Now, right now mortgage credit is tighter than it has been for a long time.

Senator BRICKER. Of course, that is what we tried to do.

Mr. MARTIN. That is forcing people to appraise starts very carefully, and unquestionably it is going to have the effect of reducing them somewhat. We have a problem, of course, to see that there isn't any undue hardship in completing structures that have been started. However, there is a definite tightening of the situation now. It is going to be several months before we can actually appraise the effects of this tightening.

The CHAIRMAN. It may be that the effect, then, of the law, or the regulation, with the tightened credit situation, may not show up until, say, the next quarter or the quarter after. It may be more effective than you anticipate now.

Mr. MARTIN. That is exactly right.

Senator BRICKER. So that you can't really definitely say that the first 3 months are indicative of the total number of starts this year, and that will be projected across the whole year.

Mr. MARTIN. That is right; and with due respect to our staff, I wouldn't want to put too much confidence in this 1 to 1.2 million esti

mate.

Senator BRICKER. I can't help but believe that the program and the law that we enacted are more effective than, say, to have cut 100,000 units off from last year.

Mr. MARTIN. Well, I am inclined to think so, but those that have been working on the subject steadily have blown hot and cold on this point.

Senator SCHOEPPEL. Mr. Martin, on this matter of credit, maybe you can help me out. I have been doing a little checking back.

I have the feeling that the credit extension, or the credit we had available in 1939-or, in other words, the credit that we have now is less in ratio than it was in 1939.

Now, what I mean by that is this: In 1939 we had an over-all situation of about less than $73 billion of credit that was extended on a ratio of about, I think, 7 billions of credit extended, somewhat around 11 percent.

Now, we know that credit is based upon income. We all have to admit that as a fair premise.

Now, in 1948, we had about $233.5 billion of income, and consumer credit ratio there was about $14.3 billion.

In 1950, we had a national income of about $236.5 billion, and $20 billion of consumer credit.

Now, we come down in 1951, and estimate about $265 billion of income, and it looks like we will have an extension of credit of about $19.5 billion.

Now, it seems to me if we use 1939, we do not actually have an overexpanded credit situation here. I would be interested in having your comments on that.

Mr. MARTIN. I can't give you anything on that, Senator, except the honest comment that I have been puzzling about how to measure it. I have asked our staff to make some studies along such lines-on what is the right relation for credit to have to gross national product or some other measure of total output. I have been concerned about this problem for quite some time.

The only thing I am sure of is that, irrespective of what the relationship may have been in the past, it is vital at this point to keep down credit and to divert as much credit as possible into war production. I don't believe we can superimpose war output upon the present civilian economy without curtailing somewhere, without some saving and sacrifice. Whatever the ratio of credit to total national product may have been in the past, it seems to me that the problem of the future is very clear; we must reduce and conserve our credit, and direct it into the armament program.

Senator SCHOEPPEL. I agree the armament program comes first and wants to be paramount with all of us, but if we curtail credit too severely, and if we shut off private industry to extend credit, don't we find that we are forcing ourselves into reliance upon the Government, and running into a socialization program?

Mr. MARTIN. I think it is very important that we maintain a proper

balance.

Senator SCHOEPPEL. That is the very reason why I was interested in that relationship between 1939 and 1951, now that we must have due regard for the over-all defense, but irrespective of that, it looks as if there is too great a disparity there on percentages for us to find out exactly where we are going.

Mr. MARTIN. I can read a little item here, Senator, and put it in the record:

A rough idea of the importance of installment credit in adding to purchasing power is obtained by comparing the increase in installment credit outstanding with the increase in disposable income. Between the second and third quarters of 1950, disposable personal income increased at the annual rate of $9 billion. At the same time, consumer installment credit outstanding was increasing at a rate of $5.2 billion per year, or 58 percent of the increase in disposable income. Between the third and the fourth quarter, disposable income increased $7 billion per annum, and installment credit increased $2.2 billion. The credit expansion was equal to 31 percent of the expansion in disposable income. Between the fourth quarter of 1950, and the first quarter of 1951, disposable personal income increased $3.8 billion. Installment credit outstanding increased at an annual rate of $700 million, or equal to 18 percent of the disposable income expansion.

Senator SCHOEPPEL. That takes into consideration, of course, what we call "scare buying" over a period of time, which of course pyramided all out of proportion, but it would average out over a period of a year, of course.

We would get a pretty good figure on that.

Mr. MARTIN. That is right.

Senator DIRKSEN. Mr. Martin, I notice in your statement that savings bond redemptions exceeded purchases in the nine months' period from June 1950, to March 1951, by a billion dollars. Is that right?

Mr. MARTIN. Yes.

Senator DIRKSEN. Is that rate still in progress?

Mr. MARTIN. In April, the redemptions of series A-E savings bonds exceeded purchases, I think, by about $90 million.

Senator DIRKSEN. So on a more modest scale, it is still in progress. Mr. MARTIN. On a more modest scale it is still in progress.

Senator DIRKSEN. Would you say piling inventories may have been partly responsible for that?

Mr. MARTIN. I think there was some element of fear in it, but nevertheless, you have to realize that a lot of people that had brought savings bonds in the period 7 or 8 years ago now foresaw a period of scarcity and shortage in certain items that they wanted. A lot of people had cars, for example, that they deferred purchasing for a period of years, and here was an opportunity for them to get in ahead of the squeeze.

The person who right after Korea thought war was right around. the corner, and had a small number of savings bonds that he accumulated was at the point where he preferred, I think, to cash in those savings bonds and buy a refrigerator.

Senator DIRKSEN. You express a more hopeful note about the bank credit situation at the moment in your statement. Is that due in part, at the present time, to inventory liquidation, and when that is over what can we anticipate in the next few months?

Mr. MARTIN. Well, we just don't know. There has been some liquidation of inventories, but I don't think that it has been very important. However people are being more careful about the situation. We feel that the voluntary credit restraint program, with its education of both the borrower and the lender as to what we are trying to do together with other developments, including progress in placing defense orders is combining to put more sanity into the economic situation.

Senator DIRKSEN. Do you approve the provision in this bill relating to control of margins on commodity purchases?

Mr. MARTIN. Yes, I do.

Senator DIRKSEN. Do you think that that has any appreciable and direct effect upon the inflationary pressures that you referred to?

Mr. MARTIN. I do not think it has very much direct effect, but I think it is a psychological factor of considerable importance, wherever speculation is involved.

Senator DIRKSEN. In other words, from your experience in the equity field when you were president of the New York Stock Exchange, and the experience you must have had, I fancy, in the field of margin buying, you cannot see that control of margins as contemplated in the amendments now before us has an actual effect upon inflation?

Mr. MARTIN. I think the tangible effect is limited. The psychological effect is real.

Senator DIRKSEN. You think that it has justification enough to include that kind of an additional control in this bill?

Mr. MARTIN. Under current conditions, when we have got to use all the weapons in the arsenal that we can command against inflation, I am inclined to think it is.

Senator DIRKSEN. Do you approve the suggestion that we employ subsidies for the purpose of a weapon in this field of inflation control? We went through that subsidy situation during World War II. There are subsidies in this bill to a limited extent, at least, and, depending on how you read the language, there might be more or less. We have some subsidy suggestions before us now in the bill, with the additional suggestions contained in the President's message which accompanied these amendments that additional legislation may be requested in the subsidy field. What is your candid opinion with respect to the em

ployment of subsidies and what would be the inflationary effect of using subsidies?

Mr. MARTIN. I just have to be honest with you and say I have not studied the subsidy provisions sufficiently to feel competent to pass on them. I am not trying to duck you there, but that is the real situation.

I think you have got to weigh a great many factors when you talk about subsidies, and I am perfectly honest in saying I do not like subsidies. It is a field, however, you have got to study from a great many angles before you pass judgment on it. I just have not had the time to work on the subject sufficiently, to feel competent to pass upon a general judgment on it.

Senator DIRKSEN. I can appreciate that, although I do believe as a general proposition it comes within the purview of the Board in this sense: that, if you are going to deal with the question of controlling credit, you have got to be reasonably certain that there is a coordinated effort so that the work that you do is not undone in some other field. In other words, the idea of setting the pop-off valve on the boiler at 150 pounds of steam pressure and then continuing to throw fuel under the boiler just does not appeal to me.

Mr. MARTIN. I sympathize with that, but I would make this comment, that the people who have been working on the matters-primarily Mr. Wilson-have been struggling with an exceedingly difficult problem of what I would call a crazy quilt of operations. I think that Mr. Wilson has been doing a good job, on the whole, as good a job as any man could possibly do under the circumstances.

Now the various segments of what go to make up this rearmament program are almost a lifetime study, because the individual assessment of the people sitting around the table of the seriousness of the situation enters into every decision.

As I have said frequently, there are some people who think we will be at a war in a period of 6 months or so. There are some people who think we are going to have 10 or 15 years of semiarmament, mobilization, in one degree or another around the world. And there are other people who think we are going to build up by 1953 to sufficient strength that we can negotiate successfully with the Russians, or that we will have to go to war with them by that particular time.

Now, in putting the picture together on all of these items, you have got to weigh carefully all of those assessments in determining whether, in the aggregate, a particular course of action is appropriate.

Senator DIRKSEN. But it does seem like an anomalous situation to entertain the suggestion that we coordinate so many fields of endeavor here for the purpose of reducing the number of dollars that go chasing a limited supply of goods, and then seriously entertain the idea of dumping a few extra Federal billions in the stream in the form of subsidies. That seems strange to me, notwithstanding the wage- and price-control provisions under the original act and amendments, but I will not press you for any comment on that matter.

Senator BRICKER. I want to follow up a couple of questions Senator Dirksen has raised. I think they are far more serious than we have considered up to the present time, especially the subsidy provisions which may be only limited by the appropriation that might subsequently be made.

Now you have a subsidy here for agricultural production, minerals, subsidies provided for the manufacture of goods which might be in scarce supply, and we cannot tell what that amount might be. It might run into the billions, according to future appropriations, and the most inflationary money that is spent at the present time is Government money, and the most inflationary Government money is in the nature of subsidies. Is that not true?

Mr. MARTIN. Well, I just would not want to say it is the most inflationary money. I think you have got to try to control expenditures in every possible way.

Senator BRICKER. It is just as essential to control Government expenditures as any other expenditures.

Mr. MARTIN. There is no doubt of that.

Senator BRICKER. Then let me come to the question of commodity exchanges again. By using the term "inflationary," I think I agree entirely with you that the question of whether that is an inflationary pressure is questionable. Of course prices are only an evidence of inflation. Do you feel that the commodity exchanges and the trading on the exchanges has any definite long-range effect upon prices of commodities themselves?

Mr. MARTIN. Oh, I think they are very important that we have adequate commodity exchanges.

Senator BRICKER. But does trading on the exchange affect the price to the consumer of the product?

Mr. MARTIN. It can affect the price to the consumer if speculation runs rampant.

Senator BRICKER. Has it done so, do you think?

Mr. MARTIN. I have not studied it carefully enough recently to want to comment on whether it has or not, but on the whole it seems to me the regulations have been fairly effective. I think there is a very real psychological effect.

The CHAIRMAN. If you want to control speculation on the exchange, all you have got to do is control the price. For instance, when you put a freeze on the price of cotton in February or March of 45-point-something on the New York Exchange, May contracts and July contracts just were not traded in?

Mr. MARTIN. It was just paralyzed.

The CHAIRMAN. Certainly. I do not see why you have to control the exchange when you have control over price. That is the way I look at it.

Senator BRICKER. The thing I had in mind was the report of the joint committee. I have wondered whether commodity-exchange trading has any real effect upon price of commodity to the consumer. I do not know enough about it to really know. I know there is a question about it, or they would not have made such a report.

Now, one other question.

There is a way of controlling inflation. I do not know whether it is politically possible to exercise it, I do not know whether there is the courage to do it or not, and that is through letting interest rates seek their level. Would there not be the most curbing effect there upon inflation?

Mr. MARTIN. I think it would be a very real effect, but the problem there is again this problem of balance and moderation. We have got to finance the Government. We want a healthy securities market.