the economy. I extend my support to elimination of these amendments as provided by H. R. 6546. The Bureau of the Budget advises that it has no objection to the submission of this report. Yours very truly, Hon. BRENT SPENCE, MAURICE J. TOBIN, Secretary of Labor. SALARY STABILIZATION BOARD MAY 29, 1952. Chairman, House Banking and Currency Committee, Washington 25, D. C. DEAR MR. CHAIRMAN: I am writing to you regarding proposals which have been made for the exemption of certain engineers, certified public accountants, and architects from the wage and salary stabilization provisions of the Defense Production Act. I respectfully request consideration of this letter by your committee. The amendment to the act, reported out by the Senate Banking and Currency Committee, provides for the following exemptions: "SEC. 103. (a) Subsection (e) of section 402 of the Defense Production Act of 1950, as amended, is amended by adding after the word 'profession' in paragraph (ii) thereof the following: ; wages, salaries, and other compensation paid to professional engineers employed in a professional capacity by an engineer or firm of engineers engaged in the practice of his or their profession; wages, salaries, and other compensation paid to professional architects employed in a professional capacity by an architect or firm of architects engaged in the practice of his or their profession; and wages, salaries, and other compensation paid to certified public accountants licensed to practice as such employed in a professional capacity by a certified public accountant or firm of certified public accountants engaged in the practice of his or their profession.'" The Salary Stabilization Board has expressed its opposition to exemption of specific groups because of the difficulty of confining the exemptions to such groups and because of the inequities that result for closely related types of employment. In the case of engineers, particularly, the country is faced with one of the most severe shortages in its history. Of many of the large professional groups concerned with the defense effort, the supply of engineers has been the most critical. The number of prospective engineers who will graduate from school over the next few years will actually be decreasing, according to all the latest information. It will take several years before this condition can be improved. Reports of Government agencies, as well as the independent reports of newspapers, general periodicals and trade journals, all attest to and lament this condition. If engineers employed by engineering firms are decontrolled, their employers would have an advantage over all other employers. In the light of the existing shortage, engineering firms could easily outbid all other employers who would be limited by the normal wage and salary regulations. Such an exemption would, therefore, afford a privileged economic position to one small favored group. The consequences would be profoundly unsettling for all major employers of engineers. The Atomic Energy Commission has told us, for example, that it is 1,600 engineers short of its current requirements. Industrial employers, generally, in both civilian and defense production have expressed great concern as to the unsettling and inflationary consequences of any exemption of engineers at this time. The Department of Defense has made similar representations to us. To decontrol engineers would add incalculably to the costs of the defense effort inasmuch as the enlarged demand for engineers grows principally from the defense effort. Government contract costs, alone, would rise by many millions of additional dollars. Increased costs of operation could not help but be reflected through the entire civilian economy, also. One example of the profiteering which has already begun developing is a practice whereby certain engineering firms hire engineers away from industry on attractive salaries and expense accounts and then sell their services back to the same or other firms at greatly increased prices. The practice has become so common as to earn the special name of "flesh peddling." If engineers are decontrolled in this manner. existing firms of this type would expand while new ones would be established all over the country. The Salary Stabilization Board has no desire to maintain controls over any segment of the economy any longer than is necessary. It has already promulgated a regulation, which is now being coordinated with the Wage Stabilization Board before issuance, for the decontrol of small businesses. It is developing regulations to provide greater flexibility for small business firms who would not quality for exemption. Our Board has the power to act in the matter of engineers or any other group just as soon as decontrol seems to be safe. With this power vested in the Salary Stabilization Board and in the light of its evidenced desire to decontrol wherever possible, as soon as advisable, it would seem unnecessary to write the exemption of any groups into the act itself. I should be most happy to be of any assistance to your committee in this matter. STATEMENT BY SECRETARY OF AGRICULTURE CHARLES F. BRANNAN FOR THE HOUSE COMMITTEE ON BANKING AND CURRENCY WITH REGARD TO RENEWAL OF THE DEFENSE PRODUCTION ACT I am glad to have this opportunity to testify in behalf of the extension of the Defense Production Act. This act—and the authority it contains is essential to a stable, productive agricultural economy in the uncertain and hazardous period that yet confronts the Nation. Accordingly, the Department of Agriculture recommends that the Defense Production Act be extended for 2 years and that it be strengthened along the lines suggested in the President's message of February 11, 1952. Nearly a year has passed since I last appeared before this committee in connection with the extension of this act. I should like to discuss with you what has been happening in agriculture during this time, with special reference to some of the problems related to the act. Let us begin by taking a look at general trends in farm prices, incomes, and cost rates. The first of these trends I should like to discuss is that of farm income. We see much mention of the fact that farmers' gross income-that is, the value of all farm production-set a new high in 1951. This is true. But it is also true that farm expenditures also set a new high. We have to remember that prices paid by farmers for goods used in farm family living showed substantial increases in 1951. As a result, the purchasing power of each dollar of net income actually available to farmers or farm people was substantially less than pre-Korea. Summarizing very briefly, farm operators in the United States had a total net realized income of about 14.9 billion dollars in 1951. This was 2 billion dollars, or 17 percent, above the postwar low of 1950. But it was 2 billion dollars less than the postwar high of 1947. Total nonfarm income, on the other hand, set a new record in 1951, running about 12 percent above 1950 and 37 percent above 1947. Meanwhile, prices paid by farmers for commodities and services used in family living and maintenance averaged 9-percent higher in 1951 than in 1950. In terms of purchasing power, farmers' realized net income in 1951 was lower than in any year from 1942 through 1948, about the same as in 1949 and 8 percent above 1950. Realized net income of farm operators this year will be no higher and may be slightly lower than in 1951. Since prices paid for commodities used in family living will be at least as high in 1951, any decline in farmers' net income is likely to be fully reflected in their purchasing power. Now let us turn to the matter of food prices at retail and their relation to farmprice movements. The latest retail food price index of the Bureau of Labor Statistics as of April 1952 was 13 percent above the level prevailing in June 1950, just before the Korean outbreak. Much of the discussion relating to retail food prices seems to imply that these increases above the pre-Korea levels are all, or at least chiefly, accounted for by increases in farm prices. But the facts are different. The Bureau of Agricultural Economics computes the current retail value of a market basket of food for a three-person family. The annual cost of this market basket, using retail prices as of June 1950, was $653. By April 1952 the retail value had risen to $738 or $13 more than in February 1951, which represented the approximate level of the price freeze. During this 14-month period the farm value declined about $13 but this was more than offset by an increase of twice that amount in the marketing margin or costs. Changes in costs of the market-basket foods between February 1951 and April 1952, were distributed as follows: 1 We can summarize these facts by simply saying that marketing costs and margins are just as important as farm prices-probably more so over any considerable period of time-in determining retail food prices and living costs. This is borne out, too, by the fact that even in good times farmers get only about 50 cents out of average retail food dollar and only 14 cents out of the average consumer's retail cotton dollar. The fact is that rising costs continued to plague both farmers and marketing agencies during 1951. Average wage rates in the distributive trades apparently increased steadily during 1951, averaging 9 percent more for the year than in 1950. Transportation charges were raised 6 to 9 percent in August 1951, and this was the ninth increase since June 1946. On April 11 the Interstate Commerce Commission announced a further increase averaging about 6.8 percent above the level in effect at that time. Prices farmers pay for commodities and services they use in production and family living are today at an all-time record high--13 percent above pre-Korea. Here are a few examples of the extent to which prices of things that farmers buy have gone up since January 1951, even though these prices were under control: It is significant again to note that these increases came in a period when farm prices as a group dropped about 2 percent. If prices of things that farmers buy can creep up in this way with price controls, it is only natural for farmers to worry over how much prices would go up without controls. Attached to this statement is a chart, to which I would like to direct your attention. It portrays the growing divergence between the level of prices paid by farmers and the level of prices received by farmers. Looking at the left of the chart, you will note that the price trends are shown beginning in January of 1951, just before the price freeze was put into effect. Using the prices of that time as a base, the trend lines show what has happened to the two price levels since the freeze has been in operation. You will note that the level of prices paid has shown almost a steady and continuous upward trend. This has happened despite our efforts to control prices within the limitations of the law. Looking at the level of prices received, you will note that the trend line has not followed that of prices paid, but has turned downward instead. This downturn reflects the 2-percent drop in farm prices that has occurred since early in 1951. Two observations must be made with respect to this growing divergence between the two price levels. First, evidence indicates that this divergence of prices might continue to widen even with the price controls provided under the Defense Production Act. Second, without price controls we are afraid that the divergence would become much greater. If we are to get high-level production of agricultural commodities at reasonable prices, one way to help assure this objective is to keep prices of things that farmers buy at reasonable levels. Extension of the Defense Production Act, strengthened along the lines suggested by the President, will help us achieve this goal. 1 Estimates based on preliminary data furnished by the Bureau of Agricultural Economics. Another way to help assure this objective is to provide a climate of satisfactory farm prices. In this connection it is particularly important to eliminate the sliding scale for basic commodities. Producers would then know that they would not be forced to accept 75 percent of parity price support as a result of building up reserves so vitally needed for this country and other freedom-loving countries. Turning now to certain specific features of the act, we believe that the priority and allocation authority given to the President under title I of the Defense Production Act should be extended, except for section 104. At present, a limited number of commodities subject to our jurisdiction are under allocation control and only one of these commodities-castor oil-is under domestic inventory control and end-use restriction. However, during the current marketing year our reserves of feed grains will be reduced by about a third; wheat reserves will be decreased by almost a third; and it appears that it will be possible to increase only slightly our ending stocks of cotton which were at the lowest level in recent history at the beginning of the season. We will enter the 1952-53 marketing year with reserves of these commodities, particularly feed grains and JAN. APR. JULY OCT. JAN. APR. JULY OCT. JAN. 1951 1952 INCLUDES INTEREST, TAXES, AND FARM WAGE RATES U. S. DEPARTMENT OF AGRICULTURE NEG. 48492-XX BUREAU OF AGRICULTURAL ECONOMICS cotton, at extremely low levels. In the case of wheat the excellent crop outlook for 1952-53 should permit some rebuilding of stocks. We do not like allocation controls because they inevitably result in distortions in normal production and marketing practices, and they bring added administrative headaches. We are hopeful that attainment of production goals in 1952-53 will minimize the need for use of the control authority contained in title I. But if we encounter production problems on some of the major commodities, or if we are called on to meet substantially increased demands at home or abroad, we should be authorized to use the priority and allocation authority promptly if such action is necessary to further the needs of the defense mobilization program. I should point out that present indications with respect to the goals program, especially for feed grains, could be more encouraging. Preliminary planting intention reports, issued by the Crop Reporting Board of the Bureau of Agricultural Economics indicate that farmers' tentative plans as of March 1, 1952, would fall about 9 million acres short of the 1952 goals for the principal feed grains; corn alone would be more than 5 million acres below the goal level. We are greatly concerned about the feed-grain situation in light of the intentions report, and we have intensified our efforts, particularly through our people in the field, to encourage farmers to increase plantings of corn and other feed grains up to the goals. We are also stressing measures to increase yields. We have asked all agencies of the Department to see to it that their field representatives give this program top priority during the current planting season under the over-all guidance of the State and county mobilization committees. We are doing our best, within the limits of funds and personnel, to assure that farmers know the reasons why increased feed-grain plantings are so essential and to try to get them to change their planting intentions in accordance with the goals. Turning now to section 104, as indicated by the President in requesting the Congress to extend the Defense Production Act, this section of the law should not be extended since safeguards to protect the interests of our farm producers are embodied in section 22 of the Agricultural Adjustment Act, and section 7 of the Trade Agreements Extension Act of 1951. Also, when such actions are necessary in the interests of national defense, imports may be controlled under the general allocation authority contained in the Defense Production Act. In his letter of January 28, 1952, to Senator McFarland, the President stated that section 22 and section 7 provide safeguards not only for price support or other programs of the Department of Agriculture but also for any group of agricultural producers who are faced with serious injury which results from a tariff concession. Procedures have been established whereby affected producers can apply for remedial action under these authorities. Regarding the use of these authorities, the President said: "It is my intention that, whenever such injury is caused or threatened by imports, these procedures shall be fully implemented and promptly applied in accordance with the spirit of the law." In the spirit of the President's pledge, and because we believe that the facts support such action, we filed a brief with the Tariff Commission on April 18 in support of the Blue Mold cheese producer's request for relief under section 7. Shortly after the release of this brief it was inserted in the Congressional Record as evidence that section 104 should be extended. We cannot understand this interpretation of our action. It appears to us that the only correct interpretation of our action is that we are using the existing and permanent import control authority and therefore section 104 is not needed. In requesting repeal of section 104, we have never argued that it might not be necessary to control some of the section 104 commodities under other authorities. As a matter of fact prior to the enactment of section 104, imports of rice and flaxseed were controlled under the general allocation authority contained in section 101 of the Defense Production Act, and if section 104 were repealed we would probably reimpose import controls promptly on these two products under section 101. Furthermore, the President, on the basis of information supplied by this Department, has already asked the Tariff Commission to begin gathering pertinent information with respect to certain dairy products and peanuts in order that the Commission may be in a position to complete investigations with respect to these commodities under section 22 in the shortest possible time, in the event section 104 expires and the President requests such an investigation. I recommend that section 104 not be included in the extended act. The increasing dependence of agriculture upon the products of industry points up the importance of extending the priorities and allocations provisions of the act as they relate to nonfood materials and facilities. These provisions have been of material help in protecting agriculture's source of supply for the machinery, chemicals, and other materials and supplies that are so necessary to achieve our food and fiber production goals. They are providing the means for securing vitally needed expansion in our facilities for the production of commercial fertilizers and in certain food and fiber processing facilities such as cotton ginning. We firmly believe that controls such as are authorized by the Defense Production Act should be used only when absolutely necessary to the Nation's security. But we are just as firmly convinced that the authority to exercise such controls should be available so long as the unfavorable supply and demand relationship induced by the mobilization program exists in the case of industrial raw materials and essential finished goods, or so long as there is a real threat of a major war. As I stated to this committee a year ago, none of us like controls. Likewise none of us like the current threat to our security and the peace of the world. But it must be recognized that in abnormal and emergency times, some emergency measures are necessary. |