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ticular items where export controls were imposed after ships had left they would never have left this country. These orders apply primarily to goods that come from other countries which we stopped because they were on American planes and ships.

Senator BRICKER. How effective has that been in shutting off the shipments of other countries to enemy countries?

Secretary SAWYER. That is a matter of degree. We have, as you know, I am sure, put drastic controls on so-called transshipments. The big problem is still one of so-called parallel action by which we undertake to persuade our friends and allies to impose controls against shipments to so-called satellite countries equal to those we impose ourselves, and we have made a great deal of progress on that, although I say it has not gone as far as it should.

Senator BRICKER. I think that is all.

The CHAIRMAN. Senator Robertson?

Senator ROBERTSON. Mr. Secretary, the new bill carries authorization for Government-owned and operated plants. What Governmentowned plants do you think we will now need, if any?

Secretary SAWYER. At the moment I do not know of any that we will need, but I think, and you have heard me say on other occasions, that I am not very enthusiastic about the Government doing that. At the moment I do not know of any specific plans where this power will be used, but I feel this: that it can do no harm to have it in there if it develops that in connection with some particular critical material there is not a sufficient business incentive to cause a businessman to go into it, and we ought to have the power to do it. I do not know at the moment, and I myself feel that in 99 cases out of 100 there is ample incentive today for normal business to do the job itself.

Senator ROBERTSON. We have already issued certificates of necessity for $4 billion, and you had pending applications of from $10 to $11 billion.

Secretary SAWYER. A lot of billions; I do not know the exact

amount.

Senator ROBERTSON. And you have had a good many applications from electric utilities, and none of those have as yet been issued. Secretary SAWYER. Those do not come to me.

Senator ROBERTSON. I think, sir, you will find that a recommendation comes up from Interior, but the certificate actually has to be issued by your NPÅ.

Secretary SAWYER. No. The certificate comes from Interior, but has to be approved and finally confirmed by DPA, which is the Defense Production Authority. What I have been discussing here—and this alphabet gets very complicated, it does for me, I will say very frankly-but the National Production Authority which is in my Department, which is the thing I have been discussing here, does not make recommendations with reference to utilities. Those are made by the Department of the Interior, as you suggest, and they go now to the Defense Production Authority which has been until recently under the charge of General Harrison. Originally they went to Mr. Symington as Chairman of the Resources Board. I do not pass on those certificates, in either a preliminary way or a final way.

Senator ROBERTSON. I know Mr. Harrison's outfit passed on them, but I thought that was embraced in your Department.

Secretary SAWYER. No, Mr. Harrison-it may be confusing, because Mr. Harrison was the first Administrator in my Department of the National Production Authority.

Senator ROBERTSON. He went from NPA over to DPA?

Secretary SAWYER. That is right. He went from N to D, in other words.

Senator ROBERTSON. I do not know which had it, but I just knew they had it initially. But there was a great demand in all fields, about a 20 million kilowatt shortage in the field of electric energy, but private utilities were standing there begging for an opportunity to do the job.

You refer to need for taxes. I just had a check made on the appropriations bill that the committee has acted on in the House, and they have finished the Treasury and Post Office two supplementals, Labor and Public Security, Interior, Independent Offices, and Agriculture, and Mr. Taber claims that the House committee has cut $4 billion off the budget so far. They still have to act on State, Justice, Commerce, Judiciary, and Legislative. Well, all of those are just largely personnel appropriations, and they do not run into the big figures; and Armed Forces, of course, that is a military expenditure; and ÉCA, that is about $7 billion.

Let us assume that Mr. Taber and his colleagues over there can find another $2 billion somewhere in what is left and cut the budget $6 billion. How much do you recommend for new taxes? You said it is important to have new taxes.

Secretary SAWYER. No; I do not undertake to comment on specific figures with reference to taxes. I think we should have enough taxes to carry this burden as we go along; in other words, I do not think we should add to the debt. I do recognize the desirability, as I said awhile ago, of cutting down expenses on the part of the military, and I might also say in connection with foreign aid I feel that can be done.

I do feel that the place where the cuts will be most effective are the places where the most money is spent; in other words, where you are spending $100,000, you cut 10 percent and you save $10,000, but where you are spending $10 billion, and you cut 10 percent, you would save $1 billion.

I think if I might just volunteer that statement, the first go-around should look at the places where the most money is spent, but I certainly do not intend to qualify as a Treasury expert or give opinions on the particular amounts of money that might be saved.

Senator ROBERTSON. By the same token, if you apply a 1 percent increase in retail prices to a total production of $315 billion, it amounts to $3,150,000,000 a year; does it not?

Secretary SAWYER. I do not think the total national product of $315 billion-it does cover the other way, to put in the other way, other things than the prices of goods that are sold. I do not know what the exact figure is.

Senator ROBERTSON. We find services going up, too, you know.

Secretary SAWYER. I agree with you it is a very large figure. It is large enough to deserve attention.

Senator ROBERTSON. Well, in approximately 8 months since the Korean War, we found prices at retail up 8 percent, and wholesale

prices up 17 percent, in line pretty much with your figure, and you say we cannot continue to see retail prices go up 1 percent a month and wholesale prices 2 percent a month. Eventually the increase in the wholesale price catches up with the retail level, does it not, if it keeps on going that way?

Secretary SAWYER. I think in this inflationary spiral each one catches up with the other, but the first one gets higher. There is no end to it. That is why I think you need controls.

Senator ROBERTSON. Suppose we pass this bill, or at least so much of it as we think is really needed, and with the broad discretion which you recommend and which we included in the other bill, and we economize in the budget and pass a new tax bill so that there will not be any big gap of deficit spending in the next fiscal year, what is your present guess about inflationary pressure for the fiscal year that commences in July? How much increase do you anticipate?

Secretary SAWYER. I would not be able to answer that question, but I will say this, if I get your point: I would not increase taxes just for the sake of trying to prevent inflation; in other words, I would get the taxes that are necessary to pay the bills as we go, but, again, I am no Treasury expert and I would not regard my opinion as worth very much on that subject.

Senator ROBERTSON. But you do think inflation is right costly? Secretary SAWYER. I think inflation is our greatest danger today, and I think that unless everybody in the country realizes his or her stake in it, we may suffer terribly from failure to realize that.

Senator ROBERTSON. I am under the impression that out of the total national product the consumer goods at the present time is around. $200 billion and, if that is true, 1 percent of inflation is costing the American people an additional $2 billion.

Secretary SAWYER. Right.

Senator ROBERTSON. And 8 percent of inflation means in 1 year $16 billion more than we would have paid but for what happened after the Korean War started. I fully agree with you that if we approach the actual expenditure of $50 billion, or 15 percent of the total production, the pressure of inflation is going to increase and the necessities both as to the cause and as to the blocks we have put in the way will increase. We have got to have some control, at least for another year. Secretary SAWYER. My feeling is we should not get any false hopes just because at the moment there seems to be a surplus in the Treasury, because we really have not begun to pay for this war yet, or this mobilization, I should say.

Senator ROBERTSON. No more questions.
The CHAIRMAN. Senator Schoeppel?

Senator SCHOEPPEL. Mr. Secretary, any questions that I happen to ask you I do not ask because I mean to be critical of the way you have handled things, because I think you have done an excellent job. I note in your statement on page 6 you say:

Credit control is essential to reduce the multiplication of current income. However, by itself it is not enough. Increases in taxation at least sufficient to cover the increased Federal expenditures planned for the coming fiscal year should be provided without delay. Demands upon the market must be lessened. You say there in so many words, getting down to the brass tacks of the situation, that we ought to begin thinking in terms of balancing this budget.

Secretary SAWYER. I certainly do.

Senator SCHOEPPEL. You do feel that is one of the things we are going to have to face, and if we do we will do something about checking these inflationary trends; do you not?

Secretary SAWYER. Yes; I agree with that thoroughly.

Senator SCHOEPPEL. Now, Mr. Sawyer, I do not know whether it is in your Department or not, or in your province to say, but about what percent of the critical materials do you think, the way we have been producing now, is needed and is being utilized strictly for the defense program?

Secretary SAWYER. It varies with different materials and it varies from month to month and from week to week, and it is growing. Some people say, "Well, you are only going to need 15 percent of this, and what possible serious effect can that have on the economy?" Well, the truth of the matter is that in some areas an increase of 5 percent would have a very disastrous effect, and with the demand we had for the use of steel, we will say, when the Korean War broke out, the 15, 20, or 25 percent which would be utilized for defense purposes, and I am not sure of those figures, as I just picked those out of the air, eventually will be very serious. In other words, we cannot do without controls, in my opinion. We cannot handle the situation without controls.

Senator SCHOEPPEL. That is what I am coming back to. If we have a controlled materials plan, which we are coming to, only on three specific materials. However, your Department, no doubt, will have some studies made as to exactly what percentage is going to go to steel and to all material necessary for the defense program. The same thing on aluminum and the same thing on copper.

Secretary SAWYER. That is right.

Senator SCHOEPPEL. Is it your thought, then, that the civilian economy of this country-and I am going back now to the smallbusiness man-is going to be protected, or is the small-business man going to be just left to shuffle for himself and bid for it, which is another inflationary picture?

Secretary SAWYER. The purpose of the controlled materials plan, and, in fact, the purpose of practically every order which the NPA has issued, is to protect the small-business man. The big fellow knows how to get the orders in and he knows where he can go for his money and he knows where he goes for his raw materials; he can make contacts here in Washington that know what is going on, what the probable purchases are likely to be; but the little fellow does not haye the facilities or the money to do that.

When an order is issued which involves one specific material, which is based upon a military need, the man who gets it begins to shop around and see where he can buy that material. The big fellow knows where to go. He goes there more quickly, he has many more facilities for getting the results, and the controlled materials program is designed, as I said a moment ago, first to figure out, as you have just said, the total military demand and then see that you do not have eight procurers going to one supplier for the same job or the same order on the same job. It is an effort to try to apportion those three critical materials in the defense effort.

Now you say to me, "What are you going to do about everybody else that is not furnishing material for the defense effort?" My

answer to that is that, supplemental by the things which the chairman suggested awhile ago might be done to help small business which will, of course, continue to be done, the civilian economy on other than the military and mobilization program will not generally be controlled by the orders of the NPA or other Government agencies. If we undertook to issue an order today which would deal with every commodity and every order that every businessman gets or gives, we would have, I think. far more control than we need. We have moved in, and the present program is designed to take care of only these three things, and if we feel it does handle it in an orderly way, and the distribution of those materials, as far as defense needs and other essential needs which are tied in with defense are taken care of, that the balance of the economy will be able to live through this period. I do not mean there will not be some hardship cases and probably some failures, and I do not mean that everybody will be happy about it, but we are faced with a choice, as I said a moment ago, of complete controls on everything and everybody, which I personally do not favor, or an abandonment of controls and letting the devil take the hindmost, which, of course, always works out to the disadvantage of the little fellow.

Senator SCHOEPPEL. I thoroughly agree with you about eliminating the controls as fast as possible and not putting them on all-inclusive unless we are just forced into an all-out picture, which is something different, but when we speak about the controlled materials plan, and getting back again to your small business, the terrific clamor and the showing that the thousands of small businesses all over the country are able to make, and legitimately make, since they are now cut off almost completely from, I do not say copper, but I say from steel and a few things like that, leads them to believe that when you get your controlled materials plan that certainly they are going to have to see some loosening up of this supply that was just cut off.

Secretary SAWYER. That is exactly what we hope will happen, and I can say to you that all of the opposition to the controlled materials plan practically comes from either economists or from big business who feel that they do not need it. It is the little fellow who is going to be protected by this controlled materials plan.

Senator SCHOEPPEL. I am certainly hopeful that you are right.

Secretary SAWYER. There is not any doubt about that, Senator. Now, how effective it will be or how satisfactory and detailed it will be I do not know, but certainly from the standpoint of the smallbusiness man, as we see the picture at the moment, it is absolutely essential to put it into effect.

Senator SCHOEPPEL. Because thousands of these small businesses that come before the Small Business Committee, and have shown unequivocally that they have been cut off completely, leading them to believe that the military is taking 100 percent of a lot of these, which we know just simply is not the case.

Secretary SAWYER. The answer to that-and I perhaps did not explain it adequately a while ago-is that until we do have the controlled materials plan in effect, as far as the military need is concerned, it is not an orderly procedure. In other words, you have so many people demanding a specific thing that the whole thing is in a bottleneck; it is choked up, so to speak. Now, when we can distribute the needs. of the military, that will end. Of course, the actual military need will have to be met; but, having met it in an orderly way, there will be

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