November 176.4, December 178.8, January 181.5, February 183.3, March 184.5, April 184.6, May 185.4, June 185.2, July 185.5, August 185.5, September 186.6, October 187.4, November 188.6, December 189.1, January (1952) 189.1. The 13-month period since the announcement by the Office of Price Stabilization of the General Ceiling Price Regulation has seen a leveling off of prices, both wholesale and retail-a dramatic contrast to the sharp increases in the 7 months following the outbreak of war in Korea. During those 7 months, there were waves of scare buying by producers as well as consumers. World War II experience had indicated where wartime shortages could be anticipated. On the basis of that experience, there was wild speculation in the commodity markets for such commodities as raw wool, tin, and rubber; manufacturers sought to stockpile inventories of metals and machinery; distributors and consumers tried to acquire inventories of consumers' durable goods-from television sets to electric irons-as rapidly as possible, and before anticipated controls such as materials allocations and consumer rationing could be imposed. As a result, prices advanced rapidly. The Labor Department's Bureau of Labor Statistics' Consumers' Price Index rose 8 percent from June 1950 to February 1951, the month in which the index best reflects the full pre-GCPR advance in prices. The wholesale price index rose 16.3 percent, and the daily spot market index of the prices of 28 sensitive commodities traded on organized exchanges, jumped 45.3 percent. After GCPR, the picture changed. The Consumers' Price Index for January 1952 was 2.9 percent higher than in February of 1951, the wholesale price index 2.8 percent lower. The daily index for January 1952 was 16.1 percent below the January 25, 1951, level. It is clearly impossible to attribute this leveling off entirely to price control. The rescheduling of the mobilization program, and the flexibility of the American economic system in simultaneously meeting defense needs and providing for most civilian demands, have unquestionably eased the pressure on prices, Tax increases and credit controls have helped. On the other hand, when GCPR was announced, prices were still going up. Even though the economic situation was such that prices would have leveled off during the year, the initiation of price control in January 1951 resulted in stabilizing of prices at lower levels and at an earlier date. Put another way, the price freeze gave us a breathing spell, time to assess the effect of mobilization on the economic picture, and to realize that, with prices under control, there was no need for scare buying "to beat the inflation." So much for what is past. What if we do not renew and strengthen the antiinflationary provisions of the Defense Production Act? Is there any need to continue to offer assurance to businessmen and the consuming public that prices will not be permitted to get out of hand? We have been fortunate so far in being able to afford both guns and butter. We cannot count on continuation of that good fortune. Peak production for defense is still in the future. The maximum drain on materials and the maximum increase in purchasing power resulting from defense production, have not yet been felt. It will take 2 years of continued control authority to get us over the danger period. With luck, these controls can be kept at a minimum. If the inflationary pressures mount, the ability to invoke stand-by controls promptly will prevent new waves of scare buying and price rises. But merely renewing the existing price control legislation is not enough. Three of the amendments of 1951 weakened the control legislation so that, even with the lessened price pressures of 1951, it was difficult to contain price rises in certain parts of the economy. These are the Capehart, Herlong, and ButlerHope amendments. Both the Capehart and Herlong amendments have the effect of supporting cost-plus pricing methods for most of the commodities entering manufacturing and distribution channels. The idea of automatic pass-through of costs does injury to the competitive price mechanisms which characterize a free enterprise economy. Of course, real hardship warrants relief, but that is provided under the price control law without these two amendments. The Butler-Hope amendment, banning the use of slaughter quotas, for beef, has not had too serious results in the past year, in part because of the greater availability of such meats as pork and chicken. But given a condition of short livestock supplies, which can well occur, we are tempting fate if we prohibit use of the best tool so far developed for assuring fair distribution of meats, without resort to black markets or injury to legitimate distributors. And finally, in addition to better controls over prices, we must continue and strengthen controls over credit. All economic controls which interfere with the ordinary give-and-take of the economy are obnoxious. But they are the instruments which should be kept at hand-as any good carpenter keeps his tools at hand-for the times when they are needed. The carpenter may not use some of his tools more than once in 6 months, but when he needs a particular one he wants it in his tool box, ready for immediate use. Similarly, though we are undergoing a period of apparent price stability, we must be able to count on having available, when needed, the necessary tools of price and credit control. Continuing and strengthening this legislation now, when we have a breathing spell in which to affirm its purpose, provides needed insurance against future inflationary pressures. UNITED STATES DEPARTMENT OF AGRICULTURE, Hon. BURNET R. MAYBANK, OFFICE OF THE SECRETARY, Chairman, Committee on Banking and Currency, United States Senate. DEAR MR. MAYBANK: This is in reply to a request of February 6 from the staff director of the committee requesting a report on S. 2594, a bill to extend the provisions of the Defense Production Act of 1950, as amended, and the Housing and Rent Act of 1947, as amended. The proposed bill would extend the provisions of the Defense Production Act of 1950, as amended, for 1 year from June 30, 1952, to June 30, 1953, by amending sections 714 (a) (4) and 717 (a). It likewise would extend the provisions of the Housing and Rent Act of 1947, as amended, from June 30, 1952, to June 30, 1953, by amending sections 4 (e) and 204 (f). On February 11, the President transmitted to the Congress a message recommending that the Defense Production Act be extended for 2 years and that the present law be strengthened in a number of respects. Following receipt of this message, S. 2645, which incorporates the President's recommendations, was introduced by Senator Maybank. We feel that the provisions of S. 2645 are preferable to those of S. 2594, and are prepared to testify on the proposal at the convenience of your committee. The Bureau of the Budget advises that, from the standpoint of the program of the President, there is no objection to the submission of this report. Sincerely yours, C. J. MCCORMICK, Hon. BURNET R. MAYBANK, DEPARTMENT OF AGRICULTURE, Washington 25, D. C., March 4, 1952. Chairman, Committee on Banking and Currency, United States Senate. DEAR SENATOR MAYBANK: On February 26, in reply to your request for a report on S. 2594, a bill to extend the provisions of the Defense Production Act of 1950, as amended, and the Housing and Rent Act of 1947, as amended, we informed you that the Department favored the extension of the Defense Production Act for 2 years and the strengthening of its provisions in a number of respects along the lines suggested in the President's message of February 11, 1952. We further indicated that the Department was prepared to testify on the proposal at the convenience of your committee. Since transmitting this letter, we have been informed that your committee contemplates hearing testimony from only a few agencies on the bill to extend the Defense Production Act. At the request of the Office of Defense Mobilization, we are sending you this letter which indicates our views as to the need for extending the act from the standpoint of certain authorities directly vested in the Department, and the need at this time for price control from the standpoint of agriculture. Before discussing these matters, we should like to reemphasize this statement the Department made to the House Committee on Banking and Currency on May 14, 1951, in endorsing at that time a 2-year extension of the Defense Production Act: "Instinctively, none of us like controls. Likewise, none of us like the current threat to our security and the peace of the world. Only a few fail to recognize that in abnormal and emergency times, some emergency meas ures are necessary. Right now the emergency calls for measures to deal with a shortage of basic materials needed in the defense effort, to alleviate our manpower problems, and to counteract inflationary pressures. "The basic authority for such measures lies in the Defense Production Act. It should be extended and strengthened so that our Nation may finish the job of girding for defense against the most awesome threat that mankind has ever faced." The priority and allocation authority given to the President under Title I of the Defense Production Act of 1950 should be extended, except for section 104. Currently, a limited number of commodities under our jurisdiction are under allocation and only one commodity, castor oil, is under domestic end-use restriction. However, during this season our reserves of feed grains are being reduced by about one-third wheat reserves are also being drawn on substantially and cotton reserves are at the lowest level in recent history. We will enter the 195253 marketing year with reserves of these commodities, particularly feed grains and cotton, at extremely low levels. 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, the priority and allocation authority should be available for action necessary to further the needs of the defense mobilization program. As indicated by the President in his letter of January 28, 1952, to Senator McFarland, majority leader, United States Senate, section 104 should be repealed promptly, since safeguards to protect the interest of our farm producers are embodied in the general allocation authority contained in the Defense Production Act and in other existing legislation. Economic stabilization in emergencies such as the present is essential, and the controls must apply equally to all groups-agriculture, labor, and industry. Farmers as a group do not want inflation. They do not want inflation because they know each boom is followed by a bust which frequently wipes out savings and investments. They know that when the bust comes, farm prices fall first and fall the fastest. They know that prices of other commodities are less flexible, sticky, to use a very common term, and tend to stay up as industry lowers production rather than price. Today, farmers are quite concerned about price stabilization, or rather what might be termed “lack of adequate price stabilization" on commodities they buy. They are concerned because they see prices of things they must buy going up, commodities for both production and living. These see these prices going up despite the fact that prices of most of these items originally were frozen under the General Ceiling Price Regulation issued by the Office of Price Stabilization on January 26, 1951. At the same time, prices of agricultural commodities, generally speaking, are going down, including most of those few commodities for which dollars and cents ceiling prices have been established. In other words, prices of many things farmers buy are pushing through their initial ceilings, whereas prices of things farmers sell are pushing down toward support levels. Agriculture's concern about the need for adequate price stabilization is best expressed by the way the changes in these two price levels the prices of things farmers sell and the prices of things they buy-have affected their purchasing power. From mid-January 1951 (just before the price freeze) to February 15, 1952, some 13 months after prices were frozen, prices received by farmers declined 4 percent. During this same period, prices paid by farmers, including interest, taxes, and wage rates, went up 6 percent. As a result, the parity ratio, which measures changes in farmers' purchasing power, dropped 9 percent below January 15, 1951, levels and currently is only 3 percent above pre-Korean levels. 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 preKorea. Here are a few examples of the extent to which prices of things that farmers buy have gone up in the past year, 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 4 percent. Changes in the past year in prices of the various commodities and services farmers buy and the relative importance of these commodities to farmers are shown in the enclosed table. If prices of things that farmers buy can creep up in this way with price controls, it is only natural for farmers to wonder how much prices would go up without controls. The chances are that prices would go up even more. Products that farmers buy are made from labor and from materials which also are needed in the defense effort. As the defense effort increases, there is pressure on prices of these products. Farmers depend on substantial quantities of supplies, machinery, and other industrial products in order to produce. Like other businessmen, farmers cannot produce unless they obtain a fair price for their product. Each increase in the prices of things that farmers buy means, in turn, that farmers must obtain more for the agricultural commodities they sell if they are to receive a fair price and stay in business. If we want 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. A strengthened Defense Production Act will help us achieve this goal. Sincerely yours, C. J. MCCORMICK, Acting Secretary. Changes in prices paid by farmers for commodities and services, interest, taxes, and wage rates, Jan. 15, 1951, to Feb. 15, 1952 Prices paid for commodities and services, interest, taxes, and wage rates. Source: Based on index numbers published by Bureau of Agricultural Economics. The CHAIRMAN. That is all for today. We will reconvene tomorrow morning at 10:30. (Whereupon, at 5:55 p. m., the hearing was recessed, to reconvene at 10:30 a. m., Friday, March 7, 1952.) DEFENSE PRODUCTION ACT AMENDMENTS OF 1952 MONDAY, MARCH 10, 1952 UNITED STATES SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met, pursuant to adjournment, at 10:30 a. m., in room 301, Senate Office Building, Senator Burnet D. Maybank (chairman) presiding. Present: Senators Maybank, Robertson, Sparkman, Frear, Benton, Moody, Capehart, Schoeppel, and Dirksen. The CHAIRMAN. The meeting will come to order. Senator Bricker asked that this statement be placed in the record, and without objection, it will appear in the record at this point. (The document referred to follows:) STATEMENT OF RUBBER MANUFACTURERS ASSOCIATION, INC. This petition has been prepared by the tire executive committee of the tire division of the Rubber Manufacturers Association, Inc., on behalf of the entire tire manufacturing industry, and is presented to the Office of Price Stabilization through its Tire Industry Advisory Committee for the earnest consideration of the Agency. It is the firm belief of the tire manufacturing industry that present conditions fully justify the removal of price controls in the tire industry immediately. Those managing the Defense Mobilization program have frequently indicated that it is their intent to keep special controls on the economy only so long as those controls are needed in the "cold war." The recent appointment of the OPS Decontrol Committee is a step that conforms to this objective. Mr. DiSalle has recently stated before the Joint Economic Committee that "the present softness in some markets has raised policy questions especially about goods on which price pressures largely have disappeared." All the evidence points to the fact that tires fall in the latter category. The actions of another office of the Defense Mobilization agency, the NPA, show how the rubber position has changed in the last 18 months. This agency has adjusted its controls to the actualities of the time. As the rubber squeeze increased in severity, progressively tightened restrictions on rubber usage and more detailed specifications for rubber manufacturers were issued. As the supply situation eased, the severity of the regulations was eased even while more rigorous bans were being applied to other industries. There appears to be no reason why this is not the time for a similar exercise of administrative judgment in the tire price field. Presumably it is the function of price control to establish top limits so that inflationary pressures on given commodities will not force prices above this point. When these pressures have subsided and the likelihood of their recurring is slight, then the need for controls in that industry has ceased. All the elements in the rubber tire price situation force the conclusion that the tire industry is one in which price pressures have passed their peak and in which the prospect of a further rise is so remote that it is not considered a likelihood by informed students of the industry. Under these circumstances, the continuation of price regulations appears highly inappropriate. A prompt decision to decontrol will make it abundantly clear that there is no intent by OPS to maintain controls for their own sake. |