By reporting such activities to the Congress we make it possible for the Congress to decide whether ceilings should be retained, without the necessity of enacting special prohibitory legislation.

Senator TAYLOR. It seems to me that that provision is not needed. Certainly at any time the Congress can pass any law they please to decontrol anything that they might see fit to decontrol.

It is nice to have that in the bill, but I see no practical need for it. Secretary HARRIMAN. The base period of June 15 to June 30, 1947 was fixed as the one primarily to be considered in the establishment of ceiling prices (sec. 7). In addition, adjustments are to be made for relevent factors such as speculative fluctuations and changes in costs of production or distribution, or where otherwise necessary to maintain or increase production. The prices must be generally fair and equitable.

It was felt that this base period was fair to all concerned and that its use was the most practicable. By the end of June 1947, prices in general were those fixed by the sellers themselves not subject to any controls.

For the further protection of agricultural producers, a floor has been placed on prices to be fixed for agricultural commodities, either parity or the comparable price (sec. 8). In case of emergency, such as a sudden but temporary shortage, section 9 provides for authority to establish a temporary freeze price at the prices prevailing within 5 days of imposition; but such freeze is good for only 60 days.

It will be noted that no new price agency is created by the bill. Section 3 (a) authorizes the President to designate the agencies which are to exercise functions under the bill, and it is contemplated that existing agencies will handle all price matters.

Thus, we avoid the creation of a new price bureau, and the usual objection, well-founded or not, of "bureaucratic perpetuation. Speaking for myself and in this regard I presume to speak for my coSecretaries who submitted the bill-I consider all such controls as necessary evils, to be terminated just as soon as the reason for them no longer exists.

As stated in our letter of December 15, the bill is only part of overall legislation to combat inflation. It should be considered with the proposed bill authorizing limited allocation, inventory control, and rationing. We hope that these minimum proposals will be effective to stabilize our economy.

The need for this legislation is immediate. Trends in certain critical areas indicate that action should be initiated at once to reduce pressures or correct abuses which contribute to inflation. Public attention has focussed primarily on the advances in foods, particularly the spectacular advances to a dollar a pound for butter and meat.

The Secretary of Agriculture has already testified as to the need for action in this field. My information from the Department of Agriculture is that the amount of meat per capita available in 1948, although considerably in excess of the prewar consumption, will be less than that available in 1947. Government action will be necessary to prevent this situation from having a serious effect upon the cost of living.

In the areas with which the Department of Commerce would be concerned, industrial products excluding fuels, there are at least four commodity groups in which some form of action would immediately

be taken. The importance of the bill, however, should not be gaged solely by the action which today we would propose in these areas. The establishment of the machinery necessary to control prices and distribute equitably the available supply, including the establishment of the necessary legal authority, takes a great deal of time. No one can be certain what our economic situation will be in the coming year and the requested authorities must be considered as important in themselves as standby powers to meet emergencies which may arise. One of the most important of the areas requiring immediate attention is the gray market in steel. This basic industrial material goes into innumerable products, so that the gray market surcharges spread widely through the economy. Moreover, the uncertainty of graymarket supplies and prices stimulates higher than necessary quotations at later stages as fabricators attempt to protect themselves against further advances.

Thus, the action of the few who are taking advantage of the urgent demand for limited steel supplies gives a more general impetus to the inflationary boom.

Gray-market practices vary widely in character-from conversion deals and swaps for a supply of scrap or other materials to outright mark-ups by middlemen according to what the traffic will bear.

I do not believe we know exactly what happens until we have the authority to look at the books, but I do believe it will not be as difficult as other things to find out what it is, because steel is not something you can carry around in your pocket.

Senator MAYBANK. Did you not have a meeting here recently about the allocation of steel under a voluntary basis?

Secretary HARRIMAN. I am going to take that up a little bit later, and perhaps it would be better to wait and I will answer that question. What the traffic will bear is practically "ceiling unlimited" in cases where steel is an extremely small percentage of the total materials cost or where very small quantities of gray-market steel are required to fill out and otherwise complete bill of materials.

Widely varying statements have been made as to the quantity of steel flowing through the gray market in 1947, giving figures which range from 2,000,000 tons to 11,000,000 tons. The Department of Commerce does not now have adequate legal authority to conduct an investigation of this matter; but our analysts are inclined to the view that that actual tonnage may well center in the lower half of this range, or in the neighborhood of 4,000,000 tons.

The average premium paid on this steel is estimated at well over $100 a ton-just twice the regular price indicating additional charges to steel consumers of upward of a half billion dollars. This figure is multiplied, of course, as products move through successive stages of fabrication and distribution.

The CHAIRMAN. What is the public to understand by the gray market as distinguished from the black market?

Secretary HARRIMAN. We think about a black market as being an illegal market.

The gray market is an unsocial market, but it is not illegal.

The CHAIRMAN. We have no price-control administration for it? Secretary HARRIMAN. There is nothing illegal for any man to get possession of steel through legal methods, through the purchase of it, and sell it for twice what he paid for it.

The CHAIRMAN. He receives an unearned increment.

Secretary HARRIMAN. Yes; or an increment far in excess of what he is entitled to by any fair standards.

Experience to date indicates that effective action must await making such transactions illegal and granting legal authority to consummate investigations which will disclose their existence. I am informed that the steel industry is endeavoring to do something to cope with the gray market, but I do not believe that it will be adequate if their efforts are unaided.

All of this, I believe, ads up to the need for action on the part of the Government. But right at this point let me state that the proposed action is no way aimed at the legitimate steel producers.

According to Bureau of Labor Statistics, the prices charged by these producers have increased on the average by approximately 50 percent since 1939.

I am not speaking about whether the steel companies are making too much money or not, but I am speaking of the effect of their prices on the situation. The corresponding increase for all commodities is a little over 100 percent, and for commodities other than farm products: and foods combined, over 75 percent.

At the present time, the issue is not the established mill prices, though any further rise in these basic commodities would have an adverseconsequence in view of the bellweather character of this industry. Any comparisons such as given above, however, of mill prices takes no account of the gray-market premiums which are variously estimated at upward of 200 percent of the listed quotations.

In this area the advances are fully comparable with the worse extremes reported in other commodities such as food, lumber, and textiles. It is the specific area of steel distribution to which our attention must be directed. With the margin so extreme, I believe there can be little question that price controls would effectively contribute to the elimination of present abuses.

A price control act with requirements for mandatory reporting of in-. ventories, purchases, sales, and commissions could quickly smoke out the worst offenders. Ceilings need not adversely affect any legitimate dealer whose prices are not out of line, or who has not added to prices by unwarranted "extras." They can and must be enforced against the uncooperative minority who, in reaping their harvest, not only place a substantial tax on steel consumers, but indeed, endanger our whole economic future.

I believe that the pricing powers which would be granted by the Barkley bill, coupled with the limited powers to restrict less essential uses, would go far to eliminate the gray market. Such a program would not be without administrative difficulties, but is manageable.

I speak later about meeting the steel producers in connection with the voluntary agreements, but this is where I close on steel. I thought it came in this paragraph.

Senator MAYBANK. I was going to ask you how successful it was in your opinion. As I understand, you had these meetings and I understand under the law that was passed here in December, it was voluntary, and some allotments were made to different people; I happened to be talking to a farm machinery person about it.

Secretary HARRIMAN. Our first meeting was an extension of some

discussions which the Department of Commerce had had with the steel producers. We have been working with the steel producers to increase their production, and trying to break their bottlenecks and get more scrap in the market and study the question of coking coal.

In addition to that, there have been discussions going on, as perhaps you know, with the steel industries to allocate more steel to building freight cars.

The CHAIRMAN. Are there extensive shipments of steel scrap being exported now?

Secretary HARRIMAN. Practically none. There is a small amount of scrap going to Canada which normally moves across the border, but except for that, the only scrap in any tonnage as compared to the over-all is where we give licenses. These are issued where scrap is of a quality or at a spot where nobody will buy it, but it is really in terms of a few thousand tons a year, as compared to twenty-odd million tons of scrap used.

Senator MAYBANK. These railroad cars that they are going to allocate this steel to; would they be tanker?

Secretary HARRIMAN. The ordinary boxcar, which is needed to move grain.

Senator MAYBANK. The main steel would be used in tank cars? Secretary HARRIMAN. The freight car is the biggest, and open-top cars for the movement of coal and then I think some special cars like tank cars.

Senator MAYBANK. How about farm machinery, itself?

Secretary HARRIMAN. May I go on with this talk? I am going to answer the Senator.

We had this meeting with a view of establishing or having preliminary talks, asking this large group whether they would cooperate, and they said that they would cooperate. We are about to establish today or tomorrow an industry committee representative of the whole industry. The group that we talked to represented some 25 or 30 of the larger steel producers, but we want to bring into the industry committee some of the smaller producers and more important, even, the nonintegrated steel mills, those that have not any crude-steel production, but do fabricate steel.

That industry committee will be established, and will go to work at once at studying certain programs. The freight-car program is under way and worked out on a voluntary basis prior to the enactment of this law, with the steel industry and the car-building industry. We will give our full support to that program. In addition to that, it was mentioned that we would consider agricultural machinery production, which is so vital for food at home and abroad, and where we understand gray iron castings are getting to be very difficult.

The steel mills use much more proportionately of pig iron than they did, and gray iron castings are very short, and we will see what we can do with allocations there.

It is particularly in the type of farm machinery which is short and most needed.

Then, in the oil industry for production purposes, and for pipe lines, some action is needed. There may be other explorations, but those were the first we were going to tackle.

The industry indicated its readiness to cooperate, and it is willing to carry out whatever came from Government as an indication of what was considered by Government as the priority needs.

Senator MAYBANK. Would that help the gray-market situation? Secretary HARRIMAN. The gray-market situation did come up. As to the steel mills themselves, there is no evidence that they are at the present time aggravating the gray market. I think they are making earnest attempts to get rid of it, but they cannot open up the books to see what it is.

I think it is something like 40 percent of the production of steel that goes through the warehouses. They cannot control the follow through. If they find some warehouse that is involved in the gray-market operations, they can refuse to send him steel, but it is awfully hard to prove. I am convinced that they cannot know, and cannot, no matter how well their motives may be, deal with the gray market unless there is authority in Government to get at it.

Does that answer your question?

Senator MAYBANK. Yes.

Secretary HARRIMAN. I will make the statement that I believe business people generally are ready to cooperate, but I am equally convinced from my experience as a businessman and in Government that cooperative arrangements are not feasible in many areas, because there are always a few, or frequently a few who will not cooperate, and then as in the gray market of steel, the cooperation of industry can only go so far.

They cannot go beyond the things that are under their immediate control.

On lumber, I think that you will agree that in lumber we have a striking example of response to inflationary pressures. As of November 1947 the Bureau of Labor Statistics wholesale price index for lumber had reached the highest level on record, over three times the 1939 average. This contrasts with an increase of 107 percent in the BLS index for all commodities and with an increase of 65 percent in the index for building materials other than lumber.

Senator MAYBANK. Do you think the exportation of lumber had anything to do with it?

Secretary HARRIMAN. I would not have thought so, it is a relatively small amount.

Of course, everything exported affects the situation, but sometimes we get imports in return. It is the great demand for lumber and it is an open-market situation. I think the cost may have been increased, but the price comes from the demand.

Charts 1 and 2 show this contrast, and with your permission I should like to put them in the record.

(The charts referred to appear on the opposite page.)

Secretary HARRIMAN. Such a spectacular and disproportionate price increase would be of concern even if lumber were just another commodity, but lumber is much more than just another commodity. It is a material of almost universal use entering directly or indirectly into most of our industrial output. The greatest single use is in the field of construction, and it is especially vital in housing.

In fact, housing affords a vivid illustration of the effect of the tremendous rise in lumber prices. In a house selling for $4,440 in 1939, the cost of lumber-including flooring and millwork-at the site