STATEMENT FOR THE RECORD IN ACCORDANCE WITH ORAL REQUEST OF SENATOR MAYBANK, CHAIRMAN OF SENATE BANKING AND CURRENCY COMMITTEE, DURING THE HEARING HELD MAY 29, 1951, ON S. 1397, BILL "TO AMEND THE DEFENSE PRODUCTION ACT OF 1950" I. Question: What is the over-all situation relative to the procurement of cotton textiles by the Department of Defense, specifically: (a) Is it not true that the cotton industry has caught up with demands? (b) How much of the fiscal year 1951 budget will have been spent for cotton textiles and fabrics, and how much is contemplated to be spent in fiscal year 1952-representing the Department of Defense take of production during these periods? II. Answer: A. Past (period July 1, 1950, to April 1, 1951) deliveries: The cotton industry has not been able to meet all current demands during this period which was primarily caused by the demands being placed upon industry without sufficient procurement leadtime. This situation was caused by the sudden increase in the Armed Forces resulting from combat in Korea and the critical world conditions. B. Present (period April 1 to June 30, 1951) deliveries: The cotton industry's output will catch up with past unfilled demands and be meeting scheduled current production demands placed on it with fiscal year 1951 funds by June 30, 1951. C. Future (period July 1, 1951, to June 30, 1952) deliveries: The cotton industry's output will meet the total planned scheduled production demands to be placed on it with fiscal year 1952 funds. This statement is contingent upon the same general conditions presently in existence and continuing throughout fiscal year 1952. Contracts cannot be let until a date subsequent to July 1, 1951, when Congress authorizes the expenditure of these funds. D. Amounts of funds being spent for fabricated cotton textiles, duck and webbing, and end items representing the take from industry: 1 Dollars are not yet available. This estimate is based on funds requested from Congress, but not yet approved. E. In addition to cotton textiles, duck and webbing (fabricated items) and end items, raw cotton requirements are as follows: Foreign aid.. Claimant agency Fiscal year 1951 Fiscal year 1952 $59,434, 160 $88, 801, 240 Senator CAPEHART. I just wanted to say to Secretary Marshall that your interest, of course, is in seeing that prices go no higher, as the head of the National Defense Establishment; in fact, you would like to see them go lower so you can get more tanks or more airplanes with a given amount of money. However, you do not care how the Congress controls prices; you have no interest in how we do it. Secretary MARSHALL. I don't know the technique of that, sir. From my point of view it is not to have these prices continuing to go up. Senator CAPEHART. You are just as conscious as the rest of us are that prices are going up, and if they continue to go up, they will be disastrous. The question is how are we going to have them controlled, by legislation, by controls, by more production, or by reducing credit and other things? 83762-51-pt. 1-53 Secretary MARSHALL. I am not qualified to testify on that. Senator CAPEHART. You are just interested in seeing that they do not go up. Secretary MARSHALL. Yes. Senator BRICKER. We were promised some 2 or 3 weeks ago by Mr. Wilson and Mr. Johnston that we would have within 10 days or 2 weeks a report of an ad hoc committee that the President had appointed in regard to direct controls, indirect controls, and the effectiveness of indirect controls. Have we received that? The CHAIRMAN. Not to my knowledge. Senator BRICKER. I wonder if we couldn't check with Mr. Wilson's office again and get that report at the earliest possible time, because it has a very important bearing upon this whole program of costs and financing. The CHAIRMAN. I think the committee ought also get the report. from the Federal Reserve Board about the changes they are going to recommend. Senator BRICKER. The Chairman of the Federal Reserve Board, Mr. Martin, also testified to it, and he is on the ad hoc committee. The CHAIRMAN. If we don't have those reports, what we do here might be undone. Senator BRICKER. One more question to General Marshall, and then I will quit: The OPS has exempted most military purchases from price controls, have they not? Secretary MARSHALL. The answer is "yes," I am told. Senator BRICKER. That was in the interest of immediate and quick production? Secretary MARSHALL. Yes. Senator CAPEHART. Do you have the total amount that the National Defense-the total amount in dollars and cents that they will purchase in meat next year? Mr. SMALL. I will get it for you, sir. I haven't got it here. Senator MOODY. Mr. Chairman, just one point in line with what Senator Capehart said a momen ago: I would like to point out that the charts show that before Mr. DiSalle's freeze of January 25, prices were rising very rapidly, but since then in general prices have not been going up. Senator CAPEHART. I would hope not. I would hope if he froze them they would be frozen. I can't conceive of how they could possibly go up, if they were frozen. I don't get your point. I would think Mr. DiSalle would resign if he froze prices and they continued to go up. Senator MOODY. You said they were still going up, and I wanted to point out that he had changed the rise. The CHAIRMAN. Are there any further questions, gentlemen? (The material submitted by Secretary Marshall follows:) DEPARTMENT OF DEFENSE MILITARY PROCUREMENT PRICE TRENDS APRIL 1950 APRIL 1951 Wholesale prices today, as measured by the Bureau of Labor Statistics wholesale price index, are 20 percent higher than prices just 1 year ago, and are more than 16 percent higher than prices at the time of the Korean invasion. Despite marked declines during the past 2 months in the prices of several key imported raw materials used in products purchased by the armed services, raw material prices in general are still at near record levels. For example, raw wool prices have dropped by 21 percent since March, but still reamin 70 percent above pre-Korean levels. Similarly, although crude rubber and tin prices have each dropped by 8 percent since March, they are still 134 percent and 82 percent, respectively, above prices at the time of the Korean invasion. Even if commodity prices remain stable at current levels, the purchasing power of the defense procurement dollar will have been seriously impaired because of the inflation that has taken place during the past year. For example, between May 1950 and May 1951, the actual invoice cost of meat items purchased by the Department of Defense has increased by more than 31 percent. Carcass beef, the key meat item, has increased from $0.42 to $0.56 per pound, a jump of 33 percent, while smoked bacon has increased by 54 percent, roasting chickens by 37 percent, and fresh pork by 26 percent. The total cost of the Army daily meat ration has increased from $0.455 to $0.599 per man during the past year, equivalent to an increase of $52.47 per man per year. The Department of Defense budget for fiscal year 1952 is based on a total strength of 3.5 million, of which 3.1 million are enlisted personnel. The increase in meat prices alone during the past year will cost the Department of Defense more than $160 million to feed its enlisted men than would have been the case if May 1950 meat prices still prevailed. Increased defense costs have resulted not only from increases in raw material prices, but also from increased labor costs. Between June 1950 and April 1951, average hourly earnings in manufacturing industries have risen by over 8 percent, exclusive of the cost of so-called fringe benefits granted during the period. Average hourly earnings have risen to an even greater extent in a number of industries involved in defense production. For example, hourly earnings have increased by 10 percent in blast furnaces, steelworks, and rolling mills, smelting and refining of copper, lead, and zinc, aluminum refining and textiles industries, by more than 11 percent in the ordnance, machine tools, and aluminum rolling industries, by more than 15 percent in aircraft engines plants, and by close to 17 percent in aircraft propeller plants. Normally, unit prices for many of the items now being procured by the Department of Defense would be expected to decline at this time because of reductions in manufacturing costs which should result from increased volume of procurement. While such unit price reductions have occurred in some cases, part or all of the economies of larger scale production have been lost in an increasing number of cases as a result of increases in direct manufacturing costs. In such cases, the Department of Defense is suffering from a loss in purchasing power of the procurement dollar, even though unit prices themselves do not increase. It must be recognized that changes in defense procurement costs are not attributable to changes in basic material and labor costs alone. In an effort to avoid the enormous costs of production and storage of large war reserves and the wastefulness through obsolescence of certain weapons occasioned thereby, the Department of Defense is 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 expandible mobilization base on a going concern basis rather than on a warehouse and storage basis. As new firms are brought into defense production, there may be short range increases in unit costs of the items concerned, attributable to production engineering and tooling costs required for the new sources of supply. In addition, United States weapons and equipment are undergoing continual development and improvement, both before and during large scale procurement. As a result there may be modifications in design, changes in specifications, or shifts in manufacturing methods or processing techniques during the period of procurement of a particular item which may increase or decrease its cost. Further variables, such as changes in quantity, delivery period, packaging, etc., occurring simultaneously with the factors mentioned above, make it extremely difficult to isolate accurately the effect of any single factor on unit cost. Attached is a list of items purchased by the Department of Defense which generally are not subject to the varying factors outlined above. Some of the items listed are components of end items, such as weapons and vehicles, which are important factors in the defense procurement program, while others are end items themselves. While these items account for a relatively small part of total defense procurement, and their price changes do not represent an index of over-all procurement prices, the almost uniformly upward price trends shown by these items servies to illustrate the serious decline in the purchasing power of the defense procurement dollar during the past year. |