The point at issue today is not whether we are to extend the provisions particularly referring to preparedness in the Defense Production Act. No one, I believe, would risk cutting off our defense production program. Not when the very life of America-and of the free world-is at stake. But as long as we must maintain our expanded production program, we must face the fact that inflation is a threat-and a very serious threat to the United States. I don't think we can afford the danger of another bout with inflation such as we had from the time of the invasion of South Korea to midwinter of 1951. It would be most unwise to risk it. That bout increased our defense production bill by more than $7 billion in a few months. It cost the American people some $16 billion in increased prices for essential cost of living items, according to the former Price Stabilizer, Michael DiSalle. The machinery we in the Congress created in 1950 and kept in being last year has helped to halt this disastrous spiral. Measured in cost of living alone, it has reduced price increases from the monthly rate of 1 percent for the 8 months following the invasion of South Korea to an average of one-fourth of 1 percent for the next year. When we look at basic commodities which more quickly affect defense production, the results have been even more striking. From June 1950 until the price freeze in January 1951, prices soared almost 50 percent. They reached their peak soon afterwards, and since February 1951 they have dropped nearly 25 percent. On the whole, prices have been fairly well stabilized since the early spring of last year. As you know, prices of some commodities have dropped below ceilings, and sales in some lines have been lagging. There are some soft spots in our economy today, but their prevalence has been greatly exaggerated. In March, the Bureau of Labor Statistics reported that 50 percent of consumer expenditures-as measured by its cost-of-living index-were at their highest 1951-52 peaks. Practically 71 percent were within 2 percent of their peaks. Less than a tenth were as much as 10 percent below their peaks, and most of the foods in this category were fresh fruits and vegetables which are still selling below parity and hence not subject to price control. Basically our economy is firm, with widespread upward pressure on prices despite the presence of some soft spots. Under these circumstances, inflation remains a real threat to our national security. OPS is meeting this situation realistically by suspending controls on commodities which are well below ceilings. Any action is preceded by a quick but thorough study. OPS is not suspending controls where such action would result in higher prices than permitted under existing regulations. And if prices begin rising on any commodity after such suspension, controls will be reimposed before previous ceilings are reached. I tell you these facts because I know you share with me the belief that American business should not be called upon to keep unnecessary records and file unnecessary reports. This policy is basic with OPS also. Wherever this load can be lightened for business without danger to our economy, OPS will do so. But we cannot dismiss the very real threat of inflation during the months ahead. Recently, on May 18, 10 of the Nation's top econo mists declared that the country faced an indefinite period of long-term inflationary threats. There may be intermittent relief, they said, but this does not change the long-term outlook. Attached, for the record, is a reprint of a story which appeared in the New York Times of May 18, 1952, carrying these predictions.1 In examining some of the specific factors making for inflation, we find that during the first quarter of 1952, our expenditures for national security were at a rate of $47 billion a year. By the end of the second quarter, the rate may reach as much as $55 billion. And by the end of 1952, the rate is expected to go to $65 billion. We cannot ignore the tremendous inflationary pressures generated by such a build-up. It puts more and more money into the hands of American consumers at the very time when vast quantities of raw materials are going into defense production. The American people have helped keep prices stable during the past year by buying sanely and boosting their savings. However, many things could happen to upset this precarious balance. As much as we all hope for peace, we cannot ignore the possibility that the Korean truce talks may collapse. If so, what would happen? Would the fear of renewed and increased hostilities cause another wave of scare buying such as followed the original outbreak in June 1950? The steel issue is another potent factor. If there should be a break-through in steel prices, Ellis Arnall, OPS Director, has estimated it could mean an increase of $300 a year in living costs for the average American family. And think of the extra billions it would add to our defense expenditures. Poor crops in a few key commodities could have serious effects on the general price level. Moreover, some increase in grocery prices appears certain anyway. A recent survey showed that earnings in that industry had fallen below the standard which OPS considers fair. Therefore, some ceilings will be raised. And remember these points: 1. Agricultural labor is leaving the farm. There are a million and a quarter fewer workers on the farm than 10 years ago. The 1951 farm-production job had to be done with 400,000 fewer workers than in 1950, and the Department of Agriculture expects this trend to continue during 1952. 2. The cost of feed grains is pushing ceilings. 3. Inventories of feed grains are small. 4. The cost of fertilizer is going up. 5. Parity ratio is dropping and could create the need for a parity readjustment. 6. The prices of farm machinery and of many farm supplies are already at ceilings. Consider these miscellaneous factors: Transportation rates are up. Automobile casualty rates are going up 20 percent. Freight rates are up 16 percent, and rents are up. But beyond all else, Communist aggression remains a continuing threat to us and to all the other nations of the free world. In the face of this danger, we must continue to build up our defenses-even though it will generate continuing inflationary pressures. 1 Article referred to appears at p. 1635. We accept the danger of inflation as demonstrably the lesser of two evils. We can legislate the means to deal with that danger. We can control inflation. We proved that during World War II when prices were held almost steady from April 1943, until the end of the war. We proved it again in 1951 when the runaway trend in prices was halted. No one claims that direct price control did this whole job. alone. Wage controls were indispensable, along with price control. Indirect controls helped. There were other factors also. But this remains true: The wave of scare buying-which had sent prices rocketing originally did not come to an end until price ceilings were imposed. In other words, price-stabilization action restored a measure of confidence in the future. The psychological factors which touched off the wave of inflation. right after the invasion of South Korea are still a threat. They can be sparked again by a sudden change in the international situation. Those who would destroy us would be quick to grasp this opportunity, were we to offer it to them. It would take We dare not destroy our stabilization machinery. months of efforts and large sums of money to rebuild it. We may never have the time to do so. Then, if we let inflation gain the upper hand, we would have lost a major battle by sheer default. Not only do I favor keeping that machinery intact until all danger has passed. I believe we should streamline it. We should remove from it those restrictive amendments passed by the last session of the Congress-which-in the opinion of all stabilization officials, make it less effective in its operations. Those of us who have visited or have received reports from the areas surrounding our military camps and the isolated areas in which multimillion-dollar defense plants are being erected are well aware of the acute housing shortages that exist in these areas. Certainly there can be no doubt that servicemen and their families-as well as the production workers who are staffing defense plants-would suffer great personal hardship from exorbitant rent increases which could result from the sudden activation of these installations. It is only the protection of the rent-control program which prevents these hardships from arising and continuing in these areas. Up to the present time approximately 110 areas have been certified as "critical defense-housing areas," under the legislation which the Congress passed last summer. It may not be generally appreciated that the largest portion of our defense production effort is being carried on outside these 110 areas. The so-called critical areas are, with few exceptions, smaller and more isolated communities. A high percentage of our industrial potential is located in larger and more established population centers. Most of these larger centers have not been certified as "critical" housing areas, because on a relative basis-they have not had the substantial in-migration of defense workers which the law requires as a condition for such a certification. However, the present rent-control program has provided most of these areas with the protection they require against a run-away inflation of rents. It is important that this protection be continued. Any proposal which would limit the extension of rent control to critical defense housing areas, and would allow rent control to expire in the many industrial centers which have not been certified as critical, would be disastrous. Only one-seventh of all the rental housing that is now subject to regulation is located in the so-called critical areas. It would be a serious blow to our stabilization effort, and to the defense production program itself, if rent control were permitted to expire for the 6 million units that are not located in so-called critical areas. We must remember that even before Korea there was a serious housing shortage in most of our cities. In 1950 the census reported a vacancy rate of only 1.1 percent for nonseasonal, nondilapidated dwelling units offered for rent. This vacancy rate was far below normal, and provided far less than the minimum safety margin against run-away rent increases. The recent shortages of key items of building material have forced a curtailment of the postwar increase of home construction, which has made the situation in our established population centers even more difficult than it was in 1950. Thus the stage is now set for one or more series of excessive rent increases in the absence of controls. Such rent increases are not speculative-they have actually occurred in a number of cities which were prematurely decontrolled. The Bureau of Labor Statistics reports that in 10 decontrolled cities rents rose 23.1 percent from the middle of 1949 to the 3-month period ending January 1952, while during the same period rents in 24 controlled cities increased only 7.9 percent. Rent increases in the lower rental brackets in the 10 decontrolled cities were even more dramatic. From the date of decontrol to the spring of 1951, some 50 to 86 percent of the units in these cities, which had previously rented for less than $30 a month, had their rents increased. From city to city, the average rent increase for these units ranged from 29 to 62 percent. Our responsibility for guiding the nation through the current mobilization effort makes it imperative that we extend rent control as it now operates until at least June 30, 1953-so as to prevent a rental inflation throughout the country. It is true that the impact of the defense-production program will not last as long in some communities as in others. It is also true that some communities are making more rapid progress than others in meeting their housing problems. However, there is no cause for concern that Federal rent control will be prolonged in any of these communities beyond the time when the need for it has expired. Under the present law, the governing body of every community has full authority to have controls lifted whenever it finds that they are no longer needed. The mere fact that local governing bodies with over 53 million persons in their communities have refused to decontrol their cities under this provision, is dramatic evidence that most local officials are firmly convinced that the rent-control program is still urgently needed in their communities. Inflation is still the big enemy on the home front. We cannot ignore it. Faint-hearted gestures will not suffice to deal with it. I urge the members of the committee to extend and strengthen the price-stabilization law and the rent-control law for the protection of American consumers and for the efficient mobilization of our resources in defense of freedom. (The following information was requested by Congressman Rains in Vol. 1, p. 711:) NATIONAL ASSOCIATION OF MANUFACTURERS, Hon. BRENT SPENCE, Washington, D. C. DEAR CONGRESSMAN SPENCE: This letter is supplemental to my testimony before your committee on May 13, 1952. It is in response to a request by Mr. Albert Rains that I file with your committee information about the clearing-house program of the National Association of Manufacturers to aid small business in obtaining subcontracts. This clearing-house program, which arose out of recommendations of the small business subcommittee of NAM's Government contracts committee, is designed to make it easier for small firms looking for subcontracts to become acquainted with large manufacturing companies interested in increasing the number of their potential suppliers. Following an explanation of the purpose of the clearing-house program by Mr. Earl Bunting, managing director of the National Association of Manufacturers, top officials of large manufacturing companies signified their interest to participate in the program and appointed representatives to whom NAM may refer small firms looking for subcontracts. Small firms can take advantage of this program by getting in touch with any one of NAM's 12 regional offices throughout the country and filling out a general information form calling for data about their facilities, production experience, capacity, etc. After the completed forms are reviewed by members of the small business subcommittee, every effort will be made to assist small firms looking for work to find other businesses seeking to increase their sources of supply. This service, which is available to all manufacturing concerns regardless of NAM membership, will be widely publicized through newspapers, trade publications, and radio in order that the greatest number possible of small concerns will become aware of the opportunity offered to them. In addition to this clearing-house program, there are many other ways in which NAM has been helping small business in the field of Government contracts and regulations. Prominent among them are the extensive services of the association's Washington office and law department. Since Korea, NAM's Washington office has been handling many questions from businessmen, practically all from small firms, about Government procurement and defense regulations. Smallbusiness men who have been confused by one or the other of the hundreds of departmental procedures or regulations, agency directives, or executive orders have been writing, wiring, telephoning, and visiting in person our Washington office and law department seeking whatever advice, help or guidance that might be available. There is another activity within NAM which is very important as an aid to small-business men in the field of Government contracts, namely, the Government contracts committee. A brief description of this organization and operations of this committee will suffice to illustrate how it is helping small business firms. The Government contracts committee is composed of representatives of some 200 manufacturing firms, the majority of which has 500 employees or less. These representatives, whose time on committee matters is donated by their respective companies, recommend policy on Government contract matters to the NAM board of directors. They also endeavor to improve the terms and conditions of Government contracts through close study and representation of their viewpoints to procurement policy officials. As a result of their committee work, members become more versed themselves in Government contract matters. Presently the committee's attention is centered on the following subjects: Small business, contract pricing, contract cost principles (including accelerated amortization), contract termination, and renegotiation. The Small Business Subcommittee, at whose recommendation the clearinghouse program was undertaken, analyzes on a continuing basis the small business aspects of Government procurement, and keeps before responsible Government officials, including officials of the Small Defense Plants Administration, the viewpoints of small-business men in the defense program. Although the other subcommittees of the Government Contracts Committee do not represent smallbusiness men as such, they do afford them excellent opportunities to have their voices heard among other NAM members and among procurement policy personnel in the Government, with whom all groups maintain regular contact. |