ommended by the Reorganization Act the filing of statements some 24 hours in advance. It was not filed that way, and I have no criticism of you whatsoever in sending it this morning, because you did not know until the other day what amendments were going to be introduced. It was determined in this room last week that any amendments that were filed up to last night, Wednesday night, would be the subject of discussion today, so the adoption of that resolution, I think introduced by Senator Douglas, that any amendments that were filed by Wednesday night would be the topic of conversation today. Naturally in this instance you could not follow the reorganization law. I have no criticism whatsoever of your not filing something until you were sure. Senator Dirksen, only last evening, filed an amendment and I thought a lot more would file them.

Senator ROBERTSON. He said he gave this statement to the committee this morning. Why did we not get it?

Senator MOODY. We did get it. We had 3 hours between 12 and 3 o'clock to read it. I do not see any sense of adjourning for 15 minutes to read it.

Senator ROBERTSON. Who was it given to? I sat there until we adjourned, and I did not even know he had filed it.

Senator BRICKER. I just had it handed to me now.
Senator MOODY. It was in the committee all morning.

Senator SCHOEPPEL. The Senator from Kansas did not get it until just now, and I think I attended the meeting this morning. Senator MOODY. I had one this morning.

Senator BRICKER. Should we go around and find them? Is that the committee practice?

Senator SCHOEPPEL. If they go to the committee, they should be at least directed to the members of the committee in their respective offices.

Senator ROBERTSON. Did you have copies for us?

Mr. PARSONS. They were distributed this morning, sir. When they are delivered the day of the hearing, we usually do not hand them out to the Senators until the witness comes up. We have put them out in the past, and by the time the witness comes up in a case like this they would have been gone, and you would not have had one this afternoon.

Senator BRICKER. What is the purpose of delivering them? Senator MOODY. I asked Mr. DiSalle for his statement. He said he had given them to the committee. I asked the clerk for a copy, and gave me one at the opening of the hearing this morning.

he

Senator BRICKER. I think you can trust these statements to the individual Senators, if that is what they are given to the committee for.

Senator IVES. Mr. Chairman, it occurs.to me whatever the situation may be, Mr. DiSalle is not at fault.

The CHAIRMAN. I never suggested he was, except it is too long; like his orders, it is too long.

Senator BRICKER. I hope it is more intelligible than his orders. The CHAIRMAN. It is understood that Mr. DiSalle will read his statement, and at any time any Senator desires to interrupt him, he may do so with the understanding that any other Senator might follow the interruption from right to left. Is that agreed to? Senator CAPEHART. Yes.

The CHAIRMAN. Go ahead, Mr. DiSalle.

STATEMENT OF MICHAEL V. DISALLE, DIRECTOR, OFFICE OF PRICE STABILIZATION

Mr. DISALLE. Mr. Chairman, and members of the committee, I want to express my appreciation for being acquitted, or semiacquitted. I always enjoy coming over before this committee, some of the most pleasant days I have spent in Washington have been spent here before the committee.

Senator IVES. You must have had a rough time here. [Laughter.] Senator BRICKER. I have seen you when you only had one friend in the committee meeting.

Mr. DISALLE. Well, that is maybe one more than I have today. Senator BRICKER. I would not go that far.

Mr. DISALLE. We, last Thursday, were informed that these hearings would be held Thursday and Friday, and were also informed that the committee would consider any amendments filed up until Wednesday night, and so we worked last night, and some of our girls typed until very early this morning in an effort to get this statement prepared for the committee.

We feel that this is an important matter. It is very important to us, and we just did not want to gloss over it lightly, or to consider

The CHAIRMAN. Let me assure you this committee might be facetious and joke sometimes in response to your pleasantries, you and I are former mayors, and you and Senator Bricker come from the same State, but we are just as serious and just as determined to correct the evils or the mistakes we may have made if you will send us the thoughts that you have, you and Mr. Wilson.

Mr. DISALLE. This statement is the result of our experience in the past 8 months with the old Defense Production Act, and also our experience in the last 30 days since the passage of the new act, and it reflects some of the problems that we have run into, and we have done it in such a way that we feel it is a complete summary of why we feel that three amendments are important.

I will try to get over the statement just as rapidly as possible, leaving out some of the more colorful material, and just sticking to the technical explanations.

Senator CAPEHART. That would be very, very helpful.

Mr. DISALLE. The word "Capehart" did not appear in the whole thing. [Laughter.]

Mr. DISALLE. Mr. Chairman, I last formally appeared before this committee on May 15 when the committee was considering the amendment and extension of the Defense Production Act.

In the memorandum which I filed with the committee on that day, I reviewed the record of the first 41⁄2 months of price control. In that short period of time, we had made a real start on a successful program. We had passed rather smoothly and rapidly from the first step-a general freeze of most prices and were well along in the interim stage of development toward the ultimate goal of workable, effective tailored regulations.

We had weathered the inflationary hurricane that was blowing when we first set out. Our actions had brought reassurance to businessmen and consumers, who had previously been engaged in a panicky flight from the dollar.

I wish I could be as well satisfied with the record of the past several months. True, we have not been idle. We have issued 14 major regulations and 114 amendments and supplementary regulations. We have continued to make progress in a number of areas. But in the important field covered by our manufacturers' regulations, we have lost precious months of relative calm which could and should have been used to get ourselves fully prepared for the pressures ahead. Senator CAPEHART. You say in the memorandum which you filed with the committee on that day, you reviewed the record of the first 41⁄2 months of price control?

Mr. DISALLE. That is right.

Senator CAPEHART. You mean from September 8?

Mr. DISALLE. The first 41⁄2 months of price controls started on January 26.

Sentor CAPEHART. Oh, they started on January 26?

Mr. DISALLE. That is right.

Senator CAPEHART. The law was passed on September 8.

Mr. DISALLE. The law was passed on September 8, but we go into that in some detail. I believe I sent you a memorandum on that yesterday.

Senator CAPEHART. This 42 months you are talking about is from January 25?

Mr. DISALLE. That is right.

When I appeared before you on May 15, our manufacturers' regulations were due to become effective on May 28. Within the next few days we had received many requests from manufacturers for additional time to complete their calculations. In an attempt to judge the appropriateness of this request we consulted with business controllers around the country and with independent accountants who had been retained to do this type of work. Various dates were suggested ranging from June 15 to July 15 or even later. We concluded that a 1 month's extension would be reasonable.

In order to make the new prices effective on a Monday we planned to make them effective on July 2.

On June 30, Congress extended the Defense Production Act for 31 days, with what amounted to a freeze on price regulations during that time. Again our manufacturers' regulations were postponed.

Then at the end of July Congress again extended the act. With respect to manufacturers' prices, Congress specifically provided that roll-back regulations previously issued but not yet effective could become effective. But Congress followed this authorization with a mechanism that not only put a serious crimp in any roll-backs, but in many cases required roll-forwards in price ceilings.

I shall discuss this particular amendment in detail later. At this point I want to speak generally about price-control techniques and goals, and the relation of our manufacturers' regulations to those techniques and goals.

Our manufacturers' regulations were never intended as permanent regulations. In my May 15 report I said:

The manufacturers' regulation, unlike the retail regulations, is not intended to be an enduring regulation. It is a general interim regulation which will be replaced in due course by tailored regulations for the particular industries and commodities. As an enduring price-control technique, it is for most industries not good to have individual prices which each manufacturer computes

and applies. Such individually computed prices have numerous weaknesses:

(1) They impose a heavy burden of computation and reporting on business;

(2) Because they are individually computed prices, they are not clear or known to buyers and sellers alike. No one except the seller can tell whether he is selling in compliance or in violation of regulations without elaborate and time-consuming check of the seller's private records; and

(3) In many industries, uniform prices have always prevailed in the past. That is what sellers and buyers want. It makes allocations easier for the National Production Authority. It makes compliance and enforcement easier. It makes price control easier at other levels of processing or distribution.

Why then did we issue a regulation with these weaknesses? The answer is simple and I believe the reasons were generally understood by responsible business firms. The general freeze regulation, issued at a time when panic inflation gripped our markets, caught some businesses and some manufacturers at a severe disadvantage, but caught others with prices which were both excessive and unreasonable. The manufacturers' regulation was an interim device that could operate promptly and simply to relieve squeezes, roll back excessive prices, and restore reasonable order to markets. Meanwhile we could move carefully and deliberately at the job of working out fair prices, as uniform and clear and enforceable as OPS, with the help of industry, Icould make them.

The manufacturers' regulation started with pre-Korean priceswhich were normal both in their structure and their interrelationships and adjusted them for the elements of cost change that could be measured directly and with relative ease. It was a feasible step only if it were left as a first approximation of a better result which we should shortly achieve.

The enactment of section 402 (d) (4) into the Defense Production Act enshrined into permanent legislation this technique of individual calculation, which was originally devised merely as an interim step. Thereby it denied to OPS the use of the basic long-range techniques we were about ready to use. This makes far more difficult the job of stabilizing prices, and it imposes on business a burden of paper work and a kind of price control that is complicated and unsatisfactory. Most businesses tell us that they would much prefer to operate under tailored regulations, and, if possible, dollars-and-cents prices.

In cooperation with our industry advisory committees, we had already made considerable progress toward tailored regulations. By "tailored regulations" we mean regulations that cover reasonably uniform segments of industry with uniform rules and uniform price schedules that fit the business conditions and methods of operation of each segment. Instead, we are now faced in the new act with a mandate of entirely different nature. We must comply with a new standard of pricing again of the broad adjustment-formula type. But the new standard bases ceilings on the highest price level during the first half of 1950 with adjustments for changes in all costs.

The recognition of changes in all costs-rather than material and factory labor costs-is meant to be an improvement. And it would be an improvement if it were a workable concept, but it is not.

Every accounting expert will tell you that for most industries there is no definitive and indisputable way of measuring changes in all kinds of costs as required by this provision. It might be thought to be a matter of simple arithmetic about which no two honest men could disagree. But that is not the experience of business.

In many industries, the task of measuring and allocating all costs to each unit of material has baffled businessmen, accountants, and economists. Experience shows that under identical circumstances, accountants can come up with widely different cost figures, each based on an accepted method, with no one able to say that one is right and the other wrong. For example, Long's Cost Accountants Handbook, which I have here, which is highly respected by accountants and industrial controllers, has an extensive discussion of different methods of allocating overhead. Pages 1062 and 1063 summarize 17 different methods of overhead allocation, all of which are in use and all of which are in accordance with reasonable principles of accounting.

The discussion of these alternative methods is followed by a quotation from volume 19 of the National Association of Cost Accountants Bulletin. In the article quoted, Halligan points out some wide fluctuations in unit costs that can result from different methods of applying overhead. The industry in question manufactures mechanical rubber products. He states, and I quote:

It has been my pleasure to survey cost systems used in one branch of the mechanical-goods industry known as the molded-goods group. Among the 40 manufacturers investigated, I found several different methods of applying overhead to the cost of product:

(1) The poundage basis.

(2) The prime cost basis; that is, overhead is applied in relation to the combined material and direct labor values in each product.

(3) Total direct labor dollar bsais; that is, the total direct labor cost of each product is used as a basis for applying overhead.

(4) Departmental direct labor dollar basis; that is, separate overhead rates were used for each operation, based on direct labor dollar method.

(5) The machine-hour method.

Some companies follow the plan of applying all overhead in the entire plant on a machine-hour rate, depending upon the curing time at the press.

(6) Lastly, what we recommend as the correct method, departmental rates, using direct labor dollar method as a basis in all departments except those where the direct labor time does not correspond with the machine time.

I have calculated the total production costs for two products, A and B, using each of the methods listed above.

He then reports that these six different methods of allocating overhead resulted in the following costs for 100 units of product A: 14.57 cents; 23.68 cents; 26.59 cents; 22.37 cents, 21.87 cents, and 26.08 cents, a range of 82.5 percent from the lowest to the highest. In the case of product B, the costs calculated by these six different methods were $35.87, $20.43, $17.99, $30.68, $30.49, and $20.93, a range of exactly 100 percent from the lowest to the highest.

Senator MOODY. May I ask whether the law as it stands now would require you, in the face of such accounting practices, to place a ceiling on a product in accordance with one of those, or else not place any ceiling at all?

Mr. DISALLE. We would have to provide for accounting methods. We have been considering either the possibility of recognizing an accounting method now in use in the particular firm or industry, or setting up a method of calculation of our own in a regulation, but we would have to provide some method of recognizing overhead costs.