"1. We are in a war economy which seriously aggravates the housing situation. In order to meet the needs of housing, we support the proposed Housing Act of 1951 as a means of sustaining the defense effort.

"2. In addition, we affirm the objectives of the Housing Act of 1949-a decent home in a wholesome environment for every American family-as conducive to the defense effort.

"3. Defense housing is an integral part of national defense.

"4. In the light of the vulnerability of American cities in this age of civil defense, the elimination of substandard structures will greatly assist civil defense authorities in their efforts to protect citizens."

As a result of the housing shortage, there has been an extraordinary increase in rents in some areas of my State. As merely one example, in Kansas City the rent index for April 1951 had reached the high point of 144, while the national figure remained at 134.7.

Reports have come to me from all over the State indicating the critical conditions existing in various localities. Just last week, Mayor Joseph M. Darst, St. Louis, wrote to me:

"At this time there is an acute shortage of housing in St. Louis. The steady build-up of the Nation's defense program, bringing additional industrial workers to the St. Louis area, will worsen an already critical situation. It is my sincere belief that the continuation of rent controls is an absolute necessity in the St. Louis area until sufficient and adequate housing can be constructed to equalize the supply with the demand. Without such an equalization, low-income families and others forced to look for housing through no choice of their own, will be required to pay rental rates far beyond their abilities."

Still another report from the St. Louis area comes from Mr. R. B. Hansen, manager of properties at McDonnell Aircraft Corp., which is engaged in defense production. He said that frequent resignations occurred because of the inability of employees to find housing at rentals they could afford. He pointed out that his firm had increased its employment by 1,000 over a 4-month period last year and had expected to add 3,400 more employees within the following 18 months.

From Kansas City, Mr. B. N. Walter, director of industrial relations for the Bendix Aviation Corp., stated:

"During the first year of our operations, certain key personnel were brought into the area by us. Our records indicate that these people experienced a waiting period of from 60 to 180 days before finding suitable housing for themselves and their families. The present labor market in this area will not adequately cover our anticipated needs. It is felt that we will experience considerable difficulty in assisting new employees who have been recruited from outside the area in obtaining adequate housing. The problem becomes especially acute due to the fact that available rental facilities are in the $100 bracket and our average base hourly rate amounts to $1.504, making it impossible for these employees to consider these facilities."

From St. Charles, Mo., comes the report:

"Here in St. Charles, we feel that with expansion at Weldon Springs by the Atomic Energy Commission and other defense projects contemplated for this area, there is still great need for housing and we ask that you support any program that will alleviate the shortage which is still acute here."

Men from Missouri in the armed services at camps throughout the United States report to me that they are being charged exorbitant rentals. Full protection is not available to servicemen and their families due to the fact that the present law completely exempts from control certain types of accommodations, including motor courts, trailer courts, and hotels, as well as new construction and conversions completed since February 1, 1947. A recent survey of the rents being paid by military personnel at Fort Leonard Wood showed 130 servicemen paying an excess of $28,000 a year more in rent than they would have to if the law provided authority to give them protection against exorbitant rents.

In Columbia, Mo., an independent citizens' organization wrote to me: "In one neighborhood there are six houses which rented for $10 a month under rent control. These houses have no plumbing and one outdoor toilet facility serves six families. Since rent control was lifted, the rent has now been raised to $18 a month, an increase of 80 percent. No improvements have been made or promised."

It seems obvious to me, therefore, that in a period when we are restricting new housing construction even though millions of families are unable to secure adequate housing, the Congress has a grave responsibility for providing effective legislation to place a restraint on the rents which can be charged in the face of the already existing shortage. Although I have dealt here primarily with the situation in Missouri, it is my earnest and sincere hope that your committee will recognize the urgent necessity for a more adequate rent control program which is so vitally necessary throughout the country as well as in my own State.

Sincerely yours,

THOS. C. HENNINGS, Jr.

PROPOSAL TO SUBSTITUTE A CURRENT PERIOD IN THE DEFENSE PRODUCTION ACT OF 1950 IN PLACE OF THE PERIOD MAY 24-JUNE 24, 1950

I. INTRODUCTION

During the hearings of the Senate Committee on Banking and Currency on May 15, 1951, Senator Maybank requested the comments of the Office of Price Stabilization on a proposal to replace the May 24-June 24, 1950, period, presumably wherever it appears in the Defense Production Act, with a current period, perhaps February-March 1951.

Insofar as is presently relevant in connection with price control for goods and services, two references are made in title IV of the Defense Production Act to the May 24-June 24, 1950, period. It is referred to in section 402 (c), in which general standards for establishment of ceiling prices are set forth. We shall comment in part II below with respect to the proposed change as it affects this section. The May 24-June 24, 1950, period occurs again in section 402 (d) (3), with respect to minimum ceiling levels for agricultural commodities. We shall comment on this in part III.

II. SECTION 402 (C)-GENERAL PRICING STANDARDS

Section 402 (c) includes the following provision:

*

"So far as practicable, in exercising the authority conferred in this section, the President shall ascertain and give due consideration to comparable prices, rentals, commissions, margins, rates, fees, charges, and allowances which he finds to be representative of those prevailing during the period from May 24, 1950, to June 24, 1950, inclusive, or, in case none prevailed during this period or if those prevailing during this period were not generally representative because of abnormal or seasonal market conditions or other cause, then those prevailing on the nearest date on which, in the judgment of the President, they are generally representative. In determining and adjusting ceilings on prices with respect to materials and services, he shall give due consideration to such relevant factors as he may determine to be of general applicability in respect of such material or service, including the following: Speculative fluctuations, general increases or decreases in cost of production, distribution, and transportation, and general increases or decreases in profits earned by sellers of the material or by persons performing the services, subsequent to June 24. 1950. **

* * *

It will be noted from the foregoing that the act does not direct the President to establish ceiling prices at the levels prevailing between May 24 and June 24, 1950 (or nearest representative period), but rather directs him to give due consideration to such prices, and in addition, to consider subsequent changes in costs and profits. We believe, therefore, that Congress intended, and properly so, that in establishing ceiling prices, primary attention should be given to the relationships between prices and costs which existed prior to the outbreak of hostilities in Korea. These price and cost relationships were worked out by normal competitive forces during a period of relative stability.

Subsequent to the Korean outbreak, prices were governed in large part not by ordinary market considerations of supply and demand, of costs and necessary revenues, but rather by speculative factors, shortages, and fears of shortages: by the anticipations in the minds of many sellers that controls might be imposed

and the desire to attain a favorable price base under such controls; and by similar abnormal influences. From Korea until the issuance of our general ceiling price regulation on January 24, 1951, price relationships became increasingly distorted. The table below gives a few examples of the wide variation in price movements which occurred between January 1950 and January 1951.

It should be emphasized that these sharp disparities in price movements bore no necessary relationship to changes in costs or to the effects of normal economic forces. In many cases, rather, they simply reflected differences in the extent to which individual sellers displayed a sense of public responsibility in their pricing policies. Experience during December and January with voluntary price controls may have aggravated these distortions, as many businessmen continued to increase prices in an effort to anticipate the impostion of price controls and to establish a favorable price basis under such controls, while other concerns sought to support the stabilization program.

Even where price increases were kept in line with rising costs, there were still differences in the extent to which some sellers based their prices upon costs already incurred while others raised prices to reflect anticipated cost increases; some businesses priced upon the basis of materials in inventory while others took account of replacement costs. Moreover, in some industries which have short production and distribution cycles, changes in raw-materials cost are reflected rapidly through to the retail prices of the end-product; in others, where the cycle is longer, this process of adjustment takes many months.

The issuance of the general ceiling price regulation of January 25, 1951, did nothing to minimize these distortions, in fact, it temporaily froze them into our price system. As a result the price structure prevailing during February-March 1951, was inequitable and distorted in many ways. For some commodities prices were below actual replacement costs; for others they provided an exhorbitant level of profits. Prices established for competing sellers of the same commodity were frequently far out of line with each other.

During the past few months, consequently, OPS has made every effort to restore a reasonably balanced price structure, largely by reference to the May 24-June 24 period. Our general manufacturers' regulation (CPR-22) and others in the same series, follow closely the language of the act, quoted above. They establish ceilings by taking the prices of April 1-June 24, 1950 (or of the nearest representative pre-Korean period) and adding thereto appropriate adjustments for changes in costs occurring since that time. Similarly, in almost all of the "tailored" regulations which we have issued, we have attempted to establish prices or margins properly related to the pre-Korean price-and-cost structure, in many cases actually employing a May 24-June 24, 1950 (or closely similar) base period.

In general, these regulations are not expected to result in any substantial change of the average price level from that which prevailed during FebruaryMarch 1951 under the general freeze. Rather, these regulations were intended to restore normal relationships between different prices and between prices and costs. The restoration of such relationships was imperative not only for reasons of equity, but also in order to permit the economy to function effectively and to insure maximum production for the defense program and the maintenance of the highest possible standard of living.

A change in the language of the act to substitute a current period for the May 24-June 24 period would indicate that Congress had determined the standard we have used to be inappropriate. Although such a change in language would not appear to require OPS in all cases to scrap existing regulations, it would

appear to mean that Congress was instructing OPS to pay less attention to the price relationships which reflected the normal competitive situation preceding the Korean outbreak and to give more weight to the price levels and relationships which were frozen by the GCPR. We have interpreted the intent of the present act to be that, except in unusual circumstances, ceilings should not be established at levels lower than those of May 24-June 24, 1950. A similar interpretation of the intent of the proposed change would mean that it would not be possible, except under unusual circumstances, to roll back prices that had advanced excessively after Korea.

Nevertheless, it would still be incumbent upon us to establish relationships between prices of different commodities and between prices and costs under which the economy could function and produce efficiently.

For the reasons just pointed out, this would require a major readjustment of prices and costs at all levels of production and distribution. The law would direct OPS to give primary weight to the prices frozen under the GCPR, but at the same time sheer economic necessity as well as equity would force OPS to move toward restoring the price-cost relationships which existed before Korea. The only way in which this could be done would be to permit substantial increases in the prices of those commodities which had advanced at a normal rate between June 24, 1950, and February-March 1951, and to allow even larger increases in the prices of those commodities which had lagged behind the general rise, in order to bring them into line with those prices which had advanced most rapidly and least justifiably.

We should end up, therefore, with a price structure at a considerable higher level than that now prevailing. This would, of course, raise both the cost of the defense program, and living costs; increase the drain upon the Treasury, and touch off a new series of demands for wage increases.

In view of this situation, we believe that it would be most unfortunate to amend the act as proposed. To do so would undermine public confidence in the stability of prices; create a new period of unsettlement while prices-and of course wages—were readjusting to the newer and higher levels; hamper defense production during this period of unsettlement; and, postpone by many months the period at which stability could be achieved. We see nothing that would be gained by this procedure; a great deal would be lost.

III. SECTION 402 (D) (3)-MINIMUM PRICES FOR AGRICULTURAL COMMODITIES The proposal to amend section 402 (d) (3) by substituting a current period for May 24-June 24, 1950 period would alter our authority with respect to the level of ceilings for agricultural commodities. In this case, as opposed to the preceding one, prices of the May 24-June 24, 1950 period are established as an absolute minimum requirement. Consequently, the proposed change would mean that no agricultural product could be placed under ceiling at a level below either (a) the effective perity level, or (b) the highest price received during the current period selected. Although this change would affect but few agricultural commodities inasmuch as the majority of them by number were below parity as of February-March 1951, certain important commodities would be affected. The tables below summarize the effect on agricultural commodities of the proposed change. It will be noted that while the legal minia for some products would be higher than they are under existing legislation, the minima for certain other products would actually be reduced.

TABLE I.—Agricultural commodities for which substitution of highest FebruaryMarch, 1951, prices for highest May 24-June 24, 1950, prices would raise present legal minimum prices

1 Highest February-March 1951 price is higher than present legal minimum price. 2 Based on season average prices for Feb. 15 and Mar. 15, as published in Agricultural Prices, Bureau of Agricultural Economics. The higher of the 2 monthly averages was used. In most cases, a somewhat higher level would be the highest level reached. Account has not been taken of seasonal adjustments that might be required in the case of some of these commodities. These might be in either direction. 3 May 15 effective parity price.

Highest May 24-June 24 price or adjusted price per sec. 402 (d) (3), Defense Production Act.

TABLE II.-Agricultural commodities for which substitution of highest February– March, 1951 prices for highest May 24-June 24, 1950, prices would lower present legal minimum prices

1 Highest February-March price is below May 24-June 24 price but above the parity price.

2 Based on season average prices for Feb. 15 and Mar. 15, as published in Agricultural Prices, Bureau of Agricultural Economics. (See footnote 2 to table I.)

Highest May 24-June 24 price or adjusted price per sec. 402 (d) (3), Defense Production Act.

4 May 15 effective parity price.

Higher of Feb. 15-Mar. 15 average ri es published in Agricultural Prices, Bureau of Agricultural Economics. (See footnote 2 to table I.)