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The objective of that mobilization is clear-to strengthen not only ourselves but the entire free world against a very real threat of military attack.

Now either we accept that fact as a fact-that we do face a very real threat of military attack-or else we have no real need for this colossal mobilization program. I am convinced that this committee, and the Congress—and the people-accept this fact for what it is: a very cold, hard, grim, uncomprising reality.

In coming before this committee today to discuss the stabilization programwhich is an integral part, an essential part, of the mobilization effort-I am conscious of the determination of the members of this committee that America must be prepared to meet this threat, this danger.

You have made that clear not only in your handling of the original Defense Production Act, but in the manner in which you have followed the day-to-day operations of Government under that act.

I am completely convinced that we can do whatever we have to do to keep freedom alive. We have everything it takes—the machines, the tools, the manpower, the know-how, the imagination. We have the patriotism, too.

Productionwise, this industrial machine of ours can accomplish whatever miracles we set out to have it perform. But we must feed it the fuel-the energy-the materials, the lubricants, and the direction it needs. For it is, after all, only a machine.

To make that machine perform at top speed, on all cylinders, without costly breakdowns, takes hard work on the part of all of us. It takes cooperation, imagi nation, and restraint. Above all, it takes a will.

De we have it? I think so. But we haven't proved it yet. We'll get lots of chances in the months ahead to show whether we have that will or not.

Primarily, we will demonstrate whether we have it or not in this general area known as stabilization.

For unless we have a stabilized economy, unless we hold inflation in check, unless we can defend the value of the American dollar against infiltration and ambush in the months ahead, we cannot mount the defense effort we need.

So it is in the stabilization area that we test our will to have mobilization. It is in the stabilization area where every American will have to stand up and say yea or nay to mobilization.

Any sacrifices which most of us will be called upon to make for the mobilization effort-most of us-will be in connection with stabilization. The sacrifices we must individually make to beat inflation, however, are small ones, really.

But they are often vexing ones, annoying, aggravating, inconvenient ones. We Americans make the big sacrifices without hesitation or whimper, when big sacrifices are required. But we cry over the little ones out of all proportion to their hurt.

That makes stabilization difficult because, as I said, stabilization requires little sacrifices, not big ones. Sacrifices like not buying things we don't need; like keeping our prices-our profits-and our wages-reasonable; like not exercising all of the economic power we might otherwise muster to get ahead of the other fellow; sacrifices like paying higher taxes.

We call them sacrifices. Actually, they are privileges of citizenship in a nation dedicated to the survival of freedom.

Although I have raised some questions here about the will of the people of the United States to do the job which has to be done, I think I should make it clear that I, personally, have every faith in both our ability and our will to do the job which has to be done.

I am convinced, for instance, that we can lick inflation. If I didn't think so, I wouldn't have taken on this job.

Now just what is the job? The Congress, and particularly this committee of the Congress, spelled out the job and insisted it be done. You were specific in what you wanted accomplished.

You said: "Prevent inflation, and preserve the value of the national currency." You said: "Assure that defense appropriations are not dissipated by excessive costs and prices."

You said: "Stabilize the cost of living for workers and other consumers and the costs of production for farmers and businessmen."

You said: "Eliminate and prevent profiteering, hoarding, manipulation, speculation, and other disruptive practices resulting from abnormal market conditions or scarcities."

You said: "Protect consumers, wage earners, investors, and persons with rela tively fixed or limited incomes from undue impairment of their living standards."

You said: "Prevent economic disturbances, labor disputes, interferences with the effective mobilization of natural resources, and impairment of national unity and morale."

You said: "Maintain a reasonable balance between purchasing power and the supply of consumer goods and services;" and, at the same time, you said prevent the "dissipation of individual savings" so that we have, after this emergency, a good strong purchasing power in the hands of the people.

That was your bill of particulars for the battle against inflation. In the programs of the Economic Stabilization Agency, insofar as this Agency has jurisdiction to deal with those problems, we are following your orders.

WHERE DO WE STAND AND WHERE ARE WE GOING?

It would make me very happy if I could come before you now and say: "Relax. Everything's under control."

But that just isn't so.

I can come before you, however, and say, honestly, that we're digging into this job with everything we have. I can say to you that we are getting results on the price front. The steam has been knocked out of the upward spiral. Some prices are still climbing, but they are no longer soaring.

Instead of a wild stampede of prices, costs, wages, and profits, we've guided them into a narrowing corridor where the stampede is halted. A lot of prices have calmed down enough to make it look as if the alarm is over. But there's a restlessness still there which can mean a strong push to get out-to break down the fences.

That isn't good enough. We must break up the pressures against the barriers, so that the fences will hold. Once we are sure those fences will hold, we can move them whichever way the situation indicates-inward, toward tighter controls, or outward-or, if we succeed in removing entirely the alarms which cause a stampede, then we can tear those fences down entirely.

Before we assess how well we are doing in this crisis in our economy, we first have to take a look at what created it.

We measure our current inflation in terms of June 1950 levels-in other words, since the start of the Korean War. But it is important to remember that prior to that arrogant Communist crime against the peace, we were experiencing a steady upward price trend here in almost every field. Wage rates, employment, credit expansion, profits-all were going up in a prosperous expansion of the economy.

In the meantime, we were winning the cold war. There was no doubt about it. The Communists apparently realized that, too, for why else would they suddenly have turned to a shooting war in Korea?

To them, it was a calculated risk-to see what we'd let them get away with. But to many of us in the free world it looked like a crazy, irresponsible, impetuous adventure signaling global war.

Our Nation, and the other free nations of the world, reacted to that challenge to freedom and peace with immediate and forthright courage and action—in an unprecedented show of international determination to stop aggression in its tracks.

But while we, as a nation, were showing a nobility and an awareness of our responsibilities to the free world, many Americans, as individuals, were reacting to the threat to peace in Korea with the opposite of nobility and responsibility. Millions of Americans went on a scare-buying jag. Automobiles, washing machines, television sets, clothing, sugar, coffee-an endless variety of consumer goods were grabbed right and left "before the hoarders got them." Home freezers were stocked with meat. Shortages were created where there had been none. Prices went up.

Business went on a scare-buying jag, too. Raw material prices inevitably went up as inventories-industrial hoarding-increased out of all proportion to needs.

The panic to buy and stock up continued while the news from Korea remained grim. As the tide turned in September and October, and the UN forces began pushing their way through northern Korea, the panic subsided. There was a leveling off.

Congress passed the Defense Production Act, including its price-wage stabilization provisions, in early September. The act recommended utmost use of voluntary cooperation in preventing inflation. Although we had already made the decision to step up our defense program against the possibility of new

Koreas elsewhere, our defense spending, up to then, had not become an inflationary force.

It looked as if we had weathered the threat for the time being. But when the Chinese Communists were suddenly thrown into the fight in November, the whole situation changed. It set off two irresistible patterns of inflation:

1. It forced us to reconsider our whole defense program in terms of what the Chinese intervention reflected: a willingness by the Kremlin to throw the puppet nations it controls into aggressive wars outside their own territory. The Chinese intervention showed that communism had made a very fateful decision. It convinced us we had to step up our mobilization program drastically and quickly.

(2) The buying jag-here at home and in the international markets-which had begun to level off by November suddenly started up again with renewed fury. Prices which had jumped after June and then had reached new plateaus by November, suddenly went soaring.

The General Ceiling Price Regulation issued in January-2 days after I took office-was intended to throw a fence around this stampede which requests for voluntary control had failed to stem. The freeze took the momentum out of the spiral. It gave us a chance to catch our breath, and then to start translating that freeze order into a program of price control which would be administratively workable and economically fair.

But it did not lick the basic causes of inflation and it cannot lick the basic causes of inflation. Price controls-no matter how tight, and wage controlsno matter how strict-cannot remove the threat of the inflation we face.

For, if I have not made it clear so far, I want to do so now: the inflation we have had up to now, and which present price and wage controls are designed to hold in check, was not the result of our mobilization program. It was not caused by vast armament costs, or an unbalanced budget.

It was caused by anticipation of the real thing around the corner.

But until we stopped it, the push had gone too far too fast, and millions of Americans on fixed incomes were priced out of the market. That's why you have all of these misleading signs today of deflationary forces at work.

The combination of price controls and a continuing abundance of goods for sale in the stores and shops and showrooms took the urgency and the scare out of buying.

Tighter credit controls, higher taxes, and reassuring news on the Korean front also contributed a great deal to taking off the heat.

But I want to say with all the emphasis I can command that despite the lull, despite the seeming improvement in the situation, despite the slow-down in the price rise and the turn-down in some prices, all of the factors which make for a rip-roaring inflation are present. Pressures increasing the cost of living

continue under the surface.

They are poised for another big push.

CURRENT THREATS TO STABILITY

Let me show you why this is so by reviewing the immediate future as well as the probable picture of the next few years. Roughly, these threats to stability fall into six categories.

1. The military procurement program

This is the big, basic cause of inflation danger.

Let's look at that program first in terms of raw material needs.

We have set as our goals the production of a vast amount of military goods and the creation of the capacity to produce much, much more-the capacity to produce 50,000 airplanes and 35,000 tanks a year, and 18,000 jet engines a month, to cite only a few examples.

We are going to produce, not only enough military supplies to equip our forces in Korea; not just enough to equip an expanding American defense force of about 3,500,000 men; and not just enough over that to help rearm the other free nations of the world.

In itself, that is a big production job. But, in addition, under the outstanding leadership of Defense Mobilizer Charles E. Wilson, we are accumulating reserves which will provide enough stocks of key items to last for the first year of a full-scale war.

The planes and guns and tanks and ships we build are not going to be made out of air. They will be made out of steel, copper, aluminum, rubber, and a

wide variety of other raw materials. And the plants we build to make more guns and ships and tanks and planes-and to make more steel, and copper and aluminum-are going to be made out of these things and lots more, like cement, bricks, lumber, and plaster.

Even before the mobilization program was launched, we were chewing up virtually our entire output of these materials for civilian goods. We were building out of them automobiles, television sets, window frames, washing machines, dish washers, new homes, new stores, and new factories in which to build more consumer goods.

But now we look at the amount of steel available, for instance, and we say: We've got to use it differently.

We'll take so much of it and build military goods. We'll take some more and build from it new plants to make more military goods. And then we'll use up some more of this steel to build plants to make more steel. The new steel plants-when we get them-will provide us with more steel for all purposesfor military and civilian goods.

But while we're building those new steel plants, we're taking away-not from military uses, but from civilian uses-that much more steel right now.

It's certain you can't stamp an automobile body out of the same sheet of steel that you are going to use in a gun mount or a tank. You can't make toys or screen doors or roasting pans out of the aluminum scheduled for a plane. You can't build new homes out of the bricks and cement and lumber we need for a new defense plant.

You can, however, build and make these civilian goods out of what's left of these materials after military and defense requirements are met. But that's all you're going to get for your civilian economy-what's left.

That will still be a lot. It should be enough to meet our needs, if not our desires.

The desire for more and more of those things, however, will always be present in the kind of America we have the kind of America we want to keep. And, in the months ahead, as more and more Americans go to work in this stepped-up defense economy, and work longer hours, more and more Americans are going to have the money to buy these things they desire.

Direct controls-particularly price controls-cannot stop the pressure of those demands for limited supplies any more than Canute could stop the sea. We haven't reached that point yet, of course.

The defense procurement program hasn't really hit the civilian economy up to now. In the 10 months since the Korean attack to the end of April, the defense procurement agencies placed altogether orders worth about 27 billions. But nearly all of those orders were placed in the last 4 or 5 months. Last May, for instance, we were placing orders at the rate of 600 million a month and in June it was 1.4 billion. Now we are placing them at the rate of a billion dollars a week.

We don't see the results of these big orders yet in terms of ships and guns and planes and tanks and other needs, or in the diversion of manpower and materials to military production. But we will soon.

And then look out.

For we are mobilizing in depth-men, equipment, factories, and materials. This will lead to bottlenecks in some industries, congestion in some communities, shortages in labor. The unavoidable shortages will be accompanied by artificial ones-by speculation and hoarding—unless we are prepared to prevent them. But in the areas of shortage, bottleneck, and congestion prices will go up, profits will go up, and wages will go up unless we are in a position to take drastic counter-action against them. So far, we're not fully equipped to take that action. We can conduct a delaying action, a holding action for a whilebut it's like sitting on the safety valve of a boiler. You keep the steam from leaking out while the boiler is building up pressure, but when the pressure gets strong enough, the steam you've kept from escaping suddenly blows you up.

The fact is we are not now equipped to hold the lid on a $50 billion a year defense spending program and prevent inflation,

Our tax take is not big enough. Our credit policy is not tough enough. Our stabilization powers are not broad enough.

2. “Milk it dry" profit, price and wage demands.

Second to the mobilization program is the danger to stability arising from the special advantages now held, or soon to be held, by some segments of the economy.

These special advantages could lead to an unconscionable push for higher profits and higher wages.

Profits in most fields are at an all-time high. Yet with almost guaranteed markets for virtually everything industry can produce, there will be steady pressure for ever-higher prices leading to exorbitant increases in profit levels. This would be particularly true in those fields where consumers bid against each other for reduced supplies and clamor for the chance to buy at any price.

And with manpower tight-or bound to be tight-in many areas, some skills would be able to write their own ticket on wages and get whatever they ask. Where wage controls interfere with this, not only labor, but management too, will probably join in seeking their relaxation. Together, they can exert an almost irresistible force in this direction.

There has to be incentive for business in this emergency. There has to be incentive for labor, particularly for people not now in the labor force to pitch in and do their part in this defense effort.

I think our people are patriotic enough not to want to point a gun at the United States in a time of crisis-of danger to our way of life. But there has to be an understanding among the people among businessmen, workers, farmers, everybody that taking advantage of special circumstances in this crisis is, in effect, pointing a gun at Uncle Sam.

Profits are generally much, much more than good. Wage levels also generally are good. Business must accept higher taxes on those profits and labor must expect higher taxes on their wages.

Business must not only accept, but enthusiastically support, price stabilization, and labor must not only accept, but enthusiastically support, wage stabilization. That may sound like it's asking a lot from them. But I don't think so.

A firm price policy-and we mean to have that kind-will be necessary if we are to have a firm wage policy. And vice versa.

There are inequities in the wage policy as a result of the freeze of January 26, just as there were inequities in the price policy resulting from that freeze. We're trying to work out the inequities.

But in the meantime, our wage controls are threatened if the cost of living continues to rise ever upward.

3. Food prices.

That brings us to the third major threat to stability-food prices, in light of the place of food in the cost of living.

Now it's true that farm income in 1950 was down for the second successive year from the peak levels of 1947-48. Nevertheless, farm prices started up in January 1950, and kept going up. Following Korea, they advanced more rapidly than the general average of prices for cost-of-living items.

And food is the largest single item in the Consumer Price Index. Further increases in food prices will make wage stabilization, and thus price stabilization, increasingly more difficult.

If we can't hold food prices, we can't hold wage rates. If we can't hold wage rates, we can't hold other prices.

This merry-go-round would give us all a brass ring to inflation.

4. Scare-buying dangers.

The panic-buying which occurred in July and again in December and January in response to the bad news in Korea has given us a graphic illustration of the sickening speed with which our economy can be batted around by sudden, unforeseen developments.

In the present state of international tension, with potential danger spots all over the world, we can expect a certain amount of panic reaction to every international explosion. In a period like this we need available every instrument to prevent sudden distortions in the price structure resulting from a shift in events or a weather-vane thinking.

In other words, with the economy operating at full blast, and with shortages bound to occur, we cannot afford new buying waves, new mass attacks on the grocery-store bins, the clothing-store racks, the appliance-store shelves, and on materials supply.

The buying power for such a shopping binge is still in the hands of the people today in liquid form-in individual personal liquid assets amounting to $224 billions, not counting insurance equity. We want to keep those savings thereand add to them-for the purposes you outlined in the act last September. That is, to assure a prosperous economy after the emergency.

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