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an ever-increasing proportion of consumers' receipts. The remainder-income left after payment of taxes, insurance premiums, and required debt serviceincreased over this period by about the same percentage as the cost of living.

RECENT DEVELOPMENTS

The burden of these committed or obligated payments rose sharply in 1951, partly as the result of repayments of debts incurred in the buying wave of the preceding year and partly as the result of the high taxes imposed by the tax rate increase in the fall of 1950. After a buying flurry in the early months of 1951, consumer purchases of durable goods fell off and have remained at reduced levels through the first quarter of 1952. Although incomes continued to rise, the increase in consumer expenditures for nondurable goods and services was moderate. The rise in total consumer expenditures was less than the rise in disposable income and, therefore, personal saving rose sharply from the first to the second quarter of last year and has remained at or close to these high levels ever since. For the first 3 months of 1952 personal saving (seasonally adjusted, at annual rates) amounted to $17 billion, or about 71⁄2 percent of disposable incomes.

Part of this increase in saving was applied to an increased rate of acquisition of liquid assets. Consumer net purchases of corporate securities rose to the highest point in many years and their holdings of currency and bank deposits also increased. While redemptions of savings bonds continued to exceed new purchases, the rate of net redemptions declined toward the end of the year and has been quite low in recent months. Saving through increased equities in unincorporated businesses also increased as there was less net drawing down of nonfarm business assets. A substantial increase occurred in the net worth of farm businesses, with the latter largely due to an increase in farm inventories.

One of the sharpest changes in savings patterns was in the rate at which consumers incurred new debt. Net mortgage borrowing was somewhat lower than the preceding years and the net increase in consumer debt was very much less. Consumer credit outstanding increased by only half a billion dollars in 1951 as compared with an average of almost 3 billions a year in the preceding 5 years.

Many factors combined to effect the substantial change in consumers' spending and saving habits last year. To some extent consumers were "stocked up and loaned up." Further, adjustment in consumer psychology to continued international tension, direct controls on prices, and increases in production which permitted an expanding defense program without seriously affecting supplies of consumers' goods, all combined to deter scare buying. Credit restraints, both selective and general, decreased the ease with which the purchase of homes and durable goods could be effected. All of these combined to moderate consumer demand and maintain general price stability.

TABLE B.-The composition of personal saving
[Annually 1946 through 1951; in billions of dollars]

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Source: Estimates by the Board of Governors of the Federal Reserve, System based on data from the Department of Commerce and Securities and Exchange Commission.

TABLE C.-Changes in consumers' holdings of liquid assets 1
[Annually 1946 through 1951; in billions of dollars]

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1 Estimates of amounts owned directly by consumers and by personal trusts. Excludes estimated holdings by unincorporated enterprises and nonprofit organizations and private pension plans.

2 Preliminary estimate.

3 Less than $50 million.

Source: Estimates by the Board of Governors of the Federal Reserve System based on data from the Department of Commerce and Securities and Exchange Commission.

Mr. BETTS. To follow that through with one more question, Mr. Martin, I was asked this question when I was home over the week end, if savings include inventories?

Mr. MARTIN. I do not think so.

Mr. NOYES. The Department of Commerce series on gross savings includes inventory accumulation by nonincorporated businesses. Mr. BETTS. By nonincorporated businesses.

Mr. NOYES. I believe that is correct, sir..

Again this is a little out of my field, I would not want to speak authoritatively on it, but I believe that is correct.

Mr. BETTS. Someone was under the impression that savings, as interpreted currently, include inventories, and I was wondering if you had any information on that.

Mr. NOYES. I believe you are correct, sir. There has been the problem of farm inventories with relation to savings. I believe farmers increased their inventory holdings and that appears as a residual in the savings figures. I believe that is correct.

Mr. MARTIN. I will do the best I can to get up the data on that. Mr. BETTS. Thank you.

Mr. BARRETT. Mr. Chairman.

The CHAIRMAN. Mr. Barrett.

Mr. BARRETT. Mr. Martin, I would like to bring you back to regulation W for a moment. Would you recommend that this committee go on record for the abolition of regulation W, or set up a stand-by?

Mr. MARTIN. No, I would not recommend that you abolish it. would recommend that you renew the authority. I would even go so far as to hope you would restore the flexibility in it. But that might be too much to ask.

Mr. BARRETT. But you would recommend it being inserted as a standby?

Mr. MARTIN. I would indeed, yes, sir. I consider it as auxiliary fire-fighting equipment that we ought to have available in these times. Mr. BARRETT. Then let me ask you another question, if I may: What would be your attitude on regulation X?

Mr. MARTIN. I would feel the same way about regulation X.
Mr. BARRETT. That is all, Mr. Chairman.

97026-52-pt. 2—37

The CHAIRMAN. Mr. Kilburn.

Mr. KILBURN. I feel that the Federal Reserve have quite a lot of power to do anything they think to stop inflation, and I do not want this bill to restrict that power. I would like to have them have wide powers to do whatever they think is best.

Have you any suggestion about that in this bill?

Mr. MARTIN. Yes. Mr. Kilburn, I would like to see the flexibility in these regulations reasserted. I would like to have the flexibility that was there before the Congress, a year ago, wrote in minimum terms. I believe the language of H. R. 6546 which your committee is considering here this morning, if adopted, by the Congress, would achieve your objective in restoring flexibility to our authority.

Mr. KILBURN. I think myself I would much rather have the Federal Reserve have the power to use its judgment in doing what it thinks it can to stop inflation, than I would OPS.

Mr. COLE. It is a question of alternatives.

Mr. KILBURN. Sure, it is a question of alternatives, but I think the Federal Reserve Board knows more about it than the OPS, no matter how well intentioned they might be. I think the Federal Reserve Board knows more about how to stop inflation than any bureau and I would like to have the Federal Reserve Board have the power to do what they think best to stop inflation.

The CHAIRMAN. If there are no further questions, you may stand aside. We are very glad to have your views. We always are happy to have your views on questions which are within the jurisdiction of the great agency which you represent, Mr. Martin, and we thank you. Mr. MARTIN. Thank you, sir.

Mr. KILBURN. Mr. Chairman, I ask unanimous consent to put in the record a letter from a friend of mine on this bill-a certain part of that letter.

The CHAIRMAN. It may be inserted in the record. (The letter referred to is as follows:)

EXCERPT FROM LETTER OF MR. MADISON H. LEWIS, DIRECTOR, THE BORDEN CO.

I am consequently writing you at this time to acquaint you with the necessity of either abandoning OPS or writing into the renewal law now under consideration in both Houses adequate safeguards which will protect American industry and the American farmers. In his remarks at our recent stockholders meeting, our president, Theodore Montague, who I regard as one of the best informed men today in the industry, pointed out that wider profit margins are essential if the food industry is to be in a position to continue serving the American consumer on an efficient basis. It is self-evident that unless the food companies can earn a reasonable profit, the capital will not be forthcoming to replace obsolescent equipment and keep on improving efficiency.

In his remarks Mr. Montague pointed out that under the best conditions the food industry operates on such slender margins that there is no slack to accommodate cost increases, and it must pass them on to the customer. The problem is that in times of heavy supplies or low demand, or both, competition may force the price of one product down to a profitless level. In such periods, a concern having varied interests keeps abreast because of its other products which earn a profit sufficient to meet the needs of the business.

Such a balanced operation is not possible under Government controls. Competition has forced the prices of many foods below ceilings and manufacturers are taking a loss on them. But the prices of other products which should and could sell for more to assure a satisfactory profit are held below their economic levels by artificial controls.

"You are probably familiar with the chaotic condition in the soybean industry due to the unrealistic approach of the OPS. The A. E. Staley Co., the largest

processors in America, have elected to close down their plants rather than continue at a loss. The Borden plants are among the lowest cost plants in the industry and while we have not as yet completely shut down our operations have been very severely curtailed and losses since January 1 have been substantial. So much for the OPS and the need for a change."

The CHAIRMAN. Mr. Clerk, call the next witness.

The CLERK. The next witness will be Congressman Dondero, of Michigan.

STATEMENT OF GEORGE A. DONDERO, MEMBER OF CONGRESS, SEVENTEENTH DISTRICT, STATE OF MICHIGAN, ACCOMPANIED BY JOHN D. HARRISON, PRESIDENT, HOME-BUILDERS OF MICHIGAN, AND EDWARD PRATT, PRESIDENT, HOME-BUILDERS OF METROPOLITAN DETROIT

Mr. DONDERO. Mr. Chairman, I am here this morning in behalf of H. R. 7340, a bill which I introduced on behalf of the Home-builders of Metropolitan Detroit.

I have with me here today Mr. John D. Harrison who is president of the Home-builders of Michigan, and also Mr. Edward Pratt, who is president of the Home-builders of Metropolitan Detroit.

At the present time their industry is shut down tight because of a strike. The purpose of the bill that I have introduced is to bring relief to that industry because of an action of the Wage Stabilization Board.

I might say that the strike has been caused by the recommendation of that Board, for a 15-cent an hour increase in pay, and some 71⁄2 cents for other benefits.

The whole crux of the difficulty in our area is this: for many years, the Home-builders of Metropolitan Detroit, at least, have been in the habit-and it is an established practice of not only paying the prevailing wage to the men who have been employed by them, but in addition to that, they have offered the men incentive pay, either in the form of some bonus, or incentive wages, or some percentage of the profit that was made on the homes.

Now the Wage Stabilization Board says "You cannot do that. You are in violation of the law and you are subject to penalty and perhaps imprisonment."

Quite naturally, that is a serious matter with them, and goes to the very heart of their industry.

Now the purpose of that bill is to allow them to continue to do just what they have been doing for many, many years. While I am not a builder nor an expert, in any sense of the word, in that field, nevertheless they inform me that under that practice, they not only get better workmanship done, but they get their houses built quicker, and the cost is less, and they have even estimated to me that that runs sometimes as much as three to five hundred dollars, and they can therefore sell their homes to people easier, give them a better home, and give it to them quicker.

That is the purpose of their presence here this morning in the Committee room, and my presence.

A statement has been prepared, of four pages, which I have with me, Mr. Chairman, and I would like permission to read that into the record in their behalf, in regard to this particular bill.

The CHAIRMAN. That may be done.

Mr. DONDERO. Mr. Chairman, in regard to H. R. 7342, I should like to call to your attention the following facts:

Construction is the largest industry in our national economy today, exceeding even agriculture in its dollar value.

And the largest single segment of the construction industry is home building.

Consequently, the problem which I desire to discuss with you is of the utmost importance.

Let me first emphasize that today, for the first time in the history of this or any other country, over 50 percent of our population lives in their own homes-homes which they are buying or now own.

The transition from tenant to home owner has largely been since the end of World War II. Since that time, the home builders of this nation have constructed over 6 million new dwellings aggregating in value over $48 billion. One of the reasons that this has been possible is because the cost of homes has been kept within the reach of the average buyer in the various price levels. At the same time, construction workers have been among the highest paid workers in our economy. This seeming paradox has been solved by home builders paying their workmen incentives to encourage their productivity, and bonuses to reward their good workmanship.

These incentives and bonuses have been paid in the home building industry at least since the termination of World War II. And, during that time, home builders have proved to their own satisfaction that when the labor they employ receives incentives and bonuses, they can produce a house which will sell for less then when that same house is constructed by labor working on a straight hourly rate, even when those bonuses and incentives were paid on top of the union contract hourly rate.

Now what then is it that I am here to protest today? It is simply this. In July of 1951, the Construction Industry Stabilization Commission, which was specially created by the Wage Stabilization Board to deal with construction problems, enacted a regulation which forbid home builders to pay their workmen these incentives and bonuses in addition to the hourly rate which they had paid prior to the stabilization program.

Why should any agency under the guise of stabilization enact a regulation which, instead of stabilizing the price of homes, will actually contribute to an increase in the price of homes?

The answer is twofold. First, because this Commission, despite the mandate of the Defense Production Act that they do so, did not consult with the home building industry prior to promulgating this regulation. And the second reason, for which I have no concrete evidence but am assured of its truth by reliable people, is that certain groups represented on the Commission wanted to use a government regulation to destroy incentives and bonuses as a method of compensation in the construction industry. This illegitimate objective was compounded by the lack of knowledge of the Commission's Chairman and when I say lack of knowledge, I mean of the construction industry. Although a professor of law at Harvard University, he is totally unfamiliar even with builders' ordinary terminology and parlance.

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