under the act. All the amendments are in the bill now before your committee.

Among the more important amendments relating principally to production are those concerning:

1. The broadening in certain limited areas of the procurement authority contained in title III;

2. Additional limited domestic subsidies to meet production objectives within the framework of the stabilization program;

3. Authority for the construction of defense plants by the Government, and for the installation of Government-owned facilities and processes in privately owned plants; and

4. Substitution of a provision for additional borrowing authority through the customary annual appropriations procedure in lieu of the present limitation in appropriation authority.

The important changes concerning stabilization are:

1. Those relating to administrative difficulties in the imposition of price ceilings on agricultural commodities;

2. A clarification of the present exemption for common carriers and public utilities;

3. Additional powers for the enforcement of price orders;

4. Authority to stabilize residential and commercial rents; 5. Extension of credit controls to existing housing; and

6. Control of commodity speculation.

AMENDMENTS CONCERNING PRODUCTION

In order to increase production necessary for our defense effort the Government is authorized under title III of the Defense Production Act to enter into certain procurement contracts, and to install equipment in Government-owned or privately owned plants. Under section 303, raw materials may be purchased by the Government for its own use or for resale. There are instances, however, where it may be necessary to purchase materials in a more advanced stage of production, such as sheet metal or extrusions. It is not entirely clear that the term "raw materials," used in section 303, is broad enough to cover these items. To meet this problem, we believe the procurement authority of 303 (a) should not be limited to raw materials.

An additional change in the procurement authority, contained in section 303, is required in order to remove the present prohibition on the importation of agricultural commodities for purposes other than stockpiling or industrial uses. It may be necessary for the Government to purchase agricultural commodities for purposes other than stockpiling or industrial use. In addition, the resale of imported agricultural commodities at a loss should be permitted when the price in the world market would add to the inflationary pressures in the domestic economy. This broadened authority should be available to us on a stand-by basis should our mobilization program require such action.

The second major amendment concerns our request for authority to pay limited domestic subsidies to meet production and stabilization objectives. These subsidies relate to three important areas: (1) Production from high-cost sources, (2) high-cost processing of agricultural commodities, and (3) temporary increases in the cost of production, distribution, or transportation.

During this period in which the success of our mobilization program depends upon increased production and the maintenance of a sound economy, we must assure the continued flow of necessary materials at prices which will not add to the inflationary pressures. The authority to pay subsidies for continued production from high-cost sources will be a substantial aid to the fulfillment of our mobilization goals. The amendment also provides that the President may authorize subsidies to high-cost processors of agricultural commodities if he finds

that under ceilings on products resulting from the processing of agricultural commodities, including livestock, which allows a generally fair and equitable margin for such processing, certain high-cost processors will be unable to maintain production, and that continued supplies from such processors will be unable to maintain production, and that continued supplies from such processors are necessary to carry out the objectives of the act.

Processors whose costs of operation are greater than the average of their industry may find themselves in a "squeeze" between the prices they must pay farmers and ceilings imposed on their end products. Nevertheless, their high-cost production may be needed during these times to meet military and essential civilian requirements. This subsidy authority would provide the means for maintaining production objectives consistent with our efforts to stabilize the cost of agricultural products, particularly meat. It would be applied on a limited basis and only if the continued production of these high-cost processors is found to be necessary in the general mobilization program.

The third type of subsidy authority would enable the President to make subsidy payments if he finds—

that an increase in cost of production, distribution, or transportation is temporary in character and threatens to impair maximum production or supply in any area at stable prices of any materials.

This authority is required to protect our economy from the temporary increases in costs resulting from the needs of the mobilization program. Authority similar to this was used effectively during World War II in maintaining steel production at high levels within the framework of the stabilization program by compensating for extra transportation costs required to ship essential iron ore by rail during the winter

months.

The ability to prevent inflationary pressures by these means while maintaining necessary production would offer significant assistance in achieving our dual production and stabilization objectives. I want to make it absolutely clear that there proposals for subsidy aid to producers can be used only in those cases where necessary defense production would otherwise be lost or interefered with.

The next amendment would authorize Government construction of defense plants and the installation of Government-owned facilities and processes in privately owned plants.

As I have already indicated, we are relying upon private investment to provide the industrial expansion required to meet our mobilization objectives. Under existing law we are able to encourage this expansion through guaranteed loans, direct loans, Government purchase commitments, tax amortization certificates, and installation of Government-owned equipment in plants, factories, and other industrial facilities owned by private persons. However, there are certain kinds of military production in which individuals do not wish to

invest. In some instances, it is exceedingly difficult to procure the necessary facilities without making commitments which involve high cost to the Government and practically no risk to the investor.

Moreover, private capital, even with the maximum incentives, is frequently unwilling or unable to locate new plants in strategic locations which necessarily involve such economic disadvantages as to make the plants useless to them under normal competitive conditions. For these reasons, the Government should be authorized to construct and operate defense plants as was the case during World War II. This authority would be utilized only in those comparatively few instances where private industry would not or could not undertake expansions at reasonable terms in the national interest.

We have experienced difficulty with the present authority to install Government-owned equipment in private plants, particularly in the case of refinery equipment and similar industrial processes. I, therefore, recommend that the authority be broadened to include the installation of facilities and processes. This authority would provide additional assurance that the requirements of the mobilization program can be met effectively.

As a further aid to production, it is recommended that authority be granted for the establishment of Government corporations with the powers generally attributed to corporations engaged in business-type operations. This authorization is important since the established businesses with whom such Government programs would deal are familiar with the powers and types of commitments which corporations of this type make. If the Government is to carry out its missions effectively in essentially commercial fields, I believe it should be able to do so with the maximum degree of efficiency.

I also recommend the removal of the specific limitation in the act on appropriations and the provision relating to direct appropriations. Instead there should be substituted a provision making funds available through annual appropriations for the revolving fund already established under the act. The act presently authorize $600 million in borrowing authority and $1.4 billion in direct appropriations for the expansion of productive capacity and supply under title III. There is currently pending before the Congress a request for an additional $1 billion in borrowing authority to meet these needs. As it is very difficult to estimate the exact sum which will be required to implement our production objectives during the next 2 years, it is recommended that the present ceiling on appropriations be removed and that the amounts available be established by annual appropriations actions. The revolving fund is the most efficient method of accounting for the many operations involving purchases, resales,, and contingent reserves in carrying out the provisions of title III and is preferable to direct appropriations.

These are the important changes necessary to equip the Government with the proper tools effectively to meet our immediate and longrange production goals.

AMENDMENT CONCERNING STABILIZATION

We must stabilize our economy if we are to build a strong defense. Failure to take vigorous action on this front would seriously hamper the procurement of guns, tanks, and other essential military equip

ment. It would cripple our economy, which is the backbone not only of our industrial but particularly of our military might.

The first amendment in this area relates to the imposition of price ceilings on agricultural commodities. The Defense Production Act provides that ceilings may not be imposed on an agricultural commodity below the parity price for that commodity or the highest price prevailing between May 30 and June 30, 1950, whichever is higher. The use of the parity concept in this provision is sound and should be retained under present circumstances.

However, this requirement presents serious administrative difficulties. Parity is computed on a monthly basis and may fluctuate considerably each month. Thus, a ceiling cannot be imposed with any degree of permanency upon an agricultural commodity, the price of which is at or just above parity. In these situations a ceiling which had been imposed one month would have to be removed the following month if parity should rise.

In order to facilitate administration of the present requirement in the law, it is proposed that for stabilization purposes, the parity price of an agricultural commodity shall be the parity price which existed at the beginning of the marketing season or year for that commodity. This revision would enable the Office of Price Stabilization to establish for an agricultural commodity which had reached parity a ceiling which would be stable the remainder of the marketing season. This additional degree of stability would enable processors and distributors of agricultural commodities to plan ahead with a greater degree of assurance. The parity price for the commodity would be recomputed at the beginning of the next marketing season and would reflect any changes in parity which might have occurred in the interim.

This proposal retains the congressional intent that parity be used as a measure of the fair share of the national income which the farmer should receive. It adopts a procedure which is similar to that followed in the Government price-support program for agricultural commodities under which the support price is announced at the beginning of the marketing season or year and is fixed at that level for the entire period.

Under this revision prices below parity are still free to move up to parity before ceilings may be imposed. There are a considerable number of commodities in that category, but it is my hope that through expanded agricultural production and effective stabilization of the farmers' operating costs, further inflationary pressures will not force the prices of agricultural commodities upward.

The act also prescribes the procedure by which the Secretary of Agriculture establishes fair prices on fluid milk in areas not under agricultural marketing agreements. The present procedure requires the computation of a parity price for each such area and the maintenance of a prescribed ratio. Carrying out this requirement has proved most difficult and could result in the maintenance of ceiling prices considerably above those prevailing in areas under marketing agreements. I, therefore, recommend the proposed amendment which would result in the application of uniform standards determining prices of fluid milk in all areas.

One other change is proposed in the section of the bill dealing with price ceilings on agricultural commodities. Under the subsidy au

thority I have recommended, some subsidy payments may be made to high-cost producers of agricultural commodities to assure continuance of necessary production or to producers who have experienced temporary dislocation. It is, therefore, proposed that these payments be considered together with the market price received by farmers to ascertain whether they have received the parity price for a commodity. If the market price and the Government subsidy are equivalent to the parity price, it would seem fair that the return to the farmer be limited to the parity price.

I also believe that the present exemption for public utilities and common carriers should be modified. The act now provides that the price-control authority shall not be exercised with respect to the rates charged by common carriers and public utilities. This exemption was based upon the assumption that these rates were subject to the supervision of Federal, State, or local regulatory bodies and that adequate protection would thus be accorded the interests of consumers of such property or services. However, there are a number of instances in which the rates of public utilities and common carriers are not subject to public supervision. It therefore appears desirable to revise the act to make it clear that the exemption applies only to those carriers or utilities whose proposed increase in any rate or charge is subject to the control of a public regulatory authority. In addition, the present requirement of notification and consent to Government intervention in the case of proposed increases should be amended so that notice and consent to intervention are required in all cases whether or not the property or services in question are to be offered for resale or directly to the public.

Additional amendments are also required to strengthen the enforcement of the price-stabilization program. It is recommended that the Government be authorized to prescribe the extent to which payments in violation of price-control regulations may be disregarded in determining business costs for tax and other purposes. This revision would provide authority similar to that already in the act with respect to payments made in violation of wage-stabilization regulations.

In order to clarify issues which have arisen out of past price-control litigation, the act should provide clearly that amounts paid in compromise or satisfaction of price violations may not be included as business costs for tax and other purposes. Furthermore, the present ceiling on damages for price violations of $10,000 plus the amount of overcharge in the case of price violations should be deleted. This limitation favors the large-scale violator who may risk price violations, secure in the knowledge that if apprehended, his civil financial loss cannot exceed the amount of the overcharge plus $10,000.

Finally, there is need under title IV for an effective administrative enforcement procedure which can be invoked quickly. Licensing authority similar to that accorded price-control agencies in World War II should be made available as a means of dealing with the consistent price violator. Adequate judicial review of the exercise of this authority should be provided so that effective price-control enforcement will not unduly encroach upon individual rights.

An amendment which I believe to be particularly important provides authority to stabilize residential and commercial rents.

83762-51-pt. 1- 3