Senator CAPEHART. Under the Capehart amendment, they are given exactly the same treatment as the manufacturers and proc essors. Mr. TODD. Yes. Senator CAPEHART. And under the proposed Maybank amendment, they are completely forgotten. Mr. TODD. Thrown out entirely. Senator CAPEHART. That is your position? Mr. TODD. Yes. Senator CAPEHART. That is all I have, Mr. Chairman. Senator ROBERTSON. Thank you very much. The Chairman received a telegram from Mr. William Green, president of the American Federation of Labor, saying that Mr. Peter Henle voiced his views when he appeared before us. Senator Lodge referred a telegram to the chairman, from the Roy Williams Industries of Massachusetts, which I think should also appear in the record. Without objection those two telegrams will be placed in the record at this time. (The telegrams referred to follow:) Hon. A. WILLIS ROBERTSON, SAN FRANCISCO, CALIF., Senate Banking and Currency Committee, Senate Office Building. Have been informed of questioning which occurred yesterday while representative of American Federation of Labor was testifying. In order to prevent any misunderstanding, I wish to state that Peter Henle was duly authorized to represent American Federation of Labor at the hearing and that his testimony conforms in every respect to the policy of the American Federation of Labor. I would appreciate it greatly if this telegram could be made part of the permanent record of the hearings. Senator HENRY CABOT LODGE, Jr., WILLIAM GREEN, President, American Federation of Labor. BOSTON, MASS., September 13, 1951. Senate Office Building, Washington, D. C.: Senator Lodge, numerous Massachusetts manufacturers concerned that Capehart amendment to Defense Production Act, which would rightly require OPS to reflect both direct and indirect costs increases and decreases in setting price ceilings, may be ignored in administrations. Substitute. If Capehart amendment is striken, business will lose profit margin protection, OPS can limit profits to 85 percent base period. And there will be no assurance that price ceilings will reffect indirect labor costs. Administration substitute would allow price ceilings which include adjustment for changes in material and direct factory labor costs and a reasonable allowance as determined by the President which means OPS for changes in indirect labor, selling, advertising, office, and other productoin, distribution, transportation, and administrative costs. Administration substitute will undoubtedly be reported to Senate and if passed there is likely it will receive favorable House consideration. We sincerely believe support should not be given to administration's efforts to give the President complete authority for controlling inflation. Thanks for your consideration. ROY WILLIAMS, Industries of Massachusetts. 83762-51-pt. 4- -28 Senator ROBERTSON. The next witness is Mr. Goldfinger, representing the Congress of Industrial Organizations. Mr. GOLDFINGER. Thank you, Mr. Chairman. STATEMENT OF NATHANIEL GOLDFINGER, EXECUTIVE SECRETARY OF THE CIO COMMITTEE ON ECONOMIC POLICY Mr. GOLDFINGER. My name is Nathaniel Goldfinger, I am appearing on behalf of the Congress of Industrial Organizations. Section 402 (d) (4) of the Defense Production Act-commonly referred to as the Capehart amendment-will compel the Office of Price Stabilization to raise ceiling prices on most manufactured products. A sky-high floor under ceiling prices is established by this measure. It will permit increases in ceiling prices to new record peaks. Price controls on manufactured goods generally will be permissible only at levels considerably higher than at present. Price roll-backs-with very few possible exceptions—are impossible on manufactured or processed goods. The measure established a cost-plus guaranty-the procedure for passing all post-Korean cost increases on to the consumer. Fat profit margins are protected. The measure is administratively unworkable. It is an unstabilizing provision in the name of economic stabilization. It provides for built-in inflation. Section 402 (d) (4) states that future ceiling prices on nonagricultural goods and commodities cannot be below the lower of: 1. The prevailing price at the time of issuing the ceiling price regulation. 2. The prevailing price between January 25 to February 24, 1951— the period of the highest general price level in American history. This section of the measure places a sky-high floor under future ceiling prices. Prices of manufactured products cannot be rolled back beyond the price floor's high levels. Under the terms of this provision, a company can obtain an upward revision of a ceiling price by doing the following: 1. Take the highest price between January 1 and June 24, 1950; 2. Add to that price all subsequent increases in costs including materials, labor, sales, distribution, transportation, etc., that occurred before July 26, 1951; and 3. Produce the records to prove that this cost-plus method would result in a higher price than the existing ceiling price. Here, manufacturers are provided a cost-plus price-control procedure. All post-Korean cost increases up to last July 26 may be passed along to the wholesalers and retailers, where under the Herlong amendment, the price boosts are pyramided, to be paid by the con sumer. This measure makes it possible for almost every manufacture in the country to request increases in ceiling prices. As a result, OPS may be flooded with such requests. And how is the small OPS staff to determine whether the company reports are valid, when there is no sure way of measuring all costs for each unit of manufactured product? It means chaos for OPS-the possible breakdown of the entire pricecontrol machinery. In addition, the individual ceiling-price-adjustment mechanism set into motion by this provision postpones indefinitely the establishment of uniform dollar-and-cent ceiling prices. It makes it practically impossible for OPS to use a price-control method that can be easily understood and policed by consumers. Inflationary pressures pushed prices up sharply after Korea. Average wholesale prices of commodities other than farm products or foods in February 1951, were 15.5 percent higher than they were in June 1950. Despite slight declines in recent months, those wholesale prices were still 11.4 per cent above pre-Korean levels in the week ending September 11. These are the price levels set as floors for ceiling prices by this measure. Those price levels yielded peak profits. In 1949, profits of manufacturing corporations after taxes were 11.6 percent of stockholders' equity-$11.60 in profits after taxes for every $100 of stockholders' holdings. In the second quarter of 1950, the ratio of profits to stockholders' equity was 15.6 percent and in the first quarter of 1951, it was 14.8 percent. At present, it is down somewhat from the 1950-51 peaks. High profits are assured by this measure. As soon as the provision went into effect, several auto companies submitted requests for increases in ceiling prices. This was done at a time when autos were selling below ceiling prices in most localities. Ceiling prices on automobiles have now been increased by OPS. The Wall Street Journal of August 20 reveals business plans for using the provision: Some firms, like Pacific Mills and Pepperell Manufacturing Co., both textile makers, indicated they planned to apply for the right to raise prices-but only as a precaution against higher costs now unforseen. "We hope we won't have to sell at the ceilings for which we'll apply," said a Pacific Mills official, who added that "even present ceilings don't mean a thing as regards our present prices." The Washington Evening Star of last Saturday, September 15, reported: Washington's biggest grocery chain plans to seek higher ceiling prices on many food items. The story states: The increases are being asked under the so-called Capehart amendment to the economic controls law. The amendment permits sellers to pass on to consumers all cost increases from the start of the Korean War to last July 26 * * * As an alternative to applying the Capehart amendment, Safeway told OPS it would be satisfied with adjustments under another amendment which prescribes ceilings assuring groups of sellers the same profit margin they earned before the Korean War. This, too, would mean price increases, but in other chains as well. Business has been granted a guarantee of higher ceiling prices when market pressures build up. Those market pressures are building up now in some areas of the economy. They will become widespread in the winter and spring, when defense production will take a large bite out of our total output. Curtailment of metals for consumer goods will tend to boost those prices unless a firm lid is established. High personal income will add to price pressures throughout the country as full-time employment increases. Section 402 (d) (4) is a danger to the national economy. It should be repealed without delay. The original act gave business ample guarantee of fair prices and an equitable return. There is no need for the provision under consideration or for its revamping. We should take advantage of the current lull-by strengthening our anti-inflation program. Senator ROBERTSON. The Chair recognizes Senator Benton. Senator BENTON. Would you say that if the Congress does not accept the recommendations of the witnesses who have come before this committee advocating repeal of the so-called Capehart amendment, and a reversion to last year's provisions in the bill, that you would then, as an alternative, even though you do not like it, prefer the amendment recommended by Mr. Charles Wilson to the present so-called Capehart amendment? Mr. GOLDFINGER. No, Senator Benton; I did not say that. Senator BENTON. I said would you say that? You do not say that. Your testimony just flatly advocates the repeal of the present amendment, but there is another choice which is being discussed before the committee, which is the substitution for the present amendment of the amendment drawn up by Mr. Wilson, which was submitted by Chairman Maybank. Mr. GOLDFINGER. I believe that Mr. Wilson's proposal, as introduced by Senator Maybank, would be some slight improvement over the section 402 (d) (4) as it stands now, but I do not believe that it would be a substantial improvement. I would say that the Maybank proposal probably would be a little more administratively workable. I do not believe that it would affect the price control mechanism to any great extent. Senator BENTON. Mr. Wilson wrote us that it was the minimum under which he could operate. He does not sound very happy with it himself, but he wants something better than what he thinks he has now got. That seems to be clear, upon his evidence, so I gather that you would prefer giving him the minimum under which he could operate if that is the best we could do. Mr. GOLDFINGER. I do agree with the implication of your remark, sir, that the Maybank proposal would be, from an operational viewpoint, and from an administrative viewpoint, a good deal more workable than the present section 402 (d) (4). However, as relates to the inflationary pressures, I do not believe that that section would greatly affect the keeping down of the prices of manufactured and processed goods, and it is to that point that I dealt, for the most part, in this statement, because it is there that I think the great danger lies. I think that section 402 (d) (4) is a danger from two viewpoints: One, as we spoke of before, from the administrative viewpoint, it threatens OPS with chaos, because of the unworkability of the section; and, two, because it permits inflationary price rises, if and when we do get the market pressures building up, and I believe, sir, that we are getting, we are beginning to see market pressures building up in some sections of the economy. Senator BENTON. I agree with your comment, and indeed think your phrase is too mild when we look back to the testimony of Mr. Johnston. You speak of the possible breakdown of the entire pricecontrol machinery. I think it is fair to say Mr. Johnston goes even further than that, and predicts the absolute breakdown of it under the present so-called Capehart amendment, which he flatly states is unworkable. There is one other point, which perhaps you can clarify, if I might ask one more question. I think that some of your testimony, and the testimony of others before the committee gives an erroneous impression that you oppose business profits. Now, of course, there have been some inflations in profits of business corporations growing out of inventory profits and other nonrecurring profits that you get in a price structure when prices are rising. Would you comment further on your phrase in the next to the last paragraph of your testimony that you do favor giving business ample guaranties of an equitable return, because most assuredly it is in the interest of your unions to see to it that business receives an equitable return. If it is not receiving an equitable return, your problem in getting the kind of salaries and increases in living standards for your people becomes virtually impossible. Mr. GOLDFINGER. That is most certainly true. I did not mean to imply here that the CIO was opposed to business receiving a fair and equitable profit. What I meant was that section 402 (d) (4) builds up a mechanism whereby all cost increases up to July 26 can be passed on to the consumer, and, furthermore, pyramided, through the Herlong amendment, which is not being considered here. Senator BENTON. You do not think a cost-plus method of operating makes for business efficiency? Mr. GOLDFINGER. No; I do not, sir. In fact, on the contrary, I think it makes for inefficiency insofar as this type of mechanism, which provides for the possibility of automatically passing on cost increases, permits inefficient producers to get away with passing on their costs. I think it promotes inefficiency, and, furthermore, I believe that is contrary to the whole set-up of the American economy, the traditional way in which we do things. Inefficient producers under our kind of economy in the past have been penalized. They have not been able to pass on those cost increases, due to inefficient production methods, and inefficient sales methods. They have not been able to pass those cost increases on to the consumer. Section 402 (d) (4), permits the automatic passing on of such cost increases up to July 26, and I think that that is an improper procedure. Furthermore, I believe that the original act, as passed in 1950, in section 402 (c), provided a proper procedure for handling increased costs. I do not think that companies should absorb all increased costs. The section 402 (c) of the original act speaks of fair and equitable treatment, and it says: Any regulation or order under this title shall be such as in the judgment of the President will be generally fair and equitable, and will effectuate the purposes of this title, |