forced to forego in part their plans for expansion of plant and equipment? Will their only alternative be to resort to a large volume of debt financing with a consequent inflationary pressure on the economy? Or will the net result be that proponents of Government-owned manufacturing plants will be successful in their quest for the powers and funds to carry out their programs? If S. 2092 became law it is evident from OPS regulations that legitimate increases in overhead costs since Korea would not be considered in adjusting price ceilings. Such cost increases are just as real as direct-cost increases. In this connection it must be remembered that the wage-stabilization program, which is designed to permit wage increases, will result in certain increases in overhead cost. Overhead costs in numerous industries are many times those of direct material and labor costs. It is true that overhead costs per unit tend to decline in periods of marked sales and production increases but such a situation has not prevailed for all industries since Korea. In fact in some industries, particularly in the consumer durable goods field, substantial decreases in volume have been recorded. S. 2092 would substitute for affirmative price relief only the financial hardship type of relief. The bill does not give a definition of financial hardship but it is evident that it means that a company must be in a loss position before relief would be considered. That is the standard of relief which was set up in OPS General Overriding Regulation 10 and it is evident that OPS is anxious to stick to that standard despite the clear intent of Congress to the contrary. PROBLEMS OF ADMINISTRATION OPS has grossly exaggerated the administrative problems arising out of section 402 (d) (4). Even if these problems were as formidable as OPS says, which is not true, S. 2092 does not solve any administrative problems nor clarify the language of the existing act. Mr. DiSalle objected to section 402 (d) (4) of the current Defense Production Act on the grounds that the use of individually computed prices would block the application of broad techniques of price control. This statement does not carry the ring of conviction. After all, the OPS announced on several occasions since early 1951 and prior to passage of the Capehart amendment—that its next major objective would be specific individual dollars-and-cents price ceilings. What OPS is asking is an opportunity to return to that arbitrary objective without being obliged to adjust each price on the basis of actual increases in total costs. ALLOCATING OVERHEAD EXPENSES OPS complains about the difficulties of allocating overhead expenses to different products, yet such allocation has been achieved with great skill in large concerns and they need only be required to continue their usual practice in this respect. As for small concerns with inadequate costing systems, the OPS has already suggested tentatively a possible solution which is to prorate overhead in proportion to the sales of each product. It is obvious that in no case can the alllcations total more than 100 percent of the actual overhead. It is not necessary to abandon the Capehart amendment because of the costaccounting problem. This problem, for example, has been met adequately by the procurement agencies of the Armed Forces and by the Renegotiation Board. To repeat, the Capehart amendment does not block the use of broad techniques of price control. In fact, section 402 (d) (4) as a whole definitely calls for the use of broad techniques and general regulations-which to date have been very slow in coming. The Capehart amendment supplements the broad techniques and takes some of the sting out of the preemptory general regulations. It also tends to prevent the imposition of purely artificial and arbitrary dollars-and-cents ceilings. COST INCREASES AFTER JULY 26, 1951, NOT ALLOWED The Capehart amendment is not an inflationary bulldozer. It has a cut-off date of July 26, 1951-rather than the date of an individual application for cost adjustment. No account is taken of any cost increases beyond July 26, 1951, including labor cost increases resulting from the Wage Stabilization Board's cost of living formula. By the time individual applications are prepared and submitted to OPSand then processed by OPS-many further cost increases might well have occurred, beyond the cut-off date. ELABORATION OF PRICE-CONTROL LEGISLATION The elaboration of price-control legislation conceivably could go on constantly and indefinitely, fanning out into more and more amendments and changes with profoundly disconcerting and confusing effects upon the business and economic structure. The Congress can write many laws on the books and the governmental agencies can write thousands of regulations, but there is no substitute for the flexibility and resourcefulness of the competitive price system. It is true that practically all of the price regulations issued so far will have to be revised or replaced for one reason or another, in the light of legislative amendments recently passed by the Congress. We feel that if S. 2092 is to be added to the general confusion, there will probably be a still greater burden of paper work thrown upon the regulatory agencies and business concerns. Industry, as this association pointed out in its previous testimony before this committee, recognizes inflation as the greatest economic hazard of the defense program. It knows, however, that economic stability can be achieved only by eliminating the causes of inflation and not by controlling its symptoms. Price controls as is well known deal only with symptoms. What is needed is a program that will deal effectively with the features that influence production and prices. Specifically, we propose: 1. Through effective use of the powers of the Federal Reserve System, the private credit system can be prevented from contributing to further inflation. The Federal Reserve System must maintain supervision and direction of the money and credit system and use the interest rate and whatever other available powers are necessary to restrict credit. 2. Through a serious program of economy, Government expenditures must be held to the minimum necessary for meeting the present emergency. 3. The total cost of the military program, as well as other Government expenditures, must be covered by taxes. 4. Taxes imposed to cover expenditures must curatil spending-not savings and investments. This means that the program must be financed largely through broadly based consumption taxes. It must not be financed in such a manner as to siphon off funds which are essential to the expansion of production facilities. STATEMENT OF TEXTILE MAINTENANCE INDUSTRIES, NATIONAL PLANNING COMMITTEE, STANLEY I. POSNER My name is Stanley I. Posner. My offices are located at 1367 Connecticut Avenue NW. I am a member of the National Planning Committee for Textile Maintenance Industries, which is composed of representatives of the major trade associations in these service trades. The specific associations which are included in this National Planning Committee are: The American Institute of Laundering The National Institute of Cleaning and Dyeing Diaper Service Institute of America The National Association of Institutional Launderers These industries, according to the census of business in 1948, included more than 44,000 establishments, employing a total of more than 500,000 employees. The business volume of these companies was in excess of $2 billion during 1948, with a payroll of more than $1 billion. These industries comprise one large segment of the American economy, which is known broadly as the service trades. Although the textile-maintenance industries perform a most vital role in the civilian economy and in the military program, their work is performed in a very undramatic fashion, when compared to the more glamorous, large-scale manufacturing industries. All too often, laws and regulations are enacted by Congress, or administered by other governmental agencies, without explicit recognition of the functioning of these service trades. However, when the failure to recognize the essential activities of these industries results in a breakdown of their services to the public or to the defense program, emergency measures are taken to prevent injury to the public health. Remedial measures come, usually, only after unpleasant and dangerous situations have been created. For that reason, the attention of this committee is called to the serious gap which exists in the proposed amendment to the Defense Production Act of 1950, as set out in S. 2092. If we turn, first, to section 402 (d) (4) of the Defense Production Act of 1950, as amended, we find that the so-called Capehart amendment specifically applies to "any service," and the provisions of that paragraph entitle "any person subject to a ceiling price to apply for a necessary adjustment of such ceiling prices." The proposed amendment (S. 2092) removes all reference to services, and confines its application solely to "the sales of manufacturers or processors of any materials.' No justification whatever can be made for the exclusion of the service trades from this amendment, or any other revision which may be made of the Defense Production Act of 1950. Accordingly, it is suggested that a clause be inserted in line 8 of the proposed amendment, after the word "materials," so that it shall read: "After the enactment of this paragraph, no ceiling-price regulation applicable to the sales of manufacturers or processors of any materials, or suppliers of any services Further, it is suggested that, on page 2 of the proposed amendment, at line 4, a similar clause be inserted, so that it shall read: "Nothing in this paragraph shall prohibit the establishment or maintenance of a ceiling-price regulation applicable to the sales of manufacturers or processors or suppliers of services * * A similar clause should be added on page 2, at lines 19, 20, and 22, after the word "processors," adding, in each such case, the phrase "or suppliers of services." In order to provide a clearer picture of the essential role of the textile-maintenance industries, I should like to submit, for the record, a short statement prepared by the National Planning Committee, entitled "The Textile Maintenance Industries: Their Essential Role in the Military Program and in the Civilian Economy." I wish to thank the committee for the privilege extended me of making this statement. STATEMENT OF THE AMERICAN LABOR PARTY, BY CLIFFORD T. McAvoy In behalf of the American Labor Party, I respectfully urge that the current public hearings before your committee, which have been limited to the consideration of S. 2092, S. 2104, and S. 1928, be continued and broadened to permit testimony concerning the general subject of price control, effective price rollbacks, and an end to the wage freeze. Such action by the committee is essential to insure that the American people have a chance to be heard adequately on the vital issue of their living standards. The American Labor Party recommends the outright repeal of the so-called Capehart amendment (sec. 402 (d) (4) of the Defense Production Act). Stripped of technical language, the Capehart amendment is a legalization of profiteering. Instead of an effective price roll-back to pre-Korea levels, it grants big business a license to impose an indefensible cost-plus pricing formula upon every consumer. It directs an adjustment to be made in the price of any product or service based "on the highest price between January 1, 1950, and June 24, 1950" and requiring that such adjusted price must reflect "increases or decreases in costs." The insertion of the phrase "decreases" is a vast jest at the expense of every American family. This committee knows very well that one can put in an eyedropper the number of decreases that would take place in prices under this formula. On the other hand, the increases would be legion-and sanctioned by a law that is supposed to control prices. The living standards of American families are being dragged down by an orgy of profiteering by big business. The Consumers' Price Index of the United States Bureau of Labor Statistics reached an all-time high on July 15, 1951, for the second time within a 3-month period. The peak now stands at 185.5 of 1935-39 average prices of the articles and services which are bought by workers. The bipartisan formula is: Wage freeze against workers, but billions in profits for big business. It is an incontrovertible fact that 101⁄2 million American families received less than $2,000 in 1949 (Making Ends Meet on Less Than $2,000 a Year-Case Studies of 100 Low-Income Families, Joint Committee on the Economic Report, 1951). It is an incontrovertible fact that 60 percent of Negro families had incomes of less than $2,000 a year (National Guardian, June 27, 1951, p. 4). It 83762-51-pt. 4—34 is an incontrovertible fact that 60 percent of families and households in early 1950 either had no liquid assets at all or had liquid assets of less than $500 (Federal Reserve Bulletin, December 1950, p. 1591). At the same time as the wage freeze and high prices bears down on consumers, corporation profits climbed to a high of $51 billion. In the face of these facts, it is essential to act at once in defense of the living standards and welfare of the American families. Such action requires: 1. Repeal the Capehart amendment. 2. Price roll-backs to pre-Korea levels; i. e., to June 1950 levels. 3. End the wage freeze. 4. Effective Federal price and rent controls. The American Labor Party respectfully urges that this committee report legislation to insure price roll-backs, an end to the wage freeze, and the establishment of effective price and rent controls. The American Labor Party further respectfully submits that this committee should, as a most timely and proper exercise of its powers and responsibilities, recommend prompt resumption of the truce talks in Korea and an immediate cease-fire as a first essential step in achieving peace. We make this point because we recognize that profiteering does not exist in a vacuum. It flows from the entire bipartisan program for war. It flows from the bipartisan policy of spending billions for armaments instead of for schools, hospitals, housing, health, education, and social services. Should this committee speak out concerning the need for resumption of the truce talks and a cease-fire in Korea, the profit-wallowing monopolists who are gorging themselves on lush war orders will be sorely upset. But the American people-no matter what differences there may be among them on other issueswill welcome it as the beginning of a return to the peace policies of Franklin Delano Roosevelt. |