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industrially produced, the price of natural rubber, has increased 134 percent.
Senator BENTON. How much is that due to the cartel factor at work there?
Mr. KEYSERLING. I would not be prepared to appraise that. I am talking about the fact of price increases. Wool tops show an increase of 107 percent since Korea. Lard, to take a food commodity, an increase of 61 percent. Wholesale prices, all commodities, as measured by the weekly wholesale price index have registered an increase of about 1612 percent since Korea. Consumer's prices have followed the same upward trend, food advancing 11.4 percent; meat, something over 10 percent. Clothing prices have risen over 10 percent; house furnishings, over 14 percent. Obviously you have had enormousand “enormous” is the only word that describes it-inflationary forces at work since the Korean outbreak.
Now, those inflationary forces since the Korean outbreak rather overextended themselves. In other words, measured by the actual impact of the defense program in that period, your speculative business buying, your speculative consumer buying, with other factors, caused prices to go up more rapidly than the genuine economic situation based upon the impact of the defense program justified. Consequently you are now beginning to get something of a correction. You have had excessive accumulation of inventories, you had stocking up, you had a wave of consumer buying which dissipated itself. Now you are beginning to get a correction, but the correction simply means that the rate of inflation which was maintained for a month or two or three after Korea, or for a month or two in the early part of this year, could not be maintained indefinitely. You are getting that correction.
However, I think nothing could be more fallacious than to look at that correction which you are going to get over the next month or two or three as the long-range trend, and that is why I think the longer-range trend is so important. When you have an inflationary trend, when prices are rising, it seldom goes up in a straight line. It goes in a waving line, and if you confine yourself to a 2- or 3-month period and look at that wave you may be looking at a point when it is moving sideways rather than upward.
You can look in the Economic Indicators which you have here. You can turn to the wholesale price chart, on page 4, and see in that chart what looks like a leveling off of the price rise. Look at the heavy black line, the all-commodities line. There is something there that looks like a leveling off in the last 3 months, but if you look back to the spring of 1947, you see an even greater appearance of leveling off, although the trend was upward for a good long period after that. You see that same kind of undulation occurring through 1947 and 1948.
The point I am making is that it would be a disastrous mistake to look at the waving of the line at this particular point, which occurs for the reasons I have given, as representing the long-range trend.
Now, I do not think it is too hard to arrive at the conclusion, pretty inescapable conclusion, that your inflationary pressures are going to be much more serious by the end of this year than they are over this very short intervening period. In some ways there will be more serious fundamental economic pressures than you had immediately after Korea, though you may not have all the psychological factors due to the change in the international situation.
The first is that under the current tax program you will be running successively into a larger deficit. That is inflationary. The second is that in the very nature of the defense program
which is rising from a level of about 30 billion dollars a year to somewhere in the neighborhood of two times that amount in a year or two, you have a geometric progression of the actual rate of expenditure and placement of defense orders, and that will be very much heavier at the end of the year, and that is inflationary.
In the third place, for the reason I have given, with the growth in production, you will have growth in income exceeding the growth in production available for civilian use, because so large a part of the take will be for defense purposes. And this is inflationary.
Now, taking all these things together, and while these estimates can never be in any sense precise, even if they are 3 billion or 4 billion dollars off one way or another, they give a general picture. Taking the general picture, it seems not unlikely that by the first quarter of next year, all forms of national income flowing to business, to farmers, and to consumers, may be at an annual rate of 30 to 40 billion dollars higher than in the first quarter of 1950.
Senator SCHOEPPEL. Right at that point, where you say the over-all basis of income, or the actual income will be up, what kind of an impact do you think is going to happen now in the income from the farming groups? The last 2 or 3 years it has been down around 16 or 17 percent. How do you account for that statement that it is going to get up to that high level, taking it as the agricultural situation?
Mr. KEYSERLING. Well, now, you are raising two separate questions, Senator. You are raising the question of the aggregates, and you are raising the question of the relationship between farm income and other income.
Senator SCHOEPPEL. That is right.
Mr. KEYSERLING. First let us look at the aggregates, and then look at the farm-income problem, and I will try to help you on both of those problems if I may be permitted to.
If you will turn to page 22 of these Economic Indicators, you will see very clearly what has been happening.
Now, taking first of all the first column, which shows total national income, in the first quarter of 1950 it was running at an annual rate of 217 billion dollars. In the first quarter of 1951, it was 265 billion, an increase of almost 50 billion. Now, manifestly that 50 billion on 216 billion is almost one quarter, and that is an enormously greater increase than the increase in production. While the increase in production has been stimulating, it has been nothing like 25 percent. It is in the neighborhood of about 10 percent. That over-all aggregate figure shows the pounding trend toward more income in a defense emergency rising far above and far faster than increases in production.
If you look through the next columns, you will see how that has exemplified itself in different types of income. First of all, if you take compensation of employees, from the first quarter of 1950 to the first quarter
of 1951 the increase has been from 142 to 170 billion dollars, which is a little more than 25 billion dollars, or a little less than 20 percent.
If you take corporate profits, moving over to page 23, you will see corporate profits before taxes rising between the first quarter of 1950, and the first quarter of 1951 from 29 to 50 billion dollars, an increase
of 21 billion dollars, or somewhere in the neighborhood of 70 percent. Now, if you look over on page 24 at the third column you can see that farm proprietors' income, in March of 1950 was 11.4 billion dollars, at a seasonably adjusted annual rate, and in March of 1951 is 14.5 billion dollars, which is an increase of 3 billion dollars, or somewhere around a fourth.
You have had various trends in farm income over the past several years. If you go back to 1948, for example, you see that farm income now is a great deal lower while other types of income have increased.
Senator SCHOEPPEL. That is right.
The CHAIRMAN. As the Senator well knows, you cannot have the farm income keep going down and have lower prices.
Senator SCHOEPPEL. Faced with roll-backs and ceilings.
The CHAIRMAN. The farmer would rather have a big crop and get a reasonable price for it, than to have a short crop and charge a terrible price for it.
Senator BENTON. The figures show farm income went from 4.5 billion dollars in 1939 to 17.7 billion in only 4 years. It must have multiplied many times. You start with 4.5 billion and you go to 17.7 billion. Why should 17.7 be taken as the standard on farm income?
Mr. KEYSERLING. Well, Senator, I see that some of you city folks and some of us country folks are going to bog down on this.
The CHAIRMAN. 1939 was disastrous.
Mr. KEYSERLING. No one could seriously maintain-and I am only expressing one viewpoint which may be wrong—that in 1939 the farmers of the United States, measured by standards of living, were receiving an adequate share of the national income. I think that the policy since then has been devoted to redressing some of that imbalance. There is one important thing you bring out, Senator, and that is that the selection of a base period is a very tricky and illusory thing. If you select 1950 as the base you get one result, and if you select 1946 you get another. Therefore, I don't think that comparisons of farm income and business income and wages, based upon these base periods, mean very much. I will try to develop two central points here, which I think are significant, and develop others, if you want them developed.
The CHAIRMAN. While you are on that subject, if you turn to page 28 of the Economic Indicators you will see that the monthly average income of the farmers was 2,567 million dollars in 1948 and went down to 2,359 million in 1949. In 1950 it went down to 2,349 million. It went down in 1948, 1949, and 1950.
Mr. KEYSERLING. May I, Senator, with your kind permission try to develop this theme of why we are faced with an intense inflationary danger?
The CHAIRMAN. That is what the committee is interested in. The committee wants to stop inflation. You cannot say if the farmer gets too much for his goods
Mr. KEYSERLING. The farmer has taken an awful pounding for a long time, based upon other people's errors.
The CHAIRMAN. There is a 1950 average showing farm income way down.
Mr. KEYSERLING. I feel strongly on this farm thing, and I will try to get back to it.
The main point I was making, before we get to the heartily contested issue of the farmer
The CHAIRMAN. Seriously, what we really want to find out is how we can possibly help to get production up and even off farm prices.
Mr. KEYSERLING. I am in complete agreement with you on that, Senator. Even before you get to an analysis of where the income is going, and of who is getting relatively too much or relatively too little, the stark fact remains that from the first quarter of 1950 to the first quarter of 1951, total national income rose from 216 to 265 billion dollars, which is an increase of about 50 billion dollars, or about 25 percent and the increase in total production was about 10 percent, and the point I am making is that when you have an increase in received income of 25 percent, and production of only 10 percent, you have enormous inflationary forces at work. With such forces at work, it would be a great error to look at the mere fact that over a month or two a line is wavering as being a sign that you are going to have an abatement of those inflationary forces when all the real factors are conspiring to make them more intense in the future than in the past.
Senator BRICKER. Have you considered the amount of gross income taken in taxes in balancing those figures, and showing really the net amount that was left?
Mr. KEYSERLING. Yes; I have the figures.
Senator BRICKER. The net is what is inflationary. Taxes are really taking the top off of it, they are deflationary.
Mr. KEYSERLING. That is true, but even after allowing for changes in taxes, manifestly the 50 billion dollar increase in receivable income was not absorbed in major measure by tax increases.
Senator BROWN. This is the annual rate of 217 billion dollars in contrast to an annual rate of 265 billion?
Mr. KEYSERLING. Oh, yes; they are both annual rates.
Now, I have already mentioned the factors which make it seem incontestable, despite any wavering over the next 2 or 3 months, that you are going toward an intensification of these inflationary pressures. In the first place, if the defense program is successful at all, and I think it will be, and if the industrial mobilization program goes forward as you want it to, you are going to have additions to the labor force at the rate of a million a year, more or less. You are going to have them working longer hours. The length of the workweek in the basic industries has already gone up about an hour since early last year. Personally I would like to see it go up further through voluntary methods, and not through compulsion.
With more people working-
Mr. KEYSERLING. Yes; I have the exact figures shown in the Economic Indicators on page 9. Now, even if you should not have any increases in wage rates, you would still have enormous increases in the total wages received because of more people working and working longer hours and getting time and a half for overtime.
Second, on the business side, it is perfectly clear, statements to the contrary notwithstanding, that the course of business income is upward. You cannot look at the figures on profits without seeing that I am not saying this critically, because I think profits have a very important part in our business structure. If you look at the figures on page 23 you will see corporate profits have risen from 34 billion dollars
in 1948, which was considered an extremely good year, to an annual rate of 50 billion in the first quarter of 1951. They have risen from a rate of 29 billion in the first quarter of 1950 to 50 billion in the first quarter of 1951.
If you look at the picture after taxes, and allowing for tax increases, it shows in the first quarter of 1951 a lower return than in the latter quarters of 1950, but a level of return after taxes a great deal higher than 1948 when it was $21 billion, and $8 billion higher in the first quarter of 1950, which is a 50-percent increase.
Now, when you look at other forms of income, for the most part, except for this deviating farm trend, you see the same thing.
The important thing, however, is what is going to happen.