DEFENSE PRODUCTION ACT AMENDMENTS OF 1951

MONDAY, MAY 14, 1951

UNITED STATES SENATE,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met, pursuant to recess, at 10:35 a. m., in room 301, Senate Office Building, Senator Burnet R. Maybank (chairman) presiding.

Present: Senators Maybank, Benton, Moody, Capehart, Bricker, Schoeppel, and Dirksen.

The CHAIRMAN. I will ask the committee to come to order.

Mr. Small, would you come up, please? Mr. Small, I was going to give you this letter, with which you are probably familiar, because I know you were interested in the procurement of the armed services of strategic materials and things of that kind, and that has to do with what Secretary Marshall wrote me. He called me up, I think it was on Friday and again on Saturday, stating that he would like to go down to Virginia this afternoon when he gets through with the hearing before Senator Russell's Armed Services Committee. So, of course, I was pleased to say for the committee that that was all right, and I trust it is all right with the other committee members.

Mr. Lovett also said he was going with the general. So I called Mr. Lovett and told him that I felt certain the committee would understand his doing that. If we want Secretary Marshall and Mr. Lovett, we can call them later, as we had you this morning, and Secretary Chapman scheduled for this afternoon, and we had a full day anyhow. Mr. Lovett or Secretary Marshall-I do not remember which-said that you would be here to represent them insofar as you could. They sent me the letter I handed you, which I was going to ask you to read. Any details concerning the military that we would possibly ask we shall ask when the Secretary finds it convenient to be here.

I would like you to read this letter because it shows we need a great deal of preparedness in this country, and, after all, that is what we are here for. If it were not for the necessity of preparedness, there would be no need for controls, and there would have been no supplemental appropriation passed last week.

I was surprised on reading the paper yesterday to find on the front page of the Washington Post that the country was so well prepared. All the information I have or have received as a member of the Appropriations Committee is that we are on the way toward preparedness, but there is still a lot to do. We will have to spend a lot of the taxpayers' money for preparedness.

This committee is only considering this bill as an essential measure for priorities and in order to keep down inflation. I wanted to make

that statement because, as far as I am concerned-and I trust the committee agrees with me-we should have Secretary Marshall and Mr. Lovett at some later date.

Senator CAPEHART. How soon will you have Secretary Marshall? The CHAIRMAN. I have not set that date because we have such a tremendous schedule in front of us that I thought we could work it out. Senator CAPEHART. You mean possibly this week?

The CHAIRMAN. I do not know about this week. I would think we could get around to them soon.

Senator CAPEHART. The only thing I want to say is I think the necessity for controls is based on how big or how small the needs of the armed services are.

The CHAIRMAN. That is the only reason we want them to appear. Senator CAPEHART. Secondly, what we are preparing against, and how long we are going to prepare. It would seem to me as though the only one who could give us that information would be Secretary Marshall.

The CHAIRMAN. I do believe it would be the proper thing to have the Secretary here, but I thought in view of the fact that he was testifying all last week before the Armed Services Committee, and all of this morning, that we should give him a little time to rest.

Senator CAPEHART. I think we should give him a little time to rest up from that ordeal, but we ought to have him come here.

The CHAIRMAN. He will be glad to come here. Mr. Lovett also will be glad to come here, but we will have them at whatever time is most convenient in our schedule. That is why we are here, in order to facilitate military preparedness.

Mr. Small, I will not question you on the letter, because I am aware of the fact that you would not know the detailed answers to some of the things he mentions. Will you go ahead, sir?

STATEMENT OF JOHN D. SMALL, CHAIRMAN OF THE MUNITIONS BOARD, ACCOMPANIED BY LEONARD NIEDERLEHNER, COUNSEL, AND ALFRED SCANLAN, ASSISTANT COUNSEL

Mr. SMALL. All right, Mr. Chairman. Then with your permission I will read the letter from the Secretary of Defense, dated May 12, 1951. It reads as follows:

THE SECRETARY OF DEFENSE,
Washington, May 12, 1951.

DEAR SENATOR MAYBANK: As I told you on the telephone last week end, I have commitments of long stnading outside of Washington on Monday and Tuesday, May 14 and 15, and would find it extremely difficult to withdraw from them at this late date. Nevertheless, I do wish to take this opportunity to state to you and to the committee that the Deparment of Defense strongly urges the enactment of S. 1397, the amendments to the Defense Production Act of 1950.

The Chairman of the Munitions Board will appear before your committee in person and will present the views of the Department of Defense in greater detail than it is possible for me to do through this letter.

The CHAIRMAN. That is the procurement part.

Mr. SMALL. It continues as follows:

However, I wish to state some of the compelling reasons why I feel that this legislation should be enacted.

First, as to the necessity for the extension of the Defense Production Act of 1950, now scheduled to expire on June 30, 1951. We are at present in the very early stages of defense mobilization and the full impact of military programs will not, in my opinion, be felt by the economy until this coming winter, and, more particularly, in the calendar year 1952 and the winter of 1952-53. For this reason, we respectfully urge the extension of the necessary authorities for 2 years.

The rate of expenditures in the budgetary sense for deliveries under our program has increased about 300 per cent per annum in the past year. The total expenditures in the fiscal year 1951 will be about 19 billions and, in the fiscal year 1952, we estimate them to be over 39 billions for the three military departments alone. These are expected deliveries arising out of past and current obligations. This rate of deliveries means that there is back in the productive machine as a result of lead-time, vast amounts of raw materials and unfinished materials. Shortages in certain fields are sure to develop, and authority, in our opinion, will be needed to deal with these situations.

These reasons among others lead us to urge the continuation of those sections of the Defense Production Act of 1950 relating to priorities and allocations. The third area in which the Department of Defense has a vital interest lies in the sections of the act relating to expansion of productive capacity and supply. The armed services are doing their utmost in cooperation with industry to accelerate the production of the necessary end items needed to provide initial equipment and modernize our authorized military forces, and also to supplement the efforts of our allies by providing certain equipment authorized under the mutual defense assistance programs.

In an effort to avoid the enormous cost of production and storage of large war reserves and the wastefulness through obsolescence of certain weapons occasioned thereby, we are endeavoring through the expansion and multiplication of production lines in being to spread the mobilization costs over a period of time by careful scheduling and thus provide a rapidly expandable mobilization base on a going concern basis rather than on a warehouse and storage basis.

The continuity, therefore, of the productive effort is of tremendous importance in our plans and the reliability of supply and the growth of productive capacity is of cardinal importance to us. In order to provide 18 divisions, plus a number of regimental combat teams and supporting units with their initial equipment and a reasonable mobilization reserve by July 1, 1952, we will need to face many emergencies in production if we are to keep up to schedule.

The problem posed by equipping 95 wings for the Air Force within the same time limit raises at once the question of the urgent and competing demand for certain types of machine tools, electronic equipment, etc., and the schedules cannot, in my opinion, be met unless authority exists somewhere to act promptly and, if possible, ahead of the event where shortages develop in critical items. The Air Force must have live production lines as an essential part of its mobilization and combat reserve.

Similarly, in the preparation of 1,161 combat vessels by July 1, 1952, for the Navy and Naval Air requirements, expansion of facilities will be needed. Here, too, there must be a determination of priorities in several areas of critical items.

On top of these requirements are the obligations undertaken by this country for meeting the needs of certain of our allies, notably those in Western Europe under the mutual defense assistance programs.

It is our estimate at this time that somewhere between 18 and 20 percent of our total national output will have to go into over-all defense production in 1952. For the reasons I have given, we, therefore, respectfully urge favorable action by the committee in the area of expansion of productive capacity and supply. The items I have mentioned above are, as I have said, of peculiar and direct concern to the Defense Establishment. There is, however, one additonal area of overriding importance in which the Department of Defense is greatly concerned, both from the point of view of the quantity of end items we receive and also in connection with the handling of our budgets. This, of course, is the matter of attaining some reasonable stability in prices. Our budget estimates are based on current price levels. Inflation of substantial rises in prices has the effect on our procurement program of reducing the end amount delivered to us.

For example, between April 1950 and April 1951, out of every $10 billion appropriated to us, we lost about $2 million worth of goods through price rises alone.

A few examples of this may serve to point up the problem and indicate why our interest is so lively in this program.

Ten months ago, the Army was paying $160,000 per unit for heavy antiaircraft guns. By March, the price of these same gun units had risen to $250,000, or by 56 percent. We, obviously, will get less guns for the same money originally requested in the budget.

In hearings before a House Armed Services Subcommittee on October 3 last year, the Under Secretary of the Air Force translated the price rises up to that time into dollars and applied this increase against the construction of aircraft and related matériel appropriation estimates. The programwise shortage was figured to be the equivalent of 750 F-86 fighter aircraft.

In summary, it is the best judgment of the Department of Defense that the authority in this act should be continued and that the amendment of the act in certain particulars is of the greatest importance in the interest of our national security. We do not see how the military targets set and the approved schedules can be met without some such legislation carrying powers to be exercised with discretion, so that the degree of action taken may be fitted to the need as it arises in the unforeseeable future.

I will appreciate it if this letter can be inserted into the official record of the hearings in the bill.

Faithfully yours,

G. C. MARSHALL.

The CHAIRMAN. All right, Mr. Small. The General's statement with regard to these price rises affecting the program has come to me another way. In a hearing on an appropriation bill the information came to me that of the last $2,000,000,000, $750,000,000 was spent on the price increases in the supplemental bill.

Now, will you proceed in your own way with your statement, Mr. Small?

Mr. SMALL. With your permission, Mr. Chairman, I will read a prepared statement I have.

I am appearing before you today to urge the extension of the Defense Production Act of 1950 for 2 years until June 30, 1953, and in support of the amendments thereto which are before this committee for consideration.

I would like to refer to the progress which already has been made in meeting the military requirements that have been set up as prime targets of the mobilization effort. Under the congressional authority contained in the original Defense Production Act, passed by Congress last September, the Defense Department has been able to place orders for modern weapons and the other requirements of war, for ourselves and for our allies, at the rate of nearly a billion dollars a week. For the 9-month period since the Korean attack, the Department has obligated over $23 billion, out of a total of $32 billion, which thus far has been made available in the fiscal year 1951 for procurement and construction. In addition, another $1 billion was obligated in the January-March quarter of the stockpiling of strategic materials.

Of course, deliveries under these orders have not proceeded at a rate in any way approximating that of placing the orders, since much of the equipment ordered requires a long lead time and their delivery necessarily can occur only months after the actual placing of the order. Nevertheless, deliveries have continued to rise steadily, and it is estimated that deliveries in fiscal 1951 of hard goods, and construction will total about $11 billion, including the deliveries from funds appropriated for prior years.

The CHAIRMAN. You left out the soft goods.