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NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT HEARING tlEF0RE THE COMMITTEE ON BANKING A.ND CURRENCY. UNITED STATES SENATE EIGHTY-SIXTH CONGRESS FIRST SESSION ON THE NOMINATIONS OF GEORGE H. KING, JR., TO BE A MEMBER OF THE BOARD OF GOYERNORS OF THE FEDERAL RESERVE SYSTEM; AND KARL BRANDT TO BE A MEMBER OF THE COUNCIL OF ECONOMIO .ADVISERS MARCH 11, 1009 Printed for the use of the Committee on BanJdns and OurrellC!;f" UNITED ST.ADS GOVERNMENT PRINTING ODICID 3hl-53 WASHINGTON : 1811 COMMITTEE ON BANKING AND CURRENCY A. WILLIS ROBERTSON, Virginia, C\alrman J. W. FULBRIGHT, Arkansas HOMER E. CAPEHART, Indiana JOHN J. SPARKMAN, Alabama WALLA CE 1''. BENNETT, Utah J. ALLEN FREAR, JR., Delaware PRESCOTT 8. BUSH, Connecticut PAUL H. DOUGLAS, Illinois J. GLENN BEALL, Maryland JOSEPH S. CLARK, Pennsylvania JACOB K. JAVITS, New York WILLIAM PROXMIRE, Wisconsin ROBERT C. BYRD, West Virginia HARRISON A. WILLIAMS, Ja., New Jersey EDMUND S. MUSKIE, Maine 1. H. YINOLINO, Chief of Staff MAnHKW HALK, Chief Coumel D. , oi itized by Google NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT WEDNESDAY, lllABCH 11, 1959 U.S. SENATE, COMMITTEE oN BANKING AND Cumu:NcY, Washington, D.O. The committee met, pursuant to call, in room 301, Senate Office Building, at 10: 07 a.m., Senator A. Willis Robertson ( chairman of the committee) presiding. Present: Senators Robertson, Sparkman, Frear, Douglas, Clark, Proxmire, Byrd, Williams, Muskie, Capehart, Bennett, and Bush. Also present: Senator Eastland. The CHAIRMAN. The committee will please come to order. I not~ we are to consider two nominations in open session and then in executive session. We will take up the nominat~on of George Harold King, ,Jr., of Mississippi, to be a nwmher of the Board of Uovernors of the Federal Reserve System. A biographical sketch has been submitted for Mr. King, which will go in the record. (The biographical sketch referred to follows:) BIOGRAPHICAL SKETCH OF GEOBGE liABOLD KING, JB. Born August 18, 1920, at Oakdale, La.; father, George Harold King (see Who's Who in America); mother, French Freeman. Graduated Glenmora (La.) High School, 1937; best athlete award, 1936; activities award, 1937; attended Louisiana State University, 1937-41; member Sigma Chi fraternity; member "L" Club ( varsity letter club) ; graduated in 1941 with B.S. in accounting; also attended University of Colorado Summer School, 193!)...41. Entered active duty in U.S. Naval Reserve as ensign on May 1, 1942; released to inactive duty February 2, 1946, with rank of lieutenant; currently in inactive reserve of USNR. Married Daudrille Elaine Hollaway, of Melville, La., on May 15, 1942; chlldren: Linda Elaine King, born November 30, 1044; George Harold King III, born November 21, 1945; Lisa Hollaway King, born February 3, 1955. Treasurer of King Lumber Imlnstries, Canton, Miss., from 1946 to 1949; executive vice president, 1950 to 1958; president, 1958. King Lumber Industries operates lumber, oak flooring, woodworking, and wood preserving plants in Mississippi and Louisiana. Presently employs over 500 persons in manufacturing. Engaged in commerce through extensive marketing of wood products. Have extensive timber holdings and timber lenses in Louisiana. Domestic and :foreign shipments of lumber and oak flooring. Also engaged in mineral le,asing of lands. Started herd of purebred Hereford cattle in 1948 known as King Herefords, Canton, Mil'<s.: farm size, 405 arres-125 brood cows. In .January 1957 exhibited champion Herefor<l bull at National Western Livestock Show, Denver, Colo. This animal bred and raised by King Herefords, Canton, Miss. Produce of herd sold throughout the rniterl States and Mexico. Received commendation from Missisl!!ippi legislature on March 26, 19<>6, for accomplishments in cattle breeding. Di1 2 NOMINATIONS OF GEORGE H. KING, JR. 1 AND KARL BRANDT rector American Hereford Association, 19M to date; dlrector M1ssisaippl Hereford Association, 1949 to date. Appointed director of New Orleans branch of Federal Reserve Bank of Atlanta in January ~956. Served as chairman of New Orleans Branch Board, 1958. Deacon First Presbyterian Church ; director Mississippi Economic CouncllState Chamber of Commerce; member Rotary Club; Jackson Country Club; Madison County Country Club. Th~ QHA~AN. The Chair is happy to recognize in the audience our d1stmgmshed colleague, the semor Senator of Mississippi, Mr. Eastland. Perhaps Mr. Eastland would like to make a statement and present his constituent to the committee. Senator Eastland. Senator EASTLAND. Senators, I would like you to meet Harold King. I want the record to show that I have known him for many years. He is a very successful businessman, he is a director of the Federal Reserve Branch Bank in New Orleans. He is thoroughly competent and qualified in every respect and I think, if confirmed, would make an outstanding record on the Board. The CHAIRMAN. Thank you, Senator Eastland. · Also we have in the audience Governor Balderston, Vice Chairman of the Board of Governors of the Federal Reserve System. Governor, do you wish to express the viewpoint of the Board in presenting this nomination? Governor BALDERSTON. Mr. Chairman and members of the committee, it is with real satisfaction I present to you a native of Louisiana, a citizen of Mississippi, a lumberman, a cattle breeder, a director and chairman of the New Orleans branch of the Atlanta Federal Reserve Bank. Like the three most recent new appointees to the Board, l\Ir. King comes from within the System. It is with real pleasure I present him to you. The CHAIRMAN. Thank you, Governor. Now, Mr. King, if you will take the witness stand, some members of the committee may wish to ask you questions. We are pleased to greet you. Are there any questions 9 Senator FREAR. I did a little wondering as to why you left the State of Louisiana and went to Mississippi. Is there any real reason for that 1 Senator EASTLAND. He recognized a good State when he saw one. Senator SPARKMAN. I think the real reason is he was moving toward Alabama. Senator FREAR. That just makes him a long way from Delaware. STATEMENT OF GEORGE HAROLD KING, m. Mr. KING. Senator Frear, Senator Sparkman, my grandfather was born in Alabama, and he moved to Louisiana where my father was born. After the war when I got out of the Navy, we had bought a business in Mississippi, and I fell in love with the State and the people. I have g-reat respect for our congressionul deleg-ation, and I am very proud of being an adopted son. I nm proud of the fact that they adopted me. So I have remained in Mississippi with our business and also devp]ope<l some other lines of business there. I regret that I cannot live with my good friends in Louisiana also, but I do go down Digitized by Google NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT 3· there frequently, and I have many friends in Louisiana, I think. That is the reason I am in Mississippi-because of business. Senator Fmwt. Mr. Chairman, I commend the ~ople who selected Mr. King for this high and important position with the Federal Reserve System. I think they have made a very wise choice, and it is very gratifying to know, as Governor Balderston has said, that they have gone mto the System and found qualified men to represent the System on the Board of Governors. I am sorry I cannot share our colleague's social fraternity, but I can your civic organization, Mr. King. I am happy that you have been selected, and I sincerely hope you may get the affirmative vote of this committee for confirmation. Senator DouGLAS. No questions. The CnAmMAN. The Chair wishes to state that the junior Senator from Mississippi, Mr. Stennis, has personally informed the Chair that he has a very high regard for Mr. King and warmly endorses this appointment and recommends confirmation. Any questions? Senator CAPEHART. No, other than to say we are delighted and happy to support you. Senator SPARKMAN. Mr. Chairman, may I say that I had a letter from a good friend of mine, who is one of the leading bankers in the State of Alabama, strongly endorsing Mr. King. He has had experience with him, and he gives a very fine, strong endorsement. You know Austill Pharr of the First National Bank of Mobile j Mr. KING. Yes, sir. The CHAIRMAN. Mr. King, the distinguished Senator froni Illinois may have some questions for you later when he gets into the problem of a stable dollar. I do not think he will pass UJ? that pleasure. Senator SPARKl\lAN. Mr. Chairman, I would like to ask just a question or two for the record. You are not a banker as such, are you 9 Mr. KING. No, sir. Senator SPARKMAN. But you have served for several years, first with the Board at Atlanta and later with the-Mr. KING. No, sir; I have served 3 years on the New Orleans branch board and have just received, in January of this year, a new appointment for 3 years, which I have justeommenced. Senator SPARKMAN. The New Orleans branch of the Federal Reserve district. The main office is in Atlanta 9 Mr. KING. Main office at Atlanta, yes. Senator SPARKMAN. Yes. Mr. KING. I think back when the bank was located in the Sixth Federal Reserve District there was some discussion about whether the bank should have been located in New Orleans or Atlanta, so the first branch was established at New Orleans. Senator SPARKMAN. If they had put it in Alabama, they would have been good friends of mine. Mr. KING. ·with some of my heritage in Alabama, I cannot argue with you on that. Se1iator DouGLAS. May I sa,Y, in the proportioning of capital in the Federal Reserve districts, I thmk the South came off very well, thanks to Mr. Glass and Mr. Steagall. The CHAIRMAN. You are a farmer rather than a hanker. I saw a picture of your Mississippi ranch that indicated that you were Digitized by Google 4 NOMINATIONS OF GEOHGE H. KING, JR., AND KARL BRANDT raising Herefords. I also heard you were president of the National Angus Association. I wondered which is your specialty, Herefords or Angus. Mr. Knm. Well, sir_, I raise Herefords, but I have many friends among the Angus breeders. Senator SPARKMAN. You ought to be in public office. The CHAIRMAN. I think that reply is satisfactory. Thank you very much. Senator SPARKMAN. According to your biography you have 125 brood cows on 405 acres 1 Is that not pretty good j Mr. Krno. That is Mississippi for you. Senator SPARKl\lAN. You use the land quite fully. Senator FREAR. Of course, you recognize that we have the president of the American Devon Cattle Association as a Member of the Senate, Senator "'\Vayne Morse from Oregon 1 Mr. KING. I shall discuss that with him when I have an opportunity. The CHAmMAN. Thank you, Mr. King. Mr. KING. Thank you, sir. The CHAffiMAN. The next nomination before the committee •is that of Karl Brandt, of California,.__to be a member of the Council of Economic Advisers. For Dr. .tlrandt, too, we have a biographical sketch for the record. (The biographical sketch referred to follows:) BIOGRAPHICAL SKETCH OF KARL llBANDT Karl Brandt, born Essen, Germany, January 9, 1899. Graduated University of Berlin, the WUrttemberg State College of Agriculture, 19'.ll; Dr. agr., Colle,e of Agriculture of Berlin, 1926. Dr. Brandt was director of Farmer's Cooperative Plant Breeding Association, Rotenburg, Germany, 1921-25; chief appraiser and vice president of German Farm Tenant's Bank, 192S-29; adviser to the President of German Short Term Farm Credit Administration, Berlin, and member of the board of directors, 1929--33; professor of agricultural economics, College of Agriculture, Berlin, and director of Institute of Agricultural Market Research, also member of board of experts of German Bank for Industrial Obligations, and consultant to Minister of Agriculture, 192~33. Dr. Brandt came to the United States In 1933 and became a naturalized citizen In 1039. He served on graduate faculty of political and social science of NeW' School for Social Research, New York, 1937-38; professor of agricultural economics, Food Research Institute, Stanford University, since 1938. From time to time Dr. Brandt has served as adviser and consultant to the Federal Government and to international agencies and foundations; e.g., adrviser to Secretary of Agriculture, 1942; consultant, U.S. War Department, 1943; consultant, War Food Administration, Foreign Economic Administration, and Farm Credit Administration, 1944--45; adviser to U.S. Office of Military Government for Germany, 1945--46; member joint mission to Uruguay ot the World Bank and FOA, 1050--51; consultant to Ford Foundation on European Economic Cooperation, 1952-54. He is a member of the American Economic ARsoclatlon, Western Economle Associntion, American ]◄'arm Economic Association (president, 1955-56), and ,vestern Farm Economic Association (president, 1943-44). He has published books, pamphlets, and artides on subjects of agricultural economics and policies. Married to Anitta Hewe! von Llndenfels of Cologne, Germany. They have four Anwrican-born sons: Klaus, a graduate of University ot California who served :J years in U.S. Army, and at present is wi_th Southern Pacific Co.; Jobst, a graduate of Stanford University, at prl.'sent lieutenant in U.S. Army: Goetz, a student at 8tunfor(! University; and Ralph, a student at Holy Cross College. Home addr1>ss, 221 Kingsley Avenue, Palo Alto, Calif., Washington address, 3524 Davenport Street NW. Digitized by Google NOMINATIONS OJ'.' GEOJIGE Ji. KING, Ja., AND XABL BllANDT 6 The Cu.AmxAN. I understand that Dr. Saulnier, the Chairman of the C<?unci11 is he~. i:»erhaps the doctor would like to present to the oomnuttee the nommatlon. Dr. SAULNIER. I am Dr. Ra:ymond J. Saulnier, the Chairman of the present Council of Economic Advisers. I am here this morning. to introduce to the committee Dr. Karl Brandt, who has received the President's nomination to the Council of Economic Advisers and to recommend him to your consideration and approval. The CHAIRMAN. l\fr. Brandt, we are pleased to greet you, and the chairman will ask if any member of the committee has any questions. Senator FREAR. Doctor, are you acquainted with the very fine agricultural college outside of Stuttgart in Germany, Hohenheim College f STATEMDT OP DR. lCARL BRABDT, lfOEBEE Dr. BRANDT. Yes, sir. I am a graduate of that college, Hohenheim. Senator FREAR. That is wonderful. I had a little experience there myself. Not as a student, however, but as an observer. There is some credit given in that school for the invention of a continuous butter maker. I am sure it is well founded, I will not question :you on it, but I know of one of our large manufacturers of dairy equipment in this country who was extremely interested and, I thmk, visited the school, too. I personally think it is a very fine school. Dr. BRANDT. Yes, sir. The CHAIRMAN. Any other questions f Senator SPARKMAN. Dr. Brandt, in all of these different positions which{ou have served with our Government since 1939 or a little later, noticed in nearly all of them you were an adviser and consultant. Was your work primarily in the field of economics f Dr. BRANIYI'. It was, sir, mostly concerning agriculture, agricultural policy, food, commodities, and trade. The CHAIRMAN. Any further questions 9 Senator CAPEHART. Yes, I have some questions. The CHAIRMAN. All right, Senator Capehart. Senator CAPEHART. Doctor, I notice your experience has been primarily with agriculture; is that correct 9 Dr. BRANDT. That is right. Senator CAnHART. What are your thoughts at the moment with respect to solving the agricultural problems of the United States¥ Dr. BnANIYI'. WeH, I would say the agricultural situation is a very complex and difficult one. Senator CAPEHART. Very complexi Dr. BRANIYI'. Yes, very complex and very difficult indeed. Senn tor CAPEHART. That is 1he understatement. of the day. Dr. BRANDT. And it is something that is not of very recent date, but these difficulties go back to the early 1920's. In the last few years the developments inside of ag-riculture have, particularly under the impact of new technology, become so dynamic that it is even hard to keep track of all the shifts and changes that are taking place. I do not believe there is any simple solution by any sinp:ular approach. And I see also the difficulty that with the residue of our past policy experience, one thing has to be avoided definitely: that is to make an abrupt change which would bring crashing down on the Digitized by Google 6 NOMINATIONS OF GEORGE H. KING, JR., AND'KARL BRANDT markets of the domestic economy, as well as the foreign economies, the results of price supports that have accumulated in recent years is our grl!,Ilaries. . . Senator CAPEHART. Axe you a believer in the flexible price support plan, 90 percent of parity, or 100 percent, or are you in favor of a free economy for the farmer, getting the Government completely out of the farming business¥ . Dr. BRANDT. Well, sir, I have formed over the years in studying these problems in the university1 opinions on some of these matters, but I would say at the moment, m my position to which I have been· called here to Washington, my personal opinions should not be of primary importance. Senator CAPEHART. Is it not a fact that the position you are going to occupy here is one in which you will be advising the President as to what he should do~ You will be giving him information from-day today¥ . Dr. BRANDT. The Council advises the President on matters of policy, arid I would say what the President has said in his message lays down two major alleys for solution of the agricultural problem, and this is on the books, and the Council is naturally standing behind him. Senator CAPEHART. The Council consists of two members? Dr. BRANDT. Not. it has three members, but at present there are only the Chairman and .1. One position is vacant at the moment. Senator CAPEHART. That is the one you are being appointed to re~~ i . ·Dr. BRANDT. No, there is another one. Dr. McCracken was a member of the Council and he resigned. Senator CAPEHART. So there are two new members going on this. Council¥ Dr. BRANDT. Yes. I assume the other member will be appointed soon. Senator CAPEHART. Let me see just how to ask thia question. Let me put it this way and see if you can answer it. I am vitally interested in the farm situation, because I am one who believes that we must solve this problem or we are going to get into economic trouble one of these days. We have been using the price support system now for some 20 years in which, if the market price is not as high as the support price, then the farmer delivers the products to the Government; if the market price is higher, then it is sold on the open market. We have been using that for 20 years. Then we came along 3 or 4 years ago and adopted the soil hank program, which was a program in which we paid the farmers up to as high as $60 or more an acre for taking acreage completely out of production. The end result of all of it is a $9 billion surplus at the moment, which is high, comparatively, I would say, to low farm prices. It is a cost to the taxpayer. The appropriation asked for by the administration for this year is over $6 billion, and it has been progressively going up each year. It has not worked. It has not eliminated surpluses. It has not' taken the taxpayers out of the farming business. Neither has it given the farmers anywhere near comparative prices with, let us say, the city folks in all business. : Digitized by Google XOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT 7 Have you any ideas on the subject? Or let me ask you this: Do you agree with the statement that I just made~ . . Dr. BRANDT. I would agree that this present situation is in many ways very aggravating. Senator CAPEHART. Yes. Dr. BnAND'r. It is n situation that cannot continue to shift in the same direction, and the President in the Economic Report and in his mes.9age on agriculture hns, to my mind, stated this very clearly, and has pointed out that the Government must. face the difficulty to carry these tremendons surpluses, and must do something about it to reduce them. The questiot) is, of course, why this situation has he<'ome so bad. I, for one, would say that if one takes the route of supporting prices at a gradually declining lernl, then this method must he applied to its full extent. It is known, however, that the recommendations that have been made were never fully followed. But if one chooses this alternative and then applies always only a part of the "medicine," the result is that the ad1ustments in the market do not come up to expectations. Renator C.\PEIIART. I am not so certain I am following you. If you take the philosophy of wha~ Dr. BRANDT. Of adjusting gradually toward-Senator CAl'f:HART. Prices downward i Dr. BRANDT. Toward a market situation according to supply and dPmarnl as it develops. Senator CAPEi I .\RT. Then what happens, you say? Dr. BR.\NDT. If then the Secretary of Agriculture and the admintration have recommended nt various times to make adjustments in prices, bnt the 11:>gislation has not fully accepted this, and when it was suggested to adjust pricPs by 10 percent, actually allmwd only nn adjustment of 5 percent or less, then I beliern that the full test of the effedirnness of the method has not been made. Senator CAl':t:IIART. likewise, haw had, o,·er a period of years, the 90 percent rigid price support. Dr. BRANDT. Yes. Senator CAPEHART. Then we ham had the so-called flexible program, which has been progressively reduced, and that, like~ise, has added surplnses rather than reduced them and has not raised the market price. Do you have any thoughts to give us or any indication us to your feelings on this matter-your solution of this matter~ Dr. BR.\NDT. Well, as the recommeni:lations by the Secretary of Agriculture to the President ha,Te stated, there are two different ways: The one is to make the adjustment via the market with pricPs, and the other is t o Senator CAPEHART. "Make the adjustment with p1·ices"; what do you mean~ Dr. BR,\NDT. If we had no support of pri<'Ps, WP would have 0111:> situation. It is the intention of the administration to reach ewntuallv the point at which price support and Government purchases are n~ longer necessary and when more or less the market adjusts itself. ~\nd this has been the intention for a long, long period. Senator CAPEHART. Let me ask you this question: How can we possibly eliminate surpluses, their getting larger, as long as we have suppoi·t prices, whether they be at 90 percent or 60 or 70 or 80 percent, if "Te 3~0:i3-5!)--2 8 NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT t:Jie market price is going to alw&ys be a little lower or about the s1ime as the support price f . Dr. BRANDT. The adjustments are made in various ways. I have never accepted the proposition that farmers produce more-that is, persistently more-when prices get lower. Senator C.U>EIIAUT. Do you tlunk farmers produce less or more wheu prices are low i Dr. BRANDT. If prices of a certain commodity get lower, the question is for how long do the farmers expect them to be lower. If it is only a pussmg intuution of 1 year, they may not take the cue, but if they tee! a8Sured that this low 1s repeated tor 2 years and this is the real situation, then there is a lot of evidence that farmers would, ns everybody else would, make the adjustment by cutting output, because they are not cupab1e of distributing their own capital to others continually. Senator CAPEHART. \Vhat are your thoughts on recommending that the Government spend considerable money with real zip and pep for research to find new uses or new markets for farm products i Dr. tlnANDT. I believe that it is a very constructive move to assist research that will develop new avenues for the use of agricultural commodities, but I would believe that in the free enterprise economy we have, tl11s sort of research is something that has to be carried on primarily by the various industries themselves. However, from studies 1 have made over the years, I feel that there is perhaps too much optm11sm about the opportw1ity for opening up completely new markets by such new technology. Senator CAPEHART. I gather from what you are saying you think this whole thing is rather hopeless i Dr. BRANDT. No, not at all. I believe that our economy has shown over the years that it is capable of making great adjustments. I believe also that the economic situation for individual farmers is not uniform but differs greatly, in different parts of the country and for different types of agricultme. I do not subscribe to the generalized assumption that ''the farmer" is in a poor situation-Senator CAPEIL\RT. Are you in favor of keeping support prices I Dr. liR..\NDT. I believe that after the long period in which the market intervention has opel'Uted it is not possible to abolish this suddenlv. But I think also that it would be ideal if in the longer run it woufcl be possible to let the agricultural economy operate with a minimum of such supports. Senator C.u'EllART. Have you any proposals as to what to do with the sm·pluses we have! .For example, we have enough wheat on hand at the moment to last us for a couple of years. Dr. HR..\NIYr. Yes, it is one of the most difficult tasks to dispose of this enormous stock without creating havoc in the domestic as well as the foreign markets. The natural way would b&---if there were no supports--that most of this would be converted as feed into animal products, and in those markets there is much more elasticity than many people realize. Senator CAl'EHAHT. Do you think we can solve this problem? I mean, the Govemment. "\Ve are in it, whether we like it or not; we have been in it many, many years. \Ve are in it to the extent of $9 billion worth of ~11rpl11s. Do you think we-meaning the ( 'on~ress Digitized by Google NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT 9 and the administration~an handle this foreign situation without taking some dmstic measures and being very, very courageous about some things? Do you think it can be handled by going along as we are on the basis that some of these days something will happen that will straighten this matter out 1 Dr. BRANDT. I have the greatest confidence that if the Congress u11d the administmtion cooperate closely-- ~ Senator CAPF..HART. And the taxpayers will then be relieved of this surplus and farm prices will get back up to where they ought to be? Dr. BRANDT. I have the greatest confidence that if the Congress of the Fnited States really tackles this, this problem wi11 ewntually-Senator CAPEHART. l\Iy point is, do you think it can be done 011 anything other than some very drnst ic, new ideas? Dr. BRANIYI'. I do not see that the measures thnt have to be taken have to be so drastic, but they have to be right in actually adjusting very complex conditions for the total capacity of production of agnculture. · Senator CAPEHART. .Are we not faced with this situation, thnt we have the largest advantage in world trade, business is the best, that more people are employed nt the highest wages in the history of the Nation? The increase in population has been quite rapid over the past many, many years, and in spite of all that, the farm situation is very, very unsat1sfuctory1 ,vhat 1s it thnt you economists are looking to now to correct this £ituation? ,vhat is there that you think may happen now? We have tried everything: high price supports, low supports, and flexible supports. ,ve have tremendous surpluses, up to $6 billion a year falling on the taxpayers. None of this hns worked to the degree thnt we have gotten the taxpayers out of the business, gotten the Government out of the farming business, and gotten farm prices up where everything would seem to indicate that they ought to be? Dr. BRANIYI'. As I see it, the chief problem at the moment is to reduce the tremendous cost to the Nation of this system of supporting: the income of farmers, because the end is primarily a support to income. The prices are only means toward that.end. Senator CAPEH.\RT. I can certainly agree we want t"o relieve the taxpayers. ~Iy point is, Is it not going to take some drastic step or drnstic action; that is, freezing the surplus except for hungry people or something dr:u-;t ii.' '? Let me ask you this: Do you think for one minute we would have had synthetic rubber today if it had not been for the war when Congress appropriated 6 or 7 million dollars to build synthetic rubber planh;? Do you think manufacturers would have produced synthetic mbber except for that drastic step that was taken? Yet they knew how to <lo it. I nm just using that ns an example of something drastic that happened during the wnr. Dr. BR.\NDT. I ham no way of guessing nt that, but I would sny that synthetic rubber was not inn:nted, fii·st of all, in this country. Senator C.\PEll.\llT. I know 1t wns not. Dr. BR.\XDT. But it was inwnted in n country whid1 had n shortal,!e of fo1-eign exchange and tried to-Senator C.\PEHART. My point is private industry <levelope<l it nnd researched it and engineered it and dewloped it, bnt they newr did any- Digitized by Google 10 NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT thing about it, they never produced it and it was on their shelves, so to speak. The war came along and we had to have it, and we got it Dr. Bn.\NDT. Yes, sir. Senator C.n'EHART. We are faced with a situation of a $9 billion sur~ plus and low prices, and no drastic action in sight as to how to correct 1t, how to cure it. The only solution I know of that anybody has-at least, the general solution at the moment-is to permit prices to go lower, and as a result of going lower, the farmers will prodnoo less, therefore farm prices will come back up where they belong. Is that not the philosophy at the moment in respect to the farm situation~ Dr. BRANDT. The proposal that the President has made is to choose for wheat between alternatives, and the one is to tighten temporarily the productiYe capacity all around. This is one method, and that cnn be done. Senator CAPEHART. To do what? Dr. Bn.\XDT. To tighten the productive capacity. Senator CAPEHART. You mean, to reduce production~ Dr. BRANDT. Yes, by going from acreage controls to bushel controls of output. That is one method. But this is at least a temporary solution. The que::;tion still comes by nece::;sity at the end of this interim action, has to loosen up, because we do not want to see the economy eve11tually drifting into the position where ultimately every sort of production is under 11, quota and administered from "rashington, I suppose. Senator C.\l'EIL\RT. You are an economist. Do you know any way to increase business? That is really what you are talking about, to sell more, thereby creating a bigger demand whirh will automatically raise the priee. I>o you know anything to do except to sell more to our existing customer:,; or to find uew customers or new uses1 Is there any other way to do it 1 Dr. Bn.\NDT. ·well, with food we run into this difficulty: that the elasticity of the demand for food is somd10"· relatiwly limited. It is not strictly limited hut relatively-- . Senator C.u'EIL\RT. The only reason I am <liscussin/.! it here, asking q_uestions, is that I can see by your biography here that you are possibly goiug to be the one persoll who wiJl he a(h·ising- the President on the administration of farm problems. At least, yon c011ce11trnted on it or majored in it all yom life. I was anxious to get your viewpoint on it, beeause I nm very, very much interested m it. I nm a farmer, and I represent a form State, and I am interested in it from the stnndpoiut. of the genernl economy of this N"ation. The thing that frightens me about this is, I will say, that neither the ndministrn: tion nor the Con/.!ress at this momeut show any inclination to tnkf' auy drnstir steps in this matter. I think we are all drifting, aud I think it is going- to take some dmstic steps to do the joh. That is all. Se1rntor Si',\IUOL\N. Mr. Chairman, supph•rnentin/.! that. in just this one point, I notired in the papers of yestenlav, I heliPw, that farm in<'onw for l!)fi!) is expected to <hop hy 10 pen'.ent or more below the l!)fJR income. I am not asking for any nm:wer 011 it. If you have it there, perhaps you could H(h-ise us whetlwr or not that report was rorrert. But I meution that simply to poiut up the importnnrP of this !"11hjPrt that Senator Ca1wha1-t has hmnght np. Digitized by Google . . .,,. NOMINATIONS·OF GEOBGE H. KING, JR., AND :KARL BRAND'r . 11 I am pleased with -the biographical sketch regarding you, Dr.· Brandt, and I hope· you will be able to bring to us some very helpful proposals with reference to the very bad situation that we are in with reference to agriculture at this time. Dr. BRANDT. May I say, sir, I came to Washington with the intention to put my knowledge and all the best of my experience in research in this area at the disposal of the Council of Economic Advisers and to bring it to bear on its work in advising the President on these matters. The CHAIRMAN. Any further questions? Senator PROXMIRE. Mr. Chairman, could I just ask a question or two along the lines that Senator Capehart developed? I think Senator Capehart has been a great champion in the Senate of helping the farmer by stepping up research and finding new uses for farm products. He has appeared before the Agriculture Committee very, very effectively, and I think this is certamly one of the most promising ways that we can solve this problem. But is it not true that Secretary Benson is the No. 1 adviser to President Eisenhower on farm policy? Is he not? Dr. BRANDT. Yes, sir. Senator PRoxMIRE. In the second place, in your capacity as an economic adviser, would you not say that the chief problem we have is the cost to the Nation of the present farm problem? ·· Dr. BRANDT. Yes, sir. . . Senator PRoxMIRE. Is not also an equally important problem the level of fann income which has dropped so drastically and which is certainly an important element in the total economy? Dr. BRANDT. Naturally, the Nation has the keenest interest in seeing the fann population participate in the welfare of the country. Senator PRoxMIRE. Do we not have this extremely serious problem of 12 percent of our people producin~ all the food and fiber and getting only 4 percent of the personal mcome. Dr. BRANDT. Yes, but I do not believe that these measures are really so meaningful. I would say, first of all, one has to look at what happens to the income of the farm people. I just noticed 2 days ago that the estimate that we put into the Economic Report with a preliminary figure of $15 billion net income for 1958 has been raised by $1 billion and stands now at $16 billion-$16 instead of $15 billion. Senator PROXMIRE. As Senator Sparkman just pointed out, they expect prices to be down again and down sharply in the present year, or for next year? Dr. BRANDT. I believe the fact that this correction had to be made in so short a time may indicate how extremely difficult it is to forecast today what net farm income we will actually have by the end of 1959. There is an indication that some prices of animal products will go down. This is particularly true for hogs, and in the Council we keep continually watching what is going on. Yesterday I had the visit of an economist of the meatpacking industry and I discussed with him carefully this question. Even the meatpacking industry, with all its market research resources, does not know exac_tly what will happen over the next 6 months to the market in hogs. We know that the prices will come down, but not how much ; 12, NOMINATWNli OJ.r GEoaGE H. ~G, JB.1 ~ ltABL B1LUD)T and how much these lower prices, multiplied by the quntity that the :farmers will sell, will ultimately mean in incom~that we do not know. . And with reference to the other livestock, cattle, there have been anticipations that the beef cattle prices will come down & l[OOd deal in the latter part of this year. But I am not so sure that by November or December this will be found to be correct. It may take lo~. We know that eventually larger quantities of beef cattle will come into the market. Senator PRoxMIRE. The basic economic fact is that we have had a technological explosion in production in farming, is that not true 1 Dr. BRANDT. Yes. Senator PROXHIBE. And the second point is that the demand for farm products is inelastic, so that when production increases, the price drops very sharply. The result is that the income the farmers receive goes down unless some action is taken either to limit production or to find, as the Senator from Indiana is trying so hard to find, some way we can expand consumption through research. Dr. BRANDT. This is quite correct,but-Senator PRoxMIRE. Is this the overall problem : Whatever happens to the hog market this year or next year or the year after, we have this basic, serious problem. As the Senator from Indiana pointed out we can only cope with it with some drastic, new idea¥ Dr. BRANDT. That is right. Senator PRona:u. So as economic adviser to the President, all I am interested in is do you feel that we should look for new ideas and avenues 1 The President should be as openminded as possible so when new, promising ideas come along they should be very carefullr considered 1 That we do not have a solution as yet and we should consider this very serious problem with that in mind¥ Dr. BRANDT. Very much so, sir. Senator PRoxMm.E. Thank you. Senator DouoLAs. Did I understand Dr. Brandt to say that the net farm income was now runnin~ at the rate of $15.8 billion a year! Dr. BRANDT. The net farm mcome that was stated in the Economic Report of the President (p. 212) as $15 billion has been reRorted now at $16 billion, and this is the "net income from farming, including the changes in the value of inventories. Senator DouoLAS. I have here a copy of the Economic Indicators for February 19'59 prepared by the Council of Economic Advisers. On page 7 it gives net farm income, excludin_g inventories1 as $12.8 billion, and including net change in inventories, $13.7 bilhon. Are you counting the nonfarm income of farm families? Dr. BRANDT. No, sir. But there are several figures. But if one stays within the definition of the net income from farming that comprises the total net income from farming accruing to all farm people, mclnding oprrators' realized nPt inMme, Government paymPnts, value of inventory changes and wage payments to farm laborers living on farms. Then I say the interesting thing is that this net income which we assumed by the end of the year to be $15 million, has actually turned out to be $16 billion. It is $1 billion higher. Digitized by Google NOMINATIONS OP GEORGE H. KING, JB., AND KARL BRANDT 13 Senator Do'OGLAS. How do you account for these fi~_es that you nave¥ Dr. BRANDT. I have them here, sir. Senator DouoLAS. How do you account for that discrepancy 'l You :report net farm opera.ting income, excluding changes in inventories, as $12.8 billion for the fourth quarter of 1958 and including the net ~anges in inventories at $13.7 billion. How do you get this increase of two and three billion dollars, respectively 'l Dr. BRANDT. Because this is a different definition for farm income. The net income that is reported here as $12.8 billion does not include_ the changes in inventory, and it also does not include-Senator DouGLAS. It does include the change of inventories. The $13.7 billion figure has at its column head, "Including net change of inventories." Dr. BRANDT. Yes, but it does not include the wages paid to farm workers. Senator DouoLAS. Is that an income of farm operators 'l Dr. BRANDT. No, it is not. Senator DouGLAs. It is a business expense of farm operators, and certainly, on this basis, you would include the wages paid out by manufacturers as part of the profits of manufacturing, which of course they are not. Dr. BRANDT. No, Senator. These wages are wages paid to farm laborers and are included in the figures I cited in order to measure the income from farming of all farm people. This is not merely the farm operators' income. Senator DouoLAs. Oh. Senator BENNETI. That is the difference; yours is farm operators, his is all farm people. Senator DouGLAS. But the impression that might be given by Dr. Brandt's figure would be that the income of the farm owner or farm operator would be $16 billion, which is not the case. Dr. Brandt, I have always had a very high opinion of you. I have known your views on many economic and social matters. I have read your articles, and I think you are technically competent. But I certainly hope you will not allow the Council of Economic .Advisers to give us such rubber figures in the future. I do hope that you will observe due caution in these matters. Dr. BRANDT. May I say, sir. the Council does not produce these figures. This figure that I reported here is one that comes from the Department of Agriculture with their statistical resources. Senator DouOLAS. If they would take the elasticity out of their rubber we cnn get more standard measures. It is extraordinary that figures given to us by the Council of Economic Advisers is one, two, or three billion dollars off from what you have advanced to us orally. Dr. BRANDT. Senator, may I only say that in this statistical survey on agriculture--and I do this on the basis of a comparison between the statistical methods of many countries-there is no country in the world that has so perfect a statistical system of penetrating what is happening in agriculture as has the United States. Senator DOUGLAS. I think that can well be true, but I hope you will not include farm wages as income of farm operators, that is all. Digitized by Google 14 NOMINATIONS OF GEORGE H. KING, JR., AND KARL BRANDT Senator BENNETT. He did not include it. He read income from farming and did not use the word "operators." I think the Senator probably did not hear that, did not detect that distinction. · Dr. BRANDT. Senator, I believe we were talking here about the fortunes and the welfare of the American "farm people,'' and I believe that the farm laborers belong to them. We have qmte a number of different measures for agricultural income. We can separate the farm operators' income. But if we want to know what the income of all farm people is, we have to include the wage payments to farm laborers living on farms, I may say, I have seen the gradual development of this refinement in farm income measures. We have reached a point where practically every question can be answered. We have the income of farm operators, income of all farm people, net income from farming, net income from nonfarm sources, the net income from all sources, anything we want. But we have to be consistent. If we take any one of these measuring rods, we have to go along the line· of the years to see what is actually happening. The only reason why I have mentioned the recent change in the figure of income of all farm people is that I wanted to point out how very difficult it is to forecast with any degree of accuracy what will be the income of the farm operators, as well as the other farm people, by the end of this year, because there are uncertainties about what is going to happen. Are the farmers going to unload a very large amount of beef cattle this year or not? I feel t.hat what I have reported here on the statistics of net income from farming is correct, and I will stand on this. I believe there is no error on my side with reference to this statistical measurement. Senator CAPEHART. I think it all depends on how it is labeled. Senator PROXMIRE. Would the Senator yield on that one point i Senator CAPEHART. Yes. Senator PROXMIRE. It is true, however you label the figures, what figures you acce1 ,t, the per capita income on the farm from farming itself is only a little more than one-third of per capita income off the farm. If you include income from off-the-farm sources, it is only about one-half, is not that correct, so the farmer is getting about onehalf, and you consider all of his income when compared with income of people who are not farmers~ Dr. BRANDT. Yes, but-Senator PROXMIRE. This is the big central fact, and no expectation of an increase or a drop in income next year or no adjustment this year is going to basically affect that fact? Dr. BRANDT. It is quite possible that by the end of this year the farm income may have drol?ped slightly. Senator PROXMIRE. But 1t will still be approximately-Dr. BRANDT. But this depends on many things. Senator PROXMIRE. But 1t will still be far lower than-Dr. BRANDT. Not very far lower. Senator PROXMIRE. One-half-Dr. BRANDT. Oh, you compare now with-Senator PRoxMIRE. With people off the farm. Dr. BRANDT. Off the farm, yes; but is this really a good measuring rod, if you think of what is involved in all the re8t of the economy¥ Digitized by Google NOMl;NATIONS OF GEORGE H. KING, JR., AND KARL BRANDT 15 Senator PaoxxmE. It seems to me that it is an overwhelming measure for this reason: The farmer works tremendously long hours. In !Jl_y State he works 12 hours a day, 7 days a week, 52 weeks a year. He has a tremendous investment in capital. In my State the farmer has $40,000 to $50,000 invested. He is enormously increasing his efficiency in productivity, and yet his normal income is about half the income of people off the farm. It is true that there are marginal farms figured in this amount. But still the average farmer in Wisconsin has a substantial investment, and the avera~e rncome of the Wisconsin farmer is around 52 cents per hour, accordmg to the Secretary of Agriculture's own figures. This seems to me to be the big .economic injustice in this country today and the big fact that I think a man with your excellent background in farming I am sure is aware of and is concerned about. Senator BENNETr. Senator, is it not also true that the farmer has a number of noncash, compensating forms of income? The food that he grows himself he does not have to have income to purchase. I think it is not possible to compare accurately the income of a man in industry with the income of a man who is on the farm in terms of its impact on his personal economy. Senator PROXMIRE. I would simply like to say in reply, if I mav, that if you allow most generously for that, I say to the Senator from Utah that the income of the farmer is still far, far below. You might get conceivably up to 60 percent, but it is still so much further below that the comparison is most unfortunate. Senator SP.\RK1'1AN. May I ask this question: Is it not trne in figuring farmers' income you figure in what he consumes? Senator PROXMIRE. That is my understanding of this last figure; that is correct. Senator SPARKHAY. That is counted in; is it not 1 Dr; Ba,\NIYr. The consumption on the farm is counted in and it is given-Senator SPARKMAN. The value of it is estimated and it is counted in. Senator DouoLAS. Gross rental value of farm dwellings is counted in. Senator CAPEHART. One more question on your observation. You are talking about a $15 billion income for farmers. Is that the income figure for farms? Dr. Blli\1''D'l'. $16 billion for all farm people. Senator CAPEHART. And yet the appropriation asked for, this year, to support the Department of Agriculture in all of its activities is about-what? $6.5 billion? For example, the taxpayer is going to be called upon for $6.5 billion to support a $16 billiol). net income of the farmer, which shows you how 1t is completely, 100 percent out of bounds. The CHAIRMAN. Gentlemen of the committee, the Chair has no inclination to curb this interesting farm debate. The chairman is very much interested in agriculture. About half the people in his home State are dependent on farming for their livelihood, whether it is tobacco or beef cattle. He has frequently thought of the warning Thomas Jefferson gave us about the Government staying out of the 38053-59---8 Digitized by Google 16 NOMINATIONS OF GEORGE H. KING, JR., AND XAltL BRAlm'I' farm picture when he said that if we were to look to Washington as to when to sow and when to reap, we would lack for bread. And n()w our farmers, as the Sena.tor from Indiana has indicated, are looking to the Government not for a break, but for $6 billion of sup~ Frankly, the chairman is more interested in getting the G()vernment out of farming than he is in getting it into area redevelopment, but, atfer all, that is the business that we have scheduled for today, and wiless there is some further question, we thank you, Doctor. I want the record to show that both Senators from California have notified the committee that they endorse your confirmation. · Dr. BRANDT. Thank you, Mr. Chairman. The CHAIRMAN. Thrn adjourns the open meeting. The committee will go into executive session. (Whereupon, at 11 a.m., the committee proceeded in executive session.) X Digitized by Google