L Mr. TALLE. It is true, then, that you are operating under a rule that represents the opinion of Mr. Eric Johnston, as to fairness and equitability, a standard which has not been subjected to court examination? Mr. ARNALL. No, it represents Mr. Johnston's opinion. It represents Mr. Putnam's opinion. It represents Mr. DiSalle's opinion. It represents my opinion. And it represents the opinion of the courts, who have said it carries out the congressional mandate of "fair and equitable." Mr. TALLE. But the courts have not passed on this particular one? Mr. ARNALL. Yes, sir, they have. Not since OPS has used it, but the same standard that OPS uses, was specifically passed upon when it was used by OPA, and I will be happy to supply the clerk of the committee with the cases where that standard has been upheld, as being fair and equitable, in line with the mandate of the Congress of the United States. (The information referred to is as follows:) MEMORANDUM ON THE VALIDITY OF THE INDUSTRY EARNINGS STANDARD UNDER The industry earnings standard was set forth in a letter dated April 21, 1951, from Mr. Eric Johnston, then Administrator of the Economic Stabilization Agency, to Mr. Michael V. DiSalle, then Director of the Office of Price Stabilization. The letter stated in pertinent part: "The basic standard reflecting the minimum requirement of law (apart from certain farm and food commodities) shall be as follows: "1. The level of price ceilings for an industry shall normally be considered "generally fair and equitable" under the Defense Production Act if the dollar profits of the industry amount to 85 percent of the average for the industry's best The profits should be figured 3 years during the period 1946 to 1949, inclusive. before Federal income and excess profits taxes and after normal depreciation only, with adjustments made for any change in net worth.' The industry earnings standard as set forth constitutes the administrative interpretation of the requirement in section 402 (c) of the Defense Production Act that: "Any regulation or order under this title shall be such as in the judgment of the President will be generally fair and equitable * * *"" It is clear that the industry earnings standard is a valid and appropriate means of carrying out the "generally fair and equitable" requirement of the Defense Production Act of 1950, as amended. Identical language in the Emergency Price Control Act of 1942 led to the development by the Office of Price Administration of an industry earnings standard very similar to the present one. The industry earnings standard of the Office of Price Administration was upheld, approved, and applied by the Emergency Court of Appeals in many cases under the Emergency Price Control Act of 1942 and its extensions, and it is significant that, in several of the cases approving the industry earnings standard, petitions for certiorari were denied by the United States No case has been found in which the court rejected the industry Supreme Court. earnings standard or deemed it improper in any way under the statute. The main case dealing with this subject is Gillespie-Rogers-Pyatt Co., Inc. v. Bowles (144 F. 2d 361 (1944)). In this case, the grounds for protest were that the prices were no longer fair and equitable because of increased costs of production and distribution and decreased profit margins which had occurred since the issuance of the regulation. The protests were denied by the Administrator upon the grounds that the protestants had failed to establish that the maximum prices had ceased to be generally fair and equitable as measured by the pricing standards of the Administrator. The court squarely held that the industry earnings The court, in disstandard was a valid standard for determining whether a maximum price is generally fair and equitable within the meaning of the act. missing the complaint, said: "The complainants argue that these administrative standards do not correctly interpret the mandate of the act that maximum prices shall be increased when they are no longer generally fair and equitable. They strongly urge that the statute does not authorize the industry earnings standard but contemplates the fixing of maximum prices for each individual product upon a level which will permit the realization of a profit thereon without regard to the other earnings of the industry. We cannot accept the complainant's contention, however, since we are satisfied that the standards which the Administrator has adopted as pricing guides to be used in determining when increases in maximum prices must be made are fairly calculated to carry out the mandate and purposes of the act. * Consequently the effect of the aggregate of the maximum prices of all the commodity items dealt in by a multiple-product industry upon its over-all operations and profits and the resulting increase or decrease in industry earnings is relevant in considering the question whether the maximum price of a particular item continues to be generally fair and equitable to the industry. * In this case the court went on to quote, at great length and with approval, from a memorandum submitted by the Price Administrator's counsel to the Committees on Banking and Currency of the Senate and House of Representatives which memorandum sets forth the factors involved and the reasons to support the industry earnings standard. (See Senate hearings on S. 1764, 78th Cong., 2d sess., pp. 1410, 1411; House hearings on H. R. 4376, 78th Cong., 2d sess., pp. 1990, 1991.) As pointed out by the court in the Gillespie case, there is no doubt that Congress fully understood and approved the use of the industry earnings standard when it extended the Emergency Price Control Act by the enactment of the Stabilization Extension Act of 1944. The Administrator's use of the industry earnings standard and the reasons for its use had been clearly disclosed to Congress in connection with the consideration of the latter act. The memorandum of the Administrator's counsel was before the House and Senate Committees on Banking and Currency, the subject of pricing standards was discussed at the hearings before the committees, in the report of the Senate committee and in the debates. (See testimony of James F. Brownlee, Deputy Administrator for Price; Senate hearings on S. 1764, 78th Cong., 2d sess., pp. 77-96; House hearings on H. R. 4376, 78th Cong., 2d sess., pp. 55-62; S. Rept. 922, 78th Cong., 2d sess., supplemental statement, pp. 45, 47; 90 Congressional Record, pp. 5619-5622.) Therefore, it appears that Congress intended to and did fully approve the Administrator's application of the "generally fair and equitable" provision, including the industry earnings standard, when it retained in the 1944 act the identical words "generally fair and equtable" after the Administrator had adopted his pricing standards as an interpretation of this statutory language and after Congress had been fully informed thereof. Although the Gillespie case contains by far the most thorough analysis and consideration of the industry earnings standard, this subject was before the courts for reconsideration on numerous occasions and in every case the court reiterated its approval of the industry earnings standard and reaffirmed its validity under the statute. (See Armour & Co. v. Bowles, 148 F. 2d 529 (1945), cert. den. 325 U. S. 871, 65 S. Ct. 1411 (1945). "In Gillespie-Rogers-Pyatt Co., Inc., et al. v. Bowles (Em. App., 1944, 144 F. 2d 361, 364), we considered and upheld the standards generally applied by the Administrator in cases of multiple-product industries for the purpose of determining whether maximum prices are generally fair and equitable within the meaning of the act. Under the industry earnings standard adopted by the Administrator, as a general rule, price increases are allowed to compensate for those cost increases which the industry cannot absorb without impairment of its normal peacetime earnings. Even though a price increase is not required under the industry earnings standard, an increase may be required under the so-called product standard, which is used as a secondary pricing guide in the case of multiple-product industries. Under this standard, unless it has been the industry's practice to sell some of its products below cost, the Administrator considers himself required to increase the maximum price of any particular product sold by the industry, 'if its current maximum price should fail to cover the out-of-pocket costs incurred by the highest-cost firms which are not included in the industry's high-cost marginal fringe." We pointed out in the Gillespie case that Congress fully understood and approved the use by the Administrator of the industry earnings and product pricing standards when it extended the Emergency Price Control Act, 50 U. S. C. A. appendix section 901 et seq. by the enactment of the Stabilization Extension Act of 1944, 50 U. S. C. A. appendix section 961 et seq.; and we concluded that the application of these standards by the Administrator in multiple-product industries 'is a reasonable exercise of the discretion conferred upon him in the administration of the act and is in consonance with its mandate.'" Modern Manufacturing Co. v. Fleming (160 F. 2d 892, 896 (1947), cert. den. 331 U. S. 850, 67 S. Ct. 1742 (1947)): "[4] It was also objected that the regulation on its face was not generally fair and equitable in that it prevented manufacturers from passing on increases in costs which had occurred since the base period. No evidence was adduced to show the extent of such increases or their effect upon the earnings of the industry as compared with the level of industry earnings during a representative period prior to price control. In this state of the record we cannot find that the established maximum prices during the period now in question were not generally fair and equitable. (See Gillespie-Rogers-Pyatt Co., Inc. v. Bowles, Em. App., 1944, 144 F.2d 361.) Fournace v. Bowles (148 F. 2d 97, 101 (1945) cert. den. 325 U. S. 884, 65 S. Ct. 1573 (1945)): "[10-12] The evidence offered in support of these allegations is insufficient to meet the burden which rests upon the complainant to establish that the regulations are not generally fair and equitable. No offer is made of evidence showing the effect of the regulations on complainant's operations as compared with the results in some representative period before price control. It is settled that a showing of increased costs alone is insufficient. * * Curtiss Candy Co. v. Clark (165 F. 2d 791, 795 (1948), cert. den. 334 U. S. 820, 68 S. Ct. 1084 (1947)): "[6] We should observe in this connection that the evidence discloses that during the period involved in the enforcement action, complainant's net profits were higher, both as a matter of dollars and cents and as a percentage of sales, than in any of the years from 1936 through 1939. There is no evidence as to industry profits generally but, in the absence of contradictory evidence, we must assume that complainant was representative of the industry. In other words, the record is wholly insufficient to show that the regulations are generally unfair or inequitable" (Gillespie-Rogers-Pyatt Co., Inc., et al. v. Bowles Em. App., 144 F. 2d 361)." (See also Capitol Foundry Co. v. Bowles, 146 F. 2d 855, 857 (1945); Heinz v. Bowles, 149 F. 2d 277, 279 (1945); Vitamins v. Bowles, 149 F. 2d 497, 498 (1945); Allied Foods v. Bowles, 151 F. 2d 449 (1945).) The industry earnings standard which had been approved and applied in price control cases was even approved as a proper test in the area of rent control. (See 315 West 97th Street Realty Co. v. Bowles, 156 F. 2d 982, 985 (1945):) "The complainants' second contention is that the regulation is not generally fair and equitable because it prevents landlords from realizing the profits which they normally enjoyed before the impact of defense activities. The Administrator concedes the appropriateness of this test of the validity of the regulation and indeed urges that it is the only practicable way to measure the fairness of the return which landlords will realize on their investment. This court has upon several occasions given tacit approval to such a test. * * * "The test of the historical return has been applied by the Administrator in price control also. By the use of the so-called industry earnings standard he has permitted price increases in order to compensate for those cost increases which an industry could not absorb without impairment of its normal peacetime earnings" Gillespie-Rogers-Pyatt Co..v. Bowles, Em. App. 1944, 144 F. 2d 361). Although there has been as yet no court decisions on the validity of the industry earnings standard as announced by the Economic Stabilization Administrator and as applied by the Director of Price Stabilization, it seems clear that Congress by using the identical wording in the Defense Production Act of 1950, as amended, intended to approve the industry earnings standard established by the Office of Price Administration and applied by it over a period of years during which it was many times upheld by the courts. Since the present industry earnings standard is very similar to that which was used by the Office of Price Administration, there can be little doubt that it is valid under the Defense Production Act of 1950, as amerded. As stated earlier in this memorandum the present industry earnings standard was announced on April 21, 1951. Since that time it has been consistently applied by the Director of Price Stabilization both in the drafting of regulations, orders, amendments, and supplements thereto and in the handling of protest proceedings and court cases. There is no doubt that when considering the 1951 amendments Congress was aware of the administrative construction by the Economic Stabilization Adminis trator and the Director of Price Stabilization of the terms "generally fair and equitable" as contained in the 1950 act. (See statement of Charles E. Wilson, Director of Defense Mobilization, hearings before Senate Committee on Banking and Currency on S. 1397, 82nd Cong., 1st sess., pp. 21-22; statement of Eric Johnston, Economic Stabilization Administrator, ibid, pp. 521, 561, 564; statement of Michael V. DiSalle, Director of Price Stabilization, ibid, p. 632; ibid, pp. 594-597, 1555, 1802, 2211, 2778. See also hearings before the House Committee on Banking and Currency on H. R. 3871, 82d Cong., 1st sess., pp. 1116-1117, 1256–1257, 1466, 1748, and 1981, 97 Congressional Record, pp. 7223, 7683, 8373.) Mr. ARNALL. Let me point this out again; I can't do it too much: This is not the act of Ellis Arnall, nor Roger Putnam, nor Nat Feinsinger. It is the Congress' enactment, and we are, in our judgment, doing what you want us to do. If we are not, you tell us what to do and we will do it. Mr. TALLE. Governor, using your own statement, I repeat-page 23-"Defense Production Act lays down the requirement that price ceilings must be generally fair and equitable." That is from the law. But you have not shown me, Governor, that the Congress of the United States, in this law, has approved what is called the Industry Earnings Standard, and that is where your 85 percent rule comes in. Mr. PUTNAM. May I, Congressman Talle, just add this: that industry earnings standard was promulgated by my predecessor, and was promulgated months and months before Congress renewed the present act. Congress was familiar with that standard. They went into it last year. They did not instruct us to change it when they renewed the present act. It is an identical standard with that which was approved by the courts under previous similar laws. The courts said a standard of this type carried out the congressional mandate that price ceilings be "generally fair and equitable." Mr. TALLE. Well, I will say to the Triumvirate before me-I don't want to make a Roman holiday out of this-it is not a holiday to me, it is too serious for that-but I am not impressed by your defense. I still believe that you have no authority for using an Industry Earnings Standard. Mr. ARNALL. Mr. Talle, may I add one further thought in this discussion, which might be helpful? The Congress passed what was known as the Emergency Price Control Act several years ago. That was in 1942. It was under that act that OPA came into operation. Now in the Emergency Price Control Act of 1942, the Congress laid down a rule that prices should be generally fair and equitable. Then under that construction or mandate of the Congress, OPA evolved a standard, and OPA had an earnings standard-the same kind of standard OPS has. That was passed on by the courts and approved as being equitable and fair. Now, then, when the Congress enacted the Defense Production Act of 1950 using the identical language it used in the Emergency Price Control Act of 1942 to the effect that prices should be generally fair and equitable, and since the Congress knew that the OPA had used this very similar earnings standard which had been approved by the courts, it follows, I believe, that the Congress approved the industry earnings standard. If that standard had not been acceptable to the Congress, I submit that it would very clearly have said "When we use the words 'fair and equitable prices,"" we mean a standard different from the one that the Government has been using since 1942. Mr. COLE. I want to interpose something here, with Dr. Talle's permission. How do you justify that statement, with regards to the Capehart and Herlong amendments, which are the congressional disposition of the fair price standards? How do you justify your statement in connection with the enactment of the Herlong and Capehart amendments? Mr. ARNALL. Because Capehart and Herlong-Capehart, is written into the act itself. Mr. COLE. That is right. Mr. ARNALL. So we justify that as doing what the Congress says "do" whether we agree with it or not. I don't agree with these amendments, but whether we do or not, we administer them to the best of our ability. That is my duty. They provide standards in addition to the generally fair and equitable one. Now, then, as far as the fairness and equitability is concerned, we operate under standards similar to one that has heretofore been employed. I do not think that we are in error on that, Congressman. If we are, you correct us. I want the Congress to have us do what it wants done. We will do the best we can. I justify it because I think the position we take is right, proper, and just. Mr. TALLE. I would like to turn to another matter, Governor. You will remember, yesterday, in your presentation, you used a number of charts. Mr. ARNALL. Yes, sir. Mr. TALLE. I think one of them had to do with wool, did it not? Another with hides and leather? Mr. ARNALL. Yes, sir. Mr. TALLE. How many of the commodities represented on those charts have now been decontrolled? Mr. ARNALL. Hides, and wool, and the other ones were cotton and synthetic fibers and textiles. We have suspended the ceiling on wool; we have suspended the ceiling on hides; and we are now studying whether or not we can safely suspend the ceiling on raw cotton. Mr. TALLE. I think there were 16 items, were there not, that were decontrolled yesterday? Mr. ARNALL. Suspended. Last week, yes. Mr. TALLE. Last week? Mr. ARNALL. Yes, sir. Mr. TALLE. What were those charts intended to show, Governor Arnall? Mr. ARNALL. Those charts were intended to show the price relationships between raw materials on the one hand, and finished items made from those raw materials on the other. They were intended to show the disparity sometimes existing between raw materials which were selling well under the ceiling, and the finished items which were selling very close to the ceiling. Mr. TALLE. In other words, it takes time to raise a sheep, and to bring the wool from the sheep's back to my back in the form of a shirt, let us say. |