science and invention already achieved into actual productivity. That is why we feel that, in doing this productive part of the job, it is enormously important to gear economic policy to the maintenance of a large and strong production base for the economy as a whole. Every economic policy, whether it be allocations, whether it be taxes, whether it be controls, should give heavy weight and account to the fact that in the final analysis production is what you are trying to get; production to service your armed forces, production to service your civilian economy, production to service your international programs, and production to service your mobilization base itself.

You have to use manpower and you have to use materials to build the plants that will produce more materials.

Chart 5 is the picture on consumption. The projected estimates are based upon the assumed levels for the military program which we have to meet under the programs thus far set forth. They take into account the philosophy here expressed with which I think most of the members of the committee will agree: that we cannot neglect our production tools. If we are going to take care of our production tools and take care of our defense program, we have certain amounts which can be used for servicing the ultimate consumption needs of the people. The interesting thing about this chart is that it breaks down that consumption into three types: durables, nondurables, and services. It shows that over the next year or two-getting back again to the question that Senator Bricker raised- we will have to engineer rather sharp cutbacks in durable consumption, simply because we will not have the resources to produce that much durables for the civilian population and at the same time to service both the defense program and the industrial mobilization base as shown on chart 4.

Now, it is a mistake to think that the only reason for wanting to cut back on your durable consumption is to service the armed forces program. That is one important priority. But if that alone is done, and no account is taken of cutting back on your consumer durables in order to service your production base, you gradually get a production base which cannot carry your military program and your consumer economy. As a result, you have the triangle standing on its top instead of standing on its base.

In talking about the cut-back on consumer durables, I think you need a vigorous program to service both industrial production and consumers. In other words, if you cut back automobiles just enough to take care of the military program, you cannot at the same time expand your steel capacity. And if you do not expand your steel capacity, you cannot see the way out, within a year or two from now, both to carry the military program and to supply consumers with durables including automobiles.

This shows that even after cutting back heavily on durables, when you look at nondurables and services, you find that the total of consumption for the economy as a whole can be more or less maintained. I say "more or less" advisedly. But it can be more or less maintained over the next year or two with a defense program of this size, and with an industrial mobilization program of this size, which I think is so important.

Now, there is a dual significance in that. The first significance is that statements that even if we must undertake a defense program of this size in the interests of national security-and I believe that we must, but I am not pretending to be an expert on that field-statements that we cannot undertake such a program without wrecking or destroying or impoverishing our economy would not seem to hold

water.

The CHAIRMAN. Now, may I interrupt there?

We are going to have less durable goods in the first half of 1952 than you had in 1949; is that right? Or is that the same amount? Mr. KEYSERLING. It is about 30 billion dollars in the first half of 1951 and will drop by the end of the year to around 25 billion.

The economy as a whole has enormously increased its productive potential since 1949 and hence consumption expenditures are higher. In other words, the whole bar has increased.

The CHAIRMAN. This is 24.8 billion dollars in 1949, and will be even lower in 1952, back to about what it was in 1949. Then why is it necessary to cut back on your durables?

Mr. KEYSERLING. In 1952, if you did not have a defense program, and if you did not have an industrial mobilization program, you could have enormously more durable goods than you had in 1949.

The CHAIRMAN. But my point is that the amount in 1949 and 1952 is the same. What happened to the durable goods in 1951, for example? Is that tanks?

Mr. KEYSERLING. The durable goods that the Army buys are not in here at all. These are the durable goods that the consumer buys. The CHAIRMAN. We have the same as we had in 1949. Mr. KEYSERLING. We have more than we had in 1949.

The CHAIRMAN. Then why should we have to curtail?

Mr. KEYSERLING. Because the production now is much higher than in 1949. In other words, to answer the question specifically, the production for civilian use in 1949 was 24.8 billion dollars. The production for civilian use in the first half of 1951 was at an annual rate of about 30 billion dollars, which is more than 5 billion higher. The CHAIRMAN. But we can't get copper wire, for example.

Mr. KEYSERLING. That is right; there are shortages even at the higher level of production.

The CHAIRMAN. Is copper a scarce material?

Mr. KEYSERLING. Oh, yes; definitely.

The CHAIRMAN. So those durable goods would include copper?

Mr. KEYSERLING. Yes; they include copper for consumer durable goods. But if you cut back more on consumer durables you would have more copper for more important things in these times. That is the point I was trying to make.

The CHAIRMAN. I understand now. Those durable goods are not only copper, steel, and things we are short of, but they are everything. Mr. KEYSERLING. These black bars in chart 5 represent total consumer purchases of durable goods: automobiles, hard goods, refrigerators, and television sets.

By the first half of 1951, that was approximately 5 to 6 billion dollars higher than in 1949. The point that this makes is that we cannot do the defense job and continue consumer durables at about 30 billion dollars. They have to be cut back.

Even when they are cut back to 24 billion or 25 billion dollars—and that will be a cutback big enough to enable us to do other things-we will not be really strapped or wrecked. At that much lower level we will still be as high as we were in 1949, which was a pretty good year, and we will be much higher than we ever were before the war.

That merely illustrates that due to the real growth of the economy, we can, with a wise reassignment of our resources, do this job, and have enough not to live in the luxury we would if we didn't have the defense program, but certainly to get by on a good, high standard.

Senator BRICKER. The only thing that will cut that anticipated half of 1952 durable goods below what it was in 1949 or 1948, certainly, will be the increased population so there will be less per individual.

Mr. KEYSERLING. There will be less per capita. It would be cut further if the defense program should need to be expanded still faster,

or it would be cut further if under some new decision of policy you decide to put more of this material in building up your production.

In other words, if it should be decided that farm machinery is more needed than automobiles, or that transportation equipment is more needed than automobiles, or that steel capacity is more needed than automobiles, you might cut this a little more to build up your industrial mobilization base.

Personally, I would like to see that done. I think we would be stronger if it were done. But that is the nature of the problem.

Now, I want to come over to the inflationary side, which, as I say, has occupied the center of the stage. The reason I have gone into these charts is to summarize.

We couldn't make any greater mistake than to become so preoccupied with one segment of this economic job that we forget the other segment. I think it enormously important to control inflation. I think the controls are very important in this situation, but I have said before and will say again here, until I am silenced, that we can never outcontrol the Russians. We cannot outcontrol the Russians, because they have a system based upon absolute control of everything from every grain to every buttonhole throughout the land. We will never be able to outcontrol the Russians because they place so little value upon the individual that they will throw a man to a grinding-up machine without any more thought than for a gallon of gasoline. We cannot outcontrol them, but we can outproduce them, and it is in outproducing them that our margin of superiority lies.

Therefore, as we look at the specific programs directed at controls, we must also ask the question: "What is the production objective? How do the two fit together?" And I say, by way of advice, that if I were sitting on your side of the table, and I have said this at another hearing, the question that I will put to each person exercising a specific program is: "Have you a production rationale as well as control rationale?'

The CHAIRMAN. I am glad to hear you say that. There are certain members of this committee, I, for one, have been criticized for not taking up prices-not the question of what a pound of beef was worth, but the price that would get the production. That is what I have been trying to do. The more you produce, the lower the prices will be.

Mr. KEYSERLING. Senator, in saying what I have said generally about the importance of production, I don't mean to imply that any price or any wage for any commodity in any place is justified to get that production. On this particular matter of meat, in which you are interested

The CHAIRMAN. I am only interested in production.

Senator BRICKER. May I ask a question at this point?

You said we can't outcontrol the Russians, but we can outproduce them.

Do we not lessen our production capacity, the nearer we approach the Russian control system?

Mr. KEYSERLING. If we go too far, I think so.

Senator BRICKER. Any trend that way does appreciably lessen our production capacity.

Mr. KEYSERLING. I wouldn't say that of any trend that way, Senator, because I don't believe, from anything I have said, that we

could have gotten through World War II with as few controls as we had in 1939. I think that the very essence of a defense emergency is more controls than you have in normal peacetime, and therefore I certainly wouldn't want to be interpreted as saying that any trend toward more controls is bringing us closer to the Russians.

Senator BRICKER. It is a carry-over of the element of freedom and it is a permanent carry-over effect, but ultimately you can destroy that.

Mr. KEYSERLING. I think it is partly a matter of the scope of the controls, but I think it is even more a matter of how they are arrived at and how they are applied.

Senator BRICKER. And isn't it also important that as we meet these goals we get the controls off as soon as possible?

Mr. KEYSERLING. Oh, there is no question about that. I don't think that time is yet, but I think one of the reasons that production is so vital and important is that if we are lucky enough to avoid an all-out struggle we will have built up capacity in a year or two or three to a point where we can remove some of the controls. But I don't want it understood from what I have said, and I want to underscore this, that I would believe for a minute that you can move into a defense program of this size, superimposed upon a high-level economy, without having more controls than you had in peacetime.

Senator BRICKER. I think the element of necessity of control ought to be the determining factor, and not the desire for control. Mr. KEYSERLING. It certainly ought to be.

Senator BENTON. Is Senator Bricker right; that we are moving closer to the Russians the more we put on controls, but that it is an unhappy necessity?

Mr. KEYSERLING. Well, the fact that two nations adopt similar devices doesn't make them the same. Somebody might say we are moving closer to the Russians because they are a military state and we are increasing our military strength.

Senator BENTON. Somebody would be right who said that.

Mr. KEYSERLING. That would be right unless they recognize, as I do, that we are doing it for different reasons, for different purposes, and for a different period of duration. We are doing it to get over a hump so we won't have to do it forever. They are doing it based on an idealogy that they will do it forever or until they exert influence over the entire world.

Senator SCHOEFFEL. But don't they have to be mindful of the segments of our society and business units not to stifle too many of them during this period that will toss us back by unnecessary or too harsh controls, which will throw them completely out of business?

Mr. KEYSERLING. I think that is undoubtedly true, but I don't think I would be fair or frank-and I am trying to be that with the committee-if I intimated that because of what I have said about production that I think production is a complete substitute for controls, or that you can get through this defense emergency without more controls than you have in peace time.

The trouble with statements made by those of us who have to labor against misinterpretation is that if you emphasize one thing somebody says you neglect the other thing entirely.