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We have already noted the benefits conferred on retailers and wholesalers by the Herlong amendment. To grant these sellers Capehart adjustments as well would be to give them a double opportunity to obtain increases in ceiling prices. Such action, particularly at the retail level, with its direct impact on the consumer. would utterly negate the basic policy of title IV of the Defense Production Act. Relief under the Capehart amendment is, of course, unnecessary for wholesalers and retailers. Application of the Herlong amendment, as well as the industry earnings standard, provides the means for insuring them "fair and equitable" treatment.

To grant additional benefits at the expense of the consumer is unthinkable. That, in brief, is our view of the situation existing as a result of the Safeway decision.

We are, of course, moving to seek Supreme Court review of the decision. We are asking the Solicitor General to file a petition for a writ of certiorari.

Under the circumstances I have outlined, however, prompt congressional action seems to me to be required to protect the public from altogether unwarranted increases in the cost of living. It is vital that this breach in the stabilization dikes be repaired.

I am enclosing a copy of the opinion in the Safeway case, as well as our brief, in which you will find an extensive summary of the legislative history of the Capehart amendment.

Sincerely yours,

ELLIS ARNALL.

[Copy of letter sent to Chairman Brent Spence, and to each member of the House Banking and Currency Committee]

OFFICE OF PRICE STABILIZATION,
Washington 25, D. C., May 29, 1952.

During my testimony before your committee last Tuesday on the extension of the Defense Production Act, I mentioned a few items for which higher ceiling prices have recently been requested. Since these requests are such conclusive evidence of the extent to which prices are pressing ceilings, I know you will be interested in the enclosed list of 79 of the principal items for which price increases have recently been requested.

Higher ceilings have been authorized in a few cases which meet our established standards, but many others have been or will be denied.

It should be emphasized that these applications cover products or entire industries, and should not be confused with the list of approximately 19,000 applications for individual price relief filed as appendix D to my statement before your committee on April 29, 1952.

I should also point out that many price regulations provide for automatie pass-throughs of certain increased costs such as freight charges. Therefore, price increases are actually being granted for additional items not included in the attached list.

Sincerely yours,

ELLIS ARNAll.

CURRENT PRESSURE FOR INCREASE IN CEILING PRICES, MAY 29, 1952

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Untreated poles and piling (east of the one hundredth meridian)
Imported lumber, logs, and allied wood products

Sitka spruce

Aircraft lumber

No. 2 and 3 hemlock logs

Pulp, Paper, and Paperboard Branch:

Lake States pulpwood

Newsprint

Meat and Fish Branch:

FOOD AND RESTAURANT DIVISION

Horsemeat (slaughterers and retailers)

Selected beef cuts

Beef

Hindquarters of veal

Pork at wholesale

Whole hog sausage

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MEMORANDUM-REASONS FOR THE USE OF STANDARD MARKUPS IN CPR's

15 and 16

Mr. Cole has inquired about the fairness and propriety of the use of the standard percentage markup technique in the retail grocery regulation. His question has two aspects: (1) in relation to the Herlong amendment and (2) in relation to the use of individual percentage markups for some other retailers.

I. The principal purpose of the Herlong amendment was to insure that historical pricing practices of wholesalers and retailers would be preserved. Under the Herlong amendment, if wholesalers and retailers priced on a basis of a percentage markup, price regulations for such distributors must be based on a percentage markup.

That is the purpose of the Herlong amendment and that is exactly the method of price control which OPS utilizes for wholesalers and retailers of dry groceries. Every time a retail grocery store, for example, experiences a cost increase for a dry grocery item, that store obtains a full percentage markup on the increase.

The

Since grocery price ceilings are based on a percentage markup, OPS is complying with the objective sought to be attained by the Herlong amendment. only complaint, therefore, insofar as the grocery trade is concerned, is that the percentage markups it receives do not reflect markups obtained in the MayJune 1950 period.

The percentage markups in the OPS regulations are based on a detailed and costly survey made during the war by OPA. The OPA percentage markups were increased at the time of the issuance of CPR's 15 and 16 in every case where the evidence then available warranted such an increase.

In addition OPS has been engaged in a nation-wide project of collecting data on pre-Korea grocery markups. As soon as the data are analyzed we will revise our markups to the extent that fairness and equity require. This is not an easy job. Grocers, like most other retailers, may retain the invoices of their suppliers and thus have a record of the prices they paid for their merchandise. But with the exception of large supermarkets and chains they do not generally keep a record of the prices for which they sell that same merchandise.

The results of the survey will receive most careful and expeditious attention. There will be no unfair discrimination against the grocery trade. If the facts show that further adjustments in grocery margins are justified, these adjustments will be made. As a matter of fact the Office of Price Stabilization issued only last week a regulation which adjusted grocery markups under this agency's industry earnings standard.

It should be emphasized that there is now no evidence that the mark-ups provided in the outstanding grocery regulations are not as high as those prevailing in the period before Korea. The question of whether the mark-ups presently provided are lower or higher than or at the level of the pre-Korean mark-ups can only be determined after analysis of the results of the survey which is now being conducted. It may well be that the survey will indicate that many of the mark-ups

presently provided by CPR's 15 and 16 are higher than those prevailing before Korea.

II. Retail grocers have been covered by a standard mark-up regulation because it is the simplest and least burdensome of the mark-up type regulation and because the industry asked for that type of regulation before it was issued. The most important of the individual mark-up regulations is CPR 7 which covers department, apparel, furniture and general merchandise stores. These individual mark-ups in CPR 7 were not, it should be noted, based on the pre-Korean period because many retailers covered by CPR 7 did not have records for that period. Instead they were based on mark-ups in effect immediately prior to the regulation. All available data indicate that for similar goods the stores covered by CPR 7 differ widely in regard to their mark-up practices. The differences arise from wide differences between stores in regard to:

(a) Spaciousness

(b) Display

(c) Location

(d) Types of customers

(e) Services supplied
(f) Credit terms offered,
(g) Sources of supply

(h) Quantities purchased

Because of these factors it was not feasible to figure out a classification of stores to reflect these traditional differences in mark-up practices. In addition, it would have been a huge and expensive task to gather the data necessary to fix a mark-up for each category of goods. Accordingly, it was necessary to use individual markups.

The retail grocery field is different. While it is true that there have always been differences between various grocers in regard to mark-ups, there has been enough si nilarity in the mark-ups for the major portion of the industry to make possible a classification of stores and use of standard mark-ups. At the same time we have recognized the special character of certain groups who offer special services or carry special types of groceries. For them we have provided various types of adjustment provisions. Moreover, there was no problem here of gathering data. BLS had made in World War II an extensive survey of margins for various types of food retailers and all that was necessary was to adjust the mark-ups they found to take account of changes occurring since OPA days. We made adjustments of this type in all the cases where the evidence warranted them. Finally, it was known that we could-without unreasonable expense-make surveys necessary to bring the mark-up information up to date.

The standard mark-up regulation is simplest and least burdensome for retailers. Retail grocery stores carry from 1,500 to 3,000 items. Computation of individual mark-ups, therefore, means a huge burden of calculation. Moreover, most independent stores could not compute individual mark-ups for the pre-Korean period, because, as industry representatives have testified, they simply do not have the necessary records.

The OPA dry grocery regulations, on which ours were closely modeled, have been recognized by all concerned as among the most successful issued by that agency. Prices were effectively stabilized under the OPA regulations while retailers made record profits. Although challenged several times in the courts, they were not only sustained but praised as fair and equitable. The OPS reinstituted the wartime standard margin regulations at the request of the industry. Until recently, when industry spokesmen have begun to ask for individual markups, the only complaint has been about the level of the mark-ups. It should be noted in this connection that Mr. Shield has testified before this committee that the industry would not be satisfied with individual mark-ups.

OPS has provided for individual mark-ups in the field of liquor distribution. This was done because, by reason of State law requirements, liquor dealers have fairly full records. The net result has been a flood of protests from the retailers requesting to be relieved of the job of calculation. We are now revising the liquor regulation to provide for standard mark-ups.

Similarly, in April 1951 we issued an amendment to CPR 7 which brought thousands of small retailers under the individual mark-ups of that regulation. While this change was found practical by those who handle a relatively limited number of items with a high value per unit, those who carry a great many items of low value per unit filed vehement protests. They found the task of preparing the "pricing charts" required by CPR 7 burdensome. For all its rigidity, they preferred the General Ceiling Price Regulation. On May 28, 1951, we amended CPR 7 to permit them to remain under the GCPR.

In addition to being simple, standard mark-ups have other important advantages The job of checking compliance with standard mark-up regulations is made far less expensive and time consuming because the same mark-up is applicable for the same item in every one of a given class of stores. It is not necessary in each case to go through a host of invoices and sales records to first determine the appropriate mark-up. At the same time, since acquisition costs tend to be relatively uniform in the various parts of the country, retail prices tend under this type of regulation to be relatively uniform in the same area.

Finally, standard mark-ups provide the basis for the community pricing program which OPA used Nation-wide and which OPS is now trying out in several cities. Community pricing involves translating marked up prices into uniform dollarsand-cents prices which are posted in grocery stores. This type of price control, it is generally agreed, is for all concerned the best of the known techniques. With uniform ceilings, the seller is relieved of the calculation job; the consumer is put in a position of knowing at all times what the ceiling price for a given item is and being able to tell whether he's being overcharged; and the price stabilization program is able to carry out its statutory responsibilities with maximum effectiveness and minimum expense.

[Press release]

OFFICE OF PRICE STABILIZATION,
Washington, Monday, May 19, 1952.

For immediate release.

SUSPENSION OF CONTROLS ON RAW COTTON, TEXTILES

(GOR 4, Rev. 1, Amdt. 1-Exemptions and Suspensions of Certain Consumer Soft Goods)

(CPR 8, Amdt. 1-American Upland Cotton-Suspension of Ceiling Prices) (CPR 18, Rev. 1, Amdt. 5 and CPR 18, Amdt. 2-Manufacturers' Prices for Wool Yarns and Fabrics-Suspension of Ceiling Prices)

(CPR 37, Amdt. 5-Primary Cotton Textile Manufacturers' Regulation-Suspension of Ceiling Prices)

OPS Director Ellis Arnall today ordered price controls suspended on raw cotton and a wide variety of cotton, wool and synthetic textiles.

The suspensions are effective May 20, 1952.

Today's action is in line with OPS policy of suspending or otherwise relaxing price controls on commodities whose selling prices generally are materially below ceilings and which are not expected to reach ceiling prices in the foreseeable future.

Textiles (when sold by manufacturers) on which price controls will be suspended include:

Wool yarns and fabrics containing 25 percent or more of wool or wool waste by fiber weight.

Cotton yarns and fabrics which after production but before finishing consist of 50 percent or more of domestic cotton by fiber weight and contain less than 25 percent by fiber weight of any one of either wool, rayon, nylon or other fibers. This includes all unfinished and finished cotton yarns and fabrics. It also includes such cotton products as blankets, pillow cases, sheets, towels and woven bedspreads when sold by manufacturers who establish their ceiling prices under CPR 37-the primary cotton textile manufacturers' regulation.

Processed synthetic and silk yarns, synthetic fabrics (except synthetic tire fabrics), silk fabrics, and certain fabrics and yarns which are composed of blends of textile fibers. Synthetic fabrics include fabrics made of rayon acetate, ny'on, orlon, dacron, dynel, glass and other man-made fibers. Rayon acetate, and nylon comprise the bulk of the synthetic fibers produced.

As in the case of earlier suspension orders, today's orders include specific recontrol points which are somewhat below ceilings established in those regulations suspended by Mr. Arnall but well above the current market prices of the suspended commodities. When the price of a given commodity reaches this recontrol point, controls will be reimposed.

Today's suspension orders relieve the applicable producers and manufacturers from complying with the record-keeping requirments of the suspended regulations as to future transactions. They must keep on file, however, those records which they were required to maintain before today's announcement.

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