had t h e know-how to get us out of t h a t damnable
mess. I listened to many college debates as to which w a s the better form of
government, a Republican form of government or this new-fangled government
led by one m a n over in I t a l y who said, "I don't care who is king as long as
I am boss."
So we got us a "king" in 1932. H e h a d the power to get on the radio and he
would create so much faith, hope, and determination into the people's backbones
t h a t they started to work. I saw employers compelled by a confident people
r a i s e wages from 10 cents per hour to 30 cents per hour overnight. Of course,
everybody said they'd go broke, but they didn't because they began to produce
and m a n began to buy shoes he needed. Everybody started back to work.
I t w a s during this period when installment selling began to catch on. Banks
even woke up and realized t h a t you could finance a car or a man's home on a
long-term basis without losing money. By installment selling and buying the
purchaser enjoyed his car which he paid for out of earnings while he used it.
After all, there wasn't much chance for loss since the car was good for a lot
longer period t h a n he would need to pay for it.
B u t unfortunately we developed a lot of theorists, daydreamers, up here in
a bunch of these eastern colleges and those guys, scared to death of a n o t h e r
depression, dreamed up the idea t h a t the cause of the 1929 debacle w a s "overextended credit." That, of course, is so ridiculous even I know it don't m a k e
Well, those dreamers drifted into this Government by t h e carload.
They so muddled up our great President's thinking—and I do mean he was a g r e a t
m a n — t h a t he got lost in the fog of these dreamers. Then Congress got lost
with hfm. Working and producing and making it possible for people to buy and
pay for their goods and w a r e s w a s n ' t enough. No, s i r ; we began to tell everybody t h e Government owed them a living. We told the worker, "Don't worry
about w o r k i n g ; we guarantee you some money anyway." Of course, to a great
extent a lot of these guys believed it, so more a n d more of them have used every
chance they get, prefer to get paid without working. Well, when you don't
produce and you get paid anyway, you h a v e nothing to show for your money.
( T h a t ' s inflation in "common sense.")
Well, t h a t theory h a s become so ingrained in our thinking t h a t we are getting
ourselves in one hell of a mess.
When World W a r I I hit us, the impact was so great and our sources of supply
so limited and needs so urgent there may have been some temporary need for
controls a t t h a t time, even though they didn't do much good. I am very doubtful
t h a t in t r u t h a n d fact they did any good at all. I t might be conceded t h a t some
bidding against one another for the goods already produced could have given them
a false sense of value, but in time production, and not waste, would have
straightened t h a t out. Now I didn't use the word "waste" in a false sense.
I am going to get to t h a t now.
When I was in the Navy I decided to read something about these new-fangled
economics t h a t the F R B and many of these dreamers talk about. I got over to
page 50 and the book said, "If we ever get a national debt of more t h a n $60,000,000,000 we will face economic ruin." I closed the book because right then the
debt w a s over $125,000,000,000 a n d we seemed to be getting along fine. We
had decided by necessity to buy and build up a w a r machine second to none
in t h e world. T h e Government, who is nothing more t h a n the people, had to
borrow from its people (on an individual basis) to pay for this military machine
on an installment basis. I t ' s true when World W a r I I ended, such as it did, the



people were heavily in debt to one another, but we had something—something t h a t
w a s more than of equal value. I say " h a d " because in 4 years the w a r machine
seems to have more or less disappeared. Now if it's gone, or I should say whatever p a r t of it is gone (and I am certain a lot of it is because I saw enough
blankets and other good, valuable m a t e r i a l thrown away and deliberately destroyed to have m a d e one sick), then of course if the installment on the debt h a s
not been paid in proportion to value of the m a t e r i a l t h a t is gone, then the debt
is inflated to t h a t extent. I n t h a t regard, Congress would do well to look into
t h a t phase of t h e matter, not t h a t you could change the inflation caused by the
w a r machine's needless destruction, but you could pass on a valuable lesson to our
kids t h a t a r e daily inheriting this mess.
Now, gentlemen, you can see w h a t I am getting to. As long as you get the
product for your money, I don't care how much its cost, it is not inflationary as
long a s it can be used and not j u s t dumped into the sea deliberately as much
of our w a r machine w a s in the Pacific. As long as it can be used for something,
it m a y lose in value faster t h a n the debt can be paid. However, it will not
create inflation nearly as fast as its deliberate destruction. Now we have another
war—or I should say we have awakened to the fact t h a t t h e other one was never
over. Of course, almost every GI I talked with in 1945 who w a s mustered out
from Germany knew it w a s n ' t over. At any r a t e we've got to add to our military
machine, so we've got to borrow from one another again, a n d t h a t ' s OK because
we'll get something for our money. T h a t is, if we quit dreaming and s t a r t to
work and recognize waste when w e see it.
We can, I think, be thankful t h a t this time we have a n enemy who doesn't
act so fast but actually is more deadly and deliberate. W e can use t h a t "slow
process" to catch up. Now we have got to go to work a n d produce and quit
j u s t plain wasting money and not producing. T h a t is the one a n d only answer
to inflation. We can avoid the impact of manpower shortage by first getting
rid of half the needless b u r e a u s t h a t have been created u p here and let them
get into defense plants. They'd get money and learn something real about producing goods, but of course they would h a v e to work.
I n all sincerity, t h i s Defense Production Act ought to be called the Defense
Control Act. I actually wonder if old Alexander Hamilton wouldn't just t u r n
over in his grave if he could see how completely uneducated we have become
from plain, common horse sense. Senator Robertson I guess can see now how
"plain easy" it is to answer his questions the other day on inflation. Congress
actually ought to repeal t h e whole thing and s t a r t over, remembering you w a n t
a free Government, not a controlled one. This w a r deal is going to be with
us a long, long time. Our danger of crumbling w i t h i n is actually more danger
than without. If you need tanks, I'll give you the names of 10 Americans who
will put up their own money and build them. I doubt if they would even w a n t
any profit, if Congress gave them 1 month in Washington cleaning out the needless
bunch of bureaus.
Now I am going to give you t h e recommendation of t h e National Used Car
Dealers Association. Because we»are doubtful we will not be relieved of the
effects of this act, we would like to recommend t h a t the following p a r a g r a p h be
added to section 601 of t h e Defense Production A c t :
"Provided, however, T h a t t h e installment terms on t h e sale of used c a r s shall
not be made more restrictive t h a n one-third down payment of t h e sale price and
twenty-four months to pay t h e b a l a n c e : Provided, T h a t t h e installment t e r m s
shall never be m a d e so restrictive as to affect t h e ability of the low-income group
to purchase said used cars on installment basis. T h a t said price controls as
authorized in said Act shall never apply to t h e sale of used cars."

1. You cannot have price controls on used cars because there a r e no two used
cars of the exact same value.
2. T h a t t r a n s p o r t a t i o n by the used cars is an essential to the defense effort.
3. F u r t h e r m o r e , the sale of used cars on an installment basis does not add
to the inflationary problem.
4. T h a t OPA found it w a s impossible to regulate t h e price of used cars.
Now I would like to take u p Senator Robertson's questions which a r e certainly
logical questions to ask. H e r e we have too m a n y dollars in circulation in proportion to the supply of goods. T h a t is inflationary, for it tends to create false
values or, I should say, values which would normally fall a s the supply of goods
increases. T h e value is not false a s long as the product h a s usable value. So, on



the money side we have a plus, and on the goods side we have a minus. Certainly the evil is on the plus side, so that is the side to work on, but without
doing anything to the minus side except try as fast as we can to build it up.
There is no answer to inflation except to produce usable goods—use them and
stop waste. The usable value of the goods will always take care of the price
and the terms upon which they are bought.
The very worst and most inflationary thing on earth is to add to the overhead
of anything because that increases the price without increasing the usable value.
The most destructive thing that can be done right now is to take 60,000 people
out of a producing society and add them to overhead as this OPA deal authorized
by this act will do.
It becomes increasingly obvious that our shooting war in Korea is drawing
nearer every day to a close. It is my opinion that it will stop with our troops in
Korea and become a negotiated matter or it will mean evacuation to stronger
points of defense. Unless there is a very big turn of events, we surely would
not declare war on China and you can't win a war with just the other side doing
the fighting.
Hysteria among the people is the most constant enemy to a balanced economy.
It should be guarded against at all times. The proclaiming of a national
emergency will have that reaction for a while and send prices still further up.
It is my opinion that the President will make a mistake by proclaiming a national
emergency this week, particularly if it is being done to only institute the controls
authorized under this act. Get at the root of the problem; keep people working
to produce. Work and more work is the answer and the only answer. Produce
and use, not waste, should be the creed.
In other words, gentlemen, used cars in the possession of the public are an
absolute essential to the defense effort. The price will never go up beyond that
comparable to the car's usable value. If the price does go up, the terms should
always be such that the worker may be able to buy just as anyone else. You cannot control price through credit terms; you only create false values. We must
not by regulation make cars that are available, have to be purchased in such
manner as to hinder the defense effort.
Let's look at this thing realisticaly and solve this problem with as little Government interference as possible. If we don't, we will end up exactly as every
other country has, in regulating itself into a corrupt economy and a defeated
Representative BROWN. All right, Senator.
Senator DWORSHAK. Mr. Chairman and gentlemen of the committee^
I appreciate this opportunity to appear briefly before this hearing,,
which has under consideration regulation W.
First, may I say that I do this primarily because I have been requested to appear by the Idaho Automobile Dealers Association, a n d
by potential purchasers of automobiles in my State.
I spent several weeks there recently; and I discussed this subject
with scores and scores of persons who sell automobiles, both new and
used; and, likewise, those who intend to purchase automobiles and
will be subject to the regulation which is under discussion.
I am somewhat intrigued by a report of the testimony of Chairman
McCabe, of the Federal Eeserve Board, before your committee recently, in which he is quoted as having said:
The recent limitation on automobile credit actually helped those with low
H e said:
It has reduced used-car prices and made used models easier to buy.
I vigorously disagree with t h a t contention, because it is obvious t h a t
people with low incomes should not be placed in the category where



they are permitted to buy only used automobiles. I think that they
are also entitled to buy the new machines, the new automobiles.
May I say, first, that I am in hearty accord with any program which
is designed to curb inflation. I think that is an essential part of our
military and economic preparedness. However, I do not think regulation W will curb inflation; but, rather, will accelerate it.
I should like to call attention to a telegram sent recently by the Idaho
Automobile Dealers Association, suggesting that some revision be made
in regulation W, because it is virtually impossible for a purchaser to
make the full installment payments within a period of 15 months.
In order to be specific, I requested this association to prepare a memorandum ; and I should like to read it at this time. [Eeading:]
The following memorandum is respectfully submitted for your consideration and
necessary action to obtain relief for the automobile dealers in the State of Idaho,
who are now being crippled by the present restrictions imposed upon us by the
Federal Reserve Board through regulation W.
The harshness of the present credit curbs is forcing many dealers out of business in this State. New and used-car stocks are mounting to alarming levels as
purchasers cannot afford to purchase the later model used cars under the present
credit restrictions.
Used-car prices have dropped from $200 to $500 on the late model units in
dealer's stocks, due to this lack of purchasers. As a result of this, dealers must
now make nonprofit deals, and in most cases suffer a tremendous loss, in order
to liquidate their used-car stock.
First, one proper and simple method to control credit, if it must be controlled,
would be to call upon banks and finance companies who are engaged in consumer credit, asking them to agree on fair terms, such as 25 percent down, and
a limit of 21 to 24 months, according to the unpaid balance.
Second, dealers in the West are being discriminated against, due to the addition of freight charges to the base price of their cars. As a result, the retail
prices are higher in the West, making higher payments for customers under the
present 15-month restriction. Because of this, many purchasers are buying
their cars in the East, to take advantage of smaller payments. As a suggestion,
perhaps a western buyer might be allowed an additional monthly payment for
each $75 of freight involved in the sale of the car.
New-car sales in Idaho have decreased at least 50 percent, and used-car sales
75 percent since the new credit restriction was forced upon the dealers and
public. This is also true nationally, according to NADA and the Automotive
It is the opinion that Federal controls might be necessary in some more
lenient forms, but that Federal authorities simply and obviously do not know
enough about the businesses over which they are trying to control. Nor have
they sought the advice and counsel of the National Automobile Dealers Association in Washington, D. C, who represent better than 93 percent of the new-car
dealers in the United States. This organization can well present the problems
of dealers from rural and metropolitan areas in the entire 48 States. The present controls are discriminating, inasmuch as many of the wage earners are
forced to drive old cars requiring expensive upkeep and repairs, where they
might otherwise purchase a good used car, if they were allowed the right to
purchase on longer credit terms. The moneyed man will drive a bargain for a
"good deal for cash," forcing cutthroat competition for his business. The wage
earner cannot do this because he hasn't the cash to pay. In other words, he is
entirely out of the market.
The Idaho Automobile Dealers Association asks your most serious consideration on this matter, and requests that you exert every influence to eliminate or materially modify the present regulation W. If it is found that the regulation can be modified, please request that the credit agencies, such as banks,
finance companies, and the NADA be consulted and their recommendations be
fully considered by the Federal Reserve Board.

That concludes the memorandum prepared by the Association of
Retail Dealers in Idaho. I should like to add merely that it seems to
me that in the interest of safeguarding the security of our country,



and building up our preparedness, both militarily and economically,
we should approach some of these controls with caution.
I am sure members of this committee, during this hearing, have
heard various aspects of this problem discussed fully; so I shall not
go into detail.
However, I do want to stress that it seems entirely unjustifiable to
invoke controls which will cause dislocation in the automobile industry, beginning at the factory and going through the dealers to the
ultimate purchasers of these cars, both new and used.
I know in our State and in the West, where we have long distances
to contend with, that transportation is a vital problem; and I think
anything that is done at this time to make it more difficult to get from
one place to another, to purchase automobiles which are the mode of
transportation of the average person, will cause dislocation; and instead of actually curbing inflation, will sort of cause acceleration and
inconvenience which will prove disastrous to everybody.
I appeal to you to do something to correct this situation. If it is
necessary to have a regulation of any kind, I think that Congress,
reflecting the views of not only dealers, but the purchasers of automobiles, should have a voice in determining which policy or policies
should be placed in effect.
I think that is vital from the standpoint of cooperation on the p a r t
of the American people. I think it is entirely too early in our preparedness effort to antagonize any particular group. I think the
committee is in full accord with that contention. We need cooperation; and the way to get it, in trying to curb inflation, is to consult
those who have full knowledge about any particular program. I n
this case, the sale of automobiles; going back to the production of
automobiles, also; so that we can auopt a sane and constructive program, rather than one which will cause inconvenience and dislocation
throughout the entire industry.
Thank you.
Representative BROWN. Thank you very much, Senator.
Representative PATMAN. Senator, I would like to make one observation, since you are so interested in this.
We have discovered that the Federal Reserve Board, at least, I am
convinced, has acted arbitrarily in absolutely refusing to carry out a
clear and unmistakable mandate of Congress.
We wrote into this act, section 709 of the Defense Production Act of
1950, a provision that before these credit restrictions would be imposed,
that the people affected and involved would be consulted.
Now that goes back to the original O P A Act in 1942. That was
first written into the O P A Act. There was a good reason for that.
O P A didn't carry it out just exactly like I believe Congress intended ; yet it served a good purpose. And when this came on, probably the first long step in the direction of all-out emergency, Congress was very careful to put that provision into this law; and we find
that the Federal Reserve Board has just deliberately refused to carry
out that clear and unmistakable mandate of the Congress of the United
Then we look into the Federal Reserve Board and we find for
administration purposes they are under no obligation to the Congress.
They tell us to just go anywhere they want to. I t is only in cases



where amendments to the law are involved that they have any reason
to be interested in what Congress is doing.
They are not connected with the executive department of our Government. They have finally—I don't say, wiggled themselves out;
they didn't do it; they might have had something to do with it; but
Congress permitted the Federal Eeserve Board to get out from under
either the legislative, the executive, or the judicial branches of our
Government. They are not under any one of them.
They can do what they want to. They are not directly or indirectly responsible to the people, as they should be in a democratic
country. That is due primarily to the fact that back when our national
debt was probably $20,000,000,000, and the Secretary of the Treasury
wasn't even attending the Federal Eeserve Board meetings, and
neither was the Comptroller of the Currency, somebody suggested,
"just take them out," and they were taken off, without any objection,
without any debate in either the House or Senate.
Now we have a national debt of $260,000,000,000. I t occurs to me
that somebody should be on that Board who is directly responsible to
the people, in that they are selected by the President, who is elected
every 4 years, and he is obligated to the people.
Commencing in January, I am going to give some attention and
thought, and I hope you do, to changing this Board. I don't know
whether there should be a majority that is directly responsible to the
executive and legislative branches of the Government or not. Possibly a majority should be with the Federal Eeserve Board; say, 4;
but three certainly should be directly responsible to the Congress and
the President of the United States.
The greatest power of all is not in the Federal Eeserve Board,
as such. I t is in the Open Market Committee, as you know; and the
Open Market Committee is composed principally, or at least a large
number of them, of a membership of the private banks; people selected
by the private bankers, who are interested in commercial banking, as
-distinguished sometimes from an interest they would consider purely
public interest.
That Open Market Committee should be looked into as well as the
Federal Eeserve Board, because the attitude of the Federal Eeserve
Board in this is just a sample of what they will do.
If they will right here, on the first jump, just defy Congress, and
do something that is clearly in opposition to what Congress said,
there is no telling what they would do if they had the power.
So now is the time to stop them and do something about this
Board, and especially the Open Market Committee.
I hope you give some consideration to that, Senator.
Senator DWORSHAK. I share your sentiments along that line, Congressman Patman. I think it would be a very inappropriate time to
permit this Board, or any other executive agency in the defense to
defy any mandate of Congress.
I think it would be unwise, also, from the standpoint of public approval and support, to permit the setting up of some precedent that
is not justified by the facts, which would not actually help to fortify
and bulwark our preparedness, but rather t o discourage the people
from cooperating.



I think that is an essential part, because we must have the full support of the public in any program dealing with our preparedness. I
think that Congress, reflecting the thinking of the people, and the will
of the people, should have a direct voice in the administration, through
some of these boards, of the Defense Production Act.
Eepresentative PATMAN. Of course, the Federal Reserve Board,
they are administering a law, the 12 Federal Reserve banks and 24r
branches, that are owned, it is claimed, by the commercial banks of
the country.
They bought stock to the extent of 6 percent of their deposits, and
actually they only paid in 3 percent; never have paid in more than
3 percent; and the amount of stock is absolutely insignificant, amounts
to nothing compared to the amount of business that the Federal Reserve banks do. Out of less than $200,000,000 in stock, they can buy
up to $20,000,000,000 of the national debt, or $50,000,000,000 or $100,000,000,000 of the national debt. I t is unlimited.
I n other words, we have a Federal Reserve banking system that is
owned by the private banks of the country; and if we let them administer it through the Federal Reserve Board without mandates from
Congress that are heeded, there is no telling where this country will
go. I think we ought to give some consideration to that.
Representative BROWN. All right. Thank you very much, Senator.
Now we will adjourn to meet on Thursday, December 14, at 10: 30
a. m., in room F-82 in the Capitol, in executive session, to hear Secretary Sawyer, A P A Administration Harrison, and Chairman of theN S R B , Mr. Symington.
We are now adjourned.
(Whereupon, at 12:10 p. m., the hearing was adjourned.)
(The following statements and letter were later received for insertion in the record:)

Mr. Chairman and members of the Joint Committee on Defense Production, I
wish to take this opportunity to present to you the views of automobile dealers
in my district and in other areas of Colorado regarding the consumer-credit regulations recently imposed by the Federal Reserve Board.
Since regulation W was imposed, I have received numerous letters and telegrams from automobile dealers in all parts of the State, and I also have talked
personally with some of these men. It is my opinion that they generally recognize the necessity for imposing some credit controls during this emergency period. However, without exception they feel that the present regulation is unduly
restrictive. They state that as a result of the requirement that payments must be
completed within 15 months, many persons of average income cannot afford to
purchase cars which they need in their occupations. Many dealers also have informed me that they will be forced to discharge some of their employees as a
result of the decrease in business since regulation W went into effect.
I should like to present brief excerpts from some of the letters and telegrams
which I have received. I am following this procedure since I believe you will
gain a much clearer picture of the problems of these businessmen from their
own words than from any statement which I might make.
The Denver User Car Dealers Association, Richard B. McCoy, executive secretary: "This office has made weekly surveys of the effect of regulation W
since its inception, the results of which show that business has dropped to a
serious low ebb."
Clay T. Whitcomb, Whitcomb Motors, Sterling, Colo.: "Since this regulation
became effective our sales of both new and used vehicles have come to a complete standstill, which is jeopardizing the livelihood in our own organization of
15 families, or approximately 60 people."



Swayne-Marsh-Winbush Motor Co., Denver: This regulation has already put
our business at a standstill and is resulting in the necessity of laying off large
numbers of our personnel. In many instances
the result will cause many dealers
to close their doors and go out of business. ,,
Max Mosko, Max Mosko Motor Co., Denver: "I have been forced to recognize
a $20,000 loss on a $60,000 inventory and in all probability will take an additional
$10,000 loss before the end of 1950."
Kurland Motors, Denver: "The volume of this firm's business has decreased
at least 35 percent since the renewal effective September 18, and a further drop
appears certain."
Piatt Motor Co., Lamar: "Our business fell off 30 percent with the first 21month program. We did not complain on that, but at the present program of 15
months it is impossible for an average workingman to have a late model car
or new car for his business."
James Motor Co., Denver: "This recent regulation has practically put us out
of business, as we normally deliver approximately 20 cars per week. We have
delivered and sold just four cars since this last regulation went into effect."
Reed Auto Sales, Denver: "After the directive of September 18, the sale of new
cars in our establishment dropped 60 percent. After the directive of October 16,
our sales dropped 90 percent. These new terms hit the hardest, the law-income
groups and essential plant workers who are the ones most in need of transportation."
Abies Motor Co., Denver: "Our sales have nose-dived to nothing since the time
payment limit has been reduced. We have had many potential buyers, but the
higher monthly payments make it impossible for the average person to buy."
Mr. Chairman, I have received many other similar letters and telegrams, and
I should like to leave them with you for your further consideration.
I realize that this is a very difficult problem to resolve to the satisfaction of
everyone concerned. However, this regulation so directly involves the livelihood
of the many thousands of employees in the automobile industry that its effects
should be given the most careful consideration by this committee. I am confident
that you will give full and fair attention to the statements of Colorado automobile dealers in your work on this problem. Thank you.

Washington, D. C, December 12,1950

Chairman Joint Committee on Defense Production,
Washington, D. C.
MY DEAR SENATOR : I have had a great number of communications from usedcar dealers in New Jersey protesting the terms of regulation W.
I would be most appreciative if you would see that my protest in behalf of
these used-car dealers of regulation W is entered in the record of the hearings
regarding this matter.
Sincerely yours,



to your committee on behalf of the membership of the American Finance Conference, 176 West Adams Street, Chicago 3, 111., and has been prepared by a special
committee of that organization authorized to speak in its behalf.
The conference is a national trade association, the membership of which
is composed of some 350 independent sales finance companies engaged in the
business of purchasing installment sales contracts growing out of installment
sales made by retail automobile dealers and other retail dealers located in
all parts of the United States.
The 350 companies, members of this association, maintain a total of approximately 1,300 home and branch offices throughout the United States, and during
the past year purchased consumer retail installment sales contracts covering the
sales of approximately 1,300,000 motor vehicles, involving a dollar volume of
approximately 1% billion dollars.



In addition to the purchase of these consumer retail installment sales contracts, the members of the association have extended to some 20,000 retail automobile dealers more than $1,000,000,000 in credit to purchase motor vehicles and
to maintain inventories for their businesses.
We are, therefore, vitally interested in regulation W, and any other matters
having a bearing upon the use of installment credit by consumers and dealers
in the United States.

First of all, we would like to make it very clear that:
(a) We are in favor of, and will support any and all equitable and effective
efforts to control inflation.
(&) We recognize that the Nation cannot continue to consume durable goods,
and particularly automobiles, at the rate enjoyed prior to the 1st of September
of this year, and realize that the production of these goods must be cut in order
to make manpower and materials available for the defense effort as fast as,
.and as soon as, the specific and determined needs of this defense effort are translated into production orders.
In the meantime, however, we are anxious that any and all new cars manufactured, as well as the available supply of used cars, be distributed without
discrimination, on an equitable basis, and in such a way as to meet the transportation needs of the Nation, both present and future, in the most effective
It is our judgment and belief, therefore, that the imposition and administration
of installment credit controls must be viewed in the light of their effect upon
all of the factors in our economy and not simply from the point of inflation control alone. Whatever effects, if any, installment credit control has upon inflation must be weighed against, and in the light of, their disturbing effects upon
the other segments of our economy, and particularly as to their effects upon
our private transportation system.

Since the imposition of installment credit controls by the Federal Reserve
Board through regulation W, on September 18, 1950, and their further tightening by amendment 1 to this regulation, on October 16, 1950, we have had sufficient time to study first-hand the effects of these rigid restrictions upon the
installment sales of automobiles.
The facts which have come to our attention, as well as our first-hand observations of operations under this regulation, lead us to believe that the restrictions have brought about the following undesirable changes in the markets for
1. There has been a marked falling off in the sale of both new and used automobiles. However, the greatest part of this decline has been among that group of
buyers who must purchase their automobiles on an installment-payment basis.
This decline in automobile sales has not brought with it a corresponding decline
in the production of new automobiles. The result has been that a substantial
portion of the new cars being produced has gone into the inventories of automobile dealers, thus causing a substitution of commercial credit for consumer
installment credit, with the result that the total amount of credit used in connection with the production and distribution of new motor vehicles has not been
2. The stringent terms imposed by amendment No. 1 to regulation W, and the
resulting high monthly payment requirements, have made it most difficult for
the average industrial worker and the low income person to buy a new automobile or the better quality of used cars. Thus these stringent terms have resulted in changing the pattern of the market for automobiles, because these
industrial workers and low-income groups have been forced out of the new-car
market and the later-model-used-car markets, and into the market for inferior
used-car merchandise.
This changed market pattern, born of the discriminatory effects of the stringent
terms, produces a number of undesirable results, which in our opinion, are detrimental to our national transportation needs. Among these are the following:
(a) It reduces the quality of the transportation in the possession of the average industrial worker, who should be equipping himself now with the best possible equipment, in view of the fact that we are going into a period of emphasis on defense production, and sooner or later, as our defense production effort



gets under way, there will be a reduction in the amount of automobiles available
for purchase.
(Z>) It increases the per-mile transportation cost for these groups because of
increased maintenance cost during the life of these old units. In addition, the
original cost of these older units is greater because of a greater demand for
them growing out of the increased number of buyers forced to bid against the
fixed number of these older units available for sale.


The installment seller or credit agency always relates the amount of the debt
and the rate of repayment to the income of the debtor. The average installment
buyer knows, as does the creditor, that he cannot pay out more than 25 percent
of his gross monthly income upon installment contracts. Furthermore, the
debtor himself knows the limit of his ability to pay his obligations and rations
his debt accordingly. Translated into terms of the average installment buyer's
thinking, this means that he cannot pay upon his total installment contract
obligations, more than a week's wages.
And what is this weekly wage at the present time? According to data compiled by the United States Bureau of Labor Statistics, in August of this year, the
average weekly earning of employees in all manufacturing, before taxes, was
$60.28. For the ^durable goods section of that group this average was $64.09,
and for the nondurable goods group the average was $55.78. Under existing
rates at least $5 per week of this total goes for taxes.
The time-sale delivered price of the average lower-priced new car ranges from
$1,800 to $2,000, including insurance cost and finance charge, depending upon
the section of the country in which the unit is sold (higher prices prevail on the
Pacific coast because of the freight cost). If we take the $1,800 figure and deduct
therefrom the one-third down payment of $600, and require that the balance of
$1,200 be paid in 15 months, the minimum monthly payment is $80.
In terms of the current prices of automobiles, these facts means that the average
industrial worker cannot meet the monthly payments of from $80 to $100 per
month required to purchase even the lower-priced new cars under the present
15-month limitation on credit, since the average industrial worker now earns
approximately $55 per week, after taxes. Such a payment would require 1%
weeks' income of the average industrial worker, and this he cannot pay while
taking care of his other family obligations.
The same principle applies to the purchase of late-model and the better-quality
used cars. A computation of the amount of monthly payments required to purchase at present prices, a late-model used car, or one of the better-quality used
cars under the regulation, will show that as a practical matter, the average
worker cannot buy and pay for, out of his current income, a used car which sells
for more than $1,000, or approximately that price, without making a down payment greatly in excess of the one-third required under the regulation.
Therefore, the practical result of the regulation is that this industrial worker
has to grade downward, materially, the quality of the automobile transportation
purchased, in order to buy cars which will fit into his ability to pay his monthly
payments. The data already submitted to your committee by dealer groups show
that this change has been taking place. The data on sales^finance-company operations confirm the trend also.
These general economic results which we have just noted seem to us to indicate clearly the discriminatory effects of regulation W upon the industrial worker
and the low-income groups, which effects will lead to a deterioration of our private transportation system, which system will become increasingly more important to our national welfare and defense effort in the period ahead.


Quite aside from the discriminatory economic effects of this regulation, it
seems to us that the present controls represent a radical departure in policy from
what has always been the American system. In the past, in connection with all
matters of national policy, we have attempted to apportion hardships so that
those best able to bear such burdens would shoulder the greater share. Through
this regulation in its present form, it appears to us that if the Government is
saying, in effect, that it is setting out to restrict credit—purchasing power—in
order to restrict demand, for the purpose of cutting the production of automobiles, and that the shortages which will arise from this deliberate policy must



be borne, in the main, by the installment buyers of automobiles, which group
includes those who must have good transportation in order to carry on their
work activities.
The present regulations give an advantage to persons with the greatest ability
to pay cash for automobiles, and, in effect, largely places the distribution of cars
today upon a basis of the ability of the cash buyer to pay. Persons of means
who do not need to resort to installment credit can buy automobiles if they so
desire. The family which must pay for its transportation through the use of
installment credit is forced out of the market for new cars almost entirely, and
into a market where the quality of transportation is materially inferior to that
available to the cash buyer. This, in effect, reverses our traditional policy of
apportioning hardships to those best able to bear them.
Furthermore, it seems to us that undue and unwarranted emphasis is being
given to the control of installment credit as a measure for controlling inflation.
When consumer credit control measures are viewed in the light of their relationship to all other factors in our economy, it is fully apparent, to those who give
careful attention to this analysis, that under regulation W an attempt is being
made to make installment credit controls bear too much of the burden for controlling inflation.
Despite the strict terms which have been imposed under regulation W, they
have had very little restraining influence upon the over-all total demand for
consumer durable goods and the production of such goods continues in great
quantity. Some of the declines in demand which have occurred since the imposition of these controls have been due to seasonal factors, which are well
known to those familiar with the automobile industry and other production
groups. Current evidence shows also that cash buyers are absorbing a substantial
volume of durable goods production not taken by time buyers.
It seems to us that in evaluating installment credit controls as a device for
controlling inflation a careful study must be made of the total amount of credit
outstanding at any particular time in its relation to such matters as the price
level, the wage level, the amount of disposable income of the country, the pattern
of the market for durable goods, and many other items which appear to have
been overlooked or ignored by those who arrive at the conclusion that the amount
of installment credit presently extended is too great and that its restriction will
materially lessen inflation pressures.

It seems to us also that the attempt which has been made in regulation W
to strait-jacket installment terms for the entire country through the imposition
of a very low ceiling upon the number of monthly payments allowed, without
regard to variations in the price levels for the various classes of motor vehicles,
income levels, distance factors in the need for transportation, variations in markets as between different parts of the country causes undue, unnecessary, and
serious dislocation which might be avoided, to some degree at least, if a more
realistic view of these differences were taken by the Federal Reserve Board.
The regulation in its present form either ignores or overlooks these factors, as
well as the historic pattern in the automobile sales and financing industry with
reference to terms and down payments, which has grown up as a result of the
economic and competitive factors which have operated in the industry for a long
period of time. The normal competitive forces in a free market have established
definite price and value relations between new and used cars, and between different age groups of used cars. For some of the groups the down-payment
requirements and monthly payment schedules have always been more strict than
for other groups. Many have not been as liberal as now permitted by regulation W.
Industry practices and a number of State laws have long recognized at least
three groups of terms—sometimes more—based upon different age groups and
price classes of motor vehicles, namely—new and recent model used cars not
over 2 years old; late model used cars from 2 to 4 years old; and older model
used cars over 4 years old.
Definite suggestions* pertaining to a recognition of the principle of classification
were made to representatives of the Board by representatives of the American
B^inance Conference before the original imposition of regulation W, in September.
However, to date, this principle based upon industry practices, and State laws
has not been recognized by the Board in imposing maximum monthly terms.
We feel strongly that the present discriminatory effects of regulation W,



against industrial workers and the low-income groups could be softened, if not
altogether avoided, if the Federal Reserve Board would recognize the classification principle inherent in this existing industry pattern just mentioned. At the
.same time, we believe that the administration of a regulation which incorporates
this principle could be so carried out as to produce the same restraining effects
upon inflation, if any, as are now being obtained under the regulation in its
present form.


We suggest, as a means of eliminating the present discrimination, that the
Board adopt the principle of classification just noted, and incorporate in regulation W the following terms :
1. For current model new cars (1951) and used cars of current models
(1951), one-third down and maximum maturities of 24 months.
2. For used cars for the year models 1948-1949, and 1950, one-third down
payment and maximum maturities of 21 months.
3. For used cars of year models 1946 and 1947, one-third down payment
and maximum maturities of 18 months.
4. For used cars of prewar models, one-third down payment and maximum
maturities of 15 months.
If the above suggestion as to groups and terms is not acceptable to the Board,
in view of the pattern established in the original regulation before the adoption
-of amendment No. 1, we suggest the following alternative procedure:
1. For current model new cars (1951) and used cars of current models
(1951), require one-third down payment and allow maximum maturities of
24 months.
2. Rescind amendment No. 1 to regulation W and restore the terms originally incorporated in the regulation, namely: one-third down payment and
maximum maturities of 21 months for all used-car models of year 1950 or
We appreciate the opportunity of making known to you our views on these
matters, and sincerely hope that our recommendations will now receive a
sympathetic hearing from the Federal Reserve Board. We trust that favorable
action thereon may be taken by the Board at an early date, so that the present
.discriminatory effects of regulation W as well as its detrimental effects upon our
national transportation system may be eliminated.